Insurance Case Digests

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Insurance Case Digests




- In 1983, Prime Marine Services, Inc. (PMSI) procured a group policy from Insular Life to provide
life insurance coverage to its sea-based employees enrolled under the plan. During the effectivity
of the policy, 6 covered employees perished at sea. They were survived by complainants-
appellees, the beneficiaries under the policy.
- complainants-appellees sought to claim death benefits due them and approached Capt.
Roberto Nuval, President and GM of PMSI, then executed special powers of attorney authorizing
Capt. Nuval to “follow up, ask, demand, collect and receive” for their benefit indemnities of sums
of money due them…”
- Unknown to the complainants, PMSI filed with Insular Life claims for and in behalf of them
through Capt. Nuval, even using the 5 special powers of attorney that they executed as
documents. Insular Life then released 6 checks, payable to the order of the complainant-
appellees, to the treasurer of PMSI (who happened to be Capt. Nuval’s son-in-law). Capt. Nuval
then endorsed and deposited these checks (which were for the complainants) in his bank
- 3 years after, the complainants-appellees found out that they were entitled, as beneficiaries, to
life insular benefits under a group policy with respondent-appellant so they sought to recover
these benefits from Insular Life. Insular Life denied the claim, saying that their liability to
complainants was already extinguished upon delivery to and receipt by PMSI of the 6 checks
issued in the complainants’ names. Complainants filed case with the Insurance Commission
which decided in their favor.
- Insurance Commission held that the special powers of attorney executed by complainants in
favor of the complainants do not contain in unequivocal and clear terms authority to Capt. Nuval
to obtain, receive, receipt from respondent company insurance proceeds arising from the death
of the seaman-insured; also, that Insular Life did not convincingly refuted the claim of Mrs.
Alarcon that neither she nor her husband executed a special power of authority in favor of Capt.
Nuval (and therefore, the company should have not released the check to Capt. Nuval-PMSI);
and that it did not observe Sec 180(3), as repealed by Art. 225 of the Family Code, when it
released the benefits due to the minor children of Ayo and Lontok, when the said complainants
did not post a bond as required
- Insular Life appealed to the CA; CA modified the decision of the Insurance Commission,
eliminating the award to the Lontoks and Ayo

1. WON Insular Life should be liable to the complainants when they relied on the special powers
of attorney, which Capt. Nuval presented as documents, when they released the checks to the
2. WON Insular Life should be liable to the complainants when they released the check in favor
of Ayo and LOntok, even if no bond was posted as required

1. YES
Ratio Third persons deal with agents at their peril and are bound to inquire as to the extent of
the power of the agent with whom they contract. The person dealing with an agent must also
act with ordinary prudence and reasonable diligence. Obviously, if he knows or has good reason
to believe that the agent is exceeding his authority, he cannot claim protection. So if the
suggestions of probable limitations be of such a clear and reasonable quality, or if the character
assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which he
seeks to exercise is of such an unusual or improbable character, as would suffice to put an
ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the
real state of the case, but should either refuse to deal with the agent at all, or should ascertain
from the principal the true condition of affairs.

- The execution by the principals of special powers of attorney, which clearly appeared to be in
prepared forms and only had to be filled up with their names, residences, dates of execution,
dates of acknowledgement and others, excludes any intent to grant a general power of attorney
or to constitute a universal agency. Being special powers of attorney, they must be strictly
construed. Insular Life knew that a power of attorney in favor of Capt. Nuval for the collection
and receipt of such proceeds was a deviation from its practice with respect to group policies (that
the employer-policyholder is the agent of the insurer).
- The employer acts as a functionary in the collection and payment of premiums and in
performing related duties. Likewise falling within the ambit of administration of a group policy is
the disbursement of insurance payments by the employer to the employees. Most policies, such
as the one in this case, require an employee to pay a portion of the premium, which the
employer deducts from wages while the remainder is paid by the employer. This is known as a
contributory plan as compared to a non-contributory plan where the premiums are solely paid
by the employer.
- the labor of the employees is the true source of the benefits, which are a form of additional
compensation to them.
- the employer is the agent of the insurer in performing the duties of administering group
insurance policies. It cannot be said that the employer acts entirely for its own benefit or for the
benefit of its employees in undertaking administrative functions. While a reduced premium may
result if the employer relieves the insurer of these tasks, and this, of course, is advantageous to
both the employer and the employees, the insurer also enjoys significant advantages from the
arrangement. The reduction in the premium which results from employer-administration permits
the insurer to realize a larger volume of sales, insurer to realize a larger volume of sales, and at
the same time the insurer's own administrative costs are markedly reduced.
- the employee has no knowledge of or control over the employer's actions in handling the policy
or its administration. An agency relationship is based upon consent by one person that another
shall act in his behalf and be subject to his control. It is clear from the evidence regarding
procedural techniques here that the insurer-employer relationship meets this agency test with
regard to the administration of the policy, whereas that between the employer and its
employees fails to reflect true agency. The insurer directs the performance of the employer's
administrative acts, and if these duties are not undertaken properly the insurer is in a position to
exercise more constricted control over the employer's conduct.
- ON GROUP INSURANCE: Group insurance is essentially a single insurance contract that
provides coverage for many individuals. In its original and most common form, group insurance
provides life or health insurance coverage for the employees of one employer. The coverage
terms for group insurance are usually stated in a master agreement or policy that is issued by
the insurer to a representative of the group or to an administrator of the insurance program,
such as an employer. Although the employer may be the titular or named insured, the insurance
is actually related to the life and health of the employee. Indeed, the employee is in the position
of a real party to the master policy, and even in a non-contributory plan, the payment by the
employer of the entire premium is a part of the total compensation paid for the services of the

2. YES
Ratio Regardless of the value of the unemancipated common child's property, the father and
mother ipso jure become the legal guardian of the child's property. However, if the market value
of the property or the annual income of the child exceeds P50,000,00, a bond has to be posted
by the parents concerned to guarantee the performance of the obligations of a general guardian.

- Sec 180, Insurance Code: 'In the absence of a judicial guardian, the father, or in the latter's
absence or incapacity, the mother of any minor, who is an insured or a beneficiary under a
contract of life, health or accident insurance, may exercise, in behalf of said minor, any right
under the policy, without necessity of court authority or the giving of a bond where the interest
of the minor in the particular act involved does not exceed twenty thousand pesos "
- …repealed by Art. 225, Family Code: "ART. 225. The father and the mother shall jointly exercise
legal guardianship over the property of their unemancipated common child without the
necessity of a court appointment. In case of disagreement, the father's decision shall prevail,
unless there is judicial order to the contrary.
Where the market value of the property or the annual income of the child exceeds P50,000, the
parent concerned shall be required to furnish a bond in such amount as the court may
determine, but not less than ten per centum (10%) of the value of the property or annual
income, to guarantee the performance of the obligations prescribed for general guardians."
-"market value of the property or the annual income of the child": the aggregate of the child's
property or annual income; if this exceeds P50,000.00, a bond is required - There is no evidence
that the share of each of the minors in the proceeds of the group policy in question is the minor's
only property. Without such evidence, it would not be safe to conclude that, indeed, that is his
only property.
Disposition the instant petition is GRANTED. The Decision of 10 October 1991 and the Resolution
of 19 May 1992 of the public respondent in CA-G.R. SP No. 22950 are SET ASIDE and the Decision
of the Insurance Commission in IC Case No. RD-058 is REINSTATED. Costs against the private
respondent. SO ORDERED.



 Ang insured his warehouse for the total value of Php 60,000.
 One of these, amounting to 10,000, was with Springfield Insurance Company.
 His warehouse burned down, then he attempted to recover 8,000 from Springfield for
the indemnity.
 The insurance company interposed its defense on a rider in the policy in the form of
Warranty F, fixing the amount of hazardous good that can be stored in a building to be
covered by the insurance.
 They claimed that Ang violated the 3 percent limit by placing hazardous goods to as
high as 39 percent of all the goods stored in the building. His suit to recover was
granted by the trial court.
 Hence, this appeal.


Whether a warranty referred to in the policy as forming part of the contract of insurance and in
the form of a rider to the insurance policy, is null and void because not complying with the
Philippine Insurance Act.

No. The warranty is valid. Petition dismissed.

The Insurance Act, Section 65, taken from California law, states:

"Every express warranty, made at or before the execution of a policy, must be contained in the
policy itself, or in another instrument signed by the insured and referred to in the policy, as
making a part of it."

Warranty F, indemnifying for a value of Php 20,000 and pasted on the left margin of the policy
It is hereby declared and agreed that during the currency of this policy no hazardous goods be
stored in the Building to which this insurance applies or in any building communicating therewith,
provided, always, however, that the Insured be permitted to stored a small quantity of the
hazardous goods specified below, but not exceeding in all 3 per cent of the total value of the
whole of the goods or merchandise contained in said warehouse, viz; . . . .

Also, the court stated a book that said, "any express warranty or condition is always a part of
the policy, but, like any other part of an express contract, may be written in the margin, or
contained in proposals or documents expressly referred to in the policy, and so made a part of
“It is well settled that a rider attached to a policy is a part of the contract, to the same extent and
with like effect as it actually embodied therein. In the second place, it is equally well settled that
an express warranty must appear upon the face of the policy, or be clearly incorporated therein
and made a part thereof by explicit reference, or by words clearly evidencing such intention.”
The court concluded that Warranty F is contained in the policy itself, because by the contract of
insurance agreed to by the parties it was made to be a part. It wasn’t a separate instrument
agreed to by the parties.
The receipt of the policy by the insured without objection binds him. It was his duty to read the
policy and know its terms. He also never chose to accept a different policy by considering the
earlier one as a mistake. Hence, the rider is valid.


Mandamus to compel Sun Life Assurance Co. of Canada to change the beneficiary in the policy
issued by the defendant company on the life of the plaintiff Hilario Gercio

- On January 29, 1910, the Sun Life Assurance Co. of Canada issued an insurance policy on the life
of Hilario Gercio. The policy was what is known as a 20-year endowment policy. By its terms, the
insurance company agreed to insure the life of Hilario Gercio for the sum of P2,000, to be paid
him on February 1, 1930, or if the insured should die before said date, then to his wife, Mrs.
Andrea Zialcita, should she survive him; otherwise to the executors, administrators, or assigns of
the insured. The policy did not include any provision reserving to the insured the right to change
the beneficiary.
- On the date the policy was issued, Andrea Zialcita was the lawful wife of Hilario Gercio.
Towards the end of the year 1919, she was convicted of the crime of adultery. On September 4,
1920, a decree of divorce was issued in civil case no. 17955, which had the effect of completely
dissolving their bonds of matrimony
- On March 4, 1922, Hilario Gercio formally notified the Sun Life that he had revoked his
donation in favor of Andrea Zialcita, and that he had designated in her stead his present wife,
Adela Garcia de Gercio, as the beneficiary of the policy. Gercio requested the insurance company
to eliminate Andrea Zialcita as beneficiary. This, the insurance company has refused and still
refuses to do.

1. (Preliminary) WON the provisions of the Code of Commerce and the Civil Code shall be in force
in 1910, or the provisions of the Insurance Act now in force, or the general principles of law,
guide the court in its decision
2. WON the insured, the husband, has the power to change the beneficiary, the former wife, and
to name instead his actual wife, where the insured and the beneficiary have been divorced and
where the policy of insurance does not expressly reserve to the insured the right to change the

1. Whether the case be considered in the light of the Code of Commerce, the Civil Code, or the
Insurance Act, the deficiencies in the law will have to be supplemented by the general principles
prevailing on the subject. To that end, we have gathered the rules which follow from the best
considered American authorities. In adopting these rules, we do so with the purpose of having
the Philippine Law of Insurance conform as nearly as possible to the modern Law of Insurance as
found in the United States proper.
- Court’s first duty is to determine what law should be applied to the facts. The insurance policy
was taken out in 1910, that the Insurance Act. No. 2427, became effective in 1914, and that the
effort to change the beneficiary was made in 1922.
- Code of Commerce- there can be found in it no provision either permitting or prohibiting the
insured to change the beneficiary.
- Civil Code- it would be most difficult, if indeed it is practicable, to test a life insurance policy by
its provisions. In the case of Del Val vs. Del Val, it declined to consider the proceeds of the
insurance policy as a donation or gift, saying "the contract of life insurance is a special contract
and the destination of the proceeds thereof is determined by special laws which deal exclusively
with that subject. The Civil Code has no provisions which relate directly and specifically to life-
insurance contracts or to the
destination of life-insurance proceeds. . . ."
- Insurance Act- there is likewise no provision either permitting or prohibiting the insured to
change the beneficiary.
2. NO
Ratio The wife has an insurable interest in the life of her husband. The beneficiary has an
absolute vested interest in the policy from the date of its issuance and delivery. So when a policy
of life insurance is taken out by the husband in which the wife is named as beneficiary, she has a
subsisting interest in the policy. And this applies to a policy to which there are attached the
incidents of a loan value, cash surrender value, an automatic extension by premiums paid, and to
an endowment policy, as well as to an ordinary life insurance policy. If the husband wishes to
retain to himself the control and ownership of the policy he may so provide in the policy. But if
the policy contains no provision authorizing a change of beneficiary without the beneficiary's
consent, the insured cannot make such change. Accordingly, it is held that a life insurance policy
of a husband made payable to the wife as beneficiary, is the separate property of the beneficiary
and beyond the control of the husband.
- Unlike the statutes of a few jurisdictions, there is no provision in the Philippine Law permitting
the beneficiary in a policy for the benefit of the wife of the husband to be changed after a
divorce. It must follow, therefore, in the absence of a statute to the contrary, that if a policy is
taken out upon a husband's life the wife is named as beneficiary therein, a subsequent divorce
does not destroy her rights under the policy.

(may iba pang text sa digest na to. Pero parang relation lang siya sa ibang cases)


- Cebu Shipyard and Engineering Works, Inc. (CSEW) is engaged in the business of dry-docking
and repairing of marine vessels while the Prudential Guarantee and Assurance, Inc. (Prudential)
is in the non-life insurance business.
- William Lines, Inc. is in the shipping business. It was the owner of M/V Manila City, a luxury
passenger-cargo vessel, which caught fire and sank on Feb. 16, 1991. At the time of the
unfortunate occurrence sued upon, subject vessel was insured with Prudential for P45M for hull
and machinery. 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
- Petitioner CSEW was also insured by Prudential for third party liability under a Shiprepairer’s
Legal Liability Insurance Policy. The policy was for P10 million only, under the limited liability
clause, to wit:
- On Feb. 5, 1991, William Lines, Inc. brought its vessel, M/V Manila City, to the Cebu Shipyard in
Lapulapu City for annual dry-docking and repair.
- On Feb. 6, 1991, an arrival conference was held between representatives of William Lines, Inc.
and CSEW to discuss the work to be undertaken on the M/V Manila City. The contracts,
denominated as Work Orders, were signed thereafter., with the following stipulations:
“10. The Contractor shall replace at its own work and at its own cost any work or material which
can be shown to be defective and which is communicated in writing within one (1) month of
redelivery of the vessel or if the vessel was not in the Contractor’s Possession, the withdrawal of
the Contractor’s workmen, or at its option to pay a sum equal to the cost of such replacement at
its own works. These conditions shall apply to any such replacements.
11. Save as provided in Clause 10, the Contractor shall not be under any liability to the Customer
either in contract or for delict or quasi-delict or otherwise except for negligence and such liability
shall itself be subject to the following overriding limitations and exceptions, namely:
(a) The total liability of the Contractor to the Customer (over and above the liability to replace
under Clause 10) or of any sub-contractor shall be limited in respect of any defect or event (and
a series of accidents arising out of the same defect or event shall constitute one defect or event)
to the sum of Pesos Philippine Currency One Million only.
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.”
- While the M/V Manila City was undergoing dry-docking and repairs within the premises of
CSEW, the master, officers and crew of M/V Manila City stayed in the vessel, using their cabins as
living quarters. Other employees hired by William Lines to do repairs and maintenance work on
the vessel were also present during the dry-docking.
- On February 16, 1991, after subject vessel was transferred to the docking quay, it caught fire
and sank, resulting to its eventual total loss.
- On February 21, 1991, William Lines, Inc. filed a complaint for damages against CSEW, alleging
that the fire which broke out in M/V Manila City was caused by CSEW’s negligence and lack of
- On July 15, 1991 was filed an Amended Complaint impleading Prudential as co-plaintiff, after
the latter had paid William Lines, Inc. the value of the hull and machinery insurance on the M/V
Manila City. As a result of such payment Prudential was subrogated to the claim of P45 million,
representing the value of the said insurance it paid.
On June 10, 1994, the trial court a quo came out with a judgment against CSEW:
1. To pay unto plaintiff Prudential Guarantee and Assurance, Inc., the subrogee, the amount of
P45M, with interest at the legal rate until full payment is made; the amount of P56,715,000
representing loss of income of M/V MANILA CITY, with interest at the legal rate until full
payment is made;
2. To pay unto plaintiff, William Lines, Inc. the amount of P11M as payment, in addition to what
it received from the insurance company to fully cover the injury or loss, in order to replace the
M/V MANILA CITY, with interest at the legal rate until full payment is made; the sum of P927,039
for the loss of fuel and lub oil on board the vessel when she was completely gutted by fire at
defendant, Cebu Shipyard’s quay, with interest at the legal rate until full payment is made; the
sum of P3,054,677.95 as payment for the spare parts and materials used in the M/V MANILA
CITY during dry-docking with interest at the legal rate until full payment is made; P500,000 in
moral damages;the amount of P10Min attorney’s fees; and to pay the costs of this suit.
- On September 3, 1997, the Court of Appeals affirmed the appealed decision of the trial court,
ordering CSEW to pay Prudential, the subrogee, the sum of P45 Million, with interest at the legal
rate until full payment is made.

CSEW’s version:
On Feb. 13, 1991, the CSEW completed the drydocking of M/V Manila City at its grave dock. It
was then transferred to the docking quay of CSEW where the remaining repair to be done was
the replating of the top of Water Ballast Tank No. 12 which was subcontracted by CSEW to JNB
General Services. Tank Top No. 12 was at the rear section of the vessel, on level with the flooring
of the crew cabins located on the vessel’s second deck.
At around 7AM of Feb. 16, 1991, the JNB workers trimmed and cleaned the tank top framing
which involved minor hotworks (welding/cutting works). The said work was completed at about
10AM. The JNB workers then proceeded to rig the steel plates, after which they had their lunch
break. The rigging was resumed at 1PM
While in the process of rigging the second steel plate, the JNB workers noticed smoke coming
from the passageway along the crew cabins. When one of the workers, Mr. Casas, proceeded to
the passageway to ascertain the origin of the smoke, he noticed that smoke was gathering on
the ceiling of the passageway but did not see any fire as the crew cabins on either side of the
passageway were locked. He immediately sought out the proprietor of JNB, Mr. Buenavista, and
the Safety Officer of CSEW, Mr. Aves, who sounded the fire alarm. CSEW’s fire brigade
immediately responded as well as the other fire fighting units in Metro Cebu. However, there
were no WLI representative, officer or crew to guide the firemen inside the vessel.
- Despite the combined efforts of the firemen of the Lapulapu City Fire Dept., Mandaue Fire
Dept., Cordova Fire Dept. Emergency Rescue Unit Foundation, and fire brigade of CSEW, the fire
was not controlled until 2AM of the following day.
- On the early morning of Feb. 17, 1991, gusty winds rekindled the flames on the vessel and fire
again broke out. Then the huge amounts of water pumped into the vessel, coupled with the
strong current, caused the vessel to tilt until it capsized and sank
- When M/V Manila City capsized, steel and angle bars were noticed to have been newly welded
along the port side of the hull of the vessel, at the level of the crew cabins. William Lines did not
previously apply for a permit to do hotworks on the said portion of the ship as it should have
done pursuant to its work order with CSEW.

Prudential’s version
> At around 7AM of Feb. 16, 1991, the Chief Mate of M/V Manila City was inspecting the various
works being done by CSEW on the vessel, when he saw that some workers of CSEW were
cropping out steel plates on Tank Top No. 12 using acetylene, oxygen and welding torch. He also
observed that the rubber insulation wire coming out of the air-conditioning unit was already
burning, prompting him to scold the workers.
> At 2:45 PM of the same day, witnesses saw smoke coming from Tank No. 12. The vessel’s
reeferman reported such occurence to the Chief Mate who immediately assembled the crew
members to put out the fire. When it was too hot for them to stay on board and seeing that the
fire cannot be controlled, the vessel’s crew were forced to withdraw from CSEW’s docking quay.
- In the morning of Feb. 17, 1991, M/V Manila City sank. As the vessel was insured with
Prudential Guarantee, William Lines filed a claim for constructive total loss, and after a thorough
investigation of the surrounding circumstances of the tragedy, Prudential found the said
insurance claim to be meritorious and issued a check in favor of William Lines in the amount of
P45 million pesos representing the total value of M/V Manila City’s hull and machinery

1. WON CSEW had “management and supervisory control“ of the m/v manila city at the time the
fire broke out
2. WON the doctrine of res ipsa loquitur applies against the crew
3. WON CSEW’S expert evidence is admissible or of probative value
4. WON Prudential has the right of subrogation against its own insured THE CONTRACTUAL 5. 5.
5. 5. WON the provisions limiting csew’s liability for negligence to a maximum of p1 million are

1. YES
- 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, even finality, especially when, as in this
case, the CA affirmed the factual findings arrived at by the trial court. When supported by
sufficient evidence, findings of fact by the CA affirming those of the trial court, are not to be
disturbed on appeal. The rationale behind this doctrine is that review of the findings of fact of
the CA is not a function that the Supreme Court normally undertakes.
- 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. Both courts found
that the M/V Manila City was under the custody and control of petitioner CSEW, when the ill-
fated vessel caught fire. The decisions of both the lower court and the CA set forth clearly the
evidence sustaining their finding of actionable negligence on the part of CSEW. This factual
finding is accorded great weight and is conclusive on the parties. The court discerns no basis for
disturbing such finding firmly anchored on enough evidence.
- Furthermore, in petitions for review on certiorari, only questions of law may be put into issue.
Questions of fact cannot be entertained. The finding of negligence by the CA is a question which
this Court cannot look into as it would entail going into factual matters on which the finding of
negligence was based. Such an approach cannot be allowed by this Court in the absence of clear
showing that the case falls under any of the exceptions to the well-established principle.
The finding by the trial court and the Court of Appeals that M/V Manila City caught fire and sank
by reason of the negligence of the workers of CSEW, when the said vessel was under the
exclusive custody and control of CSEW is accordingly upheld.

2. YES
- 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 on record reveal the concurrence of said conditions in the case under
scrutiny. First, the fire that occurred and consumed M/V Manila City would not have happened
in the ordinary course of things if reasonable care and diligence had been exercised. In other
words, some negligence must have occurred. Second, the agency charged with negligence, as
found by the trial court and the CA and as shown by the records, is the herein petitioner, CSEW,
which had control over subject vessel when it was docked for annual repairs. So also, as found by
the RTC, “other responsible causes, including the conduct of the plaintiff, and third persons, are
sufficiently eliminated by the evidence.”
What is more, in the present case the trial court found direct evidence to prove that the workers
and/or employees of CSEW were remiss in their duty of exercising due diligence in the care of
subject vessel. The direct evidence substantiates the conclusion that CSEW was really negligent.
Thus, even without applying the doctrine of res ipsa loquitur, in light of the direct evidence on
record, the ineluctable conclusion is that CSEW was negligent and consequently liable for
damages to the respondent, William Lines, Inc.

3. NO
- Petitioner maintains that the CA erred in disregarding the testimonies of the fire experts,
Messrs. David Grey and Gregory Michael Southeard, who testified on the probable origin of the
fire in M/V Manila City. Petitioner avers that since the said fire experts were one in their opinion
that the fire did not originate in the area of Tank Top No. 12 where the JNB workers were doing
hotworks but on the crew accommodation cabins on the portside No. 2 deck, the RTC and the CA
should have given weight to such finding based on the testimonies of fire experts; petitioner
But courts are not bound by the testimonies of expert witnesses. Although they may have
probative value, reception in evidence of expert testimonies is within the discretion of the court,
under Section 49, Rule 130 of the Revised Rules of Court. It is never mandatory for judges to give
substantial weight to expert testimonies. If from the facts and evidence on record, a conclusion
is readily ascertainable, there is no need for the judge to resort to expert opinion evidence. In
the case under consideration, the testimonies of the fire experts were not the only available
evidence on the probable cause and origin of the fire. There were witnesses who were actually
on board the vessel when the fire occurred. Between the testimonies of the fire experts who
merely based their findings and opinions on interviews and the testimonies of those present
during the fire, the latter are of more probative value.

4. YES
- 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.
- It is petitioner’s submission that the loss of M/V Manila City or damage thereto is expressly
excluded from the coverage of the insurance because the same resulted from “want of due
diligence by the Assured, Owners or Managers” which is not included in the risks insured against.
Again, this theory of petitioner is bereft of any factual or legal basis. It proceeds from a wrong
premise that the fire which gutted subject vessel was caused by the negligence of the employees
of William Lines, Inc. To repeat, the issue of who between the parties was negligent has already
been resolved against 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 on the matter is succinct and clear, to wit:
- 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.
- Thus, when Prudential, after due verification of the merit and validity of the insurance claim of
William Lines, Inc., 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. To buttress its stance that it is a co-assured,
petitioner placed 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.
- According to petitioner, under the aforecited clause, William Lines, Inc., agreed to assume the
risk of loss of the vessel while under drydock or repair and to such extent, it is benefited and
effectively constituted as a co-assured under the policy.
- This theory of petitioner is devoid of sustainable merit. 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. Concededly, such a stipulation works to the benefit of CSEW as
the shiprepairer. 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 gleaned principally from the insurance
contract or policy itself and not from any other contract or agreement because the insurance
policy denominates the assured and 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. It is axiomatic that when the terms of a contract are clear its
stipulations control.i] Thus, when the insurance policy involved named only William Lines, Inc. as
the assured thereunder, the claim of CSEW that it is a co-assured is unfounded.
- Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is provided
Subject to the conditions of this Policy, this insurance also covers loss of or damage to vessel
directly caused by the following:
Negligence of Charterers and/or Repairers, provided such Charterers and/or Repairers are not an
Assured hereunder.
- 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. Such result could not have been intended by William Lines, Inc.
5. NO
- 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. To determine
the validity and sustainability of the claim of William Lines, Inc., for a total loss, Prudential
conducted its own inquiry. 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 (the price of a vessel
similar to M/V Manila City), amounts to P55M.
- Considering the aforestated circumstances, let alone the fact that negligence on the part of
petitioner has been sufficiently proven, it would indeed be unfair and inequitable to limit the
liability of petitioner to One Million Pesos only. As aptly held by the trial court, “it is rather
unconscionable if not overstrained.” 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 or loss suffered by William Lines, Inc.
Disposition Petition is DENIED. Resolution of the CA is AFFIRMED.


- The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a business
partnership in the City of Lucena. Under the business name of New Life Enterprises, the
partnership engaged in the sale of construction materials at its place of business, a two storey
building situated at Iyam, Lucena City. The facts show that Julian Sy insured the stocks in trade of
New Life Enterprises with Western Guaranty Corporation, Reliance Surety and Insurance Co. Inc.,
and Equitable Insurance Corporation.
- On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No. 37201 in the
amount of P350,000.00. This policy was renewed on May 13, 1982.
- On July 30, 1981, Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy No. 69135
in the amount of P300,000.00 (Renewed under Renewal Certificate No. 41997). An additional
insurance was issued by the same company on November 12, 1981 under Fire Insurance Policy
No. 71547 in the amount of P700,000.00.
- On February 8, 1982, Equitable Insurance Corporation issued Fire Insurance Policy No. 39328 in
the amount of P200,000.00.
- Thus when the building occupied by the New Life Enterprises was gutted by fire at about 2:00
o'clock in the morning of October 19, 1982, the stocks in trade inside said building were insured
against fire in the total amount of P1,550,000.00. According to the certification issued by the
Headquarters, Philippine Constabulary/Integrated National Police, Camp Crame, the cause of fire
was electrical in nature. According to the plaintiffs, the building and the stocks inside were
burned. After the fire, Julian Sy went to the agent of Reliance Insurance whom he asked to
accompany him to the office of the company so that he can file his claim. He averred that in
support of his claim, he submitted the fire clearance, the insurance policies and inventory of
He further testified that the three insurance companies are sister companies, and as a matter of
fact when he was following-up his claim with Equitable Insurance, the Claims Manager told him
to go first to Reliance Insurance and if said company agrees to pay, they would also pay. The
same treatment was given him by the other insurance companies. Ultimately, the three
insurance companies denied plaintiffs' claim for payment.

Respondent’s comments
> Western Guaranty Corporation through Claims Manager Bernard S. Razon told the plaintiff that
his claim 'is denied for breach of policy conditions.' Reliance Insurance purveyed the same
message as well as Equitable Insurance Corporation.
- The said policy in question follows:
"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 such notice
be given and the particulars of such insurance or insurances be stated therein or endorsed on
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 loss or damage is not more than P200,000.00."

Petitioner’s comments
> Petitioners contend that they are not to be blamed for the omissions, alleging that insurance
agent Leon Alvarez (for Western) and Yap Kam Chuan (for Reliance and Equitable) knew about
the existence of the additional insurance coverage and that they were not informed about the
requirement that such other or additional insurance should be stated in the policy, as they have
not even read said policies.

WON New Life Enterprises’ claim for payment be denied

Ratio Furthermore, when the words and language of documents are clear and plain or readily
understandable by an ordinary reader thereof, there is absolutely no room for interpretation or
construction anymore. Courts are not allowed to make contracts for the parties; rather, they will
intervene only when the terms of the policy are ambiguous, equivocal, or uncertain. The parties
must abide by the terms of the contract because such terms constitute the measure of the
insurer's liability and compliance therewith is a condition precedent to the insured's right of
recovery from the insurer.
- While it is a cardinal principle of insurance law that a policy or contract of insurance is to be
construed liberally in favor of the insured and strictly against the insurer company, yet contracts
of insurance, like other contracts, are to be construed according to the sense and meaning of the
terms which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense. Moreover, obligations
arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.

a. The terms of the contract are clear and unambiguous. The insured is specifically required to
disclose to the insurer any other insurance and its particulars which he may have effected on the
same subject matter. The knowledge of such insurance by the insurer's agents, even assuming
the acquisition thereof by the former, is not the "notice" that would stop the insurers from
denying the claim. Besides, the so-called theory of imputed knowledge, that is, knowledge of the
agent is knowledge of the principal, aside from being of dubious applicability here has likewise
been roundly refuted by respondent court whose factual findings we find acceptable.
b. Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the
ordinary care and prudence that would be exacted in relation to other contracts. The conformity
of the insured to the terms of the policy is implied from his failure to express any disagreement
with what is provided for.


- After sending off certain seamen at the departure area of MIA, Jose V. del Rosario proceeded to
the public utility bus stop. While at the bus stop, the plaintiff saw a DMTC bus. While moving at a
crawling pace, it was taking several passengers, all of whom managed to board the bus while it
was already at the bus stop; plaintiff was the last one to board the bus.
While the plaintiff was still on the bus with his hand on the bus door, the slowly moving bus sped
forward at a high speed, as a result of which, the plaintiff lost balance and fell from the bus. As
plaintiff clung instinctively to the handle bar, he was dragged by the bus along the asphalted
road. The bus driver, Gil Agpalo, abruptly stopped the bus. Then fled from the scene, leaving the
bus and the injured plaintiff behind.
- The plaintiff was brought to the Manila Sanitarium and Hospital where the doctors performed 2
major surgical operations on plaintiffs right leg.
- Plaintiff was confined at the hospital for (40) days, from June 10, 1984 to August 26, 1984.
Medical expenses totaled the amount of P69,444.41. Plaintiff’s medical expenses were advanced
by his employer Maglines but he was required to reimburse Maglines on a staggered basis by
way of salary deductions. After his release from the hospital, he returned to the hospital for
further treatment and checkup. The injuries had left plaintiff with a huge scar on his right leg.
Also, the plaintiff incurred lost earning by way of unearned salaries amounting to P7,500.00 due
to said physical injuries and the consequent hospital confinement.
- Plaintiff filed on June 26, 1985 the complaint against DMTC and its driver. Agpalo was later
dropped as a party defendant because he could not be served with summons. Upon filing its
answer, defendant DMTC filed a thirdparty complaint against First Quezon City Insurance Co.,
Inc. September 17, 1985, third-party defendant filed its answer to the third-party complaint.
- TC held DMTC complaint dismissed for lack of merit and as regards the third-party complaint
First Quezon City Insurance Co., Inc. was to indemnify third-party plaintiff DMTC in the sum of
P12,000.00 with interest. There being no satisfactory warrant the court dismissed the rest of the
claims in the complaint and third-party complaint.
- The bus company appealed to the CA, which modified the dispositive as regards the third-party
complaint, that the third-party defendant First Quezon City Insurance Co., Inc. be ordered to
indemnify third-party plaintiff DMTC the SUM of P50,000.00 with legal interest. Insurance
company filed a MFR which was denied.
Hence, this petition for review, assailing the appellate courts' interpretation of the provision of
the insurance contract on the limit of the insurer's liability.

WON the CA erred in the interpretation of the insurance contract on the limit of the insurer’s

- The insurance policy clearly placed the maximum limit of the petitioner's liability for damages
arising from death or bodily injury at P12,000.00 per passenger and its maximum liability per
accident at (P50,000.00. Since only one passenger was injured in the accident, the insurer's
liability for the damages suffered by said passenger is pegged to the amount of P12,000.00 only.
- The limit of P50,000.00 per accident means that the insurer's maximum liability for any single
accident will not exceed P50,000.00 regardless of the number of passengers killed or injured
The bus company may not recover from the insurance company more than P12,000.00 per
passenger killed or injured, or (P50,000.00) per accident even if under the judgment of the court,
the erring bus operator will have to pay more than P12,000.00 to each injured passenger. The
trial court's interpretation of the insurance contract was the correct interpretation.
Disposition petition for review is GRANTED. The decision promulgated by the CA, ordering the
third party defendent, First Quezon City Insurance Co., Inc. to indemnify theI private respondent,
(DMTC), the sum of P50,000.00 for the damages of the passenger, Jose V. Del Rosario, is hereby
modified by reducing the award to 12,000.00 only. Costs against the private respondent De Dios
Marikina Transportation Co., Inc.


- At different times within a period of two months prior to 24 December 1953, Diosdado C. Ty,
employed as operator mechanic foreman in the Broadway Cotton Factory insured himself in 18
local insurance companies, among which being the 8 above-named defendants, which issued to
him personal accident policies. Plaintiff’s beneficiary was his employer, Broadway Cotton
Factory, which paid the insurance premiums. On 24 December 1953, a fire broke out which
totally destroyed the Broadway Cotton Factory. Fighting his way out of the factory, plaintiff was
injured on the left hand by a heavy object. He was brought to the Manila Central University
hospital, and after receiving first-aid, he went to the National Orthopedic Hospital for treatment
of his injuries (fractures in index, middle, fourth, and fifth fingers of left hand). From 26
December 1953 to 8 February 1954, he underwent medical treatment in the hospital. The above-
described physical injuries have caused temporary total disability of plaintiff’s left hand. Plaintiff
filed the corresponding notice of accident and notice of claim with all of the above-named
defendants to recover indemnity. Defendants rejected plaintiff’s claim for indemnity for the
reason that there being no severance of amputation of the left hand, the disability suffered by
him was not covered by his policy.
- Plaintiff sued the defendants in the Municipality Court of this City, which dismissed his
complaints. Thereafter, the plaintiff appealed to the Court of First Instance Manila, presided by
Judge Gregorio S. Narvasa, which absolved the defendants from the complaints. Hence, the

WON Diosdado Ty is entitled to indemnity under the insurance policy for the disability of his left

- The agreement contained in the insurance policies is the law between the parties. As the terms
of the policies are clear, express and specific that only amputation of the left hand should be
considered as a loss thereof, an interpretation that would include the mere fracture or other
temporary disability not covered by the policies would certainly be unwarranted. In the case at
bar, due to the clarity of the stipulation, distinction between “temporary disability” and “total
disability” need not be made in relation to one’s occupation means that the condition of the
insurance is such that common prudence requires him to desist from transacting his business or
renders him incapable of working. While the Court sympathizes with the plaintiff or his
employer, for whose benefit the policies were issued, it can not go beyond the clear and express
conditions of the insurance policies, all of which define partial disability as loss of either hand by
a amputation through the bones of the wrist.” There was no such amputation in the case at bar.
- The Supreme Court affirmed the appealed decision, with costs against the plaintiff-appellant.


- Misamis Lumber Corporation, under its former name, Lanao Timber Mills, Inc., insured its Ford
Falcon motor car for the amount of P14,000 with Capital Insurance & Surety Company, Inc. The
pertinent provisions of the policy provided, as follows:
1. The Company will subject to the Limits of Liability indemnify the Insured against loss or
damage to the Motor Vehicle and its accessories and spare parts whilst thereon.
2. (a) by accidental collision or overturning or collision or overturning consequent when
mechanical breakdown or consequent upon wear and tear.
3. At its option, the Company may pay in cash the amount of the loss or damage or may repair,
reinstate or replace the Motor Vehicle or any part thereof or its accessories or spare parts. The
liability of the Company shall not exceed the value of the parts lost or damaged and the
reasonable cost of fitting such parts or the value of the Motor Vehicle at the time of the loss or
damage whichever is the loss. The Insured's estimate of value stated in the schedule shall be the
maximum amount payable by the Company in respect of any claim for loss or damage.
4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which
the Company may be liable under this policy provided that:
(a) the estimated cost of such repair does not exceed the authorized Repair Limit.
(b) a detailed estimate of the cost is forwarded to the Company without delay and providing also
that the authorized repair limit is P150.00.
- One night, the insured car, while traveling along in Aurora Boulevard, passed over a water hole
which the driver did not see because an oncoming car did not dim its light. The crankcase and
flywheel housing of the car broke when it hit a hollow block lying alongside the water hole. The
car was towed and repaired by Morosi Motors at a total cost of P302.27.
- When the repairs on the car had already been made, Misamis made a report of the accident to
Capital Insurance.
- Since Capital refused to pay for the total cost of to wage and repairs, suit was filed in the
municipal court originally.
- The defendant-appellant admits liability in the amount of P150, but not for any excess thereof.
The lower court did not exonerate the said appellant for the excess because the company's
absolution would render the insurance contract one-sided and that the said insurer had not
shown that the cost of repairs in the sum of P302.27 is unreasonable, excessive or padded, nor
had it shown that it could have undertaken the repairs itself at less expense.

WON Capital Insurance can be made to pay more than P150

- The insurance policy stipulated in paragraph 4 that if the insured authorizes the repair the
liability of the insurer, per its sub-paragraph (a), is limited to P150.00. The literal meaning of this
stipulation must control, it being the actual contract, expressly and plainly provided for in the
- Recourse to legal hermeneutics is not called for because paragraph 4 of the policy is clear and
specific and leaves no room for interpretation.
- The option to undertake the repairs is accorded to the insurance company per paragraph 2. The
said company was deprived of the option because the insured took it upon itself to have the
repairs made, and only notified the insurer when the repairs were done. As a consequence,
paragraph 4, which limits the company's liability to P150.00, applies.
- The insurance contract may be rather onerous ("one-sided", as the lower court put it), but that
in itself does not justify the abrogation of its express terms, terms which the insured accepted or
adhered to and which is the law between the contracting parties.
- To require the insurer to prove that the cost of the repairs ordered by the insured is
unreasonable, when the insurer was not given an opportunity to inspect and assess the damage
before the repairs were made, is contrary to elementary justice and equity.


Petition for certiorari to review the decision of the CA

- Private respondent Emilio Tan took from the petitioner a Peso 300,000 property insurance
policy to cover his interest in the electrical insurance store of his brother housed in a building in
Iloilo City on August 15, 1983. Four days after the issuance of the policy, the building including
the insured store burned.
- On August 20, 1983, Tan filed his claim for fire loss. Sun Insurance, on February 29, 1984, wrote
the private respondent denying the claim. On April 3, 1984, private respondent wrote another
letter to the insurance company requesting reconsideration of the denial. Tan’s lawyer wrote
another letter to the insurance company inquiring about the April 3 letter which sought for a
reconsideration of the denial. In its reply to the lawyer’s letter, Sun Insurance reiterated its
denial of the claim and enclosed therein copies of the two previous denials dated February 29,
1984 and May 17, 1985.
- On November 20, 1985, Tan filed a civil case with the RTC. Petition filed a motion to dismiss on
the alleged ground that the action has already prescribed based on Condition 27 of the Insurance
Policy which stated that the window to file the appropriate action with either the Insurance
Commission or in any court of competent jurisdiction is twelve months from the rejection of the
claim. RTC denied the motion and the subsequent motion for reconsideration. The CA likewise
denied the petition of Sun Insurance.

1. WON the court the filing of a motion for reconsideration interrupts the 12 months
prescription period to contest the denial of the insurance claim
2. WON the rejection of the claim shall be deemed final only if it contains words to the effect
that the denial is final

1. NO
- The SC held that Condition 27 of the Insurance policy is very clear and free from any doubt or
ambiguity. It has to be taken in its plain, ordinary, and popular sense. The rejection letter of
February 29, 1984 was clear and plain. The Court noted that the one year period is likewise in
accord with Section 23 of the Insurance Code which states that any condition which limits the
time for commencing an action to a period of less than one year when the cause of action
accrues is void. The right of action, according to the SC, accrues at the time that the claim is
rejected at the first instance. A request for reconsideration of the denial cannot suspend the
running of the prescriptive period. The Court noted that the rationale for the one year period is
to ensure that the evidence as to the origin and cause of the destruction have not yet

2. NO
- The Court clarified its ruling in Eagle Star Insurance Co. vs Chia Yu where it ruled that “the cause
of action in an insurance contract does not accrue until the Insured’s claim is finally rejected by
the Insurer” by stating the use of the word “finally” cannot be construed to mean the rejection
of a petition for reconsideration. What the court referred to in effect is the rejection in the first
instance as claimed by
Sun Insurance

The decision of the CA is reversed and set aside. The case is dismissed


- Producers Bank of the Philippines filed a complaint against Fortune Insurance and Surety Co.,
Inc. for recovery of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost
on June 29, 1987 during a robbery of Producer's armored vehicle while it was in transit to
transfer the money from its Pasay City Branch to its head office in Makati under the custody of
its teller, Maribeth Alampay. The armored car was driven by Benjamin Magalong Y de Vera,
escorted by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC
Management Systems.
- After an investigation by the Pasay police, driver Magalong and guard Atiga were charged,
together with Batigue , Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery
- Demands were made by the Producers upon the Fortune to pay the amount of the loss of
P725,000.00 but the latter refused to pay as the loss is excluded from the coverage of the
insurance policy specifically under "General Exceptions"
> The company shall not be liable under this policy in respect of x x x (b) any loss caused by any
dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director,
trustee or authorized representative of the Insured whether acting alone or in conjunction with
- Fortune opposes the contention of Producers that Atiga and Magalong are not its "officer,
employee, x x x trustee or authorized representative x x x at the time of the robbery
- Trial Court
> On being “EMPLOYEES”
Magalong and Atiga were not employees or representatives of Producers as their services as
armored car driver and as security guard having been merely offered by PRC Management and
by Unicorn Security and which latter firms assigned them to plaintiff. The wages and salaries of
both Magalong and Atiga are presumably paid by their respective firms, which alone wields the
power to dismiss them
They were merely an assigned armored car driver and security guard for the money transfer. It
was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being transferred along
a specified money route
- Court of Appeals
> affirmed in toto
> A policy or contract of insurance is to be construed liberally in favor of the insured and strictly
against the insurance company (New Life Enterprises vs. Court of Appeals; Sun Insurance Office,
Ltd. vs. Court of Appeals). Contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties themselves have used. If such
terms are clear and unambiguous, they must be taken and understood in their plain, ordinary
and popular sense (New Life Enterprises Case; Sun Insurance Office).
> The language used by Fortune in the policy is plain, ordinary and simple. No other
interpretation is necessary. The word "employee" should be taken to mean in the ordinary
sense. The Labor Code is a special law specifically dealing with/and specifically designed to
protect labor and therefore its definition as to employer-employee relationships insofar as the
application/enforcement of said Code is concerned must necessarily be inapplicable to an
insurance contract. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/ should have so stated expressly in the insurance policy. Said driver
and security guard cannot be considered as employees of Producers bank because it has no
power to hire or to dismiss said driver and security guard under the contracts except only to ask
for their replacements from the contractors.
- Fortune’s Contention
> when Producers commissioned a guard and a driver to transfer its funds from one branch to
another, they effectively and necessarily became its authorized representatives in the care and
custody of the money. Assuming that they could not be considered authorized representatives,
they were, nevertheless, employees of Producers. It asserts that the existence of an employer-
employee relationship "is determined by law and being such, it cannot be the subject of
agreement." Thus, if there was in reality an employer-employee relationship between Producers,
on the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of
Producers with PRC Management System for Magalong and with Unicorn Security Services for
Atiga which state that Producers is not their employer and that it is absolved from any liability as
an employer, would not obliterate the relationship.
> an employer-employee relationship depends upon four standards:
(1) the manner of selection and engagement of the putative employee
(2) the mode of payment of wages
(3) the presence or absence of a power to dismiss and
(4) the presence and absence of a power to control the putative employee's conduct.
> Of the four, the right-of-control test has been held to be the decisive factor. It asserts that the
power of control over Magalong and Atiga was vested in and exercised by Producers. Fortune
further insists that PRC Management System and Unicorn Security Services are but "labor-only"
contractors under Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. - There is "labor-only" contracting where the person
supplying workers to an employer does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others, and the workers recruited and
placed by such persons are performing 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 the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
> International Timber Corp. vs. NLRC - a "labor-only" contractor is equivalent to a finding that
there is an employer-employee relationship between the owner of the project and the employee
of the "labor-only" contractor
- Producer’s Contention
> Magalong and Atiga were not its employees since it had nothing to do with their selection and
engagement, the payment of their wages, their dismissal, and the control of their conduct.
> International Timber Corp. is not applicable to all cases but only when it becomes necessary to
prevent any violation or circumvention of the Labor Code, a social legislation whose provisions
may set aside contracts entered into by parties in order to give protection to the working man.
> American President Lines vs. Clave should be applied which stated
In determining the existence of employer-employee relationship, the following elements are
generally considered, namely: (1) the selection and engagement of the employee; (2) the
payment of wages; (3) the power of dismissal; and (4) the power to control the employee's
- Since under Producers' contract with PRC Management Systems it is the latter which assigned
Magalong as the driver of Producers' armored car and was responsible for his faithful discharge
of his duties and responsibilities, and since Producers paid the monthly compensation of
P1,400.00 per driver to PRC Management Systems and not to Magalong, it is clear that Magalong
was not Producers' employee. As to Atiga, Producers relies on the provision of its contract with
Unicorn Security Services which provides that the guards of the latter "are in no sense
employees of the CLIENT."

WON Fortune Insurance and Surety Co. Inc. is liable under the Money, Security, and Payroll
Robbery policy it issued to Producers Bank of the Philippines or WON recovery is precluded
under the general exceptions clause of the policy


Ratio A contract of insurance is a contract of adhesion, thus any ambiguity therein should be
resolved against the insurer, or it should be construed liberally in favor of the insured and strictly
against the insurer. Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from non-compliance with its obligation. It
goes without saying then that if the terms of the contract are clear and unambiguous, there is no
room for construction and such terms cannot be enlarged or diminished by judicial construction.
- An insurance contract is a contract of indemnity upon the terms and conditions specified
therein. It is settled that the terms of the policy constitute the measure of the insurer's liability.
In the absence of statutory prohibition to the contrary, insurance companies have the same
rights as individuals to limit their liability and to impose whatever conditions they deem best
upon their obligations not inconsistent with public policy.

- It should be noted that the insurance policy entered into by the parties is a theft or robbery
insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code
Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as failing exclusively within
the scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability
insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance,
burglary and theft insurance, personal accident and health insurance as written by non-life
insurance companies, and other substantially similar kinds of insurance. (italics supplied)
- Except with respect to compulsory motor vehicle liability insurance, the Insurance Code
contains no other provisions applicable to casualty insurance or to robbery insurance in
particular. These contracts are, therefore, governed by the general provisions applicable to all
types of insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its purpose and always in
accordance with the general principles of insurance law.
- With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify
as employees or authorized representatives has been aptly observed that in burglary, robbery,
and theft insurance, "the opportunity to defraud the insurer - the moral hazard - is so great that
insurers have found it necessary to fill up their policies with countless restrictions, many
designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the
hazards insured against." Persons frequently excluded under such provisions are those in the
insured's service and employment. The purpose of the exception is to guard against liability
should the theft be committed by one having unrestricted access to the property. In such cases,
the terms specifying the excluded classes are to be given their meaning as understood in
common speech. The terms "service" and "employment" are generally associated with the idea
of selection, control, and compensation.
- There is marked disagreement between the parties on the correct meaning of the terms
"employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt
from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of
persons granted or having unrestricted access to Producers' money or payroll. When it used then
the term "employee," it must have had in mind any person who qualifies as such as generally
and universally understood, or jurisprudentially established in the light of the four standards in
the determination of the employer-employee relationship or as statutorily declared even in a
limited sense as in the case of Article 106 of the Labor Code which considers the employees
under a "labor-only" contract as employees of the party employing them and not of the party
who supplied them to the employer.
- But even granting for the sake of argument that these contracts were not "labor-only"
contracts, and PRC Management Systems and Unicorn Security Services were truly independent
contractors, we are satisfied that Magalong and Atiga were, in respect of the transfer of
Producer's money from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served 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, with Alampay to be responsible for its custody in transit; Magalong to drive the armored
vehicle which would carry the money; and Atiga to provide the needed security for the money,
the vehicle, and his two other companions. In short, for these particular tasks, the three acted as
agents of Producers. A "representative" is defined as one who represents or stands in the place
of another; one who represents others or another in a special capacity, as an agent, and is
interchangeable with "agent."

Disposition instant petition is hereby GRANTED. CA decision and RTC Makati decision are


- Private respondent 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.
- On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several of its
- One of them, 19-year old Edgardo Perea, sued Milagros Cayas for damages in the CFI of Cavite,
while three others agreed to a settlement of P4,000.00 each.
- After trial, the court rendered a decision in favor of Perea, ordering Cayas to compensate him,
with an award of exemplary and moral damages, as well as attorney’s fees. ( P32,000 total)
- On November 11, 1981, Milagros Cayas filed a complaint for a sum of money and damages
against PCSI in the Court of First Instance of Cavite.
- In view of Milagros Cayas' failure to prosecute the case, the court motu propio ordered its
dismissal without prejudice.
- Alleging that she had not received a copy of the answer to the complaint, and that "out of
sportsmanship", she did not file a motion to hold PCSI in default, Milagros Cayas moved for the
reconsideration of the dismissal order. Said motion for reconsideration was acted upon favorably
by the court.
- About two months later, Milagros Cayas filed a motion to declare PCSI in default for its failure
to file an answer.
- The motion was granted and plaintiff was allowed to adduce evidence ex-parte.
- On July 13, 1982, the court rendered judgment by default ordering PCSI to pay Milagros Cayas
P50,000 as compensation for the injured passengers, P5,000 as moral damages and P5,000 as
attorney's fees.
- Said decision was set aside after the PCSI filed a motion therefor. Trial of the case ensued.
- In due course, the court promulgated a decision ordering defendant Perla Compania de
Seguros, Inc. to pay plaintiff Milagros Cayas the sum of P50,000.00 under its maximum liability as
provided for in the insurance policy; and the sum of P5,000.00 as reasonable attorney's fee
- PCSI appealed to the Court of Appeals, which affirmed in toto the lower court's decision.
- Its motion for reconsideration having been denied by said appellate court, PCSI filed this

WON, as maintained by petitioner, its liability is limited only to the payment made by private
respondent to Perea and only up to the amount of P12,000.00

- The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per person and
to P50,000.00 per accident.
- In Stokes vs. Malayan Insurance Co., Inc., the Court held that the terms of the contract
constitute the measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right of recovery from the insurer.
- In the case at bar, the insurance policy clearly and categorically placed petitioner's 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.
- Said amount complied with the minimum fixed by the law then prevailing, 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.
- In other words, under the law, the minimum liability is P12,000 per passenger. Petitioner's
liability under the insurance contract not being less than P12,000.00, and therefore 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.
- There is nothing unreasonable, arbitrary or objectionable in this stipulation as would warrant
its nullification. The same was obviously 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, private respondent 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.
- It was error on the part of the trial and appellate courts to have disregarded the stipulations of
the parties and to have substituted their own interpretation of the insurance policy.
- 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.
- In Pacific Oxygen & Acetylene Co. vs. Central Bank," it was stated that the first and fundamental
duty of the courts is the application of the law according to its express terms, interpretation
being called for only when such literal application is impossible.
- We observe that 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 per accident
stipulated in the policy. This is patent error. 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 by reason of an accident.

Disposition Petition granted. The decision of the Court of Appeals is modified in that petitioner
shall pay Milagros Cayas the amount of Twelve Thousand Pesos (P12,000. 00) plus legal interest
from the promulgation of the decision of the lower court until it is fully paid and attorney's fees
in the amount of P5,000.00.


- Sometime in January 1986, private respondent Panama Sawmill Co., Inc. (Panama) bought, in
Palawan, 1,208 pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired
Transpacific Towage, Inc., to transport the logs by sea to Manila and insured it against loss for
P1-M with petitioner Oriental Assurance Corporation (Oriental Assurance).
- While the logs were being transported, rough seas and strong winds caused damage to one of
the two barges resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon.
- Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its
contracted liability was for "TOTAL LOSS ONLY."
- Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages
against Oriental Assurance before the Regional Trial Court.
- RTC ordered Oriental Assurance to pay Panama with the view that the insurance contract
should be liberally construed in order to avoid a denial of substantial justice; and that the logs
loaded in the two barges should be treated separately such that the loss sustained by the
shipment in one of them may be considered as "constructive total loss" and correspondingly
compensable. CA affirmed in toto.

WON Oriental Assurance can be held liable under its marine insurance policy based on the
theory of a divisible contract of insurance and, consequently, a constructive total loss

- The terms of the contract constitute the measure of the insurer liability and compliance
therewith is a condition precedent to the insured's right to recovery from the insurer. Whether a
contract is entire or severable is a question of intention to be determined by the language
employed by the parties. The policy in question shows that the subject matter insured was the
entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two
different barges did not make the contract several and divisible as to the items insured. The logs
on the two barges were not separately valued or separately insured. Only one premium was paid
for the entire shipment, making for only one cause or consideration. The insurance contract
must, therefore, be considered indivisible.
- More importantly, the insurer's liability was for "total loss only." A total loss may be either
actual or constructive (Sec. 129, Insurance Code). An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he
held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured. (Section 130, Insurance Code).
- A constructive total loss is one which gives to a person insured a right to abandon, under
Section 139 of the Insurance Code. This provision reads:
SECTION 139. A person insured by a contract of marine insurance may abandon the thing
insured, or any particular portion thereof separately valued by the policy, or otherwise separately
insured, and recover for a total loss thereof, when the cause of the loss is a peril injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to
recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
xxx xxx xxx
- The requirements for the application of Section 139 of the Insurance Code, quoted above, have
not been met. The logs involved, although placed in two barges, were not separately valued by
the policy, nor separately insured. Resultantly, the logs lost in the damaged barge in relation to
the total number of logs loaded on the same barge cannot be made the basis for determining
constructive total loss. The logs having been insured as one inseparable unit, the correct basis for
determining the existence of constructive total loss is the totality of the shipment of logs. Of the
entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire
shipment. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces
of logs, the shipment cannot be said to have sustained a constructive total loss under Section
139(a) of the Insurance Code.

Disposition judgment under review is SET ASIDE


- TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya bean
meal which was loaded on board the ship MV Al Kaziemah for carriage from the port of Rio del
Grande, Brazil, to the port of Manila. Said cargo was insured against the risk of loss by petitioner
Malayan Insurance Corporation for which it issued two (2) Marine Cargo Policies.
- While the vessel was docked in Durban, South Africa the civil authorities arrested and detained
it because of a lawsuit on a question of ownership and possession. TKC Marketing notified
Malayan of the arrest of the vessel and made a formal claim for the dollar equivalent on the
policies (US$916,886.66) for non-delivery of the cargo. It likewise sought the assistance of
Malayan on what to do with the cargo.
- Malayan replied that the arrest of the vessel by civil authority was not a peril covered by the
policies. TKC advised Malayan that it might tranship the cargo and requested an extension of the
insurance coverage until actual transhipment, which extension was approved upon payment of
additional premium. The insurance coverage was extended under the same terms and conditions
embodied in the original policies while in the process of making arrangements for the
transhipment of the cargo from Durban to Manila. However the cargo was sold in Durban, South
Africa, for US$154.40 per metric ton or a total of P10,304,231.75 due to its perishable nature
which could no longer stand a voyage of twenty days to Manila and another twenty days for the
discharge thereof. It reduced its claim to US$448,806.09 (or its peso equivalent of P9,879,928.89
at the exchange rate of P22.0138 per $1.00) representing its loss after the proceeds of the sale
were deducted from the original claim.Malayan maintained its position that the arrest of the
vessel by civil authorities on a question of ownership was an excepted risk under the marine
insurance policies.
Petitioners Claim
- an arrest by civil authority is not compensable since the term "arrest" refers to "political or
executive acts" and does not include a loss caused by riot or by ordinary judicial process as in this
- the deletion of the Free from Capture or Seizure Clause would leave the assured covered solely
for the perils specified by the wording of the policy itself
- the rationale for the exclusion of an arrest pursuant to judicial authorities is to eliminate
collusion between unscrupulous assured and civil authorities.
- any loss which private respondent may have incurred was in the nature and form of
unrecovered acquisition value brought about by a voluntary sacrifice sale and not by arrest,
detention or seizure of the ship.
- its act of rejecting the claim was a result of its honest belief that the arrest of the vessel was not
a compensable risk under the policies issued Respondents Comments
- petitioner, being the sole author of the policies, "arrests" should be strictly interpreted against
it because the rule is that any ambiguity is to be taken contra proferentum. Risk policies should
be construed reasonably and in a manner as to make effective the intentions and expectations of
the parties.
- the policies clearly stipulate that they cover the risks of non-delivery of an entire package and
that it was petitioner itself that invited and granted the extensions and collected premiums

1. WON the arrest of the vessel was a risk covered under the subject insurance policies
2. WON insurance policies should be strictly construed against the insurer

- With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, "arrest"
caused by ordinary judicial process is deemed included among the covered risks. This
interpretation becomes inevitable when subsection 1.1 of Section 1 of the Institute War Clauses
provided that "this insurance covers the risks excluded from the Standard Form of English
Marine Policy by the clause 'Warranted free of capture, seizure, arrest, etc. x x x'" or the F.C. & S.
Clause. Jurisprudentially, "arrests" caused by ordinary judicial process is also a risk excluded from
the Standard Form of English Marine Policy by the F.C. & S. Clause.
- Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is
not included in the covered risk simply because the F.C. & S. Clause under the Institute War
Clauses can only be operative in case of hostilities or warlike operations on account of its
heading "Institute War Clauses."

2. YES
Ratio Insurance Policies should be construed liberally in favor of the insured and strictly against
the insurer.

- An insurance contract should be so interpreted as to carry out the purpose for which the
parties entered into the contract which is, to insure against risks of loss or damage to the goods.
Such interpretation should result from the natural and reasonable meaning of language in the
policy. Where restrictive provisions are open to two interpretations, that which is most favorable
to the insured is adopted.
Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared
by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer.Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer
from noncompliance with its obligations
- It must be borne in mind that such contracts are invariably prepared by the companies and
must be accepted by the insured in the form in which they are written. Any construction of a
marine policy rendering it void should be avoided. Such policies will, therefore, be construed
strictly against the company in order to avoid a forfeiture, unless no other result is possible from
the language used.
- If a marine insurance company desires to limit or restrict the operation of the general
provisions of its contract by special proviso, exception, or exemption, it should express such
limitation in clear and unmistakable language.
Be that as it may, exceptions to the general coverage are construed most strongly against the
company. Even an express exception in a policy is to be construed against the underwriters by
whom the policy is framed, and for whose benefit the exception is introduced.


- At around 4:30 in the afternoon of 27 March 1982, while crossing Airport Road on a pedestrian
lane on her way to work, respondent Priscilla E. Rodriguez was struck by a De Dios passenger bus
owned by respondent De Dios Transportation Co., Inc., then driven by one Walter Saga y Aspero.
The bus driver disregarded the stop signal given by a traffic policeman to allow pedestrians to
cross the road. Priscilla was thrown to the ground, hitting her forehead. She was treated at the
Protacio Emergency Hospital and later on hospitalized at the San Juan De Dios Hospital. Her face
was permanently disfigured, causing her serious anxiety and moral distress.
- Respondent bus company was insured with petitioner Western Guaranty Corporation
("Western") under its Master Policy which enumerated specific liabilities of the insurance
company and ended with a clause to clarify the limitations of the amount which could be
granted as indemnity.
- Respondent Priscilla Rodriguez filed a complaint for damages before the Regional Trial Court of
Makati against De Dios Transportation Co. and Walter A. Saga. Respondent De Dios
Transportation Co., in turn, filed a third-party complaint against its insurance carrier, petitioner
- On 6 August 1985, the trial court rendered a decision in favor of respondent Priscilla E.
- On appeal, the Court of Appeals affirmed in toto the decision of the trial court. Petitioner
moved for the reconsideration of the appellate court's decision. In a Resolution dated 10 January
1990, the Court of Appeals denied the motion for reconsideration for lack of merit. Petitioner
Western is now before us on a Petition for Review alleging that the Court of Appeals erred in
holding petitioner liable to pay beyond the limits set forth in the Schedule Indemnities and in
finding Western liable for loss of earnings, moral damages and attorney's fees. Succinctly stated,
it is petitioner Western's position that it cannot be held liable for loss of earnings, moral
damages and attorney's fees because these items are not among those included in the Schedule
Indemnities set forth in the insurance policy.
- Petitioner Western in effect contends before this Court, as it did before the Court of Appeals,
that because the Schedule of Indemnities limits the amount payable for certain kinds of
expenses "hospital room", "surgical expenses", "an aesthesiologists' fee", "operating room" and
"medical expenses" that Schedule should be read as excluding liability for any other type of
expense or damage or loss even though actually sustained or incurred by the third party victim.
We are not persuaded by Western's contention.

WON the Schedule of indemnities as stated in the insurance policy should be construed strictly
to exclude all others not explicitly stated therein

Ratio An insurance policy being in the nature of an adhesion contract is to be strictly construed
against the insurer and liberally in favor of the insured.

- Firstly, the Schedule of Indemnities does not purport to restrict the kinds of damages that may
be awarded against Western once liability has arisen. Section 1, quoted above, does refer to
certain "Limits of Liability" which in the case of the third party liability section of the Master
Policy, is apparently P50,000.00 per person per accident. Within this over-all quantitative limit,
all kinds of damages allowable by law "actual or compensatory damages"; "moral damages";
"nominal damages"; "temperate or moderate damages"; "liquidated damages"; and "exemplary
damages" may be awarded by a competent court against the insurer once liability is shown to
have arisen, and the essential requisites or conditions for grant of each species of damages are
present. It appears to us self-evident that the Schedule of Indemnities was not intended to be an
enumeration, much less a closed enumeration, of the specific kinds of damages which may be
awarded under the Master Policy Western has issued.
- Secondly, the reading urged by Western of the Schedule of Indemnities comes too close to
working fraud upon both the insured and the third party beneficiary of Section 1, quoted above.
For Western's reading would drastically and without warning limit the otherwise unlimited (save
for the over-all quantitative limit of liability of P50,000.00 per person per accident) and
comprehensive scope of liability assumed by the insurer Western under Section 1: "all sums
necessary to discharge liability of the insured in respect of [bodily injury to a third party]". This
result which is not essentially different from taking away with the left hand what had been given
with the right hand we must avoid as obviously repugnant to public policy. If what Western now
urges is what Western intended to achieve by its Schedule of Indemnities, it was incumbent
upon Western to use language far more specific and precise than that used in fact by Western,
so that the insured, and potential purchasers of its Master Policy, and the Office of the Insurance
Commissioner, may be properly informed and act accordingly.
- Petitioner Western would have us construe the Schedule of Indemnities as comprising
contractual limitations of liability which, as already noted, is comprehensively defined in Section
1 "Liability to the Public" of the Master Policy. It is well-settled, however, that contractual
limitations of liability found in insurance contracts should be regarded by courts with a jaundiced
eye and extreme care and should be so construed as to preclude the insurer from evading
compliance with its just obligations.
- Finally, an insurance contract is a contract of adhesion. The rule is well entrenched in our
jurisprudence that the terms of such contract are to be construed strictly against the party which
prepared the contract, which in this case happens to be petitioner Western.


- before the last war, plaintiff-appellee owned 4 warehouses or bodegas in Tabaco, Albay, used
for the storage of stocks of copra and of hemp, baled and loose, in which the appellee dealt
extensively. They had been, with their contents, insured with the defendant Company since
1937, and the loose made payable to the Philippine National Bank as mortgage of the hemp and
crops, to the extent of its interest.
- Fire of undetermined origin that broke out in the early morning of July 21, 1940, and lasted
almost one week, gutted and completely destroyed Bodegas Nos. 1, 2 and 4, with the
merchandise stored therein. Plaintiff-appellee informed the insurer by telegram on the same
date; and on the next day, the fire adjusters engaged by appellant insurance company arrived
and proceeded to examine and photograph the premises, pored over the books of the insured
and conducted an extensive investigation. The plaintiff having submitted the corresponding fire
claims, totalling P398,562.81 (but reduced to the full amount of the insurance, P370,000), the
Insurance Company resisted payment, claiming violation of warranties and conditions, filing of
fraudulent claims, and that the fire had been deliberately caused by the insured or by other
persons in connivance with him.
- Que Chee Gan, with his brother, Qua Chee Pao, and some employees of his, were indicted and
tried in 1940 for the crime of arson, it being claimed that they had set fire to the destroyed
warehouses to collect the insurance. They were, however, acquitted by the trial court.
- the civil suit to collect the insurance money proceeded to its trial with the CFI holding that:
judgment is rendered for the plaintiff and against the defendant condemning the latter to pay
the former — (a) Under the first cause of action, the sum of P146,394.48; (b) Under the second
cause of action, the sum of P150,000; (c) Under the third cause of action, the sum of P5,000; (d)
Under the fourth cause of action, the sum of P15,000; and (e) Under the fifth cause of action, the
sum of P40,000; all of which shall bear interest at the rate of 8% per annum in accordance with
Section 91 (b) of the Insurance Act from September 26, 1940, until each is paid, with costs
against the defendant.
- In its first assignment of error, the insurance company alleges that the trial Court should have
held that the policies were avoided for breach of warranty, specifically the one appearing on a
rider pasted (with other similar riders) on the face of the policies.4
- It is argued that since the bodegas insured had an external wall perimeter of 500 meters or
1,640 feet, the appellee should have 11 fire hydrants in the compound, and that he actually had
only 2, with a further pair nearby, belonging to the municipality of Tabaco.

1. WON the defendant-appellant can claim the policies it had issued as void ab initio
2. WON the insured violated the "Hemp Warranty" provisions of Policy No. 2637165 against the
storage of gasoline
3. WON the insured connived at the loss and fraudulently inflated the quantity of the insured
stock in the burnt bodegas

1. NO
Ratio 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 facts, and the insurer is stopped thereafter from asserting the breach of such conditions. The
law is charitable enough to assume, in the absence of any showing to the contrary, that an
insurance company intends to executed a valid contract in return for the premium received; and
when the policy contains a condition which renders it voidable at its inception, and this result is
known to the insurer, it will be presumed to have intended to waive the conditions and to
execute a binding contract, rather than to have deceived the insured into thinking he is insured
when in fact he is not, and to have taken his money without consideration.

- The appellant is barred estoppel to claim violation of the so-called fire hydrants warranty, for
the reason that knowing fully all that the number of hydrants demanded therein never existed
from the very beginning, the appellant neverthless issued the policies in question subject to such
warranty, and received the corresponding premiums. The insurance company was aware, even
before the policies were issued, that in the premises insured there were only two fire hydrants
installed by Qua Chee Gan and two others nearby, owned by the municipality of Tabaco,
contrary to the requirements of the warranty in question
- The plain, human justice of this doctrine is perfectly apparent. 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, and so closely related to positive fraud, as to the
abhorrent to fair-minded men. It would be to allow the company to treat the policy as valid
long enough to get the premium on it, and leave it at liberty to repudiate it the next moment.
This cannot be deemed to be the real intention of the parties. To hold that a literal
construction of the policy expressed the true intention of the company would be to indict it,
for fraudulent purposes and designs which we cannot believe it to be guilty of.
- The appellant company so worded the policies that while exacting the greater number of fire
hydrants and appliances, it kept the premium discount at the minimum of 2 1/2%, thereby giving
the insurance company a double benefit. Such abnormal treatment of the insured strongly points
at an abuse of the insurance company's selection of the words and terms of the contract, over
which it had absolute control.
- Receipt of Premiums or Assessments after Cause for Forfeiture Other than Nonpayment. — It is
a well settled rule of law that an insurer which with knowledge of facts entitling it to treat a
policy as no longer in force, receives and accepts a premium on the policy, estopped to take
advantage of the forfeiture. It cannot treat the policy as void for the purpose of defense to an
action to recover for a loss thereafter occurring and at the same time treat it as valid for the
purpose of earning and collecting further premiums.
- Moreover, taking into account the well known rule that ambiguities or obscurities must be
strictly interpreted against the party that caused them, the "memo of warranty" invoked by
appellant bars the latter from questioning the existence of the appliances called for in the
insured premises
On the alleged violations of the plaintiff The alleged violation of the warranty of 100 feet of fire
hose for every two hydrants, must be equally rejected, since the appellant's argument thereon is
based on the assumption that the insured was bound to maintain no less than eleven hydrants,
which requirement appellant is estopped from enforcing.
- As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the
same was organized, and drilled, from time to give, although not maintained as a permanently
separate unit, which the warranty did not require.

2. NO
Ratio Here, again, by reason of the exclusive control of the insurance company over the terms
and phraseology of the contract, the ambiguity must be held strictly against the insurer and
liberally in favor of the insured, specially to avoid a forfeiture. Insurance is, in its nature,
complex and difficult for the layman to understand. Policies are prepared by experts who
know and can anticipate the hearing and possible complications of every contingency. So long
as insurance companies insist upon the use of ambiguous, intricate and technical provisions,
which conceal rather than frankly disclose, their own intentions, the courts must, in fairness to
those who purchase insurance, construe every ambiguity in favor of the insured. An insurer
should not be allowed, by the use of obscure phrases and exceptions, to defeat the very
purpose for which the policy was procured.

- Appellee admitted that there were 36 cans of gasoline in the building designed. It However,
gasoline is not specifically mentioned among the prohibited articles listed in the so-called "hemp
warranty." The cause relied upon by the insurer speaks of "oils (animal and/or vegetable and/or
mineral and/or their liquid products having a flash point below 300 Fahrenheit)", and is
decidedly ambiguous and uncertain; for in ordinary parlance, "Oils" mean "lubricants" and not
gasoline or kerosene. And how many insured, it may well be wondered, are in a position to
understand or determine "flash point below 300 Fahrenheit.
- If the company intended to rely upon a condition of that character, it ought to have been
plainly expressed in the policy.
- The contract of insurance is one of perfect good faith not for the insured alone, but equally so
for the insurer; in fact, it is mere so for the latter, since its dominant bargaining position carries
with it stricter responsibility.
- Another point that is in favor of the insured is that the gasoline kept in Bodega No. 2 was only
incidental to his business, being no more than a customary 2 day's supply for the five or six
motor vehicles used for transporting of the stored merchandise. "It is well settled that the
keeping of inflammable oils on the premises though prohibited by the policy does not void it if
such keeping is incidental to the business."
On the submission of books, voucbers, etc. The charge that the insured failed or refused to
submit to the examiners of the insurer the books, vouchers, etc. demanded by them was found
unsubstantiated by the trial Court, and no reason has been shown to alter this finding. The
insured gave the insurance examiner all the date he asked for, and the examiner even kept and
photographed some of the examined books in his possession. What does appear to have been
rejected by the insured was the demand that he should submit "a list of all books, vouchers,
receipts and other records", but the refusal of the insured in this instance was well justified,
since the demand for a list of all the vouchers (which were not in use by the insured) and
receipts was positively unreasonable, considering that such listing was superfluous because the
insurer was not denied access to the records, that the volume of Qua Chee Gan's business ran
into millions, and that the demand was made just after the fire when everything was in turmoil.
That the representatives of the insurance company were able to secure all the date they needed
is proved by the fact that the adjuster Alexander Stewart was able to prepare his own balance
sheet that did not differ from that submitted by the insured except for the valuation of the
merchandise, as expressly found by the Court in the criminal case for arson.
3. NO
Ratio Both defenses are predicted on the assumption that the insured was in financial difficulties
and set the fire to defraud the insurance company, presumably in order to pay off the Philippine
National Bank, to which most of the insured hemp and copra was pledged. Both defenses are
fatally undermined by the established fact that, notwithstanding the insurer's refusal to pay the
value of the policies the extensive resources of the insured enabled him to pay off the National
Bank in a short time; and if he was able to do so, no motive appears for attempt to defraud the
insurer. While the acquittal of the insured in the arson case is not res judicata on the present civil
action, the insurer's evidence, to judge from the decision in the criminal case, is practically
identical in both cases and must lead to the same result, since the proof to establish the defense
of connivance at the fire in order to defraud the insurer "cannot be materially less convincing
than that required in order to convict the insured of the crime of arson."
- As to the defense that the burned bodegas could not possibly have contained the quantities of
copra and hemp stated in the fire claims, the insurer's case rests almost exclusively on the
estimates, inferences and conclusions of its adjuster investigator who examined the premises
during and after the fire. His testimony, however, was based on inferences from the photographs
and traces found after the fire, and must yield to the contradictory testimony of those who
actually saw the contents of the bodegas shortly before the fire, while inspecting them for the
mortgagee Bank.
Disposition We find no reversible error in the judgment appealed from, wherefore the same is
hereby affirmed

- Francisco del Rosario was insured by Equitable Insurance and Casualty Co. Inc under Personal
Accident Policy no. 7136. The Company bound itself to pay P1000 to P3000 as indemnity for the
death of the insured.
- Under the policy:
Part I. Indemnity for Death
If the insured sustains any bodily injury which is effected solely through violent, external, visible
and accidental means, and which shall result, independently of all other causes and within sixty
days from the occurrence thereof, in the Death of the Insured, the Company shall pay the
amount set opposite such injury:
Section 1. Injury sustained other than those specified below unless excepted hereinafter P1000
Section 2. Injury sustained by the wrecking or disablement of a railroad passenger car or street
railway car in or on which the Insured is traveling as a farepaying passenger P1500
Section 3. Injury sustained by the burning of a church, theatre, public library or municipal
administration building while the Insured is therein at the commencement of the fire P2000
Section 4. Injury sustained by the wrecking or disablement of a regular passenger elevator car in
which the Insured is being conveyed as a passenger (Elevator in mines exluded) P2500
Section 5. Injury sustained by a stroke of lightning or by a cyclone P3000
x x x x x x x x x x x x
Part VI. Exceptions
This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability,
Hospital fees, or Loss of time, caused to the insured:
x x x (h) By drowning except as a consequence of the wrecking or disablement in the Philippine
waters of a passenger steam or motor vessel in which the Insured is traveling as a farepaying
passenger; x x x
- A rider to the Policy contained the following;
It is hereby declared and agreed that exemption clause Letter (h) in PART VI of the policy is
hereby waived by the company, and to form a part of the provision covered by the policy.
- Feb 24, 1957, Francisco del Rosario while on board the motor launch ISLAMA, with his
beneficiary to the policy, Remedios Jayme, were forced to jump off said launch on account of fire
which broke out on said vessel, resulting in the death by drowning of the insured and his
- Simeon del Rosario, the insured’s father, filed a claim for payment with the company. The
company paid him P1000 pursuant to section 1 Part I of the policy.
- On the same date, Atty. Francisco wrote to the company acknowledging receipt by his client of
the P1000 but informing said company that said amount was not the correct one. He claimed
that the amount payable should be P1500 under the provision of Section 2 Part I, based on the
rule of pari materia.
- The company referred the matter to the Insurance Coomissioner, who was of the opinion that
the liability of the company was only P1000. thus the company refused to pay more that P1000.
Atty. Francisco wrote a subsequent letter to company asking for p3000, which the company
refused to pay.
- A complaint for recovery of the balance of P2000 was instituted with the CFI Rizal, praying for a
further sum of P10000 as attorney’s fees, expenses of litigation and costs.
- CFI ruled in favor of petitioner, ordering the company to pay P2000 to del Rosario.

How much should the indemnity be

- All the parties agree that indemnity has to be paid, but the conflict centers on how much it
should be.
- Where there is ambiguity with respect to the terms and conditions of the policy, the same will
be resolved against the one responsible thereof. Generally, the insured has little, if any,
participation in the preparation of the policy, together with the drafting of its terms and
conditions. The interpretation of obscure stipulations in a contract should not favor the party
who caused the obscurity.
- SC agreed with the ruling of the lower court:
x x x death by drowning is a ground for recovery apart from the bodily injury because death by
bodily injury is covered by Part I of the policy while death by drowning is covered by Part VI
thereof. But while the policy mentions specific amounts that may be recovered for death for
bodily injury, yet, there is not specific amount mentioned in the policy for death thru drowning
although the latter is, under Part VI of the policy, a ground for recovery thereunder. Since the
defendant has bound itself to pay P1000 to P3000 as indemnity for the death of the insured but
the policy does not positively state any definite amount that may be recovered in case of death
by drowning, there is an ambiguity in this respect in the policy, which ambiguity must be
interpreted in favor of the insured and strictly against the insurer so as to allow a greater
indemnity. x x x plaintiff is therefore entitled to recover P3000.
Disposition Judgment appealed from is affirmed.


-Geagonia is the owner of Norman's Mart located in the public market of San Francisco, Agusan
del Sur. On 22 Dec 1989, he obtained from the private respondent fire insurance policy for
P100,000.00. The period of the policy was from 22 Dec 1989 to 22 Dec 1990 and covered the ff:
"Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and
other usual to assured's business.
-The policy contained the following condition:
"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."
-On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of
San Francisco, Agusan del Sur. The petitioner's insured stocks-in-trade were completely
destroyed prompting him to file w/ the private respondent a claim under the policy. On 28 Dec
1990, the private respondent denied the claim because it found that at the time of the loss the
petitioner's stocks-in-trade were likewise covered by two fire insurance policies for P100,000.00
each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (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 w/ the Insurance Commission
for the recovery of P100,000.00 under fire insurance policy, for attorney's fees, and costs of
litigation. He claims that the time he obtained the private respondent's fire insurance policy he
knew that the two policies issued by the PFIC were already in existence; however, he had no
knowledge of the provision in the private respondent's policy requiring him to inform it of the
prior policies; this requirement was not mentioned to him by the private respondent's agent;
and had it been so mentioned, he would not have withheld such information. He further
asserted that the total of the amounts claimed under the three policies was below the actual
value of his stocks at the time of loss, w/c was P1M.
- 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. These findings
were based on the petitioner's testimony that he came to know of the PFIC policies only when he
filed his claim with the private respondent and that Cebu Tesing Textile obtained them and paid
for their premiums w/o informing him. The Insurance Commission then ordered the respondent
company to pay complainant the sum of P100,000.00 with legal interest from the time the
complaint was filed until fully satisfied plus the amount of P10,000.00 as 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

1. WON the petitioner had prior knowledge of the two insurance policies issued by the PFIC
when he obtained the fire insurance policy from the private respondent, thereby, for not
disclosing such fact, violating Condition 3 of the policy
2. if he had, WON he is precluded from recovering therefrom

1. YES
- We agree w/ 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. NO
- It must, however, be underscored that unlike the "other insurance" clauses involved in General
Insurance and Surety Corp. vs. Ng Hua or in Pioneer Insurance & Surety Corp. vs. Yap, which
"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 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 this Policy shall be forfeited." or in the 1930 case of Santa Ana vs. Commercial
Union Assurance Co. which provided "that any outstanding insurance upon the whole or a
portion of the objects thereby assured must be declared by the insured in writing and he must
cause the company to add or insert it in the policy, without which such policy shall be null and
void, and the insured will not be entitled to indemnity in case of loss," Condition 3 in the private
respondent's policy No. F-14622 does not absolutely declare void any violation thereof. It
expressly provides that the 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."
- Interpretation: It is a cardinal rule on insurance that a policy or insurance contract is to be
interpreted liberally in favor of the insured and strictly against the company, the reason being,
undoubtedly, to afford the greatest protection which the insured was endeavoring to secure
when he applied for insurance. It is also a cardinal principle of law that forfeitures are not
favored and that any construction which would result in the forfeiture of the policy benefits for
the person claiming thereunder, will be avoided, if it is possible to construe the policy in a
manner which would permit recovery, as, for example, by finding a waiver for such forfeiture.
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. The reason for this is that, except for riders which may later be inserted, the insured
sees the contract already in its final form and has had no voice in the selection or arrangement of
the words employed therein. On the other hand, the language of the contract was carefully
chosen and deliberated upon by experts and legal advisers who had acted exclusively in the
interest of the insurers and the technical language employed therein is rarely understood by
ordinary laymen.
- With these principles in mind, we are of the opinion that 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.
Disposition Petition granted. The decision of the Court of Appeals in CA-G.R. SP No. 31916 is SET
ASIDE and the decision of the Insurance Commission in Case No. 3340 is REINSTATED.


- Felix Lim was issued a Personal Accident Policy insurance with petitioner company with a face
value of P200,000. His beneficiary was his wife Nerissa.
- October 6, 1982 –
- He was playing with the handgun after he had removed the gun’s magazine (kasi naman…).
- He pointed the gun at his secretary and only witness Pilar Nalagon as a joke and assured her
that the gun was not loaded (are you sure…).
- He then put the gun to his temple and fired it (haaay, sabi ko na nga ba).
- Both parties are in agreement that there was no suicide.
- Nerissa claimed as Felix’s beneficiary but Sun Insurance would not grant her claim, saying that
her husband’s death was not an accident.
- Nerissa sued Sun Insurance and won the case. Sun Insurance was ordered to pay her P200,000
representing the face value of the claim along with moral, exemplary and compensatory
damages and attorney’s fees. The decision was affirmed by the CA.
Petitioners’ Claim
- Sun Insurance cites one of the four exceptions in the contract of insurance which includes
bodily injury consequent upon the insured person attempting to commit suicide or willfully
exposing himself to needless peril in an attempt to save a human life.
- There mere act of pointing the gun to his temple showed that Felix willfully exposed himself to
danger because a gun should always be handled with caution.
Respondents’ Comments
- Felix believed the gun to be safe because he had removed the magazine.
- He repeatedly assured his secretary that the gun was not loaded.

1. WON Felix Lim’s death was an accident, thus making his widow Nerissa liable to claim the
accident insurance
2. WON the award of damages to Nerissa Lim was justified

1. YES, Felix Lim’s death was an accident.
Ratio There is no accident when a deliberate act is performed unless some additional,
unexpected, independent and unforeseen happening occurs which produces or brings bout their
injury or death.

- An accident has been defined to be that which happens by chance or fortuitously without
intention or design and which is unexpected, unusual and unforeseen. It an event that takes
pace without one’s foresight or expectastion – an event that proceeds from an unknown cause
or is an unusual effect of a known case and therefore not expected. It happens without any
human agency, an event which, under the circumstances, is unusual to and not expected by the
person to whom it happens.
- The firing of the gun was deemed to be the unexpected and independent and unforeseen
occurrence that led to the insured person’s death.
- There was no willful exposure to needless peril for the part of Felix. Suicide and exposure to
needless peril are similar in the sense that both signify disregard for one’s life. Suicide imparts a
positive act of ending one’s life whereas the latter indicates recklessness that is almost suicidal in
- Accident insurance policies were never meant to reward the insured for his tendency to show
off or for his miscalculations. They were intended to provide for contingencies.
- Lim was unquestionably negligent but it should not prevent his widow from recovering from
the insurance policy he obtained precisely against accident.
- Insurance contracts are, as a rule, supposed to be interpreted liberally in favor of the assured.

2. NO, the claim for damages should not be granted for being unjust.
Ratio A person may be made liable to the payment of moral damages if his act is wrongful. The
adverse result of an action does not per se make the act wrongful and subject the act or to the
payment of moral damages.

- Petitioner was acting in good faith when it resisted the private respondent’s claim on the
ground that the death of the insured was covered by the exception.
- The issue was debatable and was clearly not raised only for the purpose of evading a legitimate


- Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy No. 45727 in
favor of Transworld Knitting Mills, Inc. (Transworld).
- Pertinent portions of subject policy on the buildings insured, and location thereof, read:
"‘On stocks of finished and/or unfinished products, raw materials and supplies of every kind and
description, the properties of the Insureds and/or held by them in trust, on commission or on
joint account with others and/or for which they (sic) responsible in case of loss whilst contained
and/or stored during the currency of this Policy in the premises occupied by them forming part
of the buildings situate (sic) within own Compound at MAGDALO STREET, BARRIO UGONG,
‘Said building of four-span lofty one storey in height with mezzanine portions is constructed of
reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied
as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices,
warehouse and caretaker's quarters.
'Bounds in front partly by one-storey concrete building under galvanized iron roof occupied as
canteen and guardhouse, partly by building of two and partly one storey constructed of concrete
below, timber above undergalvanized iron roof occupied as garage and quarters and partly by
open space and/or tracking/ packing, beyond which is the aforementioned Magdalo Street; on its
right and left by driveway, thence open spaces, and at the rear by open spaces.'"
- The same pieces of property insured with the petitioner were also insured with New India
Assurance Company, Ltd., (New India).
- Fire broke out in the compound of Transworld, razing the middle portion of its four-span
building and partly gutting the left and right sections thereof. A two-storey building (behind said
four-span building) where fun and amusement machines and spare parts were stored, was also
destroyed by the fire.
- Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India
Assurance Company but to no avail.
- Private respondent brought against the said insurance companies an action for collection of
sum of money and damages.
- Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the
contents of the four-span building, which was partly burned, and not the damage caused by the
fire on the two-storey annex building.
- The trial court dismissed the case as against The New India Assurance Co., Ltd. but ordered
defendant Rizal Surety And Insurance Company to pay Transwrold (sic) Knitting Mills, Inc.
- Both the petitioner, Rizal Insurance Company, and private respondent, Transworld Knitting
Mills, Inc., went to the Court of Appeals, which required New India Assurance Company to pay
plaintiff-appellant the amount of P1,818,604.19 while the Rizal Surety has to pay the plaintiff-
appellant P470,328.67.
- New India appealed to the Court theorizing inter alia that the private respondent could not be
compensated for the loss of the fun and amusement machines and spare parts stored at the
two-storey building because it (Transworld) had no insurable interest in said goods or items.
- The Court denied the appeal with finality.
- Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for
Reconsideration before the Court of Appeals, which reconsidered its decision of July 15, 1993, as
regards the imposition of interest.
- Undaunted, petitioner Rizal Surety & Insurance Company found its way to the Court.

WON the fire insurance policy litigated upon protected only the contents of the main building
(four-span), and did not include those stored in the two-storey annex building

- Resolution of the issue posited hinges on the proper interpretation of the stipulation in subject
fire insurance policy regarding its coverage, which reads:
"xxx contained and/or stored during the currency of this Policy in the premises occupied by them
forming part of the buildings situate (sic) within own Compound xxx"
- It can be gleaned unerringly that the fire insurance policy in question did not limit its coverage
to what were stored in the four-span building. As opined by the trial court of origin, two
requirements must concur in order that the said fun and amusement machines and spare parts
would be deemed protected by the fire insurance policy under scrutiny, to wit:
"First, said properties must be contained and/or stored in the areas occupied by Transworld and
second, said areas must form part of the building described in the policy xxx"
- Said building of four-span lofty one storey in height with mezzanine portions is constructed of
reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied
as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices, ware
house and caretaker's quarter.
- The Court is mindful of the well-entrenched doctrine that factual findings by the Court of
Appeals are conclusive on the parties and not reviewable by this Court, and the same carry even
more weight when the Court of Appeals has affirmed the findings of fact arrived at by the lower
- In the case under consideration, both the trial court and the Court of Appeals found that the so
called "annex " was not an annex building but an integral and inseparable part of the four-span
building described in the policy and consequently, the machines and spare parts stored therein
were covered by the fire insurance in dispute.
- Verily, the two-storey building involved, a permanent structure which adjoins and
intercommunicates with the "first right span of the lofty storey building", formed part thereof,
and meets the requisites for compensability under the fire insurance policy sued upon.
- So also, considering that the two-storey building aforementioned was already existing when
subject fire insurance policy contract was entered into, petitioner should have specifically
excluded the said two-storey building from the coverage of the fire insurance if minded to
exclude the same but if did not, and instead, went on to provide that such fire insurance policy
covers the products, raw materials and supplies stored within the premises of respondent
Transworld which was an integral part of the four-span building occupied by Transworld,
knowing fully well the existence of such building adjoining and intercommunicating with the
right section of the four-span building.
- Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has
created a doubt regarding the portions of the building insured thereby. Article 1377 of the New
Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity"
- Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal
Surety Insurance Company, whose lawyer or managers drafted the fire insurance policy contract
under scrutiny. Citing the aforecited provision of law in point, the Court in Landicho vs.
Government Service Insurance System, ruled:
"This is particularly true as regards insurance policies, in respect of which it is settled that the
'terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x x are to be
construed strictly and most strongly against the insurer, and liberally in favor of the insured so as
to effect the dominant purpose of indemnity or payment to the insured, especially where
forfeiture is involved' and the reason for this is that the 'insured usually has no voice in the
selection or arrangement of the words employed and that the language of the contract is
selected with great care and deliberation by experts and legal advisers employed by, and acting
exclusively in the interest of, the insurance company.' "
- Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company, Inc.
vs. Vda. De Songco, to wit:
"'This rigid application of the rule on ambiguities has become necessary in view of current
business practices. The courts cannot ignore that nowadays monopolies, cartels and
concentration of capital, endowed with overwhelming economic power, manage to impose upon
parties dealing with them cunningly prepared 'agreements' that the weaker party may not
change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it
or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in
contrast to these entered into by parties bargaining on an equal footing, such contracts (of which
policies of insurance and international bills of lading are prime example) obviously call for greater
strictness and vigilance on the part of courts of justice with a view to protecting the weaker party
from abuses and imposition, and prevent their becoming traps for the unwary.'"
- The issue of whether or not Transworld has an insurable interest in the fun and amusement
machines and spare parts, which entitles it to be indemnified for the loss thereof, had been
settled in G.R. No. L-111118, entitled New India Assurance Company, Ltd., vs. Court of Appeals,
where the appeal of New India from the decision of the Court of Appeals under review, was
denied with finality by this Court on February 2, 1994.
- The rule on conclusiveness of judgment, which obtains under the premises, precludes the
relitigation of a particular fact or issue in another action between the same parties based on a
different claim or cause of action. "xxx the judgment in the prior action operates as estoppel only
as to those matters in issue or points controverted, upon the determination of which the finding
or judgment was rendered. In fine, the previous judgment is conclusive in the second case, only
as those matters actually and directly controverted and determined and not as to matters
merely involved therein."

Disposition Decision, and the Resolution of the CA WERE AFFIRMED in toto. No pronouncement
as to costs.


- Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss &
Co.. IMC and LSPI separately obtained from respondent fire insurance policies with book debt
endorsements. The insurance policies provide for coverage on “book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and
dealers of the Insured anywhere in the Philippines.” The policies defined book debts as the
“unpaid account still appearing in the Book of Account of the Insured 45 days after the time of
the loss covered under this Policy.” The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the
close of every calendar month all amount shown in their books of accounts as unpaid and thus
become receivable item from their customers and dealers. x x x
- Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the
Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire.
Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials
sold and delivered by IMC and LSPI. On February 4, 1992, respondent filed a complaint for
damages against petitioner. It alleges that IMC and LSPI filed with respondent their claims under
their respective fire insurance policies with book debt endorsements; that as of February 25,
1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing
materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid
the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights
against petitioner; that respondent made several demands for payment upon petitioner but
these went unheeded. In its Answer with Counter Claim dated July 4, 1995, petitioner contends
that it could not be held liable because the property covered by the insurance policies were
destroyed due to fortuities event or force majeure; that respondent’s right of subrogation has no
basis inasmuch as there was no breach of contract committed by it since the loss was due to fire
which it could not prevent or foresee; that IMC and LSPI never communicated to it that they
insured their properties; that it never consented to paying the claim of the insured.
- At the pre-trial conference the parties failed to arrive at an amicable settlement. Thus, trial on
the merits ensued. On August 31, 1998, the RTC rendered its decision dismissing respondent’s
complaint. It held that the fire was purely accidental; that the cause of the fire was not
attributable to the negligence of the petitioner; that it has not been established that petitioner is
the debtor of IMC and LSPI; that since the sales invoices state that “it is further agreed that
merely for purpose of securing the payment of purchase price, the above-described merchandise
remains the property of the vendor until the purchase price is fully paid”, IMC and LSPI retained
ownership of the delivered goods and must bear the loss. Dissatisfied, petitioner appealed to the
CA. On October 11, 2000, the CA rendered its decision setting aside the decision of the RTC. The
CA held that the sales invoices are proofs of sale, being detailed statements of the nature,
quantity and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner
since the proviso contained in the sales invoices is an exception under Article 1504 (1) of the Civil
Code, to the general rule that if the thing is lost by a fortuitous event, the risk is borne by the
owner of the thing at the time the loss under the principle of res perit domino; that petitioner’s
obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid
account and as such the obligation to pay is not extinguished, even if the fire is considered a
fortuitous event; that by subrogation, the insurer has the right to go against petitioner; that,
being a fire insurance with book debt endorsements, what was insured was the vendor’s interest
as a creditor. Petitioner filed a motion for reconsideration but it was denied by the CA in its
Resolution dated April 11, 2001.

1. WON the CA erred in construing a fire insurance policy on book debts as one covering the
unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner.
2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by
stipulating in the sales invoices that “*i+t is further agreed that merely for purpose of securing the
payment of the purchase price the above described merchandise remains the property of the
vendor until the purchase price thereof is fully paid.”
3. WON the petitioner liable for the unpaid accounts

1. NO
- It is well-settled that when the words of a contract are plain and readily understood, there is no
room for construction. In this case, the questioned insurance policies provide coverage for “book
debts in connection with ready-made clothing materials which have been sold or delivered to
various customers and dealers of the Insured anywhere in the Philippines.”; and defined book
debts as the “unpaid account still appearing in the Book of Account of the Insured 45 days after
the time of the loss covered under this Policy.” Nowhere is it provided in the questioned
insurance policies that the subject of the insurance is the goods sold and delivered to the
customers and dealers of the insured.
- Indeed, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract. Thus, what were insured against were
the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss
through fire, and not the loss or destruction of the goods delivered.

2. NO
- The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller’s risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer
the goods are at the buyer’s risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations under the contract, the goods are
at the buyer’s risk from the time of such delivery; (Emphasis supplied)
- Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk
of loss is borne by the buyer. Accordingly, petitioner bears the risk of loss of the goods delivered.
- IMC and LSPI did not lose complete interest over the goods. They have an insurable interest
until full payment of the value of the delivered goods. Unlike the civil law concept of res perit
domino, where ownership is the basis for consideration of who bears the risk of loss, in property
insurance, one’s interest is not determined by concept of title, but whether insured has
substantial economic interest in the property.
- Section 13 of our Insurance Code defines insurable interest as “every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured.” Parenthetically, under Section 14
of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing
interest in that out of which the expectancy arises.
- Therefore, an insurable interest in property does not necessarily imply a property interest in, or
a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a
beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured
is so situated with reference to the property that he would be liable to loss should it be injured
or destroyed by the peril against which it is insured. Anyone has an insurable interest in property
who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a
vendor or seller retains an insurable interest in the property sold so long as he has any interest
therein, in other words, so long as he would suffer by its destruction, as where he has a vendor’s
lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing
in their Books of Account 45 days after the time of the loss covered by the policies.

3. YES
- Petitioner’s argument that it is not liable because the fire is a fortuitous event under Article
1174 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504
(1) of the Civil Code.
- Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but
for petitioner’s accounts with IMC and LSPI that remained unpaid 45 days after the fire.
Accordingly, petitioner’s obligation is for the payment of money. Where the obligation consists
in the payment of money, the failure of the debtor to make the payment even by reason of a
fortuitous event shall not relieve him of his liability. The rationale for this is that the rule that an
obligor should be held exempt from liability when the loss occurs thru a fortuitous event only
holds true when the obligation consists in the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous event. It does not apply when the
obligation is pecuniary in nature.
- Under Article 1263 of the Civil Code, “*i+n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation.” If the obligation is
generic in the sense that the object thereof is designated merely by its class or genus without
any particular designation or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor’s fault and before he has
incurred in delay will not have the effect of extinguishing the obligation. This rule is based on the
principle that the genus of a thing can never perish. Genus nunquan perit. An obligation to pay
money is generic; therefore, it is not excused by fortuitous loss of any specific property of the
- Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to
this case. What is relevant here is whether it has been established that petitioner has
outstanding accounts with IMC and LSPI.
- With respect to IMC, the respondent has adequately established its claim. Petitioner has an
outstanding account with IMC in the amount of P2,119,205.00, check voucher evidencing
payment to IMC, subrogation receipt executed by IMC in favor of respondent upon receipt of the
insurance proceeds. All these documents have been properly identified, presented and marked
as exhibits in court. The subrogation receipt, by itself, is sufficient to establish not only the
relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle
the insurance claim. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim. Respondent’s action against petitioner is squarely sanctioned
by Article 2207 of the Civil Code which provides:
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. x x x
- Petitioner failed to refute respondent’s evidence.
- As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No
evidentiary weight can be given to Exhibit “F Levi Strauss”, a letter dated April 23, 1991 from
petitioner’s General Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner’s
unpaid account with LSPI. It only confirms the loss of Levi’s products in the amount of
P535,613.00 in the fire that razed petitioner’s building on February 25, 1991.
- Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation
receipt was offered in evidence. Thus, there is no evidence that respondent has been subrogated
to any right which LSPI may have against petitioner. Failure to substantiate the claim of
subrogation is fatal to petitioner’s case for recovery of the amount of P535,613.00.
Disposition Petition is partly GRANTED. The assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED
with the MODIFICATION that the order to pay the amount of P535,613.00 to respondent is
DELETED for lack of factual basis.


- Ernani TRINOS, deceased husband of respondent Julita, applied for a health care coverage with
Philamcare Health Systems, Inc. In the standard application form, he answered no to the
question: “Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give
- The application was approved for period of one year; upon termination, it was extended for
another 2 years. Amount of coverage was increased to a maximum sum of P75T per disability.
- During this period, Ernani suffered a HEART ATTACK and was confined at the Manila Medical
Center (MMC) for one month. While her husband was in the hospital, Julita tried to claim the
hospitalization benefits.
- Petitioner treated the Health Care Agreement (HCA) as void since there was a concealment
regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of his
confinement, he was hypertensive, diabetic and asthmatic. Julita then paid the hospitalization
expenses herself, amounting to about P76T.
- After her husband died, Julita instituted action for damages against Philamcare and its Pres.
After trial, the lower court ruled in her favor and ordered Philamcare to reimburse medical and
hospital coverage amounting to P76T plus interest, until fully paid; pay moral damages of P10T;
pay exemplary damages of P10T; atty’s fees of P20T.
- CA affirmed the decision of the trial court but deleted all awards for damages and absolved
petitioner Reverente.

Petitioner’s Claims
(1) Agreement grants “living benefits” such as medical check-ups and hospitalization which a
member may immediately enjoy so long as he is alive upon effectivity of the agreement until its
(2) Only medical and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is indemnified for his loss.
(3) HCAs are only for a period of one year; therefore, incontestability clause does not apply, as it
requires effectivity period of at least 2 yrs.
(4) It is not an insurance company, governed by Insurance Commission, but a Health
Maintenance Organization under the authority of DOH.
(5) Trinos concealed a material fact in his application.
(6) Julita was not the legal wife since at the time of their marriage, the deceased was previously
married to another woman who was still alive.*

1. WON a health care agreement is an insurance contract (If so, “incontestability clause” under
the Insurance Code is applicable)
2. WON the HCA can be invalidated on the basis of alleged concealment

Ratio Every person has an insurable interest in the life and health of himself2. The health care
agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.
Once the member incurs hospital, medical or any other expense arising from sickness, injury or
other stipulated contingent, the health care provider must pay for the same to the extent agreed
upon under the contract.

- A contract of insurance3 is an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event.
- An insurance contract exists where the following elements concur:
(a) The insured has an insurable interest;
(b) The insured is subject to a risk of loss by the happening of the peril;
(c) The insurer assumes the risk;
(d) Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and
(e) In consideration of the insurer’s promise, the insured pays a premium.

2. NO
Ratio Where matters of opinion or judgment are called for, answers made in good faith and
without intent to deceive will not avoid a policy even though they are untrue; since in such case
the insurer is not justified in relying upon such statement, but is obligated to make further

- The fraudulent intent on the part of the insured must be established to warrant rescission of
the insurance contract. The right to rescind should be exercised previous to the commencement
of an action on the contract. No rescission was made. Besides, the cancellation of health care
agreements as in insurance policies requires:
(a) Prior notice of cancellation to insured;
(b) Notice must be based on the occurrence after effective date of the policy of one or more of
the grounds mentioned;
(c) Must be in writing, mailed or delivered to the insured at the address shown in the policy;
(d) Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based.
- These conditions have not been met. When the terms of insurance contract contain limitations
on liability, courts should construe them in such a way as to preclude insurer from non-
compliance of obligation. Being a contract of adhesion, terms of an insurance contract are to be
construed strictly against the party which prepared it – the insurer.
- Also, Philamcare had 12 months from the date of issuance of the Agreement within which to
contest the membership of the patient if he had previous ailment of asthma, and six months
from the issuance of the agreement if the patient was sick of diabetes or hypertension.
* The health care agreement is in the nature of a contract of indemnity. Hence, payment should
be made to the party who incurred the expenses. It is clear that respondent paid all the hospital
and medical bills; thus, she is entitled to reimbursement.
Disposition Petition DENIED.


Neomi Olivares applied for a health care program with Blue Cross for the amount of 12,000
pesos. 38 days after she applied, she suffered from a stroke. Ailments due to “pre-existing
conditions” were excluded from the coverage. She was confined in Medical City and discharged
with a bill of Php 34,000. Blue Cross refused to pay unless she had her physician’s certification
that she was suffering from a pre-existing condition. When Blue Cross still refused to pay, she
filed suit in the MTC. The health care company rebutted by saying that the physician didn’t
disclose the condition due to the patient’s invocation of the doctor-client privilege. The MTC
dismissed for a lack of cause of action because the physician didn’t disclose the condition. In the
RTC, the spouses were awarded the amount of the hospital bills plus 60,000 in damages. This
was under the ratio that the burden to prove that Neomi had a pre-existing condition was under
Blue Cross. The CA denied the motion for reconsideration of the health care company.

1. Whether petitioner was able to prove that respondent Neomi's stroke was caused by a pre-
existing condition and therefore was excluded from the coverage of the health care agreement.
2. Whether it was liable for moral and exemplary damages and attorney's fees.

No. Yes. Petition dismissed.

1. “Philamcare Health Systems, Inc. v. CA- a health care agreement is in the nature of a non-life
insurance. It is an established rule in insurance contracts that when their terms contain
limitations on liability, they should be construed strictly against the insurer. These are contracts
of adhesion the terms of which must be interpreted and enforced stringently against the insurer
which prepared the contract. This doctrine is equally applicable to health care agreements.”
The agreement defined a pre-existing condition as:
“a disability which existed before the commencement date of membership whose natural history
can be clinically determined, whether or not the Member was aware of such illness or condition.
Such conditions also include disabilities existing prior to reinstatement date in the case of lapse
of an Agreement.”
“Under this provision, disabilities which existed before the commencement of the agreement are
excluded from its coverage if they become manifest within one year from its effectivity.”
Petitioners still averred that the non-disclosure of the pre-existing condition made a
presumption in its favor. Respondents still maintained that the petitioner had the duty to prove
its accusation.
Petitioner never presented evidence to prove its presumption that the Doctor’s report would
work against Neomi. They only perceived that the invocation of the privilege made the report
adverse to Neomi and such was a disreputable presumption. They should have made an
independent assessment of Neomi’s condition when it failed to obtain the report. They shouldn’t
have waited for the attending physician’s report to come out.
Section 3 (e), Rule 131 of the Rules of Court states:
Under the rules of court, Rule 131, Sec. 3.
Disputable presumptions. ― The following presumptions are satisfactory if uncontradicted, but
may be contradicted and overcome by other evidence:
(e) That evidence willfully suppressed would be adverse if produced.
The exception on presenting evidence applies when the suppression is an exercise of a privilege.
Hence, Neomi had the privilege not to present the Doctor’s report under the doctor-client
2. The court quoted the CA and RTC decision stating that “ the refusal of petitioner to pay
respondent Neomi's bills smacks of bad faith, as its refusal [was] merely based on its own
perception that a stroke is a pre-existing condition.” Also, there was factual bases in the RTC and
CA for the award of the damages.


The petitioner, a prepaid health-care organization offering benefits to its members. The CIR
found that the organization had a deficiency in the payment of the DST under Section 185 of the
1997 Tax Code which stipulated its implementation:
“On all policies of insurance or bonds or obligations of the nature of indemnity for loss, damage,
or liability made or renewed by any person, association or company or corporation transacting
the business of accident, fidelity, employer's liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire
The CIR sent a demand for the payment of deficiency taxes, including surcharges and interest, for
1996-1997 in the total amount of P224,702,641.18.
The petitioner protested to the CIR, but it didn’t act on the appeal. Hence, the company had to
go to the CTA. The latter declared judgment against them and reduced the taxes. It ordered
them to pay 22 million pesos for deficiency VAT for 1997 and 31 million deficiency VAT for 1996.
CA denied the company’s appeal an d increased taxes to 55 and 68 million for 1996 to 1997.

Issues: WON a health care agreement in the nature of an insurance contract and therefore
subject to the documentary stamp tax (DST) imposed under Section 185 of Republic Act 8424
(Tax Code of 1997)

Held: Yes. Petition dismissed.

The DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of specific
The DST is an excise upon the privilege, opportunity, or facility offered at exchanges for the
transaction of the business. In particular, the DST under Section 185 of the 1997 Tax Code is
imposed on the privilege of making or renewing any policy of insurance (except life, marine,
inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or
Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of
Blue Cross Healthcare, Inc. v. Olivares, this Court ruled that a health care agreement is in the
nature of a non-life insurance policy.
Its health care agreement is not a contract for the provision of medical services. Petitioner does
not actually provide medical or hospital services but merely arranges for the same
It is also incorrect to say that the health care agreement is not based on loss or damage because,
under the said agreement, petitioner assumes the liability and indemnifies its member for
hospital, medical and related expenses (such as professional fees of physicians). The term "loss
or damage" is broad enough to cover the monetary expense or liability a member will incur in
case of illness or injury.
Philamcare Health Systems, Inc. v. CA.- The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity.
Similarly, the insurable interest of every member of petitioner's health care program in obtaining
the health care agreement is his own health. Under the agreement, petitioner is bound to
indemnify any member who incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingency to the extent agreed upon under the contract.


 Philippine Health Care Providers, Inc. is a domestic corporation whose primary purpose
is "[t]o establish, maintain, conduct and operate a prepaid group practice health care
delivery system or a health maintenance organization to take care of the sick and
disabled persons enrolled in the health care plan and to provide for the administrative,
legal, and financial responsibilities of the organization." Individuals enrolled in its
health care programs pay an annual membership fee and are entitled to various
preventive, diagnostic and curative medical services provided by its duly licensed
physicians, specialists and other professional technical staff participating in the group
practice health delivery system at a hospital or clinic owned, operated or accredited by
 January 27, 2000: Commissioner of Internal Revenue (CIR) sent petitioner a formal
demand letter and the corresponding assessment notices demanding the payment of
deficiency taxes, including surcharges and interest, for the taxable years 1996 and
1997 in the total amount of P224,702,641.18
o Petitioner protested the assessment in a letter dated February 23, 2000.
o CIR did not act on the protest, petitioner filed a petition for review in the
Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and
DST assessments.
o to pay VAT
 CIR: health care agreement was a contract of insurance subject to DST under Section
185 of the 1997 Tax Code
 CA: health care agreement was in the nature of a non-life insurance contract subject to
 Court Affirmed CA
1. W/N the Philippine Health Care Providers, Inc (HMO) was engaged in the business of
insurance during the pertinent taxable years - NO
2. W/N the Philippine Health Care Providers, Inc enters into an insurance contract - NO

HELD: motion for reconsideration is GRANTED


P.D. 612 Insurance Code
Sec. 2 (2)
(2) The term "doing an insurance business" or "transacting an insurance business", within the
meaning of this Code, shall include:

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

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

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

In the application of the provisions of this Code the fact that no profit is derived from the making
of insurance contracts, agreements or transactions or that no separate or direct consideration is
received therefor, shall not be deemed conclusive to show that the making thereof does not
constitute the doing or transacting of an insurance business.
o no profit is derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received therefore,
shall not be deemed conclusive to show that the making thereof does not
constitute the doing or transacting of an insurance business
2. NO
 basic distinction between medical service corporations and ordinary health and
accident insurers is that the former undertake to provide prepaid medical services
through participating physicians, thus relieving subscribers of any further financial
burden, while the latter only undertake to indemnify an insured for medical expenses
up to, but not beyond, the schedule of rates contained in the policy
 A participating provider of health care services is one who agrees in writing to render
health care services to or for persons covered by a contract issued by health service
corporation in return for which the health service corporation agrees to make payment
directly to the participating provider
o any indemnification resulting from the payment for services rendered in case
of emergency by non-participating health providers would still be incidental
to petitioner’s purpose of providing and arranging for health care services
and does not transform it into an insurer.
 As an HMO, it is its obligation to maintain the good health of its members
o its undertaking under its agreements is not to indemnify its members against
any loss or damage arising from a medical condition but, on the contrary, to
provide the health and medical services needed to prevent such loss or
 Overall, petitioner appears to provide insurance-type benefits to its members (with
respect to its curative medical services), but these are incidental to the principal
activity of providing them medical care. The "insurance-like" aspect of petitioner’s
business is miniscule compared to its noninsurance activities. Therefore, since it
substantially provides health care services rather than insurance services, it cannot be
considered as being in the insurance business.
 principal purpose test
o purpose of determining what "doing an insurance business" means, we have
to scrutinize the operations of the business as a whole and not its mere
 letter dated September 3, 2000, the Insurance Commissioner confirmed that petitioner
is not engaged in the insurance business. This determination of the commissioner must
be accorded great weight
 Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event. An insurance
contract exists where the following elements concur: - NOT present
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among
a large group of persons bearing a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium.
o no indemnity
o member can take advantage of the bulk of the benefits anytime even in the
absence of any peril, loss or damage on his or her part.
o assumption of the expense by petitioner is not confined to the happening of
a contingency but includes incidents even in the absence of illness or injury
 Since indemnity of the insured was not the focal point of the
agreement but the extension of medical services to the member at
an affordable cost, it did not partake of the nature of a contract of
 HMO, undertakes a business risk when it offers to provide health services. But it is not
the risk of the type peculiar only to insurance companies. Insurance risk, also known as
actuarial risk, is the risk that the cost of insurance claims might be higher than the
premiums paid. The amount of premium is calculated on the basis of assumptions
made relative to the insured.
 In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a
contract contains all the elements of an insurance contract, if its primary purpose is the
rendering of service, it is not a contract of insurance. The primary purpose of the
parties in making the contract may negate the existence of an insurance contract.
 health care agreements are clearly not within the ambit of Section 185 of the NIRC and
there was never any legislative intent to impose the same on HMOs

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