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Topic: Contract of Insurance

[G.R. No. 124050. June 19, 1997]

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES

DEPARTMENT, Petitioners, v. COURT OF APPEALS, SOUTH SEA SURETY AND

INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION, Respondents.

D E C I S I O N

PUNO, J .:

This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of

Appeals dated December 14, 19951 and its Resolution dated February 22, 19962 in CA-G.R. CV No.45805 entitled Mayer Steel Pipe Corporation and Hongkong Government Supplies Department v.

South Sea Surety Insurance Co., Inc. and The Charter Insurance Corporation.3chanroblesvirtuallawlibrary

In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. FromAugust to October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-

1022.4chanroblesvirtuallawlibrary

Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with privaterespondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp.(Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a totalamount of US$212,772.09 were insured with respondent South Sea, while those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of US$149,470.00 were insured with respondent

Charter.

Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third- party inspector to examine whether the pipes and fittings are manufactured in accordance with thespecifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good order condition before they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, itwas discovered that a substantial portion thereof was damaged.

Petitioners filed a claim against private respondents for indemnity under the insurance contract.Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes. Private

respondents refused to pay because the insurance surveyor's report allegedly showed that the damage isa factory defect.

On April 17, 1986, petitioners filed an action against private respondents to recover the sum of HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay theamount claimed by petitioners because the damage to the goods is due to factory defects which are notcovered by the insurance policies.

The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to



manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and private respondents are "all risks" policies which insure against all causes of conceivable loss or damage. The only exceptions are those excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the insured. The dispositive portion of the decision states:

WHEREFORE, judgment is hereby rendered ordering the defendants jointly and severally, to

pay the plaintiffs the following:

1. the sum equivalent in Philippine currency of HK$299,345.30 with legal rate of interest as of the filing of the complaint;

2. P100,000.00 as and for attorney's fees; and

3. costs of suit.

SO ORDERED.5chanroblesvirtuallawlibrary

Private respondents elevated the case to respondent Court of Appeals.

Respondent court affirmed the finding of the trial court that the damage is not due to factory defect andthat it was covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer. However, it set aside the decision of the trial court and dismissed the complaint on the groundof prescription. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Actsince it was filed only on April 17, 1986, more than two years from the time the goods were unloadedfrom the vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and theship shall be discharged from all liability in respect of loss or damage unless suit is brought within oneyear after delivery of the goods or the date when the goods should have been delivered." Respondentcourt ruled that this provision applies not only to the carrier but also to the insurer, citing Filipino

Merchants Insurance Co., Inc. vs. Alejandro.6chanroblesvirtuallawlibrary

Hence this petition with the following assignments of error:

1. The respondent Court of Appeals erred in holding that petitioners' cause of action had already prescribed on the mistaken application of the Carriage of Goods by Sea Act and the doctrine of FilipinoMerchants Co., Inc. v. Alejandro (145 SCRA 42); and

2. The respondent Court of Appeals committed an error in dismissing the complaint.7chanroblesvirtuallawlibrary

The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage

of Goods by Sea Act.

Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be dischargedfrom all liability for loss or damage to the goods if no suit is filed within one year after delivery of thegoods or the date when they should have been delivered. Under this provision, only the carrier'sliability is extinguished if no suit is brought within one year. But the liability of the insurer is notextinguished because the insurer's liability is based not on the contract of carriage but on the contract of insurance. A close reading of the law reveals that the Carriage of Goods by Sea Act governs therelationship between the carrier on the one hand and the shipper, the consignee and/or the insurer on



the other hand. It defines the obligations of the carrier under the contract of carriage. It does not,however, affect the relationship between the shipper and the insurer. The latter case is governed by theInsurance Code.

Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro8 and the other cases9 cited thereindoes not support respondent court's view that the insurer's liability prescribes after one year if no action

for indemnity is filed against the carrier or the insurer. In that case, the shipper filed a complaint againstthe insurer for recovery of a sum of money as indemnity for the loss and damage sustained by theinsured goods. The insurer, in turn, filed a third-party complaint against the carrier for reimbursementof the amount it paid to the shipper. The insurer filed the third-party complaint on January 9, 1978,more than one year after delivery of the goods on December 17, 1977. The court held that the Insurer was already barred from filing a claim against the carrier because under the Carriage of Goods by SeaAct, the suit against the carrier must be filed within one year after delivery of the goods or the datewhen the goods should have been delivered. The court said that "the coverage of the Act includes the

insurer of the goods."10chanroblesvirtuallawlibrary

The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer

which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In thecase at bar, it was the shipper which filed a claim against the insurer. The basis of the shipper's claim isthe "all risks" insurance policies issued by private respondents to petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits against the carrier filed either by theshipper, the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of theCarriage of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may nolonger file a claim against the carrier beyond the one-year period provided in the law. But it does notmean that the shipper may no longer file a claim against the insurer because the basis of the insurer'sliability is the insurance contract. An insurance contract is a contract whereby one party, for aconsideration known as the premium, agrees to indemnify another for loss or damage which he may

suffer from a specified peril.11 An "all risks" insurance policy covers all kinds of loss other than thosedue to willful and fraudulent act of the insured.12 Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage tothe goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New

Civil Code.13chanroblesvirtuallawlibrary

IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appealsdated December 14, 1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and theDecision of the Regional Trial Court is hereby REINSTATED. No costs.

SO ORDERED.

Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.

FIRST DIVISION



PHILIPPINE HEALTH CARE cralawcralawG.R. No. 167330

PROVIDERS, INC.,

Petitioner, Present:

- v e r s u s - cralaw

COMMISSIONER OF

INTERNAL REVENUE,

Respondent. cralawPromulgated:

affirmatively June 12, 2008

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CORONA, J.:

cralawIs a health care agreement in the nature of an insurance contract and

therefore subject to the documentary stamp tax (DST) imposed under Section

185 of Republic Act 8424 (Tax Code of 1997)?

This is an issue of first impression. The Court of Appeals (CA) answered it in its August 16,

2004 decision[1] in CA-G.R. SP No. 70479. Petitioner Philippine Health Care Providers, Inc.

believes otherwise and assails the CA decision in this petition for review under Rule 45 of

the Rules of Court.

Petitioner is a domestic corporation whose primary purpose is [t]o establish, maintain,

conduct and operate a prepaid group practice health care delivery system or a health



maintenance organization to take care of the sick and disabled persons enrolled in the

health care plan and to provide for the administrative, legal, and financial responsibilities

of the organization.[2] Individuals enrolled in its health care programs pay an annual

membership fee and are entitled to various preventive, diagnostic and curative medical

services provided by its duly licensed physicians, specialists and other professional

technical staff participating in the group practice health delivery system at a hospital or

clinic owned, operated or accredited by it.[3]

The pertinent part of petitioners membership or health care agreement[4] provides:

VII BENEFITS

Subject to paragraphs VIII [on pre-existing medical condition] and X [on claimsfor reimbursement] of this Agreement, Members shall have the followingBenefits under this Agreement:

In-Patient Services. In the event that a Member contract[s] sickness or suffers

injury which requires confinement in a participating Hospital[,] the services or

benefits stated below shall be provided to the Member free of charge, but in no

case shall [petitioner] be liable to pay more than P75,000.00 in benefits with

respect to anyone sickness, injury or related causes. If a member has exhausted

such maximum benefits with respect to a particular sickness, injury or related

causes, all accounts in excess of P75,000.00 shall be borne by the enrollee. It

is[,] however, understood that the payment by [petitioner] of the said maximum

in In-Patient Benefits to any one member shall preclude a subsequent payment

of benefits to such member in respect of an unrelated sickness, injury or related

causes happening during the remainder of his membership term.

(a) Room and Board(b) Services of physician and/or surgeon or specialist



(c) Use of operating room and recovery room(d) Standard Nursing Services(e) Drugs and Medication for use in the hospital except those which are used to

dissolve blood clots in the vascular systems (i.e., trombolytic agents)(f) Anesthesia and its administration(g) Dressings, plaster casts and other miscellaneous supplies

(h) Laboratory tests, x-rays and other necessary diagnostic services(i) Transfusion of blood and other blood elements

Condition for in-Patient Care. The provision of the services or benefitsmentioned in the immediately preceding paragraph shall be subject to thefollowing conditions:(a) The Hospital Confinement must be approved by [petitioners] Physician,

Participating Physician or [petitioners] Medical Coordinator in that Hospitalprior to confinement.

(b) The confinement shall be in a Participating Hospital and the accommodationshall be in accordance with the Member[]s benefit classification.

(c) Professional services shall be provided only by the [petitioners] Physiciansor Participating Physicians.

(d) If discharge from the Hospital has been authorized by [petitioners] attendingPhysician or Participating Physician and the Member shall fail or refuse todo so, [petitioner] shall not be responsible for any charges incurred after discharge has been authorized.

Out-Patient Services. A Member is entitled free of charge to the followingservices or benefits which shall be rendered or administered either in[petitioners] Clinic or in a Participating Hospital under the direction or supervision of [petitioners] Physician, Participating Physician or [petitioners]Medical Coordinator.

(a) Gold Plan Standard Annual Physical Examination on the anniversary date of membership, to be done at [petitioners] designated hospital/clinic, to wit:

cralaw(i)cralawTaking a medical historycralaw(ii)cralawPhysical examinationcralaw(iii)cralawChest x-raycralaw(iv)cralawStool examination

cralaw(v)cralawComplete Blood Countcralaw(vi)cralawUrinalysiscralaw(vii)cralawFasting Blood Sugar (FBS)cralaw(viii)cralawSGPTcralaw(ix)cralawCreatininecralaw(x)cralawUric Acidcralaw(xi)cralawResting Electrocardiogramcralaw(xii)cralawPap Smear (Optional for women 40 years and above)(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical

Examination.cralawThe following tests are to be done as part of the Member[]s Annual check-



up program at [petitioners] designated clinic, to wit:cralaw1)cralawRoutine Physical Examinationcralaw2)cralawCBC (Complete Blood Count)cralaw * Hemoglobin * Hematocrit* Differential * RBC/WBC

3)cralawChest X-raycralaw

4)cralaw

Urinalysiscralaw5)cralawFecalysis(c) Preventive Health Care, which shall include:

(i)cralawPeriodic Monitoring of Health Problems(ii)cralawFamily planning counseling(iii) Consultation and advices on diet, exercise and other healthy habits(iv)cralawImmunization but excluding drugs for vaccines used

(d) Out-Patient Care, which shall include:(i)cralawConsultation, including specialist evaluation(ii)cralawTreatment of injury or illness(iii)cralawNecessary x-ray and laboratory examination(iv)cralawEmergency medicines needed for the immediaterelief of symptoms(v)cralawMinor surgery not requiring confinement

Emergency Care. Subject to the conditions and limitations in this Agreement and

those specified below, a Member is entitled to receive emergency care [in case

of emergency. For this purpose, all hospitals and all attending physician(s) in

the Emergency Room automatically become accredited. In participating

hospitals, the member shall be entitled to the following services free of charge:

(a) doctors fees, (b) emergency room fees, (c) medicines used for immediate

relief and during treatment, (d) oxygen, intravenous fluids and whole blood and

human blood products, (e) dressings, casts and sutures and (f) x-rays,

laboratory and diagnostic examinations and other medical services related to

the emergency treatment of the patient.][5] Provided, however, that in no case

shall the total amount payable by [petitioner] for said Emergency, inclusive of

hospital bill and professional fees, exceed P75,000.00.

If the Member received care in a non-participating hospital, [petitioner] shallreimburse [him][6] 80% of the hospital bill or the amount of P5,000.00[,]whichever is lesser, and 50% of the professional fees of non-participatingphysicians based on [petitioners] schedule of fees provided that the totalamount[,] inclusive of hospital bills and professional fee shall not exceedP5,000.00.



On January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a

formal demand letter and the corresponding assessment notices demanding the payment

of deficiency taxes, including surcharges and interest, for the taxable years 1996 and

1997 in the total amount of P224,702,641.18. The assessment represented the following:

Value Added Tax (VAT) DST

1996 P 45,767,596.23 P 55,746,352.19

1997 54,738,434.03__ 68,450,258.73__

P 100,506,030.26 P 124,196,610.92

The deficiency DST assessment was imposed on petitioners health care agreement with

the members of its health care program pursuant to Section 185 of the 1997 Tax Code

which provides:

Section 185. Stamp tax on fidelity bonds and other insurance policies. On all

policies of insurance or bonds or obligations of the nature of indemnity for loss,

damage, or liability made or renewed by any person, association or company or

corporation transacting the business of accident, fidelity, employers liability,

plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch

of insurance (except life, marine, inland, and fire insurance), and all bonds,

undertakings, or recognizances, conditioned for the performance of the duties of

any office or position, for the doing or not doing of anything therein specified,

and on all obligations guaranteeing the validity or legality of any bond or other

obligations issued by any province, city, municipality, or other public body or



organization, and on all obligations guaranteeing the title to any real estate, or

guaranteeing any mercantile credits, which may be made or renewed by any

such person, company or corporation, there shall be collected a documentary

stamp tax of fifty centavos (P0.50) on each four pesos (P4.00), or fractional part

thereof, of the premium charged. (emphasis supplied)

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent

did not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals

(CTA) seeking the cancellation of the deficiency VAT and DST assessments.

cralawOn April 5, 2002, the CTA rendered a decision,[7] the dispositive portion of which read:

cralawWHEREFORE, in view of the foregoing, the instant Petition for Review isPARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiencyVAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20%interest from January 20, 1997 until fully paid for the 1996 VAT deficiency andP31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20,1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No.[231]-88 is declared void and without force and effect. The 1996 and 1997deficiency DST assessment against petitioner is hereby CANCELLED ANDSET ASIDE. Respondent is ORDERED to DESIST from collecting the said DSTdeficiency tax. cralawSO ORDERED.[8]

cralawRespondent appealed the CTA decision to the CA[9] insofar as it

cancelled the DST assessment. He claimed that petitioners health

care agreement was a contract of insurance subject to DST under

Section 185 of the 1997

Tax Code.

On August 16, 2004, the CA rendered its decision.[10] It held that petitioners health care

agreement was in the nature of a non-life insurance contract subject to DST:



WHEREFORE, the petition for review is GRANTED. The Decision of the Courtof Tax Appeals, insofar as it cancelled and set aside the 1996 and 1997deficiency documentary stamp tax assessment and ordered petitioner to desistfrom collecting the same is REVERSED and SET ASIDE.

cralawRespondent is ordered to pay the amounts of P55,746,352.19 and

P68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and 1997,respectively, plus 25% surcharge for late payment and 20% interest per annumfrom January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code, untilthe same shall have been fully paid.cralaw

SO ORDERED.[11]

Petitioner moved for reconsideration but the CA denied it. Hence, this petition.

Petitioner essentially argues that its health care agreement is not a contract of insurance

but a contract for the provision on a prepaid basis of medical services, including medical

check-up, that are not based on loss or damage. Petitioner also insists that it is not

engaged in the insurance business. It is a health maintenance organization regulated by

the Department of Health, not an insurance company under the jurisdiction of the

Insurance Commission. For these reasons, petitioner asserts that the health care

agreement is not subject to DST.

We do not agree.

The DST is levied on the exercise by persons of certain privileges conferred by law for thecreation, revision, or termination of specific legal relationships through the execution of

specific instruments.[12] It is an excise upon the privilege, opportunity, or facility offered

at exchanges for the transaction of the business.[13] In particular, the DST underSection 185 of the 1997 Tax Code is imposed on the privilege of making orrenewing any policy of insurance (except life, marine, inland and fireinsurance), bond or obligation in the nature of indemnity for loss, damage, orliability.

Under the law, a contract of insurance is an agreement whereby one undertakes for a

consideration to indemnify another against loss, damage or liability arising from an

unknown or contingent event.[14] The event insured against must be designated in the

contract and must either be unknown or contingent.[15]



Petitioners health care agreement is primarily a contract of indemnity. And in the recent

case of Blue Cross Healthcare, Inc. v. Olivares,[16] this Court ruled that a health care

agreement is in the nature of a non-life insurance policy.

Contrary to petitioners claim, its health care agreement is not a contract for the provision

of medical services. Petitioner does not actually provide medical or hospital services but

merely arranges for the same[17] and pays for them up to the stipulated maximum

amount of coverage. It is also incorrect to say that the health care agreement is not

based on loss or damage because, under the said agreement, petitioner assumes the

liability and indemnifies its member for hospital, medical and related expenses (such as

professional fees of physicians). The term loss or damage is broad enough to cover the

monetary expense or liability a member will incur in case of illness or injury.

Under the health care agreement, the rendition of hospital, medical and

professional services to the member in case of sickness, injury or emergency or his

availment of so-called out-patient services (including physical examination, x-ray

and laboratory tests, medical consultations, vaccine administration and family

planning counseling) is the contingent event which gives rise to liability on the part

of the member. In case of exposure o f the member to liability, he would be

entitled to indemnification by petitioner.

Furthermore, the fact that petitioner must relieve its member from liability by paying for

expenses arising from the stipulated contingencies belies its claim that its services are

prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if

they can be predicted at all. Petitioner assumes the risk of paying for the costs of the

services even if they are significantly and substantially more than what the member has



prepaid. Petitioner does not bear the costs alone but distributes or spreads them out

among a large group of persons bearing a similar risk, that is, among all the other

members of the health care program. This is insurance.

Petitioners health care agreement is substantially similar to that involved in Philamcare

Health Systems, Inc. v. CA.[18] The health care agreement in that case entitled the

subscriber to avail of the hospitalization benefits, whether ordinary or emergency, listed

therein. It also provided for out-patient benefits such as annual physical examinations,

preventive health care and other out-patient services. This Court ruled in Philamcare

Health Systems, Inc.:

[T]he insurable interest of [the subscriber] in obtaining the health careagreement was his own health. The health care agreement was in the natureof non-life insurance, which is primarily a contract of indemnity. Once themember incurs hospital, medical or any other expense arising from sickness,injury or other stipulated contingency, the health care provider must pay for thesame to the extent agreed upon under the contract. [19] (emphasis supplied)

Similarly, the insurable interest of every member of petitioners

health care program in obtaining the health care agreement is his

own health. Under the agreement, petitioner is bound to indemnify

any member who incurs hospital, medical or any other expense

arising from sickness, injury or other stipulated contingency to the

extent agreed upon under the contract. Petitioners contention that

it is a health maintenance organization and not an insurance

company is irrelevant. Contracts between companies like petitioner

and the beneficiaries under their plans are treated as insurance

contracts.[ 20]

Moreover, DST is not a tax on the business transacted but an excise on the privilege,

opportunity, or facility offered at exchanges for the transaction of the business. [21] It is



an excise on the facilities used in the transaction of the business, separate andapart from the business itself .[2 2]

WHEREFORE, the petition is hereby DENIED. The August 16, 2004 decision of the Court

of Appeals in CA-G.R. SP No. 70479 is AFFIRMED.

Petitioner is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as

deficiency documentary stamp tax for 1996 and 1997, respectively, plus 25% surcharge

for late payment and 20% interest per annum from January 27, 2000 until full payment

thereof.

Costs against petitioner.

SO ORDERED.

SECOND DIVISION

ETERNAL GARDENS MEMORIALcralawG.R. No. 166245

PARK CORPORATION,

c

cralaw

cralawCARPIO MORALES,

cralaw

THE PHILIPPINE AMERICANcralawPromulgated:

LIFE INSURANCE COMPANY,cralaw

cralawRespondent.cralawApril 9, 2008



x-----------------------------------------------------------------------------------------x

D E C I S I O N

cralaw

VELASCO, JR., J.:

The Case

cralawCentral to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside

the November 26, 2004 Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query:

May the inaction of the insurer on the insurance application be considered as approval of the application?

The Facts

cralawOn December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife)

entered into an agreement denominated as Creditor Group Life Policy No. P-1920[2] with petitioner

Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal whopurchased 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.

cralawThe relevant provisions of the policy are:

ELIGIBILITY.

crlawAny Lot Purchaser of the Assured who is at least 18 but not more than 65 years

of age, is indebted to the Assured for the unpaid balance of his loan with the

Assured, and is accepted for Life Insurance coverage by the Company on its

effective date is eligible for insurance under the Policy.

EVIDENCE OF INSURABILITY.



cralawNo medical examination shall be required for amounts of insurance up to

P50,000.00. However, a declaration of good health shall be required for all Lot

Purchasers as part of the application. The Company reserves the right to require

further evidence of insurability satisfactory to the Company in respect of the

following:cralaw

1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

cralawThe Life Insurance coverage of any Lot Purchaser at any time shall be the

amount of the unpaid balance of his loan (including arrears up to but not exceeding

2 months) as reported by the Assured to the Company or the sum of P100,000.00,

whichever is smaller. Such benefit shall be paid to the Assured if the Lot Purchaser

dies while insured under the Policy.

EFFECTIVE DATE OF BENEFIT.

cralawThe insurance of any eligible Lot Purchaser shall be effective on the date he

contracts a loan with the Assured. However, there shall be no insurance if the

application of the Lot Purchaser is not approved by the Company.[3]

cralawEternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together

with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all

insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated

December 29, 1982,[4] containing a list of insurable balances of its lot buyers for October 1982. One of

those included in the list as new business was a certain John Chuang. His balance of payments was PhP100,000. On August 2, 1984, Chuang died.

cralawEternal sent a letter dated August 20, 1984[5] to Philamlife, which served as an insurance claim for

Chuangs death. Attached to the claim were the following documents: (1) Chuangs Certificate of Death; (2)

Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant;

(4) Certificate of Attending Physician; and (5) Assureds Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984,[6] requiring Eternal to submit the

following documents relative to its insurance claim for Chuangs death: (1) Certificate of Claimant (with

form attached); (2) Assureds Certificate (with form attached); (3) Application for Insurance accomplished

and signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid

balance of Chuang before his death.



Eternal transmitted the required documents through a letter dated November 14, 1984,[7] which was

received by Philamlife on November 15, 1984.

After more than a year, Philamlife had not furnished Eternal with any reply to the latters insurance claim.

This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25,

1986.[8]

In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter dated May 20,

1986,[9] a portion of which reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with

Eternal Gardens Memorial Park in October 1982 for the total maximum insurable

amount of P100,000.00 each. No application for Group Insurance was submitted in

our office prior to his death on August 2, 1984.

In accordance with our Creditors Group Life Policy No. P-1920, under Evidence of

Insurability provision, a declaration of good health shall be required for all Lot

Purchasers as party of the application. We cite further the provision on Effective

Date of Coverage under the policy which states that there shall be no insurance if

the application is not approved by the Company. Since no application had been

submitted by the Insured/Assured, prior to his death, for our approval but was

submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was

not covered under the Policy. We wish to point out that Eternal Gardens being the

Assured was a party to the Contract and was therefore aware of these pertinent

provisions.

With regard to our acceptance of premiums, these do not connote our approval per

se of the insurance coverage but are held by us in trust for the payor until the

prerequisites for insurance coverage shall have been met. We will however, return

all the premiums which have been paid in behalf of John Uy Chuang.

cralawConsequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of

money against Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal,

the dispositive portion of which reads:



cralawWHEREFORE, premises considered, judgment is hereby rendered in favor of

Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant

PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the

Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay

the sum of P10,000.00 as attorneys fees.

cralawSO ORDERED.

The RTC found that Eternal submitted Chuangs application for insurance which he accomplished before

his death, as testified to by Eternals witness and evidenced by the letter dated December 29, 1982, stating,

among others: Encl: Phil-Am Life Insurance Application Forms & Cert.[10] It further ruled that due to

Philamlifes inaction from the submission of the requirements of the group insurance on December 29,

1982 to Chuangs death on August 2, 1984, as well as Philamlifes acceptance of the premiums during thesame period, Philamlife was deemed to have approved Chuangs application. The RTC said that since the

contract is a group life insurance, once proof of death is submitted, payment must follow.

Philamlife appealed to the CA, which ruled, thus:

WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case

No. 57810 is REVERSED and SET ASIDE, and the complaint is DISMISSED. Nocosts.

SO ORDERED.[11]

cralawThe CA based its Decision on the factual finding that Chuangs application was not enclosed in

Eternals letter dated December 29, 1982. It further ruled that the non-accomplishment of the submitted

application form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no

application form, Chuang was not covered by Philamlifes insurance.

cralawHence, we have this petition with the following grounds:

The Honorable Court of Appeals has decided a question of substance, not



therefore determined by this Honorable Court, or has decided it in a way not in

accord with law or with the applicable jurisprudence, in holding that:

I. The application for insurance was not duly submitted to respondent

PhilamLife before the death of John Chuang;

II. There was no valid insurance coverage; and

III. Reversing and setting aside the Decision of the Regional Trial Court dated

May 29, 1996.

The Courts Ruling

As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the

CA and first level courts, considering their findings of facts are conclusive and binding on this Court.

However, such rule is subject to exceptions, as enunciated in Sampayan v. Court of Appeals:

(1) when the findings are grounded entirely on speculation, surmises or

conjectures; (2) when the inference made is manifestly mistaken, absurd or

impossible; (3) when there is grave abuse of discretion; (4) when the judgment is

based on a misapprehension of facts; (5) when the findings of facts are conflicting;

(6) when in making its findings the [CA] went beyond the issues of the case, or itsfindings are contrary to the admissions of both the appellant and the appellee; (7)

when the findings [of the CA] are contrary to the trial court; (8) when the findings

are conclusions without citation of specific evidence on which they are based; (9)

when the facts set forth in the petition as well as in the petitioners main and reply

briefs are not disputed by the respondent; (10) when the findings of fact are

premised on the supposed absence of evidence and contradicted by the evidence on

record; and (11) when the Court of Appeals manifestly overlooked certain relevant

facts not disputed by the parties, which, if properly considered, would justify a

different conclusion.[12] (Emphasis supplied.)

cralawIn the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may

review them.

cralawEternal claims that the evidence that it presented before the trial court supports its contention that it

submitted a copy of the insurance application of Chuang before his death. In Eternals letter dated

December 29, 1982, a list of insurable interests of buyers for October 1982 was attached, including

Chuang in the list of new businesses. Eternal added it was noted at the bottom of said letter that the



corresponding Phil-Am Life Insurance Application Forms & Cert. were enclosed in the letter that was

apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a copy of

the insurance application which was signed by Chuang himself and executed before his death.

cralawOn the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing

that Eternal must present evidence showing that Philamlife received a copy of Chuangs insurance

application.

cralawThe evidence on record supports Eternals position.

cralawThe fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received,

states that the insurance forms for the attached list of burial lot buyers were attached to the letter. Such

stamp of receipt has the effect of acknowledging receipt of the letter together with the attachments. Such

receipt is an admission by Philamlife against its own interest.[13] The burden of evidence has shifted to

Philamlife, which must prove that the letter did not contain Chuangs insurance application. However,

Philamlife failed to do so; thus, Philamlife is deemed to have received Chuangs insurance application.

cralawTo reiterate, it was Philamlifes bounden duty to make sure that before a transmittal letter is stamped

as received, the contents of the letter are correct and accounted for.

cralawPhilamlifes allegation that Eternals witnesses ran out of credibility and reliability due to

inconsistencies is groundless. The trial court is in the best position to determine the reliability and

credibility of the witnesses, because it has the opportunity to observe firsthand the witnesses demeanor,

conduct, and attitude. Findings of the trial court on such matters are binding and conclusive on the

appellate court, unless some facts or circumstances of weight and substance have been overlooked,

misapprehended, or misinterpreted,[14] that, if considered, might affect the result of the case.[15]

cralawAn examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no

overlooked facts of substance and value.

cralawPhilamlife primarily claims that Eternal did not even know where the original insurance application

of Chuang was, as shown by the testimony of Edilberto Mendoza:

cralaw

cralawAtty. Arevalo:

cralawQ cralawWhere is the original of the application form which is required in case of

new coverage?



[Mendoza:]

cralawAcralawIt is [a] standard operating procedure for the new client to fill up two

copies of this form and the original of this is submitted to Philamlife together with

the monthly remittances and the second copy is remained or retained with the

marketing department of Eternal Gardens.

Atty. Miranda:

cralawWe move to strike out the answer as it is not responsive as counsel is merely

asking for the location and does not [ask] for the number of copy.

Atty. Arevalo:

cralawQcralawWhere is the original?

[Mendoza:]

cralawAcralawAs far as I remember I do not know where the original but when I

submitted with that payment together with the new clients all the originals I see to

it before I sign the transmittal letter the originals are attached therein.[16]

In other words, the witness admitted not knowing where the original insurance application was,

but believed that the application was transmitted to Philamlife as an attachment to a transmittal

letter.

As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two

insurance application forms were accomplished and the testimony of Mendoza on who actually filled out

the application form, these are minor inconsistencies that do not affect the credibility of the witnesses.

Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial to affect the credibility of

witnesses, and these may even serve to strengthen their credibility as these negate any suspicion that the

testimonies have been rehearsed.[17]

cralawWe reiterated the above ruling in Merencillo v. People:

Minor discrepancies or inconsistencies do not impair the essential integrity of the

prosecutions evidence as a whole or reflect on the witnesses honesty. The test iswhether the testimonies agree on essential facts and whether the respective versions

corroborate and substantially coincide with each other so as to make a consistent

and coherent whole.[18]

cralaw

cralawIn the present case, the number of copies of the insurance application that Chuang executed is not at

issue, neither is whether the insurance application presented by Eternal has been falsified. Thus, the

inconsistencies pointed out by Philamlife are minor and do not affect the credibility of Eternals witnesses.



However, the question arises as to whether Philamlife assumed the risk of loss without approving

the application.

This question must be answered in the affirmative.

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life

Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he

contracts a loan with the Assured. However, there shall be no insurance if the

application of the Lot Purchaser is not approved by the Company.

An examination of the above provision would show ambiguity between its two sentences. The

first sentence appears to state that the insurance coverage of the clients of Eternal already

became effective upon contracting a loan with Eternal while the second sentence appears to

require Philamlife to approve the insurance contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed

liberally in favor of the insured and strictly against the insurer in order to safeguard the latters interest.

Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the

general rule of resolving any ambiguity therein in favor of the insured, where thecontract or policy is prepared by the insurer. A contract of insurance, being a

contract of adhesion, par excellence, any ambiguity therein should be resolved

against the insurer; in other words, it should be construed liberally in favor of the

insured and strictly against the insurer. Limitations of liability should be regarded

with extreme jealousy and must be construed in such a way as to preclude the

insurer from noncompliance with its obligations.[19] (Emphasis supplied.)In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above

ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts shouldconstrue them in such a way as to preclude the insurer from non-compliance with

his obligation. Being a contract of adhesion, the terms of an insurance contract are

to be construed strictly against the party which prepared the contract, the insurer.

By reason of the exclusive control of the insurance company over the terms and

phraseology of the insurance contract, ambiguity must be strictly interpreted

against the insurer and liberally in favor of the insured, especially to avoid

forfeiture.[20]



Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10,

1980, must be construed in favor of the insured and in favor of the effectivity of the insurance contract.

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a

partys purchase of a memorial lot on installment from Eternal, 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.

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is

inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of

experience in the industry purposefully used to its advantage. 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.[21]

cralawWHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No.

57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is

MODIFIED. Philamlife is hereby ORDERED:

cralaw(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy

of Chuang;

cralaw(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the

time of extra-judicial demand by Eternal until Philamlifes receipt of the May 29, 1996 RTC Decision on

June 17, 1996;

cralaw(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from



June 17, 1996 until full payment of this award; and

cralaw(4) To pay Eternal attorneys fees in the amount of PhP 10,000.

cralawNo costs.

SO ORDERED.

THIRD DIVISION

G.R. No. 91666 July 20, 1990

WESTERN GUARANTY CORPORATION, Petitioner , vs. HONORABLE COURT OF

APPEALS, PRISCILLA E. RODRIGUEZ, and DE DIOS TRANSPORTATION CO., INC., Respondents.

FELICIANO, J.:

At around 4:30 in the afternoon of 27 March 1982, while crossing Airport Road on a pedestrian lane onher way to work, respondent Priscilla E. Rodriguez was struck by a De Dios passenger bus owned byrespondent De Dios Transportation Co., Inc., then driven by one Walter Saga y Aspero The bus driver disregarded the stop signal given by a traffic policeman to allow pedestrians to cross the road. Priscilla

was thrown to the ground, hitting her forehead. She was treated at the Protacio Emergency Hospital andlater on hospitalized at the San Juan De Dios Hospital. Her face was permanently disfigured, causingher serious anxiety and moral distress. Respondent bus company was insured with petitioner WesternGuaranty Corporation ("Western") under its Master Policy which provided, among other things, for protection against third party liability, the relevant section reading as follows:

Section 1. Liability to the Public - Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of the insured in respectof - chanrobles virtual lawlibrary

(a) death of or bodily injury to or damage to property of any passenger as

defined herein.chanroblesvirtualawlibrary

chanrobles virtual lawlibrary

(b) death of or bodily injury or damage to property of any THIRD PARTY asdefined herein in any accident caused by or arising out of the use of theSchedule Vehicle, provided that the liability shall have first been determined. Inno case, however, shall the Company's total payment under both Section I andSection 11 combined exceed the Limits of Liability set forth herein. Withrespect to death of or bodily injury to any third party or passenger, thecompany's payment per victim in any one accident shall not exceed the limits



indicated in the Schedule of indemnities provided for in this policy excludingthe cost of additional medicines, and such other burial and funeral expenses thatmight have been incurred. (Emphasis supplied)

Respondent Priscilla Rodriguez filed a complaint for damages before the Regional Trial Court of Makati against De Dios Transportation Co. and Walter A. Saga Respondent De Dios Transportation

Co., in turn, filed a third-party complaint against its insurance carrier, petitioner Western. On 6 August1985, the trial court rendered a decision in favor of respondent Priscilla E. Rodriguez, the dispositive portion of which read:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and againstthe defendants, ordering the latter to pay the former, jointly and severally, andfor the third-party defendant to pay to the plaintiff, by way of contribution,indemnity or subrogation whatever amount may be left unpaid by the defendantDe Dios Transportation Company, Inc. to the extent of not more thanP50,000.00, as follows: chanrobles virtual lawlibrary

a) The sum of P2,776.00 as actual damages representing doctor's fees,hospitalization and medicines; chanrobles virtual lawlibrary

b) the sum of P1,500.00 by way of compensation for loss of earning during plaintiffs incapacity to work; chanrobles virtual lawlibrary

c) the sum of P10,000.00 as and by way of moral damages ; chanrobles virtual lawlibrary

d) the sum of P10,000.00 as and by way of attorney's fees ;and chanrobles virtual lawlibrary

e) the cost of suit.

On appeal, the Court of Appeals affirmed in toto the decision of the trial court. Petitioner moved for thereconsideration of the appellate court's decision. In a Resolution dated 10 January 1990, the Court of Appeals denied the motion for reconsideration petition for lack of merit.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Petitioner Western is now before us on a Petition for Review alleging that the Court of Appeals erred inholding petitioner liable to pay beyond the limits set forth in the Schedule of Indemnities and in findingWestern liable for loss of earnings, moral damages and attorney's fees. Succinctly stated, it is petitioner Western's position that it cannot be held liable for loss of earnings, moral damages and attorney's fees because these items are not among those included in the Schedule of Indemnities set forth in theinsurance policy.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Deliberating on the instant Petition for Review, we consider that petitioner Western has failed to showany reversible error on the part of the Court of Appeals in rendering its Decision dated 26 April 1989and its Resolution dated 10 January 1990.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

An examination of Section 1 entitled "Liability to the Public", quoted above, of the Master Policyissued by petitioner Western shows that that Section defines the scope of the liability of insurer Westernas well as the events which generate such liability. The scope of liability of Western is marked out incomprehensive terms: "all sums necessary to discharge liability of the insured in respect of [the



precipitating events]-" The precipitating events which generate liability on the part of the insurer, either in favor of a passenger or a third party, are specified in the following terms: (1) death of, or (2) bodilyinjury to, or (3) damage to property of, the passenger or the third party. Where no death, no bodilyinjury and no damage to property resulted from the casualty ("any accident caused by or arising out of the use of the Schedule Vehicle"), no liability is created so far as concerns the insurer, petitioner Western.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The "Schedule of Indemnities for Death and/or Bodily Injury" attached to the Master Policy, which petitioner Western invokes, needs to be quoted in full:

Schedule of Indemnities for Death and/or Bodily Injury:

The following schedule of indemnities should be observed in the settlement of claims for death, bodily injuries of, professional fees and hospital charges, forservices rendered to traffic accident victims under CMVLI coverage:

DEATHINDEM NITY chanrobles virtual lawlibrary

PERMA NENTDISABLEMENT-

P12,000.00

DESCRIPTIONOFDISABLEMENT

Amount

Loss of twolimbs

P6,000.00

Loss of bothhands, or allfingersand



boththumbs

6,000.00

Loss of both feet

6,000.00

Loss of one handand onefoot

6,000.00

Loss of sight of botheyes

6,000.00

Injuriesresultingin being permanently

bedridden

6,000.00

Anyother injurycausing permanent

totaldisablem

ent

6,000.00

Loss of arm or aboveelbow

4,200.00



Loss of arm betweenelbowand wrist

3,000.00

Loss of hand

P2,550.00

Loss of four fingersandthumb of one hand

2,550.00

Loss of four fingers

2,100.00

Loss of leg at or aboveknee

3,600.00

Loss of leg belowknee

2,400.00

Loss of one foot

2,400.00

Loss of

toes-allof onefoot

900.00

Loss of thumb

900.00



Loss of indexfinger

600.00

Loss of

sight of one eye

1,800.00

Loss of hearing both ears

3,000.00

Loss of hearing-one ear

450.00

Total of Accommodation of Professional Attendance

Extended

ServicesRendered

Feesor

Char ges

HOSPITALRO

OM

Maximum of 45days/year-

P36.0

0/day

Laboratory fees,drugs



x-rays, etc. 300.00

SUR GIC

AL

Major Operation 1,0

00.00

EXPENSES

MediumOperation

500.00

Minor Operation 100.00

ANAESTHE

SIOLOGIST

Major Operation300.00

LOGISTS'FEES

MediumOperation 150.00

Minor Operation50.00

OPERATING

Major Operation 150



ROOM

MediumOperation

100.00

Minor Operation 40.00

MEDICAL

For daily visits of

EXPENSES

Practitioner or 20.00

Specialist /day

Total amount of medical

expenses must not exceed

(for single period of

confinement) 400.00 1

It will be seen that the above quoted Schedule of Indemnities establishes monetary limits which Western may invoke in caseof occurrence of the particular kinds of physical injury there listed, e.g.:

loss of both feet P6,000.00;



loss of one foot P2,400.00;

loss of sight of one eye P1,800.00;

It must be stressed, however, that the Schedule of Indemnities does not purport to limit, or to enumerate exhaustively, the

species of bodily injury occurrence of which generate liability for petitioner Western. A car accident may, for instance, resultin injury to internal organs of a passenger or third party, without any accompanying amputation or loss of an externalmember (e.g., a foot or an arm or an eye). But such internal injuries are surely covered by Section I of the Master Policy,since they certainly constitute bodily injuries.

Petitioner Western in effect contends before this Court, as it did before the Court of Appeals, that because the Schedule of Indemnities limits the amount payable for certain kinds of expenses -"hospital room", "surgical expenses","anaesthesiologists' fee", "operating room" and "medical expenses" that Schedule should be read as excluding liability for any other type of expense or damage or loss even though actually sustained or incurred by the third party victim. We are not persuaded by Western's contention. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Firstly, the Schedule of Indemnities does not purport to restrict the kinds of damages that may be awarded against Westernonce liability has arisen. Section 1, quoted above, does refer to certain "Limits of Liability" which in the case of the third

party liability section of the Master Policy, is apparently P50,000.00 per person per accident. Within this over-allquantitative limit, all kinds of damages allowable by law" - actual or compensatory damages"; "moral damages'; "nominal

damages"; "temperate or moderate damages"; "liquidated damages"; and "exemplary damages" 2 - may be awarded by acompetent court against the insurer once liability is shown to have arisen, and the essential requisites or conditions for grantof each species of damages are present. It appears to us self-evident that the Schedule of Indemnities was not intended to bean enumeration, much less a closed enumeration, of the specific kinds of damages which may be awarded under the Master Policy Western has issued. Accordingly, we agree with the Court of Appeals that:

... we cannot agree with the movant that the schedule was meant to be an exclusive enumerationof the nature of the damages for which it would be liable under its policy. As we see it, theschedule was merely meant to set limits to the amounts the movant would be liable for in casesof claims for death, bodily injuries of, professional services and hospital charges, for servicesrendered to traffic accident victims,' and not necessarily exclude claims against the insurance

policy for other kinds of damages, such as those in question.

Secondly, the reading urged by Western of the Schedule of Indemnities comes too close to working fraud upon both theinsured and the third party beneficiary of Section 1, quoted above. For Western's reading would drastically and withoutwarning limit the otherwise unlimited (save for the over-all quantitative limit of liability of P50,000.00 per person per accident) and comprehensive scope of liability assumed by the insurer Western under Section 1: "all sums necessary todischarge liability of the insured in respect of [bodily injury to a third party]". This result- which is not essentially differentfrom taking away with the left hand what had been given with the right hand we must avoid as obviously repugnant to public policy. If what Western now urges is what Western intended to achieve by its Schedule of Indemnities, it wasincumbent upon Western to use language far more specific and precise than that used in fact by Western, so that the insured,and potential purchasers of its Master Policy, and the Office of the Insurance Commissioner, may be properly informed andact accordingly.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Petitioner Western would have us construe the Schedule of Indemnities as comprising contractual limitations of liabilitywhich, as already noted, is comprehensively defined in Section 1 - Liability to the Public" - of the Master Policy. It iswellsettled, however, that contractual limitations of liability found in insurance contracts should be regarded by courts witha jaundiced eye and extreme care and should be so construed as to preclude the insurer from evading compliance with its

just obligations. 3 chanrobles virtual lawlibrary

Finally, an insurance contract is a contract of adhesion. The rule is well entrenched in our jurisprudence that the terms of such contract are to be construed strictly against the party which prepared the contract, which in this case happens to be

petitioner Western. 4 chanrobles virtual lawlibrary



ACCORDINGLY, the Court Resolved to DENY the Petition for Review for lack of merit Costs against petitioner.

Fernan (Chairman), Gutierrez, Jr., Bidin and Cortes, JJ., concur.

chanrobles virtual

SECOND DIVISION

[G.R. No. 113899. October 13, 1999]

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs. COURT OF APPEALS AND

MEDARDA V. LEUTERIO, Respondents.

D E C I S I O N

QUISUMBING, J .:

This petition for review, under Rule 45 of the Rules of Court, assails the Decision [1 dated May 17,

1993, of the Court of Appeals and its Resolution[2 dated January 4, 1994 in CA-G.R. CV No.

18341. The appellate court affirmed in toto the judgment of the Misamis Oriental Regional Trial

Court, Branch 18, in an insurance claim filed by private respondent against Great Pacific Life

Assurance Co. The dispositive portion of the trial courts decision reads:

WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE

ASSURANCE CORPORATION as insurer under its Group policy No. G-1907, in relation to

Certification B-18558 liable and ordered to pay to the DEVELOPMENT BANK OF THE

PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX

THOUSAND TWO HUNDRED PESOS (P86,200.00); dismissing the claims for damages,attorneys fees and litigation expenses in the complaint and counterclaim, with costs against the

defendant and dismissing the complaint in respect to the plaintiffs, other than the widow-

beneficiary, for lack of cause of action.[3

The facts, as found by the Court of Appeals, are as follows:

A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation

(hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the

lives of eligible housing loan mortgagors of DBP.

On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in

the group life insurance plan. In an application form, Dr. Leuterio answered questions concerning his health

condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung,

kidney or stomach disorder or any other physical impairment?

Answer: No. If so give details ___________.

8. Are you now, to the best of your knowledge, in good health?



Answer: [ x ] Yes [ ] No.[4

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to the extent

of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos.

On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage. Consequently, DBP submitted a death

claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied

for an insurance coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose he had beensuffering justified the denial of the claim.

On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with the

Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for Specific Performance with Damages.[5

During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejias findings,

based partly from the information given by the respondent widow, stated that Dr. Leuterio complained of headaches

presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied,

hence, other causes were not ruled out.

On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against Grepalife. On

May 17, 1993, the Court of Appeals sustained the trial courts decision. Hence, the present petition. Petitioners

interposed the following assigned errors:

"1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO THE

DEVELOPMENT BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE FOR

PAYMENT OF THE PROCEEDS OF A MORTGAGE REDEMPTION INSURANCE ON THE LIFE OF

PLAINTIFFS HUSBAND WILFREDO LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF

DISMISSING THE CASE AGAINST DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE

OF ACTION.

2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF JURISDICTION OVER

THE SUBJECT OR NATURE OF THE ACTION AND OVER THE PERSON OF THE DEFENDANT.

3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY TO DBP THE AMOUNT

OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS THE ACTUAL AMOUNT

PAYABLE TO DBP IN ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-

APPELLANT.

4. THE LOWER COURT ERRED IN - HOLDING THAT THERE WAS NO CONCEALMENT OF MATERIAL

INFORMATION ON THE PART OF WILFREDO LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN

THE GROUP LIFE INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE CLAIM

ARISING FROM THE DEATH OF WILFREDO LEUTERIO.[6

Synthesized below are the assigned errors for our resolution:

1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a group life insurance

contract from a complaint filed by the widow of the decedent/mortgagor?

2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had hypertension, which

would vitiate the insurance contract?

3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six thousand, two hundred

(P86,200.00) pesos without proof of the actual outstanding mortgage payable by the mortgagor to DBP.

Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence

the trial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial

courts judgment, Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the



indispensable party who was not joined in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of

contract. The rationale of a group insurance policy of mortgagors, otherwise known as the mortgage redemption

insurance, is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it

has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the

subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the

mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation.[7 In a similar vein, ampleprotection is given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will

be extinguished by the application of the insurance proceeds to the mortgage indebtedness.[8 Consequently, where

the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the

mortgagee, the insurance is on the mortgagors interest, and the mortgagor continues to be a party to the contract. In

this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause

does not make the mortgagee a party to the contract.[9

Section 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his own name providing that the loss

shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be

upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior

to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in thehands of the mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor,

may be performed by the mortgagee therein named, with the same effect as if it had been performed by the

mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy

stating that: In the event of the debtors death before his indebtedness with the Creditor [DBP] shall have been fully

paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum

assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor.[10 When DBP submitted

the insurance claim against petitioner, the latter denied payment thereof, interposing the defense of concealment

committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of

foreclosure on the residential lot of private respondent.[11 In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. [12

we held:

Insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. * *

* Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of

another person named or unnamed, and although it is expressly made payable to another as his interest may appear

or otherwise. * * * Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made

payable to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagees interest is less

than the full amount recoverable under the policy, * * *.

And in volume 33, page 82, of the same work, we read the following:

Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of

collection, or has assigned as collateral security any judgment he may obtain.[13

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he

has an insurable interest or not, and such person may recover it whatever the insured might have recovered, [14 the

widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul the

insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which might

have caused his death. Concealment exists where the assured had knowledge of a fact material to the risk, and

honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he designedly and

intentionally withholds the same.[15



Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the

information given by the widow of the decedent. Grepalife asserts that Dr. Mejias technical diagnosis of the cause of

death of Dr. Leuterio was a duly documented hospital record, and that the widows declaration that her husband had

possible hypertension several years ago should not be considered as hearsay, but as part of res gestae.

On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body

of the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterios any previous

hospital confinement.[16 Dr. Leuterios death certificate stated that hypertension was only the possible cause of death. The private respondents statement, as to the medical history of her husband, was due to her unreliable

recollection of events. Hence, the statement of the physician was properly considered by the trial court as hearsay.

The question of whether there was concealment was aptly answered by the appellate court, thus:

The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not

consulted a doctor or any of the enumerated ailments, including hypertension; when he died the attending physician

had certified in the death certificate that the former died of cerebral hemorrhage, probably secondary to

hypertension. From this report, the appellant insurance company refused to pay the insurance claim. Appellant

alleged that the insured had concealed the fact that he had hypertension.

Contrary to appellants allegations, there was no sufficient proof that the insured had suffered from hypertension.

Aside from the statement of the insureds widow who was not even sure if the medicines taken by Dr. Leuterio werefor hypertension, the appellant had not proven nor produced any witness who could attest to Dr. Leuterios medical

history...

x x x

Appellant insurance company had failed to establish that there was concealment made by the insured, hence, it

cannot refuse payment of the claim.[17

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. [18

Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such

defense by satisfactory and convincing evidence rests upon the insurer.[19 In the case at bar, the petitioner failed to

clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance.

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no evidence as to

the amount of Dr. Leuterios outstanding indebtedness to DBP at the time of the mortgagors death. Hence, for private

respondents failure to establish the same, the action for specific performance should be dismissed. Petitioners claim

is without merit. A life insurance policy is a valued policy.[20 Unless the interest of a person insured is susceptible of

exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum

fixed in the policy.[21 The mortgagor paid the premium according to the coverage of his insurance, which states that:

The policy states that upon receipt of due proof of the Debtors death during the terms of this insurance, a death

benefit in the amount of P86,200.00 shall be paid.

In the event of the debtors death before his indebtedness with the creditor shall have been fully paid, an amount to

pay the outstanding indebtedness shall first be paid to the Creditor and the balance of the Sum Assured, if there isany shall then be paid to the beneficiary/ies designated by the debtor.[22 (Emphasis omitted)

However, we noted that the Court of Appeals decision was promulgated on May 17, 1993. In private respondents

memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagors outstanding

loan. Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the

deceased person or his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of

another ( Nemo cum alterius detrimenio protest ). Hence, it cannot collect the insurance proceeds, after it already

foreclosed on the mortgage. The proceeds now rightly belong to Dr. Leuterios heirs represented by his widow, herein

private respondent Medarda Leuterio.



WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R.

CV 18341 is AFFIRMED with MODIFICATION that the petitioner is ORDERED to pay the insurance proceeds

amounting to Eighty-six thousand, two hundred (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio

(deceased), upon presentation of proof of prior settlement of mortgagors indebtedness to Development Bank of the

Philippines. Costs against petitioner.

SO ORDERED.

THIRD DIVISION

[G.R. No. 112360. July 18, 2000]

RIZAL SURETY & INSURANCE COMPANY, Petitioner , v. COURTOF APPEALS and TRANSWORLD KNITTING MILLS, INC.,

Respondents.

D E C I S I O N

PURISIMA, J .:

At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of

Court seeking to annul and set aside the July 15, 1993 Decision1 and

October 22, 1993 Resolution2 of the Court of Appeals3 in CA-G.R. CV NO.

28779, which modified the Ruling4 of the Regional Trial Court of Pasig,Branch 161, in Civil Case No. 46106.

The antecedent facts that matter are as follows:

On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance)issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills,Inc. (Transworld), initially for One Million (P1,000,000.00) Pesos andeventually increased to One Million Five Hundred Thousand (P1,500,000.00)Pesos, covering the period from August 14, 1980 to March 13, 1981.

Pertinent portions of subject policy on the buildings insured, and locationthereof, read:

"On stocks of finished and/or unfinished products, raw materials andsupplies of every kind and description, the properties of the Insuredsand/or held by them in trust, on commission or on joint account withothers and/or for which they (sic) responsible in case of loss whilstcontained and/or stored during the currency of this Policy in the



premises occupied by them forming part of the buildings situate (sic)within own Compound at MAGDALO STREET, BARRIO UGONG,PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.

xxx.........

...... xxx............... xxx

Said building of four-span lofty one storey in height withmezzanine portions is constructed of reinforced concrete andhollow blocks and/or concrete under galvanized iron roof andoccupied as hosiery mills, garment and lingerie factory,transistor-stereo assembly plant, offices, warehouse andcaretaker's quarters.

'Bounds in front partly by one-storey concrete building under galvanized iron roof occupied as canteen and guardhouse, partly by building of two and partly one storey constructed of concrete below, timber above undergalvanized iron roof occupied as garage and quarters and partly by open spaceand/or tracking/ packing, beyond which is the aforementioned

Magdalo Street; on its right and left by driveway, thence openspaces, and at the rear by open spaces.'" 5

The same pieces of property insured with the petitioner were alsoinsured with New India Assurance Company, Ltd., (New India).

On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion of its four-span building andpartly gutting the left and right sections thereof. A two-storey

building (behind said four-span building) where fun andamusement machines and spare parts were stored, was alsodestroyed by the fire.

Transworld filed its insurance claims with Rizal Surety & InsuranceCompany and New India Assurance Company but to no avail.

On May 26, 1982, private respondent brought against the said



insurance companies an action for collection of sum of money anddamages, docketed as Civil Case No. 46106 before Branch 161 of the then Court of First Instance of Rizal; praying for judgmentordering Rizal Insurance and New India to pay the amount of P2,747, 867.00 plus legal interest, P400,000.00 as attorney's fees,

exemplary damages, expenses of litigation of P50,000.00 and costsof suit.6

Petitioner Rizal Insurance countered that its fire insurance policysued upon covered only the contents of the four-span building,which was partly burned, and not the damage caused by the fire on

the two-storey annex building.7

On January 4, 1990, the trial court rendered its decision; disposingas follows:

"ACCORDINGLY, judgment is hereby rendered as follows:

(1)Dismissing the case as against The New India AssuranceCo., Ltd.;

(2) Ordering defendant Rizal Surety And Insurance Companyto pay Transwrold (sic) Knitting Mills, Inc. the amount of P826, 500.00 representing the actual value of the losses

suffered by it; and

(3) Cost against defendant Rizal Surety and InsuranceCompany.

SO ORDERED." 8

Both the petitioner, Rizal Insurance Company, and privaterespondent, Transworld Knitting Mills, Inc., went to the Court of Appeals, which came out with its decision of July 15, 1993 under

attack, the decretal portion of which reads:

"WHEREFORE, and upon all the foregoing, the decision of thecourt below is MODIFIED in that defendant New IndiaAssurance Company has and is hereby required to payplaintiff-appellant the amount of P1,818,604.19 while theother Rizal Surety has to pay the plaintiff-appellantP470,328.67, based on the actual losses sustained by plaintiff



Transworld in the fire, totalling P2,790,376.00 as against theamounts of fire insurance coverages respectively extended byNew India in the amount of P5,800,000.00 and Rizal Suretyand Insurance Company in the amount of P1,500,000.00.

No costs.

SO ORDERED." 9

On August 20, 1993, from the aforesaid judgment of the Court of Appeals New India appealed to this Court theorizing inter alia thatthe private respondent could not be compensated for the loss of the fun and amusement machines and spare parts stored at thetwo-storey building because it (Transworld) had no insurableinterest in said goods or items.

On February 2, 1994, the Court denied the appeal with finality inG.R. No. L-111118 (New India Assurance Company Ltd. vs. Court of Appeals).

Petitioner Rizal Insurance and private respondent Transworld,interposed a Motion for Reconsideration before the Court of Appeals, and on October 22, 1993, the Court of Appealsreconsidered its decision of July 15, 1993, as regards theimposition of interest, ruling thus:

"WHEREFORE, the Decision of July 15, 1993 is amended butonly insofar as the imposition of legal interest is concerned,that, on the assessment against New India AssuranceCompany on the amount of P1,818,604.19 and that againstRizal Surety & Insurance Company on the amount of P470,328.67, from May 26, 1982 when the complaint wasfiled until payment is made. The rest of the said decision isretained in all other respects.

SO ORDERED." 10

Undaunted, petitioner Rizal Surety & Insurance Company found itsway to this Court via the present Petition, contending that:

I..... SAID DECISION (ANNEX A) ERRED IN ASSUMING THATTHE ANNEX BUILDING WHERE THE BULK OF THE BURNED



PROPERTIES WERE STORED, WAS INCLUDED IN THECOVERAGE OF THE INSURANCE POLICY ISSUED BY RIZALSURETY TO TRANSWORLD.

II..... SAID DECISION AND RESOLUTION (ANNEXES A AND B)

ERRED IN NOT CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN IMMEDIATELY AFTER THE FIRE,WHICH CLEARLY SHOW THAT THE PREMISES OCCUPIED BYTRANSWORLD, WHERE THE INSURED PROPERTIES WERELOCATED, SUSTAINED PARTIAL DAMAGE ONLY.

III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDINGTHAT TRANSWORLD HAD ACTED IN PALPABLE BAD FAITHAND WITH MALICE IN FILING ITS CLEARLY UNFOUNDEDCIVIL ACTION, AND IN NOT ORDERING TRANSWORLD TO PAY

TO RIZAL SURETY MORAL AND PUNITIVE DAMAGES (ART.2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND EXPENSES

OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL CODE).11

The Petition is not impressed with merit.

It is petitioner's submission that the fire insurance policy litigatedupon protected only the contents of the main building (four-

span),12 and did not include those stored in the two-storey annex

building. On the other hand, the private respondent theorized thatthe so called "annex" was not an annex but was actually an integral

part of the four-span building13 and therefore, the goods and itemsstored therein were covered by the same fire insurance policy.

Resolution of the issues posited here hinges on the properinterpretation of the stipulation in subject fire insurance policyregarding its coverage, which reads:

"xxx contained and/or stored during the currency of thisPolicy in the premises occupied by them forming part of thebuildings situate (sic) within own Compound xxx"

Therefrom, it can be gleaned unerringly that the fire insurancepolicy in question did not limit its coverage to what were stored inthe four-span building. As opined by the trial court of origin, tworequirements must concur in order that the said fun and



amusement machines and spare parts would be deemed protectedby the fire insurance policy under scrutiny, to wit:

"First, said properties must be contained and/or stored in theareas occupied by Transworld and second, said areas must

form part of the building described in the policy xxx"14

'Said building of four-span lofty one storey in heightwith mezzanine portions is constructed of reinforced concrete and hollow blocks and/orconcrete under galvanized iron roof and occupiedas hosiery mills, garment and lingerie factory,transistor-stereo assembly plant, offices, warehouse and caretaker's quarter.'

The Court is mindful of the well-entrenched doctrine that factualfindings by the Court of Appeals are conclusive on the parties andnot reviewable by this Court, and the same carry even more weightwhen the Court of Appeals has affirmed the findings of fact arrived

at by the lower court.15

In the case under consideration, both the trial court and the Courtof Appeals found that the so called "annex " was not an annexbuilding but an integral and inseparable part of the four-span

building described in the policy and consequently, the machinesand spare parts stored therein were covered by the fire insurancein dispute. The letter-report of the Manila Adjusters and Surveyor'sCompany, which petitioner itself cited and invoked, describes the"annex" building as follows:

"Two-storey building constructed of partly timber and partlyconcrete hollow blocks under g.i. roof which is adjoining andintercommunicating with the repair of the first right span of

the lofty storey building and thence by property fence wall."16

Verily, the two-storey building involved, a permanent structurewhich adjoins and intercommunicates with the "first right span of

the lofty storey building",17 formed part thereof, and meets therequisites for compensability under the fire insurance policy suedupon.



So also, considering that the two-storey building aforementionedwas already existing when subject fire insurance policy contractwas entered into on January 12, 1981, having been constructed

sometime in 1978,18 petitioner should have specifically excludedthe said two-storey building from the coverage of the fire insurance

if minded to exclude the same but if did not, and instead, went onto provide that such fire insurance policy covers the products, rawmaterials and supplies stored within the premises of respondentTransworld which was an integral part of the four-span buildingoccupied by Transworld, knowing fully well the existence of suchbuilding adjoining and intercommunicating with the right section of the four-span building.

After a careful study, the Court does not find any basis fordisturbing what the lower courts found and arrived at.

Indeed, the stipulation as to the coverage of the fire insurancepolicy under controversy has created a doubt regarding theportions of the building insured thereby. Article 1377 of the NewCivil Code provides:

"Art.1377. The interpretation of obscure words or stipulationsin a contract shall not favor the party who caused theobscurity"

Conformably, it stands to reason that the doubt should be resolvedagainst the petitioner, Rizal Surety Insurance Company, whoselawyer or managers drafted the fire insurance policy contract underscrutiny. Citing the aforecited provision of law in point, the Court in

Landicho vs. Government Service Insurance System,19 ruled:

"This is particularly true as regards insurance policies, inrespect of which it is settled that the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x x areto be construed strictly and most strongly against the insurer,and liberally in favor of the insured so as to effect thedominant purpose of indemnity or payment to the insured,especially where forfeiture is involved' (29 Am. Jur., 181),and the reason for this is that the 'insured usually has novoice in the selection or arrangement of the words employed and that the language of the contract is selected with great



care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance

company.' (44 C.J.S., p. 1174)."" 20

Equally relevant is the following disquisition of the Court in

Fieldmen's Insurance Company, Inc. vs. Vda. De Songco,21

to wit:

"'This rigid application of the rule on ambiguities has becomenecessary in view of current business practices. The courtscannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelmingeconomic power, manage to impose upon parties dealing withthem cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats[sic] d'adhesion), in contrast to these entered into by partiesbargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are primeexample) obviously call for greater strictness and vigilance onthe part of courts of justice with a view to protecting theweaker party from abuses and imposition, and prevent their becoming traps for the unwary (New Civil Code, Article 24;Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February

1942.)'" 22

The issue of whether or not Transworld has an insurable interest inthe fun and amusement machines and spare parts, which entitles itto be indemnified for the loss thereof, had been settled in G.R. No.L-111118, entitled New India Assurance Company, Ltd., vs. Court of Appeals, where the appeal of New India from the decision of theCourt of Appeals under review, was denied with finality by thisCourt on February 2, 1994.

The rule on conclusiveness of judgment, which obtains under thepremises, precludes the relitigation of a particular fact or issue inanother action between the same parties based on a different claimor cause of action. "xxx the judgment in the prior action operatesas estoppel only as to those matters in issue or pointscontroverted, upon the determination of which the finding or judgment was rendered. In fine, the previous judgment is



conclusive in the second case, only as those matters actually anddirectly controverted and determined and not as to matters merely

involved therein."23

Applying the abovecited pronouncement, the Court, in Smith Bell

and Company (Phils.), Inc. vs. Court of Appeals,24

held that theissue of negligence of the shipping line, which issue had alreadybeen passed upon in a case filed by one of the insurers, isconclusive and can no longer be relitigated in a similar case filed byanother insurer against the same shipping line on the basis of thesame factual circumstances. Ratiocinating further, the Courtopined:

"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru') had been negligent, or so negligent as to have proximately caused the collision between them, was an issuethat was actually, directly and expressly raised, controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J.,resolved that issue in his Decision and held the 'Don Carlos' tohave been negligent rather than the 'Yotai Maru' and, asalready noted, that Decision was affirmed by this Court inG.R. No. L-48839 in a Resolution dated 6 December 1987.The Reyes Decision thus became final and executory approximately two (2) years before the Sison Decision, which

is assailed in the case at bar, was promulgated. Applying therule of conclusiveness of judgment, the question of whichvessel had been negligent in the collision between the two (2)vessels, had long been settled by this Court and could nolonger be relitigated in C.A.-G.R. No. 61206-R. Privaterespondent Go Thong was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals fell into clear and reversible error when it disregarded the Decision of this Court affirming the Reyes

Decision." 25

The controversy at bar is on all fours with the aforecited case.Considering that private respondent's insurable interest in, andcompensability for the loss of subject fun and amusementmachines and spare parts, had been adjudicated, settled andsustained by the Court of Appeals in CA-G.R. CV NO. 28779, andby this Court in G.R. No. L-111118, in a Resolution, dated February



2, 1994, the same can no longer be relitigated and passed upon inthe present case. Ineluctably, the petitioner, Rizal Surety InsuranceCompany, is bound by the ruling of the Court of Appeals and of thisCourt that the private respondent has an insurable interest in theaforesaid fun and amusement machines and spare parts; and

should be indemnified for the loss of the same.

So also, the Court of Appeals correctly adjudged petitioner liablefor the amount of P470,328.67, it being the total loss and damagesuffered by Transworld for which petitioner Rizal Insurance is

liable.26

All things studiedly considered and viewed in proper perspective,the Court is of the irresistible conclusion, and so finds, that theCourt of Appeals erred not in holding the petitioner, Rizal Surety

Insurance Company, liable for the destruction and loss of theinsured buildings and articles of the private respondent.

WHEREFORE , the Decision, dated July 15, 1993, and theResolution, dated October 22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto. No pronouncement as tocosts.

SO ORDERED.

Melo, (Chairman), Vitug,



FIRST DIVISION

[G.R. No. 138941. October 8, 2001]

AMERICAN HOME ASSURANCE COMPANY, Petitioner , vs. TANTUCO ENTERPRISES, INC.,respondent .

D E C I S I O N

PUNO, J.:

Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals in CA-G.R. CV No. 52221 promulgated on January 14, 1999, which affirmed in toto the Decision of theRegional Trial Court, Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.

Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry. Itowns two oil mills. Both are located at its factory compound at Iyam, Lucena City. It appears that

respondent commenced its business operations with only one oil mill. In 1988, it started operating itssecond oil mill. The latter came to be commonly referred to as the new oil mill.

The two oil mills were separately covered by fire insurance policies issued by petitioner AmericanHome Assurance Co., Philippine Branch. [1 The first oil mill was insured for three million pesos(P3,000,000.00) under Policy No. 306-7432324-3 for the period March 1, 1991 to 1992. [2 The new oilmill was insured for six million pesos (P6,000,000.00) under Policy No. 306-7432321-9 for the sameterm. [3 Official receipts indicating payment for the full amount of the premium were issued by the petitioner's agent. [4

A fire that broke out in the early morning of September 30,1991 gutted and consumed the new oil mill.

Respondent immediately notified the petitioner of the incident. The latter then sent its appraisers whoinspected the burned premises and the properties destroyed. Thereafter, in a letter dated October 15,1991, petitioner rejected respondents claim for the insurance proceeds on the ground that no policy wasissued by it covering the burned oil mill. It stated that the description of the insured establishmentreferred to another building thus: Our policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M)extend insurance coverage to your oil mill under Building No. 5, whilst the affected oil mill was under Building No. 14. [5

A complaint for specific performance and damages was consequently instituted by the respondent withthe RTC, Branch 53 of Lucena City. On October 16, 1995, after trial, the lower court rendered aDecision finding the petitioner liable on the insurance policy thus:

WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay plaintiff:

(a) P4,406,536.40 representing damages for loss by fire of its insured property with interest at the legalrate;

(b) P80,000.00 for litigation expenses;

(c) P300,000.00 for and as attorneys fees; and



(d) Pay the costs.

SO ORDERED.[6

Petitioner assailed this judgment before the Court of Appeals. The appellate court upheld the same in aDecision promulgated on January 14, 1999, the pertinent portion of which states:

WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trial courts Decisiondated October 16, 1995 is hereby AFFIRMED in toto.

SO ORDERED.[7

Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in aResolution promulgated on June 10, 1999.

Hence, the present course of action, where petitioner ascribes to the appellate court the followingerrors:

(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the premium was beyond its jurisdiction because it was raised for the first time on appeal.[8

(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing AppliancesWarranty' of the policy.[9

(3) With due respect, the conclusion of the Court of Appeals giving no regard to the paroleevidence rule and the principle of estoppel is erroneous.[10

The petition is devoid of merit.

The primary reason advanced by the petitioner in resisting the claim of the respondent is that the burned oil mill is not covered by any insurance policy. According to it, the oil mill insured isspecifically described in the policy by its boundaries in the following manner:

Front: by a driveway thence at 18 meters distance by Bldg. No. 2.

Right: by an open space thence by Bldg. No. 4.

Left: Adjoining thence an imperfect wall by Bldg. No. 4.

Rear: by an open space thence at 8 meters distance.

However, it argues that this specific boundary description clearly pertains, not to the burned oil mill, but to the other mill. In other words, the oil mill gutted by fire was not the one described by the specific boundaries in the contested policy.

What exacerbates respondents predicament, petitioner posits, is that it did not have the supposed wrongdescription or mistake corrected. Despite the fact that the policy in question was issued way back in1988, or about three years before the fire, and despite the Important Notice in the policy that Please



read and examine the policy and if incorrect, return it immediately for alteration, respondentapparently did not call petitioners attention with respect to the misdescription.

By way of conclusion, petitioner argues that respondent is barred by the parole evidence rule from presenting evidence (other than the policy in question) of its self-serving intention ( sic) that it intendedreally to insure the burned oil mill, just as it is barred by estoppel from claiming that the description of

the insured oil mill in the policy was wrong, because it retained the policy without having the samecorrected before the fire by an endorsement in accordance with its Condition No. 28.

These contentions can not pass judicial muster.

In construing the words used descriptive of a building insured, the greatest liberality is shown by thecourts in giving effect to the insurance. [11 In view of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are inclined to consider that the policy of insurance coversany building which the parties manifestly intended to insure, however inaccurate the description may be. [12

Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that whatthe parties manifestly intended to insure was the new oil mill. This is obvious from the categoricalstatement embodied in the policy, extending its protection:

On machineries and equipment with complete accessories usual to a coconut oil mill including stocksof copra, copra cake and copra mills whilst contained in the new oil mill building, situate (sic) atUNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.[13 (emphasis

supplied.)

If the parties really intended to protect the first oil mill, then there is no need to specify it as new.

Indeed, it would be absurd to assume that respondent would protect its first oil mill for different amounts and leaveuncovered its second one. As mentioned earlier, the first oil mill is already covered under Policy No. 306-7432324-4 issued by the petitioner. It is unthinkable for respondent to obtain the other policy from the very same company. The latter ought toknow that a second agreement over that same realty results in its overinsurance.

The imperfection in the description of the insured oil mills boundaries can be attributed to a misunderstanding between the petitioners general agent, Mr. Alfredo Borja, and its policy issuing clerk, who made the error of copying the boundaries of the first oil mill when typing the policy to be issued for the new one. As testified to by Mr.Borja:

Atty. G. Camaligan:

Q: What did you do when you received the report?

A: I told them as will be shown by the map the intention really of Mr. Edison Tantuco is to cover the new oil mill that iswhy when I presented the existing policy of the old policy, the policy issuing clerk just merely ( sic) copied the wordingfrom the old policy and what she typed is that the description of the boundaries from the old policy was copied but she

inserted covering the new oil mill and to me at that time the important thing is that it covered the new oil mill because it

is just within one compound and there are only two oil mill[s] and so just enough, I had the policy prepared. In fact, two policies were prepared having the same date one for the old one and the other for the new oil mill and exactly the same policy period, sir.[14 (emphasis supplied )

It is thus clear that the source of the discrepancy happened during the preparation of the written contract.



These facts lead us to hold that the present case falls within one of the recognized exceptions to the parole evidence rule.Under the Rules of Court, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading, among others, its failure to express the true intent and agreement of the parties thereto. [15 Here, the contractual intention of the parties cannot be understood from a mere reading of the instrument. Thus, while thecontract explicitly stipulated that it was for the insurance of the new oil mill, the boundary description written on the policyconcededly pertains to the first oil mill. This irreconcilable difference can only be clarified by admitting evidence aliunde,

which will explain the imperfection and clarify the intent of the parties.

Anent petitioners argument that the respondent is barred by estoppel from claiming that the description of the insured oilmill in the policy was wrong, we find that the same proceeds from a wrong assumption. Evidence on record reveals thatrespondents operating manager, Mr. Edison Tantuco, notified Mr. Borja (the petitioners agent with whom respondentnegotiated for the contract) about the inaccurate description in the policy. However, Mr. Borja assured Mr. Tantuco that theuse of the adjective new will distinguish the insured property.The assurance convinced respondent that, despite theimpreciseness in the specification of the boundaries, the insurance will cover the new oil mill. This can be seen from thetestimony on cross of Mr. Tantuco:

"ATTY. SALONGA:

Q: You mentioned, sir, that at least in so far as Exhibit A is concern you have read what the policy contents.(sic)

Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2 particularly the boundaries of the propertyinsured by the insurance policy Exhibit A, will you tell us as the manager of the company whether the boundaries stated inExhibit A-2 are the boundaries of the old (sic) mill that was burned or not.

A: It was not, I called up Mr. Borja regarding this matter and he told me that what is important is the word new oil

mill. Mr. Borja said, as a matter of fact, you can never insured ( sic) one property with two (2) policies, you will only do thatif you will make to increase the amount and it is by indorsement not by another policy, sir."[16

We again stress that the object of the court in construing a contract is to ascertain the intent of the parties to the contract andto enforce the agreement which the parties have entered into. In determining what the parties intended, the courts will readand construe the policy as a whole and if possible, give effect to all the parts of the contract, keeping in mind always,however, the prime rule that in the event of doubt, this doubt is to be resolved against the insurer. In determining the intentof the parties to the contract, the courts will consider the purpose and object of the contract. [17

In a further attempt to avoid liability, petitioner claims that respondent forfeited the renewal policy for its failure to pay thefull amount of the premium and breach of the Fire Extinguishing Appliances Warranty.

The amount of the premium stated on the face of the policy was P89,770.20. From the admission of respondents ownwitness, Mr. Borja, which the petitioner cited, the former only paid it P75,147.00, leaving a difference of P14,623.20. Thedeficiency, petitioner argues, suffices to invalidate the policy, in accordance with Section 77 of the Insurance Code. [18

The Court of Appeals refused to consider this contention of the petitioner. It held that this issue was raised for the first timeon appeal, hence, beyond its jurisdiction to resolve, pursuant to Rule 46, Section 18 of the Rules of Court. [19

Petitioner, however, contests this finding of the appellate court. It insists that the issue was raised in paragraph 24 of its

Answer, viz.:

24. Plaintiff has not complied with the condition of the policy and renewal certificate that the renewal premium should be paid on or before renewal date.

Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja, who acknowledged that the paid amountwas lacking by P14,623.20 by reason of a discount or rebate, which rebate under Sec. 361 of the Insurance Code is illegal.

The argument fails to impress. It is true that the asseverations petitioner made in paragraph 24 of its Answer ostensiblyspoke of the policys condition for payment of the renewal premium on time and respondents non-compliance with it. Yet, it



did not contain any specific and definite allegation that respondent did not pay the premium, or that it did not pay the fullamount, or that it did not pay the amount on time.

Likewise, when the issues to be resolved in the trial court were formulated at the pre-trial proceedings, the question of thesupposed inadequate payment was never raised. Most significant to point, petitioner fatally neglected to present, during thewhole course of the trial, any witness to testify that respondent indeed failed to pay the full amount of the premium. Thethrust of the cross-examination of Mr. Borja, on the other hand, was not for the purpose of proving this fact. Though it briefly touched on the alleged deficiency, such was made in the course of discussing a discount or rebate, which the agentapparently gave the respondent. Certainly, the whole tenor of Mr. Borjas testimony, both during direct and crossexaminations, implicitly assumed a valid and subsisting insurance policy. It must be remembered that he was called to thestand basically to demonstrate that an existing policy issued by the petitioner covers the burned building.

Finally, petitioner contends that respondent violated the express terms of the Fire Extinguishing Appliances Warranty. Thesaid warranty provides:

WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances as mentioned below shall bemaintained in efficient working order on the premises to which insurance applies:

- PORTABLE EXTINGUISHERS

- INTERNAL HYDRANTS

- EXTERNAL HYDRANTS

- FIRE PUMP

- 24-HOUR SECURITY SERVICES

BREACH of this warranty shall render this policy null and void and the Company shall no longer be liable for any losswhich may occur.[20

Petitioner argues that the warranty clearly obligates the insured to maintain all the appliances specified therein. The breach

occurred when the respondent failed to install internal fire hydrants inside the burned building as warranted. This fact wasadmitted by the oil mills expeller operator, Gerardo Zarsuela.

Again, the argument lacks merit. We agree with the appellate courts conclusion that the aforementioned warranty did notrequire respondent to provide for all the fire extinguishing appliances enumerated therein. Additionally, we find that neither did it require that the appliances are restricted to those mentioned in the warranty. In other words, what the warrantymandates is that respondent should maintain in efficient working condition within the premises of the insured property, firefighting equipments such as, but not limited to, those identified in the list, which will serve as the oil mills first line of defense in case any part of it bursts into flame.

To be sure, respondent was able to comply with the warranty. Within the vicinity of the new oil mill can be found thefollowing devices: numerous portable fire extinguishers, two fire hoses, [21 fire hydrant, [22 and an emergency fire engine.[23 All of these equipments were in efficient working order when the fire occurred.

It ought to be remembered that not only are warranties strictly construed against the insurer, but they should, likewise, bythemselves be reasonably interpreted. [24 That reasonableness is to be ascertained in light of the factual conditions prevailing in each case. Here, we find that there is no more need for an internal hydrant considering that inside the burned building were: (1) numerous portable fire extinguishers, (2) an emergency fire engine, and (3) a fire hose which has aconnection to one of the external hydrants.

IN VIEW WHEREOF , finding no reversible error in the impugned Decision, the instant petition is hereby DISMISSED.

SO ORDERED.



Davide, Jr., C.J., (Chairman), Pardo, and Ynares-Santiago, JJ., concur.

Kapunan, J., on official leave.

Library

THIRD DIVISION

G.R. No. 81026 April 3, 1990

PAN MALAYAN INSURANCE CORPORATION, Petitioner , vs. COURT OF APPEALS,

ERLINDA FABIE AND HER UNKNOWN DRIVER, Respondents.

CORTES, J.:

Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a decision of theCourt of Appeals which upheld an order of the trial court dismissing for no cause of actionPANMALAY's complaint for damages against private respondents Erlinda Fabie and her driver.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The principal issue presented for resolution before this Court is whether or not the insurer PANMALAY may institute an action to recover the amount it had paid its assured in settlement of aninsurance claim against private respondents as the parties allegedly responsible for the damage causedto the insured vehicle. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against

private respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured aMitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of CanlubangAutomotive Resources Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness,recklessness, and imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insuredcar was hit and suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG against thedriver of the pick-up and his employer, Erlinda Fabie; and that, despite repeated demands, defendants,failed and refused to pay the claim of PANMALAY. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion thereto.In compliance therewith, PANMALAY clarified, among others, that the damage caused to the insured

car was settled under the "own damage", coverage of the insurance policy, and that the driver of theinsured car was, at the time of the accident, an authorized driver duly licensed to drive the vehicle.PANMALAY also submitted a copy of the insurance policy and the Release of Claim and SubrogationReceipt executed by CANLUBANG in favor of PANMALAY.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had nocause of action against them. They argued that payment under the "own damage" clause of theinsurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnificationthereunder was made on the assumption that there was no wrongdoer or no third party at fault. chanroblesvirtualawlibrary chanrobles virtual lawlibrary



After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued anorder dated June 16, 1986 dismissing PANMALAY's complaint for no cause of action. On August 19,1986, the RTC denied PANMALAY's motion for reconsideration. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on November 27,1987. Consequently, PANMALAY filed the present petition for review.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

After private respondents filed its comment to the petition, and petitioner filed its reply, the Courtconsidered the issues joined and the case submitted for decision.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Deliberating on the various arguments adduced in the pleadings, the Court finds merit in the petition. chanroblesvirtualawlibrary

chanrobles virtual lawlibrary

PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it hadindemnified CANLUBANG for the damage to the insured car resulting from a traffic accidentallegedly caused by the negligence of the driver of private respondent, Erlinda Fabie. PANMALAYcontended, therefore, that its cause of action against private respondents was anchored upon Article2207 of the Civil Code, which reads:

If the plaintiffs property has been insured, and he has received indemnity fromthe insurance company for the injury or loss arising out of the wrong or breachof contract complained of, the insurance company shall be subrogated to therights of the insured against the wrongdoer or the person who has violated thecontract. . . .

PANMALAY is correct.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, then

the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover fromthe wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to theassured operates as an equitable assignment to the former of all remedies which the latter may haveagainst the third party whose negligence or wrongful act caused the loss. The right of subrogation is notdependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. Itaccrues simply upon payment of the insurance claim by the insurer [Compania Maritima v. InsuranceCompany of North America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213; Fireman's FundInsurance Company v. Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323]. chanroblesvirtualawlibrary chanrobles virtual law

library

There are a few recognized exceptions to this rule. For instance, if the assured by his own act releasesthe wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of

subrogation is defeated [Phoenix Ins. Co. of Brooklyn v. Erie & Western Transport, Co., 117 US 312,29 L. Ed. 873 (1886); Insurance Company of North America v. Elgin, Joliet & Eastern Railway Co.,229 F 2d 705 (1956)]. Similarly, where the insurer pays the assured the value of the lost goods withoutnotifying the carrier who has in good faith settled the assured's claim for loss, the settlement is bindingon both the assured and the insurer, and the latter cannot bring an action against the carrier on his rightof subrogation [McCarthy v. Barber Steamship Lines, Inc., 45 Phil. 488 (1923)]. And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting "voluntary payment", the former has no right of subrogation against the third party liable for the loss [SverigesAngfartygs Assurans Forening v. Qua Chee Gan, G. R. No. L-22146, September 5, 1967, 21 SCRA



12].chanroblesvirtualawlibrary chanrobles virtual lawlibrary

None of the exceptions are availing in the present case.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legallysubrogated under Article 2207 of the Civil Code to the rights of CANLUBANG, and therefore did not

have any cause of action against private respondents. On the one hand, the trial court held that payment by PANMALAY of CANLUBANG's claim under the "own damage" clause of the insurance policy wasan admission by the insurer that the damage was caused by the assured and/or its representatives. Onthe other hand, the Court of Appeals in applying the ejusdem generis rule held that Section III-1 of the policy, which was the basis for settlement of CANLUBANG's claim, did not cover damage arisingfrom collision or overturning due to the negligence of third parties as one of the insurable risks. Bothtribunals concluded that PANMALAY could not now invoke Article 2207 and claim reimbursementfrom private respondents as alleged wrongdoers or parties responsible for the damage.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

The above conclusion is without merit. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

It must be emphasized that the lower court's ruling that the "own damage" coverage under the policyimplies damage to the insured car caused by the assured itself, instead of third parties, proceeds froman incorrect comprehension of the phrase "own damage" as used by the insurer. When PANMALAYutilized the phrase "own damage" - a phrase which, incidentally, is not found in the insurance policy -to define the basis for its settlement of CANLUBANG's claim under the policy, it simply meant that ithad assumed to reimburse the costs for repairing the damage to the insured vehicle [See PANMALAY'sCompliance with Supplementary Motion for Bill of Particulars, p. 1; Record, p. 31]. It is in this sensethat the so-called "own damage" coverage under Section III of the insurance policy is differentiatedfrom Sections I and IV-1 which refer to "Third Party Liability" coverage (liabilities arising from thedeath of, or bodily injuries suffered by, third parties) and from Section IV-2 which refer to "PropertyDamage" coverage (liabilities arising from damage caused by the insured vehicle to the properties of third parties).chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under SectionIII-1 of the policy does not include to the insured vehicle arising from collision or overturning due tothe negligent acts of the third party. Not only does it stem from an erroneous interpretation of the provisions of the section, but it also violates a fundamental rule on the interpretation of propertyinsurance contracts.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

It is a basic rule in the interpretation of contracts that the terms of a contract are to be construedaccording to the sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies, the evident intention of the contracting parties, i.e., the insurer and theassured, determine the import of the various terms and provisions embodied in the policy. It is onlywhen the terms of the policy are ambiguous, equivocal or uncertain, such that the parties themselvesdisagree about the meaning of particular provisions, that the courts will intervene. In such an event, the policy will be construed by the courts liberally in favor of the assured and strictly against the insurer [Union Manufacturing Co., Inc. v. Philippine Guaranty Co., Inc., G.R., No. L-27932, October 30, 1972,47 SCRA 271; National Power Corporation v. Court of Appeals, G.R. No. L-43706, November 14,1986, 145 SCRA 533; Pacific Banking Corporation v. Court of Appeals, G.R. No. L-41014, November 28, 1988, 168 SCRA 1. Also Articles 1370-1378 of the Civil Code]. chanroblesvirtualawlibrary chanrobles virtual lawlibrary



Section III-1 of the insurance policy which refers to the conditions under which the insurer PANMALAY is liable to indemnify the assured CANLUBANG against damage to or loss of theinsured vehicle, reads as follows:

SECTION III - LOSS OR DAMAGE chanrobles virtual lawlibrary

1. The Company will, subject to the Limits of Liability, indemnify the Insuredagainst loss of or damage to the Scheduled Vehicle and its accessories and spare parts whilst thereon: -

(a) by accidental collision or overturning, or collision

or overturning consequent upon mechanical breakdown

or consequent upon wear and tear ; chanrobles virtual lawlibrary

(b) by fire, external explosion, self ignition or lightningor burglary, housebreaking or theft; chanrobles virtual lawlibrary

(c) by malicious act ; chanrobles virtual lawlibrary

(d) whilst in transit (including the processes of loadingand unloading) incidental to such transit by road, rail,inland, waterway, lift or elevator.

xxx xxx xxx chanrobles virtual lawlibrary

[Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars; Record, p. 34; Emphasis supplied].

PANMALAY contends that the coverage of insured risks under the above section, specifically SectionIII-1(a), is comprehensive enough to include damage to the insured vehicle arising from collision or overturning due to the fault or negligence of a third party. CANLUBANG is apparently of the sameunderstanding. Based on a police report wherein the driver of the insured car reported that after thevehicle was sideswiped by a pick-up, the driver thereof fled the scene [Record, p. 20], CANLUBANGfiled its claim with PANMALAY for indemnification of the damage caused to its car. It then accepted payment from PANMALAY, and executed a Release of Claim and Subrogation Receipt in favor of latter.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Considering that the very parties to the policy were not shown to be in disagreement regarding themeaning and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the

appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribemeaning contrary to the clear intention and understanding of these parties.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "byaccidental collision or overturning" found in the first paint of sub-paragraph (a) is untenable. Althoughthe terms "accident" or "accidental" as used in insurance contracts have not acquired a technicalmeaning, the Court has on several occasions defined these terms to mean that which takes place"without one's foresight or expectation, an event that proceeds from an unknown cause, or is an unusualeffect of a known cause and, therefore, not expected" [De la Cruz v. The Capital Insurance & Surety



Co., Inc., G.R. No. L-21574, June 30, 1966, 17 SCRA 559; Filipino Merchants Insurance Co., Inc. v.Court of Appeals, G.R. No. 85141, November 28, 1989]. Certainly, it cannot be inferred from jurisprudence that these terms, without qualification, exclude events resulting in damage or loss due tothe fault, recklessness or negligence of third parties. The concept "accident" is not necessarilysynonymous with the concept of "no fault". It may be utilized simply to distinguish intentional or malicious acts from negligent or careless acts of man. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, theinsured vehicle due to negligent or careless acts of third parties is not listed under the general andspecific exceptions to the coverage of insured risks which are enumerated in detail in the insurance policy itself [See Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, supra.] chanrobles virtual lawlibrary

The Court, furthermore. finds it noteworthy that the meaning advanced by PANMALAY regarding thecoverage of Section III-1(a) of the policy is undeniably more beneficial to CANLUBANG than thatinsisted upon by respondents herein. By arguing that this section covers losses or damages due not onlyto malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a more

comprehensive coverage of insured risks. And this, in the final analysis, is more in keeping with therationale behind the various rules on the interpretation of insurance contracts favoring the assured or beneficiary so as to effect the dominant purpose of indemnity or payment [See Calanoc v. Court of Appeals, 98 Phil. 79 (1955); Del Rosario v. The Equitable Insurance and Casualty Co., Inc., G.R. No.L-16215, June 29, 1963, 8 SCRA 343; Serrano v. Court of Appeals, G.R. No. L-35529, July 16, 1984,130 SCRA 327].chanroblesvirtualawlibrary chanrobles virtual lawlibrary

Parenthetically, even assuming for the sake of argument that Section III-1(a) of the insurance policydoes not cover damage to the insured vehicle caused by negligent acts of third parties, and thatPANMALAY's settlement of CANLUBANG's claim for damages allegedly arising from a collision dueto private respondents' negligence would amount to unwarranted or "voluntary payment", dismissal of PANMALAY's complaint against private respondents for no cause of action would still be a grave error of law.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

For even if under the above circumstances PANMALAY could not be deemed subrogated to the rightsof its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of actionagainst private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua

Chee Gan, supra., the Court ruled that the insurer who may have no rights of subrogation due to"voluntary" payment may nevertheless recover from the third party responsible for the damage to theinsured property under Article 1236 of the Civil Code.chanroblesvirtualawlibrary chanrobles virtual lawlibrary

In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as subrogeemerely prays that it be allowed to institute an action to recover from third parties who allegedly causeddamage to the insured vehicle, the amount which it had paid its assured under the insurance policy.Having thus shown from the above discussion that PANMALAY has a cause of action against third parties whose negligence may have caused damage to CANLUBANG's car, the Court holds that thereis no legal obstacle to the filing by PANMALAY of a complaint for damages against privaterespondents as the third parties allegedly responsible for the damage. Respondent Court of Appealstherefore committed reversible error in sustaining the lower court's order which dismissedPANMALAY's complaint against private respondents for no cause of action. Hence, it is now for thetrial court to determine if in fact the damage caused to the insured vehicle was due to the "carelessness,recklessness and imprudence" of the driver of private respondent Erlinda Fabie. chanroblesvirtualawlibrary chanrobles virtual lawlibrary



WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's complaint for damages against private respondents is hereby REINSTATED. Let the case be remanded to the lower court for trial on the merits. chanroblesvirtualawlibrary chanrobles virtual lawlibrary

SO ORDERED.

Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

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