White Gold Marine Services vs. Pioneer Insurance, et. al.

Facts:White Gold owned several shipping vessels. Steamship Mutual Underwriting

Association (based in Bermuda) was a protection and indemnity club which was an association composed of shipowners in general who banded together for the specific purpose of providing insurance coverage on a mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties.  White Gold, through Pioneer Insurance (agent of Steamship Mutual), procured a protection and indemnity coverage from Steamship Mutual. Steamship Mutual did not have authority from the Insurance Commission to conduct insurance business in the Philippines but its collection agent here (Pioneer Insurance) had been licensed to conduct insurance business.

Later, Steamship Mutual filed a case for collection of sum of money against White Gold due to the latter’s failure to pay its balance with the former. White Gold averred that Steamship Mutual had no license, hence, it could not collect. Nor could it collect through Pioneer Insurance because, though Pioneer Insurance is licensed as an insurance company, it was not licensed to be an insurance broker/agent. Steamship Mutual insisted it was not conducting insurance business here and was merely a protection and indemnity club. The Insurance Commission as well as the Court of Appeals ruled against White Gold.

Issue: Whether or not Steamship mutual needed a license to operate in the Philippines.

Held: Yes. The test to determine if a contract is an insurance contract or not,

depends on the nature of the promise, the act required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite. It is not by what it is called. If it is a contract of indemnity, it must be a contract of insurance. In fact, a protection and indemnity club is a form of insurance where the members are both the insurers and the insured. It is a mutual insurance company. The club indemnifies the member for whatever risks it may incur against a third party where the third party is other than the club and the members. Hence, Steamship Mutual needs to procure a license from the Insurance Commission in order to continue operating here.

Pioneer Insurance also needs to secure another license as an insurance broker/agent of Steamship Mutual pursuant to Section 299 of the Insurance Code.

Philamcare Health Systems, Inc. vs Court of Appeals

Facts:In 1988, Ernani Trinos applied for a health care insurance under the

Philamcare Health Systems. He was asked if he was ever treated for high blood, heart trouble, diabetes, cancer, liver disease, asthma, or peptic ulcer; he answered no. His application was approved and it was effective for one year. His coverage was subsequently renewed twice for one year each. While the coverage was still in force in 1990, Ernani suffered a heart attack for which he was hospitalized. The cost of the hospitalization amounted to P76,000.00. Julita Trinos, wife of Ernani, filed a claim before Philamcare for them to pay the hospitalization cost. Philamcare refused to pay as it alleged that Ernani failed to disclose the fact that he was diabetic, hypertensive, and asthmatic. Julita ended up paying the hospital expenses. Ernani eventually died. In July 1990, Julita sued Philamcare for damages. Philamcare alleged that the health coverage is not an insurance contract; that the concealment made by Ernani voided the agreement.

1

Issue: Whether or not Philamcare could avoid the health coverage agreement.

Held:  No. The health coverage agreement entered upon by Ernani with Philamcare was a non-life insurance contract and was covered by the Insurance Law. It was primarily a contract of indemnity. Once the member incurred hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. There was no concealment on the part of Ernani. He answered the question with good faith. He was not a medical doctor hence his statement in answering the question asked of him when he was applying is an opinion rather than a fact. Answers made in good faith will not void the policy.

Further, Philamcare, in believing there was concealment, should have taken the necessary steps to void the health coverage agreement prior to the filing of the suit by Julita. Philamcare never gave notice to Julita of the fact that they are voiding the agreement. Therefore, Philamcare should pay the expenses paid by Julita.

Gulf Resorts, Inc. vs. Philippine Charter Insurance Corp.

Facts:Gulf Resorts was the owner of the Plaza Resort situated at Agoo, La

Union and had its properties in said resort insured originally with the American Home Assurance Company (AHAC). In the first 4 policies issued, the risks of loss from earthquake shock was extended only to petitioner’s two swimming pools. Gulf Resorts agreed to insure with Phil Charter the properties covered by the AHAC policy provided that the policy wording and rates in said policy be copied in the policy to be issued by Phil Charter. Phil Charter issued Policy No. 31944 to Gulf Resorts covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92. The break-down of premiums showed that Gulf Resorts paid only P393.00 as premium against earthquake shock (ES). In Policy No. 31944 issued by defendant, the shock endorsement provided that “In consideration of the payment by the insured to the company of the sum included additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or through or in consequence of earthquake. In Exhibit "7-C" the word "included" above the underlined portion was deleted. On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties covered by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged. 

Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944 for damages on its properties. Respondent denied petitioner’s claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort. The trial court ruled in favor of respondent. In its ruling, the schedule clearly showed that petitioner paid only a premium of P393.00 against the peril of earthquakeshock, the same premium it had paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC. 

Issue: Whether or not the policy covered only the two swimming pools owned by Gulf Resorts and did not extend to all properties damaged therein

Held: YES. All the provisions and riders taken and interpreted together, indubitably showed the intention of the parties to extend earthquake shock coverage to the two swimming pools only.

2

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. In fire, casualty and marine insurance, the premium becomes a debt as soon as the risk attaches.

In the subject policy, no premium payments were made with regard to earthquake shock coverage except on the two swimming pools. There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This was consistent with the history of petitioner’s insurance policies with AHAC.

Eternal Gardens Memorial Park Corp. vs. The Philippine American Life Insurance Co.

Facts:Respondent insurance company entered into a Creditor Group Life Policy

agreement with Eternal Gardens Memorial. Under said policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.

As required under the said policy, Eternal submitted a list of all new lot purchasers, including the application of each purchaser and their corresponding unpaid balances. Included in this list is a certain John Chuang.

When Chuang died, Eternal sent a letter, together with the pertinent papers, to Philamlife which served as an insurance claim for Chuang’s death. Philamlife required that Eternal submit certain documents relative to its insurance claim for Chuang’s death. Eternal transmitted said documents which Philamlife was able to receive. However, after more than one year, Philamlife did not anymore reply to Eternal’s insurance claim. This prompted Eternal to demand the insurance claims. However, Philamlife denied the said claim, prompting Eternal to file a case before the RTC of Makati.

Issue:Whether or not Philamlife assumed the risk of loss without approving the application.

Held: YES. An insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.

More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract.

Enriquez vs Sun Life Insurance of Canada

Facts: 

3

Plaintiff was estate administrator for late Joaquin Herrer. Herrer had pending application with defendant Sun Life Assurance Co (Sun Life) evidenced by a provisional receipt. The provisional receipt read payment of Php6, 000 for life annuity received September 26, 1917. The application was received by Sun Life head office a month after. 

On December 4, 1917, the policy was issued in Montreal. A petition for withdrawal of application was filed by Herrer’s lawyer on December 18, 1917. Herrer died on December 20. A letter from Sun Life was received December 21 stating policy was issued and reminded the party of a notification of acceptance of the application dated 26 November. 

Plaintiff testified that he had found no letter of notification from the Sun Life. 

Lower Court decided in favor of respondent. Appeal was taken. 

Issue: Whether or not the there has been a valid offer and acceptance

Held: None. The Civil Code provides that the acceptance made by letter binds the person making the offer only from the date it has came to its knowledge. The contract of life annuity was not perfected. There was no satisfactory evidence that the application acceptance came to the knowledge of Herrer. 

Article 16 of the Civil Code provides that any deficiency in the special law shall be supplied by the Code. The Insurance Code does not provide for law on the principle of acceptance, thus the Civil Code shall govern. 

Article 1262 provides that consent is shown by concurrence of offer and acceptance with the thing and the consideration to the contract. The acceptance by letter shall not bind the person making the offer except from the time it came to his knowledge. 

American Courts held that acceptance of offer not actually communicated does not complete the contract but the mailing of the acceptance.

Furthermore, the provisional receipt provides for conditions before a contract is deemed final. 1. Medical examination. 2. Approval by head office of the application. 3. the company communicates approval to the applicant. 

In the case, there was no letter of notification. No evidence of knowledge. Judgment reversed. Php6000 with interest is to be returned. 

Great Pacific Life Insurance Corp. vs. Court of Appeals

Facts:There was an existing group life insurance executed between Great Pacific

Life Assurance (Grepalife) and the Development Bank of the Philippines (DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. In November 1983, Wilfredo Leuterio, mortgagor of DBP applied to be a member of the group life insurance. He filled out a form where he indicated he never consulted any physician regarding any illness (heart condition etc) and that he was in good health. He was eventually included in the group life insurance and he was covered for the amount of his indebtedness (P86,200.00).

In August 1984, Wilfredo died. DBP submitted a death claim but it was denied by Grepalife as it insisted that Wilfredo actually concealed that he was suffering from hypertension at the time of his insurance application. Grepalife relied on the statement made by the doctor who issued Wilfredo’s death certificate

4

wherein it was stated that Wilfredo’s immediate cause of death was massive cerebral hemorrhage secondary to hypertension or hypertension as a “possible cause of death”.

Since Grepalife refused to pay the insurance claim filed by DBP, Medarda Leuterio (widow) sued Grepalife. Grepalife assailed the suit and insisted that Medarda is not a proper party in interest. The lower court ruled in favor of Medarda and the court ordered Grepalife to pay the amount of the insurance to DBP. The Court of Appeals affirmed this decision in 1993. Grepalife appealed to the Supreme Court. In 1995, pending resolution of the case in the SC, DBP foreclosed the property of Medarda.

Issue: Whether or not Grepalife is liable to pay the insurance claim.

Held: Yes. Grepalife is liable to pay the insurance claim. Medarda is a proper party in interest (note that it was Wilfredo who has been paying the premium, as the insured, he is the real party in interest and this status was transferred to his widow). The group life insurance or “mortgage redemption insurance”  provides that DBP as the mortgagee is merely an assignee of Wilfredo; and that in the event of Wilfredo’s death before his indebtedness to DBP is paid, proceeds from the insurance shall first be applied to the sum of the balance insured. But this does not cease Wilfredo to be a party to the insurance contract.

Grepalife failed to prove that Wilfredo concealed that he was suffering from hypertension at the time of his application. The doctor’s finding as to the cause of death was not conclusive because no autopsy was conducted. The doctor who issued the death certificate had no knowledge of Wilfredo’s hospital confinement [if there were any]. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability was an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer.

Grepalife must however pay the claim to Medarda considering that DBP already foreclosed the property.

Spouses Cha vs Cha

Facts:Petitioner spouses Nilo Cha and Stella Uy-Cha, as lessees entered into a lease

contract with private respondent CKS Development Corporation as lessor. A stipulation of the lease contract provides that the Lessee is not allowed to insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the Lessor. If the Lessee violates this, the policy is deemed assigned and transferred to the Lessor for his own benefit. 

Petitioner took out a policy of fire insurance over the merchandise inside the leased premises with United Insurance without consent of CKS. On the day the lease contract was to expire a fire broke out inside the leased premises. CKS, wrote a letter to United asking that the proceeds of the fire insurance be paid directly to CKS. United refused. Hence, the latter filed a complaint against the Cha spouses and United. 

RTC ruled in favor of CKS. CA affirmed, hence the petition. 

Issue: Whether or not CKS can recover from the insurance policy. 

Held: No. Section 18 of the Insurance Code provides that: “No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured.” 

5

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code: “The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof.” Therefore, CKS cannot be validly a beneficiary of the fire insurance policy taken by petitioner-spouses. The insurable interest remains with the Cha spouses. 

The stipulation in the lease contract is void for being contrary to law and public policy. This is in keeping with the provision under Sec. 25 of the Insurance Code that: Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in the property insured or that the policy shall be received as proof of such interest and every policy executed by way of gaming or wagering is void.” 

Geagonia vs Court of Appeals

Facts:Geagonia, owner of a store, obtained from Country Bankers a fire

insurance policy for P100,000.00. The one year policy covered the stock 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 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.

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

6

2. Whether or not he was prohibited from recovering

Held: 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 proved this knowledge. His testimony to the contrary before the Insurance Commissioner and which the latter relied upon could not 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 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.

Gaisano Cagayan, Inc. vs Insurance Company of North America

Facts:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans while Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co. IMC and LSPI separately obtained from respondent Insurance Company of North America (ICNA) fire insurance policies for their book debt endorsements related to their ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines which are unpaid 45 days after the time of the loss.

Petitioner Gaisano Cagayan, Inc. is a customer and dealer of IMC and LSPI products. It owns the Gaisano Superstore Complex which was consumed by fire in 1991. Included in the items destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

Respondent filed a complaint for damages against Gaisano Cagayan, Inc. alleging that IMC and LSPI filed their claims under their respective fire insurance policies which it paid, thus it was subrogated to their rights. Petitioner averred it could not be held liable because the items were destroyed due to fortuitous event or

7

force majeure. The RTC ruled that IMC and LSPI retained ownership of the delivered goods until fully paid. It must bear the loss (res perit domino). The CA ruled otherwise and ordered petitioner to pay respondent Php 2,119,205.60 and Php 535,613.00 the amount paid by the latter to IMC and LSPI, respectively.

Issue: Whether or not respondent may claim against petitioner for the insured debt.

Held: Yes, but the order to pay Php 535,613 is deleted for lack of factual basis.

The insurance policy is clear that the subject of the insurance is the book debts and not goods sold and delivered to the customers and dealers of the insured.

Under Art. 1504 of the Civil code, unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not; except where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property.

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.

Anyone who derives a benefit from its existence or would suffer loss from its destruction has an insurable interest in the said property.

The rationale that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.

Re: deletion of Php 535,613.00

The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim

Art. 2207 of the Civil Code states that if the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract.

8

However, LSPI failed to offer any subrogation receipt as evidence. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.

Sun Life Assurance Company of Canada vs. Court of Appeals

Facts:Robert John Bacani procured a life insurance contract for himself from

petitioner-company, designating his mother Bernarda Bacani, herein private respondent, as the beneficiary. He was issued a policy valued at P100,000.00 with double indemnity in case of accidental death. Sometime after, the insured died in a plane crash. Bernarda filed a claim with petitioner, seeking the benefits of the insurance policy taken by her son. However, said insurance company rejected the claim on the ground that the insured did not disclose material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. Petitioner discovered that two weeks prior to his application for insurance, the insured was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. The RTC, as affirmed by the CA, this fact was concealed, as alleged by the petitioner. But the fact that was concealed was not the cause of death of the insured and that matters relating to the medical history of the insured is deemed to be irrelevant since petitioner waived the medical examination prior to the approval and issuance of the insurance policy.

Issue: Whether or not the concealment of such material fact, despite it not being the cause of death of the insured, is sufficient to render the insurance contract voidable

Held:YES. Section 26 of the Insurance Code is explicit in requiring a party to a

contract of insurance to communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining.

Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries.

The SC, therefore, ruled that petitioner properly exercised its right to rescind the contract of insurance by reason of the concealment employed by the insured. It must be emphasized that rescission was exercised within the two-year contestability period as recognized in Section 48 of The Insurance Code.

PhilamCare Health Systems, Inc. vs. Court of Appeals

Facts:Ernani Trinos obtained a health care coverage with petitioner Philamcare.

Under the agreement, Trinos was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was entitled to avail of “out-patient benefits” such as annual physical examinations, preventive health care and other out-patient services.

During the period of coverage, Trinos suffered a heart attack and was hospitalized for one month. During this time, his wife, Julita Trinos, tried to claim the benefits under the health care agreement but petitioner company denied her claim on the ground that the Health Care Agreement was void because there was concealment regarding Ernani’s medical history. Doctors allegedly discovered at the

9

time of Ernani’s confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus Julita paid the hospitalization expenses herself.

When Ernani died, Julita instituted with the RTC of Manila an action for damages against petitioner and its president. She asked for reimbursement of her expenses plus moral damages and attorney’s fees.

Issue:Whether or not the petitioner is liable

Held:YES. The health care agreement was in the nature of non-life insurance,

which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract.

Petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians.

Thelma Vda. De Canilang vs Court of Appeals

Facts:Jaime Canilang applied for a “non-medical” insurance policy with respondent

Great Pacific Life Assurance Company naming his wife, Thelma Canilang, as his beneficiary. But he did not disclose the fact that he was diagnosed as suffering from sinus tachycardia and that he has consulted a doctor twice. Jaime was issued an ordinary life insurance policy with the face value of P19, 700.00.

Jaime died of “congestive heart failure”, “anemia”, and “chronic anemia”. Petitioner widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer denied upon the ground that the insured had concealed material information from it. Hence, Thelma filed a complaint against Great Pacific with the Insurance Commission for recovery of the insurance proceeds.

Issue:Whether or not the non-disclosure of certain facts about the insured’s previous health conditions is material to warrant the denial of the claims of Thelma Canilang

Held:YES. The SC agreed with the Court of Appeals that the information which

Jaime Canilang failed to disclose was material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and medicines prescribed by such doctor, in the insurance application, it may be reasonably assumed that Great Pacific would have made further inquiries and would have probably refused to issue a non-medical insurance policy or, at the very least, required a higher premium for the same coverage.

The materiality of the information withheld by Great Pacific did not depend upon the state of mind of Jaime Canilang. A man’s state of mind or subjective belief is not capable of proof in our judicial process, except through proof of external acts or failure to act from which inferences as to his subjective belief may be reasonably

10

drawn. Neither does materiality depend upon the actual or physical events which ensure. Materiality relates rather to the “probable and reasonable influence of the facts” upon the party to whom the communication should have been made, in assessing the risk involved in making or omitting to make further inquiries and in accepting the application for insurance; that “probable and reasonable influence of the facts” concealed must, of course, be determined objectively, by the judge ultimately.

Emilio Tan vs. Court of Appeals

Facts:Tan Lee Siong, father of herein petitioners, applied for life insurance in the

amount of P80, 000.00 with respondent company Philippine American Life Insurance Company. Said application was approved and a corresponding policy was issued effective November 5, 1973, with petitioners as the beneficiaries.

On April 26, 1975, Tan Lee Siong died of hepatoma. Hence, petitioners filed with respondent company their claim for the proceeds of the life insurance policy. However, the insurance company denied the said claim and rescinded the policy by reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application for insurance. The premiums paid on the policy were thereupon refunded.

The petitioners contended that the respondent company no longer had the right to rescind the contract of insurance as rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement of action.

Issue:Whether or not the insurance company had the right to rescind the contract

of insurance despite the presence of an incontestability clause

Held:YES. The so-called “incontestability clause” precludes the insurer from

raising the defenses of false representations or concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the insured’s lifetime. The phrase “during the lifetime” found in Section 48 of the Insurance Law simply means that the policy is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section 48 is “for a period of two years”.

The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The policy was thus in force for a period of only one year and five months. Considering that the insured died before the two-year period had lapsed, respondent company was not, therefore, barred from proving that the policy is void ab initio by reason of the insured’s fraudulent concealment or misrepresentation. Moreover, respondent company rescinded the contract of insurance and refunded the premiums paid on November 11, 1975, previous to the commencement of this action on November 27, 1975.

Trans-Asia Shipping Lines vs. Court of Appeals

Facts:

Respondent Atty. Renato Arroyo, a public attorney, bought a ticket from herein petitioner for the voyage of M/V Asia Thailand vessel to Cagayan de Oro City from Cebu City on November 12, 1991.

At around 5:30 in the evening of November 12, 1991, respondent boarded

11

the M/V Asia Thailand vessel during which he noticed that some repairs were being undertaken on the engine of the vessel. The vessel departed at around 11:00 in the evening with only one (1) engine running.

After an hour of slow voyage, the vessel stopped near Kawit Island and dropped its anchor thereat. After half an hour of stillness, some passengers demanded that they should be allowed to return to Cebu City for they were no longer willing to continue their voyage to Cagayan de Oro City. The captain acceded to their request and thus the vessel headed back to Cebu City.

In Cebu City, plaintiff together with the other passengers who requested to be brought back to Cebu City, were allowed to disembark. Thereafter, the vessel proceeded to Cagayan de Oro City. Petitioner, the next day, boarded the M/V Asia Japan for its voyage to Cagayan de Oro City, likewise a vessel of defendant.

On November 12, 1991, respondent Arroyo filed before the trial court “an action for damage arising from bad faith, breach of contract and from tort,” against petitioner. The trial court ruled only for breach of contract. The CA reversed and set aside said decision on appeal.

Issue: Whether or not the petitioner Trans-Asia was negligent

HELD: Yes. Before commencing the contracted voyage, the petitioner undertook some repairs on the cylinder head of one of the vessel’s engines. But even before it could finish these repairs, it allowed the vessel to leave the port of origin on only one functioning engine, instead of two. Moreover, even the lone functioning engine was not in perfect condition as sometime after it had run its course, it conked out. This caused the vessel to stop and remain adrift at sea, thus in order to prevent the ship from capsizing, it had to drop anchor.

Plainly, the vessel was unseaworthy even before the voyage began. For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition its vessel involved in a contract of carriage is a clear breach of is duty prescribed in Article 1755 of the Civil Code.

Pacific Timber Export Corporation vs. Court of Appeals

Facts: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 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: 

12

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 was 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 was 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.

Makati Tuscany v Court of Appeals

Facts:American International Underwriters issued a policy in favor of Makati

Tuscany Condominium Corporation with a total premium of P466, 103.05. The company issued a replacement policy. Premium was again paid. In 1984, the policy was again renewed and private respondent issued to petitioner another policy. The petitioner paid 152,000 pesos then refused to furnish the balance.

The company filed an action to recover the unpaid balance of P314,103.05.The condominium administration explained that it discontinued the payment

of premiums because the policy did not contain a credit clause in its favor and that the acceptance of premiums didn’t waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy and prior to premium payment, loss wasn’t covered.Petitioner sought for a refund.  The trial court dismissed the complaint and counterclaim owing to the argument that payment of the premiums of the policies were made during the lifetime or term of said policies, so risk attached under the policies.

The Court of Appeals ordered petitioner to pay the balance of the premiums owing to the reason that it was part of an indivisible obligation.

Petitioner now asserts that its payment by installment of the premiums for the insurance policies invalidated them because of the provisions of Sec. 77 of the Insurance Code disclaiming liability for loss for occurring before payment of premiums.

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

Held: No. 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.

Petitioner concluded that there cannot be a perfected contract of insurance upon mere partial payment of the premiums because under Sec. 77 of the Insurance Code, no contract of insurance is valid and binding unless the premium thereof has

13

been paid, notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a refund of all premium payments made on the alleged invalid insurance policies.

Here, the subject policies were valid even if the premiums were paid on installments. The records clearly showed that petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to petitioner.

Quoting the CA decision:“While the import of Section 77 is that prepayment of premiums is strictly

required as a condition to the validity of the contract, we are not prepared to rule that the request to make installment payments duly approved by the insurer, would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension. So is an understanding to allow insured to pay premiums in installments not so proscribed.

The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is unavailing because the facts therein are substantially different from those in the case at bar. In Arce, no payment was made by the insured at all despite the grace period given. Here, petitioner paid the initial installment and thereafter made staggered payments resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments although it refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of the whole term. 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.

UCPB General Insurance Co., Inc. vs Masagana Telemart, Inc. (1999)

 Facts: Insurer issued 5 fire insurance policies covering various properties of the

Insured (covering the period May 22, 1991-May 22, 1992). Before the expiration of the policy or on March 1992, Insurer evaluated the policy and decided not to renew them. Thus, Insurer issued a notice of non-renewal to Insured’s broker Zuellig (on April 1992). After the expiration of the policy, fire razed Insured’s property covered by 3 policies. A month later, Insured presented 5 checks to the Insurer’s cashier as payment for the renewal of the policy (from May 1992-May 1993), however, no notice of loss was ever filed by Insured. Insurer refused to pay on the ground that the policies had already expired and were not renewed, and that the fire occurred before payment of the premium for renewal.

RTC found that insured fully complied with its duty to pay premium.CA observed that following previous practice, Insured was allowed a 60-90

day credit term for the renewal of its policy, and that the acceptance of the late

14

premium payment suggested an understanding that payment could be made later, and that no timely notice of non-renewal was sent.

Issue: Whether the fire insurance policies issued by Insurer to Insured had expired on May 1992 or had been extended or renewed by an implied credit arrangement (even though actual tender of payment was made after the occurrence of the fire)

Held: No, the insurance policies had not been renewed. An insurance policy, other

than life, issued originally or on renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void.  The parties may not agree expressly or impliedly on the extension of creditor time to pay the premium and consider the policy binding before actual payment.

Here, the payment of the premium for renewal of the policies was tendered on July 13, 1992, a month after the fire occurred on June 13, 1992. The assured did not even give the insurer a notice of loss within a reasonable time after occurrence of the fire.

UCPB General Insurance Co. vs. Masagana Telemart, Inc. (2001)

Facts:Masagana obtained from Insurer five (5) insurance policies on its properties.

All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiffs properties were razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's Checks as renewal premium payments for which Official Receipt was issued. Masagana made its formal demand for indemnification for the burned insured properties. On the same day, defendant returned the five (5) manager's checks stating in its letter) that it was rejecting Masagana's claim on the following grounds:

a) Said policies expired last May 22, 1992 and were not renewed for another term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; andc) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or before tender of premium payment.

Issue:Whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) must be

strictly applied to Petitioner's advantage despite its practice of granting a 60 to 90-day credit term for the payment of premiums.

Held:No. Section 77 of the Insurance Code of 1978 provides:SECTION 77. 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 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.

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, the request to make installment payments duly approved by the insurer would not prevent the entire contract of insurance from going into effect the same way that an understanding to allow insured to pay premiums in installments was not so prescribed. At the very

15

least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.

The Insular Life Assurance Company, Ltd. vs Ebrado

Facts:Buenaventura Cristor Ebrado was issued by the Insular Life Assurance an

insurance policy on a whole-life plan for P5,882.00 with a rider for Accidental Death Benefits for the same amount. He designated Carponia T. Ebrado, his common-law wife, as his revocable beneficiary in his policy. In the policy, he referred to her as his wife.

Time came when Buenaventura died from a falling tree branch. Carponia filed a claim to the insurance company to get the proceeds as the designated beneficiary. She admitted however that the deceased-insured and she lived together as husband and wife without the benefit of marriage.

Pascual T. Ebrado, also filed a claim to the insurance company, this time claiming to be the legal wife Buenaventura. She asserted that she had a better right over the proceeds than Carponia who is a common-law wife.

As the insurance company was at a loss as to whom to give the proceeds, it commenced an action for interpleader in court.

Issue: Whether a common-law wife named as a beneficiary in the life insurance

policy of a legally married man entitled to claim the proceeds thereof in case of the death of the latter.

Held:A common-law wife named as a beneficiary in the life insurance policy of a

legally married man could not claim the proceeds thereof in case the death of the latter.

The contract of insurance is governed by the provisions of the New Civil Code on matters not specifically provided for in the Insurance Code.

“xxx When not otherwise specifically provided for by the Insurance Law, the contract of insurance is governed by the provisions of the civil law regulating contracts. And under Article 2012 of the same Code, “any person who is forbidden from receiving any donation under article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to him. xxx”

In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance.

Vda. De Consuegra v GSIS

Facts:The late Jose Consuegra was employed as a shop foreman in the province of

Surigao del Norte. He contracted two marriages, the first with Rosario Diaz and the second, which was contracted in good faith while the first marriage was subsisting, with Basilia Berdin.

Consuegra died while the proceeds of his GSIS life insurance were paid to petitioner Basilia Berdin and her children who were the beneficiaries named in the policy. They received Php 6,000.

16

Consuegra did not designate any beneficiary who would receive the retirement insurance benefits due to him. Respondent Rosario Diaz, the widow by the first marriage, filed a claim with the GSIS asking that the retirement insurance benefits be paid to her as the only legal heir of Consuegra, considering that the deceased did not designate any beneficiary with respect to his retirement insurance benefits.

Petitioner Berdin and her children, likewise, filed a similar claim with the GSIS, asserting that being the beneficiaries named in the life insurance policy of Consuegra, they are the only ones entitled to receive the retirement insurance benefits due the deceased Consuegra.

The GSIS ruled that the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow by his first marriage who is entitled to one-half, or 8/16, of the retirement insurance benefits, on the one hand; and Basilia Berdin, his widow by the second marriage and their seven children, on the other hand, who are entitled to the remaining one-half, or 8/16.

Basilia Berdin didn’t agree. She filed a petition declaring her and her children to be the legal heirs and exclusive beneficiaries of the retirement insurance.

The trial court affirmed stating that: "when two women innocently and in good faith are legally united in holy matrimony to the same man, they and their children, born of said wedlock, will be regarded as legitimate children and each family be entitled to one half of the estate.”

Hence the present appeal by Basilia Berdin and her children.

Issue: Whether or not the retirement insurance benefits of Jose Consuegra should be paid to his second wife considering that he did not designate the beneficiary of his retirement insurance

Held: No. Berdin averred that because the deceased Jose Consuegra failed to designate the beneficiaries in his retirement insurance, the appellants who were the beneficiaries named in the life insurance should automatically be considered the beneficiaries to receive the retirement insurance benefits.

The GSIS offered two separate and distinct systems of benefits to its members — one is the life insurance and the other is the retirement insurance. These two distinct systems of benefits are paid out from two distinct and separate funds that are maintained by the GSIS.

In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life insurance policy. As in the case of a life insurance provided for in the Insurance Act, the beneficiary in a life insurance under the GSIS may not necessarily be a heir of the insured. The insured in a life insurance may designate any person as beneficiary unless disqualified to be so under the provisions of the Civil Code. And in the absence of any beneficiary named in the life insurance policy, the proceeds of the insurance will go to the estate of the insured.

Retirement insurance is primarily intended for the benefit of the employee, to provide for his old age, or incapacity, after rendering service in the government for a required number of years. If the employee reaches the age of retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries named in his application for retirement insurance. The beneficiary of the retirement insurance can only claim the proceeds of the retirement insurance if the employee dies before retirement. If the employee failed or overlooked to state the beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the insurance policy.

17

GSIS had correctly acted when it ruled that the proceeds should be divided equally between his first living wife and his second. The lower court has correctly applied the ruling of this Court in the case of Lao v Dee.

“xxx in construing the rights of two women who were married to the same man, held "that since the defendant's first marriage has not been dissolved or declared void the conjugal partnership established by that marriage has not ceased. Nor has the first wife lost or relinquished her status as putative heir of her husband under the new Civil Code, entitled to share in his estate upon his death should she survive him. Consequently, whether as conjugal partner in a still subsisting marriage or as such putative heir she has an interest in the husband's share in the property here in dispute xxx”

With respect to the right of the second wife, although the second marriage could be presumed to be void ab initio as it was celebrated while the first marriage was still subsisting, still there is need for judicial declaration of such nullity. And inasmuch as the conjugal partnership formed by the second marriage was dissolved before judicial declaration of its nullity, "the only just and equitable solution in this case would be to recognize the right of the second wife to her share of one-half in the property acquired by her and her husband and consider the other half as pertaining to the conjugal partnership of the first marriage."

Roque vs. Intermediate Appellate Court

Facts:On February 19, 1972, the Manila Bay Lighterage Corporation (MBLC) a

common carrier, entered into a contract with Isabela Roque (doing business under the name and style of Isabela Roque Timber Enterprises) and Ong Chiong whereby the former would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila.

Roque and Ong insured the logs against loss for P100,000.00 with the Pioneer Insurance and Surety Corporation (Pioneer). On February 29, 1972, Roque and Ong loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila.

The barge where the logs were loaded was apparently not seaworthy such that it developed a leak. One of the hatches was left open causing water to enter the barge and because the barge was not provided with the necessary cover or tarpaulin, the ordinary splash of sea waves brought more water inside the barge.

On March 8, 1972, Roque and Ong wrote a letter to MBLC demanding payment of P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to Pioneer claiming the full amount of P100,000.00 under the insurance policy but Pioneer refused to pay on the ground that its liability depended upon the "Total loss by Total Loss of Vessel only". Hence, Roque and Ong commenced a civil case against MBLC and Pioneer.

During the initial stages of the hearing, MBLC informed the trial court that it had salvaged part of the logs. The court ordered them to be sold to the highest bidder with the funds to be deposited in a bank. After hearing, the trial court found in favor of Roque and Ong, condemning MBLC and Pioneer to pay Roque and Ong, jointly and severally, the sum of P100,000; sentencing MBLC to pay Roque and Ong, in addition, the sum of P50,000, plus P12, 500, that the latter advanced to the former as down payment for transporting the logs in question.

Pioneer appealed to the Intermediate Appellate Court. MBLC did not appeal, as allegedly, the transportation company was no longer doing business and was without funds. The appellate court modified the trial court's decision and absolved

18

Pioneer from liability after having found that there was a breach of implied warranty of seaworthiness on the part of Roque and Ong and that the loss of the insured cargo was caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the loss is not covered by the marine insurance policy.A fter the appellate court denied their motion for reconsideration, Roque and Ong filed the petition for certiorari.

Issue:Whether there was a warranty of seaworthiness by the cargo owner in cases of marine cargo insurance.

Held:YES. There is no dispute over the liability of the common carrier MBLC. In

fact, it did not bother to appeal the questioned decision. However, Roque and Ong stated that MBLC had ceased operating as a firm and nothing may be recovered from it. They were, therefore, trying to recover their losses from the insurer.

Section 113 of the Insurance Code provides that "In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that the ship is seaworthy." Section 99 of the same Code also provides in part that "Marine insurance includes: (1) Insurance against loss of or damage to: (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise..." From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be the subject of marine insurance and that once it is so made, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he be the shipowner or not.

Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel but he has full control in the choice of the common carrier that will transport his goods. Or the cargo owner may enter into a contract of insurance which specifically provides that the insurer answers not only for the perils of the sea but also provides for coverage of perils of the ship.

In marine cases, the risks insured against are 'perils of the sea' (Chute v. North River Ins. Co., Minn.). The purpose of such insurance is protection against contingencies and against possible damages and such a policy does not cover a loss or injury which must inevitably take place in the ordinary course of things. There is no doubt that the term 'perils of the sea' extends only to losses caused by sea damage, or by the violence of the elements and does not embrace all losses happening at sea. They insure against losses from extraordinary occurrences only, such as stress of weather, winds and waves, lightning, tempests, rocksand the like. These are understood to be the 'perils of the sea'.

Oriental Assurance Corporation vs. Court of Appeals

Facts: Panama bought, in Palawan, 1,208 pieces of apitong logs, with a total volume

of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport said logs by sea to Manila and insured it against loss for P1-M with Oriental Assurance. 

The policy was issued. It was stipulated there, among others, that the subject matter insured was 2,000 cubic meters of apitong logs and that the vessels to be utilized are the following: MT. 'Seminole', Barge PCT-7000 for the 1,000 cubic meter of apitong logs and Barge Transpac-1000 for the other 1,000 cubic meter of apitong logs. It was also stipulated in the policy that the insurance was against total loss only, and it was subject to the following clauses, to wit: Civil Code Article 1250 Waiver clause, Typhoon warranty clause, and Omnibus clause. 

19

The logs were loaded on the 2 barges: (1) on barge PCT-7000, 610 pieces of logs with a volume of 1,000 cubicmeters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000 cubic meters. On January 28, 1986, the 2 barges were towed by MT 'Seminole'(tugboat). During the voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon. 

Panama demanded payment for the loss but Oriental Assurance refused on the ground that its contracted liability was for "Total Loss Only." Consequently, Panama filed a Complaint for Damages against Ever Insurance Agency, Benito Sy Lee Yong and Oriental Assurance, before the RTC-Kalookan. 

RTC rendered a decision ordering Oriental Assurance to pay Panama P415,000.00 as insurance indemnity. Both parties appealed. The appellate court affirmed the RTC decision. Both RTC and CA shared the view that the insurance contract should be liberally construed in order to avoid a denial of substantial justice; that the logs loaded in the two barges should be treated separately such that the loss sustained by the shipment in one of them may be considered as "constructive total loss" and correspondingly compensable. 

Oriental Assurance filed a petition for review on certiorari challenging the aforesaid dispositions. 

Issue: Whether or not Oriental Assurance was liable

Held: No. The SC held that the terms of the contract constituted the measure of the

insurer’s liability and compliance therewith was a condition precedent to the insured's right to recovery from the insurer. That whether a contract was entire or severable was a question of intention to be determined by the language employed by the parties.

The policy in question showed that the subject matter insured was the entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two different barges did not make the contract several and divisible as to the items insured. The logs on the two barges were not separately valued or separately insured. Only one premium was paid for the entire shipment, making for only one cause or consideration. The insurance contract must, therefore, be considered indivisible. 

The law provides that a “constructive total loss”, is one which gives to a person insured by a contract of marine insurance a right to abandon thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril injured against: (a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril; (b) If it is injured to such an extent as to reduce its value more than three-fourths.

The logs involved, although placed in two barges, were not separately valued by the policy, nor separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of logs loaded on the same barge could not be made the basis for determining constructive total loss. The logs having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss was the totality of the shipment of logs. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those 497 pieces did not exceed 75% of the value of all 1,208 pieces of logs, the shipment could be said to have sustained a constructive total loss. Hence, no recovery can be had against Oriental Assurance. The latter had no liability under the policy.

Finman General Assurace Corp. vs Court of Appeals

20

Facts:On October 22, 1986, deceased, Carlie Surposa was insured with petitioner

Finman General Assurance Corporation with his parents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 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.

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. Private respondent filed a complaint with the Insurance Commission, which rendered a favorable response for the respondent. The appellate court ruled likewise.

Petitioner filed this petition alleging grave abuse of discretion on the part of the appellate court in applying the principle of "expresso unius exclusio alterius" in a personal accident insurance policy, since death resulting from murder and/or assault are impliedly excluded in said insurance policy considering that the cause of death of the insured was not accidental but rather a deliberate and intentional act of the assailant. Therefore, said death was committed with deliberate intent which, by the very nature of a personal accident insurance policy, cannot be indemnified.

Issue: Whether or not the insurer was liable for the payment of the insurance premiums

Held:Yes, the insurer was still liable. 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. 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. 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.

In the case at bar, it could not 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. Neither could 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.

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 — was 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 could not 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 lead inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.

Vda. De Maglana v. Consolacion

21

Facts:Lope Maglana met an accident while driving a motorcycle owned by Bureau

of Customs which resulted to his death. The jeep in which his motorcycle collided was operated and owned by Destrajo. His widow filed an action for damages against Destrajo and AFISCO Insurance Corporation. The RTC held AFISCO to be secondarily liable for the awarded damages. Petitioner asserted the lower court’s decision and contended that the Insurance Code expressly provides that the insurer’s liability is direct and primary and or jointly and severally with the operator of the vehicle.

Issue: Whether or not the insurer was solidarily liable with Destrajo.

Held: No. The liability of the insurer was primary and direct but not solidarily with

Destrajo. Where the insurer directly insures liability, the liability accrues immediately upon the concurrence of the injury or even upon which the liability depends and does not depend on the recovery of the judgment by the injured party against the insured, Therefore, the insurer’s liability is direct and primary, but its liability is only up to the extent of the amount insured.

Tiu vs. Arriesgado

Facts: At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor

Hollow Blocks and General Merchandise" bearing plate number GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one of its rear tires exploded. The driver, Sergio Pedrano, then parked along the right side of the national highway and removed the damaged tire to have it vulcanized at a nearby shop, about 700 meters away. Pedrano left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and instructed the latter to place a spare tire six fathoms away behind the stalled truck to serve as a warning for oncoming vehicles. The trucks tail lights were also left on. It was about 12:00 a.m., March 16, 1987. 

At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te Laspiñas was cruising along the national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City, and had come from Maya, Daanbantayan, Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of the bus, about three (3) or four (4) places from the front seat. 

As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then about 25 meters away. He applied the breaks and tried to swerve to the left to avoid hitting the truck. But it was too late; the bus rammed into the trucks left rear. The impact damaged the right side of the bus and left several passengers injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right colles. His wife, Felisa, was brought to the Danao City Hospital. She was later transferred to the Southern Island Medical Center where she died shortly thereafter. 

Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages and attorneys fees before the Regional Trial Court of Cebu City against the petitioners, D Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspiñas on May 27, 1987. The respondent alleged that the passenger bus in question was cruising at a fast and high speed along the national road, and that petitioner Laspiñas did not take precautionary measures to avoid the accident. 

The petitioners, for their part, filed a Third-Party Complaint against the following: respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s insurer; respondent Benjamin Condor, the registered owner of the cargo truck; and respondent Sergio Pedrano, the driver of the truck. They alleged

22

that petitioner Laspiñas was negotiating the uphill climb along the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It was further alleged that the truck was parked in a slanted manner, its rear portion almost in the middle of the highway, and that no early warning device was displayed. Petitioner Laspiñas promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but despite his efforts to avoid damage to property and physical injuries on the passengers, the right side portion of the bus hit the cargo truck’s left rear. 

Issue: Whether or not respondents should be liable

HELD: Yes. The rules which common carriers should observe as to the safety of their passengers are set forth in the Civil Code, Articles 1733, 1755and 1756. It is undisputed that the respondent and his wife were not safely transported to the destination agreed upon. In actions for breach of contract, only the existence of such contract, and the fact that the obligor, in this case the common carrier, failed to transport his passenger safely to his destination are the matters that need to be proved. This is because under the said contract of carriage, the petitioners assumed the express obligation to transport the respondent and his wife to their destination safely and to observe extraordinary diligence with due regard for all circumstances. Any injury suffered by the passengers in the course thereof is immediately attributable to the negligence of the carrier. Upon the happening of the accident, the presumption of negligence at once arises, and it becomes the duty of a common carrier to prove that he observed extraordinary diligence in the care of his passengers. It must be stressed that in requiring the highest possible degree of diligence from common carriers and in creating a presumption of negligence against them, the law compels them to curb the recklessness of their drivers.

While evidence may be submitted to overcome such presumption of negligence, it must be shown that the carrier observed the required extraordinary diligence, which means that the carrier must show the utmost diligence of very cautious persons as far as human care and foresight can provide, or that the accident was caused by fortuitous event. As correctly found by the trial court, petitioner Tiu failed to conclusively rebut such presumption. The negligence of petitioner Laspiñas as driver of the passenger bus is, thus, binding against petitioner Tiu, as the owner of the passenger bus engaged as a common carrier.

Tio Khe Chio v. CA

Facts: Petitioner shipped bags of imported fishmeals and insured the same with

respondent insurance company Eastern Assurance & Surety Corp (EASCO). During transit, the bags were found out to be damaged thus rendering the fishmeals useless. Petitioner filed a claim before the EASCO which denied the same, prompting the former to sue the latter at CFI Cebu who ordered EASCO to pay the petitioner's claim for insurance with damages. Upon execution, respondent filed a petition for certiorari with the CA who set aside the lower court's decision arguing that the latter has erred in fixing the legal interest on 12% per annum rather than the mandated 6%.

Issue: Whether or not the legal interest be for damages arising from loss of property should be 12%

Held: No. The applicable law is Article 2209 of the Civil Code which reads that if the obligation consists in the payment of a sum of money and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the

23

payment of interest agreed upon, and in the absence of stipulation, the legal interest which is 6% per annum.

The adjusted rate mentioned in the Circular No. 416, from which the CFI based its decision, refers only to loans or forbearances of money, goods or credits and court judgments thereon but not to court judgments for damages arising from injury to persons and loss of property which does not involve a loan.

24