Insurance Cases Batch 1

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1.)

G.R. No. L-8151. December 16, 1955.]

VIRGINIA CALANOC, Petitioner, v. COURT OF APPEALS and THE
PHILIPPINE AMERICAN LIFE INSURANCE CO., Respondents.
Lucio Javillonar for Petitioner.
J.A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A.
Reyes, for Respondents.
SYLLABUS
1. INSURANCE LAW; ACCIDENTAL DEATH; AMBIGUOUS TERMS IN INSURANCE POLICY;
HOW CONSTRUED. — While as a general rule "the parties may limit the coverage of
the policy to certain particular accidents and risks or causes of less, and may
expressly except other risks or causes of loss therefrom" (45 C. J. S, 781-782),
however, it is to be desired that the terms and phraseology of the exception clause
be clearly expressed so as to be within the easy grasp and understanding of the
insured, for if the terms are doubtful or obscure the same must of necessity be
interpreted or resolved against the one who has caused the obscurity. (Article 1377,
new Civil Code.) And so it has been generally held that the "terms in an insurance
policy, which are ambiguous, equivocal, or uncertain . . . 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 a forfeited is involved" (29 Am. Jur., 181), and the reason for this rule 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." (44 C. J. S., p. 1174.)
DECISION
BAUTISTA ANGELO, J.:
This suit involves the collection of P2,000 representing the value of a supplemental
policy covering accidental death which was secured by one Melencio Basilio from the
Philippine American Life Insurance Company. The case originated in the Municipal
Court of Manila and judgment being favorable to the plaintiff it was appealed to the
court of first instance. The latter court affirmed the judgment but on appeal to the
Court of Appeals the judgment was reversed and the case is now before us on a
petition for review.
Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of
Avenida Rizal and Zurbaran. He secured a life insurance policy from the Philippine
American Life Insurance Company in the amount of P2,000 to which was attached a
supplementary contract covering death by accident. On January 25, 1951, he died of
a gunshot wound on the occasion of a robbery committed in the house of Atty. Ojeda
at the corner of Oroquieta and Zurbaran streets. Virginia Calanoc, the widow, was
paid the sum of P2,000, face value of the policy, but when she demanded the
payment of the additional sum of P2,000 representing the value of the supplemental
policy, the company refused alleging, as main defense, that the deceased died
because he was murdered by a person who took part in the commission of the
robbery and while making an arrest as an officer of the law which contingencies were
expressly excluded in the contract and have the effect of exempting the company
from liability.
The pertinent facts which need to be considered for the determination of the
questions raised are those reproduced in the decision of the Court of Appeals as
1

follows:jgc:chanrobles.com.ph
"The circumstances surrounding the death of Melencio Basilio show that when he was
killed at about seven o’clock in the night of January 25, 1951, he was on duty as
watchman of the Manila Auto Supply at the corner of Avenida Rizal and Zurbaran;
that it turned out that Atty. Antonio Ojeda who had his residence at the corner of
Zurbaran and Oroquieta, a block away from Basilio’s station, had come home that
night and found that his house was well-lighted, but with the windows closed; that
getting suspicious that there were culprits in his house, Atty. Ojeda retreated to look
for a policeman and finding Basilio in khaki uniform, asked him to accompany him to
the house, with the latter refusing on the ground that he was not a policeman, but
suggesting that Atty. Ojeda should ask the traffic policeman on duty at the corner of
Rizal Avenue and Zurbaran; that Atty. Ojeda went to the traffic policeman at said
corner and reported the matter, asking the policeman to come along with him, to
which the policeman agreed; that on the way to the Ojeda residence, the policeman
and Atty. Ojeda passed by Basilio and somehow or other invited the latter to come
along; that as the three approached the Ojeda residence and stood in front of the
main gate which was covered with galvanized iron, the fence itself being partly
concrete and partly adobe stone, a shot was fired; that immediately after the shot,
Atty. Ojeda and the policeman sought cover; that the policeman, at the request of
Atty. Ojeda, left the premises to look for reinforcement; that it turned out afterwards
that the special watchman Melencio Basilio was hit in the abdomen, the wound
causing his instantaneous death; that the shot must have come from inside the yard
of Atty. Ojeda, the bullet passing through a hole waist-high in the galvanized iron
gate; that upon inquiry Atty. Ojeda found out that the savings of his children in the
amount of P30 in coins kept in his aparador contained in stockings were taken away,
the aparador having been ransacked; that a month thereafter the corresponding
investigation conducted by the police authorities led to the arrest and prosecution of
four persons in Criminal Case No. 15104 of the Court of First Instance of Manila for
’Robbery in an Inhabited House and in Band with Murder’."

It is contended in behalf of the company that Basilio was killed which "making an
arrest as an officer of the law" or as a result of an "assault or murder" committed in
the place and therefore his death was caused by one of the risks excluded by the
supplementary contract which exempts the company from liability. This contention
was upheld by the Court of Appeals and, in reaching this conclusion, made the
following comment:
"From the foregoing testimonies, we find that the deceased was a watchman of the
Manila Auto Supply, and, as such, he was not bound to leave his place and go with
Atty. Ojeda and Policeman Magsanoc to see the trouble, or robbery, that occurred in
the house of Atty. Ojeda. In fact, according to the finding of the lower court, Atty.
Ojeda finding Basilio in uniform asked him to accompany him to his house, but the
latter refused on the ground that he was not a policeman and suggested to Atty.
Ojeda to ask help from the traffic policeman on duty at the corner of Rizal Avenue
and Zurbaran, but after Atty. Ojeda secured the help of the traffic policeman, the
deceased went with Ojeda and said traffic policeman to the residence of Ojeda; and
while the deceased was standing in front of the main gate of said residence, he was
shot and thus died. The death, therefore, of Basilio, although unexpected, was not
caused by an accident, being a voluntary and intentional act on the part of the one
who robbed, or one of those who robbed, the house of Atty. Ojeda. Hence, it is our
considered opinion that the death of Basilio, though unexpected, cannot be
considered accidental, for his death occurred because he left his post and joined
policeman Magsanoc and Atty. Ojeda to repair to the latter’s residence to see what
happened thereat. Certainly, when Basilio joined Patrolman Magsanoc and Atty.
Ojeda, he should have realized the danger to which he was exposing himself, yet,
instead of remaining in his place, he went with Atty. Ojeda and Patrolman Magsanoc
to see what was the trouble in Atty. Ojeda’s house and thus he was fatally shot."
2

We dissent from the above findings of the Court of Appeals. For one thing, Basilio
was a watchman of the Manila Auto Supply which was a block away from the house of
Atty. Ojeda where something suspicious was happening which caused the latter to
ask for help. While at first he declined the invitation of Atty. Ojeda to go with him to
his residence to inquire into what was going on because he was not a regular
policeman, he later agreed to come along when prompted by the traffic policeman,
and upon approaching the gate of the residence he was shot and died. The
circumstance that he was a mere watchman and had no duty to heed the call of Atty.
Ojeda should not be taken as a capricious desire on his part to expose his life to
danger considering the fact that the place he was in duty-bound to guard was only a
block away. In volunteering to extend help under the situation, he might have
thought, rightly or wrongly, that to know the truth was in the interest of his employer
it being a matter that affects the security of the neighborhood. No doubt there was
some risk coming to him in pursuing that errand, but that risk always existed it being
inherent in the position he was holding. He cannot therefore be blamed solely for
doing what he believed was in keeping with his duty as a watchman and as a citizen.
And he cannot be considered as making an arrest as an officer of the law, as
contended, simply because he went with the traffic policeman, for certainly he did
not go there for that purpose nor was he asked to do so by the policeman.
Much less can it be pretended that Basilio died in the course of an assault or murder
considering the very nature of these crimes. In the first place, there is no proof that
the death of Basilio is the result of either crime for the record is barren of any
circumstance showing how the fatal shot was fired. Perhaps this may be clarified in
the criminal case now pending in court as regards the incident but before that is done
anything that might be said on the point would be a mere conjecture. Nor can it be
said that the killing was intentional for there is the possibility that the malefactor had
fired the shot merely to scare away the people around for his own protection and not
necessarily to kill or hit the victim. In any event, while the act may not exempt the
triggerman from liability for the damage done, the fact remains that the happening
was a pure accident on the part of the victim. The victim could have been either the
policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the
deceased precisely because he wanted to take his life.
We take note that these defenses are included among the risks excluded in the
supplementary contract which enumerates the cases which may exempt the
company from liability. While as a general rule "the parties may limit the coverage of
the policy to certain particular accidents and risks or causes of loss, and may
expressly except other risks or causes of loss therefrom" (45 C. J. S. 781-782),
however, it is to be desired that the terms and phraseology of the exception clause
be clearly expressed so as to be within the easy grasp and understanding of the
insured, for if the terms are doubtful or obscure the same must of necessity be
interpreted or resolved against the one who has caused the obscurity. (Article 1377,
new Civil Code) And so it has been generally held that the "terms in an insurance
policy, which are ambiguous, equivocal, or uncertain . . . 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 a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule 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." (44 C. J. S., p. 1174.)
"Insurance is, in its nature, complex and difficult for the layman to understand.
Policies are prepared by experts who know and can anticipate the bearing 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
3

purchase insurance, construe every ambiguity in favor of the insured." (Algoe v.
Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)
"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." (Moore v. Aetna Life
Insurance Co., LRA 1915D, 264.)
We are therefore persuaded to conclude that the circumstances unfolded in the
present case do not warrant the finding that the death of the unfortunate victim
comes within the purview of the exception clause of the supplementary policy and,
hence, do not exempt the company from liability.
Wherefore, reversing the decision appealed from, we hereby order the company to
pay petitioner-appellant the amount of P2,000, with legal interest from January 26,
1951 until fully paid, with costs.

2.[G.R. No. L-25579. March 29, 1972.]
EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN,
GIL T. BIAGTAN and GRACIA T. BIAGTAN, Plaintiffs-Appellees, v.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., DefendantAppellant.
Tanopo, Millora, Serafica & Sañez for plaintiffs and appellees.
Araneta, Mendoza, Papa & Associates for defendant and
appellant.
SYLLABUS
1. INSURANCE LAW; INSURANCE CONTRACT; EXCEPTION TO ACCIDENTAL BENEFIT
CLAUSE, CONSTRUED. — It should be noted that the exception in the accidental
benefit clause invoked by the appellant does not speak of the purpose whether
homicidal or not — of a third party in causing the injuries, but only of the fact that
such injuries have been "intentionally" inflicted — this obviously to distinguish the
from injuries which, although received at the hands of a third party, are purely
accidental.
2. ID.; ID.; ID.; CASE AT BAR. — But where a gang of robbers enter a house and
coming face to face with the owner, even if unexpectedly, stab him repeatedly, it is
contrary to all reason and logic to say that his injuries are not intentionally inflicted,
regardless of whether they prove fatal or not. As it was, in the present case they did
prove fatal, and the robbers have been accused and convicted of the crime of
robbery with homicide. Under the circumstance, the insurance company was correct
in refusing to pay the additional sum of P2,000.00 under the accidental death benefit
clause which expressly provided that it would not apply where death resulted from an
injury "intentionally" inflicted by a third party.
3. ID.; ID.; ID.; CASE OF CALANOC v. COURT OF APPEALS DISTINGUISHED FROM CASE
AT BAR. — Where a shot was fired and it turned out afterwards that the watchman
was hit in the abdomen, the wound causing his death, the Court held that it could not
4

be said that the killing was intentional for there was the possibility that the
malefactor had fired the shot to scare the people around for his own protection and
not necessarily to kill or hit the victim. A similar possibility is clearly ruled out by the
facts in the case now before Us. For while a single shot fired from a distance, and by
a person who was not even seen aiming at the victim, could indeed have been fired
without intent to kill or injure, nine wounds inflicted with bladed weapons at close
range cannot conceivably be considered as innocent insofar as such intent is
concerned. The manner of execution of the crime permits no other conclusion.
4. ID.; ID.; ID.; INTENTIONAL, CONSTRUED IN AMERICAN JURISDICTION. — It has been
held in American jurisdiction that "intentional" as used in an accident policy
excepting intentional injuries inflicted by the insured or any other person, etc.,
implies the exercise of the reasoning faculties, consciousness, and volition.
5. ID.; ID.; ID.; INTENTION OF PARTIES CONTROLLING; AMERICAN JURISPRUDENCE. —
Where a provision of the policy excludes intentional injury, it is the intention of the
person inflicting the injury that is controlling.
6. ID.; ID.; ID.; INJURIES INTENTIONAL; INSURER RELIEVED FROM LIABILITY. — If the
injuries suffered by the insured clearly resulted from the intentional act of a third
party the insurer is relieved from liability.
7. ID.; ID.; ID.; ID.; CASE OF HUCTHCRAFT’S EX’R v. TRAVELERS’ INS. CO. — In the
case of Hucthcraft’s Ex’r v. Travelers’ Ins. Co. where the insured was waylaid and
assassinated for the purpose of robbery, the court rendered judgment for the
insurance company and held that while the assassination of the insured was as to
him an unforeseen event and therefore accidental, "the clause of the proviso that
excludes the (insurer’s) liability, in case death or injury is intentionally inflicted by
any other person, applies to this case."
DECISION
MAKALINTAL, J.:
This is an appeal from the decision of the Court of First Instance of Pangasinan in its
Civil Case No. D-1700.
The facts are stipulated. Juan S. Biagtan was insured with defendant Insular Life
Assurance Company under Policy No. 398075 for the sum of P5,000.00 and, under a
supplementary contract denominated "Accidental Death Benefit Clause, for an
additional sum of P5,000.00 if "the death of the Insured resulted directly from bodily
injury effected solely through external and violent means sustained in an accident . . .
and independently of all other causes." The clause, however, expressly provided that
it would not apply where death resulted from an injury "intentionally inflicted by a
third party."cralaw virtua1aw library
On the night of May 20, 1964 or during the first hours of the following day a band of
robbers entered the house of the insured Juan S. Biagtan. What happened then is
related in the decision of the trial court as follows:jgc:chanrobles.com.ph
". . .; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the
said life policy and supplementary contract were in full force and effect, the house of
insured Juan S. Biagtan was robbed by a band of robbers who were charged in and
convicted by the Court of First Instance of Pangasinan for robbery with homicide; that
in committing the robbery, the robbers, on reaching the staircase landing of the
second floor, rushed towards the doors of the second floor room, where they
suddenly met a person near the door of one of the rooms who turned out to be the
insured Juan S. Biagtan who received thrusts from their sharp-pointed instruments,
5

causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7
a.m. on the same day, May 21, 1964;"
Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance
company paid the basic amount of P5,000.00 but refused to pay the additional sum
of P5,000.00 under the accidental death benefit clause, on the ground that the
insured’s death resulted from injuries intentionally inflicted by third parties and
therefore was not covered. Plaintiffs filed suit to recover, and after due hearing the
court a quo rendered judgment in their favor. Hence the present appeal by the
insurer.
The only issue here is whether under the facts are stipulated and found by the trial
court the wounds received by the insured at the hands of the robbers — nine in all,
five of them mortal and four non-mortal — were inflicted intentionally. The court, in
ruling negatively on the issue, stated that since the parties presented no evidence
and submitted the case upon stipulation, there was no "proof that the act of receiving
thrust (sic) from the sharp-pointed instrument of the robbers was intended to inflict
injuries upon the person of the insured or any other person or merely to scare away
any person so as to ward off any resistance or obstacle that might be offered in the
pursuit of their main objective which was robbery."cralaw virtua1aw library
The trial court committed a plain error in drawing the conclusion it did from the
admitted facts. Nine wounds were inflicted upon the deceased, all by means of
thrusts with sharp-pointed instruments wielded by the robbers. This is a physical fact
as to which there is no dispute. So is the fact that five of those wounds caused the
death of the insured. Whether the robbers had the intent to kill or merely to scare the
victim or to ward off any defense he might offer, it cannot be denied that the act
itself of inflicting the injuries was intentional. It should he noted that the exception in
the accidental benefit clause invoked by the appellant does not speak of the purpose
— whether homicidal or not — of a third party in causing the injuries, but only of the
fact that such injuries have been "intentionally" inflicted — this obviously to
distinguish them from injuries which, although received at the hands of a third party,
are purely accidental. This construction is the basic idea expressed in the coverage of
the clause itself, namely, that "the death of the insured resulted directly from bodily
injury effected solely through external and violent means sustained in an accident . . .
and independently of all other causes." A gun which discharges while being cleaned
and kills a bystander; a hunter who shoots at his prey and hits a person instead; an
athlete in a competitive game involving physical effort who collides with an opponent
and fatally injures him as a result: these are instances where the infliction of the
injury is unintentional and therefore would be within the coverage of an accidental
death benefit clause such as that in question in this case. But where a gang of
robbers enter a house and coming face to face with the owner, even if unexpectedly,
stab him repeatedly, it is contrary to all reason and logic to say that his injuries are
not intentionally inflicted, regardless of whether they prove fatal or not. As it was, in
the present case they did prove fatal, and the robbers have been accused and
convicted of the crime of robbery with homicide.
The case of Calanoc v. Court of Appeals, 98 Phil 79, is relied upon by the trial court in
support of its decision. The facts in that case, however, are different from those
obtaining here. The insured there was a watchman in a certain company, who
happened to be invited by a policeman to come along as the latter was on his way to
investigate a reported robbery going on in a private house. As the two of them,
together with the owner of the house, approached and stood in front of the main
gate, a shot was fired and it turned out afterwards that the watchman was hit in the
abdomen, the wound causing his death. Under those circumstances this Court held
that it could not be said that the killing was intentional for there was the possibility
that the malefactor had fired the shot to scare the people around for his own
protection and not necessarily to kill of hit the victim. A similar possibility is clearly
6

ruled out by the facts in the case now before Us. For while a single shot fired from a
distance, and by a person who was not even seen aiming at the victim, could indeed
have been fired without intent to kill or injure, nine wounds inflicted with bladed
weapons at close range cannot conceivably be considered as innocent insofar as
such intent is concerned. The manner of execution of the crime permits no other
conclusion.
Court decisions in the American jurisdiction, where similar provisions in accidental
death benefit clauses in insurance policies have been construed, may shed light on
the issue before Us. Thus, it has been held that "intentional" as used in an accident
policy excepting intentional injuries inflicted by the insured or any other person, etc.,
implies the exercise of the reasoning faculties, consciousness, and volition. 1 Where a
provision of the policy excludes intentional injury, it is the intention of the person
inflicting the injury that is controlling. 2 If the injuries suffered by the insured clearly
resulted from the intentional act of a third person the insurer is relieved from liability
as stipulated. 3
In the case of Hutchcraft’s Ex’r. v. Travelers’ Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am.
St. Rep. 484, the insured was waylaid and assassinated for the purpose of robbery.
Two (2) defenses were interposed to the action to recover indemnity, namely: (1) that
the insured having been killed by intentional means, his death was not accidental,
and (2) that the proviso in the policy expressly exempted the insurer from liability in
case the insured died from injuries intentionally inflicted by another person. In
rendering judgment for the insurance company the Court held that while the
assassination of the insured was as to him an unforeseen event and therefore
accidental, "the clause of the proviso "that excludes the (insurer’s) liability, in case
death or injury is intentionally inflicted by any other person, applies to this
case."cralaw virtua1aw library
In Butero v. Travelers’ Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the
insured was shot three times by a person unknown late on a dark and stormy night,
while working in the coal shed of a railroad company. The policy did not cover death
resulting from "intentional injuries inflicted by the insured or any other person." The
inquiry was as to the question whether the shooting that caused the insured’s death
was accidental or intentional; and the Court found that under the facts, showing that
the murderer knew his victim and that he fired with intent to kill, there could be no
recovery under the policy which excepted death from intentional injuries inflicted by
any person.
WHEREFORE, the decision appealed from is reversed and the complaint dismissed,
without pronouncement as to costs.
Zaldivar, Castro, Fernando and Villamor, JJ., concur.
Concepcion, C.J. and Reyes, J.B.L., J., concur in the dissent of Justice Teehankee.
Teehankee, J., dissents in a separate opinion.
Barredo, J., concurs in separate opinion.
Makasiar, J., reserves his vote.
BARREDO, J.: Concurring —
During the deliberations in this case, I entertained some doubts as to the correctness
and validity of the view upheld in the main opinion penned by Justice Makalintal.
Further reflection has convinced me, however, that there are good reasons to support
it.
At first blush, one would feel that every death not suicidal should be considered
accidental, for the purposes of an accident insurance policy or a life insurance policy
with a double-indemnity clause in case death results from accident. Indeed, it is quite
logical to think that any event whether caused by fault, negligence, intent of a third
7

party or any unavoidable circumstance, normally unforeseen by the insured and free
from any possible connivance on his part, is an accident in the generally accepted
sense of the term. And if I were convinced that in including in the policy the provision
in question, both the insurer and the insured had in mind to exclude thereby from the
coverage of the policy only suicide whether unhelped or helped somehow by a third
party, I would disregard the American decisions cited and quoted in the main opinion
as not even persuasive authorities. But examining the unequivocal language of the
provision in controversy and considering that the insured accepted the policy without
asking that it be made clear that the phrase "injury intentionally inflicted by a third
party" should be understood to refer only to injuries inflicted by a third party without
any wilful intervention on his part (of the insured) or, in other words, without any
connivance with him (the insured) in order to augment the proceeds of the policy for
his beneficiaries, I am inclined to agree that death caused by criminal assault is not
covered by the policies of the kind here in question, specially if the assault, as a
matter of fact, could have been more or less anticipated, as when the insured
happens to have violent enemies or is found in circumstances that would make his
life fair game of third parties.
As to the rest, I have no doubt that the killing of the insured in this case is as
intentional as any intentional act can be, hence this concurrence.
Separate Opinions
TEEHANKEE, J., dissenting:chanrob1es virtual 1aw library
The sole issue at bar is the correctness in law of the lower court’s appealed decision
adjudging defendant insurance company liable, under its supplementary contract
denominated "Accidental Death Benefit Clause" with the deceased insured, to
plaintiffs-beneficiaries (excluding plaintiff Emilia T. Biagtan) in an additional amount
of P5,000.00 (with corresponding legal interest) and ruling that defendant company
had failed to present any evidence to substantiate its defense that the insured’s
death came within the stipulated exceptions.
Defendant’s accidental death benefit clause expressly
provides:jgc:chanrobles.com.ph
"ACCIDENTAL DEATH BENEFIT (hereinafter called the benefit). Upon receipt and
approval of due proof that the death of the Insured resulted directly from bodily injury
effected solely through external and violent means sustained in an accident, within
ninety days after the date of sustaining such injury, and independently of all other
causes, this Company shall pay, in addition to the sum insured specified on the first
page of this Policy, a further sum equal to said sum insured payable at the same time
and in the same manner as said sum insured, provided, that such death occurred
during the continuance of this Clause and of this Policy and before the sixtieth
birthday of the Insured." 1
A long list of exceptions and an Automatic Discontinuance clause immediately follow
thereafter, thus:jgc:chanrobles.com.ph
"EXCEPTIONS. The Benefit shall not apply if the Insured’s death shall result, either
directly or indirectly, from any one of the following causes:chanrob1es virtual 1aw
library
(1) Self-destruction or self-inflicted injuries, whether the Insured be sane or insane;
(2) Bodily or mental infirmity or disease of any kind;
(3) Poisoning or infection, other than infection occurring simultaneously with and in
consequence of a cut or wound sustained in an accident;
(4) Injuries of which there is no visible contusions or wound on the exterior of the
8

body, drowning and internal injuries revealed by autopsy excepted:chanrob1es
virtual 1aw library
(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in any riot, civil commotion, insurrection or war or any act incident
thereto; (c) while travelling as a passenger or otherwise in any form of submarine
transportation, or while engaging in submarine operations; (d) in any violation of the
law by the Insured or assault provoked by the Insured; (e) that has been inflicted
intentionally by a third party, either with or without provocation on the part of the
Insured, and whether or not the attack or the defense by the third party was caused
by a violation of the law by the Insured;
(6) Operating or riding in or descending from any kind of aircraft if the Insured is a
pilot, officer or member of the crew of the aircraft or is giving or receiving any kind of
training or instruction or has any duties aboard the aircraft or requiring descent
therefrom; and
(7) Atomic energy explosion of any nature whatsoever,
"The Company, before making any payment under this Clause, shall have the right
and opportunity to examine the body and make an autopsy thereof.
"AUTOMATIC DISCONTINUANCE. This Benefit shall automatically terminate and the
additional premium therefor shall cease to be payable when and if:chanrob1es virtual
1aw library
(1) This Policy is surrendered for cash, paid-up insurance or extended term insurance;
or
(2) The benefit under the Total and Permanent Disability Waiver of Premium
Certificate is granted to the insured; or
(3) The Insured engages in military, naval or aeronautic service in time of war; or
(4) The policy anniversary immediately preceding the sixtieth birthday of the Insured
is reached," 2
It is undisputed that, as recited in the lower court’s decision, the insured met his
death, as follows: "that on the night of May 20, 1964 or the first hours of May 21,
1964, while the said life policy and supplementary contract were in full force and
effect, the house of insured Juan S. Biagtan was robbed by a band of robbers who
were charged in and convicted by the Court of First Instance of Pangasinan for
robbery with homicide; that in committing the robbery, the robbers, on reaching the
staircase landing of the second floor, rushed towards the doors of the second floor
room, where they suddenly met a person near the door of one of the rooms who
turned out to be the insured Juan S. Biagtan who received thrusts from their sharppointed instruments, causing wounds on the body of said Juan S. Biagtan resulting in
his death at about 7 a.m. on the same day, May 21, 1964." 3
Defendant company, while admitting the above-recited circumstances under which
the insured met his death, disclaimed liability under its accidental death benefit
clause under paragraph 5 of its stipulated "Exceptions" on its theory that the
insured’s death resulted from injuries "intentionally inflicted by a third party," i.e the
robbers who broke into the insured’s house and inflicted fatal injuries on him.
The case was submitted for decision upon the parties’ stipulation of facts that (1)
insurance companies such as the Lincoln National Life Insurance Co. and Sun Life
Assurance Co. of Canada with which the deceased insured Juan S. Biagtan was also
9

insured for much larger sums under similar contracts with accidental death benefit
provisions have promptly paid the benefits thereunder to plaintiffs-beneficiaries; (2)
the robbers who caused the insured’s death were charged in and convicted by the
Court of First Instance of Pangasinan for the crime of robbery with homicide; and (3)
the injuries inflicted on the insured by the robbers consisted of five mortal and four
non-mortal wounds. 4
The lower court thereafter rendered judgment against defendant, as follows:
"There is no doubt that the insured, Juan S. Biagtan, met his death as a result of the
wounds inflicted upon him by the malefactors on the early morning of May 21, 1964
by means of thrusts from sharp-pointed instruments delivered upon his person, and
there is likewise no question that the thrusts were made on the occasion of the
robbery. However, it is defendants’ position that the killing of the insured was
intentionally done by the malefactors, who were charged with and convicted of the
crime of robbery with homicide by the Court of First Instance of Pangasinan.
"It must be noted here that no evidence whatsoever was presented by the parties
who submitted the case for resolution upon the stipulation of facts presented by
them. Thus, the court does not have before it proof that the act of receiving thrust(s)
from the sharp-pointed instrument of the robbers was intended to inflict injuries upon
the person of the insured or any other person or merely to scare away any person so
as to ward off any resistance or obstacle that might be offered in the pursuit of their
main objective which was robbery. It was held that where a provision of the policy
excludes intentional injury, it is the intention of the person inflicting the injury that is
controlling . . . and to come within the exception, the act which causes the injury
must be wholly intentional, not merely partly.
"The case at bar has some similarity with the case of Virginia Calanoc v. Court of
Appeals, Et Al., L-8151, promulgated December 16, 1965, where the Supreme Court
ruled that ‘the shot (which killed the insured) was merely to scare away the people
around for his own protection and not necessarily to kill or hit the victim.’
"In the Calanoc case, one Melencio Basilio, a watchman of a certain company, took
out life insurance from the Philippine American Life Insurance Company in the
amount of P2,000.00 to which was attached a supplementary contract covering
death by accident. Calanoc died of gunshot wounds on the occasion of a robbery
committed in the house of a certain Atty. Ojeda in Manila. The insured’s widow was
paid P2,000.00, the face value of the policy, but when she demanded payment of the
additional sum of P2,000.00 representing the value of the supplemental policy, the
company refused alleging, as main defense, that the deceased died because he was
murdered by a person who took part in the commission of the robbery and while
making an arrest as an officer of the law which contingencies were (as in this case)
expressly excluded in the contract and have the effect of exempting the company
from liability.
"The facts in the Calanoc case insofar as pertinent to this case are, as found by the
Court of Appeals in its decision which findings of fact were adopted by the Supreme
Court, as follows:chanrob1es virtual 1aw library
‘. . . that on the way to the Ojeda residence (which was then being robbed by armed
men), the policeman and Atty. Ojeda passed by Basilio (the insured) and somehow or
other invited the latter to come along; that as the three approached the Ojeda
residence and stood in front of the main gate which was covered by galvanized iron,
the fence itself being partly concrete and partly adobe stone, a shot was fired; . . .
that it turned out afterwards that the special watchman Melencio Basilio was hit in
the abdomen, the wound causing his instantaneous death . . .’

10

"The Court of Appeals arrived at the conclusion that the death of Basilio, although
unexpected, was not caused by an accident, being a voluntary and intentional act on
the part of the one who robbed, or one of those who robbed, the house of Atty. Ojeda.
"In reversing this conclusion of the Court of Appeals, the Supreme Court said in
part:chanrob1es virtual 1aw library
‘. . . Nor can it be said that the killing was intentional for there is the possibility that
the malefactors had fired the shot merely to scare away the people around for his
own protection and not necessarily to kill or hit the victim. In any event, while the act
may not exempt the triggerman from liability for the damage done, the fact remains
that the happening was a pure accident on the part of the victim.’
"With this ruling of the Supreme Court, and the utter absence of evidence in this case
as to the real intention of the malefactors in making a thrust with their sharp-pointed
instrument on any person, the victim in particular, the case falls squarely within the
ruling in the Calanoc v. Court of Appeals case.
"It is the considered view of this Court that the insured died because of an accident
which happened on the occasion of the robbery being committed in his house. His
death was not sought (at least no evidence was presented to show it was), and
therefore was fortuitous, ‘accident’ was defined as that which happens by chance or
fortuitously, without intention or design, and which is unexpected, unusual and
unforeseen, or that which takes place without one’s foresight or expectation — an
event that proceeds from an unknown cause, or is an unusual effect of a known
cause, and therefore not expected (29 Am. Jur. 706)."
"There is no question that the defense set up by the defendant company is one of
those included among the risks excluded in the supplementary contract. However,
there is no evidence here that the thrusts with sharp-pointed instrument (which led to
the death of the insured) was ‘intentional,’ (sic) so as to exempt the company from
liability. It could safely be assumed that it was purely accidental considering that the
principal motive of the culprits was robbery, the thrusts being merely intended to
scare away persons who might offer resistance or might obstruct them from pursuing
their main objective which was robbery." 5
It is respectfully submitted that the lower court committed no error in law in holding
defendant insurance company liable to plaintiffs-beneficiaries under its accidental
death benefit clause, by virtue of the following considerations:chanrob1es virtual 1aw
library
1. The case of Calanoc cited by the lower court is indeed controlling here. 6 This
Court, there construing a similar clause, squarely ruled that fatal injuries inflicted
upon an insured by a malefactor(s) during the latter’s commission of a crime are
deemed accidental and within the coverage of such accidental death benefit clauses
and the burden of proving that the killing was intentional so as to have it fall within
the stipulated exception of having resulted from injuries "intentionally inflicted by a
third party" must be discharged by the insurance company. This Court there clearly
held that in such cases where the killing does not amount to murder, it must be held
to be a "pure accident" on the part of the victim, compensable with doubleindemnity, even though the malefactor is criminally liable for his act. This Court
rejected the insurance — company’s contrary claim, thus:
"Much less can it be pretended that Basilio died in the course of an assault or murder
considering the very nature of these crimes In the first place, there is no proof that
the death of Basilio is the result of either crime for the record is barren of any
circumstance showing how the fatal shot was fired. Perhaps this may be clarified in
the criminal case now pending in court as regards the incident but before that is done
anything that might be said on the point would be a mere conjecture. Nor can it be
11

said that the killing was intentional for there is the possibility that the malefactor had
fired the shot merely to scare away the people around for his own protection and not
necessarily to kill or hit the victim. In any event, while the act may not exempt the
triggerman from liability for the damage done, the fact remains that the happening
was a pure accident on the part of the victim. The victim could have been either the
policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the
deceased precisely because he wanted to take his life." 7
2. Defendant company patently failed to discharge its burden of proving that the fatal
injuries were inflicted upon the deceased intentionally, i.e. deliberately. The lower
court correctly held that since the case was submitted upon the parties’ stipulation of
facts which did not cover the malefactors’ intent at all, there was an "utter absence
of evidence in this case as to the real intention of the malefactors in making a thrust
with their sharp-pointed instrument(s) on any person, the victim in particular." From
the undisputed facts, supra, 8 the robbers had "rushed towards the doors of the
second floor room, where they suddenly met a person . . . who turned out to be the
insured Juan S. Biagtan who received thrusts from their sharp-pointed instruments."
The thrusts were indeed properly termed "purely accidental" since they seemed to be
a reflex action on the robbers’ part upon their being surprised by the deceased. To
argue, as defendant does, that the robbers’ intent to kill must necessarily be deduced
from the four mortal wounds inflicted upon the deceased is to beg the question.
Defendant must suffer the consequence of its failure to discharge its burden of
proving by competent evidence, e.g. the robbers’ or eye-witnesses’ testimony, that
the fatal injuries were intentionally inflicted upon the insured so as to exempt itself
from liability.
3. Furthermore, plaintiffs-appellees properly assert in their brief that the sole error
assigned by defendant company, to wit, that the fatal injuries were not accidental as
held by the lower court but should be held to have been intentionally inflicted, raises
a question of fact — which defendant is now barred from raising, since it expressly
limited its appeal to this Court purely "on questions of law", per its notice of appeal. 9
Defendant is therefore confined to "raising only questions of law" and "no other
questions" under Rule 42, section 2 of the Rules of Court 10 and is deemed to have
conceded the findings of fact of the trial court, since he thereby waived all questions
of facts. 11
4. It has long been an established rule of construction of so-called contracts of
adhesion such as insurance contracts, where the insured is handed a printed
insurance policy whose fine-print language has long been selected with great care
and deliberation by specialists and legal advisers employed by and acting exclusively
in the interest of the insurance company, that the terms and phraseology of the
policy, particularly of any exception clauses, must be clearly expressed so as to be
easily understood by the insured and any "ambiguous, equivocal or uncertain terms"
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 a forfeiture is involved."cralaw virtua1aw library
The Court so expressly held in Calanoc that:
". . . While as a general rule ‘the parties may limit the coverage of the policy to
certain particular accidents and risks or causes of loss, and may expressly except
other risks or causes of loss therefrom’ (45 C.J.S. 781-782), however, it is to be
desired that the terms and phraseology of the exception clause be clearly expressed
so as to be within the easy grasp and understanding of the insured, for if the terms
are doubtful or obscure the same must of necessity be interpreted or resolved
against the one who has caused the obscurity. (Article 1377, new Civil Code) And so it
has been generally held that the ‘terms in an insurance policy, which are ambiguous,
equivocal, or uncertain . . . 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
12

indemnity or payment to the insured, especially where a forfeiture is involved’ (29
AM. Jur., 181), and the reason for this rule 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.’ (44
C.J.S., p. 1174)
"‘Insurance is, in its nature, complex and difficult for the layman to understand.
Policies are prepared by experts who know and can anticipate the bearing 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.’ (Algoe v. Pacific
Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)
"‘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.’ (Moore v. Aetna Life
Insurance Co., LRA 1915D, 164)." 12
The Court has but recently reiterated this doctrine in Landicho v. GSIS 13 and again
applied the provisions of Article 1377 of our Civil Code that "The interpretation of
obscure words or stipulations in a contract shall not favor the party who caused the
obscurity."
5. The accidental death benefit clause assuring the insured’s beneficiaries of double
indemnity, upon payment of an extra premium, in the event that the insured meets
violent accidental death is contractually stipulated as follows in the policy: "that the
death of the insured resulted directly from bodily injury effected solely through
external and violent means sustained in an accident," supra. The policy then lists
numerous exceptions, which may be classified as follows:chanrob1es virtual 1aw
library
— Injuries effected through non-external means which are excepted: self-destruction,
bodily or mental infirmity or disease, poisoning or infection, injuries with no visible
contusions or exterior wounds (exceptions 1 to 4 of policy clause);
— Injuries caused by some act of the insured which is proscribed by the policy, and
are therefore similarly excepted: injuries received while on police duty, while
travelling in any form of submarine transportation, or in any violation of law by the
insured or assault provoked by the insured, or in any aircraft if the insured is a pilot or
crew member; [exceptions 5 (a), (c) and (d), and 6 of the policy clause]; and
— Accidents expressly excluded: where death resulted in any riot, civil commotion,
insurrection or war or atomic energy explosion. (Exceptions 5[b] and 7 of policy
clause).
The only exception which is not susceptible of classification is that provided in
paragraph 5(e), the very exception herein involved, which would also except injuries
"inflicted intentionally by a third party, either with or without provocation on the part
of the insured, and whether or not the attack or the defense by the third party was
caused by a violation of the law by the insured."
This ambiguous clause conflicts with all the other four exceptions in the same
paragraph 5 particularly that immediately preceding it in item (d) which excepts
injuries received where the insured has violated the law or provoked the injury, while
this clause, construed as the insurance company now claims, would seemingly except
also all other injuries, intentionally inflicted by a third party, regardless of any
violation of law or provocation by the insured, and defeat the very purpose of the
policy of giving the insured double indemnity in case of accidental death by "external
13

and violent means" — in the very language of the policy.’
It is obvious from the very classification of the exceptions and applying the rule of
noscitus a sociis, that the double-indemnity policy covers the insured against
accidental death, whether caused by fault, negligence or intent of a third party which
is unforeseen and unexpected by the insured. All the associated words and concepts
in the policy plainly exclude the accidental death from the coverage of the policy only
where the injuries are self-inflicted or attended by some proscribed act of the insured
or are incurred in some expressly excluded calamity such as riot, war or atomic
explosion.
Finally, the untenability of herein defendant insurer’s claim that the insured’s death
fell within the exception is further heightened by the stipulated fact that two other
insurance companies which likewise covered the insured for much larger sums under
similar accidental death benefit clauses promptly paid the benefits thereof to
plaintiffs beneficiaries.
I vote accordingly for the affirmance in toto of the appealed decision, with costs
against defendant-appellant.

3.G.R. No. 100970. September 2, 1992.]
FINMAN GENERAL ASSURANCE CORPORATION, Petitioner, v. THE
HONORABLE COURT OF APPEALS and JULIA
SURPOSA, Respondents.
Aquino and Associates for Petitioner.
Public Attorney’s Office for Private Respondent.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; ‘ACCIDENT’ AND ‘ACCIDENTAL’; DEFINED. — "The
terms ‘accident’ and ‘accidental’, as used in insurance contracts have not acquired
any technical meaning, and are construed by the courts in their ordinary and
common acceptation. Thus, the terms have been taken to mean that which happen
by chance or fortuitously, without intention and design, and which is unexpected,
unusual, and unforeseen. An accident is an event that takes place without one’s
foresight or expectation — an event that proceeds from an unknown cause, or is an
unusual effect of a known cause and, therefore, not expected." ". . . The generally
accepted rule is that, death or injury does not result from accident or accidental
means within the terms of an accident-policy if it is, the natural result of the insured’s
voluntary act, unaccompanied by anything unforeseen except the death or injury.
There is no accident when a deliberate act is performed unless some additional,
unexpected, independent, and unforeseen happening occurs which produces or
brings about the result of injury or death. In other words, where the death or injury is
not the natural or probable result of the insured’s voluntary act, or if something
unforeseen occurs in the doing of the act which produces the injury, the resulting
death is within the protection of the policies insuring against death or injury from
accident." [De la Cruz v. Capital Insurance & Surety Co., Inc., 17 SCRA 559 (1966)].
2. ID.; ID.; PRINCIPLE OF EXPRESSO UNIUS EXCLUSIO ALTERIUS; APPLICATION IN CASE
AT BAR. — The personal accident insurance policy involved herein specifically
enumerated only ten (10) circumstances wherein no liability attaches to petitioner
insurance company for any injury, disability or loss suffered by the insured as a result
of any of the stipulated causes. The principle of "expresso unius exclusio alterius" —
the mention of one thing implies the exclusion of another thing — is therefore
applicable in the instant case since murder and assault, not having been expressly
included in the enumeration of the circumstances that would negate liability in said
14

insurance policy cannot be considered by implication to discharge the petitioner
insurance company from liability for any injury, disability or loss suffered by the
insured. Thus, the failure of the petitioner insurance company to include death
resulting from murder or assault among the prohibited risks leads inevitably to the
conclusion that it did not intend to limit or exempt itself from liability for such death.
3. CIVIL LAW; CONTRACTS; INTERPRETATION OF OBSCURE WORDS OR STIPULATIONS
THEREIN; RULE. — Article 1377 of the Civil Code of the Philippines provides that: "The
interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity."cralaw virtua1aw library
4. ID.; ID.; ID.; ID.; APPLICATION IN CONTRACT OF INSURANCE; RULE. — Moreover, "it
is well settled that contracts of insurance are to be construed liberally in favor of the
insured and strictly against the insurer. Thus ambiguity in the words of an insurance
contract should be interpreted in favor of its beneficiary." [National Power Corporation
v. Court of Appeals, 145 SCRA 533 (1986)].
DECISION
NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a restraining order
and preliminary mandatory injunction to annul and set aside the decision of the Court
of Appeals dated July 11, 1991 1 affirming the decision dated March 20, 1990 of the
Insurance Commission 2 in ordering petitioner Finman General Assurance Corporation
to pay private respondent Julia Surposa the proceeds of the personal accident
insurance policy with interest.chanrobles.com : virtual law library
It appears on record that on October 22, 1986, deceased Carlie Surposa was insured
with petitioner Finman General Assurance Corporation under Finman General
Teachers Protection Plan Master Policy No. 2005 and Individual Policy No. 08924 with
his parents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles,
Chester and Clifton, all surnamed Surposa, as beneficiaries. 3
While said insurance policy was in full force and effect, the insured, Carlie Surposa,
died on October 18, 1988 as a result of a stab wound inflicted by one of the three (3)
unidentified men without provocation and warning on the part of the former as he
and his cousin, Winston Surposa, were waiting for a ride on their way home along
Rizal-Locsin Streets, Bacolod City after attending the celebration of the "Maskarra
Annual Festival."cralaw virtua1aw library
Thereafter, private respondent and the other beneficiaries of said insurance policy
filed a written notice of claim with the petitioner insurance company which denied
said claim contending that murder and assault are not within the scope of the
coverage of the insurance policy.
On February 24, 1989, private respondent filed a complaint with the Insurance
Commission which subsequently rendered a decision, the pertinent portion of which
reads:jgc:chanrobles.com.ph
"In the light of the foregoing, we find respondent liable to pay complainant the sum of
P15,000.00 representing the proceeds of the policy with interest. As no evidence was
submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same
cannot be entertained.
"WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant
the sum of P15,000.00 with legal interest from the date of the filing of the complaint
until fully satisfied. With costs." 4
15

On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filled this petition alleging grave abuse of discretion on the part of
the appellate court in applying the principle of "expresso unius exclusio alterius" in a
personal accident insurance policy since death resulting from murder and/or assault
are impliedly excluded in said insurance policy considering that the cause of death of
the insured was not accidental but rather a deliberate and intentional act of the
assailant in killing the former as indicated by the location of the lone stab wound on
the insured. Therefore, said death was committed with deliberate intent which, by the
very nature of a personal accident insurance policy, cannot be
indemnified.chanrobles virtual lawlibrary
We do not agree.
"The terms ‘accident’ and ‘accidental’, as used in insurance contracts have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place
without one’s foresight or expectation — an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected."cralaw
virtua1aw library
". . . The generally accepted rule is that, death or injury does not result from accident
or accidental means within the terms of an accident-policy if it is, the natural result of
the insured’s voluntary act, unaccompanied by anything unforeseen except the death
or injury. There is no accident when a deliberate act is performed unless some
additional, unexpected, independent, and unforeseen happening occurs which
produces or brings about the result of injury or death. In other words, where the
death or injury is not the natural or probable result of the insured’s voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury, the
resulting death is within the protection of the policies insuring against death or injury
from accident." 5
As correctly pointed out by the respondent appellate court in its decision:chanrobles
virtual lawlibrary
"In the case at bar, it cannot be pretended that Carlie Surposa died in the course of
an assault or murder as a result of his voluntary act considering the very nature of
these crimes. In the first place, the insured and his companion were on their way
home from attending a festival. They were confronted by unidentified persons. The
record is barren of any circumstance showing how the stab wound was inflicted. Nor
can it be pretended that the malefactor aimed at the insured precisely because the
killer wanted to take his life. In any event, while the act may not exempt the unknown
perpetrator from criminal liability, the fact remains that the happening was a pure
accident on the part of the victim. The insured died from an event that took place
without his foresight or expectation, an event that proceeded from an unusual effect
of a known cause and, therefore, not expected. Neither can it be said that there was
a capricious desire on the part of the accused to expose his life to danger considering
that he was just going home after attending a festival." 6
Furthermore, the personal accident insurance policy involved herein specifically
enumerated only ten (10) circumstances wherein no liability attaches to petitioner
insurance company for any injury, disability or loss suffered by the insured as a result
of any of the stipulated causes. The principle of "expresso unius exclusio alterius" —
the mention of one thing implies the exclusion of another thing — is therefore
applicable in the instant case since murder and assault, not having been expressly
16

included in the enumeration of the circumstances that would negate liability in said
insurance policy cannot be considered by implication to discharge the petitioner
insurance company from liability for any injury, disability or loss suffered by the
insured. Thus, the failure of the petitioner insurance company to include death
resulting from murder or assault among the prohibited risks leads inevitably to the
conclusion that it did not intend to limit or exempt itself from liability for such
death.chanrobles.com:cralaw:red
Article 1377 of the Civil Code of the Philippines provides that:jgc:chanrobles.com.ph
"The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity."cralaw virtua1aw library
Moreover,
"it is well settled that contracts of insurance are to be construed liberally in favor of
the insured and strictly against the insurer. Thus ambiguity in the words of an
insurance contract should be interpreted in favor of its beneficiary." 7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of
Appeals, the petition for certiorari with restraining order and preliminary injunction is
hereby DENIED for lack of merit.
SO ORDERED.

4. G.R. No. 85296. May 14, 1990.]
ZENITH INSURANCE CORPORATION, Petitioner, v. COURT OF
APPEALS and LAWRENCE FERNANDEZ, Respondents.
Vicente R. Layawen for Petitioner.
Lawrence L. Fernandez & Associates for Private Respondent.
DECISION
MEDIALDEA, J.:
Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No.
13498 entitled, "Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance
Corp., Defendant-Appellant" which affirmed in toto the decision of the Regional Trial
Court of Cebu, Branch XX in Civil Case No. CEB-1215 and the denial of petitioner’s
Motion for Reconsideration.
The antecedent facts are as follows::
On January 25, 1983, private respondent Lawrence Fernandez insured his car for
"own damage" under private car Policy No. 50459 with petitioner Zenith Insurance
Corporation. On July 6, 1983, the car figured in an accident and suffered actual
damages in the amount of P3,640.00. After allegedly being given a run around by
Zenith for two (2) months, Fernandez filed a complaint with the Regional Trial Court of
Cebu for sum of money and damages resulting from the refusal of Zenith to pay the
amount claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside from
actual damages and interests, Fernandez also prayed for more damages in the
amount of P10,000.00, exemplary damages of P5,000.00, attorney’s fees of
P3,000.00 and litigation expenses of P3,000.00.
On September 28, 1983, Zenith filed an answer alleging that it offered to pay the
17

claim of Fernandez pursuant to the terms and conditions of the contract which, the
private respondent rejected. After the issues had been joined, the pre-trial was
scheduled on October 17, 1983 but the same was moved to November 4, 1983 upon
petitioner’s motion, allegedly to explore ways to settle the case although at an
amount lower than private respondent’s claim. On November 14, 1983, the trial court
terminated the pre-trial. Subsequently, Fernandez presented his evidence. Petitioner
Zenith, however, failed to present its evidence in new of its failure to appear in court,
without justifiable reason, on the day scheduled for the purpose. The trial court
issued an order on August 23, 1984 submitting the case for decision without Zenith’s
evidence (pp. 10-11, Rollo). Petitioner filed a petition for certiorari with the Court of
Appeals assailing the order of the trial court submitting the case for decision without
petitioner’s evidence. The petition was docketed as C.A.-G.R. No. 04644. However,
the petition was denied due course on April 29, 1986 (p. 56, Rollo).
On June 4, 1986, a decision was rendered by the trial court in favor of private
respondent Fernandez. The dispositive portion of the trial court’s decision provides:
"WHEREFORE, defendant is hereby ordered to pay to the plaintiff:.
1. The amount of P3,640.00 representing the damage incurred plus interest at the
rate of twice the prevailing interest rates;
2. The amount of P20,000.00 by way of moral damages;
3. The amount of P20,000.00 by way of exemplary damages;
4. The amount of P5,000.00 as attorney’s fees;
5. The amount of P3,000.00 as litigation expenses; and
6. Costs." (p. 9, Rollo)
Upon motion of Fernandez and before the expiration of the period to appeal, the trial
court, on June 20, 1986, ordered the execution of the decision pending appeal. The
order was assailed by petitioner in a petition for certiorari with the Court of Appeals
on October 23, 1986 in C.A. G.R No. 10420 but which petition was also dismissed on
December 24, 1986 (p. 69, Rollo).
On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice
of appeal was granted in the same order granting private respondent’s motion for
execution pending appeal. The appeal to respondent court assigned the following
errors:
"I. The lower court erred in denying defendant appellant to adduce evidence in its
behalf.
II. The lower court erred in ordering Zenith Insurance Corporation to pay the amount
of P3,640.00 in its decision.
III. The lower court erred in awarding moral damages, attorney’s fees and exemplary
damages, the worst is that, the court awarded damages more than what are prayed
for in the complaint." (p. 12, Rollo)
On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the
decision of the trial court. It also ruled that the matter of the trial court’s denial of
Fernandez’s right to adduce evidence is a closed matter in view of its (CA) ruling in
AC-G.R. 04644 wherein Zenith’s petition questioning the trial court’s order submitting
the case for decision without Zenith’s evidence, was dismissed.
The Motion for Reconsideration of the decision of the Court of Appeals dated August
18

17, 1988 was denied on September 29, 1988, for lack of merit. Hence, the instant
petition was filed by Zenith on October 18, 1988 on the allegation that respondent
Court of Appeals’ decision and resolution ran counter to applicable decisions of this
Court and that they were rendered without or in excess of jurisdiction. The issues
raised by petitioners in this petition are:chanrob1es virtual 1aw library
a) The legal basis of respondent Court of Appeals in awarding moral damages,
exemplary damages and attorney’s fees in an amount more than that prayed for in
the complaint.
b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was
arrived at after deducting P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts as agreed upon in the contract of insurance.
Petitioner contends that while the complaint of private respondent prayed for
P10,000.00 moral damages, the lower court awarded twice the amount, or
P20,000.00 without factual or legal basis; while private respondent prayed for
P5,000.00 exemplary damages, the trial court awarded P20,000.00; and while private
respondent prayed for P3,000.00 attorney’s fees, the trial court awarded P5,000.00.
The propriety of the award of moral damages, exemplary damages and attorney’s
fees is the main issue raised herein by petitioner.
The award of damages in case of unreasonable delay in the payment of insurance
claims is governed by the Philippine Insurance Code, which provides:
"SEC. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist of attorney’s fees and other
expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-three, as
the case may be, until the claim is fully satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be considered prima facie
evidence of unreasonable delay in payment."
It is clear that under the Insurance Code, in case of unreasonable delay in the
payment of the proceeds of an insurance policy, the damages that may be awarded
are: 1) attorney’s fees; 2) other expenses incurred by the insured person by reason of
such unreasonable denial or withholding of payment; 3) interest at twice the ceiling
prescribed by the Monetary Board of the amount of the claim due the injured; and 4)
the amount of the claim.
As regards the award of moral and exemplary damages, the rules under the Civil
Code of the Philippines shall govern "The purpose of moral damages is essentially
indemnity or reparation, not punishment or correction. Moral damages are
emphatically not intended to enrich a complainant at the expense of a defendant,
they are awarded only to enable the injured party to obtain means, diversions or
amusements that will serve to alleviate the moral suffering he has undergone by
reason of the defendant’s culpable action." (J. Cezar S. Sangco, Philippine Law on
Torts and Damages, Revised Edition, p. 539) (See also R and B Surety & Insurance
Co., Inc. v. IAC, G.R. No. 64515, June 22, 1984; 129 SCRA 745). While it is true that no
proof of pecuniary loss is necessary in order that moral damages may be adjudicated,
the assessment of which is left to the discretion of the court according to the
circumstances of each case (Art. 2216, New Civil Code), it is equally true that in
awarding moral damages in case of breach of contract, there must be a showing that
the breach was wanton and deliberately injurious or the one responsible acted
19

fraudently or in bad faith (Perez v. Court of Appeals, G.R. No. L-20238, January 30,
1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L-17022, August 14, 1965; 14 SCRA
887). In the instant case, there was a finding that private respondent was given a
"run-around" for two months, which is the basis for the award of the damages
granted under the Insurance Code for unreasonable delay in the payment of the
claim. However, the act of petitioner of delaying payment for two months cannot be
considered as so wanton or malevolent to justify an award of P20,000.00 as moral
damages, taking into consideration also the fact that the actual damage on the car
was only P3,460. In the pre-trial of the case, it was shown that there was no total
disclaimer by Respondent. The reason for petitioner’s failure to indemnify private
respondent within the two-month period was that the parties could not come to an
agreement as regards the amount of the actual damage on the car. The amount of
P10,000.00 prayed for by private respondent as moral damages is equitable.
On the other hand, exemplary or corrective damages are imposed by way of example
or correction for the public good (Art. 2229, New Civil Code of the Philippines). In the
case of Noda v. Cruz-Arnaldo, G.R. No. 57322, June 22, 1987; 151 SCRA 227,
exemplary damages were not awarded as the insurance company had not acted in
wanton, oppressive or malevolent manner. The same is true in the case at bar.
The amount of P5,000.00 awarded as attorney’s fees is justified under the
circumstances of this case considering that there were other petitions filed and
defended by private respondent in connection with this case.
As regards the actual damages incurred by private respondent, the amount of
P3,640.00 had been established before the trial court and affirmed by the appellate
court. Respondent appellate court correctly ruled that the deductions of P250.00 and
P274.00 as deductible franchise and 20% depreciation on parts, respectively claimed
by petitioners as agreed upon in the contract, had no basis. Respondent court ruled:
"Under its second assigned error, Defendant-Appellant puts forward two arguments,
both of which are entirely without merit. It is contented that the amount recoverable
under the insurance policy defendant-appellant issued over the car of plaintiffappellee is subject to deductible franchise, and . . .
"The policy (Exhibit G, pp. 4-9, Record), does not mention any deductible franchise, . .
." (p. 13, Rollo)
Therefore, the award of moral damages is reduced to P10,000.00 and the award of
exemplary damages is hereby deleted. The awards due to private respondent
Fernandez are as follows:
1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the
Monetary Board computed from the time of submission of proof of loss;
2) P10,000.00 as moral damages;
3) P5,000.00 as attorney’s fees;
4) P3,000.00 as litigation expenses and
5) Costs
ACCORDINGLY, the appealed decision is MODIFIED as above stated.
SO ORDERED.

20

5. [G.R. No. 92383. July 17, 1992.]
SUN INSURANCE OFFICE, LTD., Petitioner, v. THE HON. COURT OF
APPEALS and NERISSA LIM, Respondents.
Alfonso Felix, Jr. for Petitioner.
Armando T. Puno for Private Respondent.
SYLLABUS
1. LAW ON INSURANCE; DEFINITION OF TERM "ACCIDENT" ; INSURED PERSON’S
DEATH CONSIDERED AN ACCIDENT. — The term "accident" has been defined as
follows: The words "accident" and "accidental" have never acquired any technical
signification in law, and when used in an insurance contract are to be construed and
considered according to the ordinary understanding and common usage and speech
of people generally. In substance, the courts are practically agreed that the words
"accident" and "accidental" mean that which happens by chance or fortuitously,
without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that an accident is an event
that takes place without one’s foresight or expectation - an event that proceeds from
an unknown cause, or is an unusual effect of a known case, and therefore not
expected. An accident is an event which happens without any human agency or, if
happening through human agency, an event which, under the circumstances, is
unusual to and not expected by the person to whom it happens. It has also been
defined as an injury which happens by reason of some violence or casualty to the
insured without his design, consent, or voluntary co-operation. In light of these
definitions, the Court is convinced that the incident that resulted in Lim’s death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital
Insurance, (17 SCRA 559) says that "there is no accident when a deliberate act is
performed unless some additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their injury or death." There was
such a happening. This was the firing of the gun, which was the additional
unexpected and independent and unforeseen occurrence that led to the insured
person’s death.
2. ID.; ID.; ID.; SUICIDE AND WILLFUL EXPOSURE TO NEEDLESS PERIL, BOTH IN PARI
MATERIA BUT DIFFERS ONLY IN DEGREE; CASE AT BAR. — The parties agree that Lim
did not commit suicide. Nevertheless, the petitioner contends that the insured
willfully exposed himself to needless peril and thus removed himself from the
coverage of the insurance policy. It should be noted at the outset that suicide and
willful exposure to needless peril are in pari materia because they both signify a
disregard for one’s life. The only difference is in degree, as suicide imports a positive
act of ending such life whereas the second act indicates a reckless risking of it that is
almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand
meters above the ground and without any safety device may not actually be
intending to commit suicide, but his act is nonetheless suicidal. He would thus be
considered as "willfully exposing himself to needless peril" within the meaning of the
exception in question. The petitioner maintains that by the mere act of pointing the
gun to his temple, Lim had willfully exposed himself to needless peril and so came
under the exception. The theory is that a gun is per se dangerous and should
therefore be handled cautiously in every case. That posture is arguable. But what is
not is that, as the secretary testified, Lim had removed the magazine from the gun
and believed it was no longer dangerous. He expressly assured her that the gun was
not loaded. It is submitted that Lim did not willfully expose himself to needless peril
when he pointed the gun to his temple because the fact is that he thought it was not
unsafe to do so. The act was precisely intended to assure Nalagon that the gun was
indeed harmless.
3. ID.; POLICY CONTRACTS; AS A RULE, INTERPRETED LIBERALLY IN FAVOR OF THE
21

ASSURED. — Lim was unquestionably negligent and that negligence cost him his own
life. But it should not prevent his widow from recovering from the insurance policy he
obtained precisely against accident. There is nothing in the policy that relieves the
insurer of the responsibility to pay the indemnity agreed upon if the insured is shown
to have contributed to his own accident. Indeed, most accidents are caused by
negligence. There are only four exceptions expressly made in the contract to relieve
the insurer from liability, and none of these exceptions is applicable in the case at
bar. It bears noting that insurance contracts are as a rule supposed to be interpreted
liberally in favor of the assured.
4. CIVIL LAW; MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES; WHEN
AWARD THEREOF IS PROPER. — The basic issue raised in this case is, one of first
impression, It is evident that the 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 indeed debatable and was clearly not raised
only for the purpose of evading a legitimate obligation. We hold therefore that the
award of moral and exemplary damages and of attorney’s fees is unjust and so must
be disapproved. In order that a person may be made liable to the payment of moral
damages, the law requires that his act be 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. The law could not have meant to impose a penalty on the right to litigate;
such right is so precious that moral damages may not be charged on those who may
exercise it erroneously. For these the law taxes costs. . . . If a party wins, he cannot,
as a rule, recover attorney’s fees and litigation expenses, since it is not the fact of
winning alone that entitles him to recover such damages of the exceptional
circumstances enumerated in Art. 2208. Otherwise, every time a defendant wins,
automatically the plaintiff must pay attorney’s fees thereby putting a premium on the
right to litigate which should not be so. For those expenses, the law deems the award
of costs as sufficient.
DECISION
CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face
value of P200,000.00. Two months later, he was dead with a bullet wound in his head.
As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim was
rejected. The petitioner agreed that there was no suicide. It argued, however, that
there was no accident either.
Pilar Nalagon, Lim’s secretary, was the only eyewitness to his death. It happened on
October 6, 1982, at about 10 o’clock in the evening, after his mother’s birthday party.
According to Nalagon, Lim was in a happy mood (but not drunk) and was playing with
his handgun, from which he had previously removed the magazine. As she watched
the television, he stood in front of her and pointed the gun at her. She pushed it aside
and said it might be loaded. He assured her it was not and then pointed it to his
temple. The next moment there was an explosion and Lim slumped to the floor. He
was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was
sustained. 2 The petitioner was sentenced to pay her P200,000.00, representing the
face value of the policy, with interest at the legal rate; P10,000.00 as moral
damages; P5,000.00 as exemplary damages; P50,000.00 as actual and compensatory
damages; and P5,000.00 as attorney’s fees, plus the cost of the suit. This decision
was affirmed on appeal, and the motion for reconsideration was denied. 3 The
petitioner then came to this Court of Appeals for approving the payment of the claim
and the award of damages.

22

The term "accident" has been defined as follows:chanrob1es virtual 1aw library
The words "accident" and "accidental" have never acquired any technical
signification in law, and when used in an insurance contract are to be construed and
considered according to the ordinary understanding and common usage and speech
of people generally. In substance, the courts are practically agreed that the words
"accident" and "accidental" mean that which happens by change or fortuitously,
without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that an accident is an event
that takes place without one’s foresight or expectation — an event that proceeds
from an unknown cause, or is an unusual effect of a known case, and therefore not
expected. 4
An accident is an event which happens without any human agency or, if happening
through human agency, an event which, under the circumstances, is unusual to and
not expected by the person to whom it happens. It has also been defined as an injury
which happens by reason of some violence or casualty to the insured without his
design, consent, or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident that resulted in
Lim’s death was indeed an accident. The petitioner, invoking the case of De la Cruz v.
Capital Insurance, 6 says that "there is no accident when a deliberate act is
performed unless some additional, unexpected, independent and unforeseen
happening occurs which produces or brings about their injury or death." There was
such a happening. This was the firing of the gun, which was the additional
unexpected and independent and unforeseen occurrence that led to the insured
person’s death.
The petitioner also cites one of the four exceptions provided for in the insurance
contract and contends that the private petitioner’s claim is barred by such provision.
It is there stated:chanrob1es virtual 1aw library
Exceptions —
The company shall not be liable in respect of.
1. Bodily injury.
x
x
x
b. consequent upon.
i) The insured persons attempting to commit suicide or wilfully exposing himself to
needless peril except in an attempt to save human life.
To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the
petitioner contends that the insured willfully exposed himself to needless peril and
thus removed himself from the coverage of the insurance policy.
It should be noted at the outset that suicide and willful exposure to needless peril are
in pari materia because they both signify a disregard for one’s life. The only
difference is in degree, as suicide imports a positive act of ending such life whereas
the second act indicates a reckless risking of it that is almost suicidal in intent. To
illustrate, a person who walks a tightrope one thousand meters above the ground and
without any safety device may not actually be intending to commit suicide, but his
act is nonetheless suicidal. He would thus be considered as "willfully exposing himself
to needless peril" within the meaning of the exception in question.
The petitioner maintains that by the mere act of pointing the gun to his temple, Lim
had willfully exposed himself to needless peril and so came under the exception. The
23

theory is that a gun is per se dangerous and should therefore be handled cautiously
in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had
removed the magazine from the gun and believed it was no longer dangerous. He
expressed assured her that the gun was not loaded. It is submitted that Lim did not
willfully expose himself to needless peril when he pointed the gun to his temple
because the fact is that he thought it was not unsafe to do so. The act was precisely
intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:chanrob1es virtual 1aw library
Accident insurance polices were never intended to reward the insured for his
tendency to show off or for his miscalculations. They were intended to provide for
contingencies. Hence, when I miscalculate and jump from the Quezon Bridge into the
Pasig River in the belief that I can overcome the current, I have wilfully exposed
myself to peril and must accept the consequences of my act. If I drown I cannot go to
the insurance company to ask them to compensate me for my failure to swim as well
as I thought I could. The insured in the case at bar deliberately put the gun to his
head and pulled the trigger. He wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance company
to ask for compensation. That might frighten the insurance people to death. We also
agree that under the circumstances narrated, his beneficiary would not be able to
collect on the insurance policy for it is clear that when he braved the currents below,
he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she says the
analogy fails. The petitioner’s hypothetical swimmer knew when he dived off the
Quezon Bridge that the currents below were dangerous. By contrast, Lim did not
know that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But it
should not prevent his widow from recovering from the insurance policy he obtained
precisely against accident. There is nothing in the policy that relieves the insurer of
the responsibility to pay the indemnity agreed upon if the insured is shown to have
contributed to his own accident. Indeed, most accidents are caused by negligence.
There are only four exceptions expressly made in the contract to relieve the insurer
from liability, and none of these exceptions is applicable in the case at bar. *
It bears noting that insurance contracts are as a rule supposed to be interpreted
liberally in favor of the assured. There is no reason to deviate from this rule,
especially in view of the circumstances of this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner.
The basic issue raised in this case is, as the petitioner correctly observed, one of first
impression. It is evident that the 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 indeed debatable and was clearly not raised
only for the purpose of evading a legitimate obligation. We hold therefore that the
award of moral and exemplary damages and of attorney’s fees is unjust and so must
be disapproved.
In order that a person may be made liable to the payment of moral damages, the law
requires that his act be 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. The
law could not have meant to impose a penalty on the right to litigate; such right is so
precious that moral damages may not be charged on those who may exercise it
24

erroneously. For these the law taxes costs. 7
The fact that the results of the trial were adverse to Barreto did not alone make his
act in bringing the action wrongful because in most cases one party will lose; we
would be imposing an unjust condition or limitation on the right to litigate. We hold
that the award of moral damages in the case at bar is not justified by the facts and
circumstances, as well as the law.
If a party wins, he cannot, as a rule, recover attorney’s fees and litigation expenses,
since it is not the fact of winning alone that entitles him to recover such damages of
the exceptional circumstances enumerated in Art. 2208. Otherwise, every time a
defendant wins, automatically the plaintiff must pay attorney’s fees thereby putting
premium on the right to litigate which should not be so. For those expenses, the law
deems the award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED insofar as
it holds the petitioner liable to the private respondent in the sum of P200,000.00
representing the face value of the insurance contract, with interest at the legal rate
from the date of the filing of the complaint until the full amount is paid, but MODIFIED
with the deletion of all awards for damages, including attorney’s fees, except the
costs of the suit.
SO ORDERED.

6. G.R. No. L-54171. October 28, 1980.]
JEWEL VILLACORTA, assisted by her husband, GUERRERO
VILLACORTA, Petitioner, v. THE INSURANCE COMMISSION and
EMPIRE INSURANCE COMPANY, Respondents.
DECISION
TEEHANKEE, Acting C.J.:
The Court sets aside respondent Insurance Commission’s dismissal of petitioner’s
complaint and holds that where the insured’s car is wrongfully taken without the
insured’s consent from the car service and repair shop to whom it had been
entrusted for check-up and repairs (assuming that such taking was for a joy ride, in
the course of which it was totally smashed in an accident), respondent insurer is
liable and must pay insured for the total loss of the insured vehicle under the theft
clause of the policy.
The undisputed facts of the case as found in the appealed decision of April 14, 1980
of respondent insurance commission are as follows:
"Complainant (petitioner) was the owner of a Colt Lancer, Model 1976, insured with
respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00 — Own
Damage; P30,000.00 — Theft; and P30,000.00 — Third Party Liability, effective May
16, 1977 to May 16, 1978. On May 9, 1978, the vehicle was brought to the Sunday
Machine Works, Inc., for general check-up and repairs. On May 11, 1978, while it was
in the custody of the Sunday Machine Works, the car was allegedly taken by six (6)
persons and driven out to Montalban, Rizal. While travelling along Mabini St., Sitio
Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car figured in an
accident, hitting and bumping a gravel and sand truck parked at the right side of the
road going south. As a consequence, the gravel and sand truck veered to the right
side of the pavement going south and the car veered to the right side of the
pavement going north. The driver, Benito Mabasa, and one of the passengers died
and the other four sustained physical injuries. The car, as well, suffered extensive
25

damage. Complainant, thereafter, filed a claim for total loss with the respondent
company but claim was denied. Hence, complainant was compelled to institute the
present action."
The comprehensive motor car insurance policy for P35,000.00 issued by respondent
Empire Insurance Company admittedly undertook to indemnify the petitioner-insured
against loss or damage to the car (a) by accidental collision or overturning, or
collision or overturning consequent upon mechanical breakdown or consequent upon
wear and tear; (b) by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft; and (c) by malicious act.
Respondent insurance commission, however, dismissed petitioner’s complaint for
recovery of the total loss of the vehicle against private respondent, sustaining
respondent insurer’s contention that the accident did not fall within the provisions of
the policy either for the Own Damage or Theft coverage, invoking the policy provision
on "Authorized Driver" clause. 1
Respondent commission upheld private respondent’s contention on the "Authorized
Driver" clause in this wise: "It must be observed that under the above-quoted
provisions, the policy limits the use of the insured vehicle to two (2) persons only,
namely: the insured himself or any person on his (insured’s) permission. Under the
second category, it is to be noted that the words "any person’ is qualified by the
phrase." . . on the insured’s order or with his permission.’ It is therefore clear that if
the person driving is other than the insured, he must have been duly authorized by
the insured, to drive the vehicle to make the Insurance company liable for the
driver’s negligence. Complainant admitted that she did not know the person who
drove her vehicle at the time of the accident, much less consented to the use of the
same (par. 5 of the complaint). Her husband likewise admitted that he neither knew
this driver Benito Mabasa (Exhibit ‘4’). With these declarations of complainant and
her husband, we hold that the person who drove the vehicle, in the person of Benito
Mabasa, is not an authorized driver of the complainant. Apparently, this is a violation
of the ‘Authorized Driver’ clause of the policy."
Respondent commission likewise upheld private respondent’s assertion that the car
was not stolen and therefore not covered by the Theft clause, ruling that" (T)he
element of ‘taking’ in Article 308 of the Revised Penal Code means that the act of
depriving another of the possession and dominion of a movable thing is coupled . . .
with the intention, at the time of the ‘taking’, of withholding it with the character of
permanency (People v. Galang, 7 Appt. Ct. Rep. 13). In other words, there must have
been shown a felonious intent upon the part of the taker of the car, and the intent
must be an intent permanently to deprive the insured of his car," and that" (S)uch
was not the case in this instance. The fact that the car was taken by one of the
residents of the Sunday Machine Works, and the withholding of the same, for a joy
ride should not be construed to mean ‘taking’ under Art. 308 of the Revised Penal
Code. If at all there was a ‘taking’, the same was merely temporary in nature. A
temporary taking is held not a taking insured against (48 ALR 2d., page 15)."
The Court finds respondent commission’s dismissal of the complaint to be contrary to
the evidence and the law.
First, respondent commission’s ruling that the person who drove the vehicle in the
person of Benito Mabasa, who, according to its own finding, was one of the residents
of the Sunday Machine Works, Inc. to whom the car had been entrusted for general
check-up and repairs was not an "authorized driver" of petitioner-complainant is too
restrictive and contrary to the established principle that insurance contracts, being
contracts of adhesion where the only participation of the other party is the signing of
his signature or his "adhesion" thereto, "obviously call for greater strictness and
vigilance on the part of courts of justice with a view of protecting the weaker party
from abuse and imposition, and prevent their becoming traps for the unwary." 2
26

The main purpose of the "authorized driver" clause, as may be seen from its text,
supra, is that a person other than the insured owner, who drives the car on the
insured’s order, such as his regular driver, or with his permission, such as a friend or
member of the family or the employees of a car service or repair shop must be duly
licensed drivers and have no disqualification to drive a motor vehicle.
A car owner who entrusts his car to an established car service and repair shop
necessarily entrusts his car key to the shop owner and employees who are presumed
to have the insured’s permission to drive the car for legitimate purposes of checking
or road-testing the car. The mere happenstance that the employee(s) of the shop
owner diverts the use of the car to his own illicit or unauthorized purpose in violation
of the trust reposed in the shop by the insured car owner does not mean that the
"authorized driver" clause has been violated such as to bar recovery, provided that
such employee is duly qualified to drive under a valid driver’s license.
The situation is no different from the regular or family driver, who instead of carrying
out the owner’s order to fetch the children from school takes out his girl friend
instead for a joy ride and instead wrecks the car. There is no question of his being an
"authorized driver" which allows recovery of the loss although his trip was for a
personal or illicit purpose without the owner’s authorization.
Secondly, and independently of the foregoing (since when a car is unlawfully taken, it
is the theft clause, not the "authorized driver" clause, that applies), where a car is
admittedly as in this case unlawfully and wrongfully taken by some people, be they
employees of the car shop or not to whom it had been entrusted, and taken on a long
trip to Montalban without the owner’s consent or knowledge, such taking constitutes
or partakes of the nature of theft as defined in Article 308 of the Revised Penal Code,
viz." (W)ho are liable for theft. — Theft is committed by any person who, with intent
to gain but without violence against or intimidation of persons nor force upon things,
shall take personal property of another without the latter’s consent," for purposes of
recovering the loss under the policy in question.
The Court rejects respondent commission’s premise that there must be an intent on
the part of the taker of the car "permanently to deprive the insured of his car" and
that since the taking here was for a "joy ride" and "merely temporary in nature," a
"temporary taking is held not a taking insured against."cralaw virtua1aw library
The evidence does not warrant respondent commission’s findings that it was a mere
"joy ride." From the very investigator’s report cited in its comment, 3 the police found
from the waist of the car driver Benito Mabasa y Bartolome who smashed the car and
was found dead right after the incident "one Cal. 45 Colt. and one apple type
grenade," hardly the materials one would bring along on a "joy ride." Then, again, it
is equally evident that the taking proved to be quite permanent rather than
temporary, for the car was totally smashed in the fatal accident and was never
returned in serviceable and useful condition to petitioner-owner.
Assuming, despite the totally inadequate evidence, that the taking was "temporary"
and for a "joy ride", the Court sustains as the better view that which holds that when
a person, either with the object of going to a certain place, or learning how to drive,
or enjoying a free ride, takes possession of a vehicle belonging to another, without
the consent of its owner, he is guilty of theft because by taking possession of the
personal property belonging to another and using it, his intent to gain is evident since
he derives therefrom utility, satisfaction, enjoyment and pleasure. Justice Ramon C.
Aquino cites in his work Groizard who holds that the use of a thing constitutes gain
and Cuello Calon who calls it "hurt de uso." 4
The insurer must therefore indemnify the petitioner owner for the total loss of the
insured car in the sum of P35,000.00 under the theft clause of the policy, subject to
27

the filing of such claim for reimbursement or payment as it may have as subrogee
against the Sunday Machine Works, Inc.chanrobles.com.ph : virtual law library
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered
sentencing private respondent to pay petitioner the sum of P35,000.00 with legal
interest from the filing of the complaint until full payment is made and to pay the
costs of suit.
SO ORDERED.

7. [G.R. No. L-36480. May 31, 1988.]
ANDREW PALERMO, Plaintiff-Appellee, v. PYRAMID INSURANCE
CO., INC., Defendant-Appellant.
DECISION
GRIÑO-AQUINO, J.:
The Court of Appeals certified this case to Us for proper disposition as the only
question involved is the interpretation of the provision of the insurance contract
regarding the "authorized driver" of the insured motor vehicle.
On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the
Court of First Instance of Negros Occidental against Pyramid Insurance Co., Inc., for
payment of his claim under a Private Car Comprehensive Policy MV-1251 issued by
the defendant (Exh. A).
In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it disallowed the
claim because at the time of the accident, the insured was driving his car with an
expired driver’s license.
After the trial, the court a quo rendered judgment on October 29, 1969 ordering the
defendant "to pay the plaintiff the sum of P20,000.00, value of the insurance of the
motor vehicle in question and to pay the costs.
"On November 26, 1969, the plaintiff filed a "Motion for Immediate Execution Pending
Appeal." It was opposed by the defendant, but was granted by the trial court on
December 15, 1969.
The trial court found the following facts to be undisputed:
"On October 12, 1968, after having purchased a brand new Nissan Cedric de Luxe
Sedan car bearing Motor No. 087797 from the Ng Sam Bok Motors Co. in Bacolod
City, plaintiff insured the same with the defendant insurance company against any
loss or damage for P20,000.00 and against third party liability for P10,000.00.
Plaintiff paid the defendant P361.34 premium for one year, March 12, 1968 to March
12, 1969, for which defendant issued Private Car Comprehensive Policy No. MV-1251,
marked Exhibit ‘A.’
"The automobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam
Bok Motors Co., to secure the payment of the balance of the purchase price, which
explains why the registration certificate in the name of the plaintiff remains in the
hands of the mortgagee, Ng Sam Bok Motors Co.
"On April 17, 1968, while driving the automobile in question, the plaintiff met a
violent accident. The La Carlota City fire engine crashed head on, and as a
consequence, the plaintiff sustained physical injuries, his father, Cesar Palermo, who
was with him in the car at the time was likewise seriously injured and died shortly
thereafter, and the car in question was totally wrecked.

28

"The defendant was immediately notified of the occurrence, and upon its orders, the
damaged car was towed from the scene of the accident to the compound of Ng Sam
Bok Motors in Bacolod City where it remains deposited up to the present time.
"The insurance policy, Exhibit ‘A,’ grants an option unto the defendant, in case of
accident either to indemnify the plaintiff for loss or damage to the car in cash or to
replace the damaged car. The defendant, however, refused to take either of the
above-mentioned alternatives for the reason as alleged, that the insured himself had
violated the terms of the policy when he drove the car in question with an expired
driver’s license." (Decision, Oct. 29, 1969, p. 68, Record on Appeal.)
Appellant alleges that the trial court erred in interpreting the following provision of
the Private Car Comprehensive Policy MV-1251: "AUTHORIZED DRIVER:chanrob1es
virtual 1aw library
Any of the following:chanrob1es virtual 1aw library
(a) The Insured.
(b) Any person driving on the Insured’s order or with his permission. Provided that the
person driving is permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such motor
vehicle by order of a Court of law or by reason of any enactment or regulation in that
behalf." (Exh.’A.’)
There is no merit in the appellant’s allegation that the plaintiff was not authorized to
drive the insured motor vehicle because his driver’s license had expired. The driver of
the insured motor vehicle at the time of the accident was the insured himself, hence
an "authorized driver" under the policy.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the
highway without a license or with an expired license, an infraction of the Motor
Vehicle Law on the part of the insured, is not a bar to recovery under the insurance
contract. It however renders him subject to the penal sanctions of the Motor Vehicle
Law.
The requirement that the driver be "permitted. in accordance with the licensing or
other laws or regulations to drive the Motor Vehicle and is not disqualified from
driving such motor vehicle by order of a Court of Law or by reason of any enactment
or regulation in that behalf," applies only when the driver "is driving on the insured’s
order or with his permission." It does not apply when the person driving is the insured
himself.
This view may be inferred from the decision of this Court in Villacorta v. Insurance
Commission, 100 SCRA 467, where it was held that: "The main purpose of the
‘authorized driver’ clause, as may be seen from its text, is that a person other than
the insured owner, who drives the car on the insured’s order, such as his regular
driver, or with his permission, such as a friend or member of the family or the
employees of a car service or repair shop, must be duly licensed drivers and have no
disqualification to drive a motor vehicle.
In an American case, where the insured herself was personally operating her
automobile but without a license to operate it, her license having expired prior to the
issuance of the policy, the Supreme Court of Massachusetts was more explicit:
". . . Operating an automobile on a public highway without a license, which act is a
statutory crime is not precluded by public policy from enforcing a policy indemnifying
her against liability for bodily injuries inflicted by use of the automobile." (Drew C.
Drewfield McMahon v. Hannah Pearlman, Et Al., 242 Mass. 367, 136 N.E. 154, 23
29

A.L.R. 1467.)
WHEREFORE, the appealed decision is affirmed with costs against the defendantappellant.
SO ORDERED.

8. G.R. No. 60506. August 6, 1992.]
FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M.
MASESAR, LEONILA M. MALLARI, GILDA ANTONIO and the
minors LEAH, LOPE, JR., and ELVIRA, all surnamed MAGLANA,
herein represented by their mother, FIGURACION VDA. DE
MAGLANA,Petitioners, v. HONORABLE FRANCISCO Z.
CONSOLACION, Presiding Judge of Davao City, Branch II, and
AFISCO INSURANCE CORPORATION, Respondents.
Jose B. Guyo, for Petitioners.
Angel E. Fernandez for Private Respondents.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; COMPULSORY MOTOR VEHICLE LIABILITY
INSURANCE; THIRD PARTY LIABILITY; INSURER DIRECTLY LIABLE TO THE INJURED. —"
[W]here an insurance policy insures directly against liability, the insurer’s liability
accrues immediately upon the occurrence of the injury or event upon which the
liability depends, and does not depend on the recovery of judgment by the injured
party against the insured. The underlying reason behind the third party liability (TPL)
of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons
against the insolvency of the insured who causes such injury, and to give such injured
person a certain beneficial interest in the proceeds of the policy. . . ." (Shafer v. Judge,
RTC of Olongapo City, Br. 75, G.R. No. 78848, Nov. 14, 1988, 167 SCRA 386, 391)
2. ID.; ID.; ID.; ID.; LIABILITY OF INSURER DISTINCT FROM LIABILITY OF THE INSURED
AGAINST THIRD PARTIES. — We cannot agree that AFISCO is likewise solidarily liable
with Destrajo. In Malayan Insurance Co. v. Court of Appeals, (L-36413, September 26,
1988, 165 SCRA 536, 544), this Court had the opportunity to resolve the issue as to
the nature of the liability of the insurer and the insured vis-a-vis the third party
injured in an accident. We categorically ruled thus: "While it is true that where the
insurance contract provides for indemnity against liability to third persons, such third
persons can directly sue the insurer, however, the direct liability of the insurer under
indemnity contracts against third party liability does not mean that the insurer can be
30

held solidarily liable with the insured and/or the other parties found at fault. The
liability of the insurer is based on contract; that of the insured is based on tort. . . .
For if petitioner-insurer were solidarily liable with said two (2) respondents by reason
of the indemnity contract against third party liability — under which an insurer can be
directly sued by a third party — this will result in a violation of the principles
underlying solidary obligation and insurance contracts."cralaw virtua1aw library
3. ID.; ID.; INSURANCE CONTRACTS DISTINGUISHED FROM ORDINARY CONTRACTS. —
The Court distinguish the extent of the liability and manner of enforcing the same in
ordinary contracts from that of insurance contracts. While in solidary obligations, the
creditor may enforce the entire obligation against one of the solidary debtors, in an
insurance contract, the insurer undertakes for a consideration to indemnify the
insured against loss, damage or liability arising from an unknown or contingent
event. Thus, petitioner therein, which, under the insurance contract is liable only up
to P20,000.00, can not be made solidarily liable with the insured for the entire
obligation of P29,013.00 otherwise there would result "an evident breach of the
concept of solidary obligation."
DECISION
ROMERO, J.:
The nature of the liability of an insurer sued together with the insured/operator-owner
of a common carrier which figured in an accident causing the death of a third person
is sought to be defined in this petition for certiorari.
The facts as found by the trial court are as follows:
". . . . Lope Maglana was an employee of the Bureau of Customs whose work station
was at Lasa, here in Davao City. On December 20, 1978, early morning, Lope
Maglana was on his way to his work station, driving a motorcycle owned by the
Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death.
He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito
Into, operated and owned by defendant Destrajo. From the investigation conducted
by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that
was going towards the city poblacion. While overtaking, the PUJ jeep of defendant
Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven by
the deceased who was going towards the direction of Lasa, Davao City. The point of
impact was on the lane of the motorcycle and the deceased was thrown from the
road and met his untimely death." 1
Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for
damages and attorney’s fees against operator Patricio Destrajo and the Afisco
Insurance Corporation (AFISCO for brevity) before the then Court of First Instance of
Davao, Branch II. An information for homicide thru reckless imprudence was also filed
against Pepito Into.
During the pendency of the civil case, Into was sentenced to suffer an indeterminate
penalty of one (1) year, eight (8) months and one (1) day of prision correccional, as
minimum, to four (4) years, nine (9) months and eleven (11) days of prision
correcional, as maximum, with all the accessory penalties provided by law, and to
indemnify the heirs of Lope Maglana, Sr. in the amount of twelve thousand pesos
(P12,000.00) with subsidiary imprisonment in case of insolvency, plus five thousand
pesos (P5,000.00) in the concept of moral and exemplary damages with costs. No
appeal was interposed by the accused who later applied for probation. 2
On December 14, 1981, the lower court rendered a decision finding that Destrajo had
not exercised sufficient diligence as the operator of the jeepney. The dispositive
portion of the decision reads: "WHEREFORE, the Court finds judgment in favor of the
plaintiffs against defendant Destrajo, ordering him to pay plaintiffs the sum of
31

P28,000.00 for loss of income; to pay plaintiffs the sum of P12,000.00 which amount
shall be deducted in the event judgment in Criminal Case No. 3527-D against the
driver, Accused Into, shall have been enforced; to pay plaintiffs the sum of P5,901.70
representing funeral and burial expenses of the deceased; to pay plaintiffs the sum of
P5,000.00 as moral damages which shall be deducted in the event judgment (sic) in
Criminal Case No. 3527-D against the driver, Accused Into; to pay plaintiffs the sum
of P3,000.00 as attorney’s fees and to pay the costs of suit.
The defendant insurance company is ordered to reimburse defendant Destrajo
whatever amounts the latter shall have paid only up to the extent of its insurance
coverage.
SO ORDERED." 3
Petitioners filed a motion for the reconsideration of the second paragraph of the
dispositive portion of the decision contending that AFISCO should not merely be held
secondarily liable because the Insurance Code provides that the insurer’s liability is
"direct and primary and/or jointly and severally with the operator of the vehicle,
although only up to the extent of the insurance coverage." 4 Hence, they argued that
the P20,000.00 coverage of the insurance policy issued by AFISCO, should have been
awarded in their favor.
In its comment on the motion for reconsideration, AFISCO argued that since the
Insurance Code does not expressly provide for a solidary obligation, the presumption
is that the obligation is joint.
In its Order of February 9, 1982, the lower court denied the motion for
reconsideration ruling that since the insurance contract "is in the nature of
suretyship, then the liability of the insurer is secondary only up to the extent of the
insurance coverage." 5
Petitioners filed a second motion for reconsideration reiterating that the liability of
the insurer is direct, primary and solidary with the jeepney operator because the
petitioners became direct beneficiaries under the provision of the policy which, in
effect, is a stipulation pour autrui. 6 This motion was likewise denied for lack of merit.
Hence, petitioners filed the instant petition for certiorari which, although it does not
seek the reversal of the lower court’s decision in its entirety, prays for the setting
aside or modification of the second paragraph of the dispositive portion of said
decision. Petitioners reassert their position that the insurance company is directly and
solidarily liable with the negligent operator up to the extent of its insurance
coverage.
We grant the petition.
The particular provision of the insurance policy on which petitioners base their claim
is as follows: "SECTION 1 — LIABILITY TO THE PUBLIC
1. The Company will, subject to the Limits of Liability, pay all sums necessary to
discharge liability of the insured in respect of.
(a) death of or bodily injury to any THIRD PARTY
(b) . . . .
2. . . . .
3. In the event of the death of any person entitled to indemnity under this Policy, the
32

Company will, in respect of the liability incurred to such person indemnify his
personal representatives in terms of, and subject to the terms and conditions hereof."
7
The above-quoted provision leads to no other conclusion but that AFISCO can be held
directly liable by petitioners. As this Court ruled in Shafer v. Judge, RTC of Olongapo
City, Br. 75," [w]here an insurance policy insures directly against liability, the
insurer’s liability accrues immediately upon the occurrence of the injury or event
upon which the liability depends, and does not depend on the recovery of judgment
by the injured party against the insured." 8 The underlying reason behind the third
party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect
injured persons against the insolvency of the insured who causes such injury, and to
give such injured person a certain beneficial interest in the proceeds of the
policy . . . ." 9 Since petitioners had received from AFISCO the sum of P5,000.00
under the no-fault clause, AFISCO’s liability is now limited to P15,000.00.
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In
Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to
resolve the issue as to the nature of the liability of the insurer and the insured vis-avis the third party injured in an accident. We categorically ruled thus:
"While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, however, the
direct liability of the insurer under indemnity contracts against third party liability
does not mean that the insurer can be held solidarily liable with the insured and/or
the other parties found at fault. The liability of the insurer is based on contract; that
of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos
(the injured third party), but it cannot, as incorrectly held by the trial court, be made
`solidarily’ liable with the two principal tortfeasors, namely respondents Sio Choy and
San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said two (2)
respondents by reason of the indemnity contract against third party liability — under
which an insurer can be directly sued by a third party — this will result in a violation
of the principles underlying solidary obligation and insurance contracts" (Emphasis
supplied).
The Court then proceeded to distinguish the extent of the liability and manner of
enforcing the same in ordinary contracts from that of insurance contracts. While in
solidary obligations, the creditor may enforce the entire obligation against one of the
solidary debtors, in an insurance contract, the insurer undertakes for a consideration
to indemnify the insured against loss, damage or liability arising from an unknown or
contingent event. 11 Thus, petitioner therein, which, under the insurance contract is
liable only up to P20,000.00, can not be made solidarily liable with the insured for the
entire obligation of P29,013.00 otherwise there would result "an evident breach of
the concept of solidary obligation."
Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under
the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for
the total amount of P53,901.70 in accordance with the decision of the lower court.
Since under both the law and the insurance policy, AFISCO’s liability is only up to
P20,000.00, the second paragraph of the dispositive portion of the decision in
question may have unwittingly sown confusion among the petitioners and their
counsel. What should have been clearly stressed as to leave no room for doubt was
the liability of AFISCO under the explicit terms of the insurance contract.
In fine, we conclude that the liability of AFISCO based on the insurance contract is
direct, but not solidary with that of Destrajo which is based on Article 2180 of the
Civil Code. 12 As such, petitioners have the option either to claim the P15,000 from
33

AFISCO and the balance from Destrajo or enforce the entire judgment from Destrajo
subject to reimbursement from AFISCO to the extent of the insurance coverage.
While the petition seeks a definitive ruling only on the nature of AFISCO’s liability, we
noticed that the lower court erred in the computation of the probable loss of income.
Using the formula: 2/3 of (80-56) x P12,000.00, it awarded P28,000.00. 13 Upon
recomputation, the correct amount is P192,000.00. Being a "plain error," we opt to
correct the same. 14 Furthermore, in accordance with prevailing jurisprudence, the
death indemnity is hereby increased to P50,000.00. 15
WHEREFORE, premises considered, the present petition is hereby GRANTED. The
award of P28,800.00 representing loss of income is INCREASED to P192,000.00 and
the death indemnity of P12,000.00 to P50,000.00.
SO ORDERED.

9. G.R. No. 96452. May 7, 1992.]
PERLA COMPANIA DE SEGUROS, INC., Petitioner, v. THE COURT
OF APPEALS, HERMINIO LIM and EVELYN LIM, Respondents.
[G.R. No. 96493. May 7, 1992.]
FCP CREDIT CORPORATION, Petitioner, v. THE COURT OF
APPEALS, Special Third Division, HERMINIO LIM and EVELYN
LIM,, Respondents.
Yolanda Quisumbing-Javellana and Nelson A. Loyola
for Petitioner.
Wilson L. Tee for respondents Hermenio and Evelyn Lim.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; LOSS OF MOTOR VEHICLE THRU THEFT; NO
CAUSAL CONNECTION BETWEEN POSSESSION OF A VALID DRIVER’S LICENSE AND
LOSS OF VEHICLE THRU THEFT. — It is worthy to note that there is no causal
connection between the possession of a valid driver’s license and the loss of a
vehicle. To rule otherwise would render car insurance practically a sham since an
insurance company can easily escape liability by citing restrictions which are not
applicable or germane to the claim, thereby reducing indemnity to a shadow.
2. ID.; ID.; INSURANCE POLICY MEANT TO BE ADDITIONAL SECURITY TO PRINCIPAL
CONTRACT; CASE AT BAR. — The insurance policy was therefore meant to be an
additional security to the principal contract, that is, to insure that the promissory
note will be paid in case the automobile is lost through accident or theft. The Chattel
Mortgage Contract provided that:" ‘THE SAID MORTGAGOR COVENANTS AND AGREES
THAT HE/IT WILL CAUSE THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE
INSURED AGAINST LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD
OF ONE YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE
MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY OR
COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT LESS THAN THE
OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION; THAT HE/IT WILL MAKE ALL
LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES, PAYABLE TO THE MORTGAGEE OR
ITS ASSIGNS AS ITS INTERESTS MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY
OR POLICIES TO THE MORTGAGEE, . . .’" It is clear from the abovementioned provision
that upon the loss of the insured vehicle, the insurance company Perla undertakes to
pay directly to the mortgagor or to their assignee, FCP, the outstanding balance of
the mortgage at the time of said loss under the mortgage contract.
34

3. CIVIL LAW; CONTRACTS; CHATTEL MORTGAGE; MERELY AN ACCESSORY TO
PROMISSORY NOTE; PRINCIPAL CONTRACT UNAFFECTED BY WHATEVER BEFALLS
ACCESSORY CONTRACT; CASE AT BAR. — The chattel mortgage constituted over the
automobile is merely an accessory contract to the promissory note. Being the
principal contract, the promissory note is unaffected by whatever befalls the subject
matter of the accessory contract. Therefore, the unpaid balance on the promissory
note should be paid, and not just the installments due and payable before the
automobile was carnapped, as erronously held by the Court of Appeals.
4. ID.; DAMAGES; MAKER NOT LIABLE FOR INTEREST, LIQUIDATED DAMAGES AND
ATTORNEY’S FEES STIPULATED IN PROMISSORY NOTE REMAINING UNPAID DUE TO
INSURER’S DENIAL OF A VALID CLAIM; CASE AT BAR. — Because petitioner Perla had
unreasonably denied their valid claim, private respondents should not be made to
pay the interest, liquidated damages and attorney’s fees as stipulated in the
promissory note. As mentioned above, the contract of indemnity was procured to
insure the return of the money loaned from petitioner FCP, and the unjustified refusal
of petitioner Perla to recognize the valid claim of the private respondents should not
in any way prejudice the latter.
5. ID.; ID.; AWARD FOR MORAL AND EXEMPLARY DAMAGES, AS WELL AS ATTORNEY’S
FEES LEFT TO SOUND DISCRETION OF THE COURT; CASE AT BAR. — As to the award
of a moral damages, exemplary damages and attorney’s fees, private respondents
are legally entitled to the same since petitioner Perla had acted in bad faith by
unreasonably refusing to honor the insurance claim of the private respondents.
Besides, awards for moral and exemplary damages, as well as attorney’s fees are left
to the sound discretion of the Court. Such discretion, if well exercised, will not be
disturbed on appeal.
DECISION
NOCON, J.:
These are two petitions for review on certiorari, one filed by Perla Compania de
Seguros, Inc. in G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No.
96493 both seeking to annul and set aside the decision dated July 30, 1990 1 of the
Court of Appeals in CA-G.R. No. 13037, which reversed the decision of the Regional
Trial Court of Manila, Branch VIII in Civil Case No. 83-19098 for replevin and damages.
The dispositive portion of the decision of the Court of Appeals reads, as follows:
"WHEREFORE, the decision appealed from is reversed and appellee Perla Compania
de Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn Lim for the
loss of their insured vehicle; while said appellants are ordered to pay appellee FCP
Credit Corporation all the unpaid installments that were due and payable before the
date said vehicle was carnapped; and appellee Perla Compania de Seguros, Inc. is
also ordered to pay appellants moral damages of P12,000.00 for the latter’s mental
sufferings, exemplary damages of P20,000.00 for appellee Perla Compania de
Seguros. Inc.’s unreasonable refusal on sham grounds to honor the just insurance
claim of appellants by way of example and correction for public good, and attorney’s
fees of P10,000.00 as a just and equitable reimbursement for the expenses incurred
therefor by appellants, and the costs of suit both in the lower court and in this
appeal." 2
The facts as found by the trial court are as follows:chanrob1es virtual 1aw library
On December 24, 1981, private respondents spouses Herminio and Evelyn Lim
executed a promissory note in favor of Supercars, Inc. in the sum of P77,940.00,
35

payable in monthly installments according to the schedule of payment indicated in
said note, 3 and secured by a chattel mortgage over a brand new red Ford Laser
1300 5DR Hatchback 1981 model with motor and serial No. SUPJYK-03780, which is
registered under the name of private respondent Herminio Lim 4 and insured with the
petitioner Perla Compania de Seguros, Inc. (Perla for brevity) for comprehensive
coverage under Policy No. PC/41PP-QCB-43383. 5
On the same date, Supercars, Inc., with notice to private respondents spouses,
assigned to petitioner FCP Credit Corporation (FCP for brevity) its rights, title and
interest on said promissory note and chattel mortgage as shown by the Deed of
Assignment. 6
At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at
the back of Broadway Centrum along N. Domingo Street, Quezon City. Private
respondent Evelyn Lim, who was driving said car before it was carnapped,
immediately called up the Anti-Carnapping Unit of the Philippine Constabulary to
report said incident and thereafter, went to the nearest police substation at Araneta,
Cubao to make a police report regarding said incident, as shown by the certification
issued by the Quezon City police. 7
On November 10, 1982, private respondent Evelyn Lim reported said incident to the
Land Transportation Commission in Quezon City, as shown by the letter of her
counsel to said office, 8 in compliance with the insurance requirement. She also filed
a complaint with the Headquarters. Constabulary Highway Patrol Group. 9
On November 11, 1982, private respondent filed a claim for loss with the petitioner
Perla but said claim was denied on November 18, 1982 10 on the ground that Evelyn
Lim, who was using the vehicle before it was carnapped, was in possession of an
expired driver’s license at the time of the loss of said vehicle which is in violation of
the authorized driver clause of the insurance policy, which states, to wit:
"AUTHORIZED DRIVER:chanrob1es virtual 1aw library
Any of the following: (a) The Insured (b) Any person driving on the Insured’s order, or
with his permission. Provided that the person driving is permitted, in accordance with
the licensing or other laws or regulations, to drive the Scheduled Vehicle, or has been
permitted and is not disqualified by order of a Court of Law or by reason of any
enactment or regulation in that behalf." 11
On November 17, 1982, private respondents requested from petitioner FCP for a
suspension of payment on the monthly amortization agreed upon due to the loss of
the vehicle and, since the carnapped vehicle was insured with petitioner Perla, said
insurance company should be made to pay the remaining balance of the promissory
note and the chattel mortgage contract.
Perla, however, denied private respondents’ claim. Consequently, petitioner FCP
demanded that private respondents pay the whole balance of the promissory note or
to return the vehicle 12 but the latter refused.
On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in
turn filed an amended third party complaint against petitioner Perla on December 8,
1983. After trial on the merits, the trial court rendered a decision, the dispositive
portion of which reads.
"WHEREFORE, in view of the foregoing, judgment is hereby rendered as
follows:chanrob1es virtual 1aw library
1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally,
plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24% per annum
36

from July 2, 1983 until fully paid;
2. Ordering defendants to pay plaintiff P5,000.00 as and for attorney’s fees; and the
costs of suit.
Upon the other hand, likewise, ordering the DISMISSAL of the Third Party Complaint
filed against Third-Party Defendant." 13
Not satisfied with said decision, private respondents appealed the same to the Court
of Appeals, which reversed said decision.
After petitioners’ separate motions for reconsideration were denied by the Court of
Appeals in its resolution of December 10, 1990, petitioners filed these separate
petitions for review on certiorari.
Petitioner Perla alleged that there was grave abuse of discretion on the part of the
appellate court in holding that private respondents did not violate the insurance
contract because the authorized driver clause is not applicable to the "Theft" clause
of said Contract.
For its part, petitioner FCP raised the issue of whether or not the loss of the collateral
exempted the debtor from his admitted obligations under the promissory note
particularly the payment of interest, litigation expenses and attorney’s fees.
We find no merit in Perla’s petition.
The comprehensive motor car insurance policy issued by petitioner Perla undertook
to indemnify the private respondents against loss or damages to the car (a) by
accidental collision or overturning, or collision or overturning consequent upon
mechanical breakdown or consequent upon wear and tear; (b) by fire, external
explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by
malicious act. 14
Where a car is admittedly, as in this case, unlawfully and wrongfully taken without
the owner’s consent or knowledge, such taking constitutes theft, and, therefore, it is
the "THEFT" clause, and not the "AUTHORIZED DRIVER" clause, that should apply. As
correctly stated by the respondent court in its decision:
". . . Theft is an entirely different legal concept from that of accident. Theft is
committed by a person with the intent to gain or, to put it in another way, with the
concurrence of the doer’s will. On the other hand, accident, although it may proceed
or result from negligence, is the happening of an event without the concurrence of
the will of the person by whose agency it was caused. (Bouvier’s Law Dictionary, Vol.
I, 1914 ed., p. 101).
Clearly, the risk against accident is distinct from the risk against theft. The
‘authorized driver clause’ in a typical insurance policy as in contemplation or
anticipation of accident in the legal sense in which it should be understood, and not
in contemplation or anticipation of an event such as theft. The distinction — often
seized upon by insurance companies in resisting claims from their assureds —
between death occurring as a result of accident and death occurring as a result of
intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had
figured in an accident at the time she drove it with an expired license, then, appellee
Perla Compania could properly resist appellants’ claim for indemnification for the loss
or destruction of the vehicle resulting from the accident. But in the present case, the
loss of the insured vehicle did not result from an accident where intent was involved;
the loss in the present case was caused by theft, the commission of which was
attended by intent." 15

37

It is worthy to note that there is no causal connection between the possession of a
valid driver’s license and the loss of a vehicle. To rule otherwise would render car
insurance practically a sham since an insurance company can easily escape liability
by citing restrictions which are not applicable or germane to the claim, thereby
reducing indemnity to a shadow.
We however find the petition of FCP meritorious.
This Court agrees with petitioner FCP that private respondents are not relieved of
their obligation to pay the former the installments due on the promissory note on
account of the loss of the automobile. The chattel mortgage constituted over the
automobile is merely an accessory contract to the promissory note. Being the
principal contract, the promissory note is unaffected by whatever befalls the subject
matter of the accessory contract. Therefore, the unpaid balance on the promissory
note should be paid, and not just the installments due and payable before the
automobile was carnapped, as erronously held by the Court of Appeals.
However, this does not mean that private respondents are bound to pay the interest,
litigation expenses and attorney’s fees stipulated in the promissory note. Because of
the peculiar relationship between the three contracts in this case, i. e., the
promissory note, the chattel mortgage contract and the insurance policy, this Court is
compelled to construe all three contracts as intimately interrelated to each other,
despite the fact that at first glance there is no relationship whatsoever between the
parties thereto.
Under the promissory note, private respondents are obliged to pay Supercars, Inc.
the amount stated therein in accordance with the schedule provided for. To secure
said promissory note, private respondents constituted a chattel mortgage in favor of
Supercars, Inc. over the automobile the former purchased from the latter. The chattel
mortgage, in turn, required private respondents to insure the automobile and to
make the proceeds thereof payable to Supercars, Inc. The promissory note and
chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with the
knowledge of private respondents. Private respondents were able to secure an
insurance policy from petitioner Perla, and the same was made specifically payable to
petitioner FCP. 16
The insurance policy was therefore meant to be an additional security to the principal
contract, that is, to insure that the promissory note will still be paid in case the
automobile is lost through accident or theft. The Chattel Mortgage Contract provided
that:
"‘THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE THE
PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST LOSS OR
DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM DATE
HEREOF AND EVERY YEAR THEREAFTER UNTIL THE MORTGAGE OBLIGATION IS FULLY
PAID WITH AN INSURANCE COMPANY OR COMPANIES ACCEPTABLE TO THE
MORTGAGEE IN AN AMOUNT NOT LESS THAN THE OUTSTANDING BALANCE OF THE
MORTGAGE OBLIGATION; THAT HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH
POLICY OR POLICIES, PAYABLE TO THE MORTGAGEE OR ITS ASSIGNS AS ITS
INTERESTS MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE
MORTGAGEE, . . .’" 17
It is clear from the abovementioned provision that upon the loss of the insured
vehicle, the insurance company Perla undertakes to pay directly to the mortgagor or
to their assignee, FCP, the outstanding balance of the mortgage at the time of said
loss under the mortgage contract. If the claim on the insurance policy had been
approved by petitioner Perla, it would have paid the proceeds thereof directly to
petitioner FCP, and this would have had the effect of extinguishing private
38

respondents’ obligation to petitioner FCP. Therefore, private respondents were
justified in asking petitioner FCP to demand the unpaid installments from petitioner
Perla.
Because petitioner Perla had unreasonably denied their valid claim, private
respondents should not be made to pay the interest, liquidated damages and
attorney’s fees as stipulated in the promissory note. As mentioned above, the
contract of indemnity was procured to insure the return of the money loaned from
petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid
claim of the private respondents should not in any way prejudice the latter.
Private respondents can not be said to have unduly enriched themselves at the
expense of petitioner FCP since they will be required to pay the latter the unpaid
balance of its obligation under the promissory note.
In view of the foregoing discussion, We hold that the Court of Appeals did not err in
requiring petitioner Perla to indemnify private respondents for the loss of their
insured vehicle. However, the latter should be ordered to pay petitioner FCP the
amount of P55,055.93, representing the unpaid installments from December 30, 1982
up to July 1, 1983, as shown in the statement of account prepared by petitioner FCP,
18 plus legal interest from July 2, 1983 until fully paid.
As to the award of moral damages, exemplary damages and attorney’s fees, private
respondents are legally entitled to the same since petitioner Perla had acted in bad
faith by unreasonably refusing to honor the insurance claim of the private
respondents. Besides, awards for moral and exemplary damages, as well as
attorney’s fees are left to the sound discretion of the Court. Such discretion, if well
exercised, will not be disturbed on appeal. 19
WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to
require private respondents to pay petitioner FCP the amount of P55,055.93, with
legal interest from July 2, 1983 until fully paid. The decision appealed from is hereby
affirmed as to all other respects. No pronouncement as to costs.
SO ORDERED.

10., G.R. No. 114427. February 6, 1995.]
ARMANDO GEAGONIA, Petitioner, v. COURT OF APPEALS and
COUNTRY BANKERS INSURANCE CORPORATION, Respondents.
DECISION
DAVIDE, JR., J.:
For our review under Rule 45 of the Rules of Court is the decision 1 of the Court of
Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance Corporation
versus Armando Geagonia," reversing the decision of the Insurance Commission in
I.C. Case No. 3340 which awarded the claim of petitioner Armando Geagonia against
private respondent Country Bankers Insurance Corporation.
The petitioner is the owner of Norman's Mart located in the public market of San
Francisco, Agusan del Sur. On 22 December 1989, he obtained from the private
respondent fire insurance policy No. F-14622 2 for P100,000.00. The period of the
policy was from 22 December 1989 to 22 December 1990 and covered the following:
39

"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 petitioner declared in the policy under the subheading entitled CO-INSURANCE
that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to
1990, the petitioner had in his inventory stocks amounting to P392,130.50, itemized
as follows:nadchanroblesvirtualawlibrary
Zenco Sales, Inc. P55,698.00
F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)
========
P392,130.50
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 with the private respondent a claim under
the policy. On 28 December 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 fire insurance policies No. GA-28146 and No. GA-28144, for P100,000.00
each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc.
(hereinafter PFIC). 3 These policies indicate that the insured was "Messrs. Discount
Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:
"MORTGAGEE: Loss, if any, shall be payable to Messrs.
Cebu Tesing Textiles, Cebu City as their
interest may appear subject to the terms of
this policy. CO-INSURANCE DECLARED:
P100,000. — Phils. First CEB/F-24758" 4
The basis of the private respondent's denial was the petitioner's alleged violation of
Condition 3 of the policy.
The petitioner then filed a complaint 5 against the private respondent with the
Insurance Commission (Case No. 3340) for the recovery of P100,000.00 under fire
insurance policy No. F-14622 and for attorney's fees and costs of litigation. He
attached as Annex "M" 6 thereof his letter of 18 January 1991 which asked for the
reconsideration of the denial. He admitted in the said letter that at the time he
obtained the private respondent's fire insurance policy he knew that the two policies
40

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, which was P1,000,000.00
In its answer, 7 the private respondent specifically denied the allegations in the
complaint and set up as its principal defense the violation of Condition 3 of the policy.
In its decision of 21 June 1993, 8 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 which
procured the PFIC policies without 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 without informing him thereof. The
Insurance Commission then decreed
"WHEREFORE, judgment is hereby rendered ordering 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. With
costs. The compulsory counterclaim of respondent is hereby dismissed."
Its motion for the reconsideration of the decision 9 having been denied by the
Insurance Commission in its resolution of 20 August 1993, 10 the private respondent
appealed to the Court of Appeals by way of a petition for review. The petition was
docketed as CA-G.R. SP No. 31916.
In its decision of 29 December 1993, 11 the Court of Appeals 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. It said:
"It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the
insurance was taken in the name of private respondent [petitioner herein]. The policy
states that 'DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)' was assured and that
'TESING TEXTILES' [was] only the mortgagee of the goods.
In addition, the premiums on both policies were paid for by private respondent, not
by the Tesing Textiles which is alleged to have taken out the other insurances without
the knowledge of private respondent. This is shown by Premium Invoices nos. 46632
and 46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be
only the mortgagee of the goods insured but the party to which they were issued
were the 'DISCOUNT MART (MR. ARMANDO GEAGONIA).'
It is clear that it was the private respondent [petitioner herein] who took out the
policies on the same property subject of the insurance with petitioner. Hence, in
failing to disclose the existence of these insurances private respondent violated
Condition No. 3 of Fire Policy No. 14622. . . .
Indeed private respondent's allegation of lack of knowledge of the previous
insurances is belied by his letter to petitioner [of 18 January 1991. The body of the
letter reads as follows:]
xxx xxx xxx

41

'Please be informed that I have no knowledge of the provision requiring me to inform
your office about my prior insurance under FGA-28146 and F-CEB-24758. Your
representative did not mention about said requirement at the time he was convincing
me to insure with you. If he only did or even inquired if I had other existing policies
covering my establishment, I would have told him so. You will note that at the time he
talked to me until I decided to insure with your company the two policies
aforementioned were already in effect. Therefore I would have no reason to withhold
such information and I would have no reason to withhold such information and I
would have desisted to part with my hard earned peso to pay the insurance
premiums [if] I know I could not recover anything.
Sir, I am only an ordinary businessman interested in protecting my investments. The
actual value of my stocks damaged by the fire was estimated by the Police
Department to be P1,000,000.00 (Please see xerox copy of Police Report Annex "A").
My Income Statement as of December 31, 1989 or five months before the fire, shows
my merchandise inventory was already some P595,455,75. . . . These will support my
claim that the amount under the three policies are much below the value of my
stocks lost.
xxx xxx xxx

The letter contradicts private respondent's pretension that he did not know that there
were other insurances taken on the stock-in-trade and seriously puts in question his
credibility."
His motion to reconsider the adverse decision having been denied, the petitioner filed
the instant petition. He contends therein that the Court of Appeals acted with grave
abuse of discretion amounting to lack of excess of jurisdiction:
"A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE
COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE DUTY OF DETERMINING
INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED RESPECT AND EVEN
FINALITY BY THE COURTS;
B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT
PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND
C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE
PRIVATE RESPONDENT."
The chief issues that crop up from the first and third grounds are (a) whether 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, and (b) if he had, whether he
is precluded from recovering therefrom.
The second ground, which is based on the Court of Appeals' reliance on the
petitioner's letter of reconsideration of 18 January 1991, is without merit. The
petitioner claims that the said letter was not offered in evidence and thus should not
have been considered in deciding the case. However, as correctly pointed out by the
Court of Appeals, a copy of this letter was attached to the petitioner's complaint in
I.C. Case No. 3340 as Annex "M" thereof and made an integral part of the complaint.
12 It has attained the status of a judicial admission and since its due execution and
authenticity was not denied by the other party, the petitioner is bound by it even if it
were not introduced as an independent evidence. 13

42

As to the first issue, the Insurance Commission found that the petitioner had no
knowledge of the previous two policies. The Court of Appeals disagreed and found
otherwise in view of the explicit admission by the petitioner in his letter to the private
respondent of 18 January 1991, which was quoted in the challenged decision of the
Court of Appeals. These divergent findings of facts constitute an exception to the
general rule that in petitions for review under Rule 45, only questions of law are
involved and findings of fact by the Court of Appeals are conclusive and binding upon
this Court. 14
We agree with the Court of Appeals 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. Policy No.
GA-28144 was a renewal of Policy No. F-24758, while Policy No. GA-28146 had been
renewed twice, the previous policy being F-24792.
Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not
proscribed by law. Its incorporation in the policy is allowed by Section 75 of the
Insurance Code 15 which provides that "[a] policy may declare that a violation of
specified provisions thereof shall avoid it, otherwise the breach of an immaterial
provision does not avoid the policy." Such a condition is a provision which invariably
appears in fire insurance policies and is intended to prevent an increase in the moral
hazard. It is commonly known as the additional or "other insurance" clause and has
been upheld as valid and as a warranty that no other insurance exists. Its violation
would thus avoid the policy. 16 However, in order to constitute a violation, the other
insurance must be upon the same subject matter, the same interest therein, and the
same risk. 17
As to a mortgaged property, the mortgagor and the mortgagee have each an
independent insurable interest therein and both interests may be covered by one
policy, or each may take out a separate policy covering his interest, either at the
same or at separate times. 18 The mortgagor's insurable interest covers the full
value of the mortgaged property, even though the mortgage debt is equivalent to the
full value of the property. 19 The mortgagee's insurable interest is to the extent of
the debt, since the property is relied upon as security thereof, and in insuring he is
not insuring the property but his interest or lien thereon. His insurable interest is
prima facie the value mortgaged and extends only the amount of the debt, not
exceeding the value of the mortgaged property. 20 Thus, separate insurances
covering different insurable interests may be obtained by the mortgagor and the
mortgagee.
A mortgagor may, however, take out insurance for the benefit of the mortgagee,
which is the usual practice. The mortgagee may be made the beneficial payee in
several ways. He may become the assignee of the policy with the consent of the
insurer; or the mere pledgee without such consent; or the original policy may contain
a mortgage clause; or a rider making the policy payable to the mortgagee "as his
interest may appear" may be attached; or a "standard mortgage clause," containing
a collateral independent contract between the mortgagee and insurer, may be
attached; or the policy, though by its terms payable absolutely to the mortgagor,
may have been procured by a mortgagor under a contract duty to insure for the
mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon
the proceeds. 21
In the policy obtained by the mortgagor with loss payable clause in favor of the
mortgagee as his interest may appear, the mortgagee is only a beneficiary under the
contract, and recognized as such by the insurer but not made a party to the contract
43

itself. Hence, any act of the mortgagor which defeats his right will also defeat the
right of the mortgagee. 22 This kind of policy covers only such interest as the
mortgagee has at the issuing of the policy. 23
On the other hand, a mortgagee may also procure a policy as a contracting party in
accordance with the terms of an agreement by which the mortgagor is to pay the
premiums upon such insurance. 24 It has been noted, however, that although the
mortgagee is himself the insured, as where he applies for a policy, fully informs the
authorized agent of his interest, pays the premiums, and obtains a policy on the
assurance that it insures him, the policy is in fact in the form used to insure a
mortgagor with loss payable clause. 25
The fire insurance policies issued by the PFIC name the petitioner as the assured and
contain a mortgage clause which reads:
"Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their
interest may appear subject to the terms of the policy."
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses involved
in General Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer Insurance & Surety
Corp. vs. Yap, 27 which read:
"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. 28 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."
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. 29 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. 30 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. 31

44

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, perforce, 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.
The first conclusion is supported by the portion of the condition referring to other
insurance "covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured," and the portion regarding
the insured's declaration on the subheading CO-INSURANCE that the co-insurer is
Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists
where the same person is insured by several insurers separately in respect of the
same subject and interest. As earlier stated, the insurable interests of a mortgagor
and a mortgagee on the mortgaged property are distinct and separate. Since the two
policies of the PFIC do not cover the same interest as that covered by the policy of
the private respondent, no double insurance exists. The non-disclosure then of the
former policies was not fatal to the petitioner's right to recover on the private
respondent's policy.
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. 32
WHEREFORE, the instant petition is hereby 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.
Costs against private respondent Country Bankers Insurance Corporation.
SO ORDERED.

11[G.R. No. 115278. May 23, 1995.]
FORTUNE INSURANCE AND SURETY CO., INC., Petitioner,
v. COURT OF APPEALS and PRODUCERS BANK OF THE
PHILIPPINES, Respondents.
DECISION
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on Certiorari is whether
the petitioner is liable under the Money, Security, and Payroll Robbery policy it issued
to the issued to the private respondent or whether recovery thereunder is precluded
under the general exceptions clause thereof. Both the trial court and the Court of
Appeals held that there should be recovery. The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro
45

Manila, by private respondent Producers Bank of the Philippines (hereinafter
Producers) against petitioner Fortune Insurance and Surety Co., Inc. (hereinafter
Fortune) of a complaint for recovery of the sum of P725,000.00 under the policy
issued by Fortune. The sum was allegedly lost 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. The case was docketed as Civil Case No. 1817 and assigned to
Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on
the following stipulation of facts:nadchanroblesvirtualawlibrary
1. The plaintiff was insured by the defendants and an insurance policy was issued,
the duplicate original of which is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process of transferring cash in the sum
of P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay
Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on June 29,
1987, was robbed of the said cash. The robbery took place while the armored car was
traveling along Taft Avenue in Pasay City;
3. The said 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 with the plaintiff by virtue of an Agreement executed on
August 7, 1983, a duplicate original copy of which is hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the
plaintiff by virtue of a contract of Security Service executed on October 25, 1982, a
duplicate original copy of which is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay police authorities, the driver
Magalong and guard Atiga were charged, together with Edelmer Bantigue Y Eulalio,
Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law)
before the Fiscal of Pasay City. A copy of the complaint is hereto attached as Exhibit
"D";
6. The Fiscal of Pasay City then filed an information charging the aforesaid persons
with the said crime before Branch 112 of the Regional Trial Court of Pasay City. A copy
of the said information is hereto attached as Exhibit "E." The case is still being tried
as of this date;
7. Demands were made by the plaintiff upon the defendant 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, attached hereto as Exhibit "A," specifically under
page 1 thereof, "General Exceptions" Section (b), which is marked as Exhibit "A-1,"
and which reads as follows:
"GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx

(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 others. . . . "
8. The plaintiff opposes the contention of the defendant and contends that Atiga and
46

Magalong are not its "officer, employee, . . . trustee or authorized representative . . .
at the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The
dispositive portion thereof reads as follows: WHEREFORE, premises considered, the
Court finds for plaintiff and against defendant, and
(a) orders defendant to pay plaintiff the net amount of P540,000.00 as liability under
Policy No. 0207 (as mitigated by the P40,000.00 special clause deduction and by the
recovered sum of P145,000.00), with interest thereon at the legal rate, until fully
paid;
(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for attorney's fees;
and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or representatives
of Producers. It said:n
The Court is satisfied that plaintiff may not be said to have selected and engaged
Magalong and Atiga, 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. Magalong and Atiga are assigned to plaintiff in fulfillment of
agreements to provide driving services and property protection as such — in a
context which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond perhaps
entitling plaintiff to request a replacement for such driver or guard. The finding is
accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in
avoidance of defendant's liability under the policy, particularly the general exceptions
therein embodied.
Neither is the Court prepared to accept the proposition that driver Magalong and
guard Atiga were the "authorized representatives" of plaintiff. They were merely an
assigned armored car driver and security guard, respectively, for the June 29, 1987
money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly
— it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then designated
"messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as
CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May 1994, it affirmed in
toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and
Atiga were neither employees nor authorized representatives of Producers and
ratiocinated as follows:
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, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA
554). 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
47

terms are clear and unambiguous, they must be taken and understood in their plain,
ordinary and popular sense (New Life Enterprises Case, supra, p. 676; Sun Insurance
Office, Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation 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 which defendant-appellant itself had
formulated. 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 plaintiffappellee bank because it has no power to hire or to dismiss said driver and security
guard under the contracts (Exhs. 8 and C) except only to ask for their replacements
from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on Certiorari. It alleges that the
trial court and the Court of Appeals erred in holding it liable under the insurance
policy because the loss falls within the general exceptions clause considering that
driver Magalong and security guard Atiga were Producers' authorized representatives
or employees in the transfer of the money and payroll from its branch office in Pasay
City to its head office in Makati.
According to Fortune, 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.
Fortune points out that 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.
6 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.
Fortune thus contends that Magalong and Atiga were employees of Producers,
48

following the ruling in International Timber Corp. vs. NLRC 7 that a finding that a
contractor is a "labor-only" contractor is equivalent to a finding that there is an
employer-employee relationship between the owner of the project and the employed
of the "labor-only" contractor.
On the other hand, Producers contends that 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. Producers
argued that the rule in 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.
Producer further asseverates that what should be applied is the rule in American
President Lines vs. Clave, 8 to wit: In determining the existence of employeremployee 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 conduct.
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."
There is merit in this petition.
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 provides:
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 falling 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. (Emphasis 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. 9
It 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." 10 Persons frequently excluded under such provisions
are those in the insured's service and employment. 11 The purpose of the exception
is to guard against liability should the theft be committed by one having unrestricted
access to the property." 12 In such cases, the terms specifying the excluded classes
are to be given their meaning as understood in common speech. 13 The terms
"service" and "employment" are generally associated with the idea of selection,
49

control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein should
be resolved against the insurer, 15 or it should be construed liberally in favor of the
insured and strictly against the insurer. 16 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. 17 It goes without saying then that if
the terms of the contract are clear and unambiguous, there is no room construction
and such terms cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions
specified therein. 19 It is settled that the terms of the policy constitute the measure
of the insurer's liability. 20 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.
With the foregoing principles in mind, it may now be asked whether Magalong and
Atiga qualify as employees or authorized representatives of Producers under
paragraph (b) of the general exceptions clause of the policy which, for easy
reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx

(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 others. . . . (Emphasis Supplied)
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, 21 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. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn
Security Services are "labor-only" contracts. Producers, however, insists that by the
express terms thereof, it is not the employer of Magalong. Notwithstanding such
express assumption of PRC Management Systems and Unicorn Security Services that
the drivers and the security guards each shall supply to Producers are not the latter's
employees, it may, in fact, be that it is because the contracts are, indeed, "laboronly" contracts. Whether they are is, in the light of the criteria provided for in Article
106 of the Labor Code, a question of fact. Since the parties opted to submit the case
for judgment on the basis of their stipulation of facts which are strictly limited to the
insurance policy, the contracts with PRC Management Systems and Unicorn Security
50

Services, the complaint for violation of P.D. No. 532, and the information therefor filed
by the City Fiscal of Pasay City, there is a paucity of evidence as to whether the
contracts between Producers and the PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.
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." 23
In view of the foregoing, Fortune is exempt from liability under the general exceptions
clause of the insurance policy.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of
the Regional Trial Court of Makati in Civil Case No. 1817 are REVERSED and SET
ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
12. [G.R. NO. 147039 - January 27, 2006]
DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner, v. RADIO
MINDANAO NETWORK, INC., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking
the review of the Decision1 dated November 16, 2000 of the Court of Appeals (CA) in
CA-G.R. CV No. 56351, the dispositive portion of which reads:
Wherefore, premises considered, the appealed Decision of the Regional Trial Court of
Makati City, Branch 138 in Civil Case No. 90-602 is hereby AFFIRMED with
MODIFICATION in that the interest rate is hereby reduced to 6% per annum.
Costs against the defendants-appellants.
SO ORDERED.2
The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao
Network, Inc. (respondent) against DBP Pool of Accredited Insurance Companies
(petitioner) and Provident Insurance Corporation (Provident) for recovery of insurance
benefits. Respondent owns several broasting stations all over the country. Provident
51

covered respondent's transmitter equipment and generating set for the amount
of P13,550,000.00 under Fire Insurance Policy No. 30354, while petitioner covered
respondent's transmitter, furniture, fixture and other transmitter facilities for the
amount of P5,883,650.00 under Fire Insurance Policy No. F-66860.
In the evening of July 27, 1988, respondent's radio station located in SSS Building,
Bacolod City, was razed by fire causing damage in the amount of P1,044,040.00.
Respondent sought recovery under the two insurance policies but the claims were
denied on the ground that the cause of loss was an excepted risk excluded under
condition no. 6 (c) and (d), to wit:
6. This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly, of any of the following consequences, namely:
(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war
be declared or not), civil war.
(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military
or usurped power.3
The insurance companies maintained that the evidence showed that the fire was
caused by members of the Communist Party of the Philippines/New People's Army
(CPP/NPA); and consequently, denied the claims. Hence, respondent was constrained
to file Civil Case No. 90-602 against petitioner and Provident.
After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a
decision in favor of respondent. The dispositive portion of the decision reads:
IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant Provident
Insurance Corporation is directed to pay plaintiff the amount of P450,000.00
representing the value of the destroyed property insured under its Fire Insurance
Policy plus 12% legal interest from March 2, 1990 the date of the filing of the
Complaint. Defendant DBP Pool Accredited Insurance Companies is likewise ordered
to pay plaintiff the sum of P602,600.00 representing the value of the destroyed
property under its Fire Insurance Policy plus 12% legal interest from March 2, 1990.
SO ORDERED.4
Both insurance companies appealed from the trial court's decision but the CA
affirmed the decision, with the modification that the applicable interest rate was
reduced to 6% per annum. A motion for reconsideration was filed by petitioner DBP
which was denied by the CA per its Resolution dated January 30, 2001. 5
Hence, herein petition by DBP Pool of Accredited Insurance Companies, 6 with the
following assignment of errors:
Assignment of Errors
THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE NO
SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY [sic] (20) ARMED
MEN WHO CUSED [sic] THE FIRE AT RESPONDENT'S RMN PROPERTY AT BACOLOD CITY
WERE MEMBERS OF THE CPP-NPA.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT RESPONDENT
RMN CANNOT BEHELD [sic] FOR DAMAGES AND ATTORNEY'S FEES FOR INSTITUTING

52

THE PRESENT ACTION AGAINST THE PETITIONER UNDER ARTICLES 21, 2208, 2229
AND 2232 OF THE CIVIL CODE OF THE PHILIPPINES. 7
Petitioner assails the factual finding of both the trial court and the CA that its
evidence failed to support its allegation that the loss was caused by an excepted risk,
i.e., members of the CPP/NPA caused the fire. In upholding respondent's claim for
indemnity, the trial court found that:
The only evidence which the Court can consider to determine if the fire was due to
the intentional act committed by the members of the New People's Army (NPA), are
the testimony [sic] of witnesses Lt. Col. Nicolas Torres and SPO3 Leonardo Rochar
who were admittedly not present when the fire occurred. Their testimony [sic] was
[sic] limited to the fact that an investigation was conducted and in the course of the
investigation they were informed by bystanders that "heavily armed men entered the
transmitter house, poured gasoline in (sic) it and then lighted it. After that, they went
out shouting "Mabuhay ang NPA" (TSN, p. 12., August 2, 1995). The persons whom
they investigated and actually saw the burning of the station were not presented as
witnesses. The documentary evidence particularly Exhibits "5" and "5-C" do not
satisfactorily prove that the author of the burning were members of the NPA. Exhibit
"5-B" which is a letter released by the NPA merely mentions some dissatisfaction with
the activities of some people in the media in Bacolod. There was no mention there of
any threat on media facilities.8
The CA went over the evidence on record and sustained the findings of the trial court,
to wit:
To recapitulate, defendants-appellants presented the following to support its claim, to
wit: police blotter of the burning of DYHB, certification of the Negros Occidental
Integrated National Police, Bacolod City regarding the incident, letter of alleged NPA
members Celso Magsilang claiming responsibility for the burning of DYHB, fire
investigation report dated July 29, 1988, and the testimonies of Lt. Col. Nicolas Torres
and SFO III Leonardo Rochas. We examined carefully the report on the police blotter
of the burning of DYHB, the certification issued by the Integrated National Police of
Bacolod City and the fire investigation report prepared by SFO III Rochas and there
We found thatnone of them categorically stated that the twenty (20) armed men
which burned DYHB were members of the CPP/NPA. The said documents simply
stated that the said armed men were 'believed' to be or 'suspected' of being
members of the said group. Even SFO III Rochas admitted that he was not sure that
the said armed men were members of the CPP-NPA, thus:
In fact the only person who seems to be so sure that that the CPP-NPA had a hand in
the burning of DYHB was Lt. Col. Nicolas Torres. However, though We found him to be
persuasive in his testimony regarding how he came to arrive at his opinion, We
cannot nevertheless admit his testimony as conclusive proof that the CPP-NPA was
really involved in the incident considering that he admitted that he did not personally
see the armed men even as he tried to pursue them. Note that when Lt. Col. Torres
was presented as witness, he was presented as an ordinary witness only and not an
expert witness. Hence, his opinion on the identity or membership of the armed men
with the CPP-NPA is not admissible in evidence.
Anent the letter of a certain Celso Magsilang, who claims to be a member of NPANIROC, being an admission of person which is not a party to the present action, is
likewise inadmissible in evidence under Section 22, Rule 130 of the Rules of Court.
The reason being that an admission is competent only when the declarant, or
someone identified in legal interest with him, is a party to the action. 9

53

The Court will not disturb these factual findings absent compelling or exceptional
reasons. It should be stressed that a review by certiorari under Rule 45 is a matter of
discretion. Under this mode of review, the jurisdiction of the Court is limited to
reviewing only errors of law, not of fact. 10
Moreover, when supported by substantial evidence, findings of fact of the trial court
as affirmed by the CA are conclusive and binding on the parties, 11 which this Court
will not review unless there are exceptional circumstances. There are no exceptional
circumstances in this case that would have impelled the Court to depart from the
factual findings of both the trial court and the CA.
Both the trial court and the CA were correct in ruling that petitioner failed to prove
that the loss was caused by an excepted risk.
Petitioner argues that private respondent is responsible for proving that the cause of
the damage/loss is covered by the insurance policy, as stipulated in the insurance
policy, to wit:
Any loss or damage happening during the existence of abnormal conditions (whether
physical or otherwise) which are occasioned by or through in consequence directly or
indirectly, of any of the said occurrences shall be deemed to be loss or damage which
is not covered by the insurance, except to the extent that the Insured shall prove that
such loss or damage happened independently of the existence of such abnormal
conditions.
In any action, suit or other proceeding where the Companies allege that by reason of
the provisions of this condition any loss or damage is not covered by this insurance,
the burden of proving that such loss or damage is covered shall be upon the
Insured.12
An insurance contract, being a contract of adhesion, 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. 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. 13
The "burden of proof" contemplated by the aforesaid provision actually refers to the
"burden of evidence" (burden of going forward). 14 As applied in this case, it refers to
the duty of the insured to show that the loss or damage is covered by the policy. The
foregoing clause notwithstanding, the burden of proof still rests upon petitioner to
prove that the damage or loss was caused by an excepted risk in order to escape any
liability under the contract.
Burden of proof is the duty of any party to present evidence to establish his claim or
defense by the amount of evidence required by law, which is preponderance of
evidence in civil cases. The party, whether plaintiff or defendant, who asserts the
affirmative of the issue has the burden of proof to obtain a favorable judgment. For
the plaintiff, the burden of proof never parts.15 For the defendant, an affirmative
defense is one which is not a denial of an essential ingredient in the plaintiff's cause
of action, but one which, if established, will be a good defense - i.e. an "avoidance" of
the claim.16
Particularly, in insurance cases, where a risk is excepted by the terms of a policy
which insures against other perils or hazards, loss from such a risk constitutes a
defense which the insurer may urge, since it has not assumed that risk, and from this
it follows that an insurer seeking to defeat a claim because of an exception or
54

limitation in the policy has the burden of proving that the loss comes within the
purview of the exception or limitation set up. If a proof is made of a loss apparently
within a contract of insurance, the burden is upon the insurer to prove that the loss
arose from a cause of loss which is excepted or for which it is not liable, or from a
cause which limits its liability.17
Consequently, it is sufficient for private respondent to prove the fact of damage or
loss. Once respondent makes out a prima facie case in its favor, the duty or the
burden of evidence shifts to petitioner to controvert respondent's prima
facie case.18 In this case, since petitioner alleged an excepted risk, then the burden of
evidence shifted to petitioner to prove such exception. It is only when petitioner has
sufficiently proven that the damage or loss was caused by an excepted risk does the
burden of evidence shift back to respondent who is then under a duty of producing
evidence to show why such excepted risk does not release petitioner from any
liability. Unfortunately for petitioner, it failed to discharge its primordial burden of
proving that the damage or loss was caused by an excepted risk.
Petitioner however, insists that the evidence on record established the identity of the
author of the damage. It argues that the trial court and the CA erred in not
appreciating the reports of witnesses Lt. Col Torres and SFO II Rochar that the
bystanders they interviewed claimed that the perpetrators were members of the
CPP/NPA as an exception to the hearsay rule as part of res gestae.
A witness can testify only to those facts which he knows of his personal knowledge,
which means those facts which are derived from his perception. 19 A witness may not
testify as to what he merely learned from others either because he was told or read
or heard the same. Such testimony is considered hearsay and may not be received as
proof of the truth of what he has learned. The hearsay rule is based upon serious
concerns about the trustworthiness and reliability of hearsay evidence inasmuch as
such evidence are not given under oath or solemn affirmation and, more importantly,
have not been subjected to cross-examination by opposing counsel to test the
perception, memory, veracity and articulateness of the out-of-court declarant or actor
upon whose reliability on which the worth of the out-of-court statement depends. 20
Res gestae, as an exception to the hearsay rule, refers to those exclamations and
statements made by either the participants, victims, or spectators to a crime
immediately before, during, or after the commission of the crime, when the
circumstances are such that the statements were made as a spontaneous reaction or
utterance inspired by the excitement of the occasion and there was no opportunity
for the declarant to deliberate and to fabricate a false statement. The rule in res
gestae applies when the declarant himself did not testify and provided that the
testimony of the witness who heard the declarant complies with the following
requisites: (1) that the principal act, the res gestae, be a startling occurrence; (2) the
statements were made before the declarant had the time to contrive or devise a
falsehood; and (3) that the statements must concern the occurrence in question and
its immediate attending circumstances. 21
The Court is not convinced to accept the declarations as part of res gestae. While it
may concede that these statements were made by the bystanders during a startling
occurrence, it cannot be said however, that these utterances were
made spontaneously by the bystanders and before they had the time to contrive or
devise a falsehood. Both SFO III Rochar and Lt. Col. Torres received the bystanders'
statements while they were making their investigations during and after the fire. It is
reasonable to assume that when these statements were noted down, the bystanders
already had enough time and opportunity to mill around, talk to one another and
exchange information, not to mention theories and speculations, as is the usual
experience in disquieting situations where hysteria is likely to take place. It cannot
55

therefore be ascertained whether these utterances were the products of truth. That
the utterances may be mere idle talk is not remote.
At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these statements
were made may be considered as independently relevant statements gathered in the
course of their investigation, and are admissible not as to the veracity thereof but to
the fact that they had been thus uttered.22
Furthermore, admissibility of evidence should not be equated with its weight and
sufficiency.23Admissibility of evidence depends on its relevance and competence,
while the weight of evidence pertains to evidence already admitted and its tendency
to convince and persuade.24 Even assuming that the declaration of the bystanders
that it was the members of the CPP/NPA who caused the fire may be admitted as
evidence, it does not follow that such declarations are sufficient proof. These
declarations should be calibrated vis - Ã -vis the other evidence on record. And the
trial court aptly noted that there is a need for additional convincing proof, viz.:
The Court finds the foregoing to be insufficient to establish that the cause of the fire
was the intentional burning of the radio facilities by the rebels or an act of
insurrection, rebellion or usurped power. Evidence that persons who burned the radio
facilities shouted "Mabuhay ang NPA" does not furnish logical conclusion that they
are member [sic] of the NPA or that their act was an act of rebellion or insurrection.
Additional convincing proof need be submitted. Defendants failed to discharge their
responsibility to present adequate proof that the loss was due to a risk excluded. 25
While the documentary evidence presented by petitioner, i.e., (1) the police blotter;
(2) the certification from the Bacolod Police Station; and (3) the Fire Investigation
Report may be considered exceptions to the hearsay rule, being entries in official
records, nevertheless, as noted by the CA, none of these documents categorically
stated that the perpetrators were members of the CPP/NPA. 26Rather, it was stated in
the police blotter that: "a group of persons accompanied by one (1) woman
allbelieved to be CPP/NPA - more or less 20 persons suspected to be
CPP/NPA,"27 while the certification from the Bacolod Police station stated that "' some
20 or more armed men believed to be members of the New People's Army
NPA,"28 and the fire investigation report concluded that "(I)t is therefore believed by
this Investigating Team that the cause of the fire is intentional, and the armed
men suspected to be members of the CPP/NPA where (sic) the ones responsible
'"29 All these documents show that indeed, the "suspected" executor of the fire were
believed to be members of the CPP/NPA. But suspicion alone is not sufficient,
preponderance of evidence being the quantum of proof.
All told, the Court finds no reason to grant the present petition.
WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated
November 16, 2000 and Resolution dated January 30, 2001 rendered in CA-G.R. CV
No. 56351 are AFFIRMED in toto.
SO ORDERED.

13. [G.R. NO. 169737 : February 12, 2008]
BLUE CROSS HEALTH CARE, INC., Petitioner, v. NEOMI* and
DANILO OLIVARES, Respondents.
DECISION

56

CORONA, J.:
This is a Petition for Review on Certiorari 1 of a decision2 and resolution3 of the Court
of Appeals (CA) dated July 29, 2005 and September 21, 2005, respectively, in CA-G.R.
SP No. 84163 which affirmed the decision of the Regional Trial Court (RTC), Makati
City, Branch 61 dated February 2, 2004 in Civil Case No. 03-1153, 4 which in turn
reversed the decision of the Metropolitan Trial Court (MeTC), Makati City, Branch 66
dated August 5, 2003 in Civil Case No. 80867.5
Respondent Neomi T. Olivares applied for a health care program with petitioner Blue
Cross Health Care, Inc., a health maintenance firm. For the period October 16, 2002
to October 15, 2003,6 she paid the amount of P11,117. For the same period, she also
availed of the additional service of limitless consultations for an additional amount
of P1,000. She paid these amounts in full on October 17, 2002. The application was
approved on October 22, 2002. In the health care agreement, ailments due to "preexisting conditions" were excluded from the coverage.7
On November 30, 2002, or barely 38 days from the effectivity of her health
insurance, respondent Neomi suffered a stroke and was admitted at the Medical City
which was one of the hospitals accredited by petitioner. During her confinement, she
underwent several laboratory tests. On December 2, 2002, her attending physician,
Dr. Edmundo Saniel,8 informed her that she could be discharged from the hospital.
She incurred hospital expenses amounting to P34,217.20. Consequently, she
requested from the representative of petitioner at Medical City a letter of
authorization in order to settle her medical bills. But petitioner refused to issue the
letter and suspended payment pending the submission of a certification from her
attending physician that the stroke she suffered was not caused by a pre-existing
condition.9
She was discharged from the hospital on December 3, 2002. On December 5, 2002,
she demanded that petitioner pay her medical bill. When petitioner still refused, she
and her husband, respondent Danilo Olivares, were constrained to settle the
bill.10 They thereafter filed a complaint for collection of sum of money against
petitioner in the MeTC on January 8, 2003.11 In its answer dated January 24, 2003,
petitioner maintained that it had not yet denied respondents' claim as it was still
awaiting Dr. Saniel's report.
In a letter to petitioner dated February 14, 2003, Dr. Saniel stated that:
This is in response to your letter dated February 13, 2003. [Respondent] Neomi T.
Olivares called by phone on January 29, 2003. She stated that she is invoking patientphysician confidentiality. That she no longer has any relationship with [petitioner].
And that I should not release any medical information concerning her neurologic
status to anyone without her approval. Hence, the same day I instructed my
secretary to inform your office thru Ms. Bernie regarding [respondent's] wishes.
xxx

xxx

xxx12

In a decision dated August 5, 2003, the MeTC dismissed the complaint for lack of
cause of action. It held:
xxx the best person to determine whether or not the stroke she suffered was not
caused by "pre-existing conditions" is her attending physician Dr. Saniel who treated
her and conducted the test during her confinement. xxx But since the evidence on
record reveals that it was no less than [respondent Neomi] herself who prevented her
attending physician from issuing the required certification, petitioner cannot be
57

faulted from suspending payment of her claim, for until and unless it can be shown
from the findings made by her attending physician that the stroke she suffered was
not due to pre-existing conditions could she demand entitlement to the benefits of
her policy.13
On appeal, the RTC, in a decision dated February 2, 2004, reversed the ruling of the
MeTC and ordered petitioner to pay respondents the following amounts:
(1) P34,217.20 representing the medical bill in Medical City and P1,000 as
reimbursement for consultation fees, with legal interest from the filing of the
complaint until fully paid; (2) P20,000 as moral damages; (3) P20,000 as exemplary
damages; (4) P20,000 as attorney's fees and (5) costs of suit.14 The RTC held that it
was the burden of petitioner to prove that the stroke of respondent Neomi was
excluded from the coverage of the health care program for being caused by a preexisting condition. It was not able to discharge that burden. 15
Aggrieved, petitioner filed a Petition for Review under Rule 42 of the Rules of Court in
the CA. In a decision promulgated on July 29, 2005, the CA affirmed the decision of
the RTC. It denied reconsideration in a resolution promulgated on September 21,
2005. Hence this petition which raises the following issues: (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 and (2) whether it was liable for moral and exemplary damages and
attorney's fees.
The health care agreement defined a "pre-existing condition" as:
x x x 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. Notwithstanding,
the following disabilities but not to the exclusion of others are considered pre-existing
conditions including their complications when occurring during the first year of a
Member's coverage:
I. Tumor of Internal Organs
II. Hemorrhoids/Anal Fistula
III. Diseased tonsils and sinus conditions requiring surgery
IV. Cataract/Glaucoma
V. Pathological Abnormalities of nasal septum or turbinates
VI. Goiter and other thyroid disorders
VII. Hernia/Benign prostatic hypertrophy
VIII. Endometriosis
IX. Asthma/Chronic Obstructive Lung disease
X. Epilepsy
XI. Scholiosis/Herniated disc and other Spinal column abnormalities
58

XII. Tuberculosis
XIII. Cholecysitis
XIV. Gastric or Duodenal ulcer
XV. Hallux valgus
XVI. Hypertension and other Cardiovascular diseases
XVII. Calculi
XVIII. Tumors of skin, muscular tissue, bone or any form of blood dyscracias
XIX. Diabetes Mellitus
XX. Collagen/Auto-Immune disease
After the Member has been continuously covered for 12 months, this pre-existing
provision shall no longer be applicable except for illnesses specifically excluded by an
endorsement and made part of this Agreement.16
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. Stated otherwise, petitioner is not liable for pre-existing conditions
if they occur within one year from the time the agreement takes effect.
Petitioner argues that respondents prevented Dr. Saniel from submitting his report
regarding the medical condition of Neomi. Hence, it contends that the presumption
that evidence willfully suppressed would be adverse if produced should apply in its
favor.17
Respondents counter that the burden was on petitioner to prove that Neomi's stroke
was excluded from the coverage of their agreement because it was due to a preexisting condition. It failed to prove this.18
We agree with respondents.
In Philamcare Health Systems, Inc. v. CA,19 we ruled that a health care agreement is
in the nature of a non-life insurance.20 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. 21
Petitioner never presented any evidence to prove that respondent Neomi's stroke was
due to a pre-existing condition. It merely speculated that Dr. Saniel's report would be
adverse to Neomi, based on her invocation of the doctor-patient privilege. This was a
disputable presumption at best.
Section 3 (e), Rule 131 of the Rules of Court states:
Sec. 3. Disputable presumptions. ― The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other evidence:

59

xxx

xxx

xxx

(e) That evidence willfully suppressed would be adverse if produced.
Suffice it to say that this presumption does not apply if (a) the evidence is at the
disposal of both parties; (b) the suppression was not willful; (c) it is merely
corroborative or cumulative and (d) thesuppression is an exercise of a
privilege.22 Here, respondents' refusal to present or allow the presentation of Dr.
Saniel's report was justified. It was privileged communication between physician and
patient.
Furthermore, as already stated, limitations of liability on the part of the insurer or
health care provider must be construed in such a way as to preclude it from evading
its obligations. Accordingly, they should be scrutinized by the courts with "extreme
jealousy"23 and "care" and with a "jaundiced eye."24 Since petitioner had the burden
of proving exception to liability, it should have made its own assessment of whether
respondent Neomi had a pre-existing condition when it failed to obtain the attending
physician's report. It could not just passively wait for Dr. Saniel's report to bail it out.
The mere reliance on a disputable presumption does not meet the strict standard
required under our jurisprudence.
Next, petitioner argues that it should not be held liable for moral and exemplary
damages, and attorney's fees since it did not act in bad faith in denying respondent
Neomi's claim. It insists that it waited in good faith for Dr. Saniel's report and that,
based on general medical findings, it had reasonable ground to believe that her
stroke was due to a pre-existing condition, considering it occurred only 38 days after
the coverage took effect.25
We disagree.
The RTC and CA found that there was a factual basis for the damages adjudged
against petitioner. They found that it was guilty of bad faith in denying a claim based
merely on its own perception that there was a pre-existing condition:
[Respondents] have sufficiently shown that [they] were forced to engage in a dispute
with [petitioner] over a legitimate claim while [respondent Neomi was] still
experiencing the effects of a stroke and forced to pay for her medical bills during and
after her hospitalization despite being covered by [petitioner's] health care program,
thereby suffering in the process extreme mental anguish, shock, serious anxiety and
great stress. [They] have shown that because of the refusal of [petitioner] to issue a
letter of authorization and to pay [respondent Neomi's] hospital bills, [they had] to
engage the services of counsel for a fee of P20,000.00. Finally, 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.
(emphasis supplied)
This is a factual matter binding and conclusive on this Court. 26 We see no reason to
disturb these findings.
WHEREFORE, the petition is hereby DENIED. The July 29, 2005 decision and
September 21, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 84163
are AFFIRMED.
Treble costs against petitioner.
SO ORDERED.
60

14. G.R. No. L-34200. September 30, 1982.]
REGINA L. EDILLON, as assisted by her husband, MARCIAL
EDILLON, Petitioners-Appellants, v. MANILA BANKERS LIFE
INSURANCE CORPORATION and the COURT OF FIRST INSTANCE
OF RIZAL, BRANCH V, QUEZON CITY, Respondents-Appellees.
K.V. Faylona for Petitioners-Appellants.
L.L. Reyes for Respondents-Appellees.

SYNOPSIS
Carmen Lapuz applied with respondent insurance corporation for coverage against
accident and injuries. On the application form she gave her age at 64 years old and
paid the premium thereon. Thereafter, she was issued a certificate of insurance.
During the effectivity of said policy, she died in a vehicular accident. Petitionerappellant, who was named as beneficiary to the policy, filed her claim for the
proceeds of the insurance. The insurance company rejected her claims on the ground
that the Certificate of Insurance excludes its liability to pay claims under the policy in
behalf of persons who are over 60 years old; thus, the insured being over 60 when
she applied for coverage, the policy was null and void. The trial court sustained the
contention of the Insurance Company and dismissed the complaint. Petitioner
appealed the decision to the Supreme Court on a question of law. The issue raised is
whether or not the acceptance by the private respondent corporation of the premium
and its issuance of the corresponding Certificate of Insurance should be deemed a
waiver of exclusionary condition of coverage.
The Supreme Court reversed the decision of the trial court. It held that the insurance
corporation’s inaction to revoke the policy despite a departure from the exclusionary
condition contained in the policy constituted a waiver of such condition.
SYLLABUS
MERCANTILE LAW; INSURANCE; EXCLUSIONARY CONDITION, ACCEPTANCE OF
PREMIUM AND ISSUANCE OF POLICY DESPITE KNOWLEDGE OF EXISTENCE OF
EXCLUSIONARY CONDITION IS A WAIVER OF. — The age of the insured Carmen 0.
Lapuz was not concealed to the insurance company. Her application for insurance
coverage which was on a printed form furnished by private respondent and which
contained very few items of information clearly indicated her age at the time of filing
the same to be almost 65 years of age. There was sufficient time for the private
respondent ro process the application and to notice that the applicant was over 60
years of age and thereby cancel the policy on that ground if it was minded to do so. If
the private respondent failed to act, it is either because it was willing to waive such
disqualification; or, through the negligence or incompetence of its employees for
which it has only itself to blame, it simply overlooked such fact. Under the
circumstances, the insurance corporation is already deemed in estoppel. Its inaction
to revoke the policy despite a departure from the exclusionary condition contained in
the said policy constituted a waiver of such condition.
DECISION
VASQUEZ, J.:

61

The question of law raised in this case that justified a direct appeal from a decision of
the Court of First Instance Rizal, Branch V, Quezon City, to be taken directly to the
Supreme Court is whether or not the acceptance by the private respondent insurance
corporation of the premium and the issuance of the corresponding certificate of
insurance should be deemed a waiver of the exclusionary condition of overage stated
in the said certificate of insurance.
The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz
applied with respondent insurance corporation for insurance coverage against
accident and injuries. She filled up the blank application form given to her and filed
the same with the respondent insurance corporation. In the said application form
which was dated April 15, 1969, she gave the date of her birth as July 11, 1904. On
the same date, she paid the sum of P20.00 representing the premium for which she
was issued the corresponding receipt signed by an authorized agent of the
respondent insurance corporation. (Rollo, p. 27,) Upon the filing of said application
and the payment of the premium on the policy applied for, the respondent insurance
corporation issued to Carmen O. Lapuz its Certificate of Insurance No. 128866. (Rollo,
p. 28.) The policy was to be effective for a period of 90 days.
On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886,
Carmen O. Lapuz died in a vehicular accident in the North Diversion Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was the
named beneficiary in the policy, filed her claim for the proceeds of the insurance,
submitting all the necessary papers and other requisites with the
private Respondent. Her claim having been denied, Regina L. Edillon instituted this
action in the Court of First Instance of Rizal on August 27, 1969.
In resisting the claim of the petitioner, the respondent insurance corporation relies on
a provision contained in the Certificate of Insurance, excluding its liability to pay
claims under the policy in behalf of "persons who are under the age of sixteen (16)
years of age or over the age of sixty (60) years . . . ." It is pointed out that the insured
being over sixty (60) years of age when she applied for the insurance coverage, the
policy was null and void, and no risk on the part of the respondent insurance
corporation had arisen therefrom.cralawnad
The trial court sustained the contention of the private respondent and dismissed the
complaint; ordered the petitioner to pay attorney’s fees in the sum of ONE
THOUSAND (P1,000.00) PESOS in favor of the private respondent; and ordered the
private respondent to return the sum of TWENTY (P20.00) PESOS received by way of
premium on the insurancy policy. It was reasoned out that a policy of insurance being
a contract of adhesion, it was the duty of the insured to know the terms of the
contract he or she is entering into; the insured in this case, upon learning from its
terms that she could not have been qualified under the conditions stated in said
contract, what she should have done is simply to ask for a refund of the premium
that she paid. It was further argued by the trial court that the ruling calling for a
liberal interpretation of an insurance contract in favor of the insured and strictly
against the insurer may not be applied in the present case in view of the peculiar
facts and circumstances obtaining therein.
We REVERSE the judgment of the trial court. The age of the insured Carmen O. Lapuz
was not concealed to the insurance company. Her application for insurance coverage
which was on a printed form furnished by private respondent and which contained
very few items of information clearly indicated her age of the time of filing the same
to be almost 65 years of age. Despite such information which could hardly be
overlooked in the application form, considering its prominence thereon and its
materiality to the coverage applied for, respondent insurance corporation received
her payment premium and issued the corresponding certificate of insurance without
62

question. The accident which resulted in the death the insured, a risk covered by the
policy, occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the insurance
coverage was applied for. There was sufficient time for the private respondent to
process the application and to notice that the applicant was over 60 years of age and
thereby cancel the policy on that ground if it was minded to do so. If the private
respondent failed to act, it is either because it was willing to waive such
disqualification; or, through the negligence or incompetence of its employees for
which it has only itself to blame, it simply overlooked such fact. Under the
circumstances, the insurance corporation is already deemed in estoppel. It inaction to
revoke the policy despite a departure from the exclusionary condition contained in
the said policy constituted a waiver of such condition, as was held in the case of "Que
Chee Gan v. Law Union Insurance Co., Ltd.,", 98 Phil, 85. This case involved a claim
on an insurance policy which contained a provision as to the installation of fire
hydrants the number of which depended on the height of the external wall perimeter
of the bodega that was insured. When it was determined that the bodega should
have eleven (11) fire hydrants in the compound as required by the terms of the
policy, instead of only two (2) that it had, the claim under the policy was resisted on
that ground. In ruling that the said deviation from the terms of the policy did not
prevent the claim under the same, this Court stated the following:
"We are in agreement with the trial Court that the appellant is barred by waiver (or
rather 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 nevertheless issued the policies in
question subject to such warranty, and received the corresponding premiums. It
would be perilously close to conniving at fraud upon the insured to allow appellant to
claim now as void ab initio the policies that it had issued to the plaintiff without
warning of their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.
The insurance company was aware, even before the policies were issued, that in the
premises insured there were only two fire hydrants installed by Que Chee Gan and
two others nearby, owned by the municipality of Tabaco, contrary to the
requirements of the warranty in question. Such fact appears from positive testimony
for the insured that appellant’s agents inspected the premises; and the simple
denials of appellant’s representative (Jamiczon) can not overcome that proof. That
such Inspection was made it moreover rendered probable by its being a prerequisite
for the fixing of the discount on the premium to which the insured was entitled, since
the discount depended on the number of hydrants, and the fire fighting equipment
available (See ‘Scale of Allowances’ to which the policies were expressly made
subject). The law, supported by a long line of cases, is expressed by American
Jurisprudence (Vol. 29, pp. 611-612) to be as follows:
‘It is usually held that where the insurer, at the time of the issuance of a policy of
insurance, has knowledge of existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge constitutes a waiver of conditions in
the contract inconsistent with the known facts, and the insurer is stopped thereafter
from asserting the breach of such conditions. The law is charitable enough to
assume, in the absence of any showing to the contrary, that an insurance company
intends to execute 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.’ (29 Am. Jur., Insurance, section 807, at pp. 611-612.)
The reason for the rule is not difficult to find.
‘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
63

effect, though it knows as it must, that the assured believes it to valid and binding, is
so contrary to the dictates of honesty and fair dealing, and so closely related to
positive fraud, as to be abhorrent to fairminded 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 poses and designs
which we cannot believe it to be guilty of.’ (Wilson v. Commercial Union Assurance
Co., 96 Atl. 540, 543-544)."
A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. v. Plastic
Era Co., Inc., 65 SCRA 134, which involved a violation of the provision of the policy
requiring the payment of premiums before the insurance shall become effective. The
company issued the policy upon the execution of a promissory note for the payment
of the premium. A check given subsequent by the insured as partial payment of the
premium was dishonored for lack of funds. Despite such deviation from the terms of
the policy, the insurer was held liable.
"Significantly, in the case before Us the Capital Insurance accepted the promise of
Plastic Era to pay the insurance premium within thirty (30) days from the effective
date of policy. By so doing, it has impliedly agreed to modify the tenor of the
insurance policy and in effect, waived the provision therein that it would only pay for
the loss or damage in case the same occurs after the payment of the premium.
Considering that the insurance policy is silent as to the mode of payment, Capital
Insurance is deemed to have accepted the promissory note in payment of the
premium. This rendered the policy immediately operative on the date it was
delivered. The view taken in most cases in the United States: "‘. . . is that although
one of conditions of an insurance policy is that ‘it shall not be valid or binding until
the first premium is paid’, if it is silent as to the mode of payment, promissory notes
received by the company must be deemed to have been accepted in payment of the
premium. In other words, a requirement for the payment of the first or initial
premium in advance or actual cash may be waived by acceptance of a promissory
note. . . .’"
WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In
lieu thereof, the private respondent insurance corporation is hereby ordered to pay
the petitioner the sum of TEN THOUSAND (P10,000) PESOS as proceeds of Insurance
Certificate No. 128866 with interest at the legal rate from May 31, 1969 until fully
paid, the further sum of TWO THOUSAND (P2,000.00) PESOS as and for attorney’s
fees, and the costs of suit.
SO ORDERED.

15. G.R. No. 78860. May 28, 1990.]
PERLA COMPANIA DE SEGUROS, INC., Petitioner, v. HONORABLE
COURT OF APPEALS and MILAGROS CAYAS, Respondents.
Yabut, Arandia & Associates for Petitioner.
Dolorfino and Dominguez Law Offices for Private Respondent.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; TERMS AND CONDITIONS IN THE POLICY;
MEASURES THE INSURER’S LIABILITY; CASE AT BAR. — 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 was retained by
P.D. No. 1460, the Insurance Code of 1978), which provided that the liability of land
transportation vehicle operators for bodily injuries sustained by a passenger arising
64

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.
2. ID.; ID.; ID.; COMPLIANCE THEREWITH; CONDITION PRECEDENT TO THE RIGHT OF
RECOVERY OF THE INSURED. — we rule as valid and binding upon private respondent
the condition above-quoted 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 del Carmen, Magsarili and Antolin in view of
her failure to comply with the condition contained in the insurance policy.
3. CIVIL LAW; CONTRACTS; CONSIDERED PRIVATE LAWS OF THE CONTRACTING
PARTIES. — The fundamental principle that contracts are respected as the law
between the contracting parties finds application in the present case. Thus, 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. v. Mutuc (G.R. No. L-19632, November
13, 1974, 61 SCRA 22, cited in Castro v. Court of Appeals, G.R. No. L-44727,
September 11, 1980, 99 SCRA 197), 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.
Moreover, we stated in Pacific Oxygen & Acetylene Co. v. Central Bank (G.R. No. L21881, March 1, 1969, 22 SCRA 917) 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.
DECISION
FERNAN, C.J.:
This is a petition for review on certiorari of the decision of the Court of Appeals 1
affirming in toto the decision of the Regional Trial Court of Cavite, Branch XVI, 2 the
dispositive portion of which states:jgc:chanrobles.com.ph
"IN VIEW OF THE FOREGOING, judgment is hereby rendered 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 fees, with costs against said defendant.
"SO ORDERED." 3
Private respondent Milagros Cayas was the registered owner of a Mazda bus with
serial No. TA3H4 P-000445 and plate No. PUB-4G-593. 4 Said passenger vehicle was
insured with Perla Compania de Seguros, Inc. (PCSI) under policy No. LTO/60CC-04241
issued on February 3, 1978. 5
On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several
of its passengers. One of them, 19-year-old Edgardo Perea, sued Milagros Cayas for
damages in the Court of First Instance of Cavite, Branch I 6 docketed as Civil Case No.
65

NC-794; while three others, namely: Rosario del Carmen, Ricardo Magsarili and
Charlie Antolin, agreed to a settlement of P4,000.00 each with Milagros Cayas.
At the pre-trial of Civil Case No. NC-794, Milagros Cayas failed to appear and hence,
she was declared as in default. After trial, the court rendered a decision 7 in favor of
Perea with its dispositive portion reading thus: "WHEREFORE, under our present
imperatives, judgment is hereby rendered in favor of the plaintiffs and against the
defendant Milagros Cayas who is hereby ordered to compensate the plaintiff Edgar
Perea with damages in the sum of Ten Thousand (P10,000.00) Pesos for the medical
predicament he found himself as damaging consequences of defendant Milagros
Cayas’ complete lack of ‘diligence of a good father of a family’ when she secured the
driving services of one Oscar Figueroa on December 17, 1978; the sum of Ten
Thousand (P10,000.00) Pesos for exemplary damages; the sum of Five Thousand
(P5,000.00) Pesos for moral damages; the sum of Seven Thousand (P7,000.00) Pesos
for Attorney’s fees, under the imperatives of the monetary power of the peso today;
"With costs against the defendant.
"SO ORDERED." When the decision in Civil Case No. NC-794 was about to be
executed against her, Milagros Cayas filed a complaint against PCSI in the Office of
the Insurance Commissioner praying that PCSI be ordered to pay P40,000.00 for all
the claims against her arising from the vehicular accident plus legal and other
expenses. 8 Realizing her procedural mistake, she later withdrew said complaint. 9
Consequently, 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 (Civil Case
No. N-4161). She alleged therein that to satisfy the judgment in Civil Case No. NC794, her house and lot were levied upon and sold at public auction for P38,200; 10
that to avoid numerous suits and the "detention" of the insured vehicle, she paid
P4,000 to each of the following injured passengers: Rosario del Carmen, Ricardo
Magsarili and Charlie Antolin; that she could not have suffered said financial setback
had the counsel for PCSI, who also represented her, appeared at the trial of Civil Case
No. NC-794 and attended to the claims of the three other victims; that she sought
reimbursement of said amounts from the defendant, which, notwithstanding the fact
that her claim was within its contractual liability under the insurance policy, refused
to make such reimbursement; that she suffered moral damages as a consequence of
such refusal, and that she was constrained to secure the services of counsel to
protect her rights. She prayed that judgment be rendered directing PCSI to pay her
P50,000 for compensation of the injured victims, such sum as the court might
approximate as damages, and P6,000 as attorney’s fees.
In view of Milagros Cayas’ failure to prosecute the case, the court motu proprio
ordered its dismissal without prejudice. 11 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 in its order of March 31, 1982.
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 in Civil Case No. N-4161, the
dispositive portion of which was quoted earlier, finding that:
"In disavowing its obligation to plaintiff under the insurance policy, defendant
66

advanced the proposition that before it can be made to pay, the liability must first be
determined in an appropriate court action. And so plaintiffs liability was determined
in that case filed against her by Perea in the Naic CFI. Still, despite this determination
of liability, defendant sought escape from its obligation by positing the theory that
plaintiff Milagros Cayas lost the Naic case due to her negligence because of which,
efforts exerted by defendant’s lawyers in protecting Cayas’ rights proved futile and
rendered nugatory. Blame was laid entirely on plaintiff by defendant for losing the
Naic case. Defendant labored under the impression that had Cayas cooperated fully
with defendant’s lawyers, the latter could have won the suit and thus relieved of any
obligation to Perea. Defendant’s posture is stretching the factual circumstances of
the Naic case too far. But even accepting defendant’s postulate, it cannot be said,
nor was it shown positively and convincingly, that if the Naic case had proceeded on
trial on the merits, a decision favorable to Milagros Cayas could have been obtained.
Nor was it definitely established that if the pre-trial was undertaken in that case,
defendant’s lawyers could have mitigated the claim for damages by Perea against
Cayas." 12
The court, however, held that inasmuch as Milagros Cayas failed to establish that she
underwent moral suffering and mental anguish to justify her prayer for damages,
there should be no such award. But, there being proof that she was compelled to
engage the services of counsel to protect her rights under the insurance policy, the
court allowed attorney’s fees in the amount of P5,000.
PCSI appealed to the Court of Appeals, which, in its decision of May 8, 1987 affirmed
in toto the lower court’s decision. Its motion for reconsideration having been denied
by said appellate court, PCSI filed the instant petition charging the Court of Appeals
with having erred in affirming in toto the decision of the lower court.
At the outset, we hold as factual and therefore undeserving of this Court’s attention,
petitioner’s assertions that private respondent lost Civil Case No. NC-794 because of
her negligence and that there is no proof that the decision in said case has been
executed. Said contentions, having been raised and threshed out in the Court of
Appeals and rejected by it, may no longer be addressed to this Court.
Petitioner’s other contentions are primarily concerned with the extent of its liability to
private respondent under the insurance policy. This, we consider to be the only issue
in this case.
Petitioner seeks to limit its liability only to the payment made by private respondent
to Perea and only up to the amount of P12,000.00. It altogether denies liability for the
payments made by private respondents to the other three (3) injured passengers
Rosario del Carmen, Ricardo Magsarili and Charlie Antolin in the amount of P4,000.00
each or a total of P12,000.00.
There is merit in petitioner’s assertions.
The insurance policy involved explicitly limits petitioner’s liability to P12,000.00 per
person and to P50,000.00 per accident. 13 Pertinent provisions of the policy also
state:
"SECTION I — Liability to the Public.
x

x

x

"3. The Limit of Liability stated in Schedule A as applicable (a) to THIRD PARTY is the
limit of the Company’s liability for all damages arising out of death, bodily injury and
damage to property combined so sustained as the result of any one accident; (b) "per
person" for PASSENGER liability is the limit of the Company’s liability for all damages
67

arising out of death or bodily injury sustained by one person as the result of any one
accident; (c) "per accident" for PASSENGER liability is, subject to the above provision
respecting per person, the total limit of the Company’s liability for all such damages
arising out of death or bodily injury sustained by two or more persons as the result of
any one accident."
"Conditions Applicable to All Sections.
x

x

x

"5. No admission, offer, promise or payment shall be made by or on behalf of the
Insured without the written consent of the Company which shall been titled, if it so
desires, to take over and conduct in his (sic) name the defense or settlement of any
claim, or to prosecute in his (sic) name for its own benefit any claim for indemnity or
damages or otherwise, and shall have full discretion in the conduct of any
proceedings in the settlement of any claim, and the insured shall give all such
information and assistance as the Company may require. If the Company shall make
any payment in settlement of any claim, and such payment includes any amount not
covered by this Policy, the Insured shall repay the Company the amount not so
covered.
We have ruled in Stokes v. Malayan Insurance Co., Inc., 14 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 was retained by P.D. No. 1460, the Insurance Code of 1978), 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. 15
In like manner, we rule as valid and binding upon private respondent the condition
above-quoted 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.
In her cross-examination before the trial court, Milagros Cayas admitted, thus:
"Atty. Yabut:
q With respect to the other injured passengers of your bus wherein you made
payments you did not secure the consent of defendant (herein petitioner) Perla
Compania de Seguros when you made those payments?
a I informed them about that.
q But they did not give you the written authority that you were supposed to pay
those claims?
a No, sir." 16
It being specifically required that petitioner’s written consent be first secured before
68

any payment in settlement of any claim could be made, private respondent is
precluded from seeking reimbursement of the payments made to del Carmen,
Magsarili and Antolin 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. 17 Thus, 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. v. Mutuc, 18 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.
Moreover, we stated in Pacific Oxygen & Acetylene Co. v. Central Bank, 19 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. 20
Finally, we find no reason to disturb the award of attorney’s fees.
WHEREFORE, the decision of the Court of Appeals is hereby 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. No
pronouncement as to costs.
SO ORDERED.

16. G.R. No. L-39419. April 12, 1982.]
MAPALAD AISPORNA, Petitioner, v. THE COURT OF APPEALS and
THE PEOPLE OF THE PHILIPPINES, Respondents.
SYNOPSIS
Petitioner, wife of a duly licensed insurance agent, was charged for violation of the
first paragraph of Section 189 of the Insurance Act having acted as agent in the
solicitation for insurance in favor of Eugenio Isidro for and in behalf of Perla Compania
de Seguros, Inc. without having first secured a certificate of authority to act as such
agent from the office of the Insurance Commission. The evidence disclosed at the
trial was that petitioner merely left a note on top of her husband’s desk informing the
latter of Isidro’s intention to renew his policy. The trial court found appellant guilty as
charged. On appeal, the Court of Appeals construing the first paragraph of Section
189 independent from the two succeeding paragraphs, affirmed the judgment of
conviction and held that the receipt of compensation for the issuance of an insurance
policy is not an essential element for a violation of the first paragraph of Section 189
of the Insurance Act. Hence, the present recourse.
The Supreme Court held that receipt of compensation by the agent is an essential
69

element for a violation of the first paragraph of Section 189; that considering the
failure in the information to allege said element a conviction of the accused could not
be sustained based on the well-settled jurisprudence that to warrant conviction every
element of the crime must be alleged and proved.
Judgment appealed from reversed and accused acquitted of the crime charged.
SYLLABUS
1. CONSTITUTIONAL LAW; STATUTORY CONSTRUCTION; LEGISLATIVE INTENT
ASCERTAINED FROM A CONSIDERATION OF THE STATUTE AS A WHOLE; CASE AT BAR.
— The definition of an insurance agent as found in the second paragraph of Section
189 is intended to define the word "agent" mentioned in the first and second
paragraphs of the aforesaid section. More significantly, in its second paragraph, it is
explicitly provided that the definition of an insurance agent is within the intent of
Section 189. Hence — "Any person who for compensation . . . shall be an insurance
agent within the intent of this section, . . .." Patently, the definition of an insurance
agent under the second paragraph holds true with respect to the agent mentioned in
the other two paragraphs of the said section. The second paragraph of Section 189 is
a definition and interpretative clause intended to qualify the term "agent’’ mentioned
in both the first and third paragraphs of the aforesaid section. Applying the definition
of an insurance agent in the second paragraph to the agent mentioned in the first
and second paragraphs would give harmony to the aforesaid three paragraphs of
Section 189. Legislative intent must be ascertained from a consideration of the
statute as a whole. The particular words, clauses and phrases should not be studied
as detached and isolated expressions, but the whole and every part of the statute
must be considered in fixing the meaning of any of its parts and in order to produce
harmonious whole. A statute must be so construed as to harmonize and give effect to
all its provisions whenever possible. The meaning of the law, it must be borne in
mind, is not to be extracted from any single part, portion or section or from isolated
words and phrases, clauses or sentences but from a general consideration or view of
the act as a whole. Every part of the statute must be interpreted with reference to
the context. This means that every part of the statute must be considered together
with the other parts, and kept subservient to the general intent of the whole
enactment, not separately and independently. More importantly, the doctrine of
associated words (Noscitur a Sociis) provides that where a particular word or phrase
in a statement is ambiguous in itself or is equally susceptible of various meanings, its
true meaning may be made clear and specific by considering the company in which it
is found or with which it is associated.
2. REMEDIAL LAW; EVIDENCE; CONVICTION WARRANTED IF EVERY ELEMENT OF THE
CRIME ALLEGED AND PROVED. — Considering that the definition of an insurance
agent as found in the second paragraph it also applicable to the agent mentioned in
the first paragraph, to receive a compensation by the agent is an essential element
for a violation of the first paragraph of the aforesaid section. The appellate court has
established ultimately that the petitioner-accused did not receive any compensation
for the issuance of the insurance policy of Eugenio Isidro. Nevertheless, the accused
was convicted by the appellate court for, according to the latter, the receipt of
compensation for issuing an insurance policy is not an essential element for a
violation of the first paragraph of Section 189 of the Insurance Act. We rule
otherwise. Under the Texas Penal Code 1911, Article 689, making it a misdemeanor
for any person for direct or indirect compensation to solicit insurance without a
certificate of authority to act as an insurance agent, an information, failing to allege
that the solicitor was to receive compensation either directly or indirectly, charges no
offense. In the case of Bolen v. Stake, the provision of Section 3750, Snyder’s
Complied Laws of Oklahoma 1909 is intended to penalize persons only who acted as
insurance solicitors without license, and while acting in such capacity negotiated and
concluded insurance contracts for compensation. It most be noted that the
70

information, in the case at bar, does not allege that the negotiation of an insurance
contract by the accused with Eugenio Isidro was one for compensation. This
allegation is essential, and having been omitted, a conviction of the accused could
not be sustained. It is well-settled in Our jurisprudence that to warrant conviction,
every element of the crime must be alleged and proved.
DECISION
DE CASTRO,*, J.:
In this petition for certiorari, petitioner-accused Aisporna seeks the reversal of the
decision dated August 14, 1974 1 in CA-G.R. No. 13243-CR entitled "People of the
Philippines, Plaintiff-Appellee, v. Mapalad Aisporna, Defendant-Appellant" of
respondent Court of Appeals affirming the judgment of the City Court of Cabanatuan
2 rendered on August 2, 1971 which found the petitioner guilty for having violated
Section 189 of the Insurance Act (Act No. 2427, as amended) and sentenced her to
pay a fine of P500.00 with subsidiary imprisonment in case of insolvency, and to pay
the costs.
Petitioner Aisporna was charged in the City Court of Cabanatuan for violation of
Section 189 of the Insurance Act on November 21, 1970 in an information 3 which
reads as follows:
"That on or before the 21st day of June, 1969, in the City of Cabanatuan, Republic of
the Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused, did then and there, willfully, unlawfully and feloniously act as agent in the
solicitation or procurement of an application for insurance by soliciting therefor the
application of one Eugenio S. Isidro, for and in behalf of Perla Compania de Seguros,
Inc., a duly organized insurance company, registered under the laws of the Republic
of the Philippines, resulting in the issuance of a Broad Personal Accident Policy No.
28PI-RSA 0001 in the amount not exceeding FIVE THOUSAND PESOS (P5,000.00)
dated June 21, 1969, without said accused having first secured a certificate of
authority to act as such agent from the office of the Insurance Commissioner,
Republic of the Philippines.
"CONTRARY TO LAW."cralaw virtua1aw library
The facts, 4 as found by the respondent Court of Appeals are quoted hereunder:
"IT RESULTING: That there is no debate that since 7 March, 1969 and as of 21 June,
1969, appellant’s husband, Rodolfo S. Aisporna was duly licensed by Insurance
Commission as agent to Perla Compania de Seguros, with license to expire on 30
June, 1970, Exh. C; on that date, at Cabanatuan City, Personal Accident Policy, Exh. D
was issued by Perla thru its authorized representative, Rodolfo S. Aisporna, for a
period of twelve (12) months with beneficiary as Ana M. Isidro, and for P5,000.00;
apparently, insured died by violence during lifetime of policy, and for reasons not
explained in record, present information was filed by Fiscal, with assistance of private
prosecutor, charging wife of Rodolfo with violation of Sec. 189 of Insurance Law for
having, wilfully, unlawfully, and feloniously acted,
‘as agent in the solicitation for insurance by soliciting therefore the application of one
Eugenio S. Isidro for and in behalf of Perla Compaña de Seguros, . . . without said
accused having first secured a certificate of authority to act as such agent from the
office of the Insurance Commission, Republic of the Philippines.’
and in the trial, People presented evidence that was hardly disputed, that
aforementioned policy was issued with active participation of appellant wife of
Rodolfo, against which appellant in her defense sought to show that being the wife of
true agent, Rodolfo, she naturally helped him in his work, as clerk, and that policy
was merely a renewal and was issued because Isidro had called by telephone to
71

renew, and at that time, her husband, Rodolfo, was absent and so she left a note on
top of her husband’s desk to renew . . ."
Consequently, the trial court found herein petitioner guilty as charged. On appeal, the
trial court’s decision was affirmed by the respondent appellate court finding the
petitioner guilty of a violation of the first paragraph of Section 189 of the Insurance
Act. Hence, this present recourse was filed on October 22, 1974. 5
In its resolution of October 28, 1974, 6 this Court resolved, without giving due course
to this instant petition, to require the respondent to comment on the aforesaid
petition. In the comment 7 filed on December 20, 1974, the respondent, represented
by the Office of the Solicitor General, submitted that petitioner may not be
considered as having violated Section 189 of the Insurance Act. 8 On April 3, 1975,
petitioner submitted his Brief 9 while the Solicitor General, on behalf of the
respondent, filed a manifestation 10 in lieu of a Brief on May 3, 1975 reiterating his
stand that the petitioner has not violated Section 189 of the Insurance Act.
In seeking reversal of the judgment of conviction, petitioner assigns the following
errors 11 allegedly committed by the appellate court:
"1. THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT RECEIPT OF
COMPENSATION IS NOT AN ESSENTIAL ELEMENT OF THE CRIME DEFINED BY THE
FIRST PARAGRAPH OF SECTION 189 OF THE INSURANCE ACT.
"2. THE RESPONDENT COURT OF APPEALS ERRED IN GIVING DUE WEIGHT TO
EXHIBITS F, F-1, TO F-17, INCLUSIVE SUFFICIENT TO ESTABLISH PETITIONER’S GUILT
BEYOND REASONABLE DOUBT.
"3. THE RESPONDENT COURT OF APPEALS ERRED IN NOT ACQUITTING HEREIN
PETITIONER."
We find the petition meritorious.
The main issue raised is whether or not a person can be convicted of having violated
the first paragraph of Section 189 of the Insurance Act without reference to the
second paragraph of the same section. In other words, it is necessary to determine
whether or not the agent mentioned in the first paragraph of the aforesaid section is
governed by the definition of an insurance agent found on its second paragraph.
The pertinent provision of Section 189 of the Insurance Act reads as follows:
"No insurance company doing business within the Philippine Islands, nor any agent
thereof, shall pay any commission or other compensation to any person for services
in obtaining new insurance, unless such person shall have first procured from the
Insurance Commissioner a certificate of authority to act as an agent of such company
as hereinafter provided. No person shall act as agent, subagent, or broker in the
solicitation of procurement of applications for insurance, or receive for services in
obtaining new insurance, any commission or other compensation from any insurance
company doing business in the Philippine Islands, or agent thereof, without first
procuring a certificate of authority so to act from the Insurance Commissioner, which
must be renewed annually on the first day of January, or within six months thereafter.
Such certificate shall be issued by the Insurance Commissioner only upon the written
application of persons desiring such authority, such application being approved and
countersigned by the company such person desires to represent, and shall be upon a
form approved by the Insurance Commissioner, giving such information as he may
require. The Insurance Commissioner shall have the right to refuse to issue or renew
and to revoke any such certificate in his discretion. No such certificate shall be valid,
however, in any event after the first day of July of the year following the issuing of
such certificate. Renewal certificates may be issued upon the application of the
company.
"Any person who for compensation solicits or obtains insurance on behalf of any
72

insurance company, or transmits for a person other than himself an application for a
policy of insurance to or from such company or offers or assumes to act in the
negotiating of such insurance, shall be an insurance agent within the intent of this
section, and shall thereby become liable to all the duties, requirements, liabilities,
and penalties to which an agent of such company is subject.
"Any person or company violating the provisions of this section shall be fined in the
sum of five hundred pesos. On the conviction of any person acting as agent,
subagent, or broker, of the commission of any offense connected with the business of
insurance, the Insurance Commissioner shall immediately revoke the certificate of
authority issued to him and no such certificate shall thereafter be issued to such
convicted person."
A careful perusal of the above-quoted provision shows that the first paragraph
thereof prohibits a person from acting as agent, subagent or broker in the solicitation
or procurement of applications for insurance without first procuring a certificate of
authority so to act from the Insurance Commissioner, while its second paragraph
defines who is an insurance agent within the intent of this section and, finally, the
third paragraph thereof prescribes the penalty to be imposed for its violation.
The respondent appellate court ruled that the petitioner is prosecuted not under the
second paragraph of Section 189 of the aforesaid Act but under its first paragraph.
Thus —
". . . it can no longer be denied that it was appellant’s most active endeavors that
resulted in issuance of policy to Isidro, she was there and then acting as agent, and
received the pay therefor - her defense that she was only acting as helper of her
husband can no longer be sustained, neither her point that she received no
compensation for issuance of the policy because
‘any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transmits for a person other than himself an application for a
policy of insurance to or from such company or offers or assumes to act in the
negotiating of such insurance, shall be an insurance agent within the intent of this
section, and shall thereby become liable to all the duties, requirements, liabilities,
and penalties, to which an agent of such company is subject.’ paragraph 2, Sec. 189,
Insurance Law,
now it is true that information does not even allege that she had obtained the
insurance,
‘for compensation’
which is the gist of the offense in Section 189 of the Insurance Law in its 2nd
paragraph, but what appellant apparently overlooks is that she is prosecuted not
under the 2nd but under the 1st paragraph of Sec. 189 wherein it is provided that,
‘No person shall act as agent, subagent, or broker, in the solicitation or procurement
of applications for insurance, or receive for services in obtaining new insurance any
commission or other compensation from any insurance company doing business in
the Philippine Island, or agent thereof, without first procuring a certificate of authority
to act from the insurance commissioner, which must be renewed annually on the first
day of January, or within six months thereafter.’
therefore, there was no technical defect in the wording of the charge, so that Errors 2
and 4 must be overruled." 12
From the above-mentioned ruling, the respondent appellate court seems to imply
73

that the definition of an insurance agent under the second paragraph of Section 189
is not applicable to the insurance agent mentioned in the first paragraph.
Parenthetically, the respondent court concludes that under the second paragraph of
Section 189, a person is an insurance agent if he solicits and obtains an insurance for
compensation, but, in its first paragraph, there is no necessity that a person solicits
an insurance for compensation in order to be called an insurance agent.
We find this to be a reversible error. As correctly pointed out by the Solicitor General,
the definition of an insurance agent as found in the second paragraph of Section 189
is intended to define the word "agent" mentioned in the first and second paragraphs
of the aforesaid section. More significantly, in its second paragraph, it is explicitly
provided that the definition of an insurance agent is within the intent of Section 189.
Hence —
"Any person who for compensation . . . shall be an insurance agent within the intent
of this section, . . ."
Patently, the definition of an insurance agent under the second paragraph holds true
with respect to the agent mentioned in the other two paragraphs of the said section.
The second paragraph of Section 189 is a definition and interpretative clause
intended to qualify the term "agent" mentioned in both the first and third paragraphs
of the aforesaid section.
Applying the definition of an insurance agent in the second paragraph to the agent
mentioned in the first and second paragraphs would give harmony to the aforesaid
three paragraphs of Section 189. Legislative intent must be ascertained from a
consideration of the statute as a whole. The particular words, clauses and phrases
should not be studied as detached and isolated expressions, but the whole and every
part of the statute must be considered in fixing the meaning of any of its parts and in
order to produce harmonious whole. 13 A statute must be so construed as to
harmonize and give effect to all its provisions whenever possible. 14 The meaning of
the law, it must be borne in mind, is not to be extracted from any single part, portion
or section or from isolated words and phrases, clauses or sentences but from a
general consideration or view of the act as a whole. 15 Every part of the statute must
be interpreted with reference to the context. This means that every part of the
statute must be considered together with the other parts, and kept subservient to the
general intent of the whole enactment, not separately and independently. 16 More
importantly, the doctrine of associated words (Noscitur a Sociis) provides that where
a particular word or phrase in a statement is ambiguous in itself or is equally
susceptible of various meanings, its true meaning may be made clear and specific by
considering the company in which it is found or with which it is associated. 17
Considering that the definition of an insurance agent as found in the second
paragraph is also applicable to the agent mentioned in the first paragraph, to receive
a compensation by the agent is an essential element for a violation of the first
paragraph of the aforesaid section. The appellate court has established ultimately
that the petitioner-accused did not receive any compensation for the issuance of the
insurance policy of Eugenio Isidro. Nevertheless, the accused was convicted by the
appellate court for, according to the latter, the receipt of compensation for issuing an
insurance policy is not an essential element for a violation of the first paragraph of
Section 189 of the Insurance Act.
We rule otherwise. Under the Texas Penal Code 1911, Article 689, making it a
misdemeanor for any person for direct or indirect compensation to solicit insurance
without a certificate of authority to act as an insurance agent, an information, failing
to allege that the solicitor was to receive compensation either directly or indirectly,
charges no offense. 18 In the case of Bolen v. Stake, 19 the provision of Section 3750,
Snyder’s Compiled Laws of Oklahoma 1909 is intended to penalize persons only who
acted as insurance solicitors without license, and while acting in such capacity
74

negotiated and concluded insurance contracts for compensation. It must be noted
that the information, in the case at bar, does not allege that the negotiation of an
insurance contract by the accused with Eugenio Isidro was one for compensation.
This allegation is essential, and having been omitted, a conviction of the accused
could not be sustained. It is well-settled in our jurisprudence that to warrant
conviction, every element of the crime must be alleged and proved. 20
After going over the records of this case, We are fully convinced, as the Solicitor
General maintains, that accused did not violate Section 189 of the Insurance Act.
WHEREFORE, the judgment appealed from is reversed and the accused is acquitted
of the crime charged, with costs de oficio.
SO ORDERED.

17. G.R. No. 136914. January 25, 2002.]
COUNTRY BANKERS INSURANCE CORPORATION, Petitioner, v.
LIANGA BAY AND COMMUNITY MULTI-PURPOSE COOPERATIVE,
INC., Respondent.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision 1 of the Court of
Appeals 2 dated December 29, 1998 in CA-G.R. CV Case No. 36902 affirming in toto
the Decision 3 dated December 26, 1991 of the Regional Trial Court of Lianga,
Surigao del Sur, Branch 28, in Civil Case No. L-518 which ordered petitioner Country
Bankers Insurance Corporation to fully pay the insurance claim of respondent Lianga
Bay and Community Multi-Purpose Cooperative, Inc., under Fire Insurance Policy No.
F-1397, for loss sustained as a result of the fire that occurred on July 1, 1989 in the
amount of Two Hundred Thousand Pesos (P200,000.00), with interest at twelve
percent (12%) per annum from the date of filing of the complaint until fully paid, as
well as Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos
(P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation
expenses, Ten Thousand Pesos (P10,000.00) as attorney’s fees, and the costs of suit.
The facts are undisputed:chanrob1es virtual 1aw library
The petitioner is a domestic corporation principally engaged in the insurance
business wherein it undertakes, for a consideration, to indemnify another against
loss, damage or liability from an unknown or contingent event including fire while the
respondent is a duly registered cooperative judicially declared insolvent and
represented by the elected assignee, Cornelio Jamero.
It appears that sometime in 1989, the petitioner and the respondent entered into a
contract of fire insurance. Under Fire Insurance Policy No. F-1397, the petitioner
insured the respondent’s stocks-in-trade against fire loss, damage or liability during
the period starting from June 20, 1989 at 4:00 p.m. to June 20, 1990 at 4:00 p.m., for
the sum of Two Hundred Thousand Pesos (P200,000.00).
On July 1, 1989, at or about 12:40 a.m., the respondent’s building located at
Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire and reduced to ashes,
resulting in the total loss of the respondent’s stocks-in-trade, pieces of furniture and
fixtures, equipments and records.

75

Due to the loss, the respondent filed an insurance claim with the petitioner under its
Fire Insurance Policy No. F-1397, submitting: (a) the Spot Report of Pfc. Arturo V.
Juarbal, INP Investigator, dated July 1, 1989; (b) the Sworn Statement of Jose
Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo.
The petitioner, however, denied the insurance claim on the ground that, based on the
submitted documents, the building was set on fire by two (2) NPA rebels who wanted
to obtain canned goods, rice and medicines as provisions for their comrades in the
forest, and that such loss was an excepted risk under paragraph No. 6 of the policy
conditions of Fire Insurance Policy No. F-1397, which provides:chanrob1es virtual 1aw
library
This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly, of any of the following occurrences, namely:
x
x
x
(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution,
military or usurped power.
Any loss or damage happening during the existence of abnormal conditions (whether
physical or otherwise) which are occasioned by or through or in consequence, directly
or indirectly, of any of said occurrences shall be deemed to be loss or damage which
is not covered by this insurance, except to the extent that the Insured shall prove
that such loss or damage happened independently of the existence of such abnormal
conditions.
Finding the denial of its claim unacceptable, the respondent then instituted in the
trial court the complaint for recovery of "loss, damage or liability" against petitioner.
The petitioner answered the complaint and reiterated the ground it earlier cited to
deny the insurance claim, that is, that the loss was due to NPA rebels, an excepted
risk under the fire insurance policy.
In due time, the trial court rendered its Decision dated December 26, 1991 in favor of
the respondent, declaring that:chanrob1es virtual 1aw library
Based on its findings, it is therefore the considered opinion of this Court, as it so
holds, that the defenses raised by defendant-Country Bankers has utterly crumbled
on account of its inherent weakness, incredibility and unreliability, and after applying
those helpful tools like common sense, logic and the Court’s honest appraisal of the
real and actual situation obtaining in this area, such defenses remains (sic)
unimpressive and unconvincing, and therefore, the defendant-Country Bankers has to
be irreversibly adjudged liable, as it should be, to plaintiff-Insolvent Cooperative,
represented in this action by its Assignee, Cornelio Jamero, and thus, ordering said
defendant-Country Bankers to pay the plaintiff-Insolvent Cooperative, as follows:
1. To fully pay the insurance claim for the loss the insured-plaintiff sustained as a
result of the fire under its Fire Insurance Policy No. F-1397 in its full face value of
P200,000.00 with interest of 12% per annum from date of filing of the complaint until
the same is fully paid;
2. To pay as and in the concept of actual or compensatory damages in the total sum
of P50,000.00;
3. To pay as and in the concept of exemplary damages in the total sum of
P50,000.00;
4. To pay in the concept of litigation expenses the sum of P5,000.00;
5. To pay by way of reimbursement the attorney’s fees in the sum of P10,000.00; and
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6. To pay the costs of the suit.
For being unsubstantiated with credible and positive evidence, the "counterclaim" is
dismissed.
IT IS SO ORDERED.
Petitioner interposed an appeal to the Court of Appeals. On December 29, 1998, the
appellate court affirmed the challenged decision of the trial court in its entirety.
Petitioner now comes before us via the instant petition anchored on three (3)
assigned errors, 4 to wit:
1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE CREDENCE
TO THE SPOT REPORT OF PFC. ARTURO JUARBAL (EXH. 3) AND THE SWORN
STATEMENT OF JOSE LOMOCSO (EXH. 4) THAT THE RESPONDENT’S STOCK-IN-TRADE
WAS BURNED BY THE NPA REBELS, HENCE AN EXCEPTED RISK UNDER THE FIRE
INSURANCE POLICY.
2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE FOR
12% INTEREST PER ANNUM ON THE FACE VALUE OF THE POLICY FROM THE FILING OF
THE COMPLAINT UNTIL FULLY PAID
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER LIABLE
FOR ACTUAL AND EXEMPLARY DAMAGES, LITIGATION EXPENSES, ATTORNEYS FEES
AND COST OF SUIT.
A party is bound by his own affirmative allegations. This is a well-known postulate
echoed in Section 1 of Rule 131 of the Revised Rules of Court. Each party must prove
his own affirmative allegations by the amount of evidence required by law which in
civil cases, as in this case, is preponderance of evidence, to obtain a favorable
judgment. 5
In the instant case, the petitioner does not dispute that the respondent’s stocks-intrade were insured against fire loss, damage or liability under Fire Insurance Policy
No. F-1397 and that the respondent lost its stocks-in-trade in a fire that occurred on
July 1, 1989, within the duration of said fire insurance. The petitioner, however, posits
the view that the cause of the loss was an excepted risk under the terms of the fire
insurance policy.
Where a risk is excepted by the terms of a policy which insures against other perils or
hazards, loss from such a risk constitutes a defense which the insurer may urge,
since it has not assumed that risk, and from this it follows that an insurer seeking to
defeat a claim because of an exception or limitation in the policy has the burden of
proving that the loss comes within the purview of the exception or limitation set up. If
a proof is made of a loss apparently within a contract of insurance, the burden is
upon the insurer to prove that the loss arose from a cause of loss which is excepted
or for which it is not liable, or from a cause which limits its liability. 6 Stated elsewise,
since the petitioner in this case is defending on the ground of non-coverage and
relying upon an exemption or exception clause in the fire insurance policy, it has the
burden of proving the facts upon which such excepted risk is based, by a
preponderance of evidence. 7 But petitioner failed to do so.
The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto
Urbiztondo as well as on the Spot Report of Pfc. Arturo V. Juarbal dated July 1, 1989,
more particularly the following statement therein:chanrob1es virtual 1aw library
. . . investigation revealed by Jose Lomocso that those armed men wanted to get can
goods and rice for their consumption in the forest PD investigation further disclosed
77

that the perpetrator are member (sic) of the NPA PD end. . . .
A witness can testify only to those facts which he knows of his personal knowledge,
which means those facts which are derived from his perception. 8 Consequently, a
witness may not testify as to what he merely learned from others either because he
was told or read or heard the same. Such testimony is considered hearsay and may
not be received as proof of the truth of what he has learned. Such is the hearsay rule
which applies not only to oral testimony or statements but also to written evidence as
well. 9
The hearsay rule is based upon serious concerns about the trustworthiness and
reliability of hearsay evidence inasmuch as such evidence are not given under oath
or solemn affirmation and, more importantly, have not been subjected to crossexamination by opposing counsel to test the perception, memory, veracity and
articulateness of the out-of-court declarant or actor upon whose reliability on which
the worth of the out-of-court statement depends. 10
Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible
in evidence, for being hearsay, inasmuch as they did not take the witness stand and
could not therefore be cross-examined.
There are exceptions to the hearsay rule, among which are entries in official records.
11 To be admissible in evidence, however, three (3) requisites must concur, to wit:
(a) that the entry was made by a public officer, or by another person specially
enjoined by law to do so;
(b) that it was made by the public officer in the performance of his duties, or by such
other person in the performance of a duty specially enjoined by law; and
(c) that the public officer or other person had sufficient knowledge of the facts by him
stated, which must have been acquired by him personally or through official
information. 12
The third requisite was not met in this case since no investigation, independent of the
statements gathered from Jose Lomocso, was conducted by Pfc. Arturo V. Juarbal. In
fact, as the petitioner itself pointed out, citing the testimony of Pfc. Arturo Juarbal, 13
the latter’s Spot Report "was based on the personal knowledge of the caretaker Jose
Lomocso who witnessed every single incident surrounding the facts and
circumstances of the case." This argument undeniably weakens the petitioner’s
defense, for the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose
Lomocso to the effect that NPA rebels allegedly set fire to the respondent’s building is
inadmissible in evidence, for the purpose of proving the truth of the statements
contained in the said report, for being hearsay.
The said Spot Report is admissible only insofar as it constitutes part of the testimony
of Pfc. Arturo V. Juarbal since he himself took the witness stand and was available for
cross-examination. The portions of his Spot Report which were of his personal
knowledge or which consisted of his perceptions and conclusions are not hearsay. The
rest of the said report relative to the statement of Jose Lomocso may be considered
as independently relevant statements gathered in the course of Juarbal’s
investigation and may be admitted as such but not necessarily to prove the truth
thereof. 14
The petitioner’s evidence to prove its defense is sadly wanting and thus, gives rise to
its liability to the respondent under Fire Insurance Policy No. F-1397. Nonetheless, we
do not sustain the trial court’s imposition of twelve percent (12%) interest on the
insurance claim as well as the monetary award for actual and exemplary damages,
litigation expenses and attorney’s fees for lack of legal and valid basis.
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Concerning the application of the proper interest rates, the following guidelines were
set in Eastern Shipping Lines, Inc. v. Court of Appeals and Mercantile Insurance Co.,
Inc.: 15
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts, is breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil Code govern in determining
the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.
In the said case of Eastern Shipping, the Court further observed that a "forbearance"
in the context of the usury law is a "contractual obligation of lender or creditor to
refrain, during a given period of time, from requiring the borrower or debtor to repay
a loan or debt then due and payable."cralaw virtua1aw library
Considering the foregoing, the insurance claim in this case is evidently not a
forbearance of money, goods or credit, and thus the interest rate should be as it is
hereby fixed at six percent (6%) computed from the date of filing of the complaint.
We find no justification for the award of actual damages of Fifty Thousand Pesos
(P50,000.00). Well-entrenched is the doctrine that actual, compensatory and
consequential damages must be proved, and cannot be presumed. 16 That part of
the dispositive portion of the Decision of the trial court ordering the petitioner to pay
actual damages of Fifty Thousand Pesos (P50,000.00) has no basis at all. The
justification, if any, for such an award of actual damages does not appear in the body
of the decision of the trial court. Neither is there any testimonial and documentary
evidence on the alleged actual damages of Fifty Thousand Pesos (P50,000.00) to
warrant such an award. Thus, the same must be deleted.
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Concerning the award of exemplary damages for Fifty Thousand Pesos (P50,000.00),
we likewise find no legal and valid basis for granting the same. Article 2229 of the
New Civil Code provides that exemplary damages may be imposed by way of
example or correction for the public good. Exemplary damages are imposed not to
enrich one party or impoverish another but to serve as a deterrent against or as a
negative incentive to curb socially deleterious actions. They are designed to permit
the courts to mould behavior that has socially deleterious consequences, and its
imposition is required by public policy to suppress the wanton acts of an offender.
However, it cannot be recovered as a matter of right. It is based entirely on the
discretion of the court. We find no cogent and valid reason to award the same in the
case at bar.
With respect to the award of litigation expenses and attorney’s fees, Article 2208 of
the New Civil Code 17 enumerates the instances where such may be awarded and, in
all cases, it must be reasonable, just and equitable if the same were to be granted.
Attorney’s fees as part of damages are not meant to enrich the winning party at the
expense of the losing litigant. They are not awarded every time a party prevails in a
suit because of the policy that no premium should be placed on the right to litigate.
18 The award of attorney’s fees is the exception rather than the general rule. As
such, it is necessary for the court to make findings of facts and law that would bring
the case within the exception and justify the grant of such award. We find none in this
case to warrant the award by the trial court of litigation expenses and attorney’s fees
in the amounts of Five Thousand Pesos (P5,000.00) and Ten Thousand Pesos
(P10,000.00), respectively, and therefore, the same must also be deleted.
WHEREFORE, the appealed Decision is MODIFIED. The rate of interest on the
adjudged principal amount of Two Hundred Thousand Pesos (P200,000.00) shall be
six percent (6%) per annum computed from the date of filing of the Complaint in the
trial court. The awards in the amounts of Fifty Thousand Pesos (P50,000.00) as actual
damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand
Pesos (P5,000.00) as litigation expenses, and Ten Thousand Pesos (P10,000.00) as
attorney’s fees are hereby DELETED. Costs against the petitioner.
SO ORDERED.

18. G.R. No. 138941. October 8, 2001.]
AMERICAN HOME ASSURANCE COMPANY, Petitioner, v. TANTUCO
ENTERPRISES, INC.,Respondent.
DECISION
PUNO, J.:
Before us is a Petition for Review on Certiorari assailing the Decision of the Court of
Appeals in CA-G.R. CV No. 52221 promulgated on January 14, 1999, which affirmed in
toto the Decision of the Regional Trial Court, Branch 53, Lucena City in Civil Case No.
92-51 dated October 16, 1995.
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and
refining industry. It owns two oil mills. Both are located at factory compound at Iyam,
Lucena City. It appears that respondent commenced its business operations with only
one oil mill. In 1988, it started operating its second oil mill. The latter came to be
commonly referred to as the new oil mill.chanrob1es virtua1 1aw 1ibrary
The two oil mills were separately covered by fire insurance policies issued by
petitioner American Home Assurance Co., Philippine Branch. 1 The first oil mill was
80

insured for three million pesos (P3,000,000.00) under Policy No. 306-7432324-3 for
the period March 1, 1991 to 1992. 2 The new oil mill was insured for six million pesos
(P6,000,000.00) under Policy No. 306-7432321-9 for the same term. 3 Official
receipts indicating payment for the full amount of the premium were issued by the
petitioner’s agent. 4
A fire that broke out in the early morning of September 30,1991 gutted and
consumed the new oil mill. Respondent immediately notified the petitioner of the
incident. The latter then sent its appraisers who inspected the burned premises and
the properties destroyed. Thereafter, in a letter dated October 15, 1991, petitioner
rejected respondent’s claim for the insurance proceeds on the ground that no policy
was issued by it covering the burned oil mill. It stated that the description of the
insured establishment referred to another building thus: "Our policy nos. 3067432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance coverage to your oil
mill under Building No. 5, whilst the affected oil mill was under Building No. 14."
5chanrob1es virtua1 1aw 1ibrary
A complaint for specific performance and damages was consequently instituted by
the respondent with the RTC, Branch 53 of Lucena City. On October 16, 1995, after
trial, the lower court rendered a Decision finding the petitioner liable on the
insurance policy thus:jgc:chanrobles.com.ph
"WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay
plaintiff:chanrob1es virtual 1aw library
(a) P4,406,536.40 representing damages for loss by fire of its insured property with
interest at the legal rate;
(b) P80,000.00 for litigation expenses;
(c) P300,000.00 for and as attorney’s fees; and
(d) Pay the costs.
SO ORDERED." 6
Petitioner assailed this judgment before the Court of Appeals. The appellate court
upheld the same in a Decision promulgated on January 14, 1999, the pertinent
portion of which states:jgc:chanrobles.com.ph
"WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trial
court’s Decision dated October 16, 1995 is hereby AFFIRMED in toto.
SO ORDERED." 7
Petitioner moved for reconsideration. The motion, however, was denied for lack of
merit in a Resolution promulgated on June 10, 1999.
Hence, the present course of action, where petitioner ascribes to the appellate court
the following errors:jgc:chanrobles.com.ph
"(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the
premium was beyond its jurisdiction because it was raised for the first time on
appeal." 8
"(2) The Court of Appeals erred in its legal interpretation of ‘Fire Extinguishing
Appliances Warranty’ of the policy." 9

81

"(3) With due respect, the conclusion of the Court of Appeals giving no regard to the
parole evidence rule and the principle of estoppel is erroneous." 10
The petition is devoid of merit.
The primary reason advanced by the petitioner in resisting the claim of the
respondent is that the burned oil mill is not covered by any insurance policy.
According to it, the oil mill insured is specifically described in the policy by its
boundaries in the following manner
"Front: by a driveway thence at 18 meters distance by Bldg. No. 2.
Right: by an open space thence by Bldg. No. 4.
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Rear: by an open space thence at 8 meters distance." However, it argues that this
specific boundary description clearly pertains, not to the burned oil mill, but to the
other mill. In other words, the oil mill gutted by fire was not the one described by the
specific boundaries in the contested policy.
What exacerbates respondent’s predicament, petitioner posits, is that it did not have
the supposed wrong description or mistake corrected. Despite the fact that the policy
in question was issued way back in 1988, or about three years before the fire, and
despite the "Important Notice" in the policy that "Please read and examine the policy
and if incorrect, return it immediately for alteration," respondent apparently did not
call petitioner’s attention with respect to the misdescription.
By way of conclusion, petitioner argues that respondent is "barred by the parole
evidence rule from presenting evidence (other than the policy in question) of its selfserving intention (sic) that it intended really to insure the burned oil mill," just as it is
"barred by estoppel from claiming that the description of the insured oil mill in the
policy was wrong, because it retained the policy without having the same corrected
before the fire by an endorsement in accordance with its Condition No. 28."
These contentions can not pass judicial muster.
In construing the words used descriptive of a building insured, the greatest liberality
is shown by the courts in giving effect to the insurance. 11 In view of the custom of
insurance agents to examine buildings before writing policies upon them, and since a
mistake as to the identity and character of the building is extremely unlikely, the
courts are inclined to consider that the policy of insurance covers any building which
the parties manifestly intended to insure, however inaccurate the description may
be. 12
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to
our mind, that what the parties manifestly intended to insure was the new oil mill.
This is obvious from the categorical statement embodied in the policy, extending its
protection:
"On machineries and equipment with complete accessories usual to a coconut oil
mill including stocks of copra, copra cake and copra mills whilst contained in the new
oil mill building, situate (sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM,
LUCENA CITY UNBLOCKED.’’ 13 (Emphasis supplied.)
If the parties really intended to protect the first oil mill, then there is no need to
specify it as new.
Indeed, it would be absurd to assume that respondent would protect its first oil mill
for different amounts and leave uncovered its second one. As mentioned earlier, the
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first oil mill is already covered under Policy No. 306-7432324-4 issued by the
petitioner. It is unthinkable for respondent to obtain the other policy from the very
same company. The latter ought to know that a second agreement over that same
realty results in its over insurance.
The imperfection in the description of the insured oil mill’s boundaries can be
attributed to a misunderstanding between the petitioner’s general agent, Mr. Alfredo
Borja, and its policy issuing clerk, who made the error of copying the boundaries of
the first oil mill when typing the policy to be issued for the new one. As testified to by
Mr. Borja:chanrob1es virtua1 1aw 1ibrary
"Atty. G. Camaligan:
Q: What did you do when you received the report?
A: I told them as will be shown by the map the intention really of Mr. Edison Tantuco
is to cover the new oil mill that is why when I presented the existing policy of the old
policy, the policy issuing clerk just merely (sic) copied the wording from the old policy
and what she typed is that the description of the boundaries from the old policy was
copied but she inserted covering the new oil mill and to me at that time the
important thing is that it covered the new oil mill because it is just within one
compound and there are only two oil mill[s] and so just enough, I had the policy
prepared. In fact, two policies were prepared having the same date one for the old
one and the other for the new oil mill and exactly the same policy period, sir." 14
(Emphasis supplied)
It is thus clear that the source of the discrepancy happened during the preparation of
the written contract.
These facts lead us to hold that the present case falls within one of the recognized
exceptions to the parole evidence rule. Under the Rules of Court, a party may present
evidence to modify, explain or add to the terms of the written agreement if he puts in
issue in his pleading, among others, its failure to express the true intent and
agreement of the parties thereto. 15 Here, the contractual intention of the parties
cannot be understood from a mere reading of the instrument. Thus, while the
contract explicitly stipulated that it was for the insurance of the new oil mill, the
boundary description written on the policy concededly pertains to the first oil mill.
This irreconcilable difference can only be clarified by admitting evidence aliunde,
which will explain the imperfection and clarify the intent of the parties.
Anent petitioner’s argument that the respondent is barred by estoppel from claiming
that the description of the insured oil mill in the policy was wrong, we find that the
same proceeds from a wrong assumption. Evidence on record reveals that
respondent’s operating manager, Mr. Edison Tantuco, notified Mr. Borja (the
petitioner’s agent with whom respondent negotiated for the contract) about the
inaccurate description in the policy. However, Mr. Borja assured Mr. Tantuco that the
use of the adjective new will distinguish the insured property. The assurance
convinced respondent, despite the impreciseness in the specification of the
boundaries, the insurance will cover the new oil mill. This can be seen from the
testimony on cross of Mr. Tantuco
"ATTY. SALONGA:chanrob1es virtual 1aw library
Q: You mentioned, sir, that at least in so far as Exhibit A is concern you have read
what the policy contents. (sic)
Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2
particularly the boundaries of the property insured by the insurance policy Exhibit A,
will you tell us as the manager of the company whether the boundaries stated in
83

Exhibit A-2 are the boundaries of the old (sic) mill that was burned or not.
A: It was not, I called up Mr. Borja regarding this matter and he told me that what is
important is the word new oil mill. Mr. Borja said, as a matter of fact, you can never
insured (sic) one property with two (2) policies, you will only do that if you will make
to increase the amount and it is by indorsement not by another policy, sir.,, 16
We again stress that the object of the court in construing a contract is to ascertain
the intent of the parties to the contract and to enforce the agreement which the
parties have entered into. In determining what the parties intended, the courts will
read and construe the policy as a whole and if possible, give effect to all the parts of
the contract, keeping in mind always, however, the prime rule that in the event of
doubt, this doubt is to be resolved against the insurer. In determining the intent of
the parties to the contract, the courts will consider the purpose and object of the
contract. 17chanrob1es virtua1 1aw 1ibrary
In a further attempt to avoid liability, petitioner claims that respondent forfeited the
renewal policy for its failure to pay the full amount of the premium and breach of the
Fire Extinguishing Appliances Warranty.
The amount of the premium stated on the face of the policy was P89,770.20. From
the admission of respondent’s own witness, Mr. Borja, which the petitioner cited, the
former only paid it P75,147.00, leaving a difference of P14,623.20. The deficiency,
petitioner argues, suffices to invalidate the policy, in accordance with Section 77 of
the Insurance Code. 18
The Court of Appeals refused to consider this contention of the petitioner. It held that
this issue was raised for the first time on appeal, hence, beyond its jurisdiction to
resolve, pursuant to Rule 46, Section 18 of the Rules of Court. 19
Petitioner, however, contests this finding of the appellate court. It insists that the
issue was raised in paragraph 24 of its Answer, viz.:
"24. Plaintiff has not complied with the condition of the policy and renewal certificate
that the renewal premium should be paid on or before renewal date."
Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja,
who acknowledged that the paid amount was lacking by P14,623.20 by reason of a
discount or rebate, which rebate under Sec. 361 of the Insurance Code is illegal.
The argument fails to impress. It is true that the asseverations petitioner made in
paragraph 24 of its Answer ostensibly spoke of the policy’s condition for payment of
the renewal premium on time and respondent’s non-compliance with it. Yet, it did not
contain any specific and definite allegation that respondent did not pay the premium,
or that it did not pay the full amount, or that it did not pay the amount on time.
Likewise, when the issues to be resolved in the trial court were formulated at the pretrial proceedings, the question of the supposed inadequate payment was never
raised. Most significant to point, petitioner fatally neglected to present, during the
whole course of the trial, any witness to testify that respondent indeed failed to pay
the full amount of the premium. The thrust of the cross-examination of Mr. Borja, on
the other hand, was not for the purpose of proving this fact. Though it briefly touched
on the alleged deficiency, such was made in the course of discussing a discount or
rebate, which the agent apparently gave the Respondent. Certainly, the whole tenor
of Mr. Borja’s testimony, both during direct and cross examinations, implicitly
assumed a valid and subsisting insurance policy. It must be remembered that he was
called to the stand basically to demonstrate that an existing policy issued by the
petitioner covers the burned building.

84

Finally, petitioner contends that respondent violated the express terms of the Fire
Extinguishing Appliances Warranty. The said warranty provides:
"WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances as
mentioned below shall be maintained in efficient working order on the premises to
which insurance applies:chanrob1es virtual 1aw library
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and the Company shall
no longer be liable for any loss which may occur." 20
Petitioner argues that the warranty clearly obligates the insured to maintain all the
appliances specified therein. The breach occurred when the respondent failed to
install internal fire hydrants inside the burned building as warranted. This fact was
admitted by the oil mill’s expeller operator, Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate court’s conclusion that
the aforementioned warranty did not require respondent to provide for all the fire
extinguishing appliances enumerated therein. Additionally, we find that neither did it
require that the appliances are restricted to those mentioned in the warranty. In other
words, what the warranty mandates is that respondent should maintain in efficient
working condition within the premises of the insured property, fire fighting
equipments such as, but not limited to, those identified in the list, which will serve as
the oil mill’s first line of defense in case any part of it bursts into flame.
To be sure, respondent was able to comply with the warranty. Within the vicinity of
the new oil mill can be found the following devices: numerous portable fire
extinguishers, two fire hoses, 21 fire hydrant, 22 and an emergency fire engine. 23
All of these equipments were in efficient working order when the fire occurred.
It ought to be remembered that not only are warranties strictly construed against the
insurer, but they should, likewise, by themselves be reasonably interpreted. 24 That
reasonableness is to be ascertained in light of the factual conditions prevailing in
each case. Here, we find that there is no more need for an internal hydrant
considering that inside the burned building were: (1) numerous portable fire
extinguishers, (2) an emergency fire engine, and (3) a fire hose which has a
connection to one of the external hydrants.
IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant
petition is hereby DISMISSED.
SO ORDERED.

85

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