Insurance Full Text 1

SAN BEDA COLLEGE OF LAW
Mendiola, Manila
CASES IN INSURANCE
Prepared by: Dean Jose Sundiang
I. CONSTRUCTION OF INSURANCE CONTRACT
1. Calanoc v. Court of Appeals, 98 Phil. 79 [1955]
2. Biagtan v. Insular Life Assurance Co., Ltd., 44 SCRA 58
3. Finman Gen. Insurance Corp. v. Court of Appeals, 213 SCRA 493 [1992]
4. Zenith Insurance Corp. v. Court of Appeals, 185 SCRA 398
5. Sun Insurance Office Ltd. V. Court of Appeals, 211 SCRA 554 [1992]
6. Villacorta v. Insurance Commission, 100 SCRA 467
7. Figuracion Vda. De Maglana v. Hon. Francisco Consolacion 212 SCRA 268
[1992]
8. Perla Compania de Seguro, Inc. v. court of Appeals, 208 SCRA 487
9. Geagonia v. Court of Appeals, 241 SCRA 152 [1995]
10. Fortune Insurance and Surety Co., Inc. v. Court of Appeals, 244 SCRA 308
[1995]
11. Edillon v. Manila Bankers Life, 117 SCRA 187
12. Perla Compania de Seguro v. CA, 185 SCRA 741 [1990]
13. Aisporna v. CA, 113 SCRA 459 *Crispona
14. White Gold Marine Services, Inc. vs. Pioneer Insurance and Surety
Corporation and Steamship Mutual Underwriting Association Ltd. [G.R. No.
464 SCRA 448]
15. Republic vs. Sunlife Assurance Company of Canada [473 SCRA 129, Oct.
14, 2005]
16. Philam Care Health Systems, Inc. v. Court of Appeals, 379 SCRA 356
[2002]
17. Commissioner of Internal Revenue v. Lincoln Philippine Life Insurance
Company, 379 SCRA 423 [2002]
II. PERFECTION OF INSURANCE CONTRACT
18. Enriquez v. Sun Life Assurance Co. of Canada, 41 Phil. 269
19. Great Pacific Life Insurance Co. v. Court of Appeals, 89 SCRA 543
20. Dev. Bank of the Phils. V. Court of Appeals, 231 SCRA 370 [1994]
21. Philamcare Health Systems, Inc. v. Court of Appeals, 379 SCRA 356 [2002]
22. Gulf Resorts, Inc. v. Phil Charter Insurance, Corp., 458 SCRA 550 [2005]
III. SUBROGATION
23. Malayan Insurance Co., Inc. v. Court of Appeals, 165 SCRA 536
24. Manila Mahogany v. Court of Appeals, 154 SCRA 650
25. Pan Malayan Ins. Corp. v. Court of Appeals, 184 SCRA 54
26. Cebu Shipyard and Engineering Works, Inc. v. William Lines, 306 SCRA
762 [1999]
27. Delsan Transport Lines, Inc. v. Court of Appeals, 369 SCRA 24 [2001]
28. Federal Express Corporation v. American Home Assurance Company, 437
SCRA 50 [2004]

IV. INSURABLE INTEREST
29. Sps. Nilo and Stella Cha v. Court of Appeals, 277 SCRA 690 [1997]
30. Great Pacific Life Insurance Corp. v. CA, 316 SCRA 677 [1999]
31. Harvardian Colleges of San Fernando Pampanga, Inc. v. Country Bankers
Insurance Corp., CA, 1 SCRA 1 [1986]
32. Ang Ka Yu v. Phoenix Assurance Co. Ltd., 1 SCRA 704 [1961]
V. CONCEALMENT AND REPRESENTATION
33. Insular Life Assurance Co. v. Serafin D. Feliciano, 74 Phil. 468
34. Sunlife Assurance Co. of Canada v. Court of Appeals, 245 SCRA 268
[1995]
35. Thelma Vda. De Canilang v. Court of Appeals, 223 SCRA 443 [1993]
VI. PERSONS ENTITLED TO RECOVER UNDER THE POLICY
36. Bonifacio Bros. v. Mora, 20 SCRA 261
37. First Integrated Bonding & Insurance Co. v. Hernando 199 SCRA 796
[1991]
38. Sherman Shaper v. Hon. Judge RTC of Olongapo City 167 SCRA368
VII. INCONTESTABILITY CLAUSE
39. Tan v. Court of Appeals, 174 SCRA 403
VIII. LIABILITY UNDER AN OPEN POLICY
40. Development Insurance Corp. v. Intermediate Appellate Court, 143 SCRA
62
IX. PRESCRIPTION OF ACTION
41. Sun Insurance Office Ltd. V. Court of Appeals, 195 SCRA 139 [1991]
42. Jacqueline Jimenez Vda. De Gabriel v. Court of Appeals, 264 SCRA 137
[1996]
X. PREMIUM PAYMENTS
43. Malayan Insurance Co. Inc. v. Gregorio Cruz Arnaldo, 154 SCRA 672
44. Makati Tuscany Condominium Corp. v. Court of Appeals, 215 SCRA 462
[1992]
45. South Sea Surety and Ins. Co. Inc. v. Court of Appeals, 244 SCRA 744
[1995]
46. Sps. Antonio Tibay and Violeta Tibay et. al. v. Court of Appeals, 257 SCRA
126 [1996]
47. UCPB General Insurance Co. Inc. vs. Masagana Telemart, Inc., 356 SCRA
307 [2001]
48. American Home Assurance Co. v. Antonio Chua, 309 SCRA 250 [1999]
49. Paulin v. Insular Life Assurance. Co. Ltd., 47 OG 3012 [1949]
XI. DOUBLE INSURANCE
50. Pioneer Insurance & Surety Corp. v. Olivia Yap 61 SCRA 426
51. Republic Bank v. Phil. Guaranty Co., Inc., 47 SCRA 271
XII. MARINE INSURANCE
52. Oriental Assurance Corp. v. Court of Appeals, 200 SCRA 459 [1991]
53. Roque v. Intermediate Appellate Court, 139 SCRA 597

54. Filipinas Merchants Insurance v. court of Appeals, 179 SCRA 638
55. Choa Tek Seng v. Court of Appeals, 18. SCRA 223
56. Delsan Transport Lines, Inc. v. Court of Appels, 369 SCRA 24
XIII. LIFE INSURANCE
57. Del Val v. Del Val, 29 Phil. 535
58. Bank of the Phil. Islands v. Posadas, 56 Phil. 215
59. Insular Life v. Ebrado, 80 SCRA 181
XIV. CASH SURRENDER VALUE
60. Manufacturing Life Insurance Co. v. Meer, 89 Phil. 351 [1981]
XV. SURETYSHIP
61. Development Bank of the Phils. v. Court of Appeals, 231 SCRA 370 [1994]
62. Phil. Pryce Assurance Corp. v. CA, 230 SCRA 164
XVI. CLAIMS SETTLEMENT (Secs. 234 & 244) AND PROOF OF LOSS
63. Tio Khe Chio vs. Court of Appeals, 202 SCRA 119 [1991]
64. Finman Assurance Corporation v. Court of Appeals, 361 SCRA 514 [2001]
65. Country Bankers Insurance Corporation v. Lianga Bay and Community
Muti-Purpose Cooperative, 374 SCRA 653 [2002]
XVII. Compulsory Motors Vehicle Liability INSURANCE
66. Perla Compania de Seguro, Inc. v. Hon. Constante Ancheta, 164 SCRA 144
67. First Quezon City Insurance Co. v. Court of Appeals, 218 SCRA 525 [1993]
68. Perla Compania de Seguro, Inc. v. Ramolete, 203 SCRA 487 [1991]
69. Government Service Insurance System v. Court of Appeals, 308 SCRA
559, June 21, 1999
XVIII. JURISDICTION OF THE INSURANCE COMMISSION
70. Philippine American Life Insurance Co., v. Ansaldo, 234 SCRA 509 [1994]

Republic of the Philippines
SUPREME COURT
Manila
G.R. No. L-8151

December 16, 1955

VIRGINIA CALANOC, petitioner,
vs.
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.

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 Zurbaan 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 follows:
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 tree

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 boud 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
wh robbed, or one of those who robbed, the house of Atty. Ojeda. Hence, it is out 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.
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 declied 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 excempt 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 exluded 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 aganst the one who
has caused the obscurity. (Article 1377, new Civil Code) And so it has bene generally held that the
"terms in an insurance policy, which are ambiguous, equivacal, 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 he "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 bearings 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 vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA
1917A, 1237.)lawphi1.net
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 vs. 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 petitionerappellant the amount of P2,000, with legal interest from January 26, 1951 until fully paid, with costs.

Paras, C. J., Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion, and Reyes, J.
B. L., JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC

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,
vs.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.
Tanopo, Millora, Serafica, and Sañez for plaintiff-appellees.
Araneta, Mendoza and Papa for defendant-appellant.

MAKALINTAL, J.:p
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 InsularLife 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 another
party."
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:
...; 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 on the
second floor, rushed towards the door of the second floor room, where they suddenly
met a person near the door of oneof the rooms who turned out to be the insured
Juan S. Biagtan who received thrusts from their sharp-pointed 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;
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 nonmortal — 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."
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 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 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 thatin 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 vs. 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
people around for his own protection and not necessarrily 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.

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 another person, applies to this case."
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.
Makasiar, J., reserves his vote.

Separate Opinions

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 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 benificiaries, 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.
TEEHANKEE, J., dissenting:
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:
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:
EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either
directly or indirectly, from any one of the following causes:
(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
body, drowning and internal injuries revealed by autopsy excepted;
(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in anyriot, 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 beeninflicted
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:
(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 thrust from their sharp-pointed 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 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 wasintended 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 vs. 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:
"...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 ..."
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:
"... 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 ability for the damage done, the fact remains that the
happening was a pure accidentt 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 vs. 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 accidentalconsidering 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:
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 double-indemnity, 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 a 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 . 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 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
consequences of its failure to discharge its burden of proving by competent evidence, e.g. the robbers' or
eyewitnesses' 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 noitice 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.
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
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 vs. 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 vs. Aetna Life
Insurance Co., LRA 1915D, 164).12
The Court has but recently reiterated this doctrine in Landicho vs. 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:
— 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 exepted: 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 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 which 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 defendantappellant.
Concepcion, C.J. and Reyes, J.B.L., J., concur.

Separate Opinions
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 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 benificiaries, 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.
TEEHANKEE, J., dissenting:
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:
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:
EXCEPTIONS. The Benefit shall not apply if the Insured's death shall result, either
directly or indirectly, from any one of the following causes:
(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
body, drowning and internal injuries revealed by autopsy excepted;
(5) Any injuries received (a) while on police duty in any military, naval or police
organization; (b) in anyriot, 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 beeninflicted
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:
(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 thrust from their sharp-pointed 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 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 wasintended 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 vs. 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:
"...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 ..."
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:
"... 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 ability for the damage done, the fact remains that the
happening was a pure accidentt 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 vs. 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 accidentalconsidering 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:
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 double-indemnity, 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 a 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 . 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 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
consequences of its failure to discharge its burden of proving by competent evidence, e.g. the robbers' or
eyewitnesses' 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 noitice 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.
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
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 vs. 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 vs. Aetna Life
Insurance Co., LRA 1915D, 164).12
The Court has but recently reiterated this doctrine in Landicho vs. 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:
— 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 exepted: 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 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 which 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 defendantappellant.
Concepcion, C.J. and Reyes, J.B.L., J., concur.

G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.
Aquino and Associates for petitioner.
Public Attorney's Office for private respondent.

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.
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."
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:
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
On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove 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.
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.
. . . 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:
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 where 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 stimulated 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 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.
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.
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 forcertiorari with restraining order and preliminary injunction is hereby DENIED for lack of
merit.
SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 85296 May 14, 1990
ZENITH INSURANCE CORPORATION, petitioner,
vs.
COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.
Vicente R. Layawen for petitioner.
Lawrence L. Fernandez & Associates for private respondent.

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. CEB1215 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 moral 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 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 view 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 forcertiorari 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, attorneys 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 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:

a) The legal basis of respondent Court of Appeals in awarding moral damages,
exemplary damages and attomey'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 attomey'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 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. CruzArnaldo, 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 attomey'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 mntion 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.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 92383 July 17, 1992
SUN INSURANCE OFFICE, LTD., petitioner,
vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

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 television, he stood in front of her and pointed
the gun at her. She pushed it aside and said it might he loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor. He
was dead before he fell. 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;
P5,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus the costs of the
suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. 3 The
petitioner then came to this Court to fault the Court of Appeals for approving the payment of the claim and
the award of damages.
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. 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 injured 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:
Exceptions —
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx
b. consequent upon
i) The insured person attempting to commit suicide or willfully 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 hip 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.
The contrary view is expressed by the petitioner thus:

Accident insurance policies 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 then 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. 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 had 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 a
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 in so far 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.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-54171 October 28, 1980
JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA, petitioner,
vs.
THE INSURANCE COMMISSION and EMPIRE INSURANCE COMPANY, respondents.

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 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, selfignition 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 "The 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 vs. 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 "Such 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 A LR 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 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
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. "Who 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."
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 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 the filing of such claim for
reimbursement or payment as it may have as subrogee against the Sunday Machine Works, Inc.
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.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

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,
vs.
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 respondent.

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 correccional, 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 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 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:

Sec. 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
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 vs. 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 even 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-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 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 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 P28,800.00. 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.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 96452 May 7, 1992
PERLA COMPANIA DE SEGUROS, INC. petitioner,
vs.
THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.
G.R. No. 96493 May 7, 1992
FCP CREDIT CORPORATION, petitioner,
vs.
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 Herminio and Evelyn Lim.

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
1
Credit Corporation in G.R. No. 96493, both seeking to annul and set aside the decision dated July 30, 1990 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:
On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a promissory
note in favor Supercars, Inc. in the sum of P77,940.00, 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/41PPQCB-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:
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 requests 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
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 which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
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 from July 2,
1983 until fully paid;
2. Ordering defendants to pay plaintiff P50,000.00 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 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. 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 is in contemplation or anticipation of accident
in the legal sense in which it should be understood, and not in contemplation or
anticipation of an event such as theft. The distinction — often seized upon by insurance
companies in resisting claims from their assureds — between death occurring as a result
of accident and death occurring as a result of intent may, by analogy, apply to the case at
bar. 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
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
MORTGAGE 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 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.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 114427 February 6, 1995
ARMANDO GEAGONIA, petitioner,
vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.

DAVIDE, JR., J.:
Four our review under Rule 45 of the Rules of Court is the decision 1 of the Court of Appeals in CAG.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. F14622 2 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and
covered the following: "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:

Zenco Sales, Inc.

F. Legaspi Gen. Merchandise

Cebu Tesing Textiles

P55,698.00

86,432.50

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 affected, or which may subsequently be effected, covering any of the
property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured, and unless such notice be given and the particulars
of such insurance or insurances be stated therein or endorsed 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 stock-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:
MORTGAGE: 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 "AM" 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 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 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 the
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 insurance 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)."
In 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. 1462. . . .
Indeed private respondent's allegation of lack of knowledge of the provisions
insurances is belied by his letter to petitioner [of 18 January 1991. The body of the
letter reads as follows;]
xxx xxx xxx
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 die 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 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 claimed 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 or 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. 3440 as Annex "M" thereof and made 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
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 fact 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 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 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 to 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 himself. 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 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 this 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. F14622 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
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 COINSURANCE 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 CAG.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.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

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 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 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:
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 report 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 Magalong
are not its "officer, employee, . . . trustee or authorized representative . . . at the time of the
1
robbery.

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:
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 are replacement for such
driver 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 4promulgated 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 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" must 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 plaintiff-appellee
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, 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 employees 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.
Producers further asseverates that what should be applied is the rule in American President Lines vs.
Clave, 8 to wit:
In determining the existence of employer-employee relationship, the following elements
are generally considered, namely: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the power to control the
employee's 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. (emphases 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. 13The terms "service" and "employment" are generally associated with the idea of selection,
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 for 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. . . . (emphases 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 employeremployee 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, "labor-only"
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 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 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.