Insurance 10 28

10. Geagonia v CA G.R. No. 114427 February 6, 1995 Facts: Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for P100,000.00. The 1 year policy and covered thestock trading of dry goods. The policy noted the requirement that "3. The insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless notice be given and the particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." The petitioners’ stocks were destroyed by fire. He then filed a claim which was subsequently denied because the petitioner’s stocks were covered by two other fire insurance policies for Php 200,000 issued by PFIC. The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy. Geagonia then filed a complaint against the private respondent in the Insurance Commission for the recovery of P100,000.00 under fire insurance policy and damages. He claimed that he knew the existence of the other two policies. But, he said that he had no knowledge of the provision in the private respondent's policy requiring him to inform it of the prior policies and this requirement was not mentioned to him by the private respondent's agent. The Insurance Commission found that the petitioner did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. The Insurance Commission then ordered the respondent company to pay complainant the sum of P100,000.00 with interest and attorney’s fees. CA reversed the decision of the Insurance Commission because it found that the petitioner knew of the existence of the two other policies issued by the PFIC. Issues: 1. WON the petitioner had not disclosed the two insurance policies when he obtained the fire insurance and thereby violated Condition 3 of the policy. 2. WON he is prohibited from recovering Held: Yes. No. Petition Granted Ratio: 1. The court agreed with the CA that the petitioner knew of the prior policies issued by the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary before the Insurance Commissioner and which the latter relied upon cannot prevail over a written admission made ante litem motam. It was, indeed, incredible that he did not know about the prior policies since these policies were not new or original. 2. Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance policies should be construed most strictly against those for whose benefits they are inserted, and most favorably toward those against whom they are intended to operate. With these principles in mind, Condition 3 of the subject policy is not totally free from ambiguity and must be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained. Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured. Posted by Draft Inger at 10:59 11. Fortune Insurance and Surety Co., Inc. v. CA and Producers Bank of thePhilippines G.R. No. 115278 May 23, 1995 Davide, Jr., J. FACTS: Producers Bank was insured by Fortune Insurance.

Producers Bank filed against Fortune Insurance a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during arobbery of Producer’s armored vehicle while it was in transit to transfer the money from itsPasay City Branch to its head office in Makati The said armored vehicle was robbed by its driver Benjamin Magalong and security guardSaturnino Atiga tasked to man the same. Both of them are not Producers Bank’s“employees” but were merely assigned by and affiliated with PRC Management Systemsand Unicorn Security Services. Fortune Insurance refused to pay the amount as the loss, according to it, is excluded fromthe coverage of the insurance policy. “General Exceptions” provides: The company shallnot be liable under this policy in report of x x x (b) any loss caused by any dishonest,fraudulent or criminal act of the insured or any officer, employee, partner, director, trusteeor authorized representative of the Insured whether acting alone or in conjunction withothers…” Producers Bank opposed the contention of Fortune Insurance and contends that Atiga andMagalong are not its officer, employee, trustee, or authorized representative at the time of the robbery. According to Fortune Insurance, when Producers commissioned a guard and a driver totransfer its funds from one branch to another, they effectively and necessarily became itsauthorized representatives in the care and custody of the money. Assuming that theycould not be considered authorized representatives, they were, nevertheless, employeesof Producers. ISSUE: WON Magalong and Atiga qualify as employees or authorized representatives of Producers under paragraph (b) of the general exceptions clause of the insurance policy as toexempt Fortune Insurance from liability to pay Producers Bank under said policy HELD: Yes. Employer-employee relationship depends upon four standards: (1) the manner of selectionand engagement of the putative employee; (2) the mode of payment of wages; (3) thepresence or absence of a power to dismiss; and (4) the presence and absence of a powerto control the putative employee’s conduct The power of control over Magalong and Atiga was vested in and exercised by ProducersBank; hence, an “employeremployee” relationship exists between Magalong and Atigaand Producers Bank. PRC Management System and Unicorn Security Services are but “labor-only”contractors (not employers) under Article 106 of the Labor Code which provides: “Thereis “labor -only” contracting where the person supplying workers to an employer does nothave substantial capital or investment in the form of tools, equipment, machineries, workpremises, among others, and the workers recruited and placed by such persons areperforming activities which are directly related to the principal business of such employer.In such cases, the person or intermediary shall be considered merely as an agent of theemployer who shall be responsible to the workers in the same manner and extent as if thelatter were directly employed by him.” Magalong and Atiga were, in respect of the transfer of Producers Bank’s money from itsPasay City branch to its head office in Makati, its “authorized representatives” whoserved as such with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the money to its head office, withAlampay to be responsible for its custody in transit; Magalong to drive the armored vehiclewhich would carry the money; and Atiga to provide the needed security for the money, thevehicle, and his two other companions. In short, for these particular tasks, the three actedas agents of Producers. A “representative” is defined as one who represents or stands inthe place of another; one who represents others or another in a special capacity, as anagent, and is interchangeable with “agent. 12. Edillon v Manila Bankers Life G.R. No. L-34200 September 30, 1982 J. Vasquez Facts: Carmen O, Lapuz applied with Manila Bankers for insurance coverage against accident and injuries. She gave the date of her birth as July 11, 1904. She paid the sum of P20.00 representing the premium for which she was issued the corresponding receipt. The policy was to be effective for 90 days. During the effectivity, Carmen O. Lapuz died in a vehicular accident in the North Diversion Road. Petitioner Regina L. Edillon, a sister of the insured and the beneficiary in the policy, filed her claim for the proceeds of the insurance. Her claim having been denied, Regina L. Edillon instituted this action in the trial court. The insurance corporation relies on a provision contained in the contract excluding its liability to pay claims under the policy in behalf of "persons who are under the age of sixteen (16) years of age or over the age of sixty (60) years" They pointed out that the insured was over sixty (60) years of age when she applied for the insurance coverage, hence the policy became void. The trial court dismissed the complaint and ordered edillon to pay P1000. The reason was that a policy of insurance being a contract of adhesion, it was the duty of the insured to know the terms of the contract he or she is entering into. The insured could not have been qualified under the conditions stated in said contract and should have asked for a refund of the premium. Issue:

Whether or not the acceptance by the insurance corporation of the premium and the issuance of the corresponding certificate of insurance should be deemed a waiver of the exclusionary condition of coverage stated in the policy. Held: Yes. Petition granted. Ratio: The age of Lapuz was not concealed to the insurance company. Her application clearly indicated her age of the time of filing the same to be almost 65 years of age. Despite such information which could hardly be overlooked, the insurance corporation received her payment of premium and issued the corresponding certificate of insurance without question. There was sufficient time for the private respondent to process the application and to notice that the applicant was over 60 years of age and cancel the policy. Under the circumstances, the insurance corporation is already deemed in estoppel. It inaction to revoke the policy despite a departure from the exclusionary condition contained in the said policy constituted a waiver of such condition, similar to Que Chee Gan vs. Law Union Insurance. The insurance company was aware, even before the policies were issued, that in the premises insured there were only two fire hydrants contrary to the requirements of the warranty in question. It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has knowledge of existing facts which, if insisted on, would invalidate the contract from its very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the known facts, and the insurer is stopped thereafter from asserting the breach of such conditions. To allow a company to accept one's money for a policy of insurance which it then knows to be void and of no effect, though it knows as it must, that the assured believes it to be valid and binding, is so contrary to the dictates of honesty and fair dealing. Capital Insurance & Surety Co., Inc. vs. - involved a violation of the provision of the policy requiring the payment of premiums before the insurance shall become effective. The company issued the policy upon the execution of a promissory note for the payment of the premium. A check given subsequent by the insured as partial payment of the premium was dishonored for lack of funds. Despite such deviation from the terms of the policy, the insurer was held liable. “... is that although one of conditions of an insurance policy is that "it shall not be valid or binding until the first premium is paid", if it is silent as to the mode of payment, promissory notes received by the company must be deemed to have been accepted in payment of the premium. In other words, a requirement for the payment of the first or initial premium in advance or actual cash may be waived by acceptance of a promissory note...” 13. Perla v CA G.R. No. 96452 May 7, 1992 Facts: The Lim spouses opened a chattel mortgage and bought a Ford Laser from Supercars for Php 77,000 and insured it with Perla Compania de Seguros. The vehicle was stolen while Evelyn Lim was driving it with an expired license. The spouses requested for a moratorium on payments but this was denied by FCP, the assignee of rights over collection of the mortgage amount of the car. The spouses also called on the insurance company to pay the balance of the mortgage due to theft but this was denied by the company due to the spouses’ violation of the Authorized Driver clause stating (driving with an expired license before bei ng carnapped): Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or with his permission. Provided that the person driving is permitted, in accordance with the licensing or other laws or regulations, to drive the Scheduled Vehicle, or has been permitted and is not disqualified by order of a Court of Law or by reason of any enactment or regulation in that behalf. Since the spouses didn’t pay the mortgage, FCP filed suit against them. The trial court ruled in its favor ordering spouses t o pay. The appellate court reversed their decision. FCP and Perla appealed to the SC. Issues: 1.Was there grave abuse of discretion on the part of the appellate court in holding that private respondents did not violate the insurance contract because the authorized driver clause is not applicable to the "Theft" clause of said Contract? 2. Whether or not the loss of the collateral exempted the debtor from his admitted obligations under the promissory note particularly the payment of interest, litigation expenses and attorney's fees. Held: No, No. Petition dismissed. Ratio: 1. The car was insured against a malicious act such as theft. Therefore the “Theft” clause in the contract should apply and n ot the authorized driver clause. The risk against accident is different from the risk against theft. The appellate court stated: The "authorized driver clause" in a typical insurance policy is in contemplation or anticipation of accident in the legal sense in which it should be understood, and not in contemplation or anticipation of an event such as theft. The distinction — often seized upon by insurance companies in resisting claims from their assureds — between death occurring as a result of accident and death occurring as a result of intent may, by analogy, apply to the case at bar.

There was no connection between valid possession of a license and the loss of a vehicle. Ruling in a different way would render the policy a sham because the company can then easily cite restrictions not applicable to the claim. 2. The Supreme Court stated: “The chattel mortgage constituted over the automobile is merely an accessory contract to the promissory note. Being the principal contract, the promissory note is unaffected by whatever befalls the subject matter of the accessory contract. Therefore, the unpaid balance on the promissory note should be paid, and not just the installments due and payable before the automobile was carnapped, as erronously held by the Court of Appeals.” The court, however, construed the insurance, chattel mortgage, and promissory note as interrelated contracts, hence eliminating the payment of interests, litigation expenses, and attorney’s fees stated in the promissory note. The promissory note required securing a chattel mortage which in turn required opening an insurance contract. The insurance was made as an accessory to the principal contract, making sure that the value in the promissory note will be paid even if the car was lost. The insurance company promised to pay FCP for loss or damage of the property. CA didn’t err in requiring Perla to pay the spouses, but the spouses must pay FCP for the balance in the note. Perla v Cayas 185 SCRA 741 May 28, 1990 J. Fernan Facts: Milagros Cayas was the registered owner of a Mazda bus, insured with Perla Compania de Seguros, Inc. (PCSI) under a policy issued on February 3, 1978. The bus encountered an accident. One victim sued while the others entered into a settlement. He won P32,000. Cayas filed a complaint for a sum of money and damages against PCSI in the Court of First Instance of Cavite. The court eventually dismissed. She filed an MFR. She filed a motion to declare PCSI in default for its failure to file an answer. The court ordered ordering PCSI to pay Cayas P50,000 as compensation. PCSI appealed to the Court of Appeals, which affirmed the lower court's decision. Its motion for reconsideration having been denied, PCSI filed this petition Issue: WON PCSI’s liability is limited only to the payment made by private respondent to the victim and only up to the amount of P12,000.00. Held: Yes. Petition dismissed. Ratio: The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per person and to P50,000.00 per accident. Stokes vs. Malayan- terms of the contract constitute the measure of the insurer's liability and compliance is a condition precedent to the insured's right of recovery from the insurer. The insurance policy placed liability for all damages arising out of death or bodily injury sustained by one person as a result of any one accident at P12,000.00. Section 377 of Presidential Decree No. 612, which provided that the liability of land transportation vehicle operators for bodily injuries sustained by a passenger arising out of the use of their vehicles shall not be less than P12,000. Minimum liability is P12,000 per passenger. Not contrary to law, morals, good customs, public order or public policy, said stipulation must be upheld as effective, valid and binding as between the parties. In like manner, we rule as valid and binding upon private respondent the condition requiring her to secure the written permission of petitioner before effecting any payment in settlement of any claim against her. This was designed to safeguard the insurer's interest against collusion between the insured and the claimants. It being specifically required that petitioner's written consent be first secured before any payment in settlement of any claim could be made. Cayas is precluded from seeking reimbursement of the payments made to the three other passangers in view of her failure to comply with the condition contained in the insurance policy. Clearly, the fundamental principle that contracts are respected as the law between the contracting parties finds application in the present case. In Phil. American General Insurance Co., Inc vs. Mutuc, we ruled that contracts which are the private laws of the contracting parties should be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter what form they may be, whenever the essential requisites for their validity are present. Although Milagros Cayas was able to prove a total loss of only P44,000.00, petitioner was made liable for the amount of P50,000.00, the maximum liability. This was wrong. An insurance indemnity, being merely an assistance or restitution insofar as can be fairly ascertained, cannot be availed of by any accident victim or claimant as an instrument of enrichment 14. Aisporna v CA (1982) Aisporna v CA (1982)

Facts Mapalad Aisporna, the wife of one Rodolfo Aisporna, an insurance agent, solicited the application of Eugenio Isidro in behalf of Perla Compana de Seguros without the certificate of authority to act from the insurance commissioner. Isidro passed away while his wife was issued Php 5000 from the insurance policy. After the death, the fiscal instigated criminal action against Mapalad for violating sec 189 of the Insurance code for feloniously acting as agent when she solicited the application form. In the trial court, she claimed that she helped Rodolfo as clerk and that she solicited a renewal, not a new policy from Isidro through the phone. She did this because her husband was absent when he called. She only left a note on top of her husband’s desk to inform him of what transpired. (She did not accept compensation from Isidro for her services) Aisporna was sentenced to pay Php 500 with subsidiary costs in case of insolvency in 1971 in the Cabanatuan city court. In the appellate court, she was found guilty of having violating par 1 of sec 189 of the insurance code. The OSG kept on repeating that she didn’t violate sec 189 of the insurance code. In seeking reversal of the judgment, Aisporna assigned errors of the appellate court: 1. the receipt of compensation was not a necessary element of the crime in par 1 of sec 189 of the insurance code 2. CA erred in giving due weight to exhibits F, F1, F17 inclusive sufficient to establish petitioner’s guilt beyond reasonable doubt. 3. The CA erred in not acquitting the petitioner Issues: Won a person can be convicted of having violated the 1st par of the sec 189 of the IC without reference to the 2nd paragraph of the said section. Or Is it necessary to determine WON the agent mentioned in the 1st paragraph of the aforesaid section is governed by the definition of an insurance agent found on its second paragraph Decision: Aisporna acquitted Ruling: Sect 189 of the I.C., par 1 states that “No insurance company doing business with the Philippine Islands nor l any agent ther eof shall pay any commission or other compensation to any person for services in obtaining new insurance unless such person shall have first procured from the Insurance Commissioner a certificate of authority to act as an agent of such company as herein after provided. No person shall act as agent, sub-agent, or broker in the solicitation of procurement of applications for insurance without obtaining a certificate from the Insurance Commissioner. Par2 Any person who for COMPENSATION solicits or obtains insurance for any for any insurance compna or offers or assumes to act in the negotiating of such insurance shall be an insurance agent in the intent of this section and shall thereby become liable to all liabilities to which an insurance agent is subject. Par 3 500 pseo fine for person or company violating the provisions of the section. The court held that the 1st par prohibited a person to act as agent without certificate of authority from the commissioner In the 2nd par, the definition of an insurance agent is stipulated The third paragraph provided the penalty for violating the 1st 2 rules The appellate court said that the petitioner was penalized under the1st paragraph and not the 1nd. The fact that she didn’t receive compensation wasn’t an excuse for her acquittal because she was actually punished separately under sec 1 because she did not have a certificate of authority as under par 1. The SC held that the definition of an insurance agent was made by CA to be limited to paragraph 2 and not applicable to the 1st paragraph. The appellate court said that a person was an insurance agent under par 2 if she solicits insurance for compensation, but in the 1st paragraph, there was no necessity that a person solicits an insurance compensation in order to be called an agent. The SC said that this was a reversible error. The CA said that Aisporna didn’t receive compensation. The SC said that the definition of an insurance agent was found in the 2nd par of Sec 189 (check the law) The definition in the 2nd paragraph qualified the definition of an agent used in the 1st and third paragraphs. DOCTRINE: The court held that legislative intent must be ascertained from the consideration of the statute as a whole. The words shouldn’t be studied in isolated explanations but the whole and every part of the statute must be considered in fixing the meaning of any of its parts in order to pronounce the harmonious whole. Noscitur a sociis provides that where a particular word or phrase in a statement is ambiguous in itself, the true meaning may be made clear in the company it is fixed in. In applying this, the court held that the definition of an insurance agent in the 2nd paragraph was applicable in the 1st paragraph. To receive compensation be the agent is an essential element for violation of the 1st paragraph. The appellate court said that she didn’t receive compensation by the receipt of compensation wasn’t an essential element for violation of the 1st paragraph. The SC said that this view wasn’t correct owing to the American insurance laws which qualified compensation as a qualifying factor in penalizing unauthorized persons who solicited insurance (Texas code and snyder’s law)

15. COUNTRY BANKERS INSURANCE CORP. VS. LIANGA BAY & COMMUNITY MULTI-PURPOSE COOPERATIVE, INC. G.R. No.136914, January 25, 2002 Facts: Country Banker’s Insurance Corp. (CBIC) insured the building of respon dent Lianga Bay and Community Multi-Purpose Corp., Inc. against fire, loss, damage, or liability during the period starting June 20, 1990 for the sum of Php.200,000.00. On July 1, 1989 at about 12:40 in the morning a fire occurred. The respondent filed the insurance claim but the petition denied the same on the ground that the building was set on fire by two NPA rebels and that such loss was an excepted risk under par.6 of the conditions of the insurance policy that the insurance does not cover any loss or damage occasioned by among others, mutiny, riot, military or any uprising. Respondent filed an action for recovery of loss, damage or liability against petitioner and the Trial Court ordered the petition to pay the full value of the insurance. Issue: Whether or not the insurance corporation is exempted to pay based on the exception clause in the insurance policy. Held: The Supreme Court held that the insurance corporation has the burden of proof to show that the loss comes within the purview of the exception or limitation set-up. But the insurance corporation cannot use a witness to prove that the fire was caused by the NPA rebels on the basis that the witness learned this from others. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. The petitioner, failing to prove the exception, cannot rely upon on exemption or exception clause in the fire insurance policy. The petition was granted. 16. American Home Assurance v. Tantuco G.R. No. 138941, 8 Oct. 2001 • FACTS: Tantuco Enterprises, Inc. is a coconut oil milling and refining company. It owned two mills (the first oil mill and a new one), both located at its factory compound at Iyam, Lucena City. The two oil mills are separately covered by fire insurance policies issued by American Home Assurance Co. On Sept. 30, 1991, a fire broke out and gutted and consumed the new oil mill. American Home rejected the claim for the insurance proceeds on the ground that no policy was issued by it covering the burned oil mill. It stated that the new oil mill was under Building No. 15 while the insurance coverage extended only to the oil mill under Building No. 5. ISSUE: • Whether or not the new oil mill is covered by the fire insurance policy HELD: In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in giving effect to the insurance. In view of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are inclined to consider the policy of insurance covers any building which the parties manifestly intended to insure, however inaccurate the description may be. Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties manifestly intended to insure was the new oil mill. If the parties really intended to protect the first oil mill, then there is no need to specify it as new. Indeed, it would be absurd to assume that the respondent would protect its first oil mill for different amounts and leave uncovered its second one 17. Enriquez v Sunlife November 29, 1920 G.R. No. L-15895 Malcolm, J.: Facts: This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from the defendant life insurance company the sum of pesos 6,000 paid by the deceased for a life annuity. The trial court gave judgment for the defendant. Plaintiff appeals. Joaquin Herrer made application to the Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the company’s Manila office and was given a receipt. The application was given to the head office in Canada. The oofice gave acceptance by cable on November 26, 1917. The policy was issued on December 4. INSURANCE LAW: Liberality is the rule of construction in insurance contracts.

The attorney, Mr. Torres then wrote to the Manila office of the company stating that Herrer desired to withdraw his application. The following day the local office replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification. This letter was received by Mr. Torres on the morning of December 21, 1917 and Mr. Herrer died on December 20, 1917. (Whether on the same day the cable was received notice was sent by the Manila office of Herrer that the application had been accepted, is a disputed point, which will be discussed later.) Issue: WON Herrer received notice of acceptance of his application. Held: No. Judgment reversed. Ratio: Sunlife averred that that they prepared the letter on November 26, 1917, and handed it to the local manager for signature. The manager said that he received the application November 26, 1917. He said that on the same day he signed a letter notifying Mr. Herrer of this acceptance. They said that these letters, after being signed, were sent to the chief clerk and placed on the mailing desk for transmission. The witness could not tell if the letter had every actually been placed in the mails. The plaintiff’s attorney testified to having prepared Herrer’s will, and his client mentioned his application for a li fe annuity. He said that the only document relating to the transaction in his possession was the provisional receipt. Rafael Enriquez, the administrator of the estate, testified that he had gone through the effects of the deceased and had found no letter of notification from the insurance company to Mr. Herrer. Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying Mr. Herrer that his application had been accepted, prepared, and signed in the local office of the insurance company and was placed in the ordinary channels for transmission. But this was never actually mailed and thus was never received by the applicant. The law that applies here is the Civil Code Art 1802, because the Insurance Act is silent as to the methods followed to create a contract of insurance. Article 1802, not only describes a contact of life annuity, but but in two other articles, also gives strong clues as to the proper disposition of the case. For instance, article 16 of the Civil Code provides that “In matters which are governed by special laws, any deficiency of the latter shall be supplied by the provisions of this Code.” The special law on the subject of insurance is deficient in enuncia ting the principles governing acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the Civil Code is found article 1262 providing that “Consent is shown by the concurrence of offer and acceptance with respect to the thing and the consideration which are to constitute the contract. An acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The contract, in such case, is presumed to have been entered into at the place where the offer was made.” The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge avoids uncertainty and tends to security. Also, U.S. jurisprudence states that the courts who take this view have expressly held that an acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing of acceptance, it has been said, completes the contract of insurance. The law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. Also, that according to the provisional receipt, three things had to be accomplished by the insurance company before there was a contract: (1) There had to be a medical examination of the applicant; (2) there had to be approval of the application by the head office of the company; and (3) this approval had in some way to be communicated by the company to the applicant. The further admitted facts are that the head office in Montreal did accept the application, did cable the Manila office to that effect, did actually issue the policy and did actually write the letter of notification and place it in the usual channels for transmission to the addressee. The fact as to the letter of notification thus fails to concur with the essential elements of the general rule pertaining to the mailing and delivery of mail matter as announced by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped. The contract for a life annuity was not perfected because it has not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant. 18. Great Pacific Life Assurance Co. vs Court of Appeals GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner, vs. HONORABLE COURT OF APPEALS, respondents. G.R. No. L-31845 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner, vs. HON. COURT OF APPEALS and NGO HING, respondents. G.R. No. L-31878 April 30, 1979 Facts: Respondent Ngo Hing filed an application with petitioner Great Pacific Life Assurance Company (Pacific Life) for a twenty-year endowment policy in the life of Helen Go, his one year old daughter. Petitioner Lapulapu D. Mondragon, the branch manager, prepared application form using the essential data supplied by respondent. The latter paid the annual premium and Mondragon retained a portion of it as his commission. The binding deposit receipt was issued to respondent. Mondragon wrote his strong recommendation for the approval of the insurance application. However, Pacific Life disapproved the application since the plan was not available for minors below 7 years old but it can consider the same under another plan. The non-acceptance of the insurance plan was allegedly not communicated by Mondragon to respondent. Mondragon again asserted his strong recommendation. Helen Go died of influenza. Thereupon, respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed an action for the recovery of the same. Hence the case at bar. Issue: Whether the binding deposit receipt constituted a temporary contract of the life insurance in question, and thus negate the claim that the insurance contract was perfected. Held: YES. The provisions printed on the binding deposit receipt show that the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant. Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in question had never become in force at any time. Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not insure outright. Where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears repeating that through the intracompany communication of 30 April 1957, Pacific Life disapproved the insurance application in question on the ground that it is not offering the 20-year endowment insurance policy to children less than 7 years of age. What it offered instead is another plan known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the absence of a meeting of the minds between Pacific Life and Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's oneyear old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between them. Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life. Development Bank of the Philippines v CA 231 SCRA 370 March 21, 1994 Facts: Juan B. Dans, together with his family applied for a loan of P500,000 with DBP. As principal mortgagor, Dans, then 76 years of age was advised by DBP to obtain a mortgage redemption insurance (MRI) with DBP MRI pool. A loan in the reduced amount was approved and released by DBP. From the proceeds of the loan, DBP deducted the payment for the MRI premium. The MRI premium of Dans, less the DBP service fee of 10%, was credited by DBP to the savings account of DBP MRI-Pool. Accordingly, the DBP MRI Pool was advised of the credit. Dans died of cardiac arrest. DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at the time of application. DBP apprised Candida Dans of the disapproval of her late husband’s MRI application. DBP offered to refund the premium which the deceased had paid, but Candida Dans refused to accept the same demandingpayment of the face value of the MRI or an amount equivalent of the loan. She, likewise, refused to accept an ex gratia settlement which DBP later offered. Hence the case at bar. Issue: Whether or not the DBP MRI Pool should be held liable on the ground that the contract was already perfected? Held:

No, it is not liable. The power to approve MRI application is lodged with the DBP MRI Pool. The pool, however, did not approve the application. There is also no showing that it accepted the sum which DBP credited to its account with full knowledge that it was payment for the premium. There was as a result no perfected contract of insurance’ hence the DBP MRI Pool cannot be held liable on a contract that does not exist In dealing with Dans, DBP was wearing 2 legal hats: the first as a lender and the second as an insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. DBP had full knowledge that the application was never going to be approved. The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age. Knowing all the while that Dans was ineligible, DBP exceeded the scope of its authority when it accepted the application for MRI by collecting the insurance premium and deducting its agent’s commission and service fee. Since the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he has been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him. Perez v CA G.R. No. 112329. January 28, 2000 J. Ynares-Santiago Facts: Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation for P20,000.00. Sometime in October 1987, an agent of the insurance corporation, visited Perez in Quezon and convinced him to apply for additional insurance coverage of P50,000.00. Virginia A. Perez, Primitivo’s wife, paid P2,075.00 to the agent. The receipt issued indicated the amount received was a "deposit." Unfortunately, the agent lost the application form accomplished by Perez and he asked the latter to fill up another application form. The agent sent the application for additional insurance of Perez to the Quezon office. Such was supposed to forwarded to the Manila office. Perez drowned. His application papers for the additional insurance of P50,000.00 were still with the Quezon. It was only after some time that the papers were brought to Manila. Without knowing that Perez died, BF Lifeman Insurance Corporation approved the application and issued the corresponding policy for the P50,000.00. Petitioner Virginia Perez went to Manila to claim the benefits under the insurance policies of the deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 but the insurance company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds of which amount to P150,000.00. The insurance company maintained that the insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount paid. BF Lifeman Insurance Corporation filed a complaint against Virginia Perez seeking the rescission and declaration of nullity of the insurance contract in question. Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled all his prestations under the contract and all the elements of a valid contract are present. On October 25, 1991, the trial court rendered a decision in favor of petitioner ordering respondent to pay 150,000 pesos. The Court of Appeals, however, reversed the decision of the trial court saying that the insurance contract for P50,000.00 could not have been perfected since at the time that the policy was issued, Primitivo was already dead. Petitioner’s motion for reconsideration having been denied by respondent court, the instant petition for certiorari was filed on the ground that there was a consummated contract of insurance between the deceased and BF Lifeman Insurance Corporation. Issue: WON the widow can receive the proceeds of the 2nd insurance policy Held: No. Petition dismissed. Ratio: Perez’s application was subject to the acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance between the deceased and respondent corporation was further conditioned with the following requisites stated in the application form: "there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We, am/are in good health." BF Lifeman didn’t give its assent when it merely received the application form and all the requisite supporting papers of the applicant. This happens only when it gives a policy. It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional insurance coverage were still with the branch office of respondent corporation in Quezon. Consequently, there was absolutely no way the acceptance of the application could have been communicated to the applicant for the latter to accept inasmuch as the applicant at the time was already dead. Petitioner insists that the condition imposed by BF that a policy must have been delivered to and accepted by the proposed insured in good health is potestative, being dependent upon the will of the corporation and is therefore void. The court didn’t

agree. A potestative condition depends upon the exclusive will of one of the parties and is considered void. The Civil Code states: When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. The following conditions were imposed by the respondent company for the perfection of the contract of insurance: a policy must have been issued, the premiums paid, and the policy must have been delivered to and accepted by the applicant while he is in good health. The third condition isn’t potestative, because the health of the applicant at the time of the delivery of the policy is beyon d the control or will of the insurance company. Rather, the condition is a suspensive one whereby the acquisition of rights depends upon the happening of an event which constitutes the condition. In this case, the suspensive condition was the policy must have been delivered and accepted by the applicant while he is in good health. There was non-fulfillment of the condition, because the applicant was already dead at the time the policy was issued. As stated above, a contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents. So long as an application for insurance has not been either accepted or rejected, it is merely an offer or proposal to make a contract. The contract, to be binding from the date of application, must have been a completed contract. The insurance company wasn’t negligent because delay in acting on the application does not constitute acceptance even after payment. The corporation may not be penalized for the delay in the processing of the application papers due to the fact that process in a week wasn’t the usual timeframe in fixing the application. Delay could not be deemed unreasonable so as to constitute gross negligence. Malayan Insurance Co., Inc. vs. CA [G.R. No. L-36413, 26 September 1988] Post under case digests, Commercial Law at Tuesday, February 21, 2012 Posted by Schizophrenic Mind Facts: Malayan Insurance Co. Inc. (MALAYAN) issued a Private Car Comprehensive Policy covering a Willys jeep. The insurance coverage was for "own damage" not to exceed P600.00 and "third-party liability" in the amount of P20,000.00. During the effectivity of the insurance policy, , the insured jeep, while being driven by one Juan P. Campollo an employee of the respondent San Leon Rice Mill, Inc., (SAN LEON) collided with a passenger bus belonging to the respondent Pangasinan Transportation Co., Inc. (PANTRANCO) at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to the driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who was riding in the ill-fated jeep. Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co., Inc. and the PANTRANCO before the Court of First Instance of Pangasinan. The trial court rendered judgment holding Sio Choy, SAN LEON, and MALAYAN jointly and severally liable. However, MALAYAN’s liability will only be up to P20,000. On appeal, CA affirmed the decision of the trial court. However, it ruled that SAN LEON has no obligation to indemnify or reimburse the petitioner insurance company for whatever amount it has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of insurance between Sio Choy and the insurance company. MALAYAN appealed to the SC by way of review on certiorari. Issues: (1) Whether or not MALAYAN is solidarily liable to Vallejos, along with Sio Choy and SAN LEON (2) Whether or not MALAYAN is entitled to be reimbursed by SAN LEON for whatever amount petitioner has been adjudged to pay respondent Vallejos on its insurance policy. Held: (1) Only Sio Choy and SAN LEON are solidarily liable to Vallejos for the award of damages. Sio Choy is liable as owner of the jeep pursuant to Article 2184, while SAN LEON is liable as the employer of the driver of the jeep at the time of the accident pursuant to Art 2180. MALAYAN’s liability, however, arose only out of the insurance policy with Sio Choy. Petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors namely respondents Sio Choy and SAN LEON. (2) MALAYAN is entitled to be reimbursed. Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss. When the insurance company pays for the loss, such payment operates as an equitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof. That right is not dependent upon , nor does it grow out of any privity of contract or upon written assignment of claim, and payment to the insured makes the insurer assignee in equity. MANILA MAHOGANY MFG CORP V CA & ZENITH INSURANCE OCT 12, 1987; PADILLA, J

FACTS: • From March 6, 1970 – 1971, petitioner insured its Mercedes Benz 4-door sedan w/ respondent insurance company. On May 4, 1970, vehicle was bumped and damaged by a truck owned by San Miguel Corp (SMC). • Zenith paid P5K to petitioner in amicable settlement. Petitioner’s general manager executed a Release Claim, subrogating respondent company to all its right to action against SMC • Dec. 11, 1972 – respondent co. wrote Insurance Adjusters Inc. To demand reimbursement from SMC. Insurance Adjusters refused saying that SMC had already paid petitioner P4,500 for the damages to petitioner’s vehicle, as evi denced by a cash voucher and Release of Claim executed by the GM of petitioner discharging SMC from “all actions, claims, demands the rights of action that now exist or hereafter develop arising out of or as a consequence of the accident • Respondent demanded the P4.5K amount from petitioner. Petitioner refused. Suit filed for recovery. • City Court ordered petitioner to pay respondent. CFI affirmed. CA affirmed with modification that petitioner was to pay respondent the total amount of 5K it had received from respondent co. Petitioner’s argument: Since the total damages were valued at P9,486.43 and only 5K was received by petitioner from respondent, petitioner argues that it was entitled to go after SMC to claim the additional which was eventually paid to it Respondent’s argument: No qualification to its right of subrogation ISUE: WON petitioner should pay respondent despite the subrogation in the Release of Claim was conditioned on recovery of the total amount of damages petitioner has sustained? HELD/RATIO: NO. • SC: no other evidence to support its allegation that a gentleman’s agreement existed between the parties, not embodied in the Release of Claim, such Release of Claim must be taken as the best evidence of the intent and purpose of the parties • CA correct in holding petitioner should reimburse respondent 5K o When Manila Mahogany executed another release claim discharging SMC from all rights of action after the insurer had paid the proceeds of the policy – the compromise agreement of 5K- the insurer is entitled to recover from the insured the amount of insurance money paid o Petitioner by its own acts released SMC, thereby defeating respondent’s right of subrogation, the right of action against the insurer was also nullified • Since the insurer can be subrogated to only such rights as the insured may have, should the insured, after receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer losses his rights against the latter. But in such a case, the insurer will be entitled to recover from the insured whatever it has paid to the latter, unless the release was made w/ the consent of the insurer DISPOSITIVE: PETITION DENIED Pan Malayan Insurance Corp. vs. Court of Appeals Facts: In 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private respondents Erlinda Fabie and her driver. PANMALAY averred that: it is an insurer of a Mitsubishi Colt Lancer car registered in the name of Canlubang Automotive Resources Corporation; on May 26, 1985, due to the "carelessness, recklessness, and imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered damages in the amount of P42,052.00; PANMALAY defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of Canlubang against the driver of the pick-up and his employer, Erlinda Fabie; and, despite repeated demands, defendants, failed and refused to pay the claim of PANMALAY. Private respondents filed a Motion for Bill of Particulars. In compliance therewith, PANMALAY clarified, among others, that the damage caused to the insured car was settled under the "own damage", coverage of the insurance policy, and that the driver of the insured car was, at the time of the accident, an authorized driver duly licensed to drive the vehicle. PANMALAY also submitted a copy of the insurance policy and the Release of Claim and Subrogation Receipt executed by CANLUBANG in favor of PANMALAY. Private respondents filed a Motion to Dismiss alleging that PANMALAY had no cause of action against them. They argued that payment under the "own damage" clause of the insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification thereunder was made on the assumption that there was no wrongdoer or no third party at fault. After hearing, the RTC issued an order dismissing PANMALAY's complaint for no cause of action. The RTC ruled that that payment by PANMALAY of Canlubang's claim under the "own damage" clause of the insurance policy was an admission by the insurer that the damage was caused by the assured and/or its representatives.

The Court of Appeals in upholding the RTC decision, held that Section III-1 of the policy, which was the basis for settlement of Canlubang's claim, did not cover damage arising from collision or overturning due to the negligence of third parties as one of the insurable risks. Issue: Whether or not PANMALAY was legally subrogated to the rights of Canlubang. Held: Yes. Article 2207 of the Civil Code provides: "If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract." Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer. There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of subrogation is defeated. Similarly, where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assured's claim for loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation. And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting "voluntary payment", the former has no right of subrogation against the third party liable for the loss. None of the exceptions are availing in the present case. It must be emphasized that the lower court's ruling that the "own damage" coverage under the policy implies damage to the insured car caused by the assured itself, instead of third parties, proceeds from an incorrect comprehension of the phrase "own damage" as used by the insurer. When PANMALAY utilized the phrase "own damage" — a phrase which, incidentally, is not found in the insurance policy — to define the basis for its settlement of CANLUBANG's claim under the policy, it simply meant that it had assumed to reimburse the costs for repairing the damage to the insured vehicle. It is in this sense that the socalled "own damage" coverage under Section III of the insurance policy is differentiated from Sections I and IV-1 which refer to "Third Party Liability" coverage (liabilities arising from the death of, or bodily injuries suffered by, third parties) and from Section IV-2 which refer to "Property Damage" coverage (liabilities arising from damage caused by the insured vehicle to the properties of third parties). Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section III-1 of the policy does not include to the insured vehicle arising from collision or overturning due to the negligent acts of the third party. Not only does it stem from an erroneous interpretation of the provisions of the section, but it also violates a fundamental rule on the interpretation of property insurance contracts. PANMALAY contends that the coverage of insured risks under the above section, specifically Section III-1(a), is comprehensive enough to include damage to the insured vehicle arising from collision or overturning due to the fault or negligence of a third party. CANLUBANG is apparently of the same understanding. Based on a police report wherein the driver of the insured car reported that after the vehicle was sideswiped by a pick-up, the driver thereof fled the scene [Record, p. 20], CANLUBANG filed its claim with PANMALAY for indemnification of the damage caused to its car. It then accepted payment from PANMALAY, and executed a Release of Claim and Subrogation Receipt in favor of latter. Considering that the very parties to the policy were not shown to be in disagreement regarding the meaning and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe meaning contrary to the clear intention and understanding of these parties. For even if under the above circumstances PANMALAY could not be deemed subrogated to the rights of its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of action against private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, the Court ruled that the insurer who may have no rights of subrogation due to "voluntary" payment may nevertheless recover from the third party responsible for the damage to the insured property under Article 1236 of the Civil Code. PAN MALAYAN INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, G.R. No. 81026. FACTS. Petitioner Panmalay was an insurer of the car of CANLUBANG AUTOMOTIVE RESOURCE CORP. which was bumpt and damaged by the private respondent through its negligent driver. Petitioner PANMALAy paid the amount of insurance to the insured. Subrogated on the rights of the insured, petitioner demand payment from the private respondent who refused to pay the claim of the petitioner. Petitioner filed a complaint against private respondent before the RTC.

Private respondent filed a motion to dismiss arguing that payment under the "own damage" clause of the insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification thereunder was made on the assumption that there was no wrongdoer or no third party at fault. The RTC dismissed the complaint aswell as the motion for reconsideration and this was affirmed by the CA. ISSUE. Whether or not, the petitioner is allowed to recover the amount of insurance it had paid to the insured . SC RULING: Yes, according to the Supreme Court, Art. 2207 of the civil code states that If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. This was founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's complaint for damages against private respondents is reinstated. So the case was remanded to the Trial Court for the trial of the merit. Cebu Shipyard v William G.R. No. 132607. May 5, 1999 J. Purisima Facts: Cebu Shipyard and Engineering Works, Inc. repaired marine vessels while the Prudential is in the non-life insurance business. William Lines, Inc., the owner of M/V Manila City, a luxury passenger-cargo vessel, which caught fire and sank. At the time of the incident, subject vessel was insured with Prudential for P45M for hull and machinery. CSEW was insured for only Php 10 million for the shiprepairer’s liability policy. They entered into a contract where negligence was the only factor that could make CSEW liable for damages. Moreover, liability of CSEW was limited to only Php 1million for damages. The Hull Policy included an “Additional Perils (INCHMAREE)” Clause covering loss of or damage to the vessel through the negligence of, among others, ship repairmen. William brought Manila City to the dry dock of CSEW for repairs. The officers and cabin crew stayed at the ship while it was being repaired. After the vessel was transferred to the docking quay, it caught fire and sank, resulting to its total loss. William brought suit against CSEW alleging that it was through the latter’s negligence that the ship caught fire and sank. Prudential was impleaded as co-plaintiff after it had paid the value of insured items. It was subrogated to 45 million, or the value it claimed to indemnify. The trial court brought judgment against CSEW 45 million for the ship indemnity, 65 million for loss of income, and more than 13 million in other damages. The CA affirmed the TC decision. CSEW contended that the cause of the fire was d ue to William’s hotworks on the said portion of the ship which they didn’t ask CSEW permission for. Prudential, on the other hand, blamed the negligence of the CSEW workers in the instance when they didn’t mind rubber insulation wire coming out of the air-conditioning unit that was already burning. Hence this MFR. Issue: 1. WON CSEW had “management and supervisory control“ of the ship at the time the fire broke out 2. WON the doctrine of res ipsa loquitur applies against the crew 3. WON Prudential has the right of subrogation against its own insured 4. WON the provisions limiting CSEW’s liability for negligence to a maximum of Php 1 million are valid Held: Yes. Yes. Yes. No. Petition denied. Ratio: 1. The that factual findings by the CA are conclusive on the parties and are not reviewable by this Court. They are entitled to great weight and respect when the CA affirmed the factual findings arrived at by the trial court. The CA and the Cebu RTC are agreed that the fire which caused the total loss of subject M/V Manila City was due to the negligence of the employees and workers of CSEW.

Furthermore, in petitions for review on certiorari, only questions of law may be put into issue. Questions of fact cannot be entertained. 2. For the doctrine of res ipsa loquitur to apply to a given situation, the following conditions must concur: (1) the accident was of a kind which does not ordinarily occur unless someone is negligent; and (2) that the instrumentality or agency which caused the injury was under the exclusive control of the person charged with negligence. The facts and evidence reveal the presence of these conditions. First, the fire would not have happened in the ordinary course of things if reasonable care and diligence had been exercised. Second, the agency charged with negligence, as found by the trial court and the CA and as shown by the records, is CSEW, which had control over subject vessel when it was docked for annual repairs. What is more, in the present case the trial court found direct evidence to prove that the workers didn’t exercise due diligence in the care of subject vessel. The direct evidence substantiates the conclusion that CSEW was really negligent even without applying such doctrine. 3. Petitioner contends that Prudential is not entitled to be subrogated to the rights of William Lines, Inc., theorizing that (1) the fire which gutted M/V Manila City was an excluded risk and (2) it is a co-assured under the Marine Hull Insurance Policy. This was wrong. The one who caused the fire has already been adjudicated by the courts as CSEW. Upon proof of payment by Prudential to William Lines, Inc., the former was subrogated to the right of the latter to indemnification from CSEW. As aptly ruled by the Court of Appeals, the law says: 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. When Prudential paid the latter the total amount covered by its insurance policy, it was subrogated to the right of the latter to recover the insured loss from the liable party, CSEW. Petitioner theorizes further that there can be no right of subrogation as it is deemed a co-assured under the subject insurance policy with reliance on Clause 20 of the Work Order which states: 20. The insurance on the vessel should be maintained by the customer and/or owner of the vessel during the period the contract is in effect. Clause 20 of the Work Order in question is clear in the sense that it requires William Lines to maintain insurance on the vessel during the period of dry-docking or repair. However, the fact that CSEW benefits from the said stipulation does not automatically make it as a co-assured of William Lines. The intention of the parties to make each other a co-assured under an insurance policy is to be read from the insurance contract or policy itself and not from any other contract or agreement because the insurance policy denominates the beneficiaries of the insurance. The hull and machinery insurance procured by William Lines, Inc. from Prudential named only “William Lines, Inc.” as the assured. There was no manifestation of any intention of William Lines, Inc. to constitute CSEW as a co-assured under subject policy. The claim of CSEW that it is a coassured is unfounded. Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is provided that this insurance also covers loss of or damage to vessel directly caused by the negligence of charterers and repairers who are not assured. As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured under the policy, it would nullify any claim of William Lines, Inc. from Prudential for any loss or damage caused by the negligence of CSEW. Certainly, no shipowner would agree to make a shiprepairer a co-assured under such insurance policy; otherwise, any claim for loss or damage under the policy would be invalidated. 4. Although in this jurisdiction, contracts of adhesion have been consistently upheld as valid per se; as binding as an ordinary contract, the Court recognizes instances when reliance on such contracts cannot be favored especially where the facts and circumstances warrant that subject stipulations be disregarded. Thus, in ruling on the validity and applicability of the stipulation limiting the liability of CSEW for negligence to P1M only, the facts and circumstances vis-a-vis the nature of the provision sought to be enforced should be considered, bearing in mind the principles of equity and fair play. It is worthy to note that M/V Manila City was insured with Prudential for P45M. Upon thorough investigation by its hull surveyor, M/V Manila City was found to be beyond economical salvage and repair. The evaluation of the average adjuster also reported a constructive total loss. The said claim of William Lines, Inc., was then found to be valid and compensable such that Prudential paid the latter the total value of its insurance claim. Furthermore, it was ascertained that the replacement cost of the vessel, amounts to P55M. Considering the circumstances, it would unfair to limit the liability of petitioner to One Million Pesos only. To allow CSEW to limit its liability to P1M notwithstanding the fact that the total loss suffered by the assured and paid for by Prudential amounted to P45M would sanction the exercise of a degree of diligence short of what is ordinarily required because, then, it would not be difficult for petitioner to escape liability by the simple expedient of paying an amount very much lower than the actual damage suffered by William. CHA V. CHA - INSURABLE INTEREST 277 SCRA 690 (1997) Facts:

> Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS Development Corporation (CKS), as lessor. > One of the stipulations of the one (1) year lease contract states: "18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . ." > Notwithstanding the above stipulation, the Cha spouses insured against loss by fire their merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance without the written consent CKS. > On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the United a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses. > United refused to pay CKS, alleging that the latter had no insurable interest. Hence, the latter filed a complaint against the Cha spouses and United. Issue: Whether or not CKS can claim the proceeds of the fire insurance. Held: NO. CKS has no insurable interest. Sec. 18 of the Insurance Code provides: "Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured." A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provide: "Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof." Therefore, CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured. Cha vs CA Post under case digests, Commercial Law at Saturday, March 31, 2012 Posted by Schizophrenic Mind Facts: Petitioner spouses Nilo Cha and Stella Uy-Cha, as lessees entered into a lease contract with private respondent CKS Development Corporation as lessor. A stipulation of the lease contract provides that the Lessee is not allowed to insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the Lessor. If the Lessee violates this the policy is deemed assigned and transferred to the Lessor for his own benefit. Petitioner took out a policy of fire insurance over the merchandise inside the leased premises with United Insurance without consent of CKS. On the day the lease contract was to expire a fire broke out inside the leased premises. CKS, wrote a letter to United asking that the proceeds of the fire insurance be paid directly to CKS. United refused. Hence, the latter filed a complaint against the Cha spouses and United. RTC ruled in favor of CKS. CA affirmed, hence the petition. Issue: Whether or not CKS can recover from the insurance policy. Held: No. Section 18 of the Insurance Code provides that: “No contract or policy o f insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.”

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code: “The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof.” Therefore, CKS cannot be validly a beneficiary of the fire insurance policy taken by petitioner-spouses. The insurable interest remains with the Cha spouses. The stipulation in the lease contract is void for being contrary to law and public policy. This is in keeping with the provision under Sec. 25 of the Insurance Code that: Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in the property insured or that the policy shall be received as proof of such interest and every policy executed by way of gaming or wagering is void.” Great Pacific Life Assurance Corp vs Court of Appeals Facts: A contract of group life insurance was executed between Grepalife and DBP. The former agreed to insure the lives of eligible housing loan mortgagors of DBP. Dr. Leuterio applied membership in the group life insurance plan. He answered in the application form that he has never consulted a physician for heart condition, high blood pressure, cancer, diabetes, lung, kidney, or stomach disorder or any other physical impairment, and that to the best of his knowledge he is in good condition. During the subsistence of the insurance he died from massive cerebral hemorrhage. Grepalife denied the claim because of concealment since it was discovered that he had high blood. His widow filed a claim. Issue: Whether or not there was misrepresentaion so as to warrant denial of claim; Whether or not the widow of Leuterio is a real party in interest Held: The Supreme Court ruled that there was no sufficient proof that the insured suffered from hypertension. It is a wellsettled ruled that the fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. As regards the second issue, the widow can be regarded as real party in interest because in mortgage redemption insurance the mortgagor and not the mortgagee is the contracting party. The mortgagor merely assigns the proceeds to the mortgagee. Therefore, since by principle of succession the widow may claim. Great Pacific Life vs. CA 316 SCRA 677 (1999) INSURANCE LAW: Parties in Insurance Contract FACTS: Great Pacific Life Assurance Corporation (Grepalife) executed a contract of group life insurance with Development Bank of the Philippines (DBP) wherein Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. One such loan mortgagor is Dr. Wilfredo Leuterio. In an application form, Dr. Leuterio answered questions concerning his test, attesting among others that he does not have any heart conditions and that he is in good health to the best of his knowledge. However, after about a year, Dr. Leuterio died due to “massive cerebral hemorrhage.” When DBP submitted a death claim to Grepalife, the latter denied the claim, alleging that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim. Hence, the widow of the late Dr. Leuterio filed a complaint against Grepalife for “Specific Performance with Damages.” Both the trial court and the Court of Appeals found in favor of the widow and ordered Grepalife to pay DBP. ISSUE: Whether the CA erred in holding Grepalife liable to DBP as beneficiary in a group life insurance contract from a complaint filed by the widow of the decedent/mortgagor HELD: The rationale of a group of insurance policy of mortgagors, otherwise known as the “mortgage redemption insurance,” is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so

that in the event of death, the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund. Such losspayable clause does not make the mortgagee a party to the contract. The insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person, such as a mortgagee. And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover it whatever the insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife. GREPALIFE V. CA - REAL PARTY IN INTEREST

316 SCRA 677 Facts: > A contract of group life insurance was executed between Grepalife and DBP. Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. > Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan. > In an application form, Dr. Leuterio answered questions concerning his health stating that he is in good health and has never consulted a physician for or a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment. > Grepalife issued the insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos. > Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife. > Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage and insisted that Dr. Leuterio did not disclose that he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim. > The widow of the late Dr. Leuterio, filed a complaint against Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia’s findings, based partly from the information given by the widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out. > RTC ruled in favor of widow and against Grepalife. Grepalife appealed contending that the wife was not the proper party in interest to file the suit, since it is DBP who insured the life of Dr. Leuterio.

Issue: Whether or not the widow is the real party in interest, (not DBP) and has legal standing to file the suit. Held: YES. Grepalife alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial court’s judgment, Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagor’s interest, and the mortgagor continues to be a party to the contract. In this ty pe of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a party to the contract. The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: "In the event of the debtor’s death before his indebtedness with the Creditor [DBP] shall ha ve been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor." When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover it whatever the insured might have recovered, 14 the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife. As to the question of whether there was concealment, CA held as affirmed by the SC that contrary to Grepalife’s allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from the statement of the insured’s widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness who could attest to Dr. Leuterio’s medical his tory. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance HARVARDIAN COLLEGES V. COUNTRY BANKERS INSURANCE CORP. 1 CARA 2 Facts: > Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap and their children. > Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school building. Although at first reluctant, Harvardian agreed. > Country Banks sent an inspector to inspect the school building and agreed to insure the same for P500,000 for which Harvardian paid an annual premium of P2,500. > On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980, (39 days before I was born… hehehehe )during the effectivity of said insurance policy, the insured property was totally burned rendering it a total loss. > A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no insurable interest over the building constructed on the piece of land in the name of the late Ildefonso Yap as owner. > It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the Harvardian Colleges. Issue: Whether or not Harvardian colleges has a right to the proceeds. Held: Harvardian has a right to the proceeds. Regardless of the nature of the title of the insured or even if he did not have title to the property insured, the contract of fire insurance should still be upheld if his interest in or his relation to the property is such that he will be benefited in its continued existence or suffer a direct pecuniary loss from its destruction or injury. The test in determining insurable interest in property

is whether one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. Here Harvardian was not only in possession of the building but was in fact using the same for several years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building not been burned, Harvardian would have been allowed the continued use of the same as the site of its operation as an educational institution. Harvardian therefore would have been directly benefited by the preservation of the property, and certainly suffered a pecuniary loss by its being burned. Harvardian Colleges v. Country Bankers Insurance Corp. 1 CARA 2 Facts: > Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap and their children. > Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school building. Although at first reluctant, Harvardian agreed. > Country Banks sent an inspector to inspect the school building and agreed to insure the same for P500,000 for which Harvardian paid an annual premium of P2,500. > On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980,(39 days before I was born… hehehehe )during the effectivity of said insurance policy, the insured property was totally burned rendering it a total loss. > A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no insurable interest over the building constructed on the piece of land in the name of the late Ildefonso Yap as owner. > It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the Harvardian Colleges. Issue: Whether or not Harvardian colleges has a right to the proceeds. Held: Harvardian has a right to the proceeds. Regardless of the nature of the title of the insured or even if he did not have title to the property insured, the contract of fire insurance should still be upheld if his interest in or his relation to the property is such that he will be benefited in its continued existence or suffer a direct pecuniary loss from its destruction or injury. The test in determining insurable interest in property is whether one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. Here Harvardian was not only in possession of the building but was in fact using the same for several years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building not been burned, Harvardian would have been allowed the continued use of the same as the site of its operation as an educational institution. Harvardian therefore would have been directly benefited by the preservation of the property, and certainly suffered a pecuniary loss by its being burned. ANG KA YU V. PHOENIX ASSURANCE - INSURABLE INTEREST 1 CARA 704 Facts: > Ang Ka Yu had a piece of property in his possession. He insured it with Phoenix. > The property was lost, so Ang Ka Yu sought to claim the proceeds. > Phoenix denied liability on the ground that Ang was not the owner but a mere possessor and as such, had no insurable interest over the property. Issue: Whether or not a mere possessor has insurable interest over the property. Held: Yes. A person having a mere right or possession of property may insure it to its full value and in his own name, even when he is not responsible for its safekeeping. The reason is that even if a person is NOT interested in the safety and preservation of material

in his possession because they belong to 3rd parties, said person still has insurable interest, because he stands either to benefit from their continued existence or to be prejudiced by their destruction.