1 – Malayan Insurance Co., Inc. v. Philippines First Insurance Co., Inc.

and Reputable Forwarded

Services, Inc.

Doctrine: Even though the two concerned insurance policies were issued over the same goods and cover the
same risk, there arises no double insurance if they were issued to two different persons/entities having distinct
insurable interests.

Facts: Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc. (Reputable) had
been annually executing a contract of carriage, whereby the latter undertook to transport and deliver the
former’s products to its customers, dealers or salesmen.

Wyeth procured Marine Policy from respondent Philippines First Insurance Co., Inc. (Philippines First) to secure
its interest over its own products. In 1993, Wyeth executed its annual contract of carriage with Reputable. It
turned out, however, that the contract was not signed by Wyeth's representative/s. Nevertheless, it was
admittedly signed by Reputable's representatives.

Under the contract, Reputable undertook to answer for all risks with respect to the goods and shall be liable to
the Wyeth, for the loss, destruction, or damage of the goods/products. The contract also required Reputable
to secure an insurance policy on Wyeth's goods. Thus, Reputable signed a Special Risk Insurance Policy (SR
Policy) with petitioner Malayan.

During the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of Promil
infant formula to be delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately,
the truck carrying Wyeth’s products was hijacked by about 10 armed men.

Philippine First paid Wyeth indemnity. Philippines First then demanded reimbursement from Reputable, having
been subrogated to the rights of Wyeth by virtue of the payment. The latter, however, ignored the demand.

Consequently, Philippines First instituted an action for sum of money against Reputable. In its answer,
Reputable claimed that it cannot be made liable under the contract of carriage with Wyeth since the contract
was not signed by Wyeth's representative and that the cause of the loss was force majeure, i.e., the hijacking
incident.

Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the amount
covered in the SR Policy. Disclaiming any liability, Malayan argued, among others, that under Section 5 of the
SR Policy, the insurance does not cover any loss or damage to property which at the time of the happening of
such loss or damage is insured by any marine policy and that the SR Policy expressly excluded third-party
liability.

The RTC rendered its Decision finding Reputable liable to Philippines First for the amount of indemnity it paid
to Wyeth. In turn, Malayan was found by the RTC to be liable to Reputable to the extent of the policy
coverage.

Hence, this appeal by both Reputable and Malayan

For its part, Malayan invoked Section 5 of its SR Policy, which provides:

Section 5. INSURANCE WITH OTHER COMPANIES. — The insurance does not cover any loss or damage
to property which at the time of the happening of such loss or damage is insured by or would but for
the existence of this policy, be insured by any Fire or Marine policy or policies except in respect of any
excess beyond the amount which would have been payable under the Fire or Marine policy or policies
had this insurance not been effected.
Malayan argued that inasmuch as there was already a marine policy issued by Philippines First securing the
same subject matter against loss and that since the monetary coverage/value of the Marine Policy is more
than enough to indemnify the hijacked cargo, Philippines First alone must bear the loss.

Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed that it be held
liable for its alleged pro-rata share of the loss based on the amount covered by the policy, subject to the
provision of Section 12 of the SR Policy, which states:

12.OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any property
hereby insured, there be any other subsisting insurance or insurances, whether effected by the insured
or by any other person or persons, covering the same property, the company shall not be liable to pay
or contribute more than its ratable proportion of such loss or damage.

The CA rendered the assailed decision sustaining the ruling of the RTC.

Issue: Whether there is double insurance or over insurance in this case.

Ruling: No.

By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person
is insured by several insurers separately in respect to the same subject and interest. The requisites in order for
double insurance to arise are as follows:

1. The person insured is the same;

2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same
subject matter, i.e., goods belonging to Wyeth, and both covered the same peril insured against, it is,
however, beyond cavil that the said policies were issued to two different persons or entities. It is undisputed
that Wyeth is the recognized insured of Philippines First under its Marine Policy, while Reputable is the
recognized insured of Malayan under the SR Policy. The fact that Reputable procured Malayan's SR Policy over
the goods of Wyeth pursuant merely to the stipulated requirement under its contract of carriage with the latter
does not make Reputable a mere agent of Wyeth in obtaining the said SR Policy.

The interest of Wyeth over the property subject matter of both insurance contracts is also different and
distinct from that of Reputable's. The policy issued by Philippines First was in consideration of the legal and/or
equitable interest of Wyeth over its own goods. On the other hand, what was issued by Malayan to Reputable
was over the latter's insurable interest over the safety of the goods, which may become the basis of the
latter's liability in case of loss or damage to the property and falls within the contemplation of Section 15 of
the Insurance Code.

Therefore, even though the two concerned insurance policies were issued over the same goods and cover the
same risk, there arises no double insurance since they were issued to two different persons/entities having
distinct insurable interests. Necessarily, over insurance by double insurance cannot likewise exist. Hence, as
correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy can be applied.

2 - Multi-Ware Manufacturing Corp. v. Philippine General Insurance Corp.

Doctrine: Section 75 of the Insurance Code provides that "a policy may declare that a violation of specified
provisions thereof shall avoid it." Such condition is common in fire insurance policies and is intended to
prevent an increase in the moral hazard, i.e., opportunity to defraud the insurer. In order to constitute as a
violation, the other insurance must be upon the same subject matter, interest, and risk.

Facts: Multi-Ware insured with Philgen various machineries, stocks in trade, raw materials for its plastic
manufacturing business, and buildings, where these are stored and operated, against any damage or loss
arising from fire or lightning.

Aside from that taken from Philgen, Multiware also procured fire insurance policies from other insurance
companies, including one from Prudential Guaranty through respondent Ernesto S. Sy.
Subsequently, Multi-ware’s buildings, including their contents, subject of the Philgen policy were completely
razed by fire. Multi-ware then demanded payment of the full amount of the insurance proceeds from Philgen.
Philgen, however, denied the claim on the ground that Multi-ware violated three policy conditions. One of
which is policy Condition 3, which requires Multi-ware to inform Philgen of additional insurances it secured or
will secure over its properties insured with Philgen.

Multi-ware filed a complaint against Philgen and Ernesto for breach of contract and/or collection of sum of
money with damages.

Issue: Whether Multi-ware violated Condition 3.

Ruling: Yes.

That Multi-ware failed to disclose to Philgen the existence of other insurance policies over the same subject
matter, interest and risk in violation of Condition 3 is supported by the evidence on record. Hence, the CA
correctly ruled that, for such violation, Multi-ware is not entitled to the insurance proceeds.

Condition 3 requires the disclosure of existing insurance coverage and those which may subsequently be
effected, and provides that non-disclosure in this regard entitles the insurer to avoid the policy. This stipulation
is commonly known as "other insurance clause" (also called "additional insurance" and "double insurance"). It
has been recognized to be valid and sanctioned by Section 75 of the Insurance Code, which provides that "a
policy may declare that a violation of specified provisions thereof shall avoid it." Such condition is common in
fire insurance policies and is intended to prevent an increase in the moral hazard, i.e., opportunity to defraud
the insurer. In order to constitute as a violation, the other insurance must be upon the same subject matter,
interest, and risk.

In this case, it is clear that Multi-ware "did not declare to Philgen that it was also insured with the Reliance
Surety and Insurance Company, Inc. It is also undisputed that Multi-ware procured several other fire insurance
policies, but failed to prove that these insurance policies do not cover the same properties insured by Philgen.
Moreover, Multi-ware avers that it "agreed to secure additional insurance for its machineries, equipment, raw
materials and stocks" with Prudential Guarantee because Ernesto assured Multi-ware "that he would inform
the other insurance companies of the co-insurance that would arise." This militates against Multi-ware's claim
that Prudential Guarantee's insurance did not cover the same subject matter, interest, and risk with those
insured with Philgen. In other words, blaming Ernesto for the non-disclosure of the co-insurance constitutes an
implied recognition that the procurement of the insurance from Prudential Guarantee needed to be disclosed
as it will violate Condition 3.

3 - Multi-Ware Manufacturing Corp. v. Cibeles Insurance Corp.

Doctrine:
 Where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-
disclosure thereof is a violation that entitles the insurer to avoid the policy. This condition is common in
fire insurance policies and is known as the "other insurance clause."
 The rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-
insurance and thus avert the perpetration of fraud.
Facts: Petitioner Multi-ware took a fire policy insurance from respondent Western Guaranty. The properties
insured were the pieces of machinery and equipment, tools, spare parts and accessories stored at Buildings 1
and 2, PTA Compound. Thereafter, petitioner secured another fire insurance policy, this time from respondent
Cibeles Insurance covering the pieces of machinery and equipment, tools, spare parts and accessories
excluding mold, and stocks of manufactured goods and/or goods still in process, raw materials and supplies
found in the PTA Central Warehouse Compound, Building 1.

Subsequently, petitioner obtained from Prudential Guarantee fire insurance policy covering the same
machinery and equipment located at Building 1, PTA Compound.

A fire broke out in the PTA Compound causing damage and loss on the properties of petitioner covered by the
fire insurance policies. Consequently, petitioner filed insurance claims with respondents Cibeles Insurance and
Western Guaranty, but these were denied on the ground of Multi-Ware's violation of Policy Condition No. 3, on
non-disclosure of co-insurance.

Its insurance claims for payment having been denied by Cibeles Insurance and Western Guaranty, petitioner
filed separate civil actions against these insurance companies before the RTC of Manila.

Issue: Whether petitioner violated Policy Condition No. 3 or the "other insurance clause" uniformly contained
in the subject insurance contracts resulting to avoidance of the said policies.

Ruling: Yes.

Policy Condition No. 3 is clear that it obligates petitioner, as insured, to notify the insurer of any insurance
effected to cover the insured items which involve any of its property or stocks in trade, goods in process
and/or inventories and that non-disclosure by the insured of other insurance policies obtained covering these
items would result in the forfeiture of all the benefits under the policy. To be regarded as a violation of Policy
Condition No. 3, the other existing but undisclosed policies must be upon the same matter and with the same
interest and risk.

The records of this case show that petitioner obtained fire insurance policies from Cibeles Insurance
simultaneously with Western Guaranty and Prudential Guarantee covering the same matter and the same risk,
i.e., the policies uniformly cover fire losses of petitioner's machinery and equipment. Although Policy Condition
No. 3 does not specifically state "machinery and equipment" as among the subject of disclosure, it is apparent
that the disclosure extends to pieces of machinery and equipment as well since Policy Condition No. 3 speaks
of disclosure of other insurance obtained covering "any of the property."

4 - Mitsubishi Motors Phil. Salaried Employees Union v. Mitsubishi Motors Phil. Corp.

Doctrine: To allow reimbursement of amounts paid under other insurance policies shall constitute double
recovery which is not sanctioned by law.

Facts: The parties executed a CBA which provides for the hospitalization insurance benefits for the covered
dependents. On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida), Hermie Juan
Oabel (Oabel) and Jocelyn Martin (Martin), filed claims for reimbursement of hospitalization expenses of their
dependents.

MMPC paid only a portion of their hospitalization insurance claims, not the full amount. In the case of Calida,
his wife, Lanie, was confined. A portion of the professional fees was paid by MEDICard which provides for
health maintenance to Lanie. As regards Oabel's claim, his wife Jovita was confined in which a portion of
medical expenses was paid by Prosper Insurance, Jovita’s personal health insurance. In the case of Martin, his
father was confined and incurred medical expenses, a portion of which was paid by MEDICard.
Claiming under the CBA, Calida, Obel and Martin asked for reimbursement from MMPC. However, MMPC
denied the claims contending that double insurance would result if the said employees would receive from the
company the full amount of hospitalization expenses despite having already received payment of portions
thereof from other health insurance providers.

Issue: Whether Calida, Obel and Martin can still claim in full from MMPC.

Ruling: No.

The condition that payment should be direct to the hospital and doctor implies that MMPC is only liable to pay
medical expenses actually shouldered by the employees' dependents. It follows that MMPC's liability is limited,
that is, it does not include the amounts paid by other health insurance providers. This condition is obviously
intended to thwart not only fraudulent claims but also double claims for the same loss of the dependents of
covered employees.

It is well to note at this point that the CBA constitutes a contract between the parties and as such, it should be
strictly construed for the purpose of limiting the amount of the employer's liability. The terms of the subject
provision are clear and provide no room for any other interpretation. As there is no ambiguity, the terms must
be taken in their plain, ordinary and popular sense. Consequently, MMPSEU cannot rely on the rule that a
contract of insurance is to be liberally construed in favor of the insured. Neither can it rely on the theory that
any doubt must be resolved in favor of labor.

The CBA has provided for MMPC's limited liability which extends only up to the amount to be paid to the
hospital and doctor by the employees' dependents, excluding those paid by other insurers. Consequently, the
covered employees will not receive more than what is due them; neither is MMPC under any obligation to give
more than what is due under the CBA.

To allow reimbursement of amounts paid under other insurance policies shall constitute double recovery which
is not sanctioned by law.

5 - Communication and Information Systems Corp. v. Mark Sensing Australia Pty. Ltd.

Doctrine: A contract of reinsurance is one by which an insurer (the "direct insurer" or "cedant") procures a
third person (the "reinsurer") to insure him against loss or liability by reason of such original insurance. It is a
separate and distinct arrangement from the original contract of insurance, whose contracted risk is insured in
the reinsurance agreement. The reinsurer's contractual relationship is with the direct insurer, not the original
insured, and the latter has no interest in and is generally not privy to the contract of reinsurance. 56 Put
simply, reinsurance is the "insurance of an insurance."

Facts: Petitioner CISC and respondent MSAPL entered into a Memorandum of Agreement (MOA) whereby
MSAPL appointed CISC as the exclusive agent of MSAPL to PSCO during the lifetime of the recently concluded
MOA entered into between MSAPL, PCSO and other parties. The recent agreement referred to in the MOA is
the thermal paper and bet slip supply contract between the PCSO, MSAPL, and the three suppliers, namely
Lamco Paper, Consolidated Paper and Trojan Computer.

After initially complying with its obligation under the MOA, MSAPL stopped remitting commissions to CISC
during the second quarter of 2004. MSAPL justified its action by claiming that Carolina de Jesus, President of
CISC, violated her authority when she negotiated the Supply Contract with PCSO and three of MSAPL's
competitors. According to MSAPL, it lost almost one-half of its business with PCSO.

As a result of MSAPL’s refusal to pay, CISC filed a complaint for specific performance against MSAPL. CISC
prayed that private respondents be ordered to comply with its obligations under the MOA. The RTC granted
CISC's application for issuance of a writ of preliminary attachment, stating that "the non-payment of the
agreed commission constitutes fraud on the part of the defendant MSAPL in their performance of their
obligation to the plaintiff." The RTC found that MSAPL is a foreign corporation based in Australia, and its
Philippine subsidiary, MSPI, has no other asset except for its collectibles from PCSO. Thus, the RTC concluded
that CISC may be left without any security if ever MSAPL is found liable.

Thus, CISC posted a bond in the amount of P113,197,309.10 through Plaridel Surety and Insurance Company
(Plaridel) in favor of MSAPL which the RTC approved. MSAPL, apparently getting hold of Plaridel's latest
financial statements, moved to recall and set aside the approval of the attachment bond on the ground that
Plaridel had no capacity to underwrite the bond pursuant to Section 215 of the old Insurance Code 26 because
its net worth was only P214,820,566.00 and could therefore only underwrite up to P42,964,113.20.

Issue: Whether the RTC committed grave abuse of discretion when it approved the attachment bond whose
face amount exceeded the retention limit of the surety.

Ruling: No.

Section 215 of the old Insurance Code, the law in force at the time Plaridel issued the attachment bond, limits
the amount of risk that insurance companies can retain to a maximum of 20% of its net worth. However, in
computing the retention limit, risks that have been ceded to authorized reinsurers are ipso jure deducted. In
mathematical terms, the amount of retained risk is computed by deducting ceded/reinsured risk from insurable
risk. 49 If the resulting amount is below 20% of the insurer's net worth, then the retention limit is not
breached. In this case, both the RTC and CA determined that, based on Plaridel's financial statement that was
attached to its certificate of authority issued by the Insurance Commission, its net worth is P289,332,999.00.
Plaridel's retention limit is therefore P57,866,599.80, which is below the P113,197,309.10 face value of the
attachment bond. However, it only retained an insurable risk of P17,377,938.19 because the remaining
amount of P98,819,770.91 was ceded to 16 other insurance companies. Thus, the risk retained by Plaridel is
actually P40 Million below its maximum retention limit. Therefore, the approval of the attachment bond by the
RTC was in order.

6 - Government Service Insurance System v. Prudential Guarantee and Assurance, Inc.

Doctrine: Under Section 36 of the GSIS Charter, GSIS may be held liable for the contracts it has entered into
in the course of its business investments. For GSIS cannot claim a special immunity from liability in regard to
its business ventures under said Section. Nor can it deny contracting parties, in our view, the right of redress
and the enforcement of a claim, particularly as it arises from a purely contractual relationship of a private
character between an individual and the GSIS.

Facts: The National Electrification Administration (NEA) entered into an agreement with GSIS insuring all real
and personal properties mortgaged to it by electrical cooperatives under an Industrial All Risks policy (IAR
Policy). From the total sum insured under the IAR policy, 95% of which was reinsured by GSIS with
respondent PGAI. However, while GSIS remitted to PGAI the reinsurance premiums for the first three quarters,
it, however, failed to pay fourth and last reinsurance premium. This prompted PGAI to file a complaint for sum
of money against GSIS.

The RTC observed that the admissions of GSIS that it paid the first three quarterly reinsurance premiums to
PGAI affirmed the validity of the contract of reinsurance between them. As such, GSIS cannot now renege on
its obligation to remit the last and remaining quarterly reinsurance premium. It further pointed out that while it
is true that the payment of the premium is a requisite for the validity of an insurance contract, it was held that
insurance policies are valid even if the premiums were paid in installments, as in this case. Thus, in view of the
foregoing, the RTC ordered GSIS to pay PGAI the last quarter reinsurance premium.

The RTC issued an Order granting PGAI's Motion for Execution Pending Appeal, conditioned on the posting of
a bond. It further held that only the GSIS Social Insurance Fund is exempt from execution. Accordingly, PGAI
duly posted a surety bond which the RTC approved resulting to the issuance of a writ of execution and notices
of garnishment against GSIS.
Issue: Whether or not private entities may properly enforce their contractual claims against GSIS.

Ruling: Yes.

While an execution pending appeal should not lie, it must be noted that the funds and assets of GSIS may —
after the resolution of the appeal and barring any provisional injunction thereto — be subject to execution,
attachment, garnishment or levy since the exemption under Section 39 of RA 8291 does not operate to deny
private entities from properly enforcing their contractual claims against GSIS.

The declared policy of the State in Section 39 of the GSIS Charter granting GSIS an exemption from tax, lien,
attachment, levy, execution, and other legal processes should be read together with the grant of power to the
GSIS to invest its "excess funds" under Section 36 of the same Act. Under Section 36, the GSIS is granted the
ancillary power to invest in business and other ventures for the benefit of the employees, by using its excess
funds for investment purposes. In the exercise of such function and power, the GSIS is allowed to assume a
character similar to a private corporation. Thus, it may sue and be sued, as also explicitly granted by its
charter. Needless to say, where proper, under Section 36, the GSIS may be held liable for the contracts it has
entered into in the course of its business investments. For GSIS cannot claim a special immunity from liability
in regard to its business ventures under said Section. Nor can it deny contracting parties, in our view, the right
of redress and the enforcement of a claim, particularly as it arises from a purely contractual relationship of a
private character between an individual and the GSIS.

7 – Canilang v. Court of Appeals

Doctrine:
 A neglect to communicate which a party knows and ought to communicate, is called concealment.
 Each party to a contract of insurance must communicate to the other, in good faith, all factors within
his knowledge which are material to the contract and as to which he makes no warranty, and which
the other has not the means of ascertaining.
 A concealment whether intentional or unintentional entitles the injured party to rescind a contract of
insurance.

Facts: In June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from
"sinus tachycardia." On the next day, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company ("Great Pacific") naming his wife, petitioner Thelma
Canilang, as his beneficiary. Jaime Canilang was issued ordinary life insurance Policy.

In August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic anemia." Petitioner,
widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer denied upon the
ground that the insured had concealed material information from it.

Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of the
insurance proceeds. Petitioner testified that she was not aware of any serious illness suffered by her late
husband and that, as far as she knew, her husband had died because of a kidney disorder.

The Insurance Commissioner ruled in favor of petitioner and ordered Great Pacific to pay. On appeal by the
Great Pacific, the CA reversed the ruling of the Insurance Commissioner on the ground that Jaime Canilang
made a material concealment as to the state of his health at the time of the filing of insurance application.

Issue: Whether there is concealment in this case justifying Great Pacific’s denial of the claim.

Ruling: Yes. Under Sec. 26 of the Insurance Code, a neglect to communicate which a party knows and ought
to communicate, is called concealment. Sec. 28 further provides that “each party to a contract of insurance
must communicate to the other, in good faith, all factors within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has not the means of ascertaining.”

Under the foregoing provisions, the information concealed must be information which the concealing party
knew and ought to have communicated, that is to say, information which was "material to the contract."

We agree with the Court of Appeals that the information which Jaime Canilang failed to disclosed was material
to the ability of Great Pacific to estimate the probable risk he presented as a subject of life insurance . Had
Canilang disclosed his visits to his doctor, the diagnosis made and the medicines prescribed by such doctor, in
the insurance application, it may be reasonably assumed that Great Pacific would have made further inquiries
and would have probably refused to issue a non-medical insurance policy or, at the very least, required a
higher premium for the same coverage. The materiality of the information withheld by Great Pacific did not
depend upon the state of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of
proof in our judicial process, except through proof of external acts or failure to act from which inferences as to
his subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or physical
events which ensue. Materiality relates rather to the "probable and reasonable influence of the facts" upon the
party to whom the communication should have been made, in assessing the risk involved in making or
omitting to make further inquiries and in accepting the application for insurance; that "probable and
reasonable influence of the facts" concealed must, of course, be determined objectively, by the judge
ultimately.

The insurance Great Pacific applied for was a "non-medical" insurance policy. This Court held, “if anything, the
waiver of 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.”

The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information to
the insurer was not "intentional" in nature, for the reason that Jaime Canilang believed that he was suffering
from minor ailment like a common cold. Section 27 of the Insurance Code provides that: a concealment
whether intentional or unintentional entitles the injured party to rescind a contract of insurance.

8 – Sunlife Assurance Company of Canada v. Court of Appeals

Doctrine: 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.

Facts: Robert John B. Bacani procured a life insurance contract for himself from petitioner. The designated
beneficiary was his mother, respondent Bernarda Bacani.

In 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with petitioner. Petitioner
conducted an investigation and its findings prompted it to reject the claim. Petitioner informed respondent
Bacani, that the insured did not disclose material facts relevant to the issuance of the policy, thus rendering
the contract of insurance voidable.

Petitioner claimed that the insured gave false statements in his application when he answered the question of
whether within 5 years he consulted any doctor or other health practitioner. He answered in affirmative but
limited his answer to a consultation at Chinese General Hospital on February 1986, 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.
Thus, respondents filed an action for specific performance against petitioner. The trial court decided in favor of
private 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.” The CA affirmed the decision of the trial court.

Issue: Whether the insured made concealment which was material to entitle petitioner to rescind the
contract.

Ruling: Yes.

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 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.

It has been held that materiality of the information withheld does not depend on the state of mind of the
insured. Neither does it depend on the actual or physical events which ensue.

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. 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.

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.

9 – Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.

Doctrine: A warranty is a statement or promise set forth in the policy, or by reference incorporated therein,
the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact
prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.

Facts: Trans-Asia is the owner of the vessel M/V Asia Korea. Prudential insured M/V Asia Korea against loss or
damage. In October 1993, while the policy was in force, a fire broke out while M/V Asia Korea was undergoing
repairs at the port of Cebu. Trans-Asia then filed a notice of claim for damage sustained by the vessel.
Prudential denied Trans-Asia’s claim for latter’s breach of policy conditions including the “WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED.” Trans-Asia then filed a complaint for sum of money against Prudential.

The RTC ruled in favor of Prudential. It interpreted the “WARRANTED VESSEL CLASSED AND CLASS
MAINTAINED” provision to mean that Trans-Asia is required to maintain the vessel at a certain class at all
times pertinent during the life of the policy. Further, citing Section 107 of the Insurance Code, the court a quo
ratiocinated that the concealment made by Trans-Asia that the vessel was not adequately maintained to
preserve its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured party
to rescind the contract.

On appeal, the CA reversed. The CA found the subject warranty provision allegedly breached by Trans-Asia to
be a rider which was inserted by Prudential without intervention of Trans-Asia. As such, it partakes of a nature
of a contract of adhesion which should be construed against Prudential, the party which drafted the contract.

Issue: Whether Trans-Asia made a violation of material warranty which entitles Prudential to rescind the
insurance contract.

Ruling: No.

Sec. 74 of the Insurance Code provides that, "the violation of a material warranty, or other material provision
of a policy on the part of either party thereto, entitles the other to rescind." It is generally accepted that "a
warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or
non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by
such untruth or non-fulfillment, renders the policy voidable by the insurer." However, it is similarly indubitable
that for the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the
same. We cannot sustain an allegation that is unfounded. Consequently, Prudential, not having shown that
Trans-Asia breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that Trans-Asia
must be allowed to recover its rightful claims on the policy.

Even assuming that Trans-Asia violated the policy condition on “WARRANTED VESSEL CLASSED AND CLASS
MAINTAINED”, Prudential made a valid waiver of the same. Prudential was considered to have waived Trans-
Asia’s breach of warranty when it renewed Trans-Asia’s insurance policy for two consecutive years after the
loss. Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer; but if
he so elects, he may waive his privilege and power to rescind by the mere expression of an intention so to do.
In that event his liability under the policy continues as before.

10 – Philamcare Health Systems, Inc. v. Court of Appeals and Julita Trinos

Doctrine: 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 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.

Facts: Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner. In the application form, he answered no to the question whether he had a prior consultation or
been treated for high blood pressure, heart trouble, diabetes, etc. The application was approved and he was
issued health care agreement. During the period of his coverage, Ernani suffered a heart attack and was
confined at the Manila Medical Center (MMC) for one month. 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 the petitioner, there was a concealment
regarding Ernani’s medical history.
Issue: Whether petitioner is entitled to rescind the insurance contract on the ground of concealment.

Ruling: No.

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, "a 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. A prior notice of cancellation to the insured;

2. A notice must be based on the occurrence after the effective date of the policy of one or more of the
grounds mentioned;
3. It must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. It 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 insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract — the insurer.

11 – Florendo v. Philam Plans, Inc.

Doctrine: When insured signed the application without filling in the details regarding his continuing
treatments for heart condition and diabetes, the assumption is that he has never been treated for the said
illnesses in the last five years preceding his application.

Facts: Manuel Florendo filed an application for comprehensive pension plan with Philam Plans. Manuel signed
the application and left to Perla the task of supplying the information needed in the application . Aside from
pension benefits, the comprehensive pension plan also provided life insurance coverage to Florendo. Philam
Plans issued Pension Plan Agreement to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as
beneficiary.

Eleven months later, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with Philam Plans for
the payment of the benefits under her husband's plan. Because Manuel died before his pension plan matured
and his wife was to get only the benefits of his life insurance, Philam Plans forwarded her claim to Philam Life.

Philam Plans declined petitioner’s claim. Philam Life found that Manuel was on maintenance medicine for his
heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking insulin.

Issue: Whether the insured made a concealment.

Ruling: Yes.
When Manuel signed the pension plan application, he adopted as his own the written representations and
declarations embodied in it. It is clear from these representations that he concealed his chronic heart ailment
and diabetes from Philam Plans.

Since Manuel signed the application without filling in the details regarding his continuing treatments for heart
condition and diabetes, the assumption is that he has never been treated for the said illnesses in the last five
years preceding his application.

Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a
pacemaker implanted on his chest in the 70s or about 20 years before he signed up for the pension plan. But
by its tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it implies that
someone else may provide the information that Philam Plans needed. Manuel cannot sign the application and
disown the responsibility for having it filled up. If he furnished Perla the needed information and delegated to
her the filling up of the application, then she acted on his instruction, not on Philam Plans' instruction.

12 – United Merchants Corporation v. Country Bankers Insurance Corporation

Doctrine: In fire insurance policy, a fraudulent discrepancy between the actual loss and that claimed in the
proof of loss voids the insurance policy.

Facts: Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and
manufacturing Christmas lights. UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade of
Christmas lights against fire with defendant Country Bankers Insurance Corporation (CBIC). In July 1996, a fire
gutted the warehouse rented by UMC. CBIC designated CRM Adjustment Corporation (CRM) to investigate and
evaluate UMC’s loss by reason of the fire. CBIC’s reinsurer likewise requested the NBI to conduct a parallel
investigation.

UMC demanded for at least 50% payment of its claim from CBIC. However, CBIC rejected UMC’s claim due to
breach of Condition No. 15 of the Insurance Policy. Condition No. 15 states that “if the claim be in any respect,
fraudulent, or if any false declaration be made or used in support thereof…all the benefits under the Policy
shall be forfeited.”

UMC filed a Complaint against CBIC with the RTC of Manila. In its answer, CBIC alleged that UMC’s claim was
fraudulent because UMC’s Statement of Inventory showed that it had no stocks in trade. The RTC ruled in
favor of UMC on the ground that CBIC failed to prove fraud by clear and convincing evidence.

The CA ruled in favor of CBIC. It ruled that UMC’s claim under the Insurance Policy is void. The CA found that
the fire was intentional in origin. In addition, it found that UMC’s claim was overvalued through fraudulent
transactions.

Issue: Whether UMC is entitled to claim from CBIC the full coverage of its fire insurance policy.

Ruling: No.

In the present case, CBIC’s evidence did not prove that the fire was intentionally caused by the insured.
Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be forfeited, if the
claim be in any respect fraudulent, or if any false declaration be made or used in support thereof.

In the present case, as proof of its loss of stocks in trade amounting to P50,000,000.00, UMC submitted its
Sworn Statement of Formal Claim together with the following documents: (1) letters of credit and invoices for
raw materials, Christmas lights and cartons purchased; (2) charges for assembling the Christmas lights; and
(3) delivery receipts of the raw materials. However, the charges for assembling the Christmas lights and
delivery receipts could not support its insurance claim. The Insurance Policy provides that CBIC agreed to
insure UMC's stocks in trade. UMC defined stock in trade as tangible personal property kept for sale or traffic.
Applying UMC's definition, only the letters of credit and invoices for raw materials, Christmas lights and cartons
may be considered.

The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for
1996 amounts to P20,000,000.00 which were purchased in one month. Thus, UMC needs to prove purchases
amounting to P30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in the Statement of
Inventory it submitted to the BIR, which is considered an entry in official records, UMC stated that it had no
stocks in trade as of 31 December 1995. In its defense, UMC alleged that it did not include as stocks in trade
the raw materials to be assembled as Christmas lights, which it had on 31 December 1995. However, as proof
of its loss, UMC submitted invoices for raw materials, knowing that the insurance covers only stocks in trade.

In Yu Ban Chuan v. Fieldmen's Insurance, Co., Inc., the Court ruled that the submission of false invoices to
the adjusters establishes a clear case of fraud and misrepresentation which voids the insurer's liability as per
condition of the policy.

Thus, either amount in UMC's Income Statement or Financial Reports is twenty-five times the claim UMC seeks
to enforce. It has long been settled that a false and material statement made with an intent to deceive or
defraud voids an insurance policy.

The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or
counting but to a deliberate intent to demand from insurance companies payment for indemnity of goods not
existing at the time of the fire. This constitutes the so-called "fraudulent claim" which, by express agreement
between the insurers and the insured, is a ground for the exemption of insurers from civil liability.

The Insurance Code provides that "a policy may declare that a violation of specified provisions thereof shall
avoid it." Thus, in fire insurance policies, which contain provisions such as Condition No. 15 of the Insurance
Policy, a fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer.

13 – Manila Bankers Life Insurance Corporation v. Aban

Doctrine: The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums as long
as the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation when the
insured dies in order to defeat the right of the beneficiary to recover under the policy. After two years, the
defenses of concealment or misrepresentation, no matter how patent or well-founded, will no longer lie.

Facts: Delia Sotero took out a life insurance policy from Manila Bankers Life Insurance Corporation (Bankers
Life), designating respondent Cresencia P. Aban, her niece, as beneficiary.

When the insurance policy had been in force for more than two years and seven months, Sotero died.
Respondent filed a claim for the insurance proceeds. Petitioner conducted an investigation into the claim, and
came out with the finding that respondent was the one who filed the insurance application, and designated
herself as the beneficiary.

For the said reason, petitioner denied respondent’s claim and refunded the premiums paid on the policy.
Petitioner filed a civil case for rescission and/or annulment of the policy. The main thesis of the Complaint was
that the policy was obtained by fraud, concealment and/or misrepresentation under the Insurance Code, which
thus renders it voidable.

Respondent filed a Motion to Dismiss claiming that petitioner’s cause of action was barred by prescription of 2
years from the date of issue or last reinstatement of insurance policy pursuant to Section 48 of the Insurance
Code. The trial court granted respondent’s Motion to Dismiss. It ruled that petitioner had only two years from
the effectivity of the policy to question the same; since the policy had been in force for more than two years,
petitioner is now barred from contesting the same or seeking a rescission or annulment thereof.

The CA sustained the trial court. Hence, the present petition.

Issue: Whether or not petitioner’s cause of action was already barred by prescription.

Ruling: Yes.

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the
provision, an insurer is given two years — from the effectivity of a life insurance contract and while the insured
is alive — to discover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent. After the two-year period lapses, or when the
insured dies within the period, the insurer must make good on the policy, even though the policy was obtained
by fraud, concealment, or misrepresentation.

Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers
enough time to inquire whether the policy was obtained by fraud, concealment, or misrepresentation; on the
other hand, it forewarns scheming individuals that their attempts at insurance fraud would be timely
uncovered — thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate
policy holders are absolutely protected from unwarranted denial of their claims or delay in the collection of
insurance proceeds occasioned by allegations of fraud, concealment, or misrepresentation by insurers, claims
which may no longer be set up after the two-year period expires as ordained under the law.

Section 48 prevents a situation where the insurer knowingly continues to accept annual premium payments on
life insurance, only to later on deny a claim on the policy on specious claims of fraudulent concealment and
misrepresentation, such as what obtains in the instant case.

The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums as long
as the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation when the
insured dies in order to defeat the right of the beneficiary to recover under the policy.

After two years, the defenses of concealment or misrepresentation, no matter how patent or well-founded, will
no longer lie.

14 – Malayan Insurance Company, Inc. v. PAP Co., Ltd.

Doctrine: 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.

Facts: Malayan Insurance issued Fire Insurance Policy to PAP Co. for the latter’s machineries and equipment.
After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co. renewed the
policy on an “as is” basis. During the subsistence of the renewal policy, the insured machineries and
equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan. Malayan denied
the claim upon the ground that, at the time of loss, the insured machineries and equipment were transferred
by PAP Co. to a location different from that indicated in the policy.
Malayan basically argues that it cannot be held liable under the insurance contract because PAP committed
concealment, misrepresentation and breach of an affirmative warranty under the renewal policy when it
transferred the location of the insured properties without informing it. Such transfer affected the correct
estimation of the risk which should have enabled Malayan to decide whether it was willing to assume such risk
and, if so, at what rate of premium.

Issue: Whether or not Malayan can be held liable for the loss of the insured properties which was transferred
by PAP Co. to a location different from that indicated in the policy.

Ruling: No.

The Court agrees with the position of Malayan that it cannot be held liable for the loss of the insured
properties under the fire insurance policy.

Condition No. 9(c) of the renewal policy provides that the removal of the insured property to any building or
place required the consent of Malayan. Any transfer effected by the insured, without the insurer's consent,
would free the latter from any liability. In this case, respondent failed to notify, and to obtain the consent of
Malayan regarding the removal.

Malayan is entitled to rescind the contract. It can also be said that with the transfer of the location of the
subject properties, without notice and without Malayan's consent, after the renewal of the policy, PAP clearly
committed concealment, misrepresentation and a breach of a material warranty. Under Section 27 of the
Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." Moreover, under
Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in case of an
alteration in the use or condition of the thing insured.

Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions
are present, to wit:
6. the policy limits the use or condition of the thing insured;
7. there is an alteration in said use or condition;
8. the alteration is without the consent of the insurer;
9. the alteration is made by means within the insured's control; and
10. the alteration increases the risk of loss.

In the case at bench, all these circumstances are present. It was clearly established that the renewal policy
stipulated that the insured properties were located at the Sanyo factory; that PAP removed the properties
without the consent of Malayan; and that the alteration of the location increased the risk of loss.

15 – Sun Life of Canada v. Sibya

Doctrine: The intent to defraud on the part of the insured must be ascertained to merit rescission of the
insurance contract. Concealment as a defense for the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer.

Facts: Atty. Jesus Sibya, Jr. applied for life insurance with Sun Life. In his application, he indicated that he
had sought advice for kidney problems. In February 2001, Sun Life approved Atty. Jesus, Jr.’s application and
issued insurance policy. In May 2001, Atty. Jesus, Jr. died as a result of a gunshot wound. As such,
respondent filed an insurance claim with Sun Life. However, Sun Life denied the claim on the ground that the
details on Atty. Jesus, Jr.’s medical history were not disclosed in his application. Subsequently, Sun Life filed a
Complaint for rescission of the insurance policy.

Issue: Whether there was concealment or misrepresentation when Atty. Jesus, Jr. submitted his insurance
application with Sun Life.
Ruling: No.

The Court held that if the insured dies within the two-year contestability period, the insurer is bound to make
good its obligation under the policy, regardless of the presence or lack of concealment or misrepresentation.

In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years from
its issuance, to investigate and verify whether the policy was obtained by fraud, concealment, or
misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three months from
the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed in Manila Bankers, the
death of the insured within the two-year period will render the right of the insurer to rescind the policy
nugatory. As such, the incontestability period will now set in.

Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the Court
agrees, nonetheless, with the CA when it held that Sun Life failed to show that Atty. Jesus Jr. committed
concealment and misrepresentation.

Atty. Jesus Jr. admitted in his application his medical treatment for kidney ailment. Moreover, he executed an
authorization in favor of Sun Life to conduct investigation in reference with his medical history.

Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the
insurance contract. Concealment as a defense for the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In
the present case, Sun Life failed to clearly and satisfactorily establish its allegations, and is therefore liable to
pay the proceeds of the insurance.

16 - The Insular Insurance Company Vs. The Heirs of Alvarez

Doctrine:
 In this jurisdiction, a concealment, whether intentional or unintentional, entitles the insurer to rescind
the contract of insurance, concealment being defined as "negligence to communicate that which a
party knows and ought to communicate." Good faith is no defense in concealment. Concealment
applies only with respect to material facts. That is, those facts which by their nature would clearly,
unequivocally, and logically be known by the insured as necessary for the insurer to calculate the
proper risks. Proof of fraudulent intent is unnecessary for the rescission of an insurance contract on
account of concealment.
 A representation is to be deemed false when the facts fail to correspond with its assertions or
stipulations. When the insured makes a representation, it is incumbent on them to assure themselves
that a representation on a material fact is not false; and if it is false, that it is not a fraudulent
misrepresentation of a material fact. This returns the burden to insurance companies, which, in
general, have more resources than the insured to check the veracity of the insured's beliefs as to a
statement of fact.
 Section 45 is Chapter 1, Title 5's counterpart provision to Section 27, and concerns rescission due to
false representations. Not being similarly qualified as rescission under Section 27, rescission under
Section 45 remains subject to the basic precept of fraud having to be proven by clear and convincing
evidence.

Facts: Alvarez applied for and was granted a housing loan by UnionBank. This loan was secured by a
promissory note, a real estate mortgage over the lot, and a mortgage redemption insurance taken on the life
of Alvarez with UnionBank as beneficiary. Alvarez was among the mortgagors included in the list of qualified
debtors covered by the Group Mortgage Redemption Insurance that UnionBank had with Insular Life.

After Alvarez passed away, UnionBank filed with Insular Life a death claim under Alvarez's name pursuant to
the Group Mortgage Redemption Insurance. In line with Insular Life's standard procedures, UnionBank was
required to submit documents to support the claim including Alvarez’s birth, marriage and death certificate.

Insular Life denied the claim after determining that Alvarez was not eligible for coverage as he was supposedly
more than 60 years old at the time of his loan's approval. With the claim's denial, the monthly amortizations of
the loan stood unpaid. UnionBank sent the Heirs of Alvarez a demand letter, giving them 10 days to vacate the
lot. Subsequently, the lot was foreclosed and sold at a public auction with UnionBank as the highest bidder.

The Heirs of Alvarez filed a Complaint for Declaration of Nullity of Contract and Damages against UnionBank, a
certain Alfonso P. Miranda (Miranda), who supposedly benefitted from the loan, and the insurer. The
Complaint was later amended and converted into one for specific performance to include a demand against
Insular Life to fulfill its obligation as an insurer under the Group Mortgage Redemption Insurance.

For its part, Insular Life maintained that based on the documents submitted by UnionBank, Alvarez was no
longer eligible under the Group Mortgage Redemption Insurance since he was more than 60 years old when
his loan was approved.

The RTC ruled in favor of the Heirs of Alvarez. It found no indication that Alvarez had any fraudulent intent
when he gave UnionBank information about his age and date of birth. The CA affirmed the RTC’s ruling.

Citing Section 27 of the Insurance Code, Insular Life asserts that in cases of rescission due to concealment,
i.e., when a party "neglects to communicate that which he or she knows and ought to communicate," proof of
fraudulent intent is not necessary.

Issue: Whether or not petitioner The Insular Life Assurance Co., Ltd. is obliged to pay Union Bank of the
Philippines the balance of Jose H. Alvarez's loan given the claim that he lied about his age at the time of the
approval of his loan.

Ruling: Yes.

While Insular Life correctly reads Section 27 as making no distinction between intentional and unintentional
concealment, it erroneously pleads Section 27 as the proper statutory anchor of this case.

The Insurance Code distinguishes representations from concealments. Chapter 1, Title 4 is on concealments. It
spans Sections 26 to 35 of the Insurance Code; 79 it is where Section 27 is found. Chapter 1, Title 5 is on
representations. It spans Sections 36 to 48 of the Insurance Code.

Section 26 defines concealment as "[a] neglect to communicate that which a party knows and ought to
communicate." However, Alvarez did not withhold information on or neglect to state his age. He made an
actual declaration and assertion about it.

What this case involves, instead, is an allegedly false representation. Section 44 of the Insurance Code states,
"A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations." If
indeed Alvarez misdeclared his age such that his assertion fails to correspond with his factual age, he made a
false representation, not a concealment.

At no point does Chapter 1, Title 5 of the Insurance Code replicate Section 27's language negating the
distinction between intentional and unintentional concealment. Section 45 is Chapter 1, Title 5's counterpart
provision to Section 27, and concerns rescission due to false representations. It reads:
 Section 45. If a representation is false in a material point, whether affirmative or promissory, the
injured party is entitled to rescind the contract from the time when the representation becomes false.

Not being similarly qualified as rescission under Section 27, rescission under Section 45 remains subject to the
basic precept of fraud having to be proven by clear and convincing evidence.

The assailed Court of Appeals May 21, 2013 Decision discussed the evidentiary deficiency in Insular Life's
cause, i.e., how it relied on nothing but a single piece of evidence to prove fraudulent intent.

The Court of Appeals' observations are well-taken. Consistent with the requirement of clear and convincing
evidence, it was Insular Life's burden to establish the merits of its own case. Relative strength as against
respondents' evidence does not suffice.

A single piece of evidence hardly qualifies as clear and convincing. Its contents could just as easily have been
an isolated mistake.

Pleading just one (1) additional document still fails to establish the consistent fraudulent design that was
Insular Life's burden to prove by clear and convincing evidence. Insular Life had all the opportunity to
demonstrate Alvarez's pattern of consistently indicating erroneous entries for his age. All it needed to do was
to inventory the documents submitted by Alvarez and note the statements he made concerning his age. This
was not a cumbersome task, yet it failed at it. Its failure to discharge its burden of proving must thwart its
plea for relief from this Court.

17 – FGU Insurance Corporation v. Court of Appeals

Doctrine: While mistake and negligence of the master or crew are incident to navigation and constitute a part
of the perils that the insurer is obliged to incur, such negligence or recklessness must not be of such gross
character as to amount to misconduct or wrongful acts; otherwise, such negligence shall release the insurer
from liability under the insurance contract

Facts: Anco Enterprises was engaged in the shipping business. It owned the M/T Anco tugboat and the D/B
Lucio barge which were operated as common carriers. San Miguel Corporation shipped from Mandaue City, on
board the D/B Lucio, for towage by M/T Anco the cargoes containing Pale Pilsen and Cerveza Negra. When the
barge and tugboat arrived at San Jose, Antique, the clouds were dark and the waves were already big. SMC
requested Anco’s representative to transfer the barge to a safe place but Anco’s representatives did not heed
the request because he was confident that the barge could withstand the big waves. At around midnight, the
barge run aground and was broken and the cargoes of beer in the barge were swept away. As a result, Anco
failed to deliver to SMC’s consignee cases of Pale Pilsen and Cerveza Negra.

As a consequence of the incident, SMC filed a complaint for breach of contract of carriage and damages
against Anco. Anco asserted that it should not be held liable since the cases of beer were lost by reason of
fortuitous event. Anco further asserted that there was an agreement between them and SMC to insure the
cargoes in order to recover the indemnity in case of loss. Pursuant to that agreement, the cargoes were
insured with FGU Insurance.

Subsequently, Anco filed a third-party complaint against FGU alleging that FGU should be held liable to
indemnify or reimburse Anco whatever amounts, or damages, it may be required to pay SMC.
FGU maintained that the alleged loss of cargoes cannot be attributed directly or indirectly to any of the risks
insured against in the said insurance policy. According to FGU, it is only liable under the policy in case of total
loss of the entire shipment; loss of any case as a result of the sinking of the vessel; or loss as a result of the
vessel being on fire. Furthermore, FGU alleged that Anco failed to exercise the diligence of a good father of a
family in the care and supervision of the cargoes insured to prevent its loss and/or destruction.

The trial court found that while the cargoes were indeed lost due to fortuitous event, there was failure on
ANCO's part, through their representatives, to observe the degree of diligence required that would exonerate
them from liability. The trial court thus held Anco liable to SMC for the amount of the lost shipment. With
respect to the Third-Party complaint, the court a quo found FGU liable to bear Fifty-Three Percent (53%) of
the amount of the lost cargoes.

The CA affirmed the trial court’s decision.

Issue: Whether FGU is liable under the insurance contract considering the circumstances surrounding the loss
of the cargoes.

Ruling: No.

There was blatant negligence on the part of M/T ANCO's crewmembers, first in leaving the engine-less barge
D/B Lucio at the mercy of the storm without the assistance of the tugboat, and again in failing to heed the
request of SMC's representatives to have the barge transferred to a safer place, as was done by the other
vessels in the port; thus, making said blatant negligence the proximate cause of the loss of the cargoes.

One of the purposes for taking out insurance is to protect the insured against the consequences of his own
negligence and that of his agents. Thus, it is a basic rule in insurance that the carelessness and negligence of
the insured or his agents constitute no defense on the part of the insurer. This rule however presupposes that
the loss has occurred due to causes which could not have been prevented by the insured, despite the exercise
of due diligence.

The question now is whether there is a certain degree of negligence on the part of the insured or his agents
that will deprive him the right to recover under the insurance contract. We say there is. However, to what
extent such negligence must go in order to exonerate the insurer from liability must be evaluated in light of
the circumstances surrounding each case. When evidence show that the insured's negligence or recklessness
is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated.

The United States Supreme Court has made a distinction between ordinary negligence and gross negligence or
negligence amounting to misconduct and its effect on the insured's right to recover under the insurance
contract. According to the Court, while mistake and negligence of the master or crew are incident to
navigation and constitute a part of the perils that the insurer is obliged to incur, such negligence or
recklessness must not be of such gross character as to amount to misconduct or wrongful acts; otherwise,
such negligence shall release the insurer from liability under the insurance contract.

In the case at bar, both the trial court and the appellate court had concluded from the evidence that the
crewmembers of both the D/B Lucio and the M/T ANCO were blatantly negligent.

This Court, taking into account the circumstances present in the instant case, concludes that the blatant
negligence of ANCO's employees is of such gross character that it amounts to a wrongful act which must
exonerate FGU from liability under the insurance contract.

18 - UCPB GENERAL INSURANCE CO., INC. VS. ASGARD CORRUGATED BOX MANUFACTURING
CORPORATION

Doctrine:
  An insurer is not liable for a loss caused by the willful act of the insured. However, the insurer is not
relieved from liability by the mere fact that the loss was caused by the negligence of the insured, or
of his agents or others.
 An insurable interest in property does not necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest. It is sufficient that the insured is so situated with
reference to the property that he would be liable to loss should it be injured or destroyed by the peril
against which it is insured. Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.

Facts: Asgard and Milestone Paper Products, Inc. (Milestone) entered into a Toll Manufacturing Agreement
(TMA) whereby Asgard undertook to perform toll-manufacturing of paper products for Milestone, effective until
January 31, 2008, unless earlier terminated by either party upon 60-day prior written notice pursuant to
paragraphs 19 and 20 of the TMA. The toll-manufacturing requirements of Milestone shall be performed at
Asgard's plant with the use of the facilities therein. Milestone shall source materials and supplies and cause the
same to be delivered to the Plant.

Asgard needed additional capital for the purchase of new equipment for its manufacturing plant. So, it invited
Milestone to invest in the company. Milestone installed new equipment for the manufacturing plant and paper
mill. After months of managing and operating the business, Milestone accepted Asgard's invitation by
contributing the installed equipment and infusing such amount of capital as may be necessary for the
operations of the company.

Sometime in 2007, Asgard and Milestone further agreed that the latter would convert the paper products into
corrugated carton boxes using the corrugating machines owned by Asgard. The agreement likewise included
the modification of the corrugated machines by replacing the parts with the ones owned by Milestone. As a
result thereof, all vital parts of the corrugating machines of Asgard were detached and replaced with parts
owned by Milestone.

In 2009, Asgard and Milestone took out an insurance policy from UCPB Insurance to insure, among others,
Asgard's machinery and equipment of every kind and description in its plant in Novaliches, Quezon City.

In 2010, Milestone pulled out its stocks, machinery, and equipment from Asgard's plant in Novaliches, Quezon
City for relocation to Milestone's own premises in Laguna. In the course thereof, it caused damage to Asgard's
complete line of Isowa corrugating machine and accessories as well as its printer-slotter-stacker.

Asgard notified UCPB Insurance about the loss and filed an insurance claim under the Policy based on the
Malicious Damage Endorsement provision. UCPB Insurance denied the claim explaining that the Policy had no
cross liability cover, and the malicious damage was committed by Milestone, one of the name insured, and not
committed by a third party.

Asgard moved for reconsideration but UCPB Insurance denied the same contending that Milestone's infliction
of damage is not among the acts contemplated under Section 87 (now Section 89) of the Insurance Code
which provides:

Section 87. An insurer is not liable for a loss caused by the willful act or through the connivance of the
insured; but he is not exonerated by the negligence of the insured, or of the insurance agents of
others.

Hence, Asgard filed a complaint for sum of money with application for writ of preliminary attachment. Asgard
alleged that it solely owns the damaged corrugating machine and Milestone has no insurable interest therein;
thus, Section 87 (now Section 89) of the Insurance Code is inapplicable.
UCPB Insurance countered that the inclusion of Milestone's name among the insured in the Policy was upon
Asgard's request while the malicious damage admittedly caused by Milestone was not among the risks covered
by the Policy pursuant to Section 87 (now Section 89) of the Insurance Code. Even if Asgard was in fact the
sole owner of the machine, Milestone still has an insurable interest therein because it would suffer a loss upon
its destruction as it cannot produce the corrugated boxes. Asgard and Milestone's insurable interests were not
also separate and distinct as the machine would be inoperable without the parts provided by Milestone.

The RTC dismissed Asgard's complaint. It ruled that Milestone had insurable interest over the property. It had
actual and real interest in the preservation of the corrugating machines not only because its maintenance was
necessary for Asgard but also because it owns the parts which were incorporated into Asgard's corrugating
machines.

On appeal by Asgard, the CA reversed and set aside the RTC's ruling and remanded the case for further
proceedings.

The RTC rendered a Decision which granted Asgard's complaint ordering UCPB Insurance to pay P147 Million.
The RTC held that UCPB Insurance is liable for the insurance claim of Asgard. It did not apply Section 87 (now
Section 89) of the Insurance Code stressing that Milestone cannot be considered as an insured with respect to
the damaged machine as it has no insurable interest either at the time the policy took effect or at the time of
the loss.

The CA upheld UCPB Insurance's liability to Asgard under the Policy. The CA agreed with the RTC that
Milestone lacked insurable interest and could not properly be considered an insured under the Policy.

Hence, this petition.

Issue: Whether or not Milestone had insurable interest over the corrugating machines at the time of the loss;
whether Section 89 of the Insurance Code is applicable.

Ruling: Yes, Milestone had insurable interest over the corrugating machines at the time of the loss. Hence,
UCPB Insurance is not liable under the Policy.

When Milestone pulled out its stocks, machinery, and equipment on July 15, 2010 from Asgard's premises in
Novaliches, Quezon City, the TMA remained in force and effect between Milestone and Asgard on a month-to-
month basis after January 31, 2008. The TMA continued to govern the business relationship of Asgard and
Milestone. While the TMA ends each month, there is no showing that there was notice in writing served 60
days in advance to terminate under paragraph 19 of the TMA or mere notice in writing for termination with
cause under paragraph 20 thereof.

Thus, when Milestone pulled out the parts installed and caused damage to Asgard's corrugating machines,
Milestone remained insured under the insurance policy since the TMA was not effectively and properly
terminated.

Section 13 of the Insurance Code defines insurable interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might
directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in
property may consist in:
(a) an existing interest, like that of an owner or lienholder;
(b) an inchoate interest founded on existing interest, like that of a stockholder in corporate property; or
(c) an expectancy, coupled with an existing interest in that out of which the expectancy arises, like that of
a shipper of goods in the profits he expects to make from the sale thereof.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to
the existence of such an interest. It is sufficient that the insured is so situated with reference to the property
that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. Anyone
has an insurable interest in property who derives a benefit from its existence or would suffer loss from its
destruction.

Insurable interest in property is not limited to property ownership in the subject matter of the insurance.
Where the interest of the insured in, or his relation to, the property is such that he will be benefitted by its
continued existence, or will suffer a direct pecuniary loss by its destruction, his contract of insurance will be
upheld, although he has no legal or equitable title. A husband would thus have an insurable interest in the
paraphernal property of his wife since the fruits thereof belong the conjugal partnership and may be used for
the support of the family.

As in this case, when Milestone removed its parts and machines, Milestone still had an actual and real interest
in the preservation of the corrugating machines while the TMA is not effectively terminated and non--
preservation will render Milestone liable for breach of contract as no corrugated carton boxes would be
manufactured under the TMA.

Section 89 of the Insurance Code is clear — an insurer is not liable for a loss caused by the willful act of the
insured. Such damage/loss is not an insurable risk because the occurrence of the loss was subject to the
control of one of the parties and not merely caused by the negligence of the insured.

However, the insurer is not relieved from liability by the mere fact that the loss was caused by the negligence
of the insured, or of his agents or others. Accordingly, it is no defense to an action on the policy that the
negligence of the insured caused or contributed to the injury. However, when the insured's negligence is so
gross that it is tantamount to misconduct, or willful or wrongful act, the insurer is not liable.

Since the damage or loss caused by Milestone to Asgard's corrugating machines was willful or intentional,
UCPB Insurance is not liable under the Policy. To permit Asgard to recover from the Policy for a loss caused by
the willful act of the insured is contrary to public policy, i.e., denying liability for willful wrongs.

19 – Finman General Assurance Corporation v. Court of Appeals

Doctrine: As regards the submission of documents to prove loss, substantial, not strict compliance with the
requirements will always be deemed sufficient.

Facts: Private respondent Usiphil Incorporated obtained a fire insurance policy from petitioner covering
certain properties. Under the policy, petitioner undertook to indemnify private respondent for any damage to
or loss of said properties arising from fire.

Subsequently, private respondent filed with petitioner an insurance claim for the loss of the insured properties
due to fire. Acting thereon, petitioner appointed Adjuster H.H. Bayne to undertake the valuation and
adjustment of the loss. H.H. Bayne then required private respondent to file a formal claim and submit proof of
loss. In compliance therewith, private respondent signed its Sworn Statement of Loss and Formal Claim and
Proof of Loss.

Despite repeated demands by private respondent, petitioner refused to pay the insurance claim. Thus, private
respondent was constrained to file a complaint against petitioner for the unpaid insurance claim. In its answer,
petitioner maintained that the claim of private respondent could not be allowed because it failed to comply
with Policy Condition No. 13 regarding the submission of certain documents to prove the loss.

The trial court rendered judgment in favor of private respondents. The CA affirmed the ruling of the trial court.
Issue: Whether petitioner’s disallowance of private respondent’s claim is justified by the latter’s failure to
submit the required documents in accordance with Policy Condition No. 13.,

Ruling: No.

A perusal of the records shows that private respondent, after the occurrence of the fire, immediately notified
petitioner thereof. Thereafter, private respondent submitted the following documents: (1) Sworn Statement of
Loss and Formal Claim (Exhibit C) and; (2) Proof of Loss (Exhibit D). The submission of these documents, to
the Court's mind, constitutes substantial compliance with the above provision. Indeed, as regards the
submission of documents to prove loss, substantial, not strict as urged by petitioner, compliance with the
requirements will always be deemed sufficient.

In any case, petitioner itself acknowledged its liability when through its Finance Manager, Rosauro Maghirang,
it signed the document indicating that the amount due private respondent.

20 - BPI VS. LAINGO

Doctrine: There is rationale in the contract of agency, which flows from the “doctrine of representation,” that
notice to the agent is notice to the principal.

Facts: Rheozel Laingo (Rheozel), the son of respondent Yolanda Laingo (Laingo), opened a "Platinum 2-in-1
Savings and Insurance" account with petitioner Bank of the Philippine Islands (BPI). The Platinum 2-in-1
Savings and Insurance account is a savings account where depositors are automatically covered by an
insurance policy against disability or death issued by petitioner FGU Insurance Corporation (FGU Insurance). A
Personal Accident Insurance Coverage Certificate was issued by FGU Insurance in the name of Rheozel with
Laingo as his named beneficiary.

On 25 September 2000, Rheozel died due to a vehicular accident. Since Rheozel came from a reputable and
affluent family, the Daily Mirror headlined the story in its newspaper on 26 September 2000.

On 27 September 2000, Laingo instructed the family's personal secretary, Alice Torbanos (Alice) to go to BPI
and inquire about the savings account of Rheozel. Laingo wanted to use the money in the savings account for
Rheozel's burial and funeral expenses.

Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager regarding Laingo's request. Due to
Laingo's credit standing and relationship with BPI, BPI accommodated Laingo who was allowed to withdraw
P995,000 from the account of Rheozel. A certain Ms. Laura Cabico, an employee of BPI, went to Rheozel's
wake at the Cosmopolitan Funeral Parlor to verify some information from Alice and brought with her a number
of documents for Laingo to sign for the withdrawal of the P995,000.

More than two years later, Rheozel's sister, Rhealyn, while arranging Rheozel's personal things in his room
found the Personal Accident Insurance Coverage Certificate issued by FGU Insurance. Rhealyn immediately
conveyed the information to Laingo.

Laingo sent two letters to BPI and FGU Insurance requesting them to process her claim as beneficiary of
Rheozel's insurance policy. FGU Insurance sent a reply-letter to Laingo denying her claim. FGU Insurance
stated that Laingo should have filed the claim within three calendar months from the death of Rheozel as
required under Paragraph 15 of the Personal Accident Certificate of Insurance.

Laingo filed a Complaint for Specific Performance with Damages and Attorney's Fees with the Regional Trial
Court against BPI and FGU Insurance. The trial court decided the case in favor of respondents. The trial court
ruled that the prescriptive period of 90 days shall commence from the time of death of the insured and not
from the knowledge of the beneficiary. Since the insurance claim was filed more than 90 days from the death
of the insured, the case must be dismissed.
The CA reversed the ruling of the trial court. It ruled that Laingo could not be expected to do an obligation
which she did not know existed. The appellate court added that Laingo was not a party to the insurance
contract entered into between Rheozel and petitioners. Thus, she could not be bound by the 90-day
stipulation.

Issue: Whether or not Laingo, as named beneficiary who had no knowledge of the existence of the insurance
contract, is bound by the three calendar month deadline for filing a written notice of claim upon the death of
the insured.

Ruling: No.

As the main proponent of the 2-in-1 deposit account, BPI tied up with its affiliate, FGU Insurance, as its
partner. Any customer interested to open a deposit account under this 2-in-1 product, after submitting all the
required documents to BPI and obtaining BPI's approval, will automatically be given insurance coverage. Thus,
BPI acted as agent of FGU Insurance with respect to the insurance feature of its own marketed product.

In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's commercial product, offering
the insurance coverage for free for every deposit account opened, Rheozel directly communicated with BPI,
the agent of FGU Insurance. BPI not only facilitated the processing of the deposit account and the collection of
necessary documents but also the necessary endorsement for the prompt approval of the insurance coverage
without any other action on Rheozel's part. Rheozel did not interact with FGU Insurance directly and every
transaction was coursed through BPI.

In Eurotech Industrial Technologies, Inc. v. Cuizon , we held that when an agency relationship is established,
the agent acts for the principal insofar as the world is concerned. Consequently, the acts of the agent on
behalf of the principal within the scope of the delegated authority have the same legal effect and consequence
as though the principal had been the one so acting in the given situation.

The relationship existing between principal and agent is a fiduciary one, demanding conditions of trust and
confidence. It is the duty of the agent to act in good faith for the advancement of the interests of the
principal. In this case, BPI had the obligation to carry out the agency by informing the beneficiary, who
appeared before BPI to withdraw funds of the insured who was BPI's depositor, not only of the existence of
the insurance contract but also the accompanying terms and conditions of the insurance policy in order for the
beneficiary to be able to properly and timely claim the benefit.

Upon Rheozel's death, which was properly communicated to BPI by his mother Laingo, BPI, in turn, should
have fulfilled its duty, as agent of FGU Insurance, of advising Laingo that there was an added benefit of
insurance coverage in Rheozel's savings account. An insurance company has the duty to communicate with the
beneficiary upon receipt of notice of the death of the insured. This notification is how a good father of a family
should have acted within the scope of its business dealings with its clients. BPI is expected not only to provide
utmost customer satisfaction in terms of its own products and services but also to give assurance that its
business concerns with its partner entities are implemented accordingly.

There is a rationale in the contract of agency, which flows from the "doctrine of representation," that notice to
the agent is notice to the principal. Here, BPI had been informed of Rheozel's death by the latter's family.
Since BPI is the agent of FGU Insurance, then such notice of death to BPI is considered as notice to FGU
Insurance as well. FGU Insurance cannot now justify the denial of a beneficiary's insurance claim for being
filed out of time when notice of death had been communicated to its agent within a few days after the death
of the depositor-insured. In short, there was timely notice of Rheozel's death given to FGU Insurance within
three months from Rheozel's death as required by the insurance company.

The records show that BPI had ample opportunity to inform Laingo, whether verbally or in writing, regarding
the existence of the insurance policy attached to the deposit account. First, Rheozel's death was headlined in a
daily major newspaper a day after his death. Second, not only was Laingo, through her representative, able to
inquire about Rheozel's deposit account with BPI two days after his death but she was also allowed by BPI's
Claveria, Davao City branch to withdraw from the funds in order to help defray Rheozel's funeral and burial
expenses. Lastly, an employee of BPI visited Rheozel's wake and submitted documents for Laingo to sign in
order to process the withdrawal request. These circumstances show that despite being given many
opportunities to communicate with Laingo regarding the existence of the insurance contract, BPI neglected to
carry out its duty.

Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of the insurance policy,
Laingo had no means to ascertain that she was entitled to the insurance claim. It would be unfair for Laingo to
shoulder the burden of loss when BPI was remiss in its duty to properly notify her that she was a beneficiary.

21 – Capital Insurance and Surety Co., Inc. v. Del Monte Motor Works, Inc.

Doctrine: Section 203 of the Insurance Code indicates that the security deposit is exempt from levy by a
judgment creditor or any other claimant.

Facts: Respondent Del Monte Motor Works sued Vilfran Liner, Inc., Hilaria F. Villegas and Maura F. Villegas in
the RTC to recover the unpaid billings related to the fabrication and construction of 35 passenger bus bodies.
It applied for the issuance of a writ of preliminary attachment. The RTC issued the writ of preliminary
attachment, which the sheriff served on the defendants, resulting in the levy of 10 buses and three parcels of
land belonging to the defendants. The sheriff also sent notice of garnishment of the defendant’s funds in its
depositary banks. This prompted defendant Maura F. Villegas file a counterbond (CISCO bond) and its
supporting documents purportedly issued by the petitioner CISCO. The RTC approved the counterbond and
discharged the writ of preliminary attachment.

The RTC rendered its decision in favor of the respondent. Said judgment was enforceable against the
counterbond posted by defendant. To enforce the decision against the counterbond, the sheriff levied against
the petitioner’s personal properties and later issued the notice of auction sale. The sheriff also served a notice
of garnishment against the security deposit of the petitioner in the Insurance Commission.

The respondent moved to direct the release by the depositary banks of funds subject to the notice of
garnishment from the accounts of the petitioner, and to transfer or release the amount from the petitioner’s
security deposit in the Insurance Commission. The petitioner opposed the respondent’s motion.

The petitioner sought to stay of the auction sale until the RTC resolved the issue of validity or enforceability of
CISCO Bond. The RTC issued its assailed resolution which ordered the manager or any authorized officer of
the depositary banks to release the funds under the account of CISCO subject of Notice of Garnishment.

It also ordered the Commissioner of the Insurance Commission to comply with its obligations under the
Insurance Code by upholding the integrity and efficacy of bonds validly issued by duly accredited Bonding and
Insurance Companies; and to safeguard the public interest by insuring the faithful performance to enforce
contractual obligations under existing bonds.

The RTC, finding no lawful justification for the Insurance Commissioner’s refusal to comply with the order of
the RTC declared him guilty of indirect contempt of court.

Meanwhile, the petitioner filed a Motion for Reconsideration but it was denied by the RTC. Thus, petitioner
filed a petition for certiorari in the CA.

The CA dismissed the petitioner’s petition for certiorari. It opined that the security deposit could answer for the
depositor’s liability and be the subject of levy in accordance with Section 203 of the Insurance Code.
Issue: Whether or not the security deposit could be subject of levy; Was the Insurance Commissioner's
refusal to release the security deposit despite the garnishment on execution legally justified?

Ruling: No, the security deposit could not be subject of levy.

The forthright text of Section 203 of the Insurance Code indicates that the security deposit is exempt from
levy by a judgment creditor or any other claimant. This exemption has been recognized in several rulings,
particularly in Republic v. Del Monte Motors, Inc.:

Basic is the statutory construction rule that provisions of a statute should be construed in accordance
with the purpose for which it was enacted. That is, the securities are held as a contingency fund to
answer for the claims against the insurance company by all its policy holders and their beneficiaries.
This step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the
claims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all
others. The other parties may have their own claims against the insurance company under other
insurance contracts it has entered into.

The simplistic interpretation of Section 203 of the Insurance Code by the CA ostensibly ran counter to the
intention of the statute and the Court's pronouncement on the matter. We cannot uphold the CA's
interpretation, therefore, because the holders or beneficiaries of the policies of an insolvent company would
thereby likely end up becoming unpaid claimants. Besides, denying the exemption would potentially pave the
way for a single claimant, like the respondent, to short-circuit the procedure normally undertaken in
adjudicating the claims against an insolvent company under the rules on concurrence and preference of credits
in order to ensure that none could obtain an advantage or preference over another by virtue of an attachment
or execution. To allow the respondent to proceed independently against the security deposit of the petitioner
would not only prejudice the policy holders and their beneficiaries, but would also annul the very reason for
which the law required the security deposit.

According to Republic v. Del Monte Motors, Inc. , the right to claim against the security deposit is dependent
on the solvency of the insurance company, and is subject to all other obligations of the insurance company
arising from its insurance contracts. Accordingly, the respondent's interest in the security deposit could only be
inchoate or a mere expectancy, and thus had no attribute as property.

The Insurance Commissioner's refusal to release was legally justified.

Under Section 191 and Section 203 of the Insurance Code, the Insurance Commissioner had the specific legal
duty to hold the security deposits for the benefit of all policy holders.

The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatory
authority over insurance matters.

Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections 191
and 203 of the Code, for the benefit and security of all policy holders.

Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance
industry so as to protect the insuring public. The law specifically confers custody over the securities upon the
commissioner, with whom these investments are required to be deposited. An implied trust is created by the
law for the benefit of all claimants under subsisting insurance contracts issued by the insurance company.

As the officer vested with custody of the security deposit, the insurance commissioner is in the best position to
determine if and when it may be released without prejudicing the rights of other policy holders. Before
allowing the withdrawal or the release of the deposit, the commissioner must be satisfied that the conditions
contemplated by the law are met and all policy holders protected.
Under the circumstances, the Insurance Commissioner properly refused the request to release issued by the
sheriff under the notice of garnishment, and was not guilty of contempt of court for disobedience to the
assailed order.

22 – Stronghold Insurance Co., Inc. v. Pamana Island Resort Hotel and Marina Club

Doctrine: The amount of any loss or damage for which an insurer may be liable, under any policy other than
life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by
arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of
the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure
to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the
proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.

Facts: The case stems from an action for sum of money filed by Pamana Island Resort Hotel and Marina Club,
Inc. (Pamana) and Flowtech Construction Corporation (Flowtech) against Stronghold on the basis of a
Contractor's All Risk Bond obtained by Flowtech in relation to the construction of Pamana's project in Pamana
Island, Subic Bay. On January 27, 1992, a fire in the project burned down cottages being built by Flowtech,
resulting in losses to Pamana.

The RTC declared Stronghold liable for the claim. Besides the award of insurance proceeds, exemplary
damages and attorney's fees, the trial court ordered the payment of interest at double the applicable rate,
following Section 243 of the Insurance Code which Stronghold was declared to have violated, and reads:

Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other
than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer
and ascertainment of the loss or damage is made either by agreement between the insured and the
insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such
receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety days
after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will
entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the
rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is
based on the ground that the claim is fraudulent.

Issue: Whether Stronghold is liable for the payment of interest at double the applicable rate.

Ruling: Yes.

Anent the computation of interest on Stronghold's liability, it was explained that the notice of loss was
promptly served upon Stronghold, but it took more than a year to reject the claim in violation of Section 243
of the Insurance Code. Thus, double the applicable rate of interest on the principal award should be imposed.

23 – Sun Life of Canada v. Tan Kit

Doctrine: As a form of damages, compensatory interest is due only if the obligor is proven to have failed to
comply with his obligation.

Facts: Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit, whose application for
a life insurance policy was granted by the petitioner. After Norberto died, respondent Tan Kit filed a claim
under the subject insurance policy.

However, petitioner denied respondent’s claim on account of Norberto’s failure to fully and faithfully disclose in
his insurance application certain material and relevant information about his health and smoking history.
Petitioner then filed a complaint for rescission of insurance contract before the RTC. The RTC concluded that
petitioner had already cleared Norberto of any misrepresentation that he may have committed. The RTC also
opined that the affidavit of Dr. Chua, presented as part of petitioner's evidence and which confirmed the fact
that the insured was a smoker and only stopped smoking a year ago [1999], is hearsay since Dr. Chua did not
testify in court. Further, since Norberto had a subsisting insurance policy with petitioner during his application
for insurance subject of this case, it was incumbent upon petitioner to ascertain the health condition of
Norberto considering the additional burden that it was assuming.

The CA reversed and set aside the RTC’s ruling. It held that Norberto is guilty of concealment which misled
petitioner in forming its estimates of the risks of the insurance policy. This gave petitioner the right to rescind
the insurance contract which it properly exercised in this case.

Thus, CA ordered petitioner to reimburse respondents the premium paid by the insured with interest at the
rate of 12% per annum from the time of the death of the insured until fully paid.

Issue: Whether petitioner is liable to pay interest on the premium to be refunded to respondents.

Ruling: No.

The CA incorrectly imposed compensatory interest on the premium refund reckoned from the time of death of
the insured until fully paid.

As a form of damages, compensatory interest is due only if the obligor is proven to have failed to comply with
his obligation.

In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was rescinding the
policy due to concealment, petitioner tendered the refund of premium by attaching to the said notice a check
representing the amount of refund. However, respondents refused to accept the same since they were seeking
for the release of the proceeds of the policy. Because of this discord, petitioner filed for judicial rescission of
the contract. Petitioner, after receiving an adverse judgment from the RTC, appealed to the CA. And as may
be recalled, the appellate court found Norberto guilty of concealment and thus upheld the rescission of the
insurance contract and consequently decreed the obligation of petitioner to return to respondents the premium
paid by Norberto. Moreover, we find that petitioner did not incur delay or unjustifiably deny the claim.

Based on the foregoing, we find that petitioner properly complied with its obligation under the law and
contract. Hence, it should not be made liable to pay compensatory interest.

24 – United Merchants Corporation v. Country Bankers Insurance Corporation

Doctrine: In fire insurance policy, a fraudulent discrepancy between the actual loss and that claimed in the
proof of loss voids the insurance policy.

Facts: Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and
manufacturing Christmas lights. UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade of
Christmas lights against fire with defendant Country Bankers Insurance Corporation (CBIC). In July 1996, a fire
gutted the warehouse rented by UMC. CBIC designated CRM Adjustment Corporation (CRM) to investigate and
evaluate UMC’s loss by reason of the fire. CBIC’s reinsurer likewise requested the NBI to conduct a parallel
investigation.

UMC demanded for at least 50% payment of its claim from CBIC. However, CBIC rejected UMC’s claim due to
breach of Condition No. 15 of the Insurance Policy. Condition No. 15 states that “if the claim be in any respect,
fraudulent, or if any false declaration be made or used in support thereof…all the benefits under the Policy
shall be forfeited.”
UMC filed a Complaint against CBIC with the RTC of Manila. In its answer, CBIC alleged that UMC’s claim was
fraudulent because UMC’s Statement of Inventory showed that it had no stocks in trade. The RTC ruled in
favor of UMC on the ground that CBIC failed to prove fraud by clear and convincing evidence.

The CA ruled in favor of CBIC. It ruled that UMC’s claim under the Insurance Policy is void. The CA found that
the fire was intentional in origin. In addition, it found that UMC’s claim was overvalued through fraudulent
transactions.

Issue: Whether UMC is entitled to claim from CBIC the full coverage of its fire insurance policy.

Ruling: No.

In the present case, CBIC’s evidence did not prove that the fire was intentionally caused by the insured.
Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be forfeited, if the
claim be in any respect fraudulent, or if any false declaration be made or used in support thereof.

In the present case, as proof of its loss of stocks in trade amounting to P50,000,000.00, UMC submitted its
Sworn Statement of Formal Claim together with the following documents: (1) letters of credit and invoices for
raw materials, Christmas lights and cartons purchased; (2) charges for assembling the Christmas lights; and
(3) delivery receipts of the raw materials. However, the charges for assembling the Christmas lights and
delivery receipts could not support its insurance claim. The Insurance Policy provides that CBIC agreed to
insure UMC's stocks in trade. UMC defined stock in trade as tangible personal property kept for sale or traffic.
Applying UMC's definition, only the letters of credit and invoices for raw materials, Christmas lights and cartons
may be considered.

The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for
1996 amounts to P20,000,000.00 which were purchased in one month. Thus, UMC needs to prove purchases
amounting to P30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in the Statement of
Inventory it submitted to the BIR, which is considered an entry in official records, UMC stated that it had no
stocks in trade as of 31 December 1995. In its defense, UMC alleged that it did not include as stocks in trade
the raw materials to be assembled as Christmas lights, which it had on 31 December 1995. However, as proof
of its loss, UMC submitted invoices for raw materials, knowing that the insurance covers only stocks in trade.

In Yu Ban Chuan v. Fieldmen's Insurance, Co., Inc., the Court ruled that the submission of false invoices to
the adjusters establishes a clear case of fraud and misrepresentation which voids the insurer's liability as per
condition of the policy.

Thus, either amount in UMC's Income Statement or Financial Reports is twenty-five times the claim UMC seeks
to enforce. It has long been settled that a false and material statement made with an intent to deceive or
defraud voids an insurance policy.

The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or
counting but to a deliberate intent to demand from insurance companies payment for indemnity of goods not
existing at the time of the fire. This constitutes the so-called "fraudulent claim" which, by express agreement
between the insurers and the insured, is a ground for the exemption of insurers from civil liability.

The Insurance Code provides that "a policy may declare that a violation of specified provisions thereof shall
avoid it." Thus, in fire insurance policies, which contain provisions such as Condition No. 15 of the Insurance
Policy, a fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer.

25 – Alpha Plus International Enterprises Corp. v. Philippine Charter Insurance Corp.

Doctrine:
 An insurance policy that contained the same condition of bringing a suit within a period of twelve
months, it was interpreted therein that the 12- month period stated in the insurance policy referred to
the period of one year, with a view that the said insurance policy was stipulated pursuant to Section 63
of the Insurance Code.
 The 12-month period in Condition No. 27 of the parties' fire insurance policies should refer to the
period of one (1) year, or 365 days.
 Case law teaches that the prescriptive period for the insured's action for indemnity should be reckoned
from the "final rejection" of the claim. The "final rejection" simply means denial by the insurer of the
claims of the insured and not the rejection or denial by the insurer of the insured's motion or request
for reconsideration. The rejection referred to should be construed as the rejection in the first
instance.

Facts: Petitioner Alpha Plus International Enterprises Corporation (Alpha Plus), a company engaged in optical
media business, obtained two fire insurance policies from respondent Philippine Charter Insurance Corp.
(PCIC) covering the period of June 9, 2007 to June 9, 2008. On February 24, 2008, petitioner's warehouse was
gutted by fire destroying its equipment and pieces of machinery stored therein. Thus, it sought to recover
from its insurance policies with the PCIC but its claim was denied in a letter dated January 22, 2009.

Thus, on January 20, 2010, Alpha Plus filed a Complaint against respondent PCIC. On February 9, 2010,
petitioner filed an Amended Complaint.

Respondents filed Motions to Dismiss on grounds of lack of cause of action and insufficient payment of docket
fees, but these were denied by the RTC.

The CA nullified and set aside the RTC Orders and found that prescription had already set in.

Issue: Whether or not the CA erred in ordering the dismissal of petitioner's complaint on the ground of
prescription.

Ruling: No.

To determine the prescription of the subject insurance claim, Article 63 of the Insurance Code as well as
Condition No. 27 of the two fire insurance policies should be considered:

Sec. 63. A condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause of
action accrues, is void.

On the other hand, Condition No. 27 provides that an action or suit arising from rejection of a claim must be
commenced within 12 months from receipt of notice of rejection.

In the case of Sun Insurance Office, Ltd. v. Court of Appeals which involved an insurance policy that contained
the same condition of bringing a suit within a period of twelve months, it was interpreted therein that the 12-
month period stated in the insurance policy referred to the period of one year, with a view that the said
insurance policy was stipulated pursuant to Section 63 of the Insurance Code.

Thus, contrary to the finding of the appellate court that the 12-month period should mean 360 days, We hold
that the 12-month period in Condition No. 27 of the parties' fire insurance policies should refer to the period of
one (1) year, or 365 days, in line with Section 63 of the Insurance Code and prevailing jurisprudence.

Case law teaches that the prescriptive period for the insured's action for indemnity should be reckoned from
the "final rejection" of the claim. The "final rejection" simply means denial by the insurer of the claims of the
insured and not the rejection or denial by the insurer of the insured's motion or request for reconsideration.
The rejection referred to should be construed as the rejection in the first instance.

In this case, it is settled that respondents' rejection of petitioner's claim was embodied in a Letter dated
January 22, 2009, copy of which was received by petitioner on January 24, 2009. Hence, in accordance with
the parties' Condition No. 27 of their fire insurance policies, the prescriptive period should be reckoned from
petitioner's receipt of the notice of rejection, specifically on January 24, 2009. One (1) year or 365 days from
January 24, 2009 would show that petitioner's prescriptive period to file its insurance claim ends on January
24, 2010.

Based on the records, petitioner Alpha Plus filed its original Complaint on January 20, 2010. Subsequently, it
filed an Amended Complaint against the respondents on February 9, 2010. Petitioner posits that its action has
not yet prescribed and that the suit is deemed to have been commenced on the date that the original
complaint was filed on January 20, 2010.

An amended complaint supersedes an original one. As a consequence, the original complaint is deemed
withdrawn and no longer considered part of the record.

Verily, as the Amended Complaint superseded the original complaint of petitioner, the suit of the latter is
deemed to have been commenced on the date of filing of the Amended Complaint on February 9, 2010.
During this time, prescription had already set in as petitioner had only until January 24, 2010 within which to
file its insurance claim.

26 – Filcon Ready Mixed, Inc. v. UCPB General Insurance Company

Doctrine:
 It is noted that in the recent case of Henson, Jr. v. UCPB General Insurance Co., Inc., 913 SCRA 431
(2019), the Supreme Court (SC) overturned Vector and held that subrogation under Article 2207 of the
Civil Code only allows the insurer, as the new creditor who assumes ipso jure the old creditor’s rights
without the need of any contract, to go after the debtor.
 Pursuant to Article 1155 of the Civil Code, respondent’s demand letter and petitioners’ receipt thereof
had the effect of interrupting the four (4)-year prescriptive period and gave respondent a whole fresh
period of 4 years from petitioners’ receipt of the demand letter within which to file the action for sum
of money.

Facts: Marco P. Gutang is the registered owner of a Honda Civic which was insured with respondent UCPB
General Insurance Company. The car figured in a vehicular accident involving three other vehicles: a Toyota
Revo, a Mitsubishi Adventure and a cement mixer owned by petitioner Filcon and driven by petitioner
Vergara.. As a consequence, the insured vehicle got damaged. Gutang brought the car to Honda Cars Pasig
City for repair. As Gutang’s insurer, respondent paid the total cost of the repairs. Thereafter, Gutang assigned
to respondent all his claims against petitioners.

By virtue of this legal subrogation, respondent sent a demand letter to petitioners, but the latter simply
ignored it. Hence, respondent was constrained to file the present action for sum of money. Petitioner on the
other hand, interposed extinctive prescription as an affirmative defense. They claimed that under Article 1146
of the Civil Code, actions based on quasi-delict prescribes in four (4) years.

Issue: Is respondent’s action for money claims against petitioners barred by prescription?

Ruling: No.

The Court abandoned the ruling in Vector that an insurer may file an action against the tortfeasor within ten
(10) years from the time the insurer indemnifies the insured. Following the principles of subrogation, the
insurer only steps into the shoes of the insured and therefore, for purposes of prescription, inherits only the
remaining period within which the insured may file an action against the wrongdoer.

For cases that were filed by the subrogee-insurer prior to the applicability of the Vector ruling (i.e., before
August 15, 2013), the prescriptive period is four (4) years from the time the tort is committed against the
insured by the wrongdoer.

For cases where the tort was committed and the consequent loss/injury against the insured occurred only
upon or after the finality of the Henson Decision, the Vector doctrine would hold no application. The
prescriptive period is four (4) years from the time the tort is committed against the insured by the wrongdoer.

Since the action was filed on February 1, 2012, prior to Vector, the applicable prescriptive period is four (4)
years pursuant to Article 1146 of the Civil Code. Respondent, therefore, had four (4) years from November 16,
2007 when the vehicular mishap took place or until November 16, 2011 within which to file its action for sum
of money against Vergara and his employer Filcon.

Within the four (4)-year prescriptive period, or on September 1, 2011, respondent sent petitioners a demand
letter of even date. The latter never denied receipt thereof. Pursuant to Article 1155 of the Civil Code,
respondent's demand letter and petitioners' receipt thereof had the effect of interrupting the four (4)-year
prescriptive period and gave respondent a whole fresh period of four (4) years from petitioners' receipt of the
demand letter within which to file the action for sum of money.

25 - Keihin-Everett Forwarding Co., Inc. Vs. Tokio Marine Malayan Insurance Co., Inc.

Doctrine: The payment by the insurer to the insured operates as an equitable assignment to the insurer of all
the remedies which the insured 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
payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance
company of the insurance claim.

Issue: Whether or not Keihin-Everett is liable to Tokio Marine.

Ruling: Yes.

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.
Under this circumstance, Tokio Marine's right to sue is based on the fact that it voluntarily made payment in
favor of Honda Trading and it could go after the third party responsible for the loss (Keihin-Everett) in the
exercise of its legal right of subrogation.

Since the insurance claim for the loss sustained by the insured shipment was paid by Tokio Marine as proven
by the Subrogation Receipt — showing the amount paid and the acceptance made by Honda Trading, it is
inevitable that it is entitled, as a matter of course, to exercise its legal right to subrogation as provided under
Article 2207 of the Civil Code as follows:

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 shall be subrogated to the rights of the insured against the wrongdoer or the
person who has 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.

It must be stressed that the Subrogation Receipt only proves the fact of payment. This fact of payment grants
Tokio Marine subrogatory right which enables it to exercise legal remedies that would otherwise be available
to Honda Trading as owner of the hijacked cargoes as against the common carrier (Keihin-Everett). In other
words, the right of subrogation accrues simply upon payment by the insurance company of the insurance
claim. As the Court held:

The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the
remedies which the insured 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 payment by the insurance company of the insurance claim. It accrues simply upon payment by
the insurance company of the insurance claim.

Indeed, the right of subrogation has its roots in equity. It is designed to promote and to accomplish justice
and is the mode which equity adopts to compel the ultimate payment of a debt by one who, in justice and
good conscience, ought to pay. Consequently, the payment made by Tokio Marine to Honda Trading operates
as an equitable assignment to the former of all the remedies which the latter may have against Keihin-Everett.

28 – Henson v. UCPB General Insurance Co., Inc.

Doctrine: Following the principles of subrogation, the insurer only steps into the shoes of the insured and
therefore, for purposes of prescription, inherits only the remaining period within which the insured may file an
action against the wrongdoer.

Facts: National Arts Studio and Color Lab (NASCL) leased the second floor of a building then owned by
petitioner. Meanwhile, Copylandia leased the ground floor. On May 9, 2006, a water leak occurred in the
building and damaged Copylandia's various equipment, causing injury to it. As the said equipment were
insured with respondent, Copylandia filed a claim with the former. Eventually, the two parties settled on
November 2, 2006. This resulted in respondent's subrogation to the rights of Copylandia over all claims and
demands arising from the said incident. On May 20, 2010, respondent, as subrogee to Copylandia's rights,
demanded from, inter alia, NASCL for the payment of the aforesaid claim, but to no avail. Thus, it filed a
complaint for damages 15 against NASCL, among others, before the RTC.

Meanwhile, sometime in 2010, petitioner transferred the ownership of the building to Citrinne Holdings, Inc.
(CHI). On October 6, 2011, respondent filed an Amended Complaint impleading CHI as a party-defendant to
the case, as the new owner of the building.

CHI opposed the motion principally on the ground of prescription, arguing that since respondent's cause of
action is based on quasi-delict, it must be brought within four (4) years from its accrual on May 9, 2006. As
such, respondent is already barred from proceeding against CHI/petitioner, especially since the latter never
received any prior demand from the former.

Issue: Whether or not respondent’s cause of action is barred by prescription.

Ruling: No.

As legal subrogation is not equivalent to conventional subrogation, no new obligation is created by virtue of
the insurer's payment under Article 2207 of the Civil Code; also, as legal subrogation is not the same as an
assignment of credit (as the former is in fact, called an "equitable assignment"), no privity of contract is
needed to produce its legal effects. Accordingly, "the insurer can take nothing by subrogation but the rights of
the insured, and is subrogated only to such rights as the insured possesses. This principle has been frequently
expressed in the form that the rights of the insurer against the wrongdoer cannot rise higher than the rights of
the insured against such wrongdoer, since the insurer as subrogee, in contemplation of law, stands in the
place of the insured and succeeds to whatever rights he may have in the matter. Therefore, any defense
which a wrongdoer has against the insured is good against the insurer subrogated to the rights of the insured,
" and this would clearly include the defense of prescription.
Based on the above-discussed considerations, the Court must heretofore abandon the ruling in Vector that an
insurer may file an action against the tortfeasor within ten (10) years from the time the insurer indemnifies the
insured. Following the principles of subrogation, the insurer only steps into the shoes of the insured and
therefore, for purposes of prescription, inherits only the remaining period within which the insured may file an
action against the wrongdoer.

With these in mind, the Court therefore sets the following guidelines relative to the application of Vector and
this Decision vis-a-vis the prescriptive period in cases where the insurer is subrogated to the rights of the
insured against the wrongdoer based on a quasi-delict.
1. For actions of such nature that have already been filed and are currently pending before the courts at
the time of the finality of this Decision, the rules on prescription prevailing at the time the action is filed
would apply. Particularly:
a. For cases that were filed by the subrogee-insurer during the applicability of the Vector ruling
(i.e., from Vector's finality on August 15, 2013 60 up until the finality of this Decision), the
prescriptive period is ten (10) years from the time of payment by the insurer to the insured,
which gave rise to an obligation created by law.
b. For cases that were filed by the subrogee-insurer prior to the applicability of the Vector ruling
(i.e., before August 15, 2013), the prescriptive period is four (4) years from the time the tort is
committed against the insured by the wrongdoer.
2. For actions of such nature that have not yet been filed at the time of the finality of this Decision:
a. For cases where the tort was committed and the consequent loss/injury against the insured
occurred prior to the finality of this Decision, the subrogee-insurer is given a period not
exceeding four (4) years from the time of the finality of this Decision to file the action against
the wrongdoer; provided, that in all instances, the total period to file such case shall not exceed
ten (10) years from the time the insurer is subrogated to the rights of the insured.
b. For cases where the tort was committed and the consequent loss/injury against the insured
occurred only upon or after the finality of this Decision, the Vector doctrine would hold no
application. The prescriptive period is four (4) years from the time the tort is committed against
the insured by the wrongdoer.

Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance and Safety Corporation
G.R. Nos. 10080-81 & 180896-97; September 25, 2009

Doctrine: A person insured by a contract of marine insurance may abandon the thing insured, or any
particular portion hereof separately valued by the policy, or otherwise separately insured, and recover for a
total loss thereof

Facts: KCSI and WG&A Jebsens Shipmanagement executed a Shiprepair Agreement wherein KCSI would
renovate and reconstruct WG&A's M/V "Superferry 3" using its dry docking facilities pursuant to its restrictive
safety and security rules and regulations. Prior to the execution of the Shiprepair Agreement, "Superferry 3"
was already insured by WG&A with Pioneer. In the course of its repair, M/V "Superferry 3" was gutted by fire.
Claiming that the extent of the damage was pervasive, WG&A declared the vessel's damage as a "total
constructive loss" and, hence, filed an insurance claim with Pioneer. Pioneer paid the insurance claim of
WG&A, WG&A, in turn, executed a Loss and Subrogation Receipt 9 in favor of Pioneer.

Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied any responsibility
for the loss of the subject vessel. As KCSI continuously refused to pay despite repeated demands, Pioneer filed
a Request for Arbitration before the Construction Industry Arbitration Commission (CIAC).

Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A the full amount of
the insurance coverage and, by operation of law, it was entitled to be subrogated to the rights of WG&A to
claim the amount of the loss. It further argues that the limitation of liability clause found in the Shiprepair
Agreement is null and void for being iniquitous and against public policy.
KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that there is no proof
of payment of the insurance proceeds.

Issue: Whether or not Pioneer is entitled to the full amount of insurance coverage.

Ruling: Yes.

In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section 139 of the
Insurance Code, which provides —

Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular
portion hereof separately valued by the policy, or otherwise separately insured, and recover for a total loss
thereof, when the cause of the loss is a peril insured against:

a. If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it
from the peril;
b. If it is injured to such an extent as to reduce its value more than three-fourths;
It appears, however, that in the execution of the insurance policies over M/V "Superferry 3", WG&A and
Pioneer incorporated by reference the American Institute Hull Clauses 2/6/77, the Total Loss Provision of
which reads —

Total Loss

In ascertaining whether the Vessel is a constructive Total Loss the Agreed Value shall be taken as the
repaired value and nothing in respect of the damaged or break-up value of the Vessel or wreck shall be
taken into account.

There shall be no recovery for a constructive Total Loss hereunder unless the expense of recovering
and repairing the Vessel would exceed the Agreed Value in policies on Hull and Machinery. In making
this determination, only expenses incurred or to be incurred by reason of a single accident or a
sequence of damages arising from the same accident shall be taken into account, but expenses
incurred prior to tender of abandonment shall not be considered if such are to be claimed separately
under the Sue and Labor clause.

In the face of this apparent conflict, we hold that Section 139 of the Insurance Code should govern, because
Philippine law is deemed incorporated in every locally executed contract.

Considering the extent of the damage, WG&A opted to abandon the ship and claimed the value of its policies.
Pioneer, finding the claim compensable, paid the claim, with WG&A issuing a Loss and Subrogation Receipt
evidencing receipt of the payment of the insurance proceeds from Pioneer. On this note, we find as
unacceptable the claim of KCSI that there was no ample proof of payment simply because the person who
signed the Receipt appeared to be an employee of Aboitiz Shipping Corporation. The Loss and Subrogation
Receipt issued by WG&A to Pioneer is the best evidence of payment of the insurance proceeds to the former,
and no controverting evidence was presented by KCSI to rebut the presumed authority of the signatory to
receive such payment.

New World International Development, Inc. v. NYK-Fil Japan Shipping Corp.

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

Facts: Petitioner New World bought from DMT Corporation through its agent, Advatech Industries, three
emergency generator sets. The generator sets were loaded from California on a vessel owned and operated by
NYK Fil-Japan Shipping for delivery to petitioner in Manila. NYK unloaded the shipment in Hong Kong and
transshipped it to another vessel also owned and operated by NYK. However, on its journey to Manila, said
vessel encountered typhoon resulting to the damage of the goods on board including petitioner’s generator
sets. An examination of the three generator sets revealed that all three suffered extensive damage and could
no longer be repaired. For these reasons, petitioner demanded recompense for its loss from respondents. The
respondents, however, denied liability for the loss.

Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal claim.
Seaboard required petitioner New World to submit to it an itemized list of the damaged units, parts, and
accessories, with corresponding values, for the processing of the claim. But petitioner New World did not
submit what was required of it, insisting that the insurance policy did not include the submission of such a list
in connection with an insurance claim. Reacting to this, Seaboard refused to process the claim.

Thus, petitioner New World filed an action for specific performance and damages against all the respondents.
The RTC rendered a decision absolving the various respondents from liability with the exception of NYK. The
RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond the one
year provided under the Carriage of Goods by Sea Act (COGSA).

As regards petitioner New World's claim against Seaboard, its insurer, the RTC held that the latter cannot be
faulted for denying the claim against it since New World refused to submit the itemized list that Seaboard
needed for assessing the damage to the shipment. Likewise, the belated filing of the complaint prejudiced
Seaboard's right to pursue a claim against NYK in the event of subrogation.

The CA held that petitioner New World can still recoup its loss from Seaboard's marine insurance policy,
considering a) that the submission of the itemized listing is an unreasonable imposition and b) that the one-
year prescriptive period under the COGSA did not affect New World's right under the insurance policy since it
was the Insurance Code that governed the relation between the insurer and the insured.

Issues:
1. Whether or not Seaboard’s request from petitioner New World for an itemized list is reasonable
imposition and did not violate the insurance contract between them.
2. Whether or not the one-year COGSA prescriptive period for marine claims apply to petitioner New
World’s prosecution of its claim against Seaboard.

Ruling:
1. No, Seaboard’s request is not a reasonable imposition.

The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured
against all causes of conceivable loss or damage except when otherwise excluded or when the loss or damage
was due to fraud or intentional misconduct committed by the insured. The policy covered all losses during the
voyage whether or not arising from a marine peril.

Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage, or
vessels unseaworthiness, among others. But Seaboard had been unable to show that petitioner New World's
loss or damage fell within some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it could not verify the damage that New World's
goods suffered going by the documents that it already submitted. Notably, Seaboard's own marine surveyor
attended the inspection of the generator sets.

Seaboard cannot pretend that the documents submitted by New World are inadequate since they were
precisely the documents listed in its insurance policy. Being a contract of adhesion, an insurance policy is
construed strongly against the insurer who prepared it. The Court cannot read a requirement in the policy that
was not there.

Further, it appears from the exchanges of communications between Seaboard and Advatech that submission
of the requested itemized listing was incumbent on the latter as the seller DMT's local agent. Petitioner New
World should not be made to suffer for Advatech's shortcomings.

2. Yes.

But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time? The
last day for filing such a suit fell on October 7, 1994. The record shows that petitioner New World filed its
formal claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early as November 16,
1993 or about 11 months before the suit against NYK would have fallen due.

In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have been
subrogated to petitioner New World's right to recover from NYK. But, as discussed above, Seaboard made an
unreasonable demand on February 14, 1994 for an itemized list of the damaged units

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

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

30 – 2100 Customs Brokers, Inc. v. Philam Insurance Company

Doctrine: The original copy of the insurance policy is the best proof of its contents. The contract of insurance
must be presented in evidence to indicate the extent of its coverage.

Facts: Ablestik Laboratories (Ablestik) placed two (2) cardboard boxes containing 63 jars of Ablebond
Adhesive on board Japan Airlines (JAL). for consignee TSPIC Corporation (TSPIC). After transshipment in
Japan, the goods were expected to arrive in Manila. Ablestik issued a handling instruction addressed to its
freight forwarding agent, U- Freight America, Inc., stating the following: SHIPMENTS CONTAINING DRY ICE
ARE PERISHABLE AND MUST DELIVER TO OUR CUSTOMER WITHIN 72 HOURS. DO NOT DELAY.

The goods were insured with respondent Philam Insurance Company. The goods arrived and subsequently
stored at the the Paircargo warehouse. TSPIC notified 2100 CBI that the shipment had arrived. TSPIC
allegedly forwarded to 2100 CBI the Packing List from Ablestik indicating "1 Year @ -40C or colder/Dry ice
shipment" and the Shipment Handling Instructions.

Upon receipt of the goods, TSPIC's representatives found that the dry ice stuffed inside the boxes have melted
due to the delay in the delivery. TSPIC filed a claim 22 against 2100 CBI for the value of the shipment but the
latter refused to pay. 2100 CBI contended that the delay in the delivery of the goods was due to TSPIC's
failure to give pre-alerts as to the expected arrival thereof and TSPIC's failure to pay the freight charges on
time.

TSPIC then filed a formal claim for the recovery of the value of the damaged goods against Philam. Philam
paid the insurance claim of TSPIC and a subrogation receipt was issued. Thereafter, Philam filed a claim for
reimbursement against 2100 CBI but its claim was denied. Hence, Philam filed a complaint for damages.

In its answer, 2100 CBI claimed that the alleged damage, if there is any, did not occur when the shipment was
under its custody. 2100 CBI also argued that it was just a mere customs broker or a commercial agent in the
transaction specifically tasked to release the shipment from the BOC only after the receipt of the original
import documents from the consignees or freight forwarder or at least a pre-alert advice about the arrival of
the shipment from the consignee.

Issue: Whether the insurance policy must be presented to establish the liability of the common carrier to
Philam.

Ruling: Yes.

Noticeably, Open Policy Number 9595292 was not presented during trial nor on appeal. From the start, 2100
CBI had already raised the issue of non-presentation of the insurance policy yet it was never produced by
Philam.

The original copy of the insurance policy is the best proof of its contents. The contract of insurance must be
presented in evidence to indicate the extent of its coverage. At most, Marine Cargo Certificate No. 0801012154
and the subrogation receipt may be used to establish the relationship between the insurer and the consignee
and the amount paid to settle the claim. The subrogation receipt, by itself, is not sufficient to prove a claim
holding an insurer liable for damage sustained by an insured item. These documents are not sufficient to
prove that the damage to the cargo is compensable under the insurance policy chargeable against 2100 CBI.

As an actionable document, the insurance policy must be presented in order to determine whether the
damage sustained by the cargo of TSPIC is caused by a peril or risk covered by the policy.

In the absence of proof of the contents of the policy confirming that the damage to the cargo is covered by
the insurance policy chargeable against 2100 CBI, Philam cannot hold 2100 CBI responsible for the damage to
the cargo. Philam's failure to present the original copy, which was presumably in its possession, or even a
copy of it, for unknown reasons, is fatal to its claim against 2100 CBI as this document is the primary basis for
its claim of right to subrogation. Had a copy of the insurance policy been presented by Philam, it would have
clearly delineated the scope of its coverage. We cannot ignore the possibility that the insurance policy did not
cover all phases of handling the shipment.

31 – Malayan Insurance Company, Inc. v. PAP Co., Ltd.

Doctrine: 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.

Facts: Malayan Insurance issued Fire Insurance Policy to PAP Co. for the latter’s machineries and equipment.
After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co. renewed the
policy on an “as is” basis. During the subsistence of the renewal policy, the insured machineries and
equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan. Malayan denied
the claim upon the ground that, at the time of loss, the insured machineries and equipment were transferred
by PAP Co. to a location different from that indicated in the policy.

Malayan basically argues that it cannot be held liable under the insurance contract because PAP committed
concealment, misrepresentation and breach of an affirmative warranty under the renewal policy when it
transferred the location of the insured properties without informing it. Such transfer affected the correct
estimation of the risk which should have enabled Malayan to decide whether it was willing to assume such risk
and, if so, at what rate of premium.

Issue: Whether or not Malayan can be held liable for the loss of the insured properties which was transferred
by PAP Co. to a location different from that indicated in the policy.

Ruling: No.

The Court agrees with the position of Malayan that it cannot be held liable for the loss of the insured
properties under the fire insurance policy.

Condition No. 9(c) of the renewal policy provides that the removal of the insured property to any building or
place required the consent of Malayan. Any transfer effected by the insured, without the insurer's consent,
would free the latter from any liability. In this case, respondent failed to notify, and to obtain the consent of
Malayan regarding the removal.

Malayan is entitled to rescind the contract. It can also be said that with the transfer of the location of the
subject properties, without notice and without Malayan's consent, after the renewal of the policy, PAP clearly
committed concealment, misrepresentation and a breach of a material warranty. Under Section 27 of the
Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." Moreover, under
Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in case of an
alteration in the use or condition of the thing insured.

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.

In the case at bench, all these circumstances are present. It was clearly established that the renewal policy
stipulated that the insured properties were located at the Sanyo factory; that PAP removed the properties
without the consent of Malayan; and that the alteration of the location increased the risk of loss.

32 - The Insular Life Assurance Company, Ltd Vs. Khu

Doctrine: At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is
given the stability to recover under the policy when the insured dies. The provision also makes clear when the
two-year period should commence in case the policy should lapse and is reinstated, that is, from the date of
the last reinstatement.

Facts: Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter's Diamond
Jubilee Insurance Plan. Felipe accomplished the required medical questionnaire wherein he did not declare any
illness or adverse medical condition. Insular Life thereafter issued him Policy which took effect on June 22,
1997.
On June 23, 1999, Felipe's policy lapsed due to non-payment of the premium covering the period from June
22, 1999 to June 23, 2000. On September 7, 1999, Felipe applied for the reinstatement of his policy. Insular
Life advised Felipe that his application for reinstatement may only be considered if he agreed to certain
conditions such as payment of additional premium and the cancellation of the riders pertaining to premium
waiver and accidental death benefits. Felipe agreed to these conditions and paid the agreed additional
premium.

On January 7, 2000, Insular Life issued Endorsement which certified that the reinstatement policy has been
approved.

On June 23, 2000, Felipe paid the annual premium covering the period from June 22, 2000 to June 22, 2001.
And on July 2, 2001, he also paid the same amount as annual premium covering the period from June 22,
2001 to June 21, 2002.

On September 22, 2001, Felipe died due to “end stage renal failure.” Felipe’s beneficiaries, herein respondents
filed with Insular Life a claim for benefit under the reinstated policy. This claim was denied. Instead, Insular
Life advised Felipe's beneficiaries that it had decided to rescind the reinstated policy on the grounds of
concealment and misrepresentation by Felipe.

Hence, respondents instituted a complaint for specific performance with damages. The RTC ruled in favor of
the respondents stating that any ambiguity in a contract of insurance should be resolved strictly against the
insurer upon the principle that an insurance contract is a contract of adhesion.

The CA affirmed the RTC’s decision. The CA upheld the RTC's ruling on the non-contestability of the reinstated
insurance policy on the date the insured died. It declared that contrary to Insular Life's contention, there in
fact exists a genuine ambiguity or obscurity in the language of the two documents prepared by Insular Life
itself, viz., Felipe's Letter of Acceptance and Insular Life's Endorsement.

Issue: Whether Felipe's reinstated life insurance policy is already incontestable at the time of his death.

Ruling: Yes, Felipe's reinstated life insurance policy is already incontestable at the time of his death.

The Insurance Code pertinently provides that:

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of
this chapter, such right must be exercised previous to the commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in force
during the lifetime of the insured for a period of two years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his agent.

Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers
enough time to inquire whether the policy was obtained by fraud, concealment, or misrepresentation; on the
other hand, it forewarns scheming individuals that their attempts at insurance fraud would be timely
uncovered — thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate
policy holders are absolutely protected from unwarranted denial of their claims or delay in the collection of
insurance proceeds occasioned by allegations of fraud, concealment, or misrepresentation by insurers, claims
which may no longer be set up after the two-year period expires as ordained under the law.

The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums as long
as the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation when the
insured dies in order to defeat the right of the beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the
stability to recover under the policy when the insured dies. The provision also makes clear when the two-year
period should commence in case the policy should lapse and is reinstated, that is, from the date of the last
reinstatement.
In this case, the parties differ as to when the reinstatement was actually approved. Insular Life claims that it
approved the reinstatement only on December 27, 1999. On the other hand, respondents contend that it was
on June 22, 1999 that the reinstatement took effect.

We find that the CA did not commit any error in holding that the subject insurance policy be considered as
reinstated on June 22, 1999. This finding must be upheld not only because it accords with the evidence, but
also because this is favorable to the insured who was not responsible for causing the ambiguity or obscurity in
the insurance contract.

17 - THE INSULAR INSURANCE COMPANY VS. THE HEIRS OF ALVAREZ

Doctrine:
 In this jurisdiction, a concealment, whether intentional or unintentional, entitles the insurer to rescind
the contract of insurance, concealment being defined as "negligence to communicate that which a
party knows and ought to communicate." Good faith is no defense in concealment. Concealment
applies only with respect to material facts. That is, those facts which by their nature would clearly,
unequivocally, and logically be known by the insured as necessary for the insurer to calculate the
proper risks. Proof of fraudulent intent is unnecessary for the rescission of an insurance contract on
account of concealment.
 A representation is to be deemed false when the facts fail to correspond with its assertions or
stipulations. When the insured makes a representation, it is incumbent on them to assure themselves
that a representation on a material fact is not false; and if it is false, that it is not a fraudulent
misrepresentation of a material fact. This returns the burden to insurance companies, which, in
general, have more resources than the insured to check the veracity of the insured's beliefs as to a
statement of fact.
 Section 45 is Chapter 1, Title 5's counterpart provision to Section 27, and concerns rescission due to
false representations. Not being similarly qualified as rescission under Section 27, rescission under
Section 45 remains subject to the basic precept of fraud having to be proven by clear and convincing
evidence.

Facts: Alvarez applied for and was granted a housing loan by UnionBank. This loan was secured by a
promissory note, a real estate mortgage over the lot, and a mortgage redemption insurance taken on the life
of Alvarez with UnionBank as beneficiary. Alvarez was among the mortgagors included in the list of qualified
debtors covered by the Group Mortgage Redemption Insurance that UnionBank had with Insular Life.

After Alvarez passed away, UnionBank filed with Insular Life a death claim under Alvarez's name pursuant to
the Group Mortgage Redemption Insurance. In line with Insular Life's standard procedures, UnionBank was
required to submit documents to support the claim including Alvarez’s birth, marriage and death certificate.

Insular Life denied the claim after determining that Alvarez was not eligible for coverage as he was supposedly
more than 60 years old at the time of his loan's approval. With the claim's denial, the monthly amortizations of
the loan stood unpaid. UnionBank sent the Heirs of Alvarez a demand letter, giving them 10 days to vacate the
lot. Subsequently, the lot was foreclosed and sold at a public auction with UnionBank as the highest bidder.

The Heirs of Alvarez filed a Complaint for Declaration of Nullity of Contract and Damages against UnionBank, a
certain Alfonso P. Miranda (Miranda), who supposedly benefitted from the loan, and the insurer. The
Complaint was later amended and converted into one for specific performance to include a demand against
Insular Life to fulfill its obligation as an insurer under the Group Mortgage Redemption Insurance.

For its part, Insular Life maintained that based on the documents submitted by UnionBank, Alvarez was no
longer eligible under the Group Mortgage Redemption Insurance since he was more than 60 years old when
his loan was approved.

The RTC ruled in favor of the Heirs of Alvarez. It found no indication that Alvarez had any fraudulent intent
when he gave UnionBank information about his age and date of birth. The CA affirmed the RTC’s ruling.

Citing Section 27 of the Insurance Code, Insular Life asserts that in cases of rescission due to concealment,
i.e., when a party "neglects to communicate that which he or she knows and ought to communicate," proof of
fraudulent intent is not necessary.

Issue: Whether or not petitioner The Insular Life Assurance Co., Ltd. is obliged to pay Union Bank of the
Philippines the balance of Jose H. Alvarez's loan given the claim that he lied about his age at the time of the
approval of his loan.

Ruling: Yes.

While Insular Life correctly reads Section 27 as making no distinction between intentional and unintentional
concealment, it erroneously pleads Section 27 as the proper statutory anchor of this case.

The Insurance Code distinguishes representations from concealments. Chapter 1, Title 4 is on concealments. It
spans Sections 26 to 35 of the Insurance Code; 79 it is where Section 27 is found. Chapter 1, Title 5 is on
representations. It spans Sections 36 to 48 of the Insurance Code.

Section 26 defines concealment as "[a] neglect to communicate that which a party knows and ought to
communicate." However, Alvarez did not withhold information on or neglect to state his age. He made an
actual declaration and assertion about it.

What this case involves, instead, is an allegedly false representation. Section 44 of the Insurance Code states,
"A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations." If
indeed Alvarez misdeclared his age such that his assertion fails to correspond with his factual age, he made a
false representation, not a concealment.

At no point does Chapter 1, Title 5 of the Insurance Code replicate Section 27's language negating the
distinction between intentional and unintentional concealment. Section 45 is Chapter 1, Title 5's counterpart
provision to Section 27, and concerns rescission due to false representations. It reads:

Section 45. If a representation is false in a material point, whether affirmative or promissory, the
injured party is entitled to rescind the contract from the time when the representation becomes false.

Not being similarly qualified as rescission under Section 27, rescission under Section 45 remains subject to the
basic precept of fraud having to be proven by clear and convincing evidence.

The assailed Court of Appeals May 21, 2013 Decision discussed the evidentiary deficiency in Insular Life's
cause, i.e., how it relied on nothing but a single piece of evidence to prove fraudulent intent.

The Court of Appeals' observations are well-taken. Consistent with the requirement of clear and convincing
evidence, it was Insular Life's burden to establish the merits of its own case. Relative strength as against
respondents' evidence does not suffice.
A single piece of evidence hardly qualifies as clear and convincing. Its contents could just as easily have been
an isolated mistake.

Pleading just one (1) additional document still fails to establish the consistent fraudulent design that was
Insular Life's burden to prove by clear and convincing evidence. Insular Life had all the opportunity to
demonstrate Alvarez's pattern of consistently indicating erroneous entries for his age. All it needed to do was
to inventory the documents submitted by Alvarez and note the statements he made concerning his age. This
was not a cumbersome task, yet it failed at it. Its failure to discharge its burden of proving must thwart its
plea for relief from this Court.

15 - DE LA FUENTE VS. FORTUNE LIFE INSURANCE CO., INC.

G.R. No. 224863, December 2, 2020

Doctrine:
 An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the
burden of establishing that the loss comes within the purview of the exception or limitation. If loss is
proved apparently within a contract of insurance, the burden is upon the insurer to establish that the
loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which
limits its liability.
 Where a debtor in good faith insures his life for the benefit of his creditor, full payment of the debt
does not invalidate the policy; in such case, the proceeds should go to the estate of the debtor.
 Where an insurance is taken by a creditor on the life of his debtor, the insuring creditor could only
recover such amount as remains unpaid at the time of the death of the debtor, — such that, if the
whole debt has already been paid, then recovery on the policy is no longer permissible

Facts: On February 17, 2011, Susan invested P2,000,000.00 in the lending business of Reuben. On March 3,
2011, she invested an additional P1,000,000.00. On March 10, 2011, Reuben applied for a life insurance with
respondent Fortune Life Insurance Co., Inc. in the amount of P15,000,000.00 with Susan as the revocable
beneficiary. On March 14, 2011, she again invested another P1,000,000.00. On March 25, 2011, Policy No.
61761 was issued. The policy stated inter alia that:

In case of death of the Insured by self-destruction within (2) years from the Policy Date or date
of last reinstatement of this Policy, the pertinent provisions of the Insurance code, as amended,
shall apply. Where the death of the Insured by self-destruction is not compensable, we shall
refund the premiums actually paid less indebtedness.

On March 28, 2011, Susan invested P12,000,000.00 in Reuben's lending business.

About a month after the issuance of the policy, Susan submitted a copy of Policy No. 61761 with a face value
of P15,000,000.00 to claim its proceeds. Based on the Death Certificate submitted, Reuben died on April 15,
2011 due to a gunshot wound on the chest. Medico Legal Report prepared by Dr.Nulud confirmed that the
cause of death of Reuben is "Gunshot wound, trunk."

Fortune conducted an investigation and uncovered a Clinical Abstract executed by Dr. Pagayatan stating that
he conducted an interview with Randolph, brother of Reuben, within minutes after he brought Reuben to the
emergency room. Based on Dr. Pagayatan's interview, Randolph stated that prior to the shooting incident,
Reuben intimated that he already wanted to die. Because of this information, Fortune denied the claim of
Susan. Thereafter, Susan filed a complaint for a sum of money and damages against Fortune.

Incidentally, Rossana, a business partner of Reuben, sent a letter to Fortune informing the latter that she
already paid Susan the amount of P2,000,000.00. Rossana requested that the amount of P1,000,000.00 be
segregated in the settlement to be made with Susan.
In their answer, Fortune insisted that Susan has no cause of action because Reuben's death was due to
suicide which is an excepted risk under his policy.

The RTC rendered its decision in favor of Susan ordering Fortune to pay Susan P15 Million plus interest. The
RTC found no merit in the contention of Fortune that the information Randolph gave to Dr. Pagayatan is an
exception to the hearsay rule for being part of res gestae. For the RTC, the statement cannot be treated as
spontaneous because a considerable amount of time had lapsed from the moment the deceased was found
bleeding and the time the alleged statement was given to Dr. Pagayatan at the hospital. The RTC did not give
credence to the testimony of Dr. Raquel Fortun as her findings were only based on documents provided by
Fortune. She did not examine the body of Reuben nor present additional evidence to convince the RTC that
Reuben took his own life.

On appeal, the CA granted the appeal filed by Fortune The CA held that the evidence on record proved that
Reuben committed suicide.

Issues:
1. Whether the insurer carries the burden of proving that the insured's death was caused by suicide or
self-destruction; and
2. Whether Susan, as creditor of Reuben and beneficiary of the policy, is entitled to the entire face value
of the policy in the amount of P15,000,000.00 despite the fact that her insurable interest at the time
the policy took effect was only P4,000,000.00 and Rossana had already returned P2,000,000.00.

Ruling:
1. Yes, the burden of proving an excepted risk or condition that negates liability lies on the insurer and
not on the beneficiary.

In United Merchants Corp. v. Country Bankers Insurance Corp.,

An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the
burden of establishing that the loss comes within the purview of the exception or limitation. If loss is
proved apparently within a contract of insurance, the burden is upon the insurer to establish that the
loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which
limits its liability.

In the context of life insurance policies, the burden of proving suicide as the cause of death of the insure to
avoid liability rests on the insurer. Therefore, Fortune must prove suicide to defeat Susan's claim.

In the present case, We find that Fortune failed to discharge its burden of proving, by preponderance of
evidence, that Reuben's death was caused by suicide, an excluded risk in his policy. The CA primarily relied on
the testimony of Dr. Pagayatan which the CA considered res gestae, and the testimony of Dr. Fortun in
concluding that Reuben committed suicide. However, these pieces of evidence cannot be given credence by
the Court.

Dr. Pagayatan's testimony on the statement Randolph allegedly gave moments after Reuben was brought to
the hospital is inadmissible.

Section 36 of Rule 130 of the Rules provides that "a witness can testify only to those facts which he knows of
his personal knowledge; that is, which are derived from his own perception, except as otherwise provided in
these rules." Res gestae, one of the exceptions to the hearsay rule.

In People v. Dianos the Court explained that the exclamations and statements contemplated in this exception
are:
 made by either the participants, victims, or spectators to a crime, immediately before, during or
immediately after the commission of the crime, when the circumstances are such that the statements
constitute nothing but spontaneous reaction or utterance inspired by the excitement of the occasion
there being no opportunity for the declarant to deliberate and to fabricate a false statement become
admissible in evidence against the otherwise hearsay rule of inadmissibility.

Here, Dr. Pagayatan was neither a participant, victim, or spectator to the death of Reuben. He merely
repeated in court what was relayed to him by Randolph who was also not a participant, victim or spectator to
the act in controversy. He is not the declarant envisioned by the Rules as he had no personal knowledge of the
fact that Reuben took his own life.

The testimony of Dr. Fortun failed to prove that Reuben's death was caused by suicide. Though Dr. Fortun is a
renowned expert in the field of forensic pathology, her analysis and opinion were confined to documentary
evidence, including the medico-legal report, investigation report, and photographs that We consider
insufficient to conclude with certainty that Reuben took his own life. Her conclusions and suppositions were
not reached through a comprehensive examination of Reuben, the weapon involved, nor the scene of the
incident. Between the testimony of Dr. Fortun, who admitted that she did not conduct a post-mortem
examination on Reuben, and Dr. Nulud, who actually conducted an autopsy on Reuben and prepared the
medico-legal report, the latter should be given more weight.

2. Susan is entitled to the value of Reuben's outstanding obligation.

A debtor may name his creditor as a beneficiary on a life insurance policy taken out in good faith and
maintained by the debtor. Likewise, a creditor may take out an insurance policy on the life of his debtor.
However, there are marked differences in the implication of these two scenarios.

In the United States (US) Supreme Court case of Crotty v. Union Mutual Life Ins. Co. of Maine , a person
obtained an insurance policy upon his life with a stipulation that the amount of the policy should be payable to
the insured if he survived the stipulated term; or, if he should die within that term, then "to Michael Crotty, his
creditor, if living; if not, then to the said executors, administrators or assigns."

Professor Sulpicio Guevara, an eminent author in insurance law, highlighted the differences between a policy
taken by a creditor on the life of his debtor and a policy taken by the debtor on his own life and made payable
to his creditor.

Where a debtor in good faith insures his life for the benefit of his creditor, full payment of the debt
does not invalidate the policy; in such case, the proceeds should go to the estate of the debtor.

Where an insurance is taken by a creditor on the life of his debtor, the insuring creditor could only
recover such amount as remains unpaid at the time of the death of the debtor, — such that, if the
whole debt has already been paid, then recovery on the policy is no longer permissible.

Noticeably, the actual investment of Susan at the time of Reuben's death is P16,000,000.00 of P1,000,000.00
more than the face value of the policy. The intention of the parties in entering into several memoranda of
agreement reflecting the investment contracts, and in taking out an insurance policy on the life of Reuben with
Susan as the beneficiary is to secure Reuben's debt. To Our mind, in taking out a policy on his own life and
paying its premium, Reuben intended to use it as a collateral for his debt at least to the amount of the policy's
face value. The insurable interest of Susan is not limited to just what Reuben owed her at the time the policy
took effect. Instead, she becomes entitled to the value of Reuben's outstanding obligation at the time of his
death the maximum recoverable amount of which is the face value of the policy.

Nevertheless, taking into consideration the state's policy against wagering contracts and the principle of
equity, the P2,000,000.00 which Susan received from Rossana should be deducted from P16,000,000.00, the
total outstanding obligation of Reuben at the time of his death. The face value of the policy, P15,000,000.00
should be the maximum amount that Susan may receive. Therefore, the amount of Fortune's liability to Susan
is P14 Million.

Limiting the extent of Fortune's liability to Susan is consistent with the ruling in the case of Crotty. Though the
case of Crotty may not be on all fours with the one at bar, its principle is instructive in resolving Susan's claim.
Having already received P2,000,000.00 of the P16,000,000.00 Susan invested in Reuben business, she can
now only recover up to the balance of his outstanding obligation, P14,000,000.00.

35 – Alpha Insurance and Surety Co. v. Arsenia Sonia Castor

Doctrine: Contracts of insurance, like other contracts, are to be construed according to the sense and
meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense. Accordingly, in interpreting the
exclusions in an insurance contract, the terms used specifying the excluded classes therein are to be given
their meaning as understood in common speech.

Facts: Respondent entered into an insurance contract with petitioner involving her motor vehicle. Respondent
instructed her driver to bring the vehicle to a nearby auto-shop for a tune-up. However, the driver no longer
returned the motor vehicle to respondent. Resultantly, respondent promptly reported the incident to the police
and concomitantly notified petitioner of the said loss and demanded payment of the insurance proceeds.

Petitioner denied the insurance claim on the ground that the culprit who stole the vehicle was a person in the
insured’s service.

Issue: Whether or not the theft perpetrated by the insured’s driver is an exception to the coverage from the
insurance policy.

Ruling: No.

Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy
subject of this case. This is evident from the very provision of Section III — "Loss or Damage." The insurance
company, subject to the limits of liability, is obligated to indemnify the insured against theft. Said provision
does not qualify as to who would commit the theft. Thus, even if the same is committed by the driver of the
insured, there being no categorical declaration of exception, the same must be covered. As correctly pointed
out by the plaintiff, "(A)n insurance contract should be interpreted as to carry out the purpose for which the
parties entered into the contract which is to insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable meaning of language in the policy. Where
restrictive provisions are open to two interpretations, that which is most favorable to the insured is adopted.”

Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and
meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense. Accordingly, in interpreting the
exclusions in an insurance contract, the terms used specifying the excluded classes therein are to be given
their meaning as understood in common speech.

Adverse to petitioner's claim, the words "loss" and "damage" mean different things in common ordinary usage.
The word "loss" refers to the act or fact of losing, or failure to keep possession, while the word "damage"
means deterioration or injury to property.

Therefore, petitioner cannot exclude the loss of respondent's vehicle under the insurance policy under
paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious damage," or more
specifically, "injury" to the motor vehicle caused by a person under the insured's service. Paragraph 4 clearly
does not contemplate "loss of property," as what happened in the instant case.
36 – Alliance of Non-Life Insurance Workers of the Philippines, et al. v. Mendoza

Doctrine: Under Department Order (DO) No. 020-18, the Department of Transportation (DOTr)
acknowledges the sole and exclusive authority of the Insurance Commission to determine which can provide
Compulsory Motor Vehicle Liability Insurance and Passenger Personal Accident Insurance (Insurance Policies).

Facts: The DOTC issued D.O. No. 2007-28 which sought to eliminate the proliferation of fake and fraudulent
Compulsory Third Party Liability Insurance (CPTL Insurance) involved in the registration of motor vehicles.
Under D.O. No. 2007-28, the CPTL Insurance is automatically issued upon the registration of a motor vehicle
or its renewal in the LTO. In these cases, Alliance and MUNLI "sought for the nullification of DO No. 2007-28.

During the pendency of the present case, the Department of Transportation (DOTr) issued Department Order
No. 020-18 on August 24, 2018 entitled, "Revised Guidelines on Mandatory Insurance Policies for Motor
Vehicles and Personal Passenger Accident Insurance for Public Utility Vehicles" (Revised Guidelines). It issued
the Revised Guidelines to "revamp the existing guidelines" 45 and recognize the sole and exclusive authority of
the Insurance Commission in determining qualified insurance providers of Compulsory Motor Vehicle Liability
Insurance and Passenger Personal Accident Insurance.

Petitioner argue that the enactment of DO No. 2007-28 is an ultra vires act because the DOTC does not have
the power to regulate the insurance business under Section 3 of the Administrative Code.

Further, DO No. 2007-28 amends Sections 49-51 of the Insurance Code as to the form of insurance contracts,
and Sections 186 and 387, as it allows the DOTC or the LTO to transact the business of insurance as agents
without the required certification from the Insurance Commissioner. It removes the motorist's freedom to
choose a CTPL Insurance under Section 376-377. Finally, DO No. 2007-28 intrudes on the power of the
Insurance Commissioner to regulate the business of insurance. DO No. 2007-28 is a form of an invalid take-
over of private businesses in violation of Article 12, Section 17 of the Constitution. The designation of GSIS to
be the sole CTPL provider is an invasion of private businesses done without due process and consultation with
the affected parties.

Issue: Whether or not the Insurance Commission has the authority to determine which can provide
Compulsory Motor Vehicle Liability Insurance and Personal Accident Insurance Policies.

Ruling: Yes.

The supervening enactment of DOTr Department Order No. 020-18, has mooted the instant Petition.

Under DO No. 020-18, the DOTr acknowledges the sole and exclusive authority of the Insurance Commission
to determine which can provide Compulsory Motor Vehicle Liability Insurance and Passenger Personal Accident
Insurance (Insurance Policies).

DOTr imposes on its line agencies, the LTO and the Land Transportation Franchising and Regulatory Board
(LTFRB), the duty to "secure from the Commission the list of all qualified insurance companies, joint ventures,
or consortiums . . . which are authorized to issue Insurance Policies in accordance with the insurance
requirements set by LTO and LTFRB."

The list of qualified insurance providers shall be posted in the premises of LTO and LTFRB, to which the
applicants are free to choose from. Sections 4, 5 and 6 of DO 020-18 also lists prohibited activities of both the
qualified insurers and government personnel, and the appropriate sanctions.

Finally, DO No. 020-18 repeals all other department orders, circulars, special orders, office order, and/or other
inconsistent issuances. This is in the nature of a general repealing provision.
This Court holds that DO No. 020-18 impliedly repealed DO No. 2007- 28 for their irreconcilable
inconsistencies. Under DO No. 2007-28, the issuance of CTPL Insurance was envisioned to be integrated with
every motor vehicle registration and their renewal. Under DO No. 2007-28, in the Integrated CTPL Insurance
Program, the LTO collects the premium, taxes, and registration fees. The proof of CTPL Insurance coverage is
automatically reflected in the LTO Official Receipt of Registration.

However, on August 24, 2018, the DOTr enacted Department Order No. 020-18, which revised existing
guidelines on CTPL Insurance. Section 3 of Department Order No. 020-18 provides that applicants for
registration are responsible for procuring CTPL Insurance from the list of qualified insurers issued by the
Insurance Commission.

37 – Stronghold Insurance Company v. Sps. Rune and Lea Stroem

Doctrine: A performance bond, which is meant “to guarantee the supply of labor, materials, tools,
equipment, and necessary supervision to complete the project[,]” is significantly and substantially connected
to the construction contract and, therefore, falls under the jurisdiction of the Construction Industry Arbitration
Commission (CIAC).

Facts: Sps. Stroem entered into an Owners-Contractor Agreement with Asis-Leif & Company for the
construction of a two-storey house on the lot owned by Sps. Stroem. Pursuant to the agreement, Asis-Leif
secured Performance Bond from Stronghold Insurance Company. Stronghold and Asis-Leif, through Ms. Ma.
Cynthia Asis-Leif, bound themselves jointly and severally to pay the Sps. Stroem the agreed amount in the
event that the construction project is not completed.

Asis-Leif failed to finish the project on time despite repeated demands of the Sps. Stroem. Subsequently, Sps.
Stroem rescinded the agreement. Stronghold sent a letter to Asis-Leif requesting that the company settle its
obligations with the Spouses Stroem. No response was received from Asis-Leif.

The Sps. Stroem filed a Complaint for breach of contract and for sum of money with a claim for damages
against Asis-Leif, Ms. Cynthia Asis-Leif, and Stronghold.

Issue: Whether the dispute — liability of a surety under a performance bond — is connected to a construction
contract and, therefore, falls under the exclusive jurisdiction of the CIAC.

Ruling: Yes.

This court has previously held that a performance bond, which is meant "to guarantee the supply of labor,
materials, tools, equipment, and necessary supervision to complete the project, is significantly and
substantially connected to the construction contract and, therefore, falls under the jurisdiction of the CIAC.

This court in Prudential held that the construction contract expressly incorporated the performance bond into
the contract. In the present case, Article 7 of the Owners-Contractor Agreement merely stated that a
performance bond shall be issued in favor of respondents, in which case petitioner and Asis-Leif Builders
and/or Ms. Ma. Cynthia Asis-Leif shall pay P4,500,000.00 in the event that Asis-Leif fails to perform its duty
under the Owners-Contractor Agreement. Consequently, the performance bond merely referenced the contract
entered into by respondents and Asis-Leif, which pertained to Asis-Leif's duty to construct a two-storey
residence building with attic, pool, and landscaping over respondents' property.

38 – Cellpage International Corporation v. The Solid Guaranty, Inc.

Doctrine: Basic is the rule that a contract is the law between the contracting parties and obligations arising
therefrom have the force of law between them and should be complied with in good faith. The parties are not
precluded from imposing conditions and stipulating such terms as they may deem necessary as long as the
same are not contrary to law, morals, good customs, public order or public policy. Among these conditions is
the requirement to submit a written principal agreement before the surety can be made liable under the
suretyship contract. Thus, whether or not a written principal agreement is required in order to demand
performance from the surety would depend on the terms of the surety contract itself.

Facts: Cellpage International Corp. approved Jomar Powerhouse Marketing Corporation’s (JPMC) application
for credit line for the purchase of cellcards, with a condition that JPMC will provide a good and sufficient bond
to guaranty the payment of the purchases. In compliance with this condition, JPMC secured from The Solid
Guaranty surety bonds. JPMC thereafter purchased cellcards from Cellpage. In partial payment for its
purchases, JPMC issued to Cellpage postdated checks. When Cellpage presented these checks to the bank for
payment, the same were all dishonored for being drawn against insufficient funds. Thus, Cellpage demanded
from JPMC the full payment of its outstanding obligation, but the latter failed to pay. Cellpage also demanded
from Solid Guaranty the payment of JPMC’s obligation pursuant to the surety bonds issued by Solid Guaranty.
Solid Guaranty, however, refused to accede to Cellpage’s demand. Thus, Cellpage filed a complaint for sum of
money against JPMC and Solid Guaranty.

Solid Guaranty argue that since a surety bond is a mere collateral or accessory agreement, the extent of the
liability of Solid Guaranty is determined by the terms of the principal contract between JPMC and Cellpage.
Since neither JPMC nor Cellpage submitted copies of said written agreement before or after the issuance of
the surety bonds, Solid Guaranty argued that there can be no valid surety claim against it.

Cellpage maintains that the mere issuance by a surety company of a bond makes it liable under the same even
if the applicant failed to comply with the requirement set by a surety company. Cellpage argues that an
accessory surety agreement is valid even if the principal contract is not in writing.

Issues: Whether or not Solid Guaranty is liable to Cellpage in the absence of a written principal contract;

Ruling: Yes.

Section 175 of Presidential Decree No. 612 or the Insurance Code defined suretyship as an agreement where a
party called the surety guarantees the performance by another party called the principal or obligor of an
obligation or undertaking in favor of a third person called the obligee.

The surety's liability is joint and several with the obligor, limited to the amount of the bond, and determined
strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and
the obligee.

Does the phrase "in relation to the principal contract between the obligor and obligee" means that a written
principal agreement is required in order for the surety to be liable? The Court answers in the negative. Article
1356 of the Civil Code provides that contracts shall be obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present. Thus, an oral agreement which
has all the essential requisites for validity may be guaranteed by a surety contract. To rule otherwise
contravenes the clear import of Article 1356 of the Civil Code.

It bears pointing out that the ruling inFirst Lepanto was anchored on Section 176 of the Insurance Code which
emphasizes the strict application of the terms of the surety contract in relation to the principal contract
between the obligor and obligee. First Lepanto's pronouncement that a written principal agreement is required
in order for the creditor to demand performance was arrived at by applying strictly the terms of the surety
bond which required the submission and attachment of the principal agreement to the surety contract.
Thus, following the provision of Section 176 of the Insurance Code, the ruling in First Lepanto cannot be
applied to this case. Since the liability of a surety is determined strictly by the terms of the surety contract,
each case then must be assessed independently in light of the agreement of the parties as embodied in the
terms of the contract of suretyship.

The surety bonds do not expressly require the submission of a written principal agreement. Nowhere in the
said surety bonds did Solid Guaranty and Cellpage stipulate that Solid Guaranty's performance of its
obligations under the surety bonds is preconditioned upon Cellpage's submission of a written principal
agreement.

39 – Capital Insurance and Surety Co., Inc. v. Del Monte Motor Works, Inc.

Doctrine: Section 203 of the Insurance Code indicates that the security deposit is exempt from levy by a
judgment creditor or any other claimant.

Facts: Respondent Del Monte Motor Works sued Vilfran Liner, Inc., Hilaria F. Villegas and Maura F. Villegas in
the RTC to recover the unpaid billings related to the fabrication and construction of 35 passenger bus bodies.
It applied for the issuance of a writ of preliminary attachment. The RTC issued the writ of preliminary
attachment, which the sheriff served on the defendants, resulting in the levy of 10 buses and three parcels of
land belonging to the defendants. The sheriff also sent notice of garnishment of the defendant’s funds in its
depositary banks. This prompted defendant Maura F. Villegas file a counterbond (CISCO bond) and its
supporting documents purportedly issued by the petitioner CISCO. The RTC approved the counterbond and
discharged the writ of preliminary attachment.

The RTC rendered its decision in favor of the respondent. Said judgment was enforceable against the
counterbond posted by defendant. To enforce the decision against the counterbond, the sheriff levied against
the petitioner’s personal properties and later issued the notice of auction sale. The sheriff also served a notice
of garnishment against the security deposit of the petitioner in the Insurance Commission.

The respondent moved to direct the release by the depositary banks of funds subject to the notice of
garnishment from the accounts of the petitioner, and to transfer or release the amount from the petitioner’s
security deposit in the Insurance Commission. The petitioner opposed the respondent’s motion.

The petitioner sought to stay of the auction sale until the RTC resolved the issue of validity or enforceability of
CISCO Bond. The RTC issued its assailed resolution which ordered the manager or any authorized officer of
the depositary banks to release the funds under the account of CISCO subject of Notice of Garnishment.

It also ordered the Commissioner of the Insurance Commission to comply with its obligations under the
Insurance Code by upholding the integrity and efficacy of bonds validly issued by duly accredited Bonding and
Insurance Companies; and to safeguard the public interest by insuring the faithful performance to enforce
contractual obligations under existing bonds.

The RTC, finding no lawful justification for the Insurance Commissioner’s refusal to comply with the order of
the RTC declared him guilty of indirect contempt of court.

Meanwhile, the petitioner filed a Motion for Reconsideration but it was denied by the RTC. Thus, petitioner
filed a petition for certiorari in the CA.

The CA dismissed the petitioner’s petition for certiorari. It opined that the security deposit could answer for the
depositor’s liability and be the subject of levy in accordance with Section 203 of the Insurance Code.

Issue: Whether or not the security deposit could be subject of levy; Was the Insurance Commissioner's
refusal to release the security deposit despite the garnishment on execution legally justified?
Ruling: No, the security deposit could not be subject of levy.

The forthright text of Section 203 of the Insurance Code indicates that the security deposit is exempt from
levy by a judgment creditor or any other claimant. This exemption has been recognized in several rulings,
particularly in Republic v. Del Monte Motors, Inc.:

Basic is the statutory construction rule that provisions of a statute should be construed in accordance
with the purpose for which it was enacted. That is, the securities are held as a contingency fund to
answer for the claims against the insurance company by all its policy holders and their beneficiaries.
This step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the
claims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all
others. The other parties may have their own claims against the insurance company under other
insurance contracts it has entered into.

The simplistic interpretation of Section 203 of the Insurance Code by the CA ostensibly ran counter to the
intention of the statute and the Court's pronouncement on the matter. We cannot uphold the CA's
interpretation, therefore, because the holders or beneficiaries of the policies of an insolvent company would
thereby likely end up becoming unpaid claimants. Besides, denying the exemption would potentially pave the
way for a single claimant, like the respondent, to short-circuit the procedure normally undertaken in
adjudicating the claims against an insolvent company under the rules on concurrence and preference of credits
in order to ensure that none could obtain an advantage or preference over another by virtue of an attachment
or execution. To allow the respondent to proceed independently against the security deposit of the petitioner
would not only prejudice the policy holders and their beneficiaries, but would also annul the very reason for
which the law required the security deposit.

According to Republic v. Del Monte Motors, Inc. , the right to claim against the security deposit is dependent
on the solvency of the insurance company, and is subject to all other obligations of the insurance company
arising from its insurance contracts. Accordingly, the respondent's interest in the security deposit could only be
inchoate or a mere expectancy, and thus had no attribute as property.

The Insurance Commissioner's refusal to release was legally justified.

Under Section 191 and Section 203 of the Insurance Code, the Insurance Commissioner had the specific legal
duty to hold the security deposits for the benefit of all policy holders.

The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatory
authority over insurance matters.

Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections 191
and 203 of the Code, for the benefit and security of all policy holders.

Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance
industry so as to protect the insuring public. The law specifically confers custody over the securities upon the
commissioner, with whom these investments are required to be deposited. An implied trust is created by the
law for the benefit of all claimants under subsisting insurance contracts issued by the insurance company.

As the officer vested with custody of the security deposit, the insurance commissioner is in the best position to
determine if and when it may be released without prejudicing the rights of other policy holders. Before
allowing the withdrawal or the release of the deposit, the commissioner must be satisfied that the conditions
contemplated by the law are met and all policy holders protected.

Under the circumstances, the Insurance Commissioner properly refused the request to release issued by the
sheriff under the notice of garnishment, and was not guilty of contempt of court for disobedience to the
assailed order.
40 – Purisima v. Security Pacific Assurance Corporation

Doctrine: Section 194. Except as provided in Section 289, no new domestic life or non-life insurance company
shall, in a stock corporation, engage in business in the Philippines unless possessed of a paid-up capital equal
to at least One billion pesos (P1,000,000,000.00): Provided, That a domestic insurance company already doing
business in the Philippines shall have a net worth by June 30, 2013 of Two hundred fifty million pesos
(P250,000,000.00). Furthermore, said company must have by December 31, 2016, an additional Three
hundred million pesos (P300,000,000.00) in net worth; by December 31, 2019, an additional Three hundred
fifty million pesos (P350,000,000.00) in net worth; and by December 31, 2022, an additional Four hundred
million pesos (P400,000,000.00) in net worth.

Facts: Department Order (DO) No. 27-06, ordering the increase in the minimum paid-up capital stock
requirement of life, non-life, and reinsurance companies, was issued. Superseding several memorandum
circulars, DO No. 27-06 suspended the adoption of risk-based capital framework for non-life insurance and
integrated the compliance standards for fixed capitalization under the DO and the risk-based capital
framework.

As a consequence, members of the Philippine Insurers and Reinsurers Association, Inc. (PIRAI) received a
letter from the Deputy Insurance Commissioner, reminding them that their paid-up capital must be at least
equal to the amount scheduled by DO No. 27-06. Similarly, an advisory was sent to them by Commissioner
Emmanuel Dooc (Commissioner Dooc) after having failed to comply with the minimum paid-up capital of P175
Million by the end of December 2011.

Respondents herein file a complaint with application for the issuance of a Temporary Restraining Order (TRO)
and Writ of Preliminary Injunction (WPI) against the Secretary of Finance, Cesar Purisima, and Commissioner
Dooc (petitioners).

In their Complaint, respondents alleged that DO No. 27-06 is unconstitutional because, among others, it vests
upon the Secretary of Finance the legislative power to increase the minimum paid-up capital stock
requirement, thereby violating the doctrine of non-delegation of legislative power. Plagued with manpower
problems and serious business losses, respondents sought for the suspension of the DO and relevant circulars.

Issue: Whether or not the issuance of WPI against DO No. 27-06 is proper.

Ruling: No.

On August 15, 2013, Republic Act (R.A.) No. 10607 or the Amended Insurance Code was signed into law.
Among others, it provides for the new capitalization requirement for all life and non-life insurance companies,
to wit:

Section 194. Except as provided in Section 289, no new domestic life or non-life insurance company
shall, in a stock corporation, engage in business in the Philippines unless possessed of a paid-up capital
equal to at least One billion pesos (P1,000,000,000.00): Provided, That a domestic insurance company
already doing business in the Philippines shall have a net worth by June 30, 2013 of Two hundred fifty
million pesos (P250,000,000.00). Furthermore, said company must have by December 31, 2016, an
additional Three hundred million pesos (P300,000,000.00) in net worth; by December 31, 2019, an
additional Three hundred fifty million pesos (P350,000,000.00) in net worth; and by December 31,
2022, an additional Four hundred million pesos (P400,000,000.00) in net worth.

Thus, it is clear that the issuance of DO No. 27-06 and DO No. 15-2012 as regards the capitalization
requirement has been rendered moot and academic by the passage of the aforementioned law.
41 – Icon Development Corporation v. National Life Insurance Company of the Philippines

Doctrine: Conservatorship proceedings against a financially distressed insurance company are resorted to
only when such company is in a state of continuing inability to maintain a condition of solvency or liquidity
deemed adequate to protect the interest of policyholders and creditors.

Facts: Icon Development Corporation (petitioner) obtained several loans from National Life Insurance
Company of the Philippines (respondent). As security for the loans, several properties were mortgaged by the
petitioner to the respondent. The petitioner made several payments until 2008 when it suddenly refused to
make further payments despite repeated demands from the respondent.

After the petitioner defaulted in the payment of its obligations, the respondent filed a Petition for Extrajudicial
Foreclosure of the mortgaged properties. The provincial Sheriff issued a Notice of Extra- Judicial Sale setting
the auction of the mortgaged properties.

The petitioner instituted before the RTC a Complaint for the Discharge of Obligation/or Determination of Actual
Indebtedness, and Declaration of Nullity with Temporary Restraining Order (TRO)/Writ of Preliminary
Injunction (WPI) with Damages.

Issue: Whether the respondent’s directors can initiate foreclosure even without the authority of the
conservator.

Ruling: Yes.

Conservatorship proceedings against a financially distressed insurance company are resorted to only when
such company is in a state of continuing inability to maintain a condition of solvency or liquidity deemed
adequate to protect the interest of policyholders and creditors. An insurance company placed under
conservatorship is facing financial difficulties which require the appointment of a conservator to take charge of
its assets, liabilities, and management aimed at preserving its resources and restoring its viability as a going
business enterprise.

Conservatorship, under Section 248 of the Insurance Code, is in the nature of a rehabilitation proceeding.
Rehabilitation signifies a continuance of corporate life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and solvency. The conservator may only act with the
approval of the Insurance Commissioner with respect to the major aspects of rehabilitation. As regards the
ordinary details of administration, the conservator has implied authority by virtue of his appointment to
proceed without the approval of the Insurance Commissioner. He is clothed with such discretion in conducting
and managing the affairs of the insurance company placed under his control. Clearly, a conservatorship
proceeding means a conservation of company assets and business during the period of financial difficulties or
inability to maintain a condition of solvency. Hence, it can be deduced that the purpose of conservatorship is
for the continuance of corporate life and activities, and reinstatement of the corporation to its former status of
successful operation.

While admittedly, the Insurance Code gives vast and far-reaching powers to the conservator of a distressed
company, it must be pointed out that such powers must be related to the preservation of the assets of the
company. The Insurance Code does not provide that the power of the conservator to preserve the assets of a
distressed company includes the total replacement or substitution of the existing board of directors and
corporate officers to the extent of making the latter ineffective during rehabilitation. There is nothing in the
law which provides that a conservator supplants the board of directors and management of the company.

Although, under the law, the appointed conservator has the power to overrule or revoke the actions of the
previous management and board of directors of the distressed company, this should not be construed as to
totally undress the present and existing board of directors and corporate officers of their functions during
rehabilitation proceeding. Consequently, the board of directors and corporate officers continue to exercise
their powers as such, including the collection of debts via foreclosure of mortgaged properties. Their actions,
however, can be revoked by the conservator if they are prejudicial to the corporation and worsen the financial
difficulty that the company is facing.

To stress, a company is placed under conservatorship in order to prolong its corporate life in an effort to
rehabilitate and restore it of its former status as a financially fluid entity. The conservator is appointed to take
charge of the company's assets, liabilities, and management aimed at restoring its viability as a going business
enterprise and not to diminish and deplete its resources worsening the financial situation. Logically, this
purpose includes the effective function of the board of directors and corporate officers such as collection of
debts through foreclosure of real estate mortgage.

Apparently, the foreclosure proceeding in this case was initiated to collect the petitioner's debts. Such action is
in accordance with the purpose of conservatorship, i.e., to preserve the assets of the respondent and restore
its previous financial status. Evidently, the trial court judge's order of issuing the TRO and WPI, and stopping
the foreclosure of the mortgaged properties defeated the purpose of the respondent's rehabilitation.

Having been established that the conservatorship of an insurance company does not in any way diminish the
function of the board of directors during rehabilitation proceedings, this Court affirms that the respondent's
juridical personality continued even if it was placed under conservatorship. There is no doubt that the
respondent's board of directors could validly authorize the foreclosure even without prior approval of the
conservator.

Consequently, the demands made by the respondent's board of directors, even without the authority of the
conservator, were sufficient to put the petitioner in default. Their power to demand payment is part of the
efforts to rehabilitate the respondent and restore it to its former status as a financially fluid corporation. Not a
single rule prohibits them from cooperating with the conservator in restoring the financial status of the
company subject of rehabilitation. To prevent the respondent's board of directors from collecting debts
through foreclosure of the subject properties will surely frustrate the restoration of the respondent's previous
financial standing.