Insurance Midterm Case

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1
THE POLICY
HEIRS OF MARAMAG VS MARAMAG
Lessons Applicable: To whom insurance
proceeds payable (Insurance)
FACTS:
Loreto Maramag designated as
beneficiary his concubine Eva
de Guzman Maramag
 Vicenta Maramag and Odessa, Karl
Brian, and Trisha Angelie (heirs of
Loreto Maramag) and his
concubine Eva de Guzman Maramag,
also suspected in the killing of Loreto
and his illegitimate children are
claiming for his insurance.
 Vicenta alleges that Eva is
disqualified from claiming
 RTC: Granted - civil code does NOT
apply
 CA: dismissed the case for lack
of jurisdiction for filing beyond
reglementary period
ISSUE: W/N Eva can claim even though
prohibited under the civil code against
donation


HELD: YES. Petition is DENIED.
 Any person who is forbidden from
receiving any donation under Article
739 cannot be named beneficiary of
a life insurance policy of the person
who cannot make any donation to him
 If a concubine is made the
beneficiary, it is believed that
the insurance contract will still
remain valid, but
the indemnity must go to the
legal heirs and not to the
concubine, for evidently, what is
prohibited under Art. 2012 is
the naming of the improper
beneficiary.
 SECTION 53. The insurance proceeds
shall be applied exclusively to the
proper interest of the person in whose
name or for whose benefit it is made
unless otherwise specified in the
policy.
 GR: only persons entitled to
claim the insurance proceeds
are either the insured, if still
alive; or the beneficiary, if the
insured is already deceased,
upon the maturation of the
policy.
 EX: situation where
the insurance contract was
intended to benefit third
persons who are not parties to
the same in the form of
favorable stipulations



or indemnity. In such a case,
third parties may directly sue
and claim from the insurer
It is only in cases where the insured
has not designated any beneficiary, or
when the designated beneficiary is
disqualified by law to receive the
proceeds, that the insurance policy
proceeds shall redound to the benefit
of the estate of the insured

Social Security System V. Davac (1966)
FACTS:

Petronilo Davac, a former employee of
Lianga Bay Logging Co., Inc. became a
member of the Social Security
System (SSS) he designated Candelaria
Davac as his beneficiary and indicated his
relationship to her as that of "wife"

Lourdes Tuplano his legal wife and
their son Romeo Davac and Candelaria
Davac and their minor
daughter Elizabeth Davac filed their claims

Due to the conflicting claims, the SSS
filed a petition praying that both of them
be required to interplead and litigate the
conflicting claims.

The death benefits were awarded to
Candelaria Davac.
ISSUE: W/N Candelaria Davac can claim and
New Civil Code 739 is not applicable
HELD: YES.

she was not guilty of concubinage,
there being no proof that she had
knowledge of the previous marriage of her
husband Petronilo

The amounts that may thus be
received cannot be considered as property
earned by the member during his lifetime

if there is a named beneficiary and the
designation is not invalid (as it is not so in
this case), it is not the heirs of the
employee who are entitled to receive the
benefits (unless they are the designated
beneficiaries themselves). It is only when
there is no designated beneficiaries or
when the designation is void, that the laws
of succession are applicable. And we have
already held that the Social Security Act is
not a law of succession.

Under the SSS Act, the beneficiary as
recorded by the employee’s employer is
the one entitled to the death benefits,
hence they should go to Candelaria.
Lourdes contends that the designation
made in the person of Candelaria who is
party in a bigamous marriage is null and
void for being against Art. 739 of the CC.
SC held that the disqualification mentioned
in Art. 739 is NOT applicable to Candelaria,
because she was not guilty of concubinage
, there bieing NO proof that she had actual
knowledge of the previous marriage of her
husband.

2

Vda. De Consuegra v. GSIS
Facts:
> Jose Consuegra was employed as a shop
foreman of the Office of the District
Engineer in Surigao Del Norte.
> When he was still alive, he contracted two
marriages:
o First – Rosario Diaz; 2 children = Jose
Consuegra Jr. and Pedro but both
predeceased him
o 2nd – Basilia Berdin; 7 children. (this was
contracted in GF while the first marriage
subsisted)
> Being a GSIS member when he died, the
proceeds of his life insurance were paid by
the GSIS to Berdin and her children who
were the beneficiaries named in the policy.
> Since he was in the gov’t service for
22.5028 years, he was entitled to
retirement insurance benefits, for which no
beneficiary was designated.
> Both families filed their claims with the
GSIS, which ruled that the legal heirs were
Diaz who is entitled to one-half or 8/16 of
the retirement benefits and Berdin and her
children were entitled to the remaining
half, each to receive an equal share of
1/16.
> Berdin went to CFI on appeal. CFI affirmed
GSIS decision.
Issue:
To whom should the retirement insurance
benefits be paid?
Held:
Both families are entitled to half of the
retirement benefits.
The beneficiary named in the life insurance
does NOT automatically become the
beneficiary in the retirement insurance.
When Consuegra, during the early part of
1943, or before 1943, designated his
beneficiaries in his life insurance, he could
NOT have intended those beneficiaries of
his life insurance as also the beneficiaries
of his retirement insurance because the
provisions on retirement insurance under
the GSIS came about only when CA 186
was amended by RA 660 on June 18, 1951.
Sec. 11(b) clearly indicates that there is need
for the employee to file an application for
retirement insurance benefits when he
becomes a GSIS member and to state his
beneficiary. The life insurance and the
retirement insurance are two separate and
distinct systems of benefits paid out from
2 separate and distinct funds.
In case of failure to name a beneficiary in an
insurance policy, the proceeds will accrue
to the estate of the insured. And when
there exists two marriages, each family
will be entitled to one-half of the estate.
New Life Enterprises V. Court Of Appeals
(1992)

Lesson Applicable: REQUISITES OF
DOUBLE INSURANCE
FACTS:

May 15, 1981: Western Guaranty
Corporation issued Fire Insurance Policy
to New Life Enterprises foar P350,000

renewed on May, 13, 1982

July 30,1981: Reliance Surety and
Insurance Co., Inc. issued Fire
Insurance Policy to New Life
Enterprises for P300,000

November 12, 1981;
Additional P700,000

February 8, 1982: Equitable Insurance
Corporation issued Fire Insurance Policy
to New Life Enterprises for P200,000

October 19, 1982 2 am: fire electrical
in nature destroyed the stock in trade
worth P1,550,000

Julian Sy went to Reliance to claim but
he was refused. Same thing happened
with the others who were sister
companies.

Sy
violated the "Other Insurance Clause"

RTC: favored New Life and against the
three insurance companies

CA: reversed -failure to state or
endorse the other insurance coverage
ISSUE: W/N Sy can claim against the three
insurance companies for violating
the "Other Insurance Clause"
HELD: NO.
The terms
of the contract are clear and unambiguous.
The insured is specifically required to disclose
to the insurer any other insurance and its
particulars which he may have effected on
the same subject matter.
The knowledge of such insurance
by the insurer's agents, even assuming the
acquisition thereof by the former,
is not the "notice" that would estop the
insurers from denying the claim.
conclusion of
the trial court that Reliance and Equitable
are "sistercompanies" is an unfounded conj
ecture drawn from the mere fact that Yap
Kam Chuan was
an agent for both companies which also
had the same insurance claims adjuster
Availmentof the
services of the same agents and adjusters
by different companies is a
common practice in the insurancebusiness
and such facts
do not warrant the speculative conclusion
of the trial court.
The conformity of the insured to the terms of
the policy isimplied from his failure to
express any disagreement with
what is provided for.
a clear misrepresentation and a vital one
because where

3
the insured had been asked to reveal
but did not, that was deception - guilty of c
lear fraud
total absence of such notice nullifies the
policy
assuming arguendo that petitioners felt the
legitimate need to be clarified as to the pol
icy condition violated, there was a
considerable lapse of time from their
receipt of the insurer's clarificatory letter
dated March 30, 1983, up to the time the
complaint was filed in court on
January 31, 1984. The one-year prescriptiv
e period was yet to
expire on November 29, 1983, or about eig
ht (8) months from the
receipt of the clarificatory letter, but petiti
oners let the
period lapse without bringing their action i
n court
ACCFA VS ALPHA
The year for instituting action in court must
be reckoned from the time of appellee's
refusal to comply with its bond
FACTS:
Alpha Insurance & Surety Company had
issued a fidelity bond in favor or the
Asingan Farmers' Cooperative Marketing
Association, Inc. (FACOMA) against los on
account of “personal dishonesty” of its
Secretary Treasurer Ricardo Ladines.
FACOMA then assigned its rights to
Agricultural Credit Cooperative and
Financing Administration with the approval
of the principal and the surety.
During the effectivity of the bond, the
principal Ricardo Ladines misappropriated
for personal benefit the funds of FACOMA,
and part of which belonged to ACCFA.
ACCFA then filed a claim for the loss to the
surety company Alpha, but it refused and
failed to pay. A suit then filed by the
ACCFA. Defendant Alpha Insurance &
Surety Co., Inc., moved to dismiss the
complaint for the reason that the same
was filed more than one year after plaintiff
made claim for loss, contrary to the eighth
condition of the bond.
The condition is as follow:
EIGHT LIMITATION OF ACTION
No action, suit or proceeding shall be had or
maintained upon this Bond unless the
same be commenced within one year from
the time of making claim for the loss upon
which such action, suit or proceeding, is
based, in accordance with the fourth
section hereof.
ISSUE:
Whether the ACCFA was already barred to file
a complaint because one year had been
already elapsed from the claim of loss?
HELD:
No, because the condition is null and void.
The condition of the bond in question,

limiting the period for bringing action
thereon, is subject to the provisions of
Section 61-A of the Insurance Act (No.
2427), as amended by Act 4101 of the preCommonwealth Philippine Legislature,
prescribing that —
SEC. 61-A — A condition, stipulation or
agreement in any policy of insurance,
limiting the time for commencing an action
there under to a period of less than one
year from the time when the cause of
action accrues is void.
Since a "cause of action" requires, as
essential elements, not only a legal right of
the plaintiff and a correlative obligation of
the defendant but also "an act or omission
of the defendant in violation of said legal
right" (Maao Sugar Central vs. Barrios, 79
Phil. 666), the cause of action does not
accrue until the party obligated refuses,
expressly or impliedly, to comply with its
duty (in this case, to pay the amount of
the bond). The year for instituting action in
court must be reckoned, therefore, from
the time of appellee's refusal to comply
with its bond; it cannot be counted from
the creditor's filing of the claim of loss, for
that does not import that the surety
company will refuse to pay.
As a consequence of the foregoing, condition
eight of the Alpha bond is null and void,
and action may be brought within the
statutory period of limitation for written
contracts (New Civil Code, Article 1144).
Ang v. Fulton Fire Insurance Co.- The
condition contained in an insurance policy
that claims must be presented within one
year after rejection is not merely a
procedural requirement but an important
matter essential to a prompt settlement of
claims against insurance companies as it
demands that insurance suits be brought
by the insured while the evidence as to the
origin and cause of destruction have not
yet disappeared.
Therefore, there was a necessity of bringing
suits against the Insurer within one year
from the rejection of the claim. (1984) The
contention of the respondents that the
one-year prescriptive period does not start
to run until the petition for reconsideration
had been resolved by the insurer (1985),
runs counter to the doctrine.
The provision in the contract was pursuant to
Sec. 63.
A condition, stipulation or agreement in any
policy of insurance, limiting the time for
commencing an action thereunder to a
period of less than one year from the time
when the cause of action accrues, is void.

4
WARRANTIES
(Ang Giok Chip vs. Springfield, 56 Phil
275.) A rider is an attachment to the
policy that contains additional stipulations
between the parties. It is issued after the
policy is delivered and can modify the
policy's conditions by either
expanding/restricting its benefits or
excluding certain conditions from the
coverage. It isn't binding on the insured
unless its descriptive title/name is written
in the blank spaces provided for in the
policy itself. If properly attached to the
policy, it forms part of the contract with
the effect that it has been embodied in the
policy.
Gen. Insurance & Surety Corp v. NG Hua
Misrepresentation
106 PHIL 1117
Facts:
> In 1952, General issued a fire policy to Ng
Hua to cover the contents of the Central
Pomade Factory owned by him.
> There was a provision in the policy that
should there be any insurance already
effected or to be subsequently procured,
the insured shall give notice to the insurer.
> Ng Hua declared that there was non. The
very next day, the building and the goods
stored therein burned.
> Subsequently, the claim of Ng Hua for the
proceeds was denied by General since it
discovered that Ng Hua had obtained an
insurance from General Indemnity for the
same goods and for the same period of
time.
Issue:
Whether or not General Insurance can refuse
to pay the proceeds.
Held:
Yes.
Violation of the statement which is to be
considered a warranty entitles the insurer
to rescind the contract of insurance. Such
misrepresentation is fatal.
THE PREMIUM
American Home v Chua G.R. No. 130421.
June 28, 1999
Facts:
Chua obtained from American Home a fire
insurance covering the stock-in-trade of
his business. The insurance was due to
expire on March 25, 1990.
On April 5, 1990, Chua issued a check for
P2,983.50 to American Home’s agent,
James Uy, as payment for the renewal of
the policy. The official receipt was issued
on April 10. In turn, the latter
a renewal certificate. A new insurance
policy was issued where petitioner
undertook to indemnify respondent for any

damage or loss arising from fire up to
P200,000 March 20, 1990 to March 25,
1991.
On April 6, 1990, the business was completely
razed by fire. Total loss was estimated
between P4,000,000 and P5,000,000.
Respondent filed an insurance claim with
petitioner and four other co-insurers,
namely, Pioneer Insurance, Prudential
Guarantee, Filipino Merchants and
Domestic Insurance. Petitioner refused to
honor the claim hence, the respondent
filed an action in the trial court.
American Home claimed there was no existing
contract because respondent did not pay
the premium. Even with a contract, they
contended that he was ineligible bacue of
his fraudulent tax returns, his failure to
establish the actual loss and his failure to
notify to petitioner of any insurance
already effected. The trial court ruled in
favor of respondent because the
respondent paid by way of check a day
before the fire occurred and that the other
insurance companies promptly paid the
claims. American homes was made to pay
750,000 in damages.
The Court of Appeals found that respondent’s
claim was substantially proved and
petitioner’s unjustified refusal to pay the
claim entitled respondent to the award of
damages.
American Home filed the petition reiterating
its stand that there was no existing
insurance contract between the parties. It
invoked Section 77 of the Insurance Code,
which provides that no policy or contract of
insurance issued by an insurance company
is valid and binding unless and until the
premium thereof has been paid and the
case of Arce v. Capital Insurance that until
the premium is paid there is no insurance.
Issues:
1. Whether there was a valid payment of
premium, considering that respondent’s
check was cashed after the occurrence of
the fire
2. Whether respondent violated the policy by
his submission of fraudulent documents
and non-disclosure of the other existing
insurance contracts
3. Whether respondent is entitled to the
award of damages.
Held: Yes. No. Yes, but not all damages valid.
Petition granted. Damages modified.
Ratio:
1. The trial court found, as affirmed by the
Court of Appeals, that there was a valid
check payment by respondent to
petitioner. The court respected this.
The renewal certificate issued to respondent
contained the acknowledgment that
premium had been paid.
In the instant case, the best evidence of
such authority is the fact that petitioner

5
accepted the check and issued the official
receipt for the payment. It is, as well,
bound by its agent’s acknowledgment of
receipt of payment.
Section 78 of the Insurance Code explicitly
provides:
An acknowledgment in a policy or contract of
insurance of the receipt of premium is
conclusive evidence of its payment, so far
as to make the policy binding,
notwithstanding any stipulation therein
that it shall not be binding until the
premium is actually paid.
2. Submission of the alleged fraudulent
documents pertained to
respondent’s income tax returns for 1987
to 1989. Respondent, however, presented
a BIR certification that he had paid the
proper taxes for the said years. Since this
is a question of fact, the finding is
conclusive.
Ordinarily, where the insurance policy
specifies as a condition the disclosure of
existing co-insurers, non-disclosure is a
violation that entitles the insurer to avoid
the policy. The purpose for the inclusion of
this clause is to prevent an increase in the
moral hazard. The relevant provision is
Section 75, 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.
Respondent acquired several co-insurers and
he failed to disclose this information to
petitioner. Nonetheless, petitioner is
estopped from invoking this argument due
to the loss
adjuster’s admission of previous knowledg
e of the co-insurers.
It cannot be said that petitioner was deceived
by respondent by the latter’s nondisclosure of the other insurance contracts
when petitioner actually had prior
knowledge thereof. The loss adjuster,
being an employee of petitioner, is
deemed a representative of the latter
whose awareness of the other insurance
contracts binds petitioner.
3. Petitioner is liable to pay the loss. But there
is merit in petitioner’s grievance against
the damages and attorney’s fees awarded.
There was no basis for an award for loss of
profit. This cannot be shouldered by
petitioner whose obligation is limited to
the object of insurance.
There was no fraud to justify moral damages.
Exemplary damages can’t be awarded
because the defendant never acted in a
reckless manner to claim insurance.
Attorney’s fees can’t be recovered as part
of damages because no premium should
be placed on the right to litigate.

American Home v Chua G.R. No. 130421.
June 28, 1999
Lessons
Applicable: Acknowledgement receipt (Insu
rance)
Laws Applicable: Section 29, Section
66,Section 75, Section 77,Section
78, Section 306 of the Insurance Code
FACTS:
April 5, 1990: Antonio Chua renewed
the fire insurance for its stock-in-trade of
his business, Moonlight
Enterprises with American
Home Assurance Companyby issuing a
check of P2,983.50 to its agent James
Uy who delivered the RenewalCertificate to
him.

April 6, 1990: Moonlight
Enterprises was completely razed by fire
with an est. loss of P4,000,000 to
P5,000,000

April 10, 1990: An official receipt was
issued and subsequently, a policy was
issued covering March 25 1990
to March 25 1991

Antonio Chua filed an insurance claim
with American Home and 4 other coinsurers (Pioneer Insurance and Surety
Corporation, Prudential Guarantee
andAssurance, Inc. and Filipino Merchants
Insurance Co)

American Home refused alleging the
no premium was paid

RTC: favored Antonio Chua for paying
by way of check a day before the fire
occurred

CA: Affirmed
ISSUE:
1. W/N there was a valid payment of
premium considering that the check was
cashed after the occurrence of the fire
since the renewal certificate issued
containing the acknowledgement receipt
2. W/N Chua violated the policy by his
submission of fraudulent documents and
non-disclosure of the other
existing insurance contracts or “other
insurance clause"
HELD: petition is partly GRANTED modified
by deleting the awards of P200,000 for loss
of profit, P200,000 as moral damages and
P100,000 as exemplary damages, and
reducing the award of attorney’s fees from
P50,000 to P10,000





1. YES.
Section 77 of the Insurance Code
An insurer is entitled to
payment of the premium as soon as the
thing insured is exposed to the peril
insured against. Notwithstanding any
agreement to the contrary, no policy or
contract of insurance issued by an

6














2.













insurance company is valid and binding
unless and until the premium thereof has
been paid, except in the case of life or an
industrial life policy whenever the grace
period provision applies
Section 66 of the Insurance Code - not
applicable since not termination
butrenewal
renewal certificate issued contained
the acknowledgment that premium had
been paid
Section 306 of the Insurance Code
provides that any insurance company
which delivers a policy or contract of
insurance to an insurance agent
or insurance broker shall be deemed to
have authorized such agent or broker to
receive on its behalf payment of any
premium which is due on such policy or
contract of insurance at the time of its
issuance or delivery or which becomes due
thereon
best evidence of such authority is the
fact that petitioner accepted the check and
issued the official receipt for the payment.
It is, as well, bound by its agent’s
acknowledgment of receipt of payment
Section 78 of the Insurance Code
An acknowledgment in a policy
or contract of insurance of the receipt of
premium is conclusive evidence of its
payment, so far as to make the policy
binding, notwithstanding any stipulation
therein that it shall not be binding until the
premium is actually paid.
This Section establishes a legal fiction
of payment and should be interpreted as
an exception to Section 77
NO.
purpose for the “other insurance
clause” is to prevent an increase in the
moral hazard
failure to disclose was not intentional
and fraudulent
Section 75
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.
American Home is estopped because
its loss adjusters had previous knowledge
of the co-insurers
The loss adjuster, being an
employee of petitioner, is deemed a
representative of the latter whose
awareness of the other insurance
contracts binds petitioner
no legal and factual basis for the
award of P200,000 for loss of profit
no such fraud or bad faith = no moral
damages







grant of attorney’s fees as part of
damages is the exception rather than the
rule
award attorney’s fees where it
deems just and equitable that it be so
granted
reduced to P10,000

Philippine Pryce Assurance Corp. V. CA
(1994)
Lessons Applicable: Acceptance by obligee by
surety bond Laws Applicable: Sec. 177 of
the Insurance Code
FACTS:

Gegroco, Inc filed for a collection of
the issued surety bond for P500K and
P1M by Interworld Assurance Corporation
(now Philippine Pryce Assurance
Corporation) in behalf of its
principal Sagum General Merchandise

RTC: favored Gegroco, Inc

CA: affirmed RTC

Interworld: checks issued by its
principal which were supposed to pay for
thepremiums bounced and it was not yet
authorized by the Insurance Commissionto
issue surety bonds
ISSUE: W/N Interworld Assurance Corp. should
be liable for the surety bond that it issued
as payment for the premium
HELD: YES. RTC and CA: confirmed

Interworld did not and never
attempted to pay the requisite docket fee
and was not present during the scheduled
pre-trial so it is as if third-party complaint
was never filed

Sec. 177. The surety is entitled to
payment of the premium as soon as the
contract of suretyship or bond is perfected
and delivered to the obligor. No contract of
suretyship or bonding shall be valid and
binding unless and until the premium
therefor has been paid, except where the
obligee has accepted the bond, in which
case the bond becomes valid and
enforceable irrespective of whether or not
the premium has been paid by the obligor
to the surety

Interworld's defense that it did not
have authority to issue a Surety Bond
when it did is an admission of fraud
committed against Gegroco. No person
can claim benefit from the wrong he
himself committed. A representation
made is rendered conclusive upon the
person making it and cannot be denied or
disproved as against the person relying
thereon.
Pacific Timber V. CA (1982)
Lessons Applicable: Rules on cover notes (if
premium CANNOT yet be computed)
(Insurance)

7
Laws Applicable: Section 84 of the Insurance
Code
FACTS:

March 19, l963: Pacific Timber secured
temporary insurance from Workmen's
Insurance Company, Inc. for its exportation
of 1,250,000 board feet of Philippine Lauan
and Apitong logs to be shipped from
the Diapitan Bay, Quezon Province to
Tokyo, Japan.

Workmen's issued Cover
Note insuring the cargo "Subject to the
Terms and Conditions of the Workmen's
Insurance Company, Inc."

April 2, 1963: regular marine cargo
policies were issued for a total
of 1,195.498 bd. ft. Due to the bad
weather some of the logs were lost during
loading operations. 45 pieces of logs were
salvaged, but 30 pieces were lost. Pacific
informed Workmen's who refused stating
that the logs covered in the 2 marine
policies were received in good order at the
point of destination and that the cover
note was null and void upon the issuance
of the Marine Policies

CFI: cover note is valid

CA: reversed
ISSUE: W/N the cover note is valid despite the
absence of premium payment upon it
HELD: YES. CA set aside. CFI reinstated

it was not necessary to ask for
payment of the premium on the Cover
Note , for the loss insured against having
already occurred, the more practical
procedure is simply to deduct the premium
from the amount due on the Cover Note

Had all the logs been lost during the
loading operations, but after the issuance
of the Cover Note, liability on the note
would have already arisen even before
payment of premium

cover note as a "binder"

supported by the doctrine that
where a policy is delivered without
requiring payment of the premium, the
presumption is that a credit was intended
and policy is valid

it sent its adjuster to investigate and
assess the loss to determine if petitioner
was guilty of delay in communicating the
loss but there was none

Section 84

Delay in the presentation to an
insurer of notice or proof of loss is waived
if caused by any act of his or if he omits to
take objection promptly and specifically
upon that ground
Held:
It was with consideration.
SC upheld Pacific’s contention that said cover
not was with consideration. The fact that
no separate premium was paid on the
cover note before the loss was insured

against occurred does not militate against
the validity of Pacific’s contention, for no
such premium could have been paid, since
by the nature of the cover note, it did not
contain, as all cover notes do not contain,
particulars of the shipment that would
serve as basis for the computation of the
premiums. As a logical consequence, no
separate premiums are required to be paid
on a cover note.
If the note is to be treated as a separate
policy instead of integrating it to the
regular policies subsequently issued, its
purpose would be meaningless for it is in a
real sense a contract, not a mere
application.
Makati Tuscany Condominium
Corporation v CA
FACTS:
Sometime in early 1982, private
respondent American Home Assurance Co.
(AHAC), represented by American
International Underwriters (Phils.), Inc.,
issued in favor of petitioner Makati Tuscany
Condominium Corporation (TUSCANY)
Insurance Policy No. AH-CPP-9210452 on
the latter's building and premises, for a
period beginning 1 March 1982 and ending
1 March 1983, with a total premium of
P466,103.05. The premium was paid on
installments on 12 March 1982, 20 May
1982, 21 June 1982 and 16 November
1982, all of which were accepted by
private respondent.
Successive renewals of the policies were
made in the same manner. On 1984, the
policy was again renewed and petitioner
made two installment payments, both
accepted by private respondent, the first
on 6 February 1984 for P52,000.00 and the
second, on 6 June 1984 for P100,000.00.
Thereafter, petitioner refused to pay the
balance of the premium.
Private respondent filed an action to recover
the unpaid balance of P314,103.05 for
Insurance Policy. Petitioner explained that
it discontinued the payment of premiums
because the policy did not contain a credit
clause in its favor. Petitioner further
claimed that the policy was never binding
and valid, and no risk attached to the
policy. It then pleaded a counterclaim for
P152,000.00 for the premiums already
paid for 1984-85, and in its answer with
amended counterclaim, sought the refund
of P924,206.10 representing the premium
payments for 1982-85.
DECISION OF LOWER COURTS:
(1) Trial Court: dismissed the complaint
and counterclaim
(2) CA: ordering herein petitioner to pay
the balance of the premiums due

8
ISSUE:
Whether payment by installment of the
premiums due on an insurance policy
invalidates the contract of insurance, in
view of Sec. 77 of P.D. 612, otherwise
known as the Insurance Code, as
amended, which provides:
Sec. 77. An insurer is entitled to the
payment of the premium as soon as the
thing is exposed to the peril insured
against. Notwithstanding any agreement
to the contrary, no policy or contract of
insurance issued by an insurance company
is valid and binding unless and until the
premium thereof has been paid, except in
the case of a life or an industrial life policy
whenever the grace period provision
applies.
RULING:
No, the contract remains valid even if the
premiums were paid on installments.
Certainly, basic principles of equity and
fairness would not allow the insurer to
continue collecting and accepting the
premiums, although paid on installments,
and later deny liability on the lame excuse
that the premiums were not prepared in
full.
At the very least, both parties should be
deemed in estoppel to question the
arrangement they have voluntarily
accepted.
Moreover, as correctly observed by the
appellate court, where the risk is entire
and the contract is indivisible, the insured
is not entitled to a refund of the premiums
paid if the insurer was exposed to the risk
insured for any period, however brief or
momentary. The obligation to pay
premiums when due is ordinarily as
indivisible obligation to pay the entire
premium.
Philippine Phoenix Surety & Insurance
Co. V. Woodworks Inc (1979)
Lessons Applicable: Estoppel and
credit extension (Insurance)
Laws Applicable: Section 77 of the
Insurance Code





FACTS:
July 21, 1960: Woodworks, Inc. was
issued a fire policy for its
building machinery and
equipment by Philippine Phoenix Surety &
Insurance Co. for P500K covering July 21,
1960 to July 21, 1961. Woodworks did not
pay the premium totalling to P10,593.36.
April 19, 1961: It was alleged
that Woodworks notified Philippine
Phoenix the cancellation of the Policy
so Philippine Phoenix credited P3,110.25
for the unexpired period of 94 days

and demanded in writing the
payment of P7,483.11

Woodworks refused stating that it
need not pay premium "because the
Insurer did not stand liable for any
indemnity during the period the premiums
were not paid."

Philippine Phoenix filed with the CFI to
recover its earned premium of P7,483.11

Woodworks: to pay the premium
after the issuance of the policy put an end
to the insurancecontract and rendered the
policy unenforceable

CFI: favored Philippine Phoenix
ISSUE: W/N there was a valid insurance
contract despite no premium payment was
paid
HELD: NO. Reversed

Policy provides for pre-payment of
premium. To constitute an extension of
credit there must be a clear and express
agreement therefor and there nust be
acceptance of the extension - none here

Since the premium had not been paid,
the policy must be deemed to have lapsed.

failure to make a payment of a
premium or assessment at the time
provided for, the policy shall become void
or forfeited, or the obligation of the insurer
shall cease, or words to like effect,
because the contract so prescribes and
because such a stipulation is a material
and essential part of the contract. This is
true, for instance, in the case of life, health
and accident, fire and hail insurance
policies

Explicit in the Policy itself is plaintiff's
agreement to indemnify defendant for loss
by fire only "after payment of
premium" Compliance by the insured with
the terms of the contract is a condition
precedent to the right of recovery.

The burden is on an insured to keep a
policy in force by the payment of
premiums, rather than on the insurer to
exert every effort to prevent the insured
from allowing a policy to elapse through a
failure to make premium payments.
Arce v. The Capital Insurance and Surety

Unless premium is paid, an insurance
contract does not take effect.

Delgado (Capital Insurance & Surety
Co., Inc. v. Delgado) was decided in the
light of the Insurance Act before Sec. 72
was amended by the underscored portion.
Prior to the Amendment, an insurance
contract was effective even if the premium
had not been paid so that an insurer was
obligated to pay indemnity in case of loss
and correlatively he had also the right to
sue for payment of the premium. But the
amendment to Sec. 72 has radically

9
changed the legal regime in that unless
the premium is paid there is no insurance.
LOSS
Paris-Manila Perfume Co. V. Phoenix
Assurance Co.(1926)

FACTS:


Lessons Applicable: Loss, the immediate
cause of which was the peril insured against,
if the proximate cause thereof was NOT
excepted in the contract (Insurance)
Facts:
May 22, 1924: A fire insurance policy
was issued
by Phoenix Assurance Company,
Limited to Messrs. ParisManila Perfumery Co. (Peter Johnson,
Prop.) for P13,000
 also insured with other
insurance companies for P1,200
and P5,000 respectively
 July 4, 1924: The Perfumery was
burned unknown of the cause totalling
a loss of P38.025.56
 Phoenix refused to pay nor to appoint
an arbitrator stating that the policy did
not cover any loss or damage
occasioned by explosion and stating
that the claim was fraudulent
 RTC: ordered Phoenix to pay P13,000
 Phoenix appealed
 The insurance policy contains:
Unless otherwise expressly stated in the
policy the insurance does not cover
(h) Loss or damage occasioned by the
explosion; but loss or damage by explosion of
gas for illuminating or domestic purposes in a
building in which gas is not generated and
which does not form a part of any gas works,
will be deemed to be loss by fire within the
meaning of this policy.
ISSUE: W/N Phoenix should be liable for the
loss because there was no explosion which is
an exemption from the policy

Anco Enterprises Company (ANCO), a
partnership between Ang Gui and Co
To, was engaged in the shipping
business operating two common
carriers


M/T ANCO tugboat



D/B Lucio barge - no engine of
its own, it could not maneuver
by itself and had to be towed by
a tugboat for it to move from
one place to another.



HELD: YES.
 If it be a fact that the
fire resulted from an explosion that
fact, if proven, would be a complete
defense, the burden of the proof of
that fact is upon the defendant, and
upon that point, there is a failure of
proof
 lower court found as a fact that there
was no fraud in the insurance, and
that the value of the property
destroyed by the fire was more than
the amount of the insurance.







25,000 cases Pale Pilsen
and 350 cases Cerveza Negra consignee SMC’s
Beer MarketingDivision (BMD)Estancia Beer Sales Office,
Estancia, Iloilo



15,000 cases Pale Pilsen
and 200 cases Cerveza Negra consignee SMC’s BMD-San Jose
Beer Sales Office, San Jose,
Antique

September 30, 1979: D/B Lucio was
towed by the M/T ANCO arrived
and M/T ANCO left the barge
immediately


The clouds were dark and the
waves were big so SMC’s
District Sales Supervisor,
Fernando Macabuag, requested
ANCO’s representative to
transfer the barge to a safer
place but it refused so around
the midnight, the barge sunk
along with 29,210 cases of Pale
Pilsen and 500 cases of Cerveza
Negra totalling to P1,346,197



When SMC claimed against ANCO it
stated that they agreed that it would
not be liable for any losses or
damages resulting to the cargoes by
reason of fortuitous event and it was
agreed to be insured with FGU for
20,000 cases or P858,500



ANCO filed against FGU

FGU Insurance Corporation V. CA (2005)
Lessons Applicable: Loss caused by
negligence of the insured (Insurance)

September 23 1979: San Miguel
Corporation (SMC) shipped from
Mandaue City, Cebu, on board the D/B
Lucio, for towage by M/T ANCO:

10


FGU alleged that ANCO and
SMC failed to exercise ordinary
diligence or the diligence of a
good father of the family in
the care and supervision of the
cargoes



RTC: ANCO liable to SMC and FGU
liable for 53% of the lost cargoes



CA affirmed

ISSUE: W/N FGU should be exempted from
liability to ANCO for the lost cargoes
because of a fortuitous event and
negligence of ANCO

foreseen, or which though
foreseen, were inevitable






HELD: YES. Affirmed with modification. Thirdparty complainant is dismissed.


Art. 1733. Common carriers, from the
nature of their business and for
reasons of public policy are bound to
observe extraordinary diligence in the
vigilance over the goods and for the
safety of the passengers transported
by them, according to all the
circumstances of each case.

(1)

Art. 1734. Common carriers are
responsible for the loss, destruction, or
deterioration of the goods, unless the
same is due to any of the following
causes only:

Flood, storm, earthquake, lightning, or
other natural disaster or calamity;

. . .




Art. 1739. In order that the common
carrier may be exempted from
responsibility, the natural disaster
must have been the proximate and
only cause of the loss. However,
the common carrier must exercise due
diligence to prevent or minimize loss
before, during and after the
occurrence of flood, storm, or other
natural disaster in order that
the common carrier may be exempted
from liability for the loss, destruction,
or deterioration of the goods . . .
Caso fortuito or force majeure


extraordinary events not
foreseeable or avoidable,
events that could not be

other vessels in the port
of San Jose, Antique,
managed to transfer to
another place

To be exempted from responsibility,
the natural disaster should have been
the proximate and only cause of the
loss. There must have been no
contributory negligence on the part of
the common carrier.


Such extraordinary diligence in vigilance over
the goods is further expressed in Articles
1734, 1735, and 1745 Nos. 5, 6, and 7 . . .


not enough that the event
should not have been foreseen
or anticipated, as is commonly
believed but it must be one
impossible to foresee or to
avoid - not in this case

there was blatant negligence on
the part of M/T ANCO’s
crewmembers, first in leaving
the engine-less barge D/B Lucio
at the mercy of the storm
without the assistance of the
tugboat, and again in failing to
heed the request of SMC’s
representatives to have the
barge transferred to a safer
place



When evidence show that the
insured’s negligence or recklessness is
so gross as to be sufficient to
constitute a willful act, the insurer
must be exonerated.



ANCO’s employees is of such gross
character that it amounts to a
wrongful act which must exonerate
FGU from liability under the insurance
contract


both the D/B Lucio and the M/T
ANCO were blatantly negligent

Pacific Banking Corporation vs. CA &
Oriental Assurance
Facts: An open Fire Policy issued to
Paramount Shirt Manufacturing for
Php61,000 on the following: stocks, materils,
supplies, furniture, fixture, machinery,
equipment contained on the 1st to 3rd floors.
Insurance is for a year starting 21 OCTOBER
1964.
Paramount Shirt is debtor of Pacific Banking
amounting to Php800,000. Goods in policy
were held in trust by Paramount for Pacific

11
under thrust receipts. Fire broke out on 4
January 1964.
Pacific sent letter of demand to Oriental.
Insurance Adjuster of Oriental notified Pacific
to submit proof of loss pursuant to Policy
Condition 11. Pacific did not accede but
asked Insurance Adjuster toverify records
form Bureau of Customs.
Pacific filed for sum of money against
Oriental. Oriental alleged that Pacific
prematurely filed a suit, for neither filing a
formal claim over loss pursuant to policy nor
submitting any proof of loss.
Trial court decided in favor of Pacific.
Decision based on technicality. The defense
of lack of proof of loss and defects were
raised for the 1st time. (On presentation of
evidences by Pacific, it was revealed there
was violation of Condition No.3, there were
undeclared co-insurances under same
property –Wellington, Empire, Asian. The
only declared co-insurances were Malayan,
South Sea, and Victory)
CA reversed decision. Concealment of other
co-insurances is a misrepresentation and can
easily be fraud.
Issues:
(1) Whether or not unrevealed coninsurances is a violation of Policy Condition
No.3
(2) Whether or not there was premature
filing of action
Held:
(1) Yes. Policy Condition 3 provides that the
insured must give notice of any insurance
already in effect or subsequently be in effect
covering same property being insured.
Failure to do so, the policy shall be forfeited.
Failure to reveal before the loss of the 3
other insurances is a clear misrepresentation
or a false declaration. The material fact was
asked for but was not revealed.
Representations of facts are the foundations
of the contract. Pacific itself provided for the
evidences in trial court that proved existence
of misrepresentation.
(2) Yes. Policy Condition 11 is a sine qua non
requirement for maintaining action. It
requires that documents necessary to prove
and estimate the loss should be included
with notice of loss. Pacific failed
to submit formal claim of loss with
supporting documents but shifted the burden

to the insurance company. Failing
to submit claim is failure for insurance
company to reject claim. Thus, a lack
ofcause of action to file suit.
Furthermore, the mortgage clause in the
policy specifically provides that the policy is
invalidated by reasons of FRAUD,
MISREPRESENTATION and
FRAUD. Concealment can easily be fraud or
misrepresentation.
The insured – PARAMOUNT is not entitled to
proceeds. Moreso, Pacific as indorsee of
policy is not entitled.
Malayan Insurance Co. Inc. v Arnaldo
FACTS:
On June 7, 1981, the petitioner (hereinafter
called (MICO) issued to the private
respondent, Coronacion Pinca, Fire Insurance
Policy No. F-001-17212 on her property for
the amount of P14,000.00 effective July 22,
1981, until July 22, 1982.
On October 15,1981, MICO allegedly
cancelled the policy for non-payment, of the
premium and sent the corresponding notice
to Pinca.
On December 24, 1981, payment of the
premium for Pinca was received by Domingo
Adora, agent of MICO. On January 15, 1982,
Adora remitted this payment to MICO,
together with other payments. On January
18, 1982, Pinca's property was completely
burned.
DECISION OF LOWER COURTS:
(1) Insurance Commission: granted claim for
compensation for burned property.
ISSUE:
Whether there was a valid insurance contract
at the time of the loss.
RULING:
Yes.
A valid cancellation must, therefore, require
concurrence of the following conditions:
(1) There must be prior notice of cancellation
to the insured;
(2) The notice must be based on the
occurrence, after the effective date of the
policy, of one or more of the grounds
mentioned;
(3) The notice must be
(a) in writing,
(b) mailed, or delivered to the named
insured,
(c) at the address shown in the policy;
(4) It must state
(a) which of the grounds mentioned in
Section 64 is relied upon and
(b) that upon written request of the insured,

12
the insurer will furnish the facts on which the
cancellation is based.
MICO's claims it cancelled the policy in
question on October 15, 1981, for nonpayment of premium. To support this
assertion, it presented one of its employees,
who testified that "the original of the
endorsement and credit memo" —
presumably meaning the alleged cancellation
— "were sent the assured by mail through
our mailing section" However, there is no
proof that the notice, assuming it complied
with the other requisites mentioned above,
was actually mailed to and received by
Pinca.
We also look askance at the alleged
cancellation, of which the insured and MICO's
agent himself had no knowledge, and the
curious fact that although Pinca's payment
was remitted to MICO's by its agent on
January 15, 1982, MICO sought to return it to
Adora only on February 5, 1982, after it
presumably had learned of the occurrence of
the loss insured against on January 18, 1982.
These circumstances make the motives of
the petitioner highly suspect, to say the
least, and cast serious doubts upon its
candor and bona fides.
PHILIPPINE CHARTER INSURANCE
CORPORATION VS. CHEMOIL
LIGHTERAGE HITE GOLD CORPORATION
G.R. No. 136888. June 29, 2005
Facts: Philippine Charter Insurance
Corporation is a domestic corporation
engaged in the business of non-life
insurance. Respondent Chemoil Lighterage
Corporation is also a domestic corporation
engaged in the transport of goods. On 24
January 1991, Samkyung Chemical Company,
Ltd., based in South Korea, shipped 62.06
metric tons of the liquid chemical DIOCTYL
PHTHALATE (DOP) on board MT “TACHIBANA”
which was valued at US$90,201.57 and
another 436.70 metric tons of DOP valued at
US$634,724.89 to the Philippines. The
consignee was Plastic Group Phils., Inc. in
Manila. PGP insured the cargo with Philippine
Charter Insurance Corporation against all
risks. The insurance was under Marine
Policies No. MRN-30721[5] dated 06 February
1991. Marine Endorsement No.
2786[7] dated 11 May 1991 was attached
and formed part of MRN-30721, amending
the latter’s insured value to P24,667,422.03,
and reduced the premium accordingly. The
ocean tanker MT “TACHIBANA” unloaded the
cargo to the tanker barge, which shall
transport the same to Del Pan Bridge in Pasig
River and haul it by land to PGP’s storage
tanks in Calamba, Laguna. Upon inspection
by PGP, the samples taken from the
shipment showed discoloration
demonstrating that it was damaged. PGP

then sent a letter where it formally made an
insurance claim for the loss it sustained.
Petitioner requested the GIT Insurance
Adjusters, Inc. (GIT), to conduct a Quantity
and Condition Survey of the shipment which
issued a report stating that DOP samples
taken were discolored. Inspection of cargo
tanks showed manhole covers of ballast
tanks’ ceilings loosely secured and that the
rubber gaskets of the manhole covers of the
ballast tanks re-acted to the chemical
causing shrinkage thus, loosening the covers
and cargo ingress. Petitioner paid PGP the
full and final payment for the loss and issued
a Subrogation Receipt. Meanwhile, PGP paid
the respondent the as full payment for the
latter’s services.
On 15 July 1991, an action for damages was
instituted by the petitioner-insurer against
respondent-carrier before the RTC, Br.16, City
of Manila. Respondent filed an answer which
admitted that it undertook to transport the
shipment, but alleged that before the DOP
was loaded into its barge, the representative
of PGP, Adjustment Standard Corporation,
inspected it and found the same clean, dry,
and fit for loading, thus accepted the cargo
without any protest or notice. As carrier, no
fault and negligence can be attributed
against respondent as it exercised
extraordinary diligence in handling the cargo.
After due hearing, the trial court rendered a
Decision in favor of plaintiff. On appeal, the
Court of Appeals promulgated its Decision
reversing the trial court. A petition for review
on certiorar[ was filed by the petitioner with
this Court.
Issues: 1. Whether or not the Notice of Claim
was filed within the required period.
2.Whether or not the damage to the cargo
was due to the fault or negligence of the
respondent.
Held: Article 366 of the Code of Commerce
has profound application in the case at bar,
which provides that; “Within twenty-four
hours following the receipt of the
merchandise a claim may be made against
the carrier on account of damage or average
found upon opening the packages, provided
that the indications of the damage or
average giving rise to the claim cannot be
ascertained from the exterior of said
packages, in which case said claim shall only
be admitted at the time of the receipt of the
packages.” After the periods mentioned have
elapsed, or after the transportation charges
have been paid, no claim whatsoever shall
be admitted against the carrier with regard
to the condition in which the goods
transported were delivered.
As to the first issue, the petitioner contends
that the notice of contamination was given

13
by PGP employee, to Ms. Abastillas, at the
time of the delivery of the cargo, and
therefore, within the required period. The
respondent, however, claims that the
supposed notice given by PGP over the
telephone was denied by Ms. Abastillas. The
Court of Appeals declared:that a telephone
call made to defendant-company could
constitute substantial compliance with the
requirement of notice. However, it must be
pointed out that compliance with the period
for filing notice is an essential part of the
requirement, i.e.. immediately if the damage
is apparent, or otherwise within twenty-four
hours from receipt of the goods, the clear
import being that prompt examination of the
goods must be made to ascertain damage if
this is not immediately apparent. We have
examined the evidence, and We are unable
to find any proof of compliance with the
required period, which is fatal to the accrual
of the right of action against the carrier.
Nothing in the trial court’s decision stated
that the notice of claim was relayed or filed
with the respondent-carrier immediately or
within a period of twenty-four hours from the
time the goods were received. The Court of
Appeals made the same finding. Having
examined the entire records of the case, we
cannot find a shred of evidence that will
precisely and ultimately point to the
conclusion that the notice of claim was
timely relayed or filed.
The requirement that a notice of claim
should be filed within the period stated by
Article 366 of the Code of Commerce is not
an empty or worthless proviso.
The object sought to be attained by the
requirement of the submission of claims in
pursuance of this article is to compel the
consignee of goods entrusted to a carrier to
make prompt demand for settlement of
alleged damages suffered by the goods while
in transport, so that the carrier will be
enabled to verify all such claims at the time
of delivery or within twenty-four hours
thereafter, and if necessary fix responsibility
and secure evidence as to the nature and
extent of the alleged damages to the goods
while the matter is still fresh in the minds of
the parties.
The filing of a claim with the carrier within
the time limitation therefore actually
constitutes a condition precedent to the
accrual of a right of action against a carrier
for loss of, or damage to, the goods. The
shipper or consignee must allege and prove
the fulfillment of the condition. If it fails to do
so, no right of action against the carrier can
accrue in favor of the former. The
aforementioned requirement is a reasonable
condition precedent; it does not constitute a
limitation of action.
We do not believe so. As discussed at length
above, there is no evidence to confirm that

the notice of claim was filed within the period
provided for under Article 366 of the Code of
Commerce. Petitioner’s contention proceeds
from a false presupposition that the notice of
claim was timely filed.
Considering that we have resolved the first
issue in the negative, it is therefore
unnecessary to make a resolution on the
second issue.
Geagonia v CA G.R. No. 114427
February 6, 1995
Facts: Geagonia, owner of a store, obtained
from Country Bankers fire insurance policy
for P100,000.00. The 1 year policy and
covered thestock trading of dry goods. The
policy noted the requirement that "3. The
insured shall give notice to the Company of
any insurance or insurances already
effected, or which may subsequently be
effected, covering any of the property or
properties consisting of stocks in trade,
goods in process and/or inventories only
hereby insured, and unless notice be given
and the particulars of such insurance or
insurances be stated therein or endorsed in
this policy pursuant to Section 50 of the
Insurance Code, by or on behalf of the
Company before the occurrence of any loss
or damage, all benefits under this policy shall
be deemed forfeited, provided however, that
this condition shall not apply when the total
insurance or insurances in force at the time
of the loss or damage is not more than
P200,000.00." The petitioners’ stocks were
destroyed by fire. He then filed a claim which
was subsequently denied because the
petitioner’s stocks were covered by two
other fire insurance policies for Php 200,000
issued by PFIC. The basis of the private
respondent's denial was the petitioner's
alleged violation of Condition 3 of the policy.
Geagonia then filed a complaint against the
private respondent in the Insurance
Commission for the recovery of P100,000.00
under fire insurance policy and damages. He
claimed that he knew the existence of the
other two policies. But, he said that he had
no knowledge of the provision in the private
respondent's policy requiring him to inform it
of the prior policies and this requirement was
not mentioned to him by the private
respondent's agent. The Insurance
Commission found that the petitioner did not
violate Condition 3 as he had no knowledge
of the existence of the two fire insurance
policies obtained from the PFIC; that it was
Cebu Tesing Textiles w/c procured the PFIC
policies w/o informing him or securing his
consent; and that Cebu Tesing Textile, as his
creditor, had insurable interest on the stocks.
The Insurance Commission then ordered the
respondent company to pay complainant the
sum of P100,000.00 with interest and

14
attorney’s fees. CA reversed the decision of
the Insurance Commission because it found
that the petitioner knew of the existence of
the two other policies issued by the PFIC.

preventing a situation in which a fire would
be profitable to the insured.

Issues:

Philamlife vs. Auditor General

1. WON the petitioner had not disclosed the
two insurance policies when he obtained the
fire insurance and thereby violated Condition
3 of the policy.

Facts: On January 1950, Philippine American
Life Insurance Co.(PHILAM) and, foreign
corporation, American
InternationalReinsurance Co.(AIRCO) entered
into a reinsurance treaty where PHILAM
agreed to reinsure with AIRCO the excess of
life insurance on the lives of persons written
by PHILAM. In their agreement it is also
stipulated that even though PHILAM is
already on a risk for its maximum retention
under policies previously issued, when new
policies are applied for and issued they can
cede automatically any amount, within the
limits specified.

2. WON he is prohibited from recovering
Held: Yes. No. Petition Granted
Ratio:
1. The court agreed with the CA that the
petitioner knew of the prior policies issued by
the PFIC. His letter of 18 January 1991 to the
private respondent conclusively proves this
knowledge. His testimony to the contrary
before the Insurance Commissioner and
which the latter relied upon cannot prevail
over a written admission made ante litem
motam. It was, indeed, incredible that he did
not know about the prior policies since these
policies were not new or original.
2. Stated differently, provisions, conditions or
exceptions in policies which tend to work a
forfeiture of insurance policies should be
construed most strictly against those for
whose benefits they are inserted, and most
favorably toward those against whom they
are intended to operate. With these
principles in mind, Condition 3 of the subject
policy is not totally free from ambiguity and
must be meticulously analyzed. Such
analysis leads us to conclude that (a) the
prohibition applies only to double insurance,
and (b) the nullity of the policy shall only be
to the extent exceeding P200,000.00 of the
total policies obtained. Furthermore, by
stating within Condition 3 itself that such
condition shall not apply if the total
insurance in force at the time of loss does
not exceed P200,000.00, the private
respondent was amenable to assume a coinsurer'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

REINSURANCE

No question ever arose with respect to the
remittances made by Philamlife
to Airco before July 16, 1959, the date of
approval of the Margin Law.
Subsequently, the Central Bank of the
Philippines collected the sum of P268,747.48
as foreign exchange margin on Philamlife
remittances to Airco made subsequent to July
16, 1959.
PHILAM then filed with the CB a claim for
refund for the same amount arguing that the
reinsurance premiums remitted were paid on
January 1950 and is therefore exempt from
the 25% foreign exchange margin fee. The
Acting legal counsel of the
Monetaryboard resolved that reinsurance
contracts entered into and approved by
the Central Bank before July 17, 1959
are exempt from the payment of the 25%
foreign exchange margin, even if remittances
thereof are made after July 17, 1959.
Still the Auditor of the CB denied
PHILAM’s claim for refund and
reconsideration was denied, hence the
petition.
Issue: Whether PHILAM’s claim was covered
by the exemption
Held: The Court held in the negative stating
that for an exemption to come into play,
there must be a reinsurance policy or, as in
the reinsurance treaty provided, a
"reinsurance cession" which may be
automatic or facultative.
To distinguish, a reinsurance policy is a
contract of indemnity one insurer makes with
another to protect the first insurer from a risk

15
it has already assumed. On the other hand, a
reinsurance treaty is merely an agreement
between two insurance companies whereby
one agrees to surrender and the other to
accept reinsurance business pursuant to
provisions specified in the treaty. Treaties are
contracts for insurance; reinsurance policies
or cessions are contracts of insurance.
Although the reinsurance treaty precedes the
Margin Law by over nine years nothing in
that treaty obligates PHILAM to remit
toAIRCO a fixed, certain, and obligatory sum
by way of reinsurance premiums. All that the
reinsurance treaty provides on this point is
that PHILAM "agrees to reinsure." The treaty
speaks of a probability; not a reality.
PHILAM’s obligation to remit reinsurance
premiums becomes fixed and definite upon
the execution of the reinsurance cession.
Because, for every life insurance policy
surrendered to AIRCO, PHILAM agrees to pay
premium. It is only after a
reinsurancecession is made that payment of
reinsurance premium may be exacted, as it
is only after PHILAM seeks to remit that
reinsurance premium that the obligation to
pay the margin fee arises.
GIBSON VS REVILLA
FACTS: Lepanto Consolidated Mining
Company filed a complaint against Malayan
Insurance Company, Inc. The civil suit thus
instituted by Lepanto against Malayan was
founded on the fact that Malayan issued a
Marine Open Policy covering all shipments of
copper, gold, and silver concentrates in bulk
from Poro, San Fernando, La Union to
Tacoma, Washington or to other places in the
United States. Thereafter, Malayan obtained
reinsurance abroad through Sedgwick,
Collins & Co., Limited, a London insurance
brokerage. The Memorandum of Insurance
issued by Sedgwick to Malayan listed three
groups of underwriters or reinsurers – Lloyds
62.808%, Companies (I.L.U.) 34.705%, Other
companies 2.487%. At the top of the list of
underwriting members of Lloyds is Syndicate
No. 448, assuming 2.48% of the risk
assumed by the reinsurer, which syndicate
number petitioner Ivor Robert Dayton Gibson
claims to be himself. Petitioner then filed a
motion to intervene as defendant, which
motion was denied by the lower court.
ISSUE: WON THE LOWER COURT
COMMITTED, REVERSIBLE ERROR IN
REFUSING THE INTERVENTION OF THE
PETITIONER IN THE SUIT BETWEEN LEPANTO
AND MALAYAN COMPANIES.
HELD:

No. The respondent Judge committed no
error of law in denying petitioner’s Motion to
Intervene and neither has he abused his
discretion in his denial of petitioner’s Motion
for Intervention. We agree with the holding of
the respondent court that since movant Ivor
Robert Dayton Gibson appears to be only one
of several re-insurers of the risks and
liabilities assumed by Malayan Insurance
Company, Inc., it is highly probable that
other re-insurers may likewise intervene. If
petitioner is allowed to intervene, We hold
that there is good and sufficient basis for the
Court a quo to declare that the trial between
Lepanto and Malayan would be definitely
disrupted and would certainly unduly delay
the proceedings between the parties
especially at the stage where Lepanto had
already rested its case and that the issue
would also be compounded as more parties
and more matters will have to be litigated. In
other words, the Court’s discretion is justified
and reasonable. We also hold that
respondent Judge committed no reversible
error in further sustaining the fourth ground
of Lepanto’s Opposition to the Motion to
Intervene that the rights, if any, of petitioner
are not prejudiced by the present suit and
will be fully protected in a separate action
against him and his co-insurers by Malayan.
Petitioner’s contention that he has to pay
once Malayan is finally adjudged to pay
Lepanto because of the very nature of a
contract of reinsurance and considering that
the re-insurer is obliged to pay as may be
paid thereon (referring to the original
policies), although this is subject to other
stipulations and conditions of the
reinsurance contract, is without merit. The
general rule in the law of reinsurance is that
the re-insurer is entitled to avail itself of
every defense which the re-insured (which is
Malayan) might urge in an action by the
person originally insured (which is Lepanto).
As to the effect of the clause “to pay as may
be paid thereon” contained in petitioner’s reinsurance contract, Arnould, on the Law of
Marine Insurance and Average, 13th Ed., Vol.
1, Section 327, p. 315, states the rule, this:
“It has been decided that this clause does
not preclude the reinsurer from insisting
upon proper proof that a loss strictly within
the terms of the original policy has taken
place. “This clause does not enable the
original underwriter to recover from his
reinsurer to an extent beyond the
subscription of the latter. “Wherefore, in view
of the foregoing, the petition is hereby
dismissed. No costs.” Pacific Timber Export
Corporation vs Court of Appeals In 1963,
Pacific Timber Export Corporation (PTEC)
applied for a temporary marine insurance
from Workmen’s Insurance Company (WIC) in
order for the latter to insure 1,250,000 board
feet of logs to be exported to Japan. In March

16
1963, WIC issued a cover note to PTEC for
the said logs. On April 2, 1963, WIC issued
two policies for the logs. However, the total
board feet covered this time is only
1,195,498. On April 4, 1963, while the logs
were in transit to Japan, bad weather
prevailed and this caused the loss of 32
pieces of logs. WIC then asked an adjuster to
investigate the loss. The adjuster submitted
that the logs lost were not covered by the
two policies issued on April 2, 1963 but said
logs were included in the cover note earlier
issued. WIC however denied the insurance
claim of PTEC as it averred that the cover
note became null and void when the two
policies were subsequently issued. The Court
of Appeals ruled that the cover note is void
for lack of valuable consideration as it
appeared that no premium payment therefor
was made by PTEC. ISSUE: Whether or not a
separate premium is needed for cover notes.
HELD: No. The Cover Note was not without
consideration for which the Court of Appeals
held the Cover Note as null and void, and
denied recovery therefrom. The fact that no
separate premium was paid on the Cover
Note before the loss insured against
occurred, does not militate against the
validity of PTEC’s contention, for no such
premium could have been paid, since by the
nature of the Cover Note, it did not contain,
as all Cover Notes do not contain particulars
of the shipment that would serve as basis for
the computation of the premiums. As a
logical consequence, no separate premiums
are intended or required to be paid on a
Cover Note. At any rate, it is not disputed
that PTEC paid in full all the premiums as
called for by the statement issued by WIC
after the issuance of the two regular marine
insurance policies, thereby leaving no
account unpaid by PTEC due on the
insurance coverage, which must be deemed
to include the Cover Note. If the Note is to be
treated as a separate policy instead of
integrating it to the regular policies
subsequently issued, the purpose and
function of the Cover Note would be set at
naught or rendered meaningless, for it is in a
real sense a contract, not a mere application
for insurance which is a mere offer.
Artex Development Co. Inc. v Wellington
Insurance Co. Inc.
GR No. L-29508 June 27, 1973
FACTS: Wellington Insurance Co. insured for
P24, 346, 509.00 the buildings, stocks and
machinery of Artex Development against loss
or damage by fire or lightning, upon payment
of the corresponding premiums. On 22
September 1963, the buildings, stocks and
machinery of plaintiff’s spinning department

were burned. Total property loss was
computed at P10, 106, 554.40 and the total
business interruption loss was P3, 000,
000.00. Defendant paid P6, 481, 870 for the
property loss and P1, 864, 134 for business
interruption loss leaving a balance of P3,
624, 683 and P1, 748, 460, respectively.
Plaintiff filed a Manifestation that “the only
remaining liability subject of litigation shall
be that proportion of the loss reinsured with
or through Alexander and Alexander Inc. of
NY, USA, namely, P397, 813—the rest having
been paid and settled.” Defendant
manifested that such document is true and
correct.
ISSUE: Whether or not plaintiff may collect
against his insurance company’s reinsurer’s,
notwithstanding that the former is not privy
to the contract of reinsurance between
Wellington Insurance Co. and Alexander and
Alexander Inc.
HELD: No. A third party not privy to a
contract that contains no stipulation pour
autrui in its favor may not sue enforcement
of the contract. In this case, the lower court
ordered defendant-insurer to pay plaintiffinsured the balance of the insured property
loss of P3, 624,683 and its ascertained
business interruption loss of P1, 748, 460.
The Supreme Court affirmed the correctness
of the lower court’s ruling that it is no
defense for the insurer as against insured
that the insurer had obtained reinsurance
from other companies to cover its liability.

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