Fritz

ISSUE: WON Mable is entitled to recover from FF Cruz after having

been paid by the insurer

1. DANZAS CORPORATION and ALL TRANSPORT

NETWORK, INC., Petitioners vs. HON. ZEUS C. ABROGAR
FACTS:
Danzas took a shipment of nine packages of ICS watches for
transport to Manila. The consignee, International Freeport Traders,
Inc. (IFTI) secured Marine Risk Note Seaboard.
The Korean Airlines (KAL) plane carrying the goods arrived in
Manila and discharged the goods to the custody of Philippine
Skylanders, Inc. for safekeeping. On withdrawal of the shipment
from Skylanders warehouse, IFTI noted that one package containing
475 watches was shortlanded while the remaining eight were found to
have sustained tears on sides and the retape of flaps. On further
examination and inventory of the cartons, it was discovered that 176
Guess watches were missing. Seaboard, as insurer, paid the losses to
IFTI.
Seaboard, invoking its right of subrogation, filed a complaint against
Skylanders, Danzas and its authorized representative, All Transport
Network, Inc. (ATN), praying for actual damages. Korean Airlines
(KAL) was impleaded as third-party defendant.
IFTI accepted the proposal of KAL to settle consignees claim. IFTIs
representative received a check from KAL and correspondingly
signed a release form. A motion to dismiss the case was filed on the
ground that Seaboards demand had been paid or otherwise
extinguished by KAL.
ISSUE: Whether the tortfeasor (KAL), by settling with the insured
(IFTI), defeats the right to subrogation by the insurer (Seaboard)
RULING: NO
According to Manila Mahogany vs Court of Appeals:
Since the insurer can be subrogated to only such
rights as the insured may have, should the
insured, after receiving payment from the insurer,
release the wrongdoer who caused the loss, the
insurer loses his rights against the latter. But in
such a case, the insurer will be entitled to recover
from the insured whatever it has paid to the latter,
unless the release was made with the consent of
the insurer.
This is buttressed by a later decision, Pan Malayan Insurance
Corporation v. Court of Appeals, which held that , if the assured by
his own act releases the wrongdoer or third party liable for the loss or
damage from liability, the insurers right of subrogation is defeated.
This doctrine is inapplicable. KAL was fully aware of the prior
payment made by the insurer to the consignee.
While Manila Mahogany is silent on whether the existence of good
faith or bad faith on the tortfeasors part affects the insurers right of
subrogation, there exists a wealth of U.S. jurisprudence holding that
whenever the wrongdoer settles with the insured without the consent
of the insurer and with knowledge of the insurers payment and right
of subrogation, such right of subrogation is not defeated by the
settlement.

2. F.F. CRUZ and CO., INC., petitioner, vs. THE

COURT OF APPEALS
FACTS:
The furniture manufacturing shop of FF Cruz was situated adjacent to
the residence of the. Mable requested that a firewall be constructed
between the shop and his residence but such fell on deaf ears. In Fire
broke out in the shop. The fire spread to Mables house. Both the
shop and the house were razed to the ground.

RULING: YES, but only as to the deficiency.

The value of Mable's furniture and fixtures and personal effects lost
in the fire was P50,000.00. With regard to the house, the award was
of P70,000.00.The Mables have been indemnified by their insurer in
the amount of P35,000.00 for the damages caused. Having been
indemnified by their insurer, the Mables are only entitled to recover
the deficiency from FF Cruz.
The Court holds that in accordance with Article 2207 of the Civil
Code the amount of P35,000.00 should be deducted from the amount
awarded as damages. Said article provides:
Art. 2207. If the plaintiffs property has been
insured, and he has received indemnity from the
insurance company for the injury or loss arising
out of the wrong or breach of contract
complained of, the insurance company is
subrogated to the rights of the insured against the
wrongdoer or the person who violated the
contract. If the amount paid by the insurance
company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or
injury. (Emphasis supplied.]
On the other hand, the insurer, if it is so minded, may seek
reimbursement of the amount it indemnified Mables from FF Cruz
This is the essence of its right to be subrogated to the rights of the
insured, as expressly provided in Article 2207. Upon payment of the
loss incurred by the insured, the insurer is entitled to be
subrogated pro tanto to any right of action which the insured may
have against the third person whose negligence or wrongful act
caused the loss.
The doctrine of res ipsa loquitur:
Where the thing which caused the injury
complained of is shown to be under the
management of the defendant or his servants and
the accident is such as in the ordinary course of
things does not happen if those who have its
management or control use proper care, it affords
reasonable evidence, in the absence of
explanation by the defendant, that the accident
arose from want of care. [Africa v. Caltex (Phil.),
Inc., G.R. No. L-12986, March 31, 1966, 16
SCRA 448.]
The facts of the case likewise call for the application of the doctrine,
considering that in the normal course of operations of a furniture
manufacturing shop, combustible material such as wood chips,
sawdust, paint, varnish and fuel and lubricants for machinery may be
found thereon.
It must also be noted that negligence or want of care on the part of FF
Cruz or its employees was not merely presumed. The Court of
Appeals found that FF Cruz failed to construct a firewall between its
shop and the residence of Mable as required by a city ordinance; that
the fire could have been caused by a heated motor or a lit cigarette;
that gasoline and alcohol were used and stored in the shop; and that
workers sometimes smoked inside the shop [CA Decision, p. 5;
Rollo, p. 33.]
Even without applying the doctrine of res ipsa loquitur, FF Cruz's
failure to construct a firewall in accordance with city ordinances
would suffice to support a finding of negligence.

Mables collected P35,000.00 on the insurance on their house and the

contents thereof.

1|Insurance Digest Set 1

Mich
3. (G.R. No. L-52756 October 12, 1987)
MANILA
MAHOGANY
MANUFACTURING
CORPORATION, petitioner, vs. COURT OF APPEALS AND
ZENITH INSURANCE CORPORATION, respondents.
May 6 1970 to March 6 1971, petitioner Manila Mahogany
Manufacturing Corporation insured its Mercedes Benz 4-door
sedan with respondent Zenith Insurance Corporation.
May 4 1970 the insured vehicle was bumped and damaged by a truck
owned by San Miguel Corporation which respondent insurance
company paid petitioner 5,000 in amicable settlement for the damage
caused.
Petitioner's general manager executed a Release of Claim,
subrogating respondent company to all its right to action against San
Miguel Corporation.
Thereafter, respondent company wrote Insurance Adjusters, Inc. to
demand reimbursement from San Miguel Corporation of the amount
it had paid petitioner but they refused reimbursement, alleging that
San Miguel had already paid petitioner P4,500.00 for the damages to
petitioner's motor vehicle, as evidenced by a cash voucher and a
Release of Claim executed by the General Manager of petitioner
discharging San Miguel from all actions and claims.
Respondent insurance company thus demanded from petitioner
reimbursement of the sum of P4,500.00 paid by San Miguel
Corporation. Petitioner refused; hence, respondent company filed suit
in the City Court of Manila for the recovery of P4,500.00. The court
ordered petitioner to pay respondent P4,500.00. On appeal the CFI
affirmed the City Court's decision.
PETITIONERS CONTENTION: it is not bound to pay P4,500.00,
and much more, P5,000.00 to respondent company as the subrogation
in the Release of Claim it executed in favor of respondent was
conditioned on recovery of the total amount of damages petitioner
had sustained. Since total damages were valued by petitioner at
P9,486.43 and only P5,000.00 was received by petitioner from
respondent, petitioner argues that it was entitled to go after San
Miguel Corporation to claim the additional P4,500.00 eventually paid
to it by the latter, without having to turn over said amount to
respondent. It cited Art. 2207 of the Civil Code, which states: If the
plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of the insurance company
shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss
the aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury. It also invokes Art. 1304 of the
Civil Code, stating: A creditor, to whom partial payment has been
made, may exercise his right for the remainder, and he shall be
preferred to the person who has been subrogated in his place in
virtue of the partial payment of the same credit.
RESPONDENTS CONTENTION: It disputes this allegation and
states that there was no qualification to its right of subrogation under
the Release of Claim executed by petitioner, the contents of said deed
having expressed all the intents and purposes of the parties.
ISSUE: WON the petitioner has the alleged right not to return
the P4,500.00 paid by San Miguel Corporation.
RULING: NO
In the absence of any other evidence to support its allegation that a
gentlemen's agreement existed between it and respondent, not
embodied in the Release of Claim, such ease of Claim must be taken
as the best evidence of the intent and purpose of the parties.

Although petitioners right to file a deficiency claim against San

Miguel Corporation is with legal basis, without prejudice to the
insurer's right of subrogation, nevertheless when Manila Mahogany
executed another release claim discharging San Miguel Corporation
from "all actions, claims, demands and rights of action that now exist
or hereafter arising out of or as a consequence of the accident" after
the insurer had paid the proceeds of the policy- the compromise
agreement of P5,000.00 being based on the insurance policy-the
insurer is entitled to recover from the insured the amount of insurance
money paid. Since petitioner by its own acts released San Miguel
Corporation, thereby defeating private respondents, the right of
subrogation, the right of action of petitioner against the insurer was
also nullified. Otherwise stated: private respondent may recover the
sum of P5,000.00 it had earlier paid to petitioner.
The respondent court ordering petitioner to pay respondent company,
not the P4,500.00 as originally asked for, but P5,000.00, the amount
respondent company paid petitioner as insurance, is also in accord
with law and jurisprudence. Petitioner is entitled to keep the sum of
P4,500.00 paid by San Miguel Corporation under its clear right to file
a deficiency claim for damages incurred, against the wrongdoer,
should the insurance company not fully pay for the injury caused
(Article 2207, New Civil Code). However, when petitioner released
San Miguel Corporation from any liability, petitioner's right to retain
the sum of P5,000.00 no longer existed, thereby entitling private
respondent to recover the same.
The right of subrogation can only exist after the insurer has paid
the otherwise the insured will be deprived of his right to full
indemnity. If the insurance proceeds are not sufficient to cover
the damages suffered by the insured, then he may sue the party
responsible for the damage for the the remainder. To the extent of
the amount he has already received from the insurer enjoy's the
right of subrogation. Since the insurer can be subrogated to only
such rights as the insured may have, should the insured, after
receiving payment from the insurer, release the wrongdoer who
caused the loss, the insurer loses his rights against the latter. But in
such a case, the insurer will be entitled to recover from the insured
whatever it has paid to the latter, unless the release was made with
the consent of the insurer. And even if the specific amount asked for
in the complaint is P4,500.00 only and not P5,000.00, still, the
respondent Court acted well within its discretion in awarding
P5,000.00, the total amount paid by the insurer. The CA rightly
reasoned as follows: It is to be noted that private respondent, in its
companies, prays for the recovery, not of P5,000.00 it had paid under
the insurance policy but P4,500.00 San Miguel Corporation had paid
to petitioner.
Samboy
4. 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
Facts:
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
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.

2|Insurance Digest Set 1

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.

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.
Ada

The Plaintiff ad administrator of the estate of the late Joaquin

Ma.Herrer brought an action 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.
Issue: Whether Herrer received notice of acceptance of his
application for life annuity.

5. VIRGINIA CALANOCvs.COURT OF APPEALS and THE

PHILIPPINE AMERICAN LIFE INSURANCE CO.
FACTS:

Ruling: HELL NO NIGGA!

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.
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.)
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
thecompany 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 addressed and stamped. (See 22
C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)

Basilio was a watchman of the Manila Auto Supply. He secured a life

insurance policy from the Philippine American Life Insurance
Company in the amount of P2,000 to which was attached a
supplementary contract covering death by accident.
On January 25, 1951, he died of a gunshot wound on the occasion of
a robbery committed in the house of Atty. Ojeda. Virginia Calanoc,
the widow, was paid the sum of P2,000, face value of the policy, but
when she demanded the payment of the additional sum of P2,000
representing the value of the supplemental policy, the company
refused alleging, as main defense, that the deceased died because he
was murdered by a person who took part in the commission of the
robbery and while making an arrest as an officer of the law which
contingencies were expressly excluded in the contract and have the
effect of exempting the company from liability.
Before the death of Melencio Basilio, It turned out that Atty. Antonio
Ojeda's residence is a block away from Basilio's station and the
former had come home that night and found that his house was welllighted, but with the windows closed. Getting suspicious that there
were culprits in his house, Atty. Ojeda retreated to look for a
policeman and finding Basilio in khaki uniform, asked him to
accompany him to the house with the latter refusing on the ground
that he was not a policeman, but suggesting that Atty. Ojeda should
ask the traffic policeman on duty. Atty. Ojeda went to the traffic
policeman and reported the matter, asking the policeman to come
along with him, to which the policeman agreed. On the way to the
Ojeda residence, the policeman and Atty. Ojeda passed by Basilio and
somehow or other invited the latter to come along. As the three
approached the Ojeda residence and stood in front of the main gate, a
shot was fired; It turned out afterwards that the special watchman
Melencio Basilio was hit in the abdomen, the wound causing his
instantaneous death. The shot must have come from inside the yard of
Atty. Ojeda.
Upon inquiry Atty. Ojeda found out that the savings of his children in
the amount of P30 in coins kept in his aparador contained in
stockings were taken away, the aparador having been ransacked. It is
contended in behalf of the company that Basilio was killed which
"making an arrest as an officer of the law" or as a result of an "assault
or murder" committed in the place and therefore his death was caused
by one of the risks excluded by the supplementary contract which
exempts the company from liability.
ISSUE: WON the death of Basilio was caused by one of the risks
excluded by the supplementary contract which exempts the company
from liability
HELD: NO
For one thing, Basilio was a watchman of the Manila Auto Supply
which was a block away from the house of Atty. Ojeda where
something suspicious was happening which caused the latter to ask
for help. The circumstance that he was a mere watchman and had no
duty to heed the call of Atty. Ojeda should not be taken as a
capricious desire on his part to expose his life to danger considering

3|Insurance Digest Set 1

the fact that the place he was in duty-bound to guard was only a block
away.
In volunteering to extend help under the situation, he might have
thought, rightly or wrongly, that to know the truth was in the interest
of his employer it being a matter that affects the security of the
neighborhood. No doubt there was some risk coming to him in
pursuing that errand, but that risk always existed it being inherent in
the position he was holding. He cannot therefore be blamed solely for
doing what he believed was in keeping with his duty as a watchman
and as a citizen. And he cannot be considered as making an arrest as
an officer of the law, as contended, simply because he went with the
traffic policeman, for certainly he did not go there for that purpose
nor was he asked to do so by the policeman. Much less can it be
pretended that Basilio died in the course of an assault or murder
considering the very nature of these crimes.
In the first place, there is no proof that the death of Basilio is the
result of either crime for the record is barred of any circumstance
showing how the fatal shot was fired. Nor can it be said that the
killing was intentional for there is the possibility that the malefactor
had fired the shot merely to scare away the people around for his own
protection and not necessarily to kill or hit the victim. In any event,
while the act may not exempt the triggerman from liability for the
damage done, the fact remains that the happening was a pure accident
on the part of the victim. The victim could have been either the
policeman or Atty. Ojeda for it cannot be pretended that the
malefactor aimed at the deceased precisely because he wanted to take
his life.
We take note that these defenses are included among the risks
excluded in the supplementary contract which enumerates the cases
which may exempt the company from liability. While as a general
rule "the parties may limit the coverage of the policy to certain
particular accidents and risks or causes of loss, and may expressly
except other risks or causes of loss therefrom" (45 C. J. S. 781-782),
however, it is to be desired that the terms and phraseology of the
exception clause be clearly expressed so as to be within the easy
grasp and understanding of the insured, for if the terms are doubtful
or obscure the same must of necessity be interpreted or resolved
against the one who has caused the obscurity. (Article 1377, new
Civil Code) And so it has been generally held that the "terms in an
insurance policy, which are ambiguous, equivocal, or uncertain . . .
are to be construed strictly and most strongly against the insurer, and
liberally in favor of the insured so as to effect the dominant purpose
of indemnity or payment to the insured, especially where a forfeiture
is involved" (29 Am. Jur., 181), and the reason for this rule is that the
"insured usually has no voice in the selection or arrangement of the
words employed and that the language of the contract is selected with
great care and deliberation by experts and legal advisers employed
by, and acting exclusively in the interest of, the insurance company."
(44 C. J. S., p. 1174.)
Insurance is, in its nature, complex and difficult for the layman to
understand. Policies are prepared by experts who know and can
anticipate the bearings 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 are therefore persuaded to conclude that the circumstances
unfolded in the present case do not warrant the finding that the death
of the unfortunate victim comes within the purview of the exception
clause of the supplementary policy and, hence, do not exempt the
company from liability. Wherefore, reversing the decision appealed
from, we hereby order the company to pay petitioner-appellant the
amount of P2,000, with legal interest from January 26, 1951 until
fully paid, with costs.
Karlo

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

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiffappellee, vs. CARPONIA T. EBRADO and PASCUALA VDA.
DE EBRADO, defendants-appellants.
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.
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.
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.
ISSUE: 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?
RULING: NO.
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.

4|Insurance Digest Set 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 shall be applied exclusively to the proper interest of
the person in whose name it is made" 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. 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 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. 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. Commonlaw spouses are, definitely, barred from receiving donations from
each other. Article 739 of the new Civil Code provides:
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.
Joni
7. Rizal Surety & Insurance Company vs. CA and Transworld
Knitting Mills

span building) where fun and amusement machines and spare

parts were stored, was also destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety & Insurance
Company and New India Assurance Company but to no avail.
In 1982, private respondent brought against the said insurance
companies an action for collection of sum of money and damages,
praying for judgment ordering Rizal Insurance and New India to pay
the amount of P2,747, 867.00 plus legal interest, P400,000.00 as
attorney's fees, exemplary damages, expenses of litigation of
P50,000.00 and costs of suit.
Petitioner Rizal Insurance countered that its fire insurance policy
sued upon covered only the contents of the four-span building, which
was partly burned, and not the damage caused by the fire on the twostorey annex building.
Petitioners contention: that the fire insurance policy litigated upon
protected only the contents of the main building (four-span), and did
not include those stored in the two-storey annex building.
Respondent: that the so called "annex" was not an annex but was
actually an integral part of the four-span building and therefore, the
goods and items stored therein were covered by the same fire
insurance policy.
Issue:
1. Whether or not the annex is included in the fire insurance
policy.
2. Whether or not Transworld has an insurable interest in the fun
and amusement machines and spare parts (which entitles it to be
indemnified for the loss thereof).
Ruling:
1. Yes. The resolution of the issue hinges on the proper interpretation
of the stipulation in subject fire insurance policy regarding its
coverage, which reads:
"xxx contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic)
within own Compound xxx"
It can be gleaned unerringly that the fire insurance policy in question
did not limit its coverage to what were stored in the four-span
building. As opined by the trial court of origin, two requirements
must concur in order that the said fun and amusement machines and
spare parts would be deemed protected by the fire insurance policy
under scrutiny, to wit:
1.
2.

Facts:
In 1980, Rizal Insurance issued Fire Insurance Policy in favor of
Transworld initially for 1 M and eventually increased to 1.5M ,
covering the period from August 14, 1980 to March 13, 1981.
Pertinent portions of subject policy on the buildings insured, and
location thereof, read:
"On stocks of finished and/or unfinished products, raw
materials and supplies of every kind and description, the
properties of the Insureds and/or held by them in trust, on
commission or on joint account with others and/or for
which they (sic) responsible in case of loss whilst
contained and/or stored during the currency of this
Policyin the premises occupied by them forming part of
the buildings situate (sic) within own Compound
The same pieces of property insured with the petitioner were also
insured with New India Assurance Company
1981. Fire broke out in the compound of Transworld, razing the
middle portion of its four-span building and partly gutting the left and
right sections thereof. A two-storey building (behind said four-

"First, said properties must be contained and/or stored in

the areas occupied by Transworld and
Second, said areas must form part of the building described
in the policy xxx

'Said building of four-span lofty one storey in height with mezzanine

portions is constructed of reinforced concrete and hollow blocks
and/or concrete under galvanized iron roof and occupied as hosiery
mills, garment and lingerie factory, transistor-stereo assembly plant,
offices, ware house and caretaker's quarter.'
In the case under consideration, both the TC and the CAfound that
the so called "annex " was not an annex building but an integral and
inseparable part of the four-span building described in the policy and
consequently, the machines and spare parts stored therein were
covered by the fire insurance in dispute. The letter-report of the
Manila Adjusters and Surveyor's Company, which petitioner itself
cited and invoked, describes the "annex" building as follows:
"Two-storey building constructed of partly timber and
partly concrete hollow blocks under g.i. roof which is
adjoining and intercommunicating with the repair of the
first right span of the lofty storey building and thence by
property fence wall."
Verily, the two-storey building involved, a permanent structure which
adjoins and intercommunicates with the "first right span of the lofty

5|Insurance Digest Set 1

storey building", formed part thereof, and meets the requisites for
compensability under the fire insurance policy sued upon.
So also, considering that the two-storey building aforementioned was
already existing when subject fire insurance policy contract was
entered into on January 12, 1981, having been constructed sometime
in 1978, petitioner should have specifically excluded the said twostorey building from the coverage of the fire insurance if minded to
exclude the same but if did not, and instead, went on to provide that
such fire insurance policy covers the products, raw materials and
supplies stored within the premises of respondent Transworld which
was an integral part of the four-span building occupied by
Transworld, knowing fully well the existence of such building
adjoining and intercommunicating with the right section of the fourspan building.

ISSUE: W/N Simeon is entitled to recover P3,000

HELD: YES
in terms in an insurance policy, which are ambiguous, equivocal or
uncertain are to be construed strictly against, the insurer, and liberally
in favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where a forfeiture is
involved reason for this rule is that the "insured usually has no voice
in the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation
by expert and legal advisers employed by, and acting exclusively in
the interest of, the insurance company.

Indeed, the stipulation as to the coverage of the fire insurance policy

has created a doubt regarding the portions of the building insured.
Article 1377 of the New Civil Code provides:
"Art.1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who
caused the obscurity"
Hence, doubt should be resolved against the petitioner, Rizal Surety
Insurance Company, whose lawyer or managers drafted the fire
insurance policy contract under scrutiny. Citing the aforecited
provision of law in point, the Court in Landicho vs. Government
Service Insurance System, ruled:
the 'terms in an insurance policy, which are ambiguous,
equivocal, or uncertain x xx are to be construed strictly and
most strongly against the insurer, and liberally in favor of
the insured xxx and the reason for this is that the insured
usually has no voice in the selection or arrangement of the
words employed and that the language of the contract is
selected with great care and deliberation by experts and
legal advisers employed by, and acting exclusively in the
interest of, the insurance company
2. Yes.
Transworlds insurable interest in, and compensability for the loss of
subject fun and amusement machines and spare parts, had been
adjudicated, settled and sustained by CA. The same can no longer be
relitigated. Accordingly,Rizal Insurance is bound by the ruling of CA
and of this Court that the private respondent has an insurable interest
in the aforesaid fun and amusement machines and spare parts; and
should be indemnified for the loss of the same.
So also, the Court of Appeals correctly adjudged petitioner liable for
the amount of P470,328.67, it being the total loss and damage
suffered by Transworld for which petitioner Rizal Insurance is liable.
The CAdid not err in holding the Rizal Surety liable for the
destruction and loss of the insured buildings and articles of the
private respondent.
Milott
8. Del Rosario vs Equitable Insurance G.R. No. L-16215 June 29,
1963
Lessons Applicable: Ambiguous Provisions Interpreted Against
Insurer (Insurance)
FACTS:
April 13, 1957: Simeon del Rosario, father of the insured who died
from drowning filed a claim for payment with Equitable Ins. and
Casualty Co., Inc. but it refused to pay more than P1,000 php so a
case was filed with the RTC for the P2,000 balance stating that under
the policy they are entitled to P1,000 to P3,000 as indemnity RTC:
entitled to recover P3,000 - policy does not positively state any
definite amount, there is an ambiguity in this respect in the policy,
which ambiguity must be interpreted in favor of the insured and
strictly against the insurer so as to allow greater indemnity.

Franz
9. TAURUS TAXI CO., INC., FELICITAS V. MONJE, ET AL.,
plaintiffs-appellees, vs. THE CAPITAL INSURANCE &
SURETY CO., INC., defendant-appellant.
Facts:
Alfredo Monje, according to the complaint, was employed as taxi
driver by the plaintiff Taurus Taxi Co., Inc. On December 6, 1962, the
taxi he was driving collided with a Transport Taxicab at the
intersection of Old Sta. Mesa and V. Mapa Streets, Manila, resulting
in his death.
At the time of the accident, there was subsisting and in force
Commercial Vehicle Comprehensive Policy No. 101, 737 ... issued by
the defendant to the Taurus Taxi Co., Inc. The amount for which each
passenger, including the driver, is insured is P5,000.00. After the
issuance of policy No. 101, 737, the defendant issued the Taurus Taxi
Co., Inc. Indorsement No. 1 which forms part of the policy ...
Felicitas Monje, the widow of Alfredo, together with their children
but excluding the Taurus Taxi Co., Inc., being the plaintiff appellees,
demanded from the defendant the payment of the insurance benefit.
However, despite repeated demands, nothing was availed by the
former.
Defendants raised the defense that the heirs of the deceased are
disqualified from claiming for the indemnities which are supposed to
be provided by them since the latters insurance policy with the Taurus
Taxi provided that "the company will indemnify any authorized
driver provided that such authorized driver is not entitled to
indemnity under any other policy."
Defendants further alleged that because of such provision, the heirs
cannot receive any indemnity from them since the heirs of the
deceased actually received a separate indemnity from Ed. A. Keller
Co., Ltd., by virtue of Policy No. 50PH-1605 as evidenced by the
records of W.C.C. Case No. A88637 entitled "Felicitas V. Monje, et
al. vs. Taurus Taxi Co., Inc.", Regional Office No. 4, Department of
Labor, Manila ... " on December of 1962.
Such award was in the nature of a workmen's compensation by virtue
of The Workmen's Compensation Act which the deceased driver was
rightfully entitled and was settled by the employer through a policy
issued by another insurance firm. The Workmen's Compensation Act,
explicitly requires that an employee suffering any injury or death
arising out of or in the course of employment be compensated.
Issue: WON a provision in the insurance contract that defendantappellant will indemnify any authorized driver provided that [he] is
not entitled to any indemnity under any other policy. (it being shown
that the deceased was paid his workman's compensation from another
insurance policy, should defeat such a right to recover under the
insurance contract subject of this suit)
Held: Yes
The heirs of the deceased may still recover indemnities from the
defendant even if they have already recovered indemnity from other
insurance policy.

6|Insurance Digest Set 1

Since what is prohibited by the insurance policy in question is that

any "authorized driver of plaintiff Taurus Taxi Co., Inc." should not
be "entitled to any indemnity under any policy", it would appear
indisputable that the obligation of defendant-appellant under the
policy had not in any wise been extinguished. It is too well-settled to
need the citation of authorities that what the law requires enters into
and forms part of every contract.
The Workmen's Compensation Act, explicitly requires that an
employee suffering any injury or death arising out of or in the course
of employment be compensated. The fulfillment of such statutory
obligation cannot be the basis for evading the clear, explicit and
mandatory terms of a policy. What was paid therefore was not
indemnity but compensation. It is clear from the Workmen's
Compensation Act that whatever may the employee or its heirs may
receive out of the same is by virtue of the injury or death that the
employee may incur or suffer in the course of employment.
Luna
10. G.R. No. L-54171 October 28, 1980
JEWEL VILLACORTA vs. THE INSURANCE COMMISSION
and EMPIRE INSURANCE COMPANY
Facts:
The Villacortas owned a Colt Lancer insured with Empire Insurance
Company under a Private Car Policy. The vehicle was brought to the
Sunday Machine Works, Inc., for general check-up and repairs. While
there, the car was taken by six persons and driven out. The car
figured in an accident where the driver and one of the passengers died
and the other four sustained physical injuries. The car, as well,
suffered extensive damage. The Villacortas filed a claim for total loss
with Empire but claim was denied.
They filed a complaint against Empire with the Insurance
Commission, who dismissed Villacortas complaint for recovery of
the total loss of the vehicle, sustaining the insurer's contention that
the accident did not fall within the provisions of the policy either for
the Own Damage or Theft coverage, invoking the policy provision on
"Authorized Driver" clause. The clause prevented recovery on the
ground that the driver at the time of the accident was not the insured
or any person authorized by him.

Issue 1: WON the unauthorized driver clause applies

Held 1: No, the unauthorized driver clause does not apply.
The ruling by the Insurance Commission that the diver at the time of
the accident was an employee of Sunday Machine Works and was not
an "authorized driver" is too restrictive and contrary to the
established principle that insurance contracts, being contracts of
adhesion where the only participation of the other party is the signing
of his signature or his "adhesion" thereto must be construed in favour
of the person who merely adheres.
A car owner who entrusts his car to an established car service and
repair shop necessarily entrusts his car key to the shop owner and
employees who are presumed to have the insured's permission to
drive the car for legitimate purposes of checking or road-testing the
car. That the employees of the shop owner diverts the use of the car to
his own illicit or unauthorized purpose in violation of the trust
reposed in the shop by the insured car owner does not mean that the
"authorized driver" clause has been violated such as to bar recovery,
provided that such employee is duly qualified to drive under a valid
driver's license.

Issue 2: W/N the Villacortas may recover under the policy

Held 2: Yes, they may recover.
Where a car is admittedly as in this case unlawfully and wrongfully
taken by some people, be they employees of the car shop or not to
whom it had been entrusted, and taken on a long trip without the
owner's consent or knowledge, such taking constitutes or partakes of
the nature of theft. The Court rejects the commission's premise that
there must be an intent on the part of the taker of the car
"permanently to deprive the insured of his car" and that since the

taking here was for a "joy ride" and "merely temporary in nature," a
"temporary taking is held not a taking insured against."
The insurer must therefore indemnify the petitioner-owner for the
total loss of the insured car under the theft clause of the policy.

Kang
11. FE DE JOYA LANDICHO, vs. GOVERNMENT SERVICE
INSURANCE SYSTEM,.
Facts:
On June 1, 1964, the GSIS issued in favor of FlavianoLandicho, a
civil engineer of the Bureau of Public Works. Optional additional life
insurance policy No. OG-136107.
Before the issuance of said policy, the insured had filed an
application, by filing and signing a printed form of the GSIS on the
basis of which the policy was issued.
While still under the employment of the Bureau of Public Works, Mr.
Landicho met his death, on June 29, 1966, in an airplane crash in
Mindoro. Thereupon, Mrs. Landicho, filed with the GSIS a claim for
P15,800, as the double indemnity due under policy No. OG-136107,
because of the untimely death of the insured owing to said accident.
The GSIS denied the claim, upon the ground that the policy had
never been in force because, pursuant to subdivision (e) of paragraph
7 of the application, the policy "shall be ... effective on the first day
of the month next following the month the first premium is paid," and
no premium had ever been paid on said policy.
In support of the affirmative, plaintiffs invoke the stipulation in the
policy that the application filed shall serve "as a letter of authority to
the Collecting Officer of our Office" the Bureau of Public Works
"thru the GSIS to deduct from my salary the monthly premium
and every month thereafter," and that "failure to deduct from my
salary the monthly premiums shall not make the policy lapse,
however,
the premium
account
shall be
considered
as indebtedness which, I" the insured "bind myself to pay the
System."
The Court of First Instance of Manila, rendered in due course its
decision ordering GSIS to pay plaintiffs, from which the GSIS has
taken the present appeal.
Issue: WON the insurance policy in question has ever been in force
Ruling: YES
The actual receipt by them of their full pay without any deduction
for premiums on their optional additional life insurance policies
may not impart to them the warning which, otherwise, it would
necessarily convey that said policy is not, as yet, in force, for they
are liable to believe "that failure to deduct" from the salary of the
insured "the monthly premiums shall not" in the language of
subdivision (d) "make the policy lapse" and that "the premiums
account shall be considered as indebtedness," to be paid or deducted
later, because, after all, the so called "payment" of premiums is
nothing but a "paper" or "accounting" process, whereby funds are
merely transferred, not physically, but constructively, from one office
of the government to another. In other words, the language, of
subdivisions (c), (d) and (e) is such as to create an ambiguity that
should be resolved against the party responsible therefor
defendant GSIS, as the party who prepared and furnished the
application form and in favor of the party misled thereby, the
insured employee.

7|Insurance Digest Set 1

Indeed, our Civil Code provides:

The interpretation of obscure words or
stipulations in a contract shall not favor the party
who caused the obscurity. 2
The equitable and ethical considerations justifying the foregoing view
are bolstered up by two (2) factors, namely:

(a) The aforementioned subdivision (c) states "that this application

serves as a letter of authority to the Collecting Officer of our Office"
the Bureau of Public Works "thru the GSIS to deduct from my
salary the monthly premium in the amount of P33.36." No such
deduction was made and, consequently, not even the first premium
"paid" because the collecting officer of the Bureau of Public
Works was not advised by the GSIS to make it (the deduction)
pursuant to said authority. Surely, this omission of the GSIS should
not inure to its benefit.

8|Insurance Digest Set 1