6th Batch- Insurance Cases

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United Merchants Corporation vs. Country Bankers Insurance Corporation
1. Petitioner United Merchants Corporation (UMC) is engaged in the
business of buying, selling and manufacturing Christmas lights.
2. UMC‘s General Manager Alfredo Tan insured UMC‘s stocks in trade of
Christmas lights against fire with defendant Country Bankers Insurance
Corporation (CBIC) for P15000000.00
3. On 7 May 1996, UMC and CBIC executed Endorsement and Fire Invoice
to form part of the Insurance Policy. Endorsement provides that UMC‘s
stocks in trade were insured against additional perils, to wit: ―typhoon,
flood, ext. cover and full earthquake.‖ The sum insured was also increased
to P50000000.00
4. On july 3, 1996, a fire gutted the warehouse rented by UMC. CBIC
designated CRM Adjustment Corporation (CRM) to investigate and
evaluate UMC‘s loss by reason of the fire. CBIC reinsurer, Central Surety,
likewise requested the National Bureau of Investigation (NBI) to conduct a
parallel investigation.
5. UMC submitted to CBIC its sworn statement of formal claim, with proofs of
its loss.
6. UMC demanded for at least 50% payment of its claim from CBIC. UMC
received CBIC‘s letter, rejecting UMC‘s claim due to breach of Condition
no. 15 of the Insurance Policy. (if the claim be in any respect fraudulent,
or if the loss or damaged be occasioned by the willful act, or with the
connivance of the insured, all the benefits under this Policy shall be
7. UMC filed a complaint against CBIC with the RTC of manila. UMC
anchored its insurance claim on the Insurance Policy, the sworn statement
of formal claim earlier submitted, and the certification made by Deputy Fire
Chief/ Senior superintendent of the Bureau of Fire Protection.
8. The bureau further certifies that no evidence was gathered to prove that
the establishment was willfully feloniously and intentionally set on fire.
9. CBIC admitted the issuance of the Insurance Policy to UMC but raised the
defense that UMC‘s claim was fraudulent because UMC‘s statement of
inventory showed that it had no stocks in trade as of 31 december 1995,
and that UMC‘s suspicious purchases for the year 1996 did not even
amount to 25000000.00. UMC‘s GIS and Financial Reports further
revealed that it had insufficient capital, which meant UMC could not afford
the alleged P50,000.000.00 worth of stocks in trade.
10. UMC claimed that it did not make any false declaration because the
invoices were genuine and the statement of inventory was for internal
revenue purposes only, not for its insurance claim.

11. UMC‘s disbursing officer testified that UMC had no importation for the
year 1996 because it bought from its local suppliers, one of which is Fuze
industries Manufacturer Philippines.
ISSUE: Is the insurer liable
ARSON- insurer failed to prove
FRAUDULENT- insurer was able to prove
1. Burden of proof is the duty of any party to present evidence to establish
his claim or defense by the amount fo evidence required by law, which is
preponderance of evidence in civil cases. The party, whether plaintiff or
defendant, who asserts the affirmative of the issue has the burden of proof
to obtain a favorable judgment. Particularly, in insurance cases, once an
insured makes out a prima facie case in its favor, the burden of evidence
shifts to the insurer to controvert the insured‘s prima facie case. In the
present case, UMC established a prima facie case against CBIC.
2. An insurer who seeks to defeat a cliam because of an exception or
limitation in the policy has the burden of establishing that the loss comes
within the purview of the exception or limitation. If loss is proved
apparently within a contract of insurance, the burden is upon the insurer to
establish that the loss arose from a couse which limits its liability. In the
present case, CBIC failed to discharge its primordial burden of
establishing that the damage or loss was caused by arson, a limitation in
the policy.
FRAUDULENT: (di to masyadong related sa topic na loss, pero dito kasi
pinakita kung pano nanalo yung insurer sa case. Na prove ng insurer yung
fraud dun sa claim nung insured. Sabi ng insured mga P50,000,000.00 daw
yung cost nung stock in trade pero ang totoo hindi aabot sa P50,000,000.00)
1. Insurer found out that there was no Fuze Industries Manufacturer Phils.
Located at 55 Mahinhin st., teacher‘s village, quezon City.
2. The sworn statement in formal calim submitted by the insured includes: a.)
letters of credit and invoices for raw materials, Christmas lights and
cartons purchased, b.) charges for assembling Christmas lights, c.)
delivery receipts of Christmas lights. In this case, only the letters of credit
and invoices for raw materials, Christmas lights and cartons purchased
may be considered in the term ―stocks in trade‖
3. Fraudulent discrepancy between the actual loss and that claimed in the
proof of loss avoids the contract.
4. The amount in UMC‘s Income Statement or financial reports is twenty-five
times the claim UMC seeks to enforce.

* Petitioner Country Bankers Insurance Corp insured respondent Lianga Bay and
Community‘s stocks-in-trade against fire loss, damage or liability during the
period starting from June 20, 1989 at 4:00 p.m. to June 20, 1990 at 4:00 p.m., for
the sum of Two Hundred Thousand Pesos (P200,000.00).
* On July 1, 1989, respondent‘s building located at Lianga, Surigao del Sur was
gutted by fire and reduced to ashes, resulting in the total loss of the respondent‘s
stocks-in-trade, pieces of furnitures and fixtures, equipments and records.
Hence, the respondent filed an insurance claim with the petitioner.
* Country Bankers, however, denied the insurance claim on the ground that,
based on the documents submitted by respondent, the building was set on fire by
two (2) NPA rebels who wanted to obtain canned goods, rice and medicines as
provisions for their comrades in the forest, which is an excepted risk under the
policy conditions of Fire Insurance Policy which provides:
―This insurance does not cover any loss or damage occasioned by or through or
in consequence, directly or indirectly, of any of the following occurrences,
namely: Mutiny, riot, military or popular uprising, insurrection, rebellion,
revolution, military or usurped power.‖
* Respondent instituted the complaint for recovery of ―loss, damage or liability‖
against petitioner before the trial court. The petitioner answered the complaint
and reiterated that the loss was due to NPA rebels, an excepted risk under the
fire insurance policy.
* Trial Court rendered its decision in favor of respondent and was affirmed in toto
by CA. Hence, this petition.
Issue: Whether or not country bankers is liable.
Held: Yes.
* The petitioner does not dispute that the respondent‘s stocks-in-trade were
insured against fire loss, damage or liability under its Fire Insurance Policy and
that the respondent lost its stocks-in-trade in a fire that occurred on July 1, 1989,
within the duration of said fire insurance.
* As regards respondent‘s contention that the cause of the loss was an excepted
risk under the terms of the policy, SC explained that where a risk is excepted by
the terms of a policy which insures against other perils or hazards, loss from

such a risk constitutes a defense which the insurer may urge, since it has not
assumed that risk, and from this it follows that an insurer seeking to defeat a
claim because of an exception or limitation in the policy has the burden of
proving that the loss comes within the purview of the exception or limitation set
up. If a proof is made of a loss apparently within a contract of insurance, the
burden is upon the insurer to prove that the loss arose from a cause of loss
which is excepted or for which it is not liable, or from a cause which limits its
* Since the petitioner in this case is defending on the ground of non-coverage
and relying upon an exception clause in policy, it has the burden of proving the
facts upon which such excepted risk is based, by a preponderance of evidence.
But petitioner failed to do so.
* The petitioner merely relies on the Sworn Statements of witnesses that those
armed men wanted to get canned goods and rice for their consumption in the
forest and that PD investigation further disclosed that the perpetrators are
members of the NPA. Additionally, the Spot Report of Pfc. Arturo Juarbal relative
to the statement of the witness to the effect that NPA rebels allegedly set fire to
the respondent‘s building is inadmissible in evidence, for the purpose of proving
the truth of the statements contained in the said report, for being hearsay. The
report was based on the personal knowledge of the caretaker Jose Lomocso who
witnessed every single incident surrounding the facts and circumstances of the
case. No investigation, independent of the statements gathered from Jose
Lomocso, was conducted by Pfc. Arturo V. Juarbal.
FGU Insurance Corporation vs CA
ANCO Enterprises Company (ANCO), a partnership between Ang Gui and Co
To, was engaged in the shipping business. It owned 1 tugboat and 1 barge.
Since the barge had no engine of its own, it needed to be towed by a tugboat for
it to move from one place to another.
San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the
barge for towage cases of beer; one for shipment to Antique and another to Iloilo.
The barge carrying the cases of beer was towed all the way from Mandaue City
to Antique. The tugboat left the barge immediately after reaching Antique.
When the vessels arrived at Antique, the clouds over the sea were dark and the
waves were already big. The workers unloading the cargoes of SMC on board
the barge began to complain about their difficulty in unloading the cargoes. SMC,
thru its districts sales supervisor, requested ANCO to transfer the barge to a
safer place because the vessel might not withstand the big waves. The request

was ignored by ANCO bcos he was confident that the barge could withstand the
waves. With the waves growing bigger, only 10,790 cases of beer were
discharged to the unloaders, leaving behind 29,210.
That evening the barge crew abandoned the vessel because the barge's rope
attached to the wharf was cut off by the waves. Soon after, the barge run
aground and was broken and the cargoes of beer in the barge were swept away.
SMC filed a complaint for Breach of Contract of Carriage and Damages against
Upon Ang Gui's death, the ANCO partnership was dissolved hence, SMC filed a
second amended complaint which was admitted by the Court impleading the
surviving partner, Co To and the Estate of Ang Gui represented by Lucio, Julian
and Jaime, all surnamed Ang. The substituted defendants adopted the original
answer with counterclaim of ANCO ―since the substantial allegations of the
original complaint and the amended complaint are practically the same.‖
ANCO claimed that it had an agreement with SMC that ANCO would not be liable
for any losses or damages resulting to the cargoes by reason of fortuitous event.
ANCO further asserted that there was an agreement between them and SMC to
insure the cargoes in order to recover indemnity in case of loss. Pursuant to that
agreement, the cargoes to the extent of Twenty Thousand (20,000) cases was
insured with FGU Insurance Corporation (FGU) for the total amount of Eight
Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) per Marine
Insurance Policy No. 29591.
According to ANCO, the loss of said cargoes occurred as a result of risks insured
against in the insurance policy and during the existence and lifetime of said
insurance policy. ANCO went on to assert that in the remote possibility that the
court will order ANCO to pay SMC‘s claim, the third-party defendant corporation
should be held liable to indemnify or reimburse ANCO whatever amounts, or
damages, it may be required to pay to SMC.
FGU admitted the existence of the Insurance Policy under Marine Cover Note
No. 29591 but maintained that the alleged loss of the cargoes covered by the
said insurance policy cannot be attributed directly or indirectly to any of the risks
insured against in the said insurance policy. According to FGU, it is only liable
under the policy to Third-party Plaintiff ANCO and/or Plaintiff SMC in case of any
of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.

Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC
failed to exercise ordinary diligence or the diligence of a good father of the family
in the care and supervision of the cargoes insured to prevent its loss and/or
TRIAL COURT: The trial court found that while the cargoes were indeed lost due
to fortuitous event, there was failure on ANCO‘s part, through their
representatives, to observe the degree of diligence required that would exonerate
them from liability. The trial court thus held the Estate of Ang Gui and Co To
liable to SMC for the amount of the lost shipment. With respect to FGU, the court
a quo found FGU liable to bear Fifty-Three Percent (53%) of the amount of the
lost cargoes.
ISSUE: Whether or not FGU can be held liable under the insurance policy to
reimburse ANCO for the loss of the cargoes
A careful study of the records shows no cogent reason to fault the findings of the
lower court, as sustained by the appellate court, that ANCO‘s representatives
failed to exercise the extraordinary degree of diligence required by the law to
exculpate them from liability for the loss of the cargoes.
It is borne out in the testimony of the witnesses on record that the barge had no
engine of its own and could not maneuver by itself. Yet, the patron of ANCO‘s
tugboat left it to fend for itself notwithstanding the fact that as the two vessels
arrived at the port of Antique, signs of the impending storm were already
manifest. Had the patron or captain of the tugboat, the representative of the
defendants observed extraordinary diligence in placing the barge in a safe place,
the loss to the cargo of the plaintiff could not have occurred. In short, therefore,
defendants through their representatives, failed to observe the degree of
diligence required of them under the provision of Art. 1733 of the Civil Code of
the Philippines.
ANCO‘s arguments boil down to the claim that the loss of the cargoes was
caused by the typhoon Sisang, a fortuitous event (caso fortuito), and there was
no fault or negligence on their part. In fact, ANCO claims that their crewmembers
exercised due diligence to prevent or minimize the loss of the cargoes but their
efforts proved no match to the forces unleashed by the typhoon which, in
petitioners‘ own words was, by any yardstick, a natural calamity, a fortuitous
event, an act of God, the consequences of which petitioners could not be held
liable for.
The Civil Code provides:

Art. 1733. Common carriers, from the nature of their business and for reasons of
public policy are bound to observe extraordinary diligence in the vigilance over
the goods and for the safety of the passengers transported by them, according to
all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in
Articles 1734, 1735, and 1745 Nos. 5, 6, and 7 . . .
Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
Art. 1739. In order that the common carrier may be exempted from responsibility,
the natural disaster must have been the proximate and only cause of the loss.
However, the common carrier must exercise due diligence to prevent or minimize
loss before, during and after the occurrence of flood, storm, or other natural
disaster in order that the common carrier may be exempted from liability for the
loss, destruction, or deterioration of the goods . . .
Caso fortuito or force majeure (which in law are identical insofar as they exempt
an obligor from liability) by definition, are extraordinary events not foreseeable or
avoidable, events that could not be foreseen, or which though foreseen, were
inevitable. It is therefore not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it must be one impossible to
foresee or to avoid.
In this case, the calamity which caused the loss of the cargoes was not
unforeseen nor was it unavoidable. In fact, the other vessels in the port of
Antique, managed to transfer to another place, a circumstance which prompted
SMC‘s District Sales Supervisor to request that the barge be likewise transferred,
but to no avail. The barge had no engine and could not maneuver by itself. Even
if ANCO‘s representatives wanted to transfer it, they no longer had any means to
do so as the tugboat had already departed, leaving the barge to its own devices.
The captain of the tugboat should have had the foresight not to leave the barge
alone considering the pending storm.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a
natural disaster, ANCO could not escape liability to respondent SMC. The
records clearly show the failure of petitioners‘ representatives to exercise the
extraordinary degree of diligence mandated by law. To be exempted from
responsibility, the natural disaster should have been the proximate and only
cause of the loss. There must have been no contributory negligence on the part
of the common carrier.

Therefore, as correctly pointed out by the appellate court, there was blatant
negligence on the part of the tugboat‘s crewmembers, first in leaving the engineless barge at the mercy of the storm without the assistance of the tugboat, and
again in failing to heed the request of SMC‘s representatives to have the barge
transferred to a safer place, as was done by the other vessels in the port; thus,
making said blatant negligence the proximate cause of the loss of the cargoes.
One of the purposes for taking out insurance is to protect the insured against the
consequences of his own negligence and that of his agents. Thus, it is a basic
rule in insurance that the carelessness and negligence of the insured or his
agents constitute no defense on the part of the insurer. This rule however
presupposes that the loss has occurred due to causes which could not have
been prevented by the insured, despite the exercise of due diligence.
The question now is whether there is a certain degree of negligence on the part
of the insured or his agents that will deprive him the right to recover under the
insurance contract. We say there is. However, to what extent such negligence
must go in order to exonerate the insurer from liability must be evaluated in light
of the circumstances surrounding each case. When evidence show that the
insured‘s negligence or recklessness is so gross as to be sufficient to constitute a
willful act, the insurer must be exonerated.
Taking into account the circumstances present in the instant case, the court
concludes that the blatant negligence of ANCO‘s employees is of such gross
character that it amounts to a wrongful act which must EXONERATE FGU from
liability under the insurance contract.
G.R. No. 92383 July 17, 1992
FACTS: Sun Insurance issued a personal accident policy to Felix Lim, Jr. with a
face value of P200,00. Two months later, he was dead with a bullet wound in his
head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her
claim was rejected. Sun Insurance agreed that there was no suicide but also
argued that there was no accident.
According to Pilar Nalagon, Lim‘s secretary, on October 6, 1982 at about 10 in
the evening, after his mother's birthday party, Lim was in a happy mood (but not
drunk) and was playing with his handgun, from which he had previously removed
the magazine. As she watched television, he stood in front of her and pointed the
gun at her. She pushed it aside and said it might he loaded. He assured her it
was not and then pointed it to his temple. The next moment there was an
explosion and Lim slumped to the floor. He was dead before he fell.

ISSUE: Whether or not Sun Insurance is liable to the beneficiary for the face
value of the insurance contract
Petitioner‘s contention: 1) There is no accident when a deliberate act is
performed unless some additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their injury or death."
2) The case falls under one of the four exceptions: ―i) The insured person
attempting to commit suicide wilfully exposing himself to needless peril except in
an attempt to save human life. Lim, by pointing the gun to his temple wilfully
exposed himself to needless peril and so came under the exception.
HELD: Yes. The Court is convinced that the incident that resulted in Lim's death
was indeed an accident. The term ―accident‖ was construed and considered
according to the ordinary understanding and common usage, to wit: that which
happens by chance or fortuitously, without intention or design, and which is
unexpected, unusual, and unforeseen. The parties agree that Lim did not commit
suicide. As the secretary testified, Lim had removed the magazine from the gun
and believed it was no longer dangerous. He expressly assured her that the gun
was not loaded. It is submitted that Lim did not willfully expose himself to
needless peril when he pointed the gun to his temple because the fact is that he
thought it was not unsafe to do so. The act was precisely intended to assure
Nalagon that the gun was indeed harmless.
Lim was unquestionably negligent and that negligence cost him his own life. But
it should not prevent his widow from recovering from the insurance policy he
obtained precisely against accident. There is nothing in the policy that relieves
the insurer of the responsibility to pay the indemnity agreed upon if the insured is
shown to have contributed to his own accident. Indeed, most accidents are
caused by negligence. There are only four exceptions expressly made in the
contract to relieve the insurer from liability, and none of these exceptions is
applicable in the case at bar.
Therefore, the petition is liable to the private respondent in the sum of
P200,000.00 representing the face value of the insurance contract, with interest
at the legal rate from the date of the filing of the complaint until the full amount is

COMPANY, INC., respondents.

On March 19, l963, the plaintiff secured temporary insurance from the defendant
for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to
be shipped from the Diapitan. Bay, Quezon Province to Okinawa and Tokyo,
Japan. The defendant issued on said date Cover Note No. 1010, insuring the
said cargo of the plaintiff.
The regular marine cargo policies were issued by the defendant in favor of the
plaintiff on April 2, 1963. The two marine policies bore the numbers 53 HO 1032
and 53 HO 1033 (Exhibits B and C, respectively). Policy No. 53 H0 1033 (Exhibit
B) was for 542 pieces of logs equivalent to 499,950 board feet. Policy No. 53 H0
1033 was for 853 pieces of logs equivalent to 695,548 board feet (Exhibit C). The
total cargo insured under the two marine policies accordingly consisted of 1,395
logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of
the two marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs
intended to be exported were lost during loading operations in the Diapitan Bay.
In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss
of 'appropriately 32 pieces of log's during loading of the 'SS Woodlock'.
Although dated April 4, 1963, the letter was received in the office of the
defendant only on April 15, 1963, as shown by the stamp impression appearing
on the left bottom corner of said letter. In the report submitted by First Philippine
Adjustment Corporation, the adjuster found that 'the loss of 30 pieces of logs is
not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies
covered the actual number of logs loaded on board the 'SS Woodlock' However,
the loss of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note
1010 insured for $70,000.00.
On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim,
on the ground they defendant's investigation revealed that the entire shipment of
logs covered by the two marines policies No. 53 110 1032 and 713 HO 1033
were received in good order at their point of destination. It was further stated that
the said loss may not be considered as covered under Cover Note No. 1010
because the said Note had become 'null and void by virtue of the issuance of
Marine Policy Nos. 53 HO 1032 and 1033.
Whether or not the Insurance company was absolved from responsibility due to
unreasonable delay in giving notice of loss.

The defense of delay as raised by private respondent in resisting the claim
cannot be sustained. The law requires this ground of delay to be promptly and
specifically asserted when a claim on the insurance agreement is made. The
undisputed facts show that instead of invoking the ground of delay in objecting to
petitioner's claim of recovery on the cover note, it took steps clearly indicative
that this particular ground for objection to the claim was never in its mind.
As already stated earlier, private respondent's reaction upon receipt of the notice
of loss, which was on April 15, 1963, was to set in motion from July 1963 what
would be necessary to determine the cause and extent of the loss, with a view to
the payment thereof on the insurance agreement. Thus it sent its adjuster to
investigate and assess the loss in July, 1963. The adjuster submitted his report
on August 23, 1963 and its computation of respondent's liability on September
14, 1963. From April 1963 to July, 1963, enough time was available for private
respondent to determine if petitioner was guilty of delay in communicating the
loss to respondent company. In the proceedings that took place later in the Office
of the Insurance Commissioner, private respondent should then have raised this
ground of delay to avoid liability. It did not do so. It must be because it did not
find any delay, as this Court fails to find a real and substantial sign thereof. But
even on the assumption that there was delay, this Court is satisfied and
convinced that as expressly provided by law, waiver can successfully be raised
against private respondent. Thus Section 84 of the Insurance Act provides:
Section 84.—Delay in the presentation to an insurer of notice or proof of loss is
waived if caused by any act of his or if he omits to take objection promptly and
specifically upon that ground.
From what has been said, We find duly substantiated petitioner's assignments of
On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private
respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her
property for the amount of P14,000.00 effective July 22, 1981, until July 22,
On October 15,1981, MICO allegedly cancelled the policy for non-payment, of
the premium and sent the corresponding notice to Pinca.
On December 24, 1981, payment of the premium for Pinca was received by
Domingo Adora, agent of MICO.

On January 15, 1982, Adora remitted this payment to MICO,together with other
On January 18, 1982, Pinca's property was completely burned.
On February 5, 1982, Pinca's payment was returned by MICO to Adora on the
ground that her policy had been cancelled earlier. But Adora refused to accept it.
In due time, Pinca made the requisite demands for payment, which MICO
rejected. She then went to the Insurance Commission. It is because she was
ultimately sustained by the public respondent that the petitioner appealed.
ISSUE: W/N MICO should be liable because its agent Adora was authorized to
receive it
HELD: YES. On these basis:
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is
exposed to the peril insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, except in
the case of a life or an industrial life policy whenever the grace period provision
SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance agant or insurance
broker a policy or contract of insurance shall be demmed to have authorized
such agent or broker to receive on its behalf payment of any premium which is
due on such policy or contract of insurance at the time of its issuance or delivery
or which becomes due thereon.
Payment to an agent having authority to receive or collect payment is equivalent
to payment to the principal himself; such payment is complete when the money
delivered is into the agent's hands and is a discharge of the indebtedness owing
to the principal.
SEC. 64. No policy of insurance other than life shall be cancelled by the insurer
except upon prior notice thereof to the insured, and no notice of cancellation shall
be effective unless it is based on the occurrence, after the effective date of the
policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;

(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the hazard
insured against;
(e) physical changes in the property insured which result in the property
becoming uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy would
violate or would place the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:
SEC. 65. All notices of cancellation mentioned in the preceding section shall be
in writing, mailed or delivered to the named insured at the address shown in the
policy, and shall state (a) which of the grounds set forth in section sixty-four is
relied upon and (b) that, upon written request of the named insured, the insurer
will furnish the facts on which the cancellation is based.
A valid cancellation must, therefore, require concurrence of the following
(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the effective date of the
policy, of one or more of the grounds mentioned;
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named
insured, (c) at the address shown in the policy;
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon
and (b) that upon written request of the insured, the insurer will furnish the facts
on which the cancellation is based.
All MICO's offers to show that the cancellation was communicated to the insured
is its employee's testimony that the said cancellation was sent "by mail through
our mailing section."
It stands to reason that if Pinca had really received the said notice, she would not
have made payment on the original policy on December 24, 1981. Instead, she
would have asked for a new insurance, effective on that date and until one year
later, and so taken advantage of the extended period.
Incidentally, Adora had not been informed of the cancellation either and saw no
reason not to accept the said payment.
Although Pinca's payment was remitted to MICO's by its agent on January 15,

1982, MICO sought to return it to Adora only on February 5, 1982, after it
presumably had learned of the occurrence of the loss insured against on January
18, 1982 make the motives of MICO highly suspicious. Thus, the petition is

GenIn And surety Corp vs Ng Hua (GR No. L-14373 January 30, 1960)
NG HUA, respondent
Ponente:BENGZON, J.
April 15, 1952 – defendant General Insurance and Surety Corp issued fire
insurance Policy No. 471, for one year, the stock in trade of the Central Pomade
Factory owned by Ng Hua, the court insured. Next day, the factory building
burned, destroying insured properties.
Ng Hua claimed indemnity from the insurer. Policy covered damages up to
P10,000.00; but after negotiations and upon suggestion of the Manila Adjustment
Company, he reduced the claim of P5,000.00.
Defendant insurer refused to pay:
(a) action was not filed in time;
(b) violation of warranty;
(c) submission of fraudulent claim; and
(d) failure to pay the premium.
The aforesaid Policy No. 471 contains this stipulation on the back thereof;
3. The insured shall give notice to the company of any insurance or insurances
already affected, or which may subsequently be effected, covering any of the
property hereby insured, and unless such notice be given and the particulars of
such insurance or insurances be stated in or endorsed on this Policy by or on
behalf of the Company before the occurrence of any loss or damage, all benefits
under the policy shall be forfeited.

The face of the policy bore the annotation: "Co-Insurance Declared —NIL"
Ng Hua had obtained fire insurance on same goods, for same period, in the
amount of P20,000.00 from General Indemnity Co. However, the CA held that
there was no violation of the above clause, inasmuch as "co-insurance exists
when a condition of the policy requires the insured to bear ratable proportion of
the loss when the value of the insured property exceeds the face value of the
policy," hence there is no co-insurance here.
Whether there was a breach of warranty thus insurer can rescind
Discussion — Undoubtedly, co-insurance exists under the condition described by
the appellate court. But that is one kind of co-insurance. It is not the only situation
where co-insurance exists. Other insurers of the same property against the same
hazard are sometimes referred as co-insurers and the ensuing combination as
co-insurance. And considering the terms of the policy which required the insured
to declare other insurances, the statement in question must be deemed to be a
statement (warranty) binding on both insurer and insured, that there were no
other insurance on the property. Remember it runs "Co-Insurance declared";
emphasis on the last word. If "Co-Insurance" means that CA says, the annotation
served no purpose. It would even be contrary to the policy itself, which in its
clause No. 17 made the insured a co-insurer for the excess of the value of the
property over the amount of the policy.
The annotation then, must be deemed to be a warranty that the property was not
insured by any other policy. Violation thereof entitles the insurer to rescind.
(Sec69 Insurance Act) The materiality of non-disclosure of other insurance
policies is not open to doubt.
Furthermore, even if the annotations were overlooked, the defendant insurer
would still be free from liability because there is no question that the policy issued
by General Indemnity had not been stated in nor endorsed on Policy No. 471 of
defendant. And as stipulated in the above-quoted provisions of such policy "all
benefit under this policy shall be forfeited."
Ng Hua alleges "actual knowledge" on the part of General insurance. He does
not say when such knowledge was acquired or imparted. If General Insurance
know before issuing its policy or before the fire, such knowledge might overcome
the insurer's defense. However, CA found no evidence of such knowledge.

Defendant insurer successfully established its defense of warranty breach or
concealment of the other insurance and/or violation of the provision of the policy
*Insurer acquitted from all the liability under the policy.

Section 3, Margin Law
exemption of the following obligations from payment of the margin fee:
1. liquidation of drafts drawn under letters of credit nor of contractual obligations
calling for payment of foreign exchange issued, approved and outstanding as of
the date this Act takes effect (July 16, 1959) and the extension thereof, with the
same terms and conditions as the original contractual obligations.
2. repayment of loans contracted by the government of the Philippines with
foreign governments and/or private banks and the importation of machineries
and equipment by provinces, cities or municipalities for the exclusive use in the
operation of public utilities fully-owned and maintained by them.
1. Philamlife, a domestic life insurance corporation, and American International
Reinsurance Company [Airco], a corporation organized under the laws of the
Republic of Panama, entered into an agreement — reinsurance treaty, stating
that on and after the 1st day of January 1950, the philamlife agrees to reinsure
with AIRCO the entire first excess of such life insurance on the lives of persons
as may be written Philamlife under direct application over and above its
maximum limit of retention for life insurance. It is also stipulated that even though
Philamlife "is already on a risk for its maximum retention under policies
previously issued Philamlife can cede automatically any amount, within the limits
specified, on the same terms on which it would be willing to accept the risk for its
own account, if it did not already have its limit of retention."
2. It is conceded that no question ever arose with respect to the remittances
made by Philamlife to Airco before July 16, 1959, the date of approval of the
Margin Law.

3. The Central Bank of the Philippines collected an amount of money as foreign
exchange margin on Philamlife remittances to Airco purportedly totalling
$610,998.63 and made subsequent to July 16, 1959. Philamlife subsequently
filed with the Central Bank a claim for the refund of the same on the ground that
the reinsurance premiums so remitted were paid pursuant to the January 1, 1950
reinsurance treaty, and, therefore, were pre-existing obligations expressly
exempt from the margin fee.
4. the Monetary Board — in line with the opinion of its Acting Legal Counsel
resolved that "reinsurance contracts entered into and approved by the Central
Bank before July 17, 1959 are exempt from the payment of the 25% foreign
exchange margin, even if remittances thereof are made after July 17, 1959,"
because such remittances "are only made in the implementation of a mother
contract, a continuing contract, which is the reinsurance treaty."
5. The Auditor of the Central Bank refused to pass in audit Philamlife's claim for
6. Philamlife sought reconsideration with the Auditor General but was denied.
The Auditor General expressed the view that the existence of the reinsurance
treaty of January 1, 1950 did not place reinsurance premia — on reinsurance
effected on or after the approval of the Margin Law on July 17, 1959 — out of the
reach of said statute.
PETITIONERS CONTENTION: The premia remitted were in pursuance of its
reinsurance treaty with Airco of January 1, 1950, a contract antedating the
Margin Law, which took effect only on July 16, 1959.
ISSUE: Whether or not the Auditor General's ruling that "remittance of premia on
insurance policies issued or renewed on or after July 16, 1959, or even if issued
or renewed before the said date, but their reinsurance was effected, only
thereafter, are not exempt from the margin fee, even if the reinsurance treaty
under which they are reinsured was approved by the Central Bank before July
16, 1959‖ is correct.
HELD: YES. Section 3 expressly withholds the enforcement of the provisions of
said Act on "contractual obligations calling for payment of foreign exchange
issued approved and outstanding as of the date this Act takes effect and the
extension thereof, with the same terms and conditions as the original contractual
True, the reinsurance treaty precedes the Margin Law by over nine years.
Nothing in that treaty, however, obligates Philamlife to remit to Airco a fixed,
certain, and obligatory sum by way of reinsurance premiums. All that the
reinsurance treaty provides on this point is that Philamlife "agrees to reinsure."
The treaty speaks of a probability; not a reality. For, without reinsurance, no

premium is due. Of course, the reinsurance treaty lays down the duty to remit
premiums — if any reinsurance is effected upon the covenants in that treaty
written. So it is that the reinsurance treaty per se cannot give rise to a contractual
obligation calling for the payment of foreign exchange "issued, approved and
outstanding as of the date this Act [Republic Act 2609] takes effect."
For an exemption to come into play, there must be a reinsurance policy or, as in
the reinsurance treaty provided, a "reinsurance cession" which may be automatic
or facultative.
There should not be any misapprehension as to the distinction between a
reinsurance treaty, on the one hand, and a reinsurance policy or a reinsurance
cession, on the other.
A reinsurance policy is thus a contract of indemnity one insurer makes with
another to protect the first insurer from a risk it has already assumed. A
reinsurance treaty is merely an agreement between two insurance companies
whereby one agrees to cede and the other to accept reinsurance business
pursuant to provisions specified in the treaty. The practice of issuing policies by
insurance companies includes, among other things, the issuance of reinsurance
policies on standard risks and also on substandard risks under special
arrangements. The lumping of the different agreements under a contract has
resulted in the term known to the insurance world as "treaties." Such a treaty is,
in fact, an agreement between insurance companies to cover the different
situations described. Reinsurance treaties and reinsurance policies are not
synonymous. Treaties are contracts for insurance; reinsurance policies or
cessions are contracts of insurance.
Philamlife's obligation to remit reinsurance premiums becomes fixed and definite
upon the execution of the reinsurance cession. Because, for every life insurance
policy ceded to Airco, Philamlife agrees to pay premium. It is only after a
reinsurance cession is made that payment of reinsurance premium may be
exacted, as it is only after Philamlife seeks to remit that reinsurance premium that
the obligation to pay the margin fee arises. Upon the premise that the margin fee
of P268,747.48 was collected on remittances made on reinsurance effected on or
after the Margin Law took effect, refund thereof does not come within the
coverage of the exemption circumscribed in Section 3 of the said law.
ISSUE : Whether or not application of Margin Law would impair the obligation of
HELD: Petitioner's point is that if the Margin Law were, applied, it "would have
paid much more to have the continuing benefit of reinsurance of its risks than it
has been required to do so by the reinsurance treaty in question" and that "the
theoretical equality between the contracting parties would be disturbed and one
of them placed at a distinct disadvantage in relation to the other."

Accordingly, when petitioner entered into the reinsurance treaty of January 1,
1950 with Airco, it did so with the understanding that the municipal laws of the
Philippines at the time said treaty was executed, became an unwritten condition
thereof. Such municipal laws constitute part of the obligations of contract. It is in
this context that we say that Republic Act 265, the Central Bank Act, enacted on
June 15, 1948 — previous to the date of the reinsurance treaty — became a part
of the obligations of contract created by the latter. And under Republic Act 265,
reasonable restrictions may be imposed by the State through the Central Bank
on all foreign exchange transactions "in order to protect the international reserve
of the Central Bank during an exchange crisis." The Margin Law is nothing more
than a supplement to the Central Bank Act; it is a reasonable restriction on
transactions in foreign exchange. It, too, is an additional arm given, the Central
Bank to attain its objectives, to wit: (1) "[t]o maintain monetary stability in the
Philippines;" and (2) "[t]o preserve the international value of the peso and the
convertibility of the peso into other freely convertible currencies." On top of all
these is that that statute was enacted in a background of "dangerously low
international reserves." Its purpose is to reduce as far as is practicable the
excessive demand for foreign exchange.
Petitioner complains that reinsurance contracts abroad would be made
impractical by the imposition of the 25% margin fee. Reasons there are which
should deter us from giving in to this view. First, there is no concrete evidence
that such imposition of the 25% margin fee is unreasonable. Second, if really
continuance of the existing reinsurance treaty becomes unbearable that contract
itself provides that petitioner may potestatively write finis thereto on ninety days'
written notice. In truth, petitioner is not forced to continue its reinsurance treaty
indefinitely with Airco.
There cannot be an impairment of the obligation of contracts. For, the State may,
through its police power, adopt whatever economic policy may reasonably be
deemed to promote public welfare, and to enforce that policy by legislation
adapted to its purpose.
FACTS: Asian Surety & Insurance Company, Inc. and the Fieldmen's insurance
Company, Inc. entered into seven (7) reinsurance agreements or treaties 1 under
the general terms of which the former, as the ceding company undertook to cede
to the latter, as the reinsuring company. Said agreements or treaties were to,
take effect from certain specific dates and were to be in force until cancelled by
either party upon previous notice of at least three (3) months by registered mail
to the other party, the cancellation to take effect as of the 31st of December of
the year in which the notice was given.

FIELDMEN'S, by means of registered mail, served notice to ASIAN of the
former's desire to be relieved from all participation in its various treaties with the
latter. This communication, although admittedly received by ASIAN did not elicit
any reply from ASIAN.
FIELDMEN'S sent another letter to ASIAN expressing regrets at alleged
violations committed by the latter with respect to the various treaties between
them; in the same letter, FIELDMENS reiterated its position that it would consider
itself "no longer at risk for any reinsurance and/or cession" given by ASIAN which
might be in force. Not having received any formal reply from ASIAN,
FIELDMEN'S sent anew a letter on February 17, 1962 reminding regarding the
cancellation of all the reinsurance treaties and cessions. At the same time
FIELDMEN'S requested ASIAN to submit its final accounting of all cessions
made to the former for the preceding months when the reinsurance agreements
were in force.
Meanwhile one of the risks reinsured with FIELDMENS issued in favor of the
Government Service Insurance System, became a liability when the insured
property was burned. The next day ASIAN immediately notified FIELDMEN'S of
said fire loss.
FIELDMEN'S, relying on the sufficiency of its notice of termination and obviously
bent on avoiding its liability under the reinsurance agreements with ASIAN, filed
a petition for declaratory relief to seek a declaration that all the reinsurance
contracts entered into between them had terminated
Asian contended that even the 19 letter were considered sufficient notice of
cancellation — thereby rendering the reinsurance agreements terminated as of
December 31, 1961 — the liability of FIELDMEN'S with respect to policies or
cessions issued under two of the said agreementsprior to their cancellation
continued to have full force and effect until the stated expiry dates of such
policies or cession.
ISSUE: whether or not said cancellation had the effect of terminating also the
liability of FIELDMEN'S as reinsurer.
RULING: No. The two reinsurance agreements with the express stipulations
aforequoted are concerned there is clearly no merit in FIELDMEN'S claim that
their cancellation carried with it ipso facto the termination of all reinsurance
cessions thereunder. Such cessions continued to be in force until their respective
dates of expiration. Since it was under one of said agreements, namely, the
Facultative Obligatory Reinsurance Treaty-Fire, that the reinsurance cession

corresponding to the GSIS policy had been made, FIELDMEN'S cannot avoid
liability which arose by reason of the burning of the insured property.
where the reinsurance contracts in question contain provision which clearly and
expressly recognize the continuing effectivity of policies ceded under them for
reinsurance notwithstanding the cancellation of the contracts themselves, their
cancellation does not carry with it ipso facto the termination of all reinsurance
cessions thereunder. Such cessions continued to be in force until their respective
dates of expirations.
Artex Development Co VS Wellington Insurance
Wellington insurance insured for P24,346,509 the building stocks and machinery
of plaintiff Artex against loss or damage by fire or lightning up on august 2, 1963
with an additional sum of P833,034.
Another insurance against business interruption (use and occupancy) for
On September 22, 1963 the building, and machineries were burned and a notice
of loss and damage was given to Wellington.
Insurance adjusters computed the loss for the fire as P10,106,544.40 and
Wellington paid only 6,481,870.07, leaving a balance of 3,624,683.43
The computed business interruption loss was P3M but Wellington paid
onlyP1,864,134.08 leaving a balance of P1,748,460 (computation based on
Artex through counsel Norberto Quisumbing made a manifestation that only
about P397,000 is the remaining balance and liability which was the subject of
reinsurance with Alexander and Alexander Inc, of New York, Artex
acknowledging here the receipt of P3,600,000 as FINAL and FULL
SETTLEMENT of all claims against Wellington
Artex further prays to the court to affirm the lower court‘s decision of liquidation
and prayed for modification of the amount of liability to be fixed to P397,813.00
plus 12% interest per annum thereof for the late payment until April 10, 1969 and
attorney‘s fees of 15% of the recovery, expenses of litigation, no writ of execution
however to be made within 3 years from july10, 1969 per collateral agreement of
the parties.
Wellington in its brief raises the issue that Artex deemed to have agreed to look
SOLELY to the reinsurers for indemnity in case of loss since their paid up capital

stock is only P500,000 and that they have to secure such reinsurance coverage
the over P24M fire insurance coverage of the policy issued by Wellington to
Does reinsurance contract of the parties make the insured look SOLELY to the
reinsurers for indemnity in case of loss?
Nooooooo! The insured who is not directly a party or privy to the reinsurance
contract between Wellington and Alexander and Alexander Inc. cannot demand
enforcement of such insurance contracts. The Contracts take effect only between
the parties, their assigns and heirs as provide by Art 1311 of our civil code.
Further it provides that a contract with stipulations pour autrui or in favor of a third
person not a party to the contract, the parties must have CLEARLY and
DELIBERATELY conferred favor upon a third person. Assuming that plaintiffinsured could avail of the reinsurance contracts and directly sue the reinsurers
for payment of the loss, still such assumption would not in any way affect or
cancel out defendant-insurer's direct contractual liability to plaintiff-insured under
the insurance policy to indemnify plaintiff for the property losses. Plaintiff's right
as insured to sue defendant as insurer directly and solely would thereby not be
affected or curtailed in any way, without prejudice to defendant in turn filing a
third party complaint or separate suit against its reinsurers.
By Jo-anne Perez on Tuesday, February 4, 2014 at 12:20am
Facts: On July 6, 1979 and on October 1, 1980, Yupangco Cotton Mills engaged
to secure with Worldwide Security and Insurance Co. Inc., several of its
properties for the periods July 6, 1979 to July 6, 1980 for 100,000,000 and from
October 1, 1980 to October 1, 1981 for 100,000,000. Both contracts were
covered by reinsurance treaties between Worldwide Surety and Insurance and
several foreign reinsurance companies, including the petitioners. The
reinsurance arrangements had been made through international broker C.J.
Boatright and Co. Ltd., acting as agent of Worldwide Surety and Insurance.
Within the respective effectivity periods of Policies 20719 and 25896, the
properties therein insured were razed by fire , thereby giving rise to the obligation
of the insurer to indemnify the Yupangco Cotton Mills. Partial payments were
made by Worldwide Surety and Insurance and some of the reinsurance
Within the respective effectivity periods of Policies 20719 and 25896, the
properties therein insured were razed by fire , thereby giving rise to the obligation
of the insurer to indemnify the Yupangco Cotton Mills. Partial payments were

made by Worldwide Surety and Insurance and some of the reinsurance
Service of summons upon the petitioners was made by notification to the
Insurance Commissioner, pursuant to Section 14, Rule 14 of the Rules of Court.
In a Petition for Certiorari filed with the Court of Appeals, petitioners submitted
that respondent Court has no jurisdiction over them, being all foreign
corporations not doing business in the Philippines with no office, place of
business or agents in the Philippines.
ISSUE: whether or not the petitioners were determined to be ―doing business in
the Philippines‖ or not.
HELD: ―There is no exact rule of governing principle as to what constitutes doing
or engaging in or transacting business. Indeed, such case must be judged in the
light of its peculiar circumstances, upon its peculiar facts and upon the language
of the statute applicable. The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the business or
enterprise for which it was organized.
Article 44 of the Omnibus Investments Code of 1987 defines the phrase to
'soliciting orders, purchases, service contracts opening offices, whether called
‗liaison offices of branches; appointing representatives or distributors who are
domiciled in the Philippines or who in any calendar year stay in the Philippines
for a period or periods totaling one hundred eighty (180) days or more;
participating in the management, supervision or control of any domestic business
firm, entity or corporation in the Philippines, and any other act or acts that imply a
continuity or commercial dealings or arrangements and contemplate to that
extent the performance of acts or works, or the exercise of some of the functions
normally incident to and in progressive prosecution of, commercial gain or of
purpose and object of the business organization.‘‖
A single act or transaction made in the Philippines, however, could not qualify a
foreign corporation to be doing business in the Philippines, if such singular act is
not merely incidental or casual, but indicates the foreign corporation‘s intention to
do business in the Philippines.
There is no sufficient basis in the records which would merit the institution of this
collection suit in the Philippines. More specifically, there is nothing to
substantiate the private respondent‘s submission that the petitioners had
engaged in business activities in this country. This is not an instance where the
erroneous service of summons upon the defendant can be cured by the issuance
and service of alias summons, as in the absence of showing that petitioners had
been doing business in the country, they cannot be summoned to answer for the
charges leveled against them.
The Court is cognizant of the doctrine is Signetics Corp. vs. Court of Appeals that
for the purpose of acquiring jurisdiction by way of summons on a defendant
foreign corporation, there is no need to prove first the fact that defendant is doing

business in the Philippines. The plaintiff only has to allege in the complaint that
the defendant has an agent in the Philippines for summons to be validly served
thereto, even without prior evidence advancing such factual allegation.
As it is, private respondent has made no allegation or demonstration of the
existence of petitioners‘ domestic agent, but avers simply that they are doing
business not only abroad but in the Philippines as well. It does not appear at all
that the petitioners had performed any act which would give the general public
the impression that it had been engaging, or intends to engage in its ordinary and
usual business undertakings in the country. The reinsurance treaties between
the petitioners and Worldwide Surety and Insurance were made through an
international insurance brokers, and not through any entity of means remotely
connected with the Philippines. Moreover there is authority to the effect that a
reinsurance company is not doing business in a certain state merely because the
property of lives which are insured by the original insurer company are located in
that state. The reason for this is that a contract or reinsurance is generally a
separate and distinct arrangement from the original contract of insurance, whose
contracted risk is insured in the reinsurance agreement. Hence, the original
insured has generally no interest in the contract of reinsurance.
ACCORDINGLY, the decision appealed from dated October 11, 1990, is SET
ASIDE and the instant petition is hereby GRANTED. The respondent Regional
Trial Court of Manila, Branch 51 is declared without jurisdiction to take
cognizance of Civil Case No. 86-37932, and all its orders and issuances in
connection therewith are hereby ANNULLED and SET ASIDE. The respondent
court is hereby ORDERED to DESIST from maintaining further proceeding in the
case aforestated.

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