Insurance Case #048 Malayan Insurance Co. Inc. vs. PAP Ltd. Co.

(Phil. Br.)
G.R. No. 200784, 7 August 2013
Topic: Concealment, Rescission of Insurance Contract, Alteration in
the use of the thing insured
Ponente: Mendoza, J.
Doctrine: Under the Insurance Code of the Philippines:
Sec. 26. A neglect to communicate that which a party knows and
ought to communicate, is called a concealment.
Sec. 27. A concealment whether intentional or unintentional entitles
the injured party to rescind a contract of insurance. (As amended by
Batasang Pambansa Blg. 874)
Sec. 168. An alteration in the use or condition of a thing insured
from that to which it is limited by the policy made without the
consent of the insurer, by means within the control of the insured,
and increasing the risks, entitles an insurer to rescind a contract of
fire insurance.
Facts:
1. 13 May 1996- Malayan Insurance Company (Malayan) issued Fire
Insurance Policy to PAP Co., Ltd. (PAP Co) for the latters machineries
and equipment located at Sanyo Precision Phils, Bldg., Phase III, Lot 4,
Block 15, PEZA, Rosario, Cavite (Sanyo Building).
2. Insurance was worth P15M and effective for 1 year. It was procured by
PAP Co for RCBC, the mortgagee of the insured machineries and
equipment.
3. Prior to expiration of the insurance coverage, PAP Co. renewed policy
on an as is basis. This was for 13 May 1997 to 13 May 1998.
4. 12 October 1997 and during the subsistence of the renewal policy, the
insured machineries and equipment were totally lost by fir.
5. PAP Co. filed a fire insurance claim with Malayan in the amount insured.
6. 15 December 1997- Malayan denied since at the time of loss, the
insured machineries and equipment were transferred by PAP Co. to a
location different from that indicated in the policy.
7. PAP Co. argued that Malayan cannot avoid liability since it was
informed of the transfer by RCBC, the mortgage and the party dutybound to relay such information.

8. 17 September 2009- RTC ordered Malayan to pay PAP an indemnity for

the loss.
9. 27 October 2011- CA affirmed RTC decision. Hence this case.
Issue: Is Malayan liable under the insurance contract?
Ruling: No. Under the policy and when it was renewed, it forbade the
removal of the insured properties unless sanctioned/consented by Malayan.
PAP failed to notify and to obtain consent of Malayan regarding the removal.
The transfer also increased the risk. With the transfer of location of the
subject properties, without notice to and consent of Malayan, PAP committed
concealment, misrepresentation and breach of a material warranty. Under
the Insurance Code, Malayan can rescind the insurance contract.
Dispositive: WHEREFORE, the October 27, 2011 Decision of the Court of
Appeals is hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance
Company, Inc. is hereby declared NOT liable for the loss of the insured
machineries and equipment suffered by PAP Co., Ltd.