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INSURANCE|1

G.R. No. L-15895

November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin


Ma.
Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Jose
A.
Espiritu
Cohn, Fisher and DeWitt for appellee.

for

appellant.

MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of the estate of the
late Joaquin Ma. Herrer to recover from the defendant life insurance
company the sum of pesos 6,000 paid by the deceased for a life annuity. The
trial court gave judgment for the defendant. Plaintiff appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer
made application to the Sun Life Assurance Company of Canada through its
office in Manila for a life annuity. Two days later he paid the sum of P6,000
to the manager of the company's Manila office and was given a receipt
reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como
prima dela Renta Vitalicia solicitada por dicho Don Joaquin Herrer hoy, sujeta
al examen medico y aprobacion de la Oficina Central de la Compaia.
The application was immediately forwarded to the head office of the
company at Montreal, Canada. On November 26, 1917, the head office gave
notice of acceptance by cable to Manila. (Whether on the same day the cable
was received notice was sent by the Manila office of Herrer that the
application had been accepted, is a disputed point, which will be discussed
later.) On December 4, 1917, the policy was issued at Montreal. On

December 18, 1917, attorney Aurelio A. Torres wrote to the Manila office of
the company stating that Herrer desired to withdraw his application. The
following day the local office replied to Mr. Torres, stating that the policy had
been issued, and called attention to the notification of November 26, 1917.
This letter was received by Mr. Torres on the morning of December 21, 1917.
Mr. Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether
Herrer received notice of acceptance of his application. To resolve this
question, we propose to go directly to the evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance Company of
Canada at the time of the trial testified that he prepared the letter
introduced in evidence as Exhibit 3, of date November 26, 1917, and handed
it to the local manager, Mr. E. E. White, for signature. The witness admitted
on cross-examination that after preparing the letter and giving it to he
manager, he new nothing of what became of it. The local manager, Mr.
White, testified to having received the cablegram accepting the application of
Mr. Herrer from the home office on November 26, 1917. He said that on the
same day he signed a letter notifying Mr. Herrer of this acceptance. The
witness further said that letters, after being signed, were sent to the chief
clerk and placed on the mailing desk for transmission. The witness could not
tell if the letter had every actually been placed in the mails. Mr. Tuason, who
was the chief clerk, on November 26, 1917, was not called as a witness. For
the defense, attorney Manuel Torres testified to having prepared the will of
Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned his
application for a life annuity, and that he said that the only document
relating to the transaction in his possession was the provisional receipt.
Rafael Enriquez, the administrator of the estate, testified that he had gone
through the effects of the deceased and had found no letter of notification
from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of
November 26, 1917, notifying Mr. Herrer that his application had been
accepted, was prepared and signed in the local office of the insurance
company, was placed in the ordinary channels for transmission, but as far as
we know, was never actually mailed and thus was never received by the
applicant.

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Not forgetting our conclusion of fact, it next becomes necessary to
determine the law which should be applied to the facts. In order to reach our
legal goal, the obvious signposts along the way must be noticed.

commercial law, it would seem logical to make use of the only pertinent
provision of law found in the Civil code, closely related to the chapter
concerning life annuities.

Until quite recently, all of the provisions concerning life insurance in the
Philippines were found in the Code of Commerce and the Civil Code. In the
Code of the Commerce, there formerly existed Title VIII of Book III and
Section III of Title III of Book III, which dealt with insurance contracts. In
the Civil Code there formerly existed and presumably still exist, Chapters II
and IV, entitled insurance contracts and life annuities, respectively, of Title
XII of Book IV. On the after July 1, 1915, there was, however, in force the
Insurance Act. No. 2427. Chapter IV of this Act concerns life and health
insurance. The Act expressly repealed Title VIII of Book II and Section III of
Title III of Book III of the code of Commerce. The law of insurance is
consequently now found in the Insurance Act and the Civil Code.

The Civil Code rule, that an acceptance made by letter shall bind the person
making the offer only from the date it came to his knowledge, may not be
the best expression of modern commercial usage. Still it must be admitted
that its enforcement avoids uncertainty and tends to security. Not only this,
but in order that the principle may not be taken too lightly, let it be noticed
that it is identical with the principles announced by a considerable number of
respectable courts in the United States. The courts who take this view have
expressly held that an acceptance of an offer of insurance not actually or
constructively communicated to the proposer does not make a contract. Only
the mailing of acceptance, it has been said, completes the contract of
insurance, as the locus poenitentiae is ended when the acceptance has
passed beyond the control of the party. (I Joyce, The Law of Insurance, pp.
235, 244.)

While, as just noticed, the Insurance Act deals with life insurance, it is silent
as to the methods to be followed in order that there may be a contract of
insurance. On the other hand, the Civil Code, in article 1802, not only
describes a contact of life annuity markedly similar to the one we are
considering, but in two other articles, gives strong clues as to the proper
disposition of the case. For instance, article 16 of the Civil Code provides
that "In matters which are governed by special laws, any deficiency of the
latter shall be supplied by the provisions of this Code." On the supposition,
therefore, which is incontestable, that the special law on the subject of
insurance is deficient in enunciating the principles governing acceptance, the
subject-matter of the Civil code, if there be any, would be controlling. In the
Civil Code is found article 1262 providing that "Consent is shown by the
concurrence of offer and acceptance with respect to the thing and the
consideration which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from the time it
came to his knowledge. The contract, in such case, is presumed to have
been entered into at the place where the offer was made." This latter article
is in opposition to the provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by which
we reach a conclusion, then the only duty remaining is for the court to apply
the law as it is found. The legislature in its wisdom having enacted a new law
on insurance, and expressly repealed the provisions in the Code of
Commerce on the same subject, and having thus left a void in the

In resume, therefore, the law applicable to the case is found to be the


second paragraph of article 1262 of the Civil Code providing that an
acceptance made by letter shall not bind the person making the offer except
from the time it came to his knowledge. The pertinent fact is, that according
to the provisional receipt, three things had to be accomplished by the
insurance company before there was a contract: (1) There had to be a
medical examination of the applicant; (2) there had to be approval of the
application by the head office of the company; and (3) this approval had in
some way to be communicated by the company to the applicant. The further
admitted facts are that the head office in Montreal did accept the application,
did cable the Manila office to that effect, did actually issue the policy and
did, through its agent in Manila, actually write the letter of notification and
place it in the usual channels for transmission to the addressee. The fact as
to the letter of notification thus fails to concur with the essential elements of
the general rule pertaining to the mailing and delivery of mail matter as
announced by the American courts, namely, when a letter or other mail
matter is addressed and mailed with postage prepaid there is a rebuttable
presumption of fact that it was received by the addressee as soon as it could
have been transmitted to him in the ordinary course of the mails. But if any
one of these elemental facts fails to appear, it is fatal to the presumption.
For instance, a letter will not be presumed to have been received by the
addressee unless it is shown that it was deposited in the post-office, properly

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addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458,
et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not
perfected because it has not been proved satisfactorily that the acceptance
of the application ever came to the knowledge of the applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the
defendant the sum of P6,000 with legal interest from November 20, 1918,
until paid, without special finding as to costs in either instance. So ordered.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when


he was hit by a failing branch of a tree. As the policy was in force, The
Insular Life Assurance Co., Ltd. liable to pay the coverage in the total
amount of P11,745.73, representing the face value of the policy in the
amount of P5,882.00 plus the additional benefits for accidental death also in
the amount of P5,882.00 and the refund of P18.00 paid for the premium due
November, 1969, minus the unpaid premiums and interest thereon due for
January and February, 1969, in the sum of P36.27.
Carponia T. Ebrado filed with the insurer a claim for the proceeds of the
Policy as the designated beneficiary therein, although she admits that she
and the insured Buenaventura C. Ebrado were merely living as husband and
wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance proceeds,
not the common-law wife, Carponia T. Ebrado.

G.R. No. L-44059 October 28, 1977


THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendantsappellants.

MARTIN, J.:
This is a novel question in insurance law: Can a common-law wife named as
beneficiary in the life insurance policy of a legally married man claim the
proceeds thereof in case of death of the latter?
On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life
Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00 with a,
rider for Accidental Death for the same amount Buenaventura C. Ebrado
designated T. Ebrado as the revocable beneficiary in his policy. He to her as
his wife.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The
Insular Life Assurance Co., Ltd. commenced an action for Interpleader before
the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8,
1972, after which, a pre-trial order was entered reading as follows: +.
wph!1
During the pre-trial conference, the parties manifested to the
court. that there is no possibility of amicable settlement.
Hence, the Court proceeded to have the parties submit their
evidence for the purpose of the pre-trial and make
admissions for the purpose of pretrial. During this
conference, parties Carponia T. Ebrado and Pascuala Ebrado
agreed and stipulated: 1) that the deceased Buenaventura
Ebrado was married to Pascuala Ebrado with whom she has
six (legitimate) namely; Hernando, Cresencio, Elsa,
Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that
during the lifetime of the deceased, he was insured with
Insular Life Assurance Co. Under Policy No. 009929 whole
life plan, dated September 1, 1968 for the sum of P5,882.00
with the rider for accidental death benefit as evidenced by

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Exhibits A for plaintiffs and Exhibit 1 for the defendant
Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during
the lifetime of Buenaventura Ebrado, he was living with his
common-wife, Carponia Ebrado, with whom she had 2
children although he was not legally separated from his legal
wife; 4) that Buenaventura in accident on October 21, 1969
as evidenced by the death Exhibit 3 and affidavit of the
police report of his death Exhibit 5; 5) that complainant
Carponia Ebrado filed claim with the Insular Life Assurance
Co. which was contested by Pascuala Ebrado who also filed
claim for the proceeds of said policy 6) that in view ofthe
adverse claims the insurance company filed this action
against the two herein claimants Carponia and Pascuala
Ebrado; 7) that there is now due from the Insular Life
Assurance Co. as proceeds of the policy P11,745.73; 8) that
the beneficiary designated by the insured in the policy is
Carponia Ebrado and the insured made reservation to change
the beneficiary but although the insured made the option to
change the beneficiary, same was never changed up to the
time of his death and the wife did not have any opportunity
to write the company that there was reservation to change
the designation of the parties agreed that a decision be
rendered based on and stipulation of facts as to who among
the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to
file their simultaneous memoranda from the receipt of this
order.
SO ORDERED.
On September 25, 1972, the trial court rendered judgment declaring among
others, Carponia T. Ebrado disqualified from becoming beneficiary of the
insured Buenaventura Cristor Ebrado and directing the payment of the
insurance proceeds to the estate of the deceased insured. The trial court
held: +.wph!1
It is patent from the last paragraph of Art. 739 of the Civil
Code that a criminal conviction for adultery or concubinage is
not essential in order to establish the disqualification

mentioned therein. Neither is it also necessary that a finding


of such guilt or commission of those acts be made in a
separate independent action brought for the purpose. The
guilt of the donee (beneficiary) may be proved by
preponderance of evidence in the same proceeding (the
action brought to declare the nullity of the donation).
It is, however, essential that such adultery or concubinage
exists at the time defendant Carponia T. Ebrado was made
beneficiary in the policy in question for the disqualification
and incapacity to exist and that it is only necessary that such
fact be established by preponderance of evidence in the trial.
Since it is agreed in their stipulation above-quoted that the
deceased insured and defendant Carponia T. Ebrado were
living together as husband and wife without being legally
married and that the marriage of the insured with the other
defendant Pascuala Vda. de Ebrado was valid and still
existing at the time the insurance in question was purchased
there is no question that defendant Carponia T. Ebrado is
disqualified from becoming the beneficiary of the policy in
question and as such she is not entitled to the proceeds of
the insurance upon the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals,
but on July 11, 1976, the Appellate Court certified the case to Us as
involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or
even the new Insurance Code (PD No. 612, as amended) does not contain
any specific provision grossly resolutory of the prime question at hand.
Section 50 of the Insurance Act which provides that "(t)he insurance shag be
applied exclusively to the proper interest of the person in whose name it is
made" 1 cannot be validly seized upon to hold that the mm includes the
beneficiary. The word "interest" highly suggests that the provision refers
only to the "insured" and not to the beneficiary, since a contract of insurance
is personal in character. 2 Otherwise, the prohibitory laws against illicit
relationships especially on property and descent will be rendered nugatory,
as the same could easily be circumvented by modes of insurance. Rather, the

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general rules of civil law should be applied to resolve this void in the
Insurance Law. Article 2011 of the New Civil Code states: "The contract of
insurance is governed by special laws. Matters not expressly provided for in
such special laws shall be regulated by this Code." When not otherwise
specifically provided for by the Insurance Law, the contract of life insurance
is governed by the general rules of the civil law regulating contracts. 3 And
under Article 2012 of the same Code, "any person who is forbidden from
receiving any donation under Article 739 cannot be named beneficiary of a
fife insurance policy by the person who cannot make a donation to
him. 4 Common-law spouses are, definitely, barred from receiving donations
from each other. Article 739 of the new Civil Code provides: +.wph!1
The following donations shall be void:
1. Those made between persons who were guilty of adultery
or concubinage at the time of donation;
Those made between persons found guilty of the same
criminal offense, in consideration thereof;
3. Those made to a public officer or his wife, descendants or
ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or
donee; and the guilt of the donee may be proved by
preponderance of evidence in the same action.
2. In essence, a life insurance policy is no different from a civil donation
insofar as the beneficiary is concerned. Both are founded upon the same
consideration: liberality. A beneficiary is like a donee, because from the
premiums of the policy which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new Civil Code should
equally operate in life insurance contracts. The mandate of Article 2012
cannot be laid aside: any person who cannot receive a donation cannot be
named as beneficiary in the life insurance policy of the person who cannot
make the donation.5 Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will, so far as

possible treat it as a will and determine the effect of a clause designating the
beneficiary by rules under which wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the institution
of a barrier between common law spouses in record to Property relations
since such hip ultimately encroaches upon the nuptial and filial rights of the
legitimate family There is every reason to hold that the bar in donations
between legitimate spouses and those between illegitimate ones should be
enforced in life insurance policies since the same are based on similar
consideration As above pointed out, a beneficiary in a fife insurance policy is
no different from a donee. Both are recipients of pure beneficence. So long
as manage remains the threshold of family laws, reason and morality dictate
that the impediments imposed upon married couple should likewise be
imposed upon extra-marital relationship. If legitimate relationship is
circumscribed by these legal disabilities, with more reason should an illicit
relationship be restricted by these disabilities. Thus, in Matabuena v.
Cervantes, 7 this Court, through Justice Fernando, said: +.wph!1
If the policy of the law is, in the language of the opinion of
the then Justice J.B.L. Reyes of that court (Court of Appeals),
'to prohibit donations in favor of the other consort and his
descendants because of and undue and improper pressure
and influence upon the donor, a prejudice deeply rooted in
our ancient law;" por-que no se enganen desponjandose el
uno al otro por amor que han de consuno' (According to) the
Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale
'No Mutuato amore invicem spoliarentur' the Pandects (Bk,
24, Titl. 1, De donat, inter virum et uxorem); then there is
very reason to apply the same prohibitive policy to persons
living together as husband and wife without the benefit of
nuptials. For it is not to be doubted that assent to such
irregular connection for thirty years bespeaks greater
influence of one party over the other, so that the danger that
the law seeks to avoid is correspondingly increased.
Moreover, as already pointed out by Ulpian (in his lib. 32 ad
Sabinum, fr. 1), 'it would not be just that such donations
should subsist, lest the condition 6f those who incurred guilt
should turn out to be better.' So long as marriage remains
the cornerstone of our family law, reason and morality alike

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demand that the disabilities attached to marriage should
likewise attach to concubinage.
It is hardly necessary to add that even in the absence of the
above pronouncement, any other conclusion cannot stand
the test of scrutiny. It would be to indict the frame of the
Civil Code for a failure to apply a laudable rule to a situation
which in its essentials cannot be distinguished. Moreover, if it
is at all to be differentiated the policy of the law which
embodies a deeply rooted notion of what is just and what is
right would be nullified if such irregular relationship instead
of being visited with disabilities would be attended with
benefits. Certainly a legal norm should not be susceptible to
such a reproach. If there is every any occasion where the
principle of statutory construction that what is within the
spirit of the law is as much a part of it as what is written,
this is it. Otherwise the basic purpose discernible in such
codal provision would not be attained. Whatever omission
may be apparent in an interpretation purely literal of the
language used must be remedied by an adherence to its
avowed objective.
4. We do not think that a conviction for adultery or concubinage is exacted
before the disabilities mentioned in Article 739 may effectuate. More
specifically, with record to the disability on "persons who were guilty of
adultery or concubinage at the time of the donation," Article 739 itself
provides: +.wph!1
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or
donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the
offense is a condition precedent. In fact, it cannot even be from the
aforequoted provision that a prosecution is needed. On the contrary, the law
plainly states that the guilt of the party may be proved "in the same acting
for declaration of nullity of donation. And, it would be sufficient if evidence
preponderates upon the guilt of the consort for the offense indicated. The
quantum of proof in criminal cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship


between the insured and the beneficiary has been conveniently supplied by
the stipulations between the parties in the pre-trial conference of the case. It
case agreed upon and stipulated therein that the deceased insured
Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has
six legitimate children; that during his lifetime, the deceased insured was
living with his common-law wife, Carponia Ebrado, with whom he has two
children. These stipulations are nothing less thanjudicial admissions which,
as a consequence, no longer require proof and cannot be
contradicted. 8 A fortiori, on the basis of these admissions, a judgment may
be validly rendered without going through the rigors of a trial for the sole
purpose of proving the illicit liaison between the insured and the beneficiary.
In fact, in that pretrial, the parties even agreed "that a decision be rendered
based on this agreement and stipulation of facts as to who among the two
claimants is entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed.
Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of
the late Buenaventura C. Ebrado in his life insurance policy. As a
consequence, the proceeds of the policy are hereby held payable to the
estate of the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.

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G.R. No. L-1669

August 31, 1950

PAZ
LOPEZ
DE
CONSTANTINO, plaintiff-appellant,
vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-1670

August 31, 1950

AGUSTINA
PERALTA, plaintiff-appellant,
vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
Mariano
Lozada
for
appellant
Constantino.
Cachero
and
Madarang
for
appellant
Peralta.
Dewitt,
Perkins
and
Ponce
Enrile
for
appellee.
Ramirez and Ortigas and Padilla, Carlos and Fernando as amici curiae.
BENGZON, J.:

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These two cases, appealed from the Court of First Instance of Manila, call for
decision of the question whether the beneficiary in a life insurance policy
may recover the amount thereof although the insured died after repeatedly
failing to pay the stipulated premiums, such failure having been caused by
the last war in the Pacific.
The facts are these:
First case. In consideration of the sum of P176.04 as annual premium duly
paid to it, the Asia Life Insurance Company (a foreign corporation
incorporated under the laws of Delaware, U.S.A.), issued on September 27,
1941, its Policy No. 93912 for P3,000, whereby it insured the life of Arcadio
Constantino for a term of twenty years. The first premium covered the
period up to September 26, 1942. The plaintiff Paz Lopez de Constantino
was regularly appointed beneficiary. The policy contained these stipulations,
among others:
This POLICY OF INSURANCE is issued in consideration of the written
and printed application here for a copy of which is attached hereto
and is hereby made a part hereof made a part hereof, and of the
payment in advance during the lifetime and good health of the
Insured of the annual premium of One Hundred fifty-eight and 4/100
pesos Philippine currency1 and of the payment of a like amount upon
each twenty-seventh day of September hereafter during the term of
Twenty years or until the prior death of the Insured. (Emphasis
supplied.)
xxx

xxx

xxx

All premium payments are due in advance and any unpunctuality in


making any such payment shall cause this policy to lapse unless and
except as kept in force by the Grace Period condition or under Option
4 below. (Grace of 31 days.)

Second case. On August 1, 1938, the defendant Asia Life Insurance


Company issued its Policy No. 78145 (Joint Life 20-Year Endowment
Participating with Accident Indemnity), covering the lives of the spouses
Tomas Ruiz and Agustina Peralta, for the sum of P3,000. The annual
premium stipulated in the policy was regularly paid from August 1, 1938, up
to and including September 30, 1941. Effective August 1, 1941, the mode of
payment of premiums was changed from annual to quarterly, so that
quarterly premiums were paid, the last having been delivered on November
18, 1941, said payment covering the period up to January 31, 1942. No
further payments were handed to the insurer. Upon the Japanese
occupation, the insured and the insurer became separated by the lines of
war, and it was impossible and illegal for them to deal with each other.
Because the insured had borrowed on the policy an mount of P234.00 in
January, 1941, the cash surrender value of the policy was sufficient to
maintain the policy in force only up to September 7, 1942. Tomas Ruiz died
on February 16, 1945. The plaintiff Agustina Peralta is his beneficiary. Her
demand for payment met with defendant's refusal, grounded on nonpayment of the premiums.
The policy provides in part:
This POLICY OF INSURANCE is issued in consideration of the written
and printed application herefor, a copy of which is attached hereto
and is hereby made apart hereof, and of the payment in advance
during the life time and good health of the Insured of the annual
premium of Two hundred and 43/100 pesos Philippine currency and
of the payment of a like amount upon each first day of August
hereafter during the term of Twenty years or until the prior death of
either of the Insured. (Emphasis supplied.)
xxx

xxx

xxx

After that first payment, no further premiums were paid. The insured died on
September 22, 1944.

All premium payments are due in advance and any unpunctuality in


making any such payment shall cause this policy to lapse unless and
except as kept in force by the Grace Period condition or under Option
4 below. (Grace of days.) . . .

It is admitted that the defendant, being an American corporation , had to


close its branch office in Manila by reason of the Japanese occupation, i.e.
from January 2, 1942, until the year 1945.

Plaintiffs maintain that, as beneficiaries, they are entitled to receive the


proceeds of the policies minus all sums due for premiums in arrears. They
allege that non-payment of the premiums was caused by the closing of

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defendant's offices in Manila during the Japanese occupation and the
impossible circumstances created by war.
Defendant on the other hand asserts that the policies had lapsed for nonpayment of premiums, in accordance with the contract of the parties and the
law applicable to the situation.
The lower court absolved the defendant. Hence this appeal.
The controversial point has never been decided in this jurisdiction.
Fortunately, this court has had the benefit of extensive and exhaustive
memoranda including those of amici curiae. The matter has received careful
consideration, inasmuch as it affects the interest of thousands of policyholders and the obligations of many insurance companies operating in this
country.
Since the year 1917, the Philippine law on Insurance was found in Act No.
2427, as amended, and the Civil Code. 2 Act No. 2427 was largely copied
from the Civil Code of California. 3 And this court has heretofore announced
its intention to supplement the statutory laws with general principles
prevailing on the subject in the United State.4
In Young vs. Midland Textile Insurance Co. (30 Phil., 617), we said that
"contracts of insurance are contracts of indemnity upon the terms and
conditions specified in the policy. The parties have a right to impose such
reasonable conditions at the time of the making of the contract as they may
deem wise and necessary. The rate of premium is measured by the character
of the risk assumed. The insurance company, for a comparatively small
consideration, undertakes to guarantee the insured against loss or damage,
upon the terms and conditions agreed upon, and upon no other, and when
called upon to pay, in case of loss, the insurer, therefore, may justly insists
upon a fulfillment of these terms. If the insured cannot bring himself within
the conditions of the policy, he is not entitled for the loss. The terms of the
policy constitute the measure of the insurer's liability, and in order to recover
the insured must show himself within those terms; and if it appears that the
contract has been terminated by a violation, on the part of the insured, of its
conditions, then there can be no right of recovery. The compliance of the
insured with the terms of the contract is a condition precedent to the right of
recovery."

Recall of the above pronouncements is appropriate because the policies in


question stipulate that "all premium payments are due in advance and any
unpunctuality in making any such payment shall cause this policy to lapse."
Wherefore, it would seem that pursuant to the express terms of the policy,
non-payment of premium produces its avoidance.
The conditions of contracts of Insurance, when plainly expressed in a
policy, are binding upon the parties and should be enforced by the
courts, if the evidence brings the case clearly within their meaning
and intent. It tends to bring the law itself into disrepute when, by
astute and subtle distinctions, a plain case is attempted to be taken
without the operation of a clear, reasonable and material obligation
of the contract. Mack vs. Rochester German Ins. Co., 106 N.Y., 560,
564. (Young vs. Midland Textile Ins. Co., 30 Phil., 617, 622.)
In Glaraga vs. Sun Life Ass. Co. (49 Phil., 737), this court held that a life
policy was avoided because the premium had not been paid within the time
fixed, since by its express terms, non-payment of any premium when due or
within the thirty-day period of grace, ipso facto caused the policy to lapse.
This goes to show that although we take the view that insurance policies
should be conserved5 and should not lightly be thrown out, still we do not
hesitate to enforce the agreement of the parties.
Forfeitures of insurance policies are not favored, but courts cannot
for that reason alone refuse to enforce an insurance contract
according to its meaning. (45 C.J.S., p. 150.)
Nevertheless, it is contended for plaintiff that inasmuch as the non-payment
of premium was the consequence of war, it should be excused and should
not cause the forfeiture of the policy.
Professor Vance of Yale, in his standard treatise on Insurance, says that in
determining the effect of non-payment of premiums occasioned by war, the
American cases may be divided into three groups, according as they support
the so-called Connecticut Rule, the New York Rule, or the United States Rule.
The first holds the view that "there are two elements in the consideration for
which the annual premium is paid First, the mere protection for the year,
and second, the privilege of renewing the contract for each succeeding year
by paying the premium for that year at the time agreed upon. According to

INSURANCE|10
this view of the contract, the payment of premiums is a condition precedent,
the non-performance would be illegal necessarily defeats the right to renew
the contract."
The second rule, apparently followed by the greater number of decisions,
hold that "war between states in which the parties reside merely suspends
the contracts of the life insurance, and that, upon tender of all premiums
due by the insured or his representatives after the war has terminated, the
contract revives and becomes fully operative."
The United States rule declares that the contract is not merely suspended,
but is abrogated by reason of non-payments is peculiarly of the essence of
the contract. It additionally holds that it would be unjust to allow the insurer
to retain the reserve value of the policy, which is the excess of the premiums
paid over the actual risk carried during the years when the policy had been
in force. This rule was announced in the well-known Statham 6case which, in
the opinion of Professor Vance, is the correct rule.7
The appellants and some amici curiae contend that the New York rule should
be applied here. The appellee and other amici curiae contend that the United
States doctrine is the orthodox view.
We have read and re-read the principal cases upholding the different
theories. Besides the respect and high regard we have always entertained
for decisions of the Supreme Court of the United States, we cannot resist the
conviction that the reasons expounded in its decision of the Statham case
are logically and judicially sound. Like the instant case, the policy involved in
the Statham decision specifies that non-payment on time shall cause the
policy to cease and determine. Reasoning out that punctual payments were
essential, the court said:
. . . it must be conceded that promptness of payment is essential in
the business of life insurance. All the calculations of the insurance
company are based on the hypothesis of prompt payments. They not
only calculate on the receipt of the premiums when due, but on
compounding interest upon them. It is on this basis that they are
enabled to offer assurance at the favorable rates they do. Forfeiture
for non-payment is an necessary means of protecting themselves
from embarrassment. Unless it were enforceable, the business would
be thrown into confusion. It is like the forfeiture of shares in mining

enterprises, and all other hazardous undertakings. There must be


power to cut-off unprofitable members, or the success of the whole
scheme is endangered. The insured parties are associates in a great
scheme. This associated relation exists whether the company be a
mutual one or not. Each is interested in the engagements of all; for
out of the co-existence of many risks arises the law of average,
which underlies the whole business. An essential feature of this
scheme is the mathematical calculations referred to, on which the
premiums and amounts assured are based. And these calculations,
again, are based on the assumption of average mortality, and of
prompt payments and compound interest thereon. Delinquency
cannot be tolerated nor redeemed, except at the option of the
company. This has always been the understanding and the practice
in this department of business. Some companies, it is true, accord a
grace of thirty days, or other fixed period, within which the premium
in arrear may be paid, on certain conditions of continued good
health, etc. But this is a matter of stipulation, or of discretion, on the
part of the particular company. When no stipulation exists, it is the
general understanding that time is material, and that the forfeiture is
absolute if the premium be not paid. The extraordinary and even
desperate efforts sometimes made, when an insured person is in
extremes to meet a premium coming due, demonstrates the
common view of this matter.
The case, therefore, is one in which time is material and of the
essence and of the essence of the contract. Non-payment at the day
involves absolute forfeiture if such be the terms of the contract, as is
the case here. Courts cannot with safety vary the stipulation of the
parties by introducing equities for the relief of the insured against
their own negligence.
In another part of the decision, the United States Supreme Court considers
and rejects what is, in effect, the New York theory in the following words and
phrases:
The truth is, that the doctrine of the revival of contracts suspended
during the war is one based on considerations of equity and justice,
and cannot be invoked to revive a contract which it would be unjust
or inequitable to revive.

INSURANCE|11
In the case of Life insurance, besides the materiality of time in the
performance of the contract, another strong reason exists why the
policy should not be revived. The parties do not stand on equal
ground in reference to such a revival. It would operate most unjustly
against the company. The business of insurance is founded on the
law of average; that of life insurance eminently so. The average rate
of mortality is the basis on which it rests. By spreading their risks
over a large number of cases, the companies calculate on this
average with reasonable certainty and safety. Anything that
interferes with it deranges the security of the business. If every
policy lapsed by reason of the war should be revived, and all the
back premiums should be paid, the companies would have the
benefit of this average amount of risk. But the good risks are never
heard from; only the bar are sought to be revived, where the person
insured is either dead or dying. Those in health can get the new
policies cheaper than to pay arrearages on the old. To enforce a
revival of the bad cases, whilst the company necessarily lose the
cases which are desirable, would be manifestly unjust. An insured
person, as before stated, does not stand isolated and alone. His case
is connected with and co-related to the cases of all others insured by
the same company. The nature of the business, as a whole, must be
looked at to understand the general equities of the parties.
The above consideration certainly lend themselves to the approval of fairminded men. Moreover, if, as alleged, the consequences of war should not
prejudice the insured, neither should they bear down on the insurer.
Urging adoption of the New York theory, counsel for plaintiff point out that
the obligation of the insured to pay premiums was excused during the war
owing to impossibility of performance, and that consequently no unfavorable
consequences should follow from such failure.
The appellee answers, quite plausibly, that the periodic payment of
premiums, at least those after the first, is not an obligation of the insured,
so much so that it is not a debt enforceable by action of the insurer.
Under an Oklahoma decision, the annual premium due is not a debt.
It is not an obligation upon which the insurer can maintain an action
against insured; nor is its settlement governed by the strict rule
controlling payments of debts. So, the court in a Kentucky case

declares, in the opinion, that it is not a debt. . . . The fact that it is


payable annually or semi-annually, or at any other stipulated time,
does not of itself constitute a promise to pay, either express or
implied. In case of non-payment the policy is forfeited, except so far
as the forfeiture may be saved by agreement, by waiver, estoppel, or
by statute. The payment of the premium is entirely optional, while a
debt may be enforced at law, and the fact that the premium is
agreed to be paid is without force, in the absence of an unqualified
and absolute agreement to pay a specified sum at some certain
time. In the ordinary policy there is no promise to pay, but it is
optional with the insured whether he will continue the policy or
forfeit it. (3 Couch, Cyc. on Insurance, Sec. 623, p. 1996.)
It is well settled that a contract of insurance is sui generis. While the
insured by an observance of the conditions may hold the insurer to
his contract, the latter has not the power or right to compel the
insured to maintain the contract relation with it longer than he
chooses. Whether the insured will continue it or not is optional with
him. There being no obligation to pay for the premium, they did not
constitute a debt. (Noblevs. Southern States M.D. Ins. Co., 157 Ky.,
46; 162 S.W., 528.) (Emphasis ours.)
It should be noted that the parties contracted not only for peacetime
conditions but also for times of war, because the policies contained
provisions applicable expressly to wartime days. The logical inference,
therefore, is that the parties contemplated uninterrupted operation of the
contract even if armed conflict should ensue.
For the plaintiffs, it is again argued that in view of the enormous growth of
insurance business since the Statham decision, it could now be relaxed and
even disregarded. It is stated "that the relaxation of rules relating to
insurance is in direct proportion to the growth of the business. If there were
only 100 men, for example, insured by a Company or a mutual Association,
the death of one will distribute the insurance proceeds among the remaining
99 policy-holders. Because the loss which each survivor will bear will be
relatively great, death from certain agreed or specified causes may be
deemed not a compensable loss. But if the policy-holders of the Company or
Association should be 1,000,000 individuals, it is clear that the death of one
of them will not seriously prejudice each one of the 999,999 surviving
insured. The loss to be borne by each individual will be relatively small."

INSURANCE|12
The answer to this is that as there are (in the example) one million policyholders, the "losses" to be considered will not be the death of one but the
death of ten thousand, since the proportion of 1 to 100 should be
maintained. And certainly such losses for 10,000 deaths will not be
"relatively small."
After perusing the Insurance Act, we are firmly persuaded that the nonpayment of premiums is such a vital defense of insurance companies that
since the very beginning, said Act no. 2427 expressly preserved it, by
providing that after the policy shall have been in force for two years, it shall
become incontestable (i.e. the insurer shall have no defense) except for
fraud, non-payment of premiums, and military or naval service in time of
war (sec. 184 [b], Insurance Act). And when Congress recently amended
this section (Rep. Act No. 171), the defense of fraud was eliminated,
while the defense of nonpayment of premiums was preserved. Thus the
fundamental character of the undertaking to pay premiums and the high
importance of the defense of non-payment thereof, was specifically
recognized.
In keeping with such legislative policy, we feel no hesitation to adopt the
United States Rule, which is in effect a variation of the Connecticut rule for
the sake of equity. In this connection, it appears that the first policy had no
reserve value, and that the equitable values of the second had been
practically returned to the insured in the form of loan and advance for
premium.
For all the foregoing, the lower court's decision absolving the defendant from
all liability on the policies in question, is hereby affirmed, without costs.

INSURANCE|13
Pesos (P630,000.00) in case of loss or damage to said vehicle during the
period covered, which is from February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose
Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle to a
nearby auto-shop for a tune-up. However, Lanuza no longer returned the
motor vehicle to respondent and despite diligent efforts to locate the same,
said efforts proved futile. Resultantly, respondent promptly reported the
incident to the police and concomitantly notified petitioner of the said loss
and demanded payment of the insurance proceeds in the total sum
of P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of
respondent, stating among others, thus:

G.R. No. 198174

Upon verification of the documents submitted, particularly the Police Report


and your Affidavit, which states that the culprit, who stole the Insure[d]
unit, is employed with you. We would like to invite you on the provision of
the Policy under Exceptions to Section-III, which we quote:

September 2, 2013

ALPHA
INSURANCE
AND
SURETY
vs.
ARSENIA SONIA CASTOR, RESPONDENT.

CO., PETITIONER,

DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Decision 1 dated May 31, 2011 and Resolution 2 dated
August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance,
Motor Car Policy No. MAND/CV-00186, with petitioner, involving her motor
vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the
petitioner to pay the respondent the amount of Six Hundred Thirty Thousand

1.) The Company shall not be liable for:


xxxx
(4) Any malicious damage caused by the Insured, any member of his family
or by "A PERSON IN THE INSUREDS SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your
claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her
claim and argued that the exception refers to damage of the motor vehicle
and not to its loss. However, petitioners denial of respondents insured claim
remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages
against petitioner before the Regional Trial Court (RTC) of Quezon City on
September 10, 2007.

INSURANCE|14
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in
favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff and against the defendant ordering the latter as follows:
To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per
annum from the time of demand up to the time the amount is fully settled;
To pay attorneys fees in the sum of P65,000.00; and

EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES


DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY
WILL BE CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE
ASSURED AND STRICTLY AGAINST THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED
AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN
TOTO THE JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of respondents
vehicle is excluded under the insurance policy.

To pay the costs of suit.


We rule in the negative.
All other claims not granted are hereby denied for lack of legal and factual
basis.3

Significant portions of Section III of the Insurance Policy states:

Aggrieved, petitioner filed an appeal with the CA.

SECTION III LOSS OR DAMAGE

On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of
Quezon Citys decision. The fallo reads:

The Company will, subject to the Limits of Liability, indemnify the Insured
against loss of or damage to the Schedule Vehicle and its accessories and
spare parts whilst thereon:

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly,


the Decision, dated December 19, 2008, of Branch 215 of the Regional Trial
Court of Quezon City, in Civil Case No. Q-07-61099, is hereby AFFIRMED in
toto.

(a)
by accidental collision or overturning, or collision or overturning consequent
upon mechanical breakdown or consequent upon wear and tear;

SO ORDERED.4
(b)
Petitioner filed a Motion for Reconsideration against said decision, but the
same was denied in a Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds
for the allowance of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED
AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED
IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER
AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE
BECAUSE THE TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS]

by fire, external explosion,


housebreaking or theft;
(c)
by malicious act;
(d)

self-ignition

or

lightning

or

burglary,

INSURANCE|15
whilst in transit (including the processes of loading and unloading) incidental
to such transit by road, rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one
event, the first amount of each and every loss for each and every vehicle
insured by this Policy, such amount being equal to one percent (1.00%) of
the Insureds estimate of Fair Market Value as shown in the Policy Schedule
with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical
breakdowns, failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or
by a person in the Insureds service.6
In denying respondents claim, petitioner takes exception by arguing that the
word "damage," under paragraph 4 of "Exceptions to Section III," means
loss due to injury or harm to person, property or reputation, and should be
construed to cover malicious "loss" as in "theft." Thus, it asserts that the
loss of respondents vehicle as a result of it being stolen by the latters driver
is excluded from the policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously
elaborated that theft perpetrated by the driver of the insured is not an
exception to the coverage from the insurance policy, since Section III thereof
did not qualify as to who would commit the theft. Thus:
Theft perpetrated by a driver of the insured is not an exception to the
coverage from the insurance policy subject of this case. This is evident from

the very provision of Section III "Loss or Damage." The insurance


company, subject to the limits of liability, is obligated to indemnify the
insured against theft. Said provision does not qualify as to who would
commit the theft. Thus, even if the same is committed by the driver of the
insured, there being no categorical declaration of exception, the same must
be covered. As correctly pointed out by the plaintiff, "(A)n insurance contract
should be interpreted as to carry out the purpose for which the parties
entered into the contract which is to insure against risks of loss or damage
to the goods. Such interpretation should result from the natural and
reasonable meaning of language in the policy. Where restrictive provisions
are open to two interpretations, that which is most favorable to the insured
is adopted." The defendant would argue that if the person employed by the
insured would commit the theft and the insurer would be held liable, then
this would result to an absurd situation where the insurer would also be held
liable if the insured would commit the theft. This argument is certainly
flawed. Of course, if the theft would be committed by the insured himself,
the same would be an exception to the coverage since in that case there
would be fraud on the part of the insured or breach of material warranty
under Section 69 of the Insurance Code. 7
Moreover, contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must
be taken and understood in their plain, ordinary and popular
sense.8 Accordingly, in interpreting the exclusions in an insurance contract,
the terms used specifying the excluded classes therein are to be given their
meaning as understood in common speech.9
Adverse to petitioners claim, the words "loss" and "damage" mean different
things in common ordinary usage. The word "loss" refers to the act or fact of
losing, or failure to keep possession, while the word "damage" means
deterioration or injury to property.1wphi1
Therefore, petitioner cannot exclude the loss of respondents vehicle under
the insurance policy under paragraph 4 of "Exceptions to Section III," since
the same refers only to "malicious damage," or more specifically, "injury" to
the motor vehicle caused by a person under the insureds service. Paragraph
4 clearly does not contemplate "loss of property," as what happened in the
instant case.

INSURANCE|16
Further, the CA aptly ruled that "malicious damage," as provided for in the
subject policy as one of the exceptions from coverage, is the damage that is
the direct result from the deliberate or willful act of the insured, members of
his family, and any person in the insureds service, whose clear plan or
purpose was to cause damage to the insured vehicle for purposes of
defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the
subject policy appears to clearly delineate between the terms "loss" and
"damage" by using both terms throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss"
within the term "damage" then logic dictates that it should have used the
term "damage" alone in the entire policy or otherwise included a clear
definition of the said term as part of the provisions of the said insurance
contract. Which is why the Court finds it puzzling that in the said policys
provision detailing the exceptions to the policys coverage in Section III
thereof, which is one of the crucial parts in the insurance contract, the
insurer, after liberally using the words "loss" and "damage" in the entire
policy, suddenly went specific by using the word "damage" only in the
policys exception regarding "malicious damage." Now, the defendantappellant would like this Court to believe that it really intended the word
"damage" in the term "malicious damage" to include the theft of the insured
vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a
contract are to be construed according 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
the assured, determine the import of the various terms and provisions
embodied in the policy. However, when the terms of the insurance policy are
ambiguous, equivocal or uncertain, such that the parties themselves
disagree about the meaning of particular provisions, the policy will be
construed by the courts liberally in favor of the assured and strictly against
the insurer.10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms


of the insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance
with his obligation. Thus, in Eternal Gardens Memorial Park Corporation v.
Philippine American Life Insurance Company,11 this Court ruled
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 the contract 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 non-compliance with
its obligations.
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
should construe them in such a way as to preclude the insurer from noncompliance 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. 12
WHEREFORE, premises considered, the instant Petition for Review on
Certiorari is DENIED. Accordingly, the Decision dated May 31, 2011 and
Resolution dated August 10, 2011 of the Court of Appeals are hereby
AFFIRMED.

INSURANCE|17

SO ORDERED.
G.R. No. L-16138

April 29, 1961

DIOSDADO
C.
TY, plaintiff-appellant,
vs.
FIRST NATIONAL SURETY & ASSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16139

April 29, 1961.

DIOSDADO
C.
TY, plaintiff-appellant,
vs.
ASSOCIATED INSURANCE & SURETY CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16140

April 29, 1961

DIOSDADO
C.
TY, plaintiff-appellant,
vs.
UNITED INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x

INSURANCE|18
G.R. No. L-16141

April 29, 1961.

V.
B.
Gesunundo
M. Perez Cardenas for defendant-appellee.

for

plaintiff-appellant.

DIOSDADO
C.
TY. plaintiff-appellant,
vs.
PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee.

LABRADOR, J.:

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

Appeal from a judgment of the Court of First Instance of Manila, Hon.


Gregorio S. Narvasa, presiding, dismissing the actions filed in the aboveentitled cases.

G.R. No. L-16142

April 29, 1961.

DIOSDADO
C.
TY, plaintiff-appellant,
vs.
RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16143

April 29, 1961

DIOSDADO
C.
TY, plaintiff-appellant,
vs.
FAR EASTERN SURETY & INSURANCE CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16144

April 29, 1961

DIOSDADO
C.
TY, plaintiff-appellant,
vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.
x---------------------------------------------------------x
G.R. No. L-16145

April 29, 1961

DIOSDADO
C.
TY, plaintiff-appellant,
vs.
CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

The facts found by the trial court, which are not disputed in this appeal, are
as follows:
At different times within a period of two months prior to December
24, 1953, the plaintiff herein Diosdado C. Ty, employed as operator
mechanic foreman in the Broadway Cotton Factory, in Grace Park,
Caloocan, Rizal, at a monthly salary of P185.00, insured himself in
18 local insurance companies, among which being the eight above
named defendants, which issued to him personal accident policies,
upon payment of the premium of P8.12 for each policy. Plaintiff's
beneficiary was his employer, Broadway Cotton Factory, which paid
the insurance premiums.
On December 24, 1953, a fire broke out which totally destroyed the
Broadway Cotton Factory. Fighting his way out of the factory, plaintiff
was injured on the left hand by a heavy object. He was brought to
the Manila Central University hospital, and after receiving first aid
there, he went to the National Orthopedic Hospital for treatment of
his injuries which were as follows:
1. Fracture, simple, proximal phalanx index finger, left;
2. Fracture, compound, comminuted, proximal phalanx, middle
finger, left and 2nd phalanx, simple;
3. Fracture, compound, comminute phalanx, 4th finger, left;
4. Fracture, simple, middle phalanx, middle finger, left;
5. Lacerated wound, sutured, volar aspect, small finger, left;

INSURANCE|19
6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He
underwent medical treatment in the Orthopedic Hospital from
December 26, 1953 to February 8, 1954. The above-described
physical injuries have caused temporary total disability of plaintiff's
left hand. Plaintiff filed the corresponding notice of accident and
notice of claim with all of the abovenamed defendants to recover
indemnity under Part II of the policy, which is similarly worded in all
of the policies, and which reads pertinently as follows:
INDEMNITY FOR TOTAL OR PARTIAL DISABILITY
If the Insured sustains any Bodily Injury which is effected solely
through violent, external, visible and accidental means, and which
shall not prove fatal but shall result, independently of all other
causes and within sixty (60) days from the occurrence thereof, in
Total or Partial Disability of the Insured, the Company shall pay,
subject to the exceptions as provided for hereinafter, the amount set
opposite such injury:
PARTIAL DISABILITY
LOSS OF:
xxx

xxx

xxx

Either hand ............................................................................


P650.00
xxx

xxx

xxx

... The loss of a hand shall mean the loss by amputation through the
bones of the wrist....
Defendants rejected plaintiff's claim for indemnity for the reason that
there being no severance of amputation of the left hand, the
disability suffered by him was not covered by his policy. Hence,
plaintiff sued the defendants in the Municipal Court of this City, and
from the decision of said Court dismissing his complaints, plaintiff
appealed to this Court. (Decision of the Court of First Instance of
Manila, pp. 223-226, Records).

In view of its finding, the court absolved the defendants from the
complaints. Hence this appeal.
The main contention of appellant in these cases is that in order that he may
recover on the insurance policies issued him for the loss of his left hand, it is
not necessary that there should be an amputation thereof, but that it is
sufficient if the injuries prevent him from performing his work or labor
necessary in the pursuance of his occupation or business. Authorities are
cited to the effect that "total disability" in relation to one's occupation means
that the condition of the insurance is such that common prudence requires
him to desist from transacting his business or renders him incapable of
working. (46 C.J.S., 970). It is also argued that obscure words or
stipulations should be interpreted against the person who caused the
obscurity, and the ones which caused the obscurity in the cases at bar are
the defendant insurance companies.
While we sympathize with the plaintiff or his employer, for whose benefit the
policies were issued, we can not go beyond the clear and express conditions
of the insurance policies, all of which define partial disability as loss of either
hand by amputation through the bones of the wrist." There was no such
amputation in the case at bar. All that was found by the trial court, which is
not disputed on appeal, was that the physical injuries "caused temporary
total disability of plaintiff's left hand." Note that the disability of plaintiff's
hand was merely temporary, having been caused by fracture of the index,
the middle and the fourth fingers of the left hand.
We might add that the agreement contained in the insurance policies is the
law between the parties. As the terms of the policies are clear, express and
specific that only amputation of the left hand should be considered as a loss
thereof, an interpretation that would include the mere fracture or other
temporary disability not covered by the policies would certainly be
unwarranted.
WHEREFORE, the decision appealed from is hereby affirmed, with costs
against the plaintiff-appellant.

INSURANCE|20

G.R. No. L-21574


SIMON
vs.

DE

June 30, 1966


LA

CRUZ, plaintiff

and

appellee,

INSURANCE|21
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and
appellant.
Achacoso,
Nera
and
Ocampo
for
defendant
Agustin M. Gramata for plaintiff and appellee.

and

appellant.

BARRERA, J.:
This is an appeal by the Capital Insurance & Surety Company, Inc., from the
decision of the Court of First Instance of Pangasinan (in Civ Case No. U265), ordering it to indemnify therein plaintiff Simon de la Cruz for the death
of the latter's son, to pay the burial expenses, and attorney's fees.
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc.
in Baguio, was the holder of an accident insurance policy (No. ITO-BFE-170)
underwritten by the Capital Insurance & Surety Co., Inc., for the period
beginning November 13, 1956 to November 12, 1957. On January 1, 1957,
in connection with the celebration of the New Year, the Itogon-Suyoc Mines,
Inc. sponsored a boxing contest for general entertainment wherein the
insured Eduardo de la Cruz, a non-professional boxer participated. In the
course of his bout with another person, likewise a non-professional, of the
same height, weight, and size, Eduardo slipped and was hit by his opponent
on the left part of the back of the head, causing Eduardo to fall, with his
head hitting the rope of the ring. He was brought to the Baguio General
Hospital the following day. The cause of death was reported as hemorrhage,
intracranial, left.
Simon de la Cruz, the father of the insured and who was named beneficiary
under the policy, thereupon filed a claim with the insurance company for
payment of the indemnity under the insurance policy. As the claim was
denied, De la Cruz instituted the action in the Court of First Instance of
Pangasinan for specific performance. Defendant insurer set up the defense
that the death of the insured, caused by his participation in a boxing contest,
was not accidental and, therefore, not covered by insurance. After due
hearing the court rendered the decision in favor of the plaintiff which is the
subject of the present appeal.
It is not disputed that during the ring fight with another non-professional
boxer, Eduardo slipped, which was unintentional. At this opportunity, his
opponent landed on Eduardo's head a blow, which sent the latter to the

ropes. That must have caused the cranial injury that led to his death.
Eduardo was insured "against death or disability caused by accidental
means". Appellant insurer now contends that while the death of the insured
was due to head injury, said injury was sustained because of his voluntary
participation in the contest. It is claimed that the participation in the boxing
contest was the "means" that produced the injury which, in turn, caused the
death of the insured. And, since his inclusion in the boxing card was
voluntary on the part of the insured, he cannot be considered to have met
his death by "accidental means".1wph1.t
The terms "accident" and "accidental", as used in insurance contracts, have
not acquired any technical meaning, and are construed by the courts in their
ordinary and common acceptation. Thus, the terms have been taken to
mean that which happen by chance or fortuitously, without intention and
design, and which is unexpected, unusual, and unforeseen. An accident is an
event that takes place without one's foresight or expectation an event
that proceeds from an unknown cause, or is an unusual effect of a known
cause and, therefore, not expected.1
Appellant however, would like to make a distinction between "accident or
accidental" and "accidental means", which is the term used in the insurance
policy involved here. It is argued that to be considered within the protection
of the policy, what is required to be accidental is the means that caused or
brought the death and not the death itself. It may be mentioned in this
connection, that the tendency of court decisions in the United States in
recent years is to eliminate the fine distinction between the terms
"accidental" and "accidental means" and to consider them as legally
synonymous.2 But, even if we take appellant's theory, the death of the
insured in the case at bar would still be entitled to indemnification under the
policy. The generally accepted rule is that, death or injury does not result
from accident or accidental means within the terms of an
accident-policy if it is the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except the death or injury.3 There is
no accident when a deliberate act is performed unless some additional,
unexpected, independent, and unforeseen happening occurs which produces
or brings about the result of injury or death. 4 In other words, where the
death or injury is not the natural or probable result of the insured's
voluntary act, or if something unforeseen occurs in the doing of the act
which produces the injury, the resulting death is within the protection of
policies insuring against death or injury from accident.

INSURANCE|22
In the present case, while the participation of the insured in the boxing
contest is voluntary, the injury was sustained when he slid, giving occasion
to the infliction by his opponent of the blow that threw him to the ropes of
the ring. Without this unfortunate incident, that is, the unintentional slipping
of the deceased, perhaps he could not have received that blow in the head
and would not have died. The fact that boxing is attended with some risks of
external injuries does not make any injuries received in the course of the
game not accidental. In boxing as in other equally physically rigorous sports,
such as basketball or baseball, death is not ordinarily anticipated to result.
If, therefore, it ever does, the injury or death can only be accidental or
produced by some unforeseen happening or event as what occurred in this
case.
Furthermore, the policy involved herein specifically excluded from its
coverage
(e) Death or disablement consequent upon the Insured engaging in
football, hunting, pigsticking, steeplechasing, polo-playing, racing of
any kind, mountaineering, or motorcycling.
Death or disablement resulting from engagement in boxing contests was not
declared outside of the protection of the insurance contract. Failure of the
defendant insurance company to include death resulting from a boxing
match or other sports among the prohibitive risks leads inevitably to the
conclusion that it did not intend to limit or exempt itself from liability for
such death.5
Wherefore, in view of the foregoing considerations, the decision appealed
from is hereby affirmed, with costs against appellant. so ordered.

INSURANCE|23
(b) Under the second cause of action, the sum of P150,000;
(c) Under the third cause of action, the sum of P5,000;
(d) Under the fourth cause of action, the sum of P15,000; and
(e) Under the fifth cause of action, the sum of P40,000;
all of which shall bear interest at the rate of 8% per annum in accordance
with Section 91 (b) of the Insurance Act from September 26, 1940, until
each is paid, with costs against the defendant.

G.R. No. L-4611

December 17, 1955

QUA
CHEE
GAN, plaintiff-appellee,
vs.
LAW UNION AND ROCK INSURANCE CO., LTD., represented by its
agent, WARNER, BARNES AND CO., LTD., defendant-appellant.
Delgado,
Flores
&
Macapagal
for
appellant.
Andres Aguilar, Zacarias Gutierrez Lora, Gregorio Sabater and Perkins,
Ponce Enrile & Contreras for appellee.

REYES, J. B. L., J.:


Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the
Court of First Instance of said province, seeking to recover the proceeds of
certain fire insurance policies totalling P370,000, issued by the Law Union &
Rock Insurance Co., Ltd., upon certain bodegas and merchandise of the
insured that were burned on June 21, 1940. The records of the original case
were destroyed during the liberation of the region, and were reconstituted in
1946. After a trial that lasted several years, the Court of First Instance
rendered a decision in favor of the plaintiff, the dispositive part whereof
reads as follows:
Wherefore, judgment is rendered for the plaintiff and against the
defendant condemning the latter to pay the former
(a) Under the first cause of action, the sum of P146,394.48;

The complaint in intervention of the Philippine National Bank is dismissed


without costs. (Record on Appeal, 166-167.)
From the decision, the defendant Insurance Company appealed directly to
this Court.
The record shows that before the last war, plaintiff-appellee owned four
warehouses or bodegas (designated as Bodegas Nos. 1 to 4) in the
municipality of Tabaco, Albay, used for the storage of stocks of copra and of
hemp, baled and loose, in which the appellee dealth extensively. They had
been, with their contents, insured with the defendant Company since 1937,
and the lose made payable to the Philippine National Bank as mortgage of
the hemp and crops, to the extent of its interest. On June, 1940, the
insurance stood as follows:
Policy No.
2637164
"LL")

Property Insured
(Exhibit

Bodega No. 1 (Building)


Bodega No. 2 (Building)

2637165 (Exhibit "JJ")

Bodega No. 3 (Building)


Bodega No. 4 (Building)
Hemp Press moved by steam engine

2637345 (Exhibit "X")

Merchandise contents (copra and empty sacks of Bo


No. 1)

2637346 (Exhibit "Y")

Merchandise contents (hemp) of Bodega No. 3

2637067

(Exhibit Merchandise contents (loose hemp) of Bodega No. 4

INSURANCE|24
"GG")
Total
Fire of undetermined origin that broke out in the early morning of July 21,
1940, and lasted almost one week, gutted and completely destroyed
Bodegas Nos. 1, 2 and 4, with the merchandise stored theren. Plaintiffappellee informed the insurer by telegram on the same date; and on the
next day, the fire adjusters engaged by appellant insurance company arrived
and proceeded to examine and photograph the premises, pored over the
books of the insured and conducted an extensive investigation. The plaintiff
having submitted the corresponding fire claims, totalling P398,562.81 (but
reduced to the full amount of the insurance, P370,000), the Insurance
Company resisted payment, claiming violation of warranties and conditions,
filing of fraudulent claims, and that the fire had been deliberately caused by
the insured or by other persons in connivance with him.
With counsel for the insurance company acting as private prosecutor, Que
Chee Gan, with his brother, Qua Chee Pao, and some employees of his, were
indicted and tried in 1940 for the crime of arson, it being claimed that they
had set fire to the destroyed warehouses to collect the insurance. They were,
however, acquitted by the trial court in a final decision dated July 9, 1941
(Exhibit WW). Thereafter, the civil suit to collect the insurance money
proceeded to its trial and termination in the Court below, with the result
noted at the start of this opinion. The Philippine National Bank's complaint in
intervention was dismissed because the appellee had managed to pay his
indebtedness to the Bank during the pendecy of the suit, and despite the fire
losses.
In its first assignment of error, the insurance company alleges that the trial
Court should have held that the policies were avoided for breach of warranty,
specifically the one appearing on a rider pasted (with other similar riders) on
the face of the policies (Exhibits X, Y, JJ and LL). These riders were attached
for the first time in 1939, and the pertinent portions read as follows:
Memo. of Warranty. The undernoted Appliances for the extinction
of fire being kept on the premises insured hereby, and it being
declared and understood that there is an ample and constant water
supply with sufficient pressure available at all seasons for the same,
it is hereby warranted that the said appliances shall be maintained in
efficient working order during the currency of this policy, by reason
whereof a discount of 2 1/2 per cent is allowed on the premium
chargeable under this policy.

Hydrants in the compound, not less in number than one for each 150
feet of external wall measurement of building, protected, with not
less than 100 feet of hose piping and nozzles for every two hydrants
kept under cover in convenient places, the hydrants being supplied
with water pressure by a pumping engine, or from some other
source, capable of discharging at the rate of not less than 200
gallons of water per minute into the upper story of the highest
building protected, and a trained brigade of not less than 20 men to
work the same.'
It is argued that since the bodegas insured had an external wall perimeter of
500 meters or 1,640 feet, the appellee should have eleven (11) fire hydrants
in the compound, and that he actually had only two (2), with a further pair
nearby, belonging to the municipality of Tabaco.
We are in agreement with the trial Court that the appellant is barred by
waiver (or rather estoppel) to claim violation of the so-called fire hydrants
warranty, for the reason that knowing fully all that the number of hydrants
demanded therein never existed from the very beginning, the appellant
neverthless issued the policies in question subject to such warranty, and
received the corresponding premiums. It would be perilously close to
conniving at fraud upon the insured to allow appellant to claims now as void
ab initio the policies that it had issued to the plaintiff without warning of
their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.
The insurance company was aware, even before the policies were issued,
that in the premises insured there were only two fire hydrants installed by
Qua Chee Gan and two others nearby, owned by the municipality of TAbaco,
contrary to the requirements of the warranty in question. Such fact appears
from positive testimony for the insured that appellant's agents inspected the
premises; and the simple denials of appellant's representative (Jamiczon)
can not overcome that proof. That such inspection was made is moreover
rendered probable by its being a prerequisite for the fixing of the discount on
the premium to which the insured was entitled, since the discount depended
on the number of hydrants, and the fire fighting equipment available (See
"Scale of Allowances" to which the policies were expressly made subject).
The law, supported by a long line of cases, is expressed by American
Jurisprudence (Vol. 29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at the time of the issuance
of a policy of insurance, has knowledge of existing facts which, if
insisted on, would invalidate the contract from its very inception,
such knowledge constitutes a waiver of conditions in the contract
inconsistent with the facts, and the insurer is stopped thereafter

INSURANCE|25
from asserting the breach of such conditions. The law is charitable
enough to assume, in the absence of any showing to the contrary,
that an insurance company intends to executed a valid contract in
return for the premium received; and when the policy contains a
condition which renders it voidable at its inception, and this result is
known to the insurer, it will be presumed to have intended to waive
the conditions and to execute a binding contract, rather than to have
deceived the insured into thinking he is insured when in fact he is
not, and to have taken his money without consideration. (29 Am.
Jur., Insurance, section 807, at pp. 611-612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly apparent. To
allow a company to accept one's money for a policy of insurance
which it then knows to be void and of no effect, though it knows as it
must, that the assured believes it to be valid and binding, is so
contrary to the dictates of honesty and fair dealing, and so closely
related to positive fraud, as to the abhorent to fairminded men. It
would be to allow the company to treat the policy as valid long
enough to get the preium on it, and leave it at liberty to repudiate it
the next moment. This cannot be deemed to be the real intention of
the parties. To hold that a literal construction of the policy expressed
the true intention of the company would be to indict it, for fraudulent
purposes and designs which we cannot believe it to be guilty of
(Wilson vs. Commercial Union Assurance Co., 96 Atl. 540, 543-544).
The inequitableness of the conduct observed by the insurance company in
this case is heightened by the fact that after the insured had incurred the
expense of installing the two hydrants, the company collected the premiums
and issued him a policy so worded that it gave the insured a discount much
smaller than that he was normaly entitledto. According to the "Scale of
Allowances," a policy subject to a warranty of the existence of one fire
hydrant for every 150 feet of external wall entitled the insured to a discount
of 7 1/2 per cent of the premium; while the existence of "hydrants, in
compund" (regardless of number) reduced the allowance on the premium to
a mere 2 1/2 per cent. This schedule was logical, since a greater number of
hydrants and fire fighting appliances reduced the risk of loss. But the
appellant company, in the particular case now before us, so worded the
policies that while exacting the greater number of fire hydrants and
appliances, it kept the premium discount at the minimum of 2 1/2 per cent,
thereby giving the insurance company a double benefit. No reason is shown
why appellant's premises, that had been insured with appellant for several
years past, suddenly should be regarded in 1939 as so hazardous as to be
accorded a treatment beyond the limits of appellant's own scale of
allowances. Such abnormal treatment of the insured strongly points at an

abuse of the insurance company's selection of the words and terms of the
contract, over which it had absolute control.
These considerations lead us to regard the parol evidence rule, invoked by
the appellant as not applicable to the present case. It is not a question here
whether or not the parties may vary a written contract by oral evidence; but
whether testimony is receivable so that a party may be, by reason of
inequitable conduct shown, estopped from enforcing forfeitures in its favor,
in order to forestall fraud or imposition on the insured.
Receipt of Premiums or Assessments afte Cause for Forfeiture Other
than Nonpayment. It is a well settled rule of law that an insurer
which with knowledge of facts entitling it to treat a policy as no
longer in force, receives and accepts a preium on the policy,
estopped to take advantage of the forfeiture. It cannot treat the
policy as void for the purpose of defense to an action to recover for a
loss thereafter occurring and at the same time treat it as valid for
the purpose of earning and collecting further premiums." (29 Am.
Jur., 653, p. 657.)
It would be unconscionable to permit a company to issue a policy
under circumstances which it knew rendered the policy void and then
to accept and retain premiums under such a void policy. Neither law
nor good morals would justify such conduct and the doctrine of
equitable estoppel is peculiarly applicable to the situation. (McGuire
vs. Home Life Ins. Co. 94 Pa. Super Ct. 457.)
Moreover, taking into account the well known rule that ambiguities or
obscurities must be strictly interpreted aganst the prty that caused
them, 1the "memo of warranty" invoked by appellant bars the latter from
questioning the existence of the appliances called for in the insured
premises, since its initial expression, "the undernoted appliances for the
extinction of fire being kept on the premises insured hereby, . . . it is hereby
warranted . . .", admists of interpretation as an admission of the existence of
such appliances which appellant cannot now contradict, should the parol
evidence rule apply.
The alleged violation of the warranty of 100 feet of fire hose for every two
hydrants, must be equally rejected, since the appellant's argument thereon
is based on the assumption that the insured was bound to maintain no less
than eleven hydrants (one per 150 feet of wall), which requirement appellant
is estopped from enforcing. The supposed breach of the wter pressure
condition is made to rest on the testimony of witness Serra, that the water
supply could fill a 5-gallon can in 3 seconds; appellant thereupon inferring
that the maximum quantity obtainable from the hydrants was 100 gallons a

INSURANCE|26
minute, when the warranty called for 200 gallons a minute. The transcript
shows, however, that Serra repeatedly refused and professed inability to
estimate the rate of discharge of the water, and only gave the "5-gallon per
3-second" rate because the insistence of appellant's counsel forced the
witness to hazard a guess. Obviously, the testimony is worthless and
insufficient to establish the violation claimed, specially since the burden of its
proof lay on appellant.
As to maintenance of a trained fire brigade of 20 men, the record is
preponderant that the same was organized, and drilled, from time to give,
altho not maintained as a permanently separate unit, which the warranty did
not require. Anyway, it would be unreasonable to expect the insured to
maintain for his compound alone a fire fighting force that many
municipalities in the Islands do not even possess. There is no merit in
appellant's claim that subordinate membership of the business manager (Co
Cuan) in the fire brigade, while its direction was entrusted to a minor
employee unders the testimony improbable. A business manager is not
necessarily adept at fire fighting, the qualities required being different for
both activities.
Under the second assignment of error, appellant insurance company avers,
that the insured violated the "Hemp Warranty" provisions of Policy No.
2637165 (Exhibit JJ), against the storage of gasoline, since appellee
admitted that there were 36 cans (latas) of gasoline in the building designed
as "Bodega No. 2" that was a separate structure not affected by the fire. It is
well to note that gasoline is not specifically mentioned among the prohibited
articles listed in the so-called "hemp warranty." The cause relied upon by the
insurer speaks of "oils (animal and/or vegetable and/or mineral and/or their
liquid products having a flash point below 300o Fahrenheit", and is decidedly
ambiguous and uncertain; for in ordinary parlance, "Oils" mean "lubricants"
and not gasoline or kerosene. And how many insured, it may well be
wondered, are in a position to understand or determine "flash point below
003o Fahrenheit. Here, again, by reason of the exclusive control of the
insurance company over the terms and phraseology of the contract, the
ambiguity must be held strictly against the insurer and liberraly in favor of
the insured, specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175; 29
Am. Jur. 180).
Insurance is, in its nature, complex and difficult for the layman to
understand. Policies are prepared by experts who know and can
anticipate the hearing and possible complications of every
contingency. So long as insurance companies insist upon the use of
ambiguous, intricate and technical provisions, which conceal rather
than frankly disclose, their own intentions, the courts must, in
fairness to those who purchase insurance, construe every ambiguity

in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash.
324, LRA 1917A, 1237.)
An insurer should not be allowed, by the use of obscure phrases and
exceptions, to defeat the very purpose for which the policy was
procured (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264).
We see no reason why the prohibition of keeping gasoline in the premises
could not be expressed clearly and unmistakably, in the language and terms
that the general public can readily understand, without resort to obscure
esoteric expression (now derisively termed "gobbledygook"). We reiterate
the rule stated in Bachrach vs. British American Assurance Co. (17 Phil. 555,
561):
If the company intended to rely upon a condition of that character, it
ought to have been plainly expressed in the policy.
This rigid application of the rule on ambiguities has become necessary in
view of current business practices. The courts cannot ignore that nowadays
monopolies, cartels and concentrations of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing with
them 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 Baloilles" contracts
by adherence" (con tracts d'adhesion), in contrast to these entered into by
parties bargaining on an equal footing, such contracts (of which policies of
insurance and international bills of lading are prime examples) obviously call
for greater strictness and vigilance on the part of courts of justice with a
view to protecting the weaker party from abuses and imposition, and
prevent their becoming traps for the unwarry (New Civil Coee, Article 24;
Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942).
Si pudiera estimarse que la condicion 18 de la poliza de seguro
envolvia alguna oscuridad, habra de ser tenido en cuenta que al
seguro es, practicamente un contrato de los llamados de adhesion y
por consiguiente en caso de duda sobre la significacion de las
clausulas generales de una poliza redactada por las compafijas sin
la intervencion alguna de sus clientes se ha de adoptar de acuerdo
con el articulo 1268 del Codigo Civil, la interpretacion mas favorable
al asegurado, ya que la obscuridad es imputable a la empresa
aseguradora, que debia haberse explicado mas claramante. (Dec.
Trib. Sup. of Spain 13 Dec. 1934)
The contract of insurance is one of perfect good faith (uferrimal fidei) not for
the insured alone, but equally so for the insurer; in fact, it is mere so for the

INSURANCE|27
latter, since its dominant bargaining position carries with it stricter
responsibility.

Qua Choc Gan, appellee in the present proceedings. The decision states
(Exhibit WW, p. 11):

Another point that is in favor of the insured is that the gasoline kept in
Bodega No. 2 was only incidental to his business, being no more than a
customary 2 day's supply for the five or six motor vehicles used for
transporting of the stored merchandise (t. s. n., pp. 1447-1448). "It is well
settled that the keeping of inflammable oils on the premises though
prohibited by the policy does not void it if such keeping is incidental to the
business." Bachrach vs. British American Ass. Co., 17 Phil. 555, 560); and
"according to the weight of authority, even though there are printed
prohibitions against keeping certain articles on the insured premises the
policy will not be avoided by a violation of these prohibitions, if the
prohibited articles are necessary or in customary use in carrying on the trade
or business conducted on the premises." (45 C. J. S., p. 311; also 4 Couch
on Insurance, section 966b). It should also be noted that the "Hemp
Warranty" forbade storage only "in the building to which this insurance
applies and/or in any building communicating therewith", and it is
undisputed that no gasoline was stored in the burned bodegas, and that
"Bodega No. 2" which was not burned and where the gasoline was found,
stood isolated from the other insured bodegas.

Alexander D. Stewart declaro que ha examinado los libros de Qua


Choc Gan en Tabaco asi como su existencia de copra y abaca en las
bodega al tiempo del incendio durante el periodo comprendido desde
el 1.o de enero al 21 de junio de 1940 y ha encontrado que Qua
Choc Gan ha sufrico una perdida de P1,750.76 en su negocio en
Tabaco. Segun Steward al llegar a este conclusion el ha tenidoen
cuenta el balance de comprobacion Exhibit 'J' que le ha entregado el
mismo acusado Que Choc Gan en relacion con sus libros y lo ha
encontrado correcto a excepcion de los precios de abaca y copra que
alli aparecen que no estan de acuerdo con los precios en el mercado.
Esta comprobacion aparece en el balance mercado exhibit J que fue
preparado por el mismo testigo.

The charge that the insured failed or refused to submit to the examiners of
the insurer the books, vouchers, etc. demanded by them was found
unsubstantiated by the trial Court, and no reason has been shown to alter
this finding. The insured gave the insurance examiner all the date he asked
for (Exhibits AA, BB, CCC and Z), and the examiner even kept and
photographed some of the examined books in his possession. What does
appear to have been rejected by the insured was the demand that he should
submit "a list of all books, vouchers, receiptsand other records" (Age 4,
Exhibit 9-c); but the refusal of the insured in this instance was well justified,
since the demand for a list of all the vouchers (which were not in use by the
insured) and receipts was positively unreasonable, considering that such
listing was superfluous because the insurer was not denied access to the
records, that the volume of Qua Chee Gan's business ran into millions, and
that the demand was made just after the fire when everything was in
turmoil. That the representatives of the insurance company were able to
secure all the date they needed is proved by the fact that the adjuster
Alexander Stewart was able to prepare his own balance sheet (Exhibit L of
the criminal case) that did not differ from that submitted by the insured
(Exhibit J) except for the valuation of the merchandise, as expressly found
by the Court in the criminal case for arson. (Decision, Exhibit WW).
How valuations may differ honestly, without fraud being involved, was
strikingly illustrated in the decision of the arson case (Exhibit WW) acquiting

In view of the discrepancy in the valuations between the insured and the
adjuster Stewart for the insurer, the Court referred the controversy to a
government auditor, Apolonio Ramos; but the latter reached a different
result from the other two. Not only that, but Ramos reported two different
valuations that could be reached according to the methods employed
(Exhibit WW, p. 35):
La ciencia de la contabilidad es buena, pues ha tenido sus muchos
usos buenos para promovar el comercio y la finanza, pero en el caso
presente ha resultado un tanto cumplicada y acomodaticia, como lo
prueba el resultado del examen hecho por los contadores Stewart y
Ramos, pues el juzgado no alcanza a ver como habiendo examinado
las mismas partidas y los mismos libros dichos contadores hayan de
llegara dos conclusiones que difieron sustancialmente entre si. En
otras palabras, no solamente la comprobacion hecha por Stewart
difiere de la comprobacion hecha por Ramos sino que, segun este
ultimo, su comprobacion ha dado lugar a dos resultados diferentes
dependiendo del metodo que se emplea.
Clearly then, the charge of fraudulent overvaluation cannot be seriously
entertained. The insurer attempted to bolster its case with alleged
photographs of certain pages of the insurance book (destroyed by the war)
of insured Qua Chee Gan (Exhibits 26-A and 26-B) and allegedly showing
abnormal purchases of hemp and copra from June 11 to June 20, 1940. The
Court below remained unconvinced of the authenticity of those photographs,
and rejected them, because they were not mentioned not introduced in the
criminal case; and considering the evident importance of said exhibits in
establishing the motive of the insured in committing the arson charged, and
the absence of adequate explanation for their omission in the criminal case,

INSURANCE|28
we cannot say that their rejection in the civil case constituted reversible
error.
The next two defenses pleaded by the insurer, that the insured connived
at the loss and that the fraudulently inflated the quantity of the insured
stock in the burnt bodegas, are closely related to each other. Both
defenses are predicted on the assumption that the insured was in financial
difficulties and set the fire to defraud the insurance company, presumably in
order to pay off the Philippine National Bank, to which most of the insured
hemp and copra was pledged. Both defenses are fatally undermined by the
established fact that, notwithstanding the insurer's refusal to pay the value
of the policies the extensive resources of the insured (Exhibit WW) enabled
him to pay off the National Bank in a short time; and if he was able to do so,
no motive appears for attempt to defraud the insurer. While the acquittal of
the insured in the arson case is not res judicata on the present civil action,
the insurer's evidence, to judge from the decision in the criminal case, is
practically identical in both cases and must lead to the same result, since the
proof to establish the defense of connivance at the fire in order to defraud
the insurer "cannot be materially less convincing than that required in order
to convict the insured of the crime of arson"(Bachrach vs. British American
Assurance Co., 17 Phil. 536).
As to the defense that the burned bodegas could not possibly have contained
the quantities of copra and hemp stated in the fire claims, the insurer's case
rests almost exclusively on the estimates, inferences and conclusionsAs to
the defense that the burned bodegas could not possibly have contained the
quantities of copra and hemp stated in the fire claims, the insurer's case
rests almost exclusively on the estimates, inferences and conclusions of its
adjuster investigator, Alexander D. Stewart, who examined the premises
during and after the fire. His testimony, however, was based on inferences
from the photographs and traces found after the fire, and must yield to the
contradictory testimony of engineer Andres Bolinas, and specially of the then
Chief of the Loan Department of the National Bank's Legaspi branch, Porfirio
Barrios, and of Bank Appraiser Loreto Samson, who actually saw the
contents of the bodegas shortly before the fire, while inspecting them for the
mortgagee Bank. The lower Court was satisfied of the veracity and accuracy
of these witnesses, and the appellant insurer has failed to substantiate its
charges aganst their character. In fact, the insurer's repeated accusations
that these witnesses were later "suspended for fraudulent transactions"
without giving any details, is a plain attempt to create prejudice against
them, without the least support in fact.
Stewart himself, in testifying that it is impossible to determine from the
remains the quantity of hemp burned (t. s. n., pp. 1468, 1470), rebutted
appellant's attacks on the refusal of the Court below to accept its inferences
from the remains shown in the photographs of the burned premises. It

appears, likewise, that the adjuster's calculations of the maximum contents


of the destroyed warehouses rested on the assumption that all the copra and
hemp were in sacks, and on the result of his experiments to determine the
space occupied by definite amounts of sacked copra. The error in the
estimates thus arrived at proceeds from the fact that a large amount of the
insured's stock were in loose form, occupying less space than when kept in
sacks; and from Stewart's obvious failure to give due allowance for the
compression of the material at the bottom of the piles (t. s. n., pp. 1964,
1967) due to the weight of the overlying stock, as shown by engineer
Bolinas. It is probable that the errors were due to inexperience (Stewart
himself admitted that this was the first copra fire he had investigated); but it
is clear that such errors render valueles Stewart's computations. These were
in fact twice passed upon and twice rejected by different judges (in the
criminal and civil cases) and their concordant opinion is practically
conclusive.
The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by
the Court below, since the opinions stated therein were based on ex
parte investigations made at the back of the insured; and the appellant did
not present at the trial the original testimony and documents from which the
conclusions in the report were drawn.lawphi1.net
Appellant insurance company also contends that the claims filed by the
insured contained false and fraudulent statements that avoided the
insurance policy. But the trial Court found that the discrepancies were a
result of the insured's erroneous interpretation of the provisions of the
insurance policies and claim forms, caused by his imperfect knowledge of
English, and that the misstatements were innocently made and without
intent to defraud. Our review of the lengthy record fails to disclose reasons
for rejecting these conclusions of the Court below. For example, the
occurrence of previous fires in the premises insured in 1939, altho omitted in
the claims, Exhibits EE and FF, were nevertheless revealed by the insured in
his claims Exhibits Q (filed simultaneously with them), KK and WW.
Considering that all these claims were submitted to the smae agent, and
that this same agent had paid the loss caused by the 1939 fire, we find no
error in the trial Court's acceptance of the insured's explanation that the
omission in Exhibits EE and FF was due to inadvertance, for the insured
could hardly expect under such circumstances, that the 1939 would pass
unnoticed by the insurance agents. Similarly, the 20 per cent overclaim on
70 per cent of the hemo stock, was explained by the insured as caused by
his belief that he was entitled to include in the claim his expected profit on
the 70 per cent of the hemp, because the same was already contracted for
and sold to other parties before the fire occurred. Compared with other
cases of over-valuation recorded in our judicial annals, the 20 per cent
excess in the case of the insured is not by itself sufficient to establish
fraudulent intent. Thus, in Yu Cua vs. South British Ins. Co., 41 Phil. 134, the

INSURANCE|29
claim was fourteen (14) times (1,400 per cent) bigger than the actual loss;
in Go Lu vs. Yorkshire Insurance Co., 43 Phil., 633, eight (8) times (800 per
cent); in Tuason vs. North China Ins. Co., 47 Phil. 14, six (6) times (600 per
cent); in Tan It vs. Sun Insurance, 51 Phil. 212, the claim totalled
P31,860.85 while the goods insured were inventoried at O13,113. Certainly,
the insured's overclaim of 20 per cent in the case at bar, duly explained by
him to the Court a quo, appears puny by comparison, and can not be
regarded as "more than misstatement, more than inadvertence of mistake,
more than a mere error in opinion, more than a slight exaggeration" (Tan It
vs. Sun Insurance Office, ante) that would entitle the insurer to avoid the
policy. It is well to note that the overchange of 20 per cent was claimed only
on apart (70 per cent) of the hemp stock; had the insured acted with
fraudulent intent, nothing prevented him from increasing the value of all of
his copra, hemp and buildings in the same proportion. This also applies to
the alleged fraudulent claim for burned empty sacks, that was likewise
explained to our satisfaction and that of the trial Court. The rule is that to
avoid a policy, the false swearing must be wilful and with intent to defraud
(29 Am. Jur., pp. 849-851) which was not the cause. Of course, the lack of
fraudulent intent would not authorize the collection of the expected profit
under the terms of the polices, and the trial Court correctly deducte the
same from its award.
We find no reversible error in the judgment appealed from, wherefore the
smae is hereby affirmed. Costs against the appellant. So ordered.

INSURANCE|30
ELIGIBILITY.
Any 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.
G.R. No. 166245

April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,


vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

No 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:

DECISION

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

VELASCO, JR., J.:

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

The Case

LIFE INSURANCE BENEFIT.

Central 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 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.

The Facts
EFFECTIVE DATE OF BENEFIT.
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as Creditor
Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park
Corporation (Eternal). Under the policy, the clients of Eternal who purchased
burial lots from it on installment basis would be insured by Philamlife. The
amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year,
renewable on a yearly basis.
The relevant provisions of the policy are:

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.3
Eternal 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

INSURANCE|31
purchasers. In relation to the instant petition, Eternal complied by
submitting a letter dated December 29, 1982, 4containing 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
PhP 100,000. On August 2, 1984, Chuang died.
Eternal 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.
Consequently, 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:
WHEREFORE, 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.
SO 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 the same period, Philamlife was deemed to have approved Chuangs

INSURANCE|32
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. No costs.
SO ORDERED.11
The 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.
Hence, 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.

(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 its findings
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.)
In the instant case, the factual findings of the RTC were reversed by the CA;
thus, this Court may review them.
Eternal 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.

The Courts Ruling

On 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.

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:

The evidence on record supports Eternals position.


The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the

INSURANCE|33
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.

Atty. Miranda:

To 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.

Q Where is the original?

Philamlifes 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

A As 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

An examination of the testimonies of the witnesses mentioned by Philamlife,


however, reveals no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original
insurance application of Chuang was, as shown by the testimony of Edilberto
Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in
case of new coverage?
[Mendoza:]
A It 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.

We 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:

[Mendoza:]

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
We 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 is whether 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

INSURANCE|34
In 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 the contract 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 should construe 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. P1920 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

INSURANCE|35
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
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision
in CA-G.R. CV No. 57810 isREVERSED and SET ASIDE. The May 29, 1996
Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is
hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the
proceeds of the Life Insurance Policy of Chuang;

(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;
(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
(4) To pay Eternal attorneys fees in the amount of PhP 10,000.
No costs.
SO ORDERED.