G.R. No.
L-8151 December 16, 1955 away from Basilio's station, had come home that night and found that his
VIRGINIA CALANOC, petitioner, vs. COURT OF APPEALS and THE
PHILIPPINE AMERICAN LIFE INSURANCE CO., respondents.
BAUTISTA ANGELO, J.:
This suit involves the collection of P2,000 representing the value of a
supplemental policy covering accidental death which was secured by one
Melencio Basilio from the Philippine American Life Insurance Company.
Melencio Basilio was a watchman of the Manila Auto Supply located at the
corner of Avenida Rizal and Zurbaran. 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 at the corner
of Oroquieta and Zurbaan streets. 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.
The pertinent facts which need to be considered for the determination of
the questions raised are those reproduced in the decision of the Court of
Appeals as follows:
The circumstances surrounding the death of Melencio Basilio show that
when he was killed at about seven o'clock in the night of January 25, 1951,
he was on duty as watchman of the Manila Auto Supply at the corner of
Avenida Rizal and Zurbaran; that it turned out that Atty. Antonio Ojeda
who had his residence at the corner of Zurbaran and Oroquieta, a block
house was well-lighted, but with the windows closed; that 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 at the corner of Rizal Avenue and Zurbaran; that Atty.
Ojeda went to the traffic policeman at said corner and reported the
matter, asking the policeman to come along with him, to which the
policeman agreed; that 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; that as the tree approached the Ojeda residence and stood
in front of the main gate which was covered with galvanized iron, the fence
itself being partly concrete and partly adobe stone, a shot was fired; that
immediately after the shot, Atty. Ojeda and the policeman sought cover;
that the policeman, at the request of Atty. Ojeda, left the premises to look
for reinforcement; that it turned out afterwards that the special watchman
Melencio Basilio was hit in the abdomen, the wound causing his
instantaneous death; that the shot must have come from inside the yard of
Atty. Ojeda, the bullet passing through a hole waist-high in the galvanized
iron gate; that 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; that a
month thereafter the corresponding investigation conducted by the police
authorities led to the arrest and prosecution of four persons in Criminal
Case No. 15104 of the Court of First Instance of Manila for 'Robbery in an
Inhabited House and in Band with Murder'.
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. This contention was upheld by the Court of
Appeals and, in reaching this conclusion, made the following comment:
From the foregoing testimonies, we find that the deceased was a
watchman of the Manila Auto Supply, and, as such, he was not boud to
leave his place and go with Atty. Ojeda and Policeman Magsanoc to see the
trouble, or robbery, that occurred in the house of Atty. Ojeda. In fact,
according to the finding of the lower court, Atty. Ojeda finding Basilio in
uniform asked him to accompany him to his house, but the latter refused
on the ground that he was not a policeman and suggested to Atty. Ojeda to
ask help from the traffic policeman on duty at the corner of Rizal Avenue
and Zurbaran, but after Atty. Ojeda secured the help of the traffic
policeman, the deceased went with Ojeda and said traffic policeman to the
residence of Ojeda, and while the deceased was standing in front of the
main gate of said residence, he was shot and thus died. The death,
therefore, of Basilio, although unexpected, was not caused by an accident,
being a voluntary and intentional act on the part of the one wh robbed, or
one of those who robbed, the house of Atty. Ojeda. Hence, it is out
considered opinion that the death of Basilio, though unexpected, cannot
be considered accidental, for his death occurred because he left his post
and joined policeman Magsanoc and Atty. Ojeda to repair to the latter's
residence to see what happened thereat. Certainly, when Basilio joined
Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger
to which he was exposing himself, yet, instead of remaining in his place, he
went with Atty. Ojeda and Patrolman Magsanoc to see what was the
trouble in Atty. Ojeda's house and thus he was fatally shot.
We dissent from the above findings of the Court of Appeals. 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. While at first he declied the
invitation of Atty. Ojeda to go with him to his residence to inquire into
what was going on because he was not a regular policeman, he later
agreed to come along when prompted by the traffic policeman, and upon
approaching the gate of the residence he was shot and died. 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 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 barren of any circumstance showing how the fatal shot was
fired. Perhaps this may be clarified in the criminal case now pending in
court as regards the incident but before that is done anything that might
be said on the point would be a mere conjecture. 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 excempt 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 exluded 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 aganst the one who has caused the obscurity. (Article 1377,
new Civil Code) And so it has bene generally held that the "terms in an
insurance policy, which are ambiguous, equivacal, 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 he "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.)lawphi1.net
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.
G.R. No. L-25579 March 29, 1972
EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T.
BIAGTAN and GRACIA T. BIAGTAN, plaintiffs-appellees, vs. THE INSULAR
LIFE ASSURANCE COMPANY, LTD., defendant-appellant.
MAKALINTAL, J.:
This is an appeal from the decision of the Court of First Instance of
Pangasinan in its Civil Case No. D-1700.
The facts are stipulated. Juan S. Biagtan was insured with defendant
InsularLife Assurance Company under Policy No. 398075 for the sum of
P5,000.00 and, under a supplementary contract denominated "Accidental
Death Benefit Clause, for an additional sum of P5,000.00 if "the death of
the Insured resulted directly from bodily injury effected solely through
external and violent means sustained in an accident ... and independently
of all other causes." The clause, however,expressly provided that it would
not apply where death resulted from an injury"intentionally inflicted by
another party."
On the night of May 20, 1964, or during the first hours of the following day
a band of robbers entered the house of the insured Juan S. Biagtan. What
happened then is related in the decision of the trial court as follows:
...; that on the night of May 20, 1964 or the first hours of May 21, 1964,
while the said life policy and supplementary contract were in full force and
effect, the house of insured Juan S. Biagtan was robbed by a band of
robbers who were charged in and convicted by the Court of First Instance
of Pangasinan for robbery with homicide; that in committing the robbery,
the robbers, on reaching the staircase landing on the second floor, rushed
towards the door of the second floor room, where they suddenly met a
person near the door of oneof the rooms who turned out to be the insured
Juan S. Biagtan who received thrusts from their sharp-pointed instruments,
causing wounds on the body of said Juan S. Biagtan resulting in his death at
about 7 a.m. on the same day, May 21, 1964;
Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The
insurance company paid the basic amount of P5,000.00 but refused to pay
the additional sum of P5,000.00 under the accidental death benefit clause,
on the ground that the insured's death resulted from injuries intentionally
inflicted by third parties and therefore was not covered. Plaintiffs filed suit
to recover, and after due hearing the court a quo rendered judgment in
their favor. Hence the present appeal by the insurer.
The only issue here is whether under the facts are stipulated and found by
the trial court the wounds received by the insured at the hands of the
robbers — nine in all, five of them mortal and four non-mortal — were
inflicted intentionally. The court, in ruling negatively on the issue, stated
that since the parties presented no evidence and submitted the case upon
stipulation, there was no "proof that the act of receiving thrust (sic) from
the sharp-pointed instrument of the robbers was intended to inflict injuries
upon the person of the insured or any other person or merely to scare
away any person so as to ward off any resistance or obstacle that might be
offered in the pursuit of their main objective which was robbery."
The trial court committed a plain error in drawing the conclusion it did
from the admitted facts. Nine wounds were inflicted upon the deceased,
all by means of thrusts with sharp-pointed instruments wielded by the
robbers. This is a physical fact as to which there is no dispute. So is the fact
that five of those wounds caused the death of the insured. Whether the
robbers had the intent to kill or merely to scare the victim or to ward off
any defense he might offer, it cannot be denied that the act itself of
inflicting the injuries was intentional. It should be noted that the exception
in the accidental benefit clause invoked by the appellant does not speak of
the purpose — whether homicidal or not — of a third party in causing the
injuries, but only of the fact that such injuries have been "intentionally"
inflicted — this obviously to distinguish them from injuries which, although
received at the hands of a third party, are purely accidental. This
construction is the basic idea expressed in the coverage of the clause itself,
namely, that "the death of the insured resulted directly from bodily injury
effected solely through external and violent means sustained in an
accident ... and independently of all other causes." A gun which discharges
while being cleaned and kills a bystander; a hunter who shoots at his prey
and hits a person instead; an athlete in a competitive game involving
physical effort who collides with an opponent and fatally injures him as a
result: these are instances where the infliction of the injury is unintentional
and therefore would be within the coverage of an accidental death benefit
clause such as thatin question in this case. But where a gang of robbers
enter a house and coming face to face with the owner, even if
unexpectedly, stab him repeatedly, it is contrary to all reason and logic to
say that his injuries are not intentionally inflicted, regardless of whether
they prove fatal or not. As it was, in the present case they did prove fatal,
and the robbers have been accused and convicted of the crime of robbery
with homicide.
The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the
trial court in support of its decision. The facts in that case, however, are
different from those obtaining here. The insured there was a watchman in
a certain company, who happened to be invited by a policeman to come
along as the latter was on his way to investigate a reported robbery going
on in a private house. As the two of them, together with the owner of the
house, approached and stood in front of the main gate, a shot was fired
and it turned out afterwards that the watchman was hit in the abdomen,
the wound causing his death. Under those circumstances this Court held
that it could not be said that the killing was intentional for there was the
possibility that the malefactor had fired the shot to scare people around
for his own protection and not necessarrily to kill or hit the victim. A similar
possibility is clearly ruled out by the facts in the case now before Us. For
while a single shot fired from a distance, and by a person who was not
even seen aiming at the victim, could indeed have been fired without
intent to kill or injure, nine wounds inflicted with bladed weapons at close
range cannot conceivably be considered as innocent insofar as such intent
is concerned. The manner of execution of the crime permits no other
conclusion.
Court decisions in the American jurisdiction, where similar provisions in
accidental death benefit clauses in insurance policies have been construed,
may shed light on the issue before Us. Thus, it has been held that
"intentional" as used in an accident policy excepting intentional injuries
inflicted by the insured or any other person, etc., implies the exercise of
the reasoning faculties, consciousness and volition.1 Where a provision of
the policy excludes intentional injury, it is the intention of the person
inflicting the injury that is controlling.2 If the injuries suffered by the
insured clearly resulted from the intentional act of a third person the
insurer is relieved from liability as stipulated.
In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570,
12 Am. St. Rep. 484, the insured was waylaid and assassinated for the
purpose of robbery. Two (2) defenses were interposed to the action to
recover indemnity, namely: (1) that the insured having been killed by
intentional means, his death was not accidental, and (2) that the proviso in
the policy expressly exempted the insurer from liability in case the insured
died from injuries intentionally inflicted by another person. In rendering
judgment for the insurance company the Court held that while the
assassination of the insured was as to him an unforeseen event and
therefore accidental, "the clause of the proviso that excludes the
(insurer's) liability, in case death or injury is intentionally inflicted by
another person, applies to this case."
In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71
S.W. 811, the insured was shot three times by a person unknown late on a
dark and stormy night, while working in the coal shed of a railroad
company. The policy did not cover death resulting from "intentional
injuries inflicted by the insured or any other person." The inquiry was as to
the question whether the shooting that caused the insured's death was
accidental or intentional; and the Court found that under the facts,
showing that the murderer knew his victim and that he fired with intent to
kill, there could be no recovery under the policy which excepted death
from intentional injuries inflicted by any person.
WHEREFORE, the decision appealed from is reversed and the complaint
dismissed, without pronouncement as to costs.
G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner, vs. THE
HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.
NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a
restraining order and preliminary mandatory injunction to annul and set
aside the decision of the Court of Appeals dated July 11, 1991, 1 affirming
the decision dated March 20, 1990 of the Insurance Commission 2 in
ordering petitioner Finman General Assurance Corporation to pay private
respondent Julia Surposa the proceeds of the personal accident Insurance
policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie Surposa
was insured with petitioner Finman General Assurance Corporation under
Finman General Teachers Protection Plan Master Policy No. 2005 and
Individual Policy No. 08924 with his parents, spouses Julia and Carlos
Surposa, and brothers Christopher, Charles, Chester and Clifton, all
surnamed, Surposa, as beneficiaries.
While said insurance policy was in full force and effect, the insured, Carlie
Surposa, died on October 18, 1988 as a result of a stab wound inflicted by
one of the three (3) unidentified men without provocation and warning on
the part of the former as he and his cousin, Winston Surposa, were waiting
for a ride on their way home along Rizal-Locsin Streets, Bacolod City after
attending the celebration of the "Maskarra Annual Festival."
Thereafter, private respondent and the other beneficiaries of said
insurance policy filed a written notice of claim with the petitioner
insurance company which denied said claim contending that murder and
assault are not within the scope of the coverage of the insurance policy.
On February 24, 1989, private respondent filed a complaint with the
Insurance Commission which subsequently rendered a decision, the
pertinent portion of which reads:
In the light of the foregoing. we find respondent liable to pay complainant
the sum of P15,000.00 representing the proceeds of the policy with
interest. As no evidence was submitted to prove the claim for mortuary aid
in the sum of P1,000.00, the same cannot be entertained.
WHEREFORE, judgment is hereby rendered ordering respondent to pay
complainant the sum of P15,000.00 with legal interest from the date of the
filing of the complaint until fully satisfied. With costs. 4
On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion on
the part of the appellate court in applying the principle of "expresso unius
exclusio alterius" in a personal accident insurance policy since death
resulting from murder and/or assault are impliedly excluded in said
insurance policy considering that the cause of death of the insured was not
accidental but rather a deliberate and intentional act of the assailant in
killing the former as indicated by the location of the lone stab wound on
the insured. Therefore, said death was committed with deliberate intent
which, by the very nature of a personal accident insurance policy, cannot
be indemnified.
We do not agree.
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.
. . . 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. 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. 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 the policies insuring
against death or injury from accident.
As correctly pointed out by the respondent appellate court in its decision:
In the case at bar, it cannot be pretended that Carlie Surposa died in the
course of an assault or murder as a result of his voluntary act considering
the very nature of these crimes. In the first place, the insured and his
companion were on their way home from attending a festival. They were
confronted by unidentified persons. The record is barren of any
circumstance showing how the stab wound was inflicted. Nor can it be
pretended that the malefactor aimed at the insured precisely because the
killer wanted to take his life. In any event, while the act may not exempt
the unknown perpetrator from criminal liability, the fact remains that the
happening was a pure accident on the part of the victim. The insured died
from an event that took place without his foresight or expectation, an
event that proceeded from an unusual effect of a known cause and,
therefore, not expected. Neither can it be said that where was a capricious
desire on the part of the accused to expose his life to danger considering
that he was just going home after attending a festival.
Furthermore, the personal accident insurance policy involved herein
specifically enumerated only ten (10) circumstances wherein no liability
attaches to petitioner insurance company for any injury, disability or loss
suffered by the insured as a result of any of the stimulated causes. The
principle of " expresso unius exclusio alterius" — the mention of one thing
implies the exclusion of another thing — is therefore applicable in the
instant case since murder and assault, not having been expressly included
in the enumeration of the circumstances that would negate liability in said
insurance policy cannot be considered by implication to discharge the
petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance
company to include death resulting from murder or assault among the
prohibited risks leads inevitably to the conclusion that it did not intend to
limit or exempt itself from liability for such death.
Article 1377 of the Civil Code of the Philippines provides that:
The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity.
Moreover, it is well settled that contracts of insurance are to be construed
liberally in favor of the insured and strictly against the insurer. Thus
ambiguity in the words of an insurance contract should be interpreted in
favor of its beneficiary.
WHEREFORE, finding no irreversible error in the decision of the respondent
Court of Appeals, the petition for certiorari with restraining order and
preliminary injunction is hereby DENIED for lack of merit.
SO ORDERED.
G.R. No. 85296 May 14, 1990
ZENITH INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS
and LAWRENCE FERNANDEZ, respondents.
MEDIALDEA, J.:
Assailed in this petition is the decision of the Court of Appeals in CA-G.R.
C.V. No. 13498 entitled, "Lawrence L. Fernandez, plaintiff-appellee v.
Zenith Insurance Corp., defendant-appellant" which affirmed in toto the
decision of the Regional Trial Court of Cebu, Branch XX in Civil Case No.
CEB-1215 and the denial of petitioner's Motion for Reconsideration.
The antecedent facts are as follows:
On January 25, 1983, private respondent Lawrence Fernandez insured his
car for "own damage" under private car Policy No. 50459 with petitioner
Zenith Insurance Corporation. On July 6, 1983, the car figured in an
accident and suffered actual damages in the amount of P3,640.00. After
allegedly being given a run around by Zenith for two (2) months, Fernandez
filed a complaint with the Regional Trial Court of Cebu for sum of money
and damages resulting from the refusal of Zenith to pay the amount
claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside
from actual damages and interests, Fernandez also prayed for moral
damages in the amount of P10,000.00, exemplary damages of P5,000.00,
attorney's fees of P3,000.00 and litigation expenses of P3,000.00.
On September 28, 1983, Zenith filed an answer alleging that it offered to
pay the claim of Fernandez pursuant to the terms and conditions of the
contract which, the private respondent rejected. After the issues had been
joined, the pre-trial was scheduled on October 17, 1983 but the same was
moved to November 4, 1983 upon petitioner's motion, allegedly to explore
ways to settle the case although at an amount lower than private
respondent's claim. On November 14, 1983, the trial court terminated the
pre-trial. Subsequently, Fernandez presented his evidence. Petitioner
Zenith, however, failed to present its evidence in view of its failure to
appear in court, without justifiable reason, on the day scheduled for the
purpose. The trial court issued an order on August 23, 1984 submitting the
case for decision without Zenith's evidence (pp. 10-11, Rollo). Petitioner
filed a petition for certiorari with the Court of Appeals assailing the order
of the trial court submitting the case for decision without petitioner's
evidence. The petition was docketed as C.A.-G.R. No. 04644. However, the
petition was denied due course on April 29, 1986 (p. 56, Rollo).
On June 4, 1986, a decision was rendered by the trial court in favor of
private respondent Fernandez. The dispositive portion of the trial court's
decision provides:
WHEREFORE, defendant is hereby ordered to pay to the plaintiff:
1. The amount of P3,640.00 representing the damage incurred plus
interest at the rate of twice the prevailing interest rates;
2. The amount of P20,000.00 by way of moral damages;
3. The amount of P20,000.00 by way of exemplary damages;
4. The amount of P5,000.00 as attorney's fees;
5. The amount of P3,000.00 as litigation expenses; and
6. Costs. (p. 9, Rollo)
Upon motion of Fernandez and before the expiration of the period to
appeal, the trial court, on June 20, 1986, ordered the execution of the
decision pending appeal. The order was assailed by petitioner in a petition
for certiorari with the Court of Appeals on October 23, 1986 in C.A. G.R.
No. 10420 but which petition was also dismissed on December 24, 1986 (p.
69, Rollo).
On June 10, 1986, petitioner filed a notice of appeal before the trial court.
The notice of appeal was granted in the same order granting private
respondent's motion for execution pending appeal. The appeal to
respondent court assigned the following errors:
I. The lower court erred in denying defendant appellant to adduce
evidence in its behalf.
II. The lower court erred in ordering Zenith Insurance Corporation to
pay the amount of P3,640.00 in its decision.
III. The lower court erred in awarding moral damages, attorneys fees
and exemplary damages, the worst is that, the court awarded damages
more than what are prayed for in the complaint. (p. 12, Rollo)
On August 17, 1988, the Court of Appeals rendered its decision affirming in
toto the decision of the trial court. It also ruled that the matter of the trial
court's denial of Fernandez's right to adduce evidence is a closed matter in
view of its (CA) ruling in AC-G.R. 04644 wherein Zenith's petition
questioning the trial court's order submitting the case for decision without
Zenith's evidence, was dismissed.
The Motion for Reconsideration of the decision of the Court of Appeals
dated August 17, 1988 was denied on September 29, 1988, for lack of
merit. Hence, the instant petition was filed by Zenith on October 18, 1988
on the allegation that respondent Court of Appeals' decision and
resolution ran counter to applicable decisions of this Court and that they
were rendered without or in excess of jurisdiction. The issues raised by
petitioners in this petition are:
a) The legal basis of respondent Court of Appeals in awarding moral
damages, exemplary damages and attomey's fees in an amount more than
that prayed for in the complaint.
b) The award of actual damages of P3,460.00 instead of only
P1,927.50 which was arrived at after deducting P250.00 and P274.00 as
deductible franchise and 20% depreciation on parts as agreed upon in the
contract of insurance.
Petitioner contends that while the complaint of private respondent prayed
for P10,000.00 moral damages, the lower court awarded twice the
amount, or P20,000.00 without factual or legal basis; while private
respondent prayed for P5,000.00 exemplary damages, the trial court
awarded P20,000.00; and while private respondent prayed for P3,000.00
attorney's fees, the trial court awarded P5,000.00.
The propriety of the award of moral damages, exemplary damages and
attorney's fees is the main issue raised herein by petitioner.
The award of damages in case of unreasonable delay in the payment of
insurance claims is governed by the Philippine Insurance Code, which
provides:
Sec. 244. In case of any litigation for the enforcement of any policy
or contract of insurance, it shall be the duty of the Commissioner or the
Court, as the case may be, to make a finding as to whether the payment of
the claim of the insured has been unreasonably denied or withheld; and in
the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist of attomey's fees and other expenses incurred
by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the insured, from the date
following the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the claim is fully
satisfied; Provided, That the failure to pay any such claim within the time
prescribed in said sections shall be considered prima facie evidence of
unreasonable delay in payment.
It is clear that under the Insurance Code, in case of unreasonable delay in
the payment of the proceeds of an insurance policy, the damages that may
be awarded are: 1) attorney's fees; 2) other expenses incurred by the
insured person by reason of such unreasonable denial or withholding of
payment; 3) interest at twice the ceiling prescribed by the Monetary Board
of the amount of the claim due the injured; and 4) the amount of the
claim.
As regards the award of moral and exemplary damages, the rules under
the Civil Code of the Philippines shall govern.
"The purpose of moral damages is essentially indemnity or reparation, not
punishment or correction. Moral damages are emphatically not intended
to enrich a complainant at the expense of a defendant, they are awarded
only to enable the injured party to obtain means, diversions or
amusements that will serve to alleviate the moral suffering he has
undergone by reason of the defendant's culpable action." (J. Cezar S.
Sangco, Philippine Law on Torts and Damages, Revised Edition, p. 539) (See
also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No. 64515, June 22,
1984; 129 SCRA 745). While it is true that no proof of pecuniary loss is
necessary in order that moral damages may be adjudicated, the
assessment of which is left to the discretion of the court according to the
circumstances of each case (Art. 2216, New Civil Code), it is equally true
that in awarding moral damages in case of breach of contract, there must
be a showing that the breach was wanton and deliberately injurious or the
one responsible acted fraudently or in bad faith (Perez v. Court of Appeals,
G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No.
L-17022, August 14, 1965; 14 SCRA 887). In the instant case, there was a
finding that private respondent was given a "run-around" for two months,
which is the basis for the award of the damages granted under the
Insurance Code for unreasonable delay in the payment of the claim.
However, the act of petitioner of delaying payment for two months cannot
be considered as so wanton or malevolent to justify an award of
P20,000.00 as moral damages, taking into consideration also the fact that
the actual damage on the car was only P3,460. In the pre-trial of the case,
it was shown that there was no total disclaimer by respondent. The reason
for petitioner's failure to indemnify private respondent within the two-
month period was that the parties could not come to an agreement as
regards the amount of the actual damage on the car. The amount of
P10,000.00 prayed for by private respondent as moral damages is
equitable.
depreciation on parts, respectively claimed by petitioners as agreed upon
in the contract, had no basis. Respondent court ruled:
Under its second assigned error, defendant-appellant puts forward two
arguments, both of which are entirely without merit. It is contented that
the amount recoverable under the insurance policy defendant-appellant
issued over the car of plaintiff-appellee is subject to deductible franchise,
and . . . .
The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible
franchise, . . . (p. 13, Rollo)
Therefore, the award of moral damages is reduced to P10,000.00 and the
award of exemplary damages is hereby deleted. The awards due to private
respondent Fernandez are as follows:
1) P3,640.00 as actual claim plus interest of twice the ceiling
prescribed by the Monetary Board computed from the time of submission
of proof of loss;

On the other hand, exemplary or corrective damages are imposed by way 2) P10,000.00 as moral damages;
of example or correction for the public good (Art. 2229, New Civil Code of
3) P5,000.00 as attorney's fees;
the Philippines). In the case of Noda v. Cruz-Arnaldo, G.R. No. 57322, June
22,1987; 151 SCRA 227, exemplary damages were not awarded as the 4) P3,000.00 as litigation expenses; and
insurance company had not acted in wanton, oppressive or malevolent
manner. The same is true in the case at bar. 5) Costs.

The amount of P5,000.00 awarded as attomey's fees is justified under the ACCORDINGLY, the appealed decision is MODIFIED as above stated.
circumstances of this case considering that there were other petitions filed
and defended by private respondent in connection with this case. SO ORDERED.

As regards the actual damages incurred by private respondent, the amount G.R. No. 92383 July 17, 1992
of P3,640.00 had been established before the trial court and affirmed by
SUN INSURANCE OFFICE, LTD., petitioner, vs.THE HON. COURT OF
the appellate court. Respondent appellate court correctly ruled that the
APPEALS and NERISSA LIM, respondents.
deductions of P250.00 and P274.00 as deductible franchise and 20%
CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr.
with a face value of P200,000.00. Two months later, he was dead with a
bullet wound in his head. As beneficiary, his wife Nerissa Lim sought
payment on the policy but her claim was rejected. The petitioner agreed
that there was no suicide. It argued, however that there was no accident
either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It
happened on October 6, 1982, at about 10 o'clock in the evening, after his
mother's birthday party. According to Nalagon, Lim was in a happy mood
(but not drunk) and was playing with his handgun, from which he had
previously removed the magazine. As she watched television, he stood in
front of her and pointed the gun at her. She pushed it aside and said it
might he loaded. He assured her it was not and then pointed it to his
temple. The next moment there was an explosion and Lim slumped to the
floor. He was dead before he fell.
The widow sued the petitioner in the Regional Trial Court of Zamboanga
City and was sustained. The petitioner was sentenced to pay her
P200,000.00, representing the face value of the policy, with interest at the
legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary
damages; P5,000.00 as actual and compensatory damages; and P5,000.00
as attorney's fees, plus the costs of the suit. This decision was affirmed on
appeal, and the motion for reconsideration was denied. 3 The petitioner
then came to this Court to fault the Court of Appeals for approving the
payment of the claim and the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical
signification in law, and when used in an insurance contract are to be
construed and considered according to the ordinary understanding and
common usage and speech of people generally. In-substance, the courts
are practically agreed that the words "accident" and "accidental" mean
that which happens by chance or fortuitously, without intention or design,
and which is unexpected, unusual, and unforeseen. The definition that has
usually been adopted by the courts is that 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 case,
and therefore not expected.
An accident is an event which happens without any human agency or, if
happening through human agency, an event which, under the
circumstances, is unusual to and not expected by the person to whom it
happens. It has also been defined as an injury which happens by reason of
some violence or casualty to the injured without his design, consent, or
voluntary co-operation.
In light of these definitions, the Court is convinced that the incident that
resulted in Lim's death was indeed an accident. The petitioner, invoking
the case of De la Cruz v. Capital Insurance, 6 says that "there is no accident
when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings
about their injury or death." There was such a happening. This was the
firing of the gun, which was the additional unexpected and independent
and unforeseen occurrence that led to the insured person's death.
The petitioner also cites one of the four exceptions provided for in the
insurance contract and contends that the private petitioner's claim is
barred by such provision. It is there stated:
Exceptions —
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx not unsafe to do so. The act was precisely intended to assure Nalagon that
the gun was indeed harmless.
b. consequent upon
The contrary view is expressed by the petitioner thus:
i) The insured person attempting to commit suicide or willfully
exposing himself to needless peril except in an attempt to save human life. Accident insurance policies were never intended to reward the insured for
his tendency to show off or for his miscalculations. They were intended to
provide for contingencies. Hence, when I miscalculate and jump from the
Quezon Bridge into the Pasig River in the belief that I can overcome the
To repeat, the parties agree that Lim did not commit suicide. Nevertheless,
current, I have wilfully exposed myself to peril and must accept the
the petitioner contends that the insured willfully exposed himself to
consequences of my act. If I drown I cannot go to the insurance company
needless peril and thus removed himself from the coverage of the
to ask them to compensate me for my failure to swim as well as I thought I
insurance policy.
could. The insured in the case at bar deliberately put the gun to his head
It should be noted at the outset that suicide and willful exposure to and pulled the trigger. He wilfully exposed himself to peril.
needless peril are in pari materia because they both signify a disregard for
The Court certainly agrees that a drowned man cannot go to the insurance
one's life. The only difference is in degree, as suicide imports a positive act
company to ask for compensation. That might frighten the insurance
of ending such life whereas the second act indicates a reckless risking of it
people to death. We also agree that under the circumstances narrated, his
that is almost suicidal in intent. To illustrate, a person who walks a
beneficiary would not be able to collect on the insurance policy for it is
tightrope one thousand meters above the ground and without any safety
clear that when he braved the currents below, he deliberately exposed
device may not actually be intending to commit suicide, but his act is
himself to a known peril.
nonetheless suicidal. He would thus be considered as "willfully exposing
himself to needless peril" within the meaning of the exception in question. The private respondent maintains that Lim did not. That is where she says
the analogy fails. The petitioner's hypothetical swimmer knew when he
The petitioner maintains that by the mere act of pointing the gun to hip
dived off the Quezon Bridge that the currents below were dangerous. By
temple, Lim had willfully exposed himself to needless peril and so came
contrast, Lim did not know that the gun he put to his head was loaded.
under the exception. The theory is that a gun is per se dangerous and
should therefore be handled cautiously in every case. Lim was unquestionably negligent and that negligence cost him his own
life. But it should not prevent his widow from recovering from the
That posture is arguable. But what is not is that, as the secretary testified,
insurance policy he obtained precisely against accident. There is nothing in
Lim had removed the magazine from the gun and believed it was no longer
the policy that relieves the insurer of the responsibility to pay the
dangerous. He expressly assured her that the gun was not loaded. It is
indemnity agreed upon if the insured is shown to have contributed to his
submitted that Lim did not willfully expose himself to needless peril when
own accident. Indeed, most accidents are caused by negligence. There are
he pointed the gun to his temple because the fact is that he thought it was
only four exceptions expressly made in the contract to relieve the insurer
from liability, and none of these exceptions is applicable in the case at bar.
**
It bears noting that insurance contracts are as a rule supposed to be
interpreted liberally in favor of the assured. There is no reason to deviate
from this rule, especially in view of the circumstances of this case as above
analyzed.
On the second assigned error, however, the Court must rule in favor of the
petitioner. The basic issue raised in this case is, as the petitioner correctly
observed, one of first impression. It is evident that the petitioner was
acting in good faith then it resisted the private respondent's claim on the
ground that the death of the insured was covered by the exception. The
issue was indeed debatable and was clearly not raised only for the purpose
of evading a legitimate obligation. We hold therefore that the award of
moral and exemplary damages and of attorney's fees is unjust and so must
be disapproved.
In order that a person may be made liable to the payment of moral
damages, the law requires that his act be wrongful. The adverse result of
an action does not per se make the act wrongful and subject the act or to
the payment of moral damages. The law could not have meant to impose a
penalty on the right to litigate; such right is so precious that moral
damages may not be charged on those who may exercise it erroneously.
For these the law taxes costs.
The fact that the results of the trial were adverse to Barreto did not alone
make his act in bringing the action wrongful because in most cases one
party will lose; we would be imposing an unjust condition or limitation on
the right to litigate. We hold that the award of moral damages in the case
at bar is not justified by the facts had circumstances as well as the law.
If a party wins, he cannot, as a rule, recover attorney's fees and litigation
expenses, since it is not the fact of winning alone that entitles him to
recover such damages of the exceptional circumstances enumerated in
Art. 2208. Otherwise, every time a defendant wins, automatically the
plaintiff must pay attorney's fees thereby putting a premium on the right
to litigate which should not be so. For those expenses, the law deems the
award of costs as sufficient.
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED
in so far as it holds the petitioner liable to the private respondent in the
sum of P200,000.00 representing the face value of the insurance contract,
with interest at the legal rate from the date of the filing of the complaint
until the full amount is paid, but MODIFIED with the deletion of all awards
for damages, including attorney's fees, except the costs of the suit.
SO ORDERED.
G.R. No. L-54171 October 28, 1980
JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA,
petitioner, vs. THE INSURANCE COMMISSION and EMPIRE INSURANCE
COMPANY, respondents.
TEEHANKEE, Acting C.J.:
The Court sets aside respondent Insurance Commission's dismissal of
petitioner's complaint and holds that where the insured's car is wrongfully
taken without the insured's consent from the car service and repair shop
to whom it had been entrusted for check-up and repairs (assuming that
such taking was for a joy ride, in the course of which it was totally smashed
in an accident), respondent insurer is liable and must pay insured for the
total loss of the insured vehicle under the theft clause of the policy.
The undisputed facts of the case as found in the appealed decision of April
14, 1980 of respondent insurance commission are as follows:
Complainant [petitioner] was the owner of a Colt Lancer, Model 1976,
insured with respondent company under Private Car Policy No. MBI/PC-
0704 for P35,000.00 — Own Damage; P30,000.00 — Theft; and P30,000.00
— Third Party Liability, effective May 16, 1977 to May 16, 1978. On May 9,
1978, the vehicle was brought to the Sunday Machine Works, Inc., for
general check-up and repairs. On May 11, 1978, while it was in the custody
of the Sunday Machine Works, the car was allegedly taken by six (6)
persons and driven out to Montalban, Rizal. While travelling along Mabini
St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car
figured in an accident, hitting and bumping a gravel and sand truck parked
at the right side of the road going south. As a consequence, the gravel and
sand truck veered to the right side of the pavement going south and the
car veered to the right side of the pavement going north. The driver,
Benito Mabasa, and one of the passengers died and the other four
sustained physical injuries. The car, as well, suffered extensive damage.
Complainant, thereafter, filed a claim for total loss with the respondent
company but claim was denied. Hence, complainant, was compelled to
institute the present action.
The comprehensive motor car insurance policy for P35,000.00 issued by
respondent Empire Insurance Company admittedly undertook to
indemnify the petitioner-insured against loss or damage to the car (a) by
accidental collision or overturning, or collision or overturning consequent
upon mechanical breakdown or consequent upon wear and tear; (b) by
fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft; and (c) by malicious act.
Respondent insurance commission, however, dismissed petitioner's
complaint for recovery of the total loss of the vehicle against private
respondent, sustaining respondent 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.
Respondent commission upheld private respondent's contention on the
"Authorized Driver" clause in this wise: "It must be observed that under
the above-quoted provisions, the policy limits the use of the insured
vehicle to two (2) persons only, namely: the insured himself or any person
on his (insured's) permission. Under the second category, it is to be noted
that the words "any person' is qualified by the phrase
... on the insured's order or with his permission.' It is therefore clear that if
the person driving is other than the insured, he must have been duly
authorized by the insured, to drive the vehicle to make the insurance
company liable for the driver's negligence. Complainant admitted that she
did not know the person who drove her vehicle at the time of the accident,
much less consented to the use of the same (par. 5 of the complaint). Her
husband likewise admitted that he neither knew this driver Benito Mabasa
(Exhibit '4'). With these declarations of complainant and her husband, we
hold that the person who drove the vehicle, in the person of Benito
Mabasa, is not an authorized driver of the complainant. Apparently, this is
a violation of the 'Authorized Driver' clause of the policy.
Respondent commission likewise upheld private respondent's assertion
that the car was not stolen and therefore not covered by the Theft clause,
ruling that "The element of 'taking' in Article 308 of the Revised Penal Code
means that the act of depriving another of the possession and dominion of
a movable thing is coupled ... with the intention. at the time of the 'taking',
of withholding it with the character of permanency (People vs. Galang, 7
Appt. Ct. Rep. 13). In other words, there must have been shown a
felonious intent upon the part of the taker of the car, and the intent must
be an intent permanently to deprive the insured of his car," and that "Such
was not the case in this instance. The fact that the car was taken by one of
the residents of the Sunday Machine Works, and the withholding of the
same, for a joy ride should not be construed to mean 'taking' under Art.
308 of the Revised Penal Code. If at all there was a 'taking', the same was
merely temporary in nature. A temporary taking is held not a taking
insured against (48 A LR 2d., page 15)."
The Court finds respondent commission's dismissal of the complaint to be
contrary to the evidence and the law.
First, respondent commission's ruling that the person who drove the
vehicle in the person of Benito Mabasa, who, according to its finding, was
one of the residents of the Sunday Machine Works, Inc. to whom the car
had been entrusted for general check-up and repairs was not an
"authorized driver" of petitioner-complainant 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, "obviously call for
greater strictness and vigilance on the part of courts of justice with a view
of protecting the weaker party from abuse and imposition, and prevent
their becoming traps for the unwary.
The main purpose of the "authorized driver" clause, as may be seen from
its text, supra, is that a person other than the insured owner, who drives
the car on the insured's order, such as his regular driver, or with his
permission, such as a friend or member of the family or the employees of a
car service or repair shop must be duly licensed drivers and have no
disqualification to drive a motor vehicle.
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. The mere
happenstance that the employee(s) 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.
The situation is no different from the regular or family driver, who instead
of carrying out the owner's order to fetch the children from school takes
out his girl friend instead for a joy ride and instead wrecks the car. There is
no question of his being an "authorized driver" which allows recovery of
the loss although his trip was for a personal or illicit purpose without the
owner's authorization.
Secondly, and independently of the foregoing (since when a car is
unlawfully taken, it is the theft clause, not the "authorized driver" clause,
that applies), 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 to Montalban
without the owner's consent or knowledge, such taking constitutes or
partakes of the nature of theft as defined in Article 308 of the Revised
Penal Code, viz. "Who are liable for theft. — Theft is committed by any
person who, with intent to gain but without violence against or
intimidation of persons nor force upon things, shall take personal property
of another without the latter's consent," for purposes of recovering the
loss under the policy in question.
The Court rejects respondent 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 evidence does not warrant respondent commission's findings that it
was a mere "joy ride". From the very investigator's report cited in its
comment, 3 the police found from the waist of the car driver Benito
Mabasa Bartolome who smashed the car and was found dead right after
the incident "one cal. 45 Colt. and one apple type grenade," hardly the
materials one would bring along on a "joy ride". Then, again, it is equally
evident that the taking proved to be quite permanent rather than
temporary, for the car was totally smashed in the fatal accident and was
never returned in serviceable and useful condition to petitioner-owner.
Assuming, despite the totally inadequate evidence, that the taking was
"temporary" and for a "joy ride", the Court sustains as the better view that
which holds that when a person, either with the object of going to a
certain place, or learning how to drive, or enjoying a free ride, takes
possession of a vehicle belonging to another, without the consent of its
owner, he is guilty of theft because by taking possession of the personal
property belonging to another and using it, his intent to gain is evident
since he derives therefrom utility, satisfaction, enjoyment and pleasure.
Justice Ramon C. Aquino cites in his work Groizard who holds that the use
of a thing constitutes gain and Cuello Calon who calls it "hurt de uso. " 4
The insurer must therefore indemnify the petitioner-owner for the total
loss of the insured car in the sum of P35,000.00 under the theft clause of
the policy, subject to the filing of such claim for reimbursement or
payment as it may have as subrogee against the Sunday Machine Works,
Inc.
ACCORDINGLY, the appealed decision is set aside and judgment is hereby
rendered sentencing private respondent to pay petitioner the sum of
P35,000.00 with legal interest from the filing of the complaint until full
payment is made and to pay the costs of suit.
SO ORDERED.
G.R. No. L-36480 May 31, 1988
ANDREW PALERMO, plaintiff-appellee, vs. PYRAMID INSURANCE CO.,
INC., defendant- appellant.
GRIÑO-AQUINO, J:
The Court of Appeals certified this case to Us for proper disposition as the
only question involved is the interpretation of the provision of the
insurance contract regarding the "authorized driver" of the insured motor
vehicle.
On March 7, 1969, the insured, appellee Andrew Palermo, filed a
complaint in the Court of First Instance of Negros Occidental against
Pyramid Insurance Co., Inc., for payment of his claim under a Private Car
Comprehensive Policy MV-1251 issued by the defendant (Exh. A).
In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it
disallowed the claim because at the time of the accident, the insured was
driving his car with an expired driver's license.
After the trial, the court a quo rendered judgment on October 29, 1969
ordering the defendant "to pay the plaintiff the sum of P20,000.00, value
of the insurance of the motor vehicle in question and to pay the costs."
On November 26, 1969, the plaintiff filed a "Motion for Immediate
Execution Pending Appeal." It was opposed by the defendant, but was
granted by the trial court on December 15, 1969.
The trial court found the following facts to be undisputed:
On October 12,1968, after having purchased a brand new Nissan Cedric de
Luxe Sedan car bearing Motor No. 087797 from the Ng Sam Bok Motors
Co. in Bacolod City, plaintiff insured the same with the defendant
insurance company against any loss or damage for P 20,000.00 and against
third party liability for P 10,000.00. Plaintiff paid the defendant P 361.34
premium for one year, March 12, 1968 to March 12, 1969, for which
defendant issued Private Car Comprehensive Policy No. MV-1251, marked
Exhibit "A."
The automobile was, however, mortgaged by the plaintiff with the vendor,
Ng Sam Bok Motors Co., to secure the payment of the balance of the
purchase price, which explains why the registration certificate in the name
of the plaintiff remains in the hands of the mortgagee, Ng Sam Bok Motors
Co.
On April 17, 1968, while driving the automobile in question, the plaintiff
met a violent accident. The La Carlota City fire engine crashed head on,
and as a consequence, the plaintiff sustained physical injuries, his father,
Cesar Palermo, who was with am in the car at the time was likewise
seriously injured and died shortly thereafter, and the car in question was
totally wrecked.
The defendant was immediately notified of the occurrence, and upon its
orders, the damaged car was towed from the scene of the accident to the
compound of Ng Sam Bok Motors in Bacolod City where it remains
deposited up to the present time.
The insurance policy, Exhibit "A," grants an option unto the defendant, in
case of accident either to indemnify the plaintiff for loss or damage to the
car in cash or to replace the damaged car. The defendant, however,
refused to take either of the above-mentioned alternatives for the reason
as alleged, that the insured himself had violated the terms of the policy
when he drove the car in question with an expired driver's license.
(Decision, Oct. 29, 1969, p. 68, Record on Appeal.)
Appellant alleges that the trial court erred in interpreting the following
provision of the Private Car Comprehensive Policy MV-1251:
AUTHORIZED DRIVER:
Any of the following:
(a) The Insured.
(b) Any person driving on the Insured's order or with his permission.
Provided that the person driving is permitted in accordance with the
licensing or other laws or regulations to drive the Motor Vehicle and is not
disqualified from driving such motor vehicle by order of a Court of law or
by reason of any enactment or regulation in that behalf. (Exh. "A.")
There is no merit in the appellant's allegation that the plaintiff was not
authorized to drive the insured motor vehicle because his driver's license
had expired. The driver of the insured motor vehicle at the time of the
accident was, the insured himself, hence an "authorized driver" under the
policy.
While the Motor Vehicle Law prohibits a person from operating a motor
vehicle on the highway without a license or with an expired license, an
infraction of the Motor Vehicle Law on the part of the insured, is not a bar
to recovery under the insurance contract. It however renders him subject
to the penal sanctions of the Motor Vehicle Law.
The requirement that the driver be "permitted in accordance with the
licensing or other laws or regulations to drive the Motor Vehicle and is not
disqualified from driving such motor vehicle by order of a Court of Law or
by reason of any enactment or regulation in that behalf," applies only
when the driver" is driving on the insured's order or with his permission."
It does not apply when the person driving is the insured himself.
This view may be inferred from the decision of this Court in Villacorta vs.
Insurance Commission, 100 SCRA 467, where it was held that:
The main purpose of the "authorized driver" clause, as may be seen from
its text, is that a person other than the insured owner, who drives the car
on the insured's order, such as his regular driver, or with his permission,
such as a friend or member of the family or the employees of a car service
or repair shop, must be duly licensed drivers and have no disqualification
to drive a motor vehicle.
In an American case, where the insured herself was personally operating
her automobile but without a license to operate it, her license having
expired prior to the issuance of the policy, the Supreme Court of
Massachusetts was more explicit:
... Operating an automobile on a public highway without a license, which
act is a statutory crime is not precluded by public policy from enforcing a
policy indemnifying her against liability for bodily injuries The inflicted by
use of the automobile." (Drew C. Drewfield McMahon vs. Hannah
Pearlman, et al., 242 Mass. 367, 136 N.E. 154, 23 A.L.R. 1467.)
WHEREFORE, the appealed decision is affirmed with costs against the
defendant-appellant.
SO ORDERED.
G.R. No. 60506 August 6, 1992
FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M.
MASESAR, LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH,
LOPE, JR., and ELVIRA, all surnamed MAGLANA, herein represented by
their mother, FIGURACION VDA. DE MAGLANA, petitioners, vs.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City,
Branch II, and AFISCO INSURANCE CORPORATION, respondents.
ROMERO, J.:
The nature of the liability of an insurer sued together with the
insured/operator-owner of a common carrier which figured in an accident
causing the death of a third person is sought to be defined in this petition
for certiorari.
The facts as found by the trial court are as follows:
. . . Lope Maglana was an employee of the Bureau of Customs whose work
station was at Lasa, here in Davao City. On December 20, 1978, early
morning, Lope Maglana was on his way to his work station, driving a
motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an
accident that resulted in his death. He died on the spot. The PUJ jeep that
bumped the deceased was driven by Pepito Into, operated and owned by
defendant Destrajo. From the investigation conducted by the traffic
investigator, the PUJ jeep was overtaking another passenger jeep that was
going towards the city poblacion. While overtaking, the PUJ jeep of
defendant Destrajo running abreast with the overtaken jeep, bumped the
motorcycle driven by the deceased who was going towards the direction of
Lasa, Davao City. The point of impact was on the lane of the motorcycle
and the deceased was thrown from the road and met his untimely death. 1
Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an
action for damages and attorney's fees against operator Patricio Destrajo
and the Afisco Insurance Corporation (AFISCO for brevity) before the then
Court of First Instance of Davao, Branch II. An information for homicide
thru reckless imprudence was also filed against Pepito Into.
During the pendency of the civil case, Into was sentenced to suffer an
indeterminate penalty of one (1) year, eight (8) months and one (1) day of
prision correccional, as minimum, to four (4) years, nine (9) months and
eleven (11) days of prision correccional, as maximum, with all the
accessory penalties provided by law, and to indemnify the heirs of Lope
Maglana, Sr. in the amount of twelve thousand pesos (P12,000.00) with
subsidiary imprisonment in case of insolvency, plus five thousand pesos
(P5,000.00) in the concept of moral and exemplary damages with costs. No
appeal was interposed by accused who later applied for probation. 2
On December 14, 1981, the lower court rendered a decision finding that
Destrajo had not exercised sufficient diligence as the operator of the
jeepney. The dispositive portion of the decision reads:
WHEREFORE, the Court finds judgment in favor of the plaintiffs against
defendant Destrajo, ordering him to pay plaintiffs the sum of P28,000.00
for loss of income; to pay plaintiffs the sum of P12,000.00 which amount
shall be deducted in the event judgment in Criminal Case No. 3527-D
against the driver, accused Into, shall have been enforced; to pay plaintiffs
the sum of P5,901.70 representing funeral and burial expenses of the
deceased; to pay plaintiffs the sum of P5,000.00 as moral damages which
shall be deducted in the event judgment (sic) in Criminal Case No. 3527-D
against the driver, accused Into; to pay plaintiffs the sum of P3,000.00 as
attorney's fees and to pay the costs of suit.
The defendant insurance company is ordered to reimburse defendant
Destrajo whatever amounts the latter shall have paid only up to the extent
of its insurance coverage.
SO ORDERED.
Petitioners filed a motion for the reconsideration of the second paragraph
of the dispositive portion of the decision contending that AFISCO should
not merely be held secondarily liable because the Insurance Code provides
that the insurer's liability is "direct and primary and/or jointly and severally
with the operator of the vehicle, although only up to the extent of the
insurance coverage." 4 Hence, they argued that the P20,000.00 coverage
of the insurance policy issued by AFISCO, should have been awarded in
their favor.
In its comment on the motion for reconsideration, AFISCO argued that
since the Insurance Code does not expressly provide for a solidary
obligation, the presumption is that the obligation is joint.
In its Order of February 9, 1982, the lower court denied the motion for
reconsideration ruling that since the insurance contract "is in the nature of
suretyship, then the liability of the insurer is secondary only up to the
extent of the insurance coverage."
Petitioners filed a second motion for reconsideration reiterating that the
liability of the insurer is direct, primary and solidary with the jeepney
operator because the petitioners became direct beneficiaries under the
provision of the policy which, in effect, is a stipulation pour autrui. 6 This
motion was likewise denied for lack of merit.
Hence, petitioners filed the instant petition for certiorari which, although it
does not seek the reversal of the lower court's decision in its entirety,
prays for the setting aside or modification of the second paragraph of the
dispositive portion of said decision. Petitioners reassert their position that
the insurance company is directly and solidarily liable with the negligent
operator up to the extent of its insurance coverage.
We grant the petition.
The particular provision of the insurance policy on which petitioners base
their claim is as follows:
Sec. 1 — LIABILITY TO THE PUBLIC
1. The Company will, subject to the Limits of Liability, pay all sums
necessary to discharge liability of the insured in respect of
(a) death of or bodily injury to any THIRD PARTY
(b) ....
2. ....
3. In the event of the death of any person entitled to indemnity
under this Policy, the Company will, in respect of the liability incurred to
such person indemnify his personal representatives in terms of, and
subject to the terms and conditions hereof.
The above-quoted provision leads to no other conclusion but that AFISCO
can be held directly liable by petitioners. As this Court ruled in Shafer vs.
Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures
directly against liability, the insurer's liability accrues immediately upon the
occurrence of the injury or even upon which the liability depends, and
does not depend on the recovery of judgment by the injured party against
the insured." 8 The underlying reason behind the third party liability (TPL)
of the Compulsory Motor Vehicle Liability Insurance is "to protect injured
persons against the insolvency of the insured who causes such injury, and
to give such injured person a certain beneficial interest in the proceeds of
the policy . . ." 9 Since petitioners had received from AFISCO the sum of
P5,000.00 under the no-fault clause, AFISCO's liability is now limited to
P15,000.00.
However, we cannot agree that AFISCO is likewise solidarily liable with
Destrajo. In Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court
had the opportunity to resolve the issue as to the nature of the liability of
the insurer and the insured vis-a-vis the third party injured in an accident.
We categorically ruled thus:
While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the insurer can be
held solidarily liable with the insured and/or the other parties found at
fault. The liability of the insurer is based on contract; that of the insured is
based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent
Vallejos (the injured third party), but it cannot, as incorrectly held by the
trial court, be made "solidarily" liable with the two principal tortfeasors,
namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-
insurer were solidarily liable with said, two (2) respondents by reason of
the indemnity contract against third party liability — under which an
insurer can be directly sued by a third party — this will result in a violation
of the principles underlying solidary obligation and insurance contracts.
(emphasis supplied)
The Court then proceeded to distinguish the extent of the liability and
manner of enforcing the same in ordinary contracts from that of insurance
contracts. While in solidary obligations, the creditor may enforce the entire
obligation against one of the solidary debtors, in an insurance contract, the
insurer undertakes for a consideration to indemnify the insured against
loss, damage or liability arising from an unknown or contingent event. 11
Thus, petitioner therein, which, under the insurance contract is liable only
up to P20,000.00, can not be made solidarily liable with the insured for the
entire obligation of P29,013.00 otherwise there would result "an evident
breach of the concept of solidary obligation."
Similarly, petitioners herein cannot validly claim that AFISCO, whose
liability under the insurance policy is also P20,000.00, can be held solidarily
liable with Destrajo for the total amount of P53,901.70 in accordance with
the decision of the lower court. Since under both the law and the
insurance policy, AFISCO's liability is only up to P20,000.00, the second
paragraph of the dispositive portion of the decision in question may have
unwittingly sown confusion among the petitioners and their counsel. What
should have been clearly stressed as to leave no room for doubt was the
liability of AFISCO under the explicit terms of the insurance contract.
In fine, we conclude that the liability of AFISCO based on the insurance
contract is direct, but not solidary with that of Destrajo which is based on
Article 2180 of the Civil Code. 12 As such, petitioners have the option
either to claim the P15,000 from AFISCO and the balance from Destrajo or
enforce the entire judgment from Destrajo subject to reimbursement from
AFISCO to the extent of the insurance coverage.
While the petition seeks a definitive ruling only on the nature of AFISCO's
liability, we noticed that the lower court erred in the computation of the
probable loss of income. Using the formula: 2/3 of (80-56) x P12,000.00, it
awarded P28,800.00. 13 Upon recomputation, the correct amount is
P192,000.00. Being a "plain error," we opt to correct the same. 14
Furthermore, in accordance with prevailing jurisprudence, the death
indemnity is hereby increased to P50,000.00.
WHEREFORE, premises considered, the present petition is hereby
GRANTED. The award of P28,800.00 representing loss of income is
INCREASED to P192,000.00 and the death indemnity of P12,000.00 to
P50,000.00.
SO ORDERED.
G.R. No. 96452 May 7, 1992
PERLA COMPANIA DE SEGUROS, INC. petitioner, vs. THE COURT OF
APPEALS, HERMINIO LIM and EVELYN LIM, respondents.
G.R. No. 96493 May 7, 1992
FCP CREDIT CORPORATION, petitioner, vs. THE COURT OF APPEALS,
Special Third Division, HERMINIO LIM and EVELYN LIM, respondents.
NOCON, J.:
These are two petitions for review on certiorari, one filed by Perla
Compania de Seguros, Inc. in G.R. No. 96452, and the other by FCP Credit
Corporation in G.R. No. 96493, both seeking to annul and set aside the
decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No.
13037, which reversed the decision of the Regional Trial Court of Manila,
Branch VIII in Civil Case No. 83-19098 for replevin and damages. The
dispositive portion of the decision of the Court of Appeals reads, as
follows:
WHEREFORE, the decision appealed from is reversed; and appellee Perla
Compania de Seguros, Inc. is ordered to indemnify appellants Herminio
and Evelyn Lim for the loss of their insured vehicle; while said appellants
are ordered to pay appellee FCP Credit Corporation all the unpaid
installments that were due and payable before the date said vehicle was
carnapped; and appellee Perla Compania de Seguros, Inc. is also ordered to
pay appellants moral damages of P12,000.00 for the latter's mental
sufferings, exemplary damages of P20,000.00 for appellee Perla Compania
de Seguros, Inc.'s unreasonable refusal on sham grounds to honor the just
insurance claim of appellants by way of example and correction for public
good, and attorney's fees of P10,000.00 as a just and equitable
reimbursement for the expenses incurred therefor by appellants, and the
costs of suit both in the lower court and in this appeal.
The facts as found by the trial court are as follows:
On December 24, 1981, private respondents spouses Herminio and Evelyn
Lim executed a promissory note in favor Supercars, Inc. in the sum of
P77,940.00, payable in monthly installments according to the schedule of
payment indicated in said note, 3 and secured by a chattel mortgage over a
brand new red Ford Laser 1300 5DR Hatchback 1981 model with motor
and serial No. SUPJYK-03780, which is registered under the name of
private respondent Herminio Lim 4 and insured with the petitioner Perla
Compania de Seguros, Inc. (Perla for brevity) for comprehensive coverage
under Policy No. PC/41PP-QCB-43383.
On the same date, Supercars, Inc., with notice to private respondents
spouses, assigned to petitioner FCP Credit Corporation (FCP for brevity) its
rights, title and interest on said promissory note and chattel mortgage as
shown by the Deed of Assignment.
At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped
while parked at the back of Broadway Centrum along N. Domingo Street,
Quezon City. Private respondent Evelyn Lim, who was driving said car
before it was carnapped, immediately called up the Anti-Carnapping Unit
of the Philippine Constabulary to report said incident and thereafter, went
to the nearest police substation at Araneta, Cubao to make a police report
regarding said incident, as shown by the certification issued by the Quezon
City police.
On November 10, 1982, private respondent Evelyn Lim reported said
incident to the Land Transportation Commission in Quezon City, as shown
by the letter of her counsel to said office, 8 in compliance with the
insurance requirement. She also filed a complaint with the Headquarters,
Constabulary Highway Patrol Group.
On November 11, 1982, private respondent filed a claim for loss with the
petitioner Perla but said claim was denied on November 18, 1982 10 on
the ground that Evelyn Lim, who was using the vehicle before it was
carnapped, was in possession of an expired driver's license at the time of
the loss of said vehicle which is in violation of the authorized driver clause
of the insurance policy, which states, to wit:
AUTHORIZED DRIVER:
Any of the following: (a) The Insured (b) Any person driving on the
Insured's order, or with his permission. Provided that the person driving is
permitted, in accordance with the licensing or other laws or regulations, to
drive the Scheduled Vehicle, or has been permitted and is not disqualified
by order of a Court of Law or by reason of any enactment or regulation in
that behalf.
On November 17, 1982, private respondents requests from petitioner FCP
for a suspension of payment on the monthly amortization agreed upon
due to the loss of the vehicle and, since the carnapped vehicle insured with
petitioner Perla, said insurance company should be made to pay the
remaining balance of the promissory note and the chattel mortgage
contract.
Perla, however, denied private respondents' claim. Consequently,
petitioner FCP demanded that private respondents pay the whole balance
of the promissory note or to return the vehicle 12 but the latter refused.
On July 25, 1983, petitioner FCP filed a complaint against private
respondents, who in turn filed an amended third party complaint against
petitioner Perla on December 8, 1983. After trial on the merits, the trial
court rendered a decision, the dispositive portion which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as
follows:
1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly
and severally, plaintiff the sum of P55,055.93 plus interest thereon at the
rate of 24% per annum from July 2, 1983 until fully paid;
2. Ordering defendants to pay plaintiff P50,000.00 as and for
attorney's fees; and the costs of suit.
Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party
Complaint filed against Third-Party Defendant.
Not satisfied with said decision, private respondents appealed the same to
the Court of Appeals, which reversed said decision.
After petitioners' separate motions for reconsideration were denied by the
Court of Appeals in its resolution of December 10, 1990, petitioners filed
these separate petitions for review on certiorari.
Petitioner Perla alleged that there was grave abuse of discretion on the
part of the appellate court in holding that private respondents did not
violate the insurance contract because the authorized driver clause is not
applicable to the "Theft" clause of said Contract.
For its part, petitioner FCP raised the issue of whether or not the loss of
the collateral exempted the debtor from his admitted obligations under
the promissory note particularly the payment of interest, litigation
expenses and attorney's fees.
We find no merit in Perla's petition.
The comprehensive motor car insurance policy issued by petitioner Perla
undertook to indemnify the private respondents against loss or damage to
the car (a) by accidental collision or overturning, or collision or overturning
consequent upon mechanical breakdown or consequent upon wear and
tear; (b) by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft; and (c) by malicious act.
Where a car is admittedly, as in this case, unlawfully and wrongfully taken
without the owner's consent or knowledge, such taking constitutes theft,
and, therefore, it is the "THEFT"' clause, and not the "AUTHORIZED
DRIVER" clause that should apply. As correctly stated by the respondent
court in its decision:
. . . Theft is an entirely different legal concept from that of accident. Theft
is committed by a person with the intent to gain or, to put it in another
way, with the concurrence of the doer's will. On the other hand, accident,
although it may proceed or result from negligence, is the happening of an
event without the concurrence of the will of the person by whose agency it
was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p. 101).
Clearly, the risk against accident is distinct from the risk against theft. The
"authorized driver clause" in a typical insurance policy is in contemplation
or anticipation of accident in the legal sense in which it should be
understood, and not in contemplation or anticipation of an event such as
theft. The distinction — often seized upon by insurance companies in
resisting claims from their assureds — between death occurring as a result
of accident and death occurring as a result of intent may, by analogy, apply
to the case at bar. Thus, if the insured vehicle had figured in an accident at
the time she drove it with an expired license, then, appellee Perla
Compania could properly resist appellants' claim for indemnification for
the loss or destruction of the vehicle resulting from the accident. But in the
present case. The loss of the insured vehicle did not result from an
accident where intent was involved; the loss in the present case was
caused by theft, the commission of which was attended by intent. 15
It is worthy to note that there is no causal connection between the
possession of a valid driver's license and the loss of a vehicle. To rule
otherwise would render car insurance practically a sham since an
insurance company can easily escape liability by citing restrictions which
are not applicable or germane to the claim, thereby reducing indemnity to
a shadow.
We however find the petition of FCP meritorious.
This Court agrees with petitioner FCP that private respondents are not
relieved of their obligation to pay the former the installments due on the
promissory note on account of the loss of the automobile. The chattel
mortgage constituted over the automobile is merely an accessory contract
to the promissory note. Being the principal contract, the promissory note is
unaffected by whatever befalls the subject matter of the accessory
contract. Therefore, the unpaid balance on the promissory note should be
paid, and not just the installments due and payable before the automobile
was carnapped, as erronously held by the Court of Appeals.
However, this does not mean that private respondents are bound to pay
the interest, litigation expenses and attorney's fees stipulated in the
promissory note. Because of the peculiar relationship between the three
contracts in this case, i.e., the promissory note, the chattel mortgage
contract and the insurance policy, this Court is compelled to construe all
three contracts as intimately interrelated to each other, despite the fact
that at first glance there is no relationship whatsoever between the parties
thereto.
Under the promissory note, private respondents are obliged to pay
Supercars, Inc. the amount stated therein in accordance with the schedule
provided for. To secure said promissory note, private respondents
constituted a chattel mortgage in favor of Supercars, Inc. over the
automobile the former purchased from the latter. The chattel mortgage, in
turn, required private respondents to insure the automobile and to make
the proceeds thereof payable to Supercars, Inc. The promissory note and
chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with
the knowledge of private respondents. Private respondents were able to
secure an insurance policy from petitioner Perla, and the same was made
specifically payable to petitioner FCP.
The insurance policy was therefore meant to be an additional security to
the principal contract, that is, to insure that the promissory note will still
be paid in case the automobile is lost through accident or theft. The
Chattel Mortgage Contract provided that:
THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE
THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST
LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE
YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE
MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY
OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT
LESS THAN THE OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION;
THAT HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR
POLICIES, PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS
MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE
MORTGAGEE, . . . .
It is clear from the abovementioned provision that upon the loss of the
insured vehicle, the insurance company Perla undertakes to pay directly to
the mortgagor or to their assignee, FCP, the outstanding balance of the
mortgage at the time of said loss under the mortgage contract. If the claim
on the insurance policy had been approved by petitioner Perla, it would
have paid the proceeds thereof directly to petitioner FCP, and this would
have had the effect of extinguishing private respondents' obligation to
petitioner FCP. Therefore, private respondents were justified in asking
petitioner FCP to demand the unpaid installments from petitioner Perla.
Because petitioner Perla had unreasonably denied their valid claim, private
respondents should not be made to pay the interest, liquidated damages
and attorney's fees as stipulated in the promissory note. As mentioned
above, the contract of indemnity was procured to insure the return of the
money loaned from petitioner FCP, and the unjustified refusal of petitioner
Perla to recognize the valid claim of the private respondents should not in
any way prejudice the latter.
Private respondents can not be said to have unduly enriched themselves at
the expense of petitioner FCP since they will be required to pay the latter
the unpaid balance of its obligation under the promissory note.
In view of the foregoing discussion, We hold that the Court of Appeals did
not err in requiring petitioner Perla to indemnify private respondents for
the loss of their insured vehicle. However, the latter should be ordered to
pay petitioner FCP the amount of P55,055.93, representing the unpaid
installments from December 30, 1982 up to July 1, 1983, as shown in the
statement of account prepared by petitioner FCP, 18 plus legal interest
from July 2, 1983 until fully paid.
As to the award of moral damages, exemplary damages and attorney's
fees, private respondents are legally entitled to the same since petitioner
Perla had acted in bad faith by unreasonably refusing to honor the
insurance claim of the private respondents. Besides, awards for moral and
exemplary damages, as well as attorney's fees are left to the sound
discretion of the Court. Such discretion, if well exercised, will not be
disturbed on appeal.
WHEREFORE, the assailed decision of the Court of Appeals is hereby
MODIFIED to require private respondents to pay petitioner FCP the
amount of P55,055.93, with legal interest from July 2, 1983 until fully paid.
The decision appealed from is hereby affirmed as to all other respects. No
pronouncement as to costs.
SO ORDERED.
G.R. No. 114427 February 6, 1995
ARMANDO GEAGONIA, petitioner, vs. COURT OF APPEALS and COUNTRY
BANKERS INSURANCE CORPORATION, respondents.
DAVIDE, JR., J.:
Four our review under Rule 45 of the Rules of Court is the decision1 of the
Court of Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers
Insurance Corporation versus Armando Geagonia," reversing the decision
of the Insurance Commission in I.C. Case No. 3340 which awarded the
claim of petitioner Armando Geagonia against private respondent Country
Bankers Insurance Corporation.
The petitioner is the owner of Norman's Mart located in the public market
of San Francisco, Agusan del Sur. On 22 December 1989, he obtained from
the private respondent fire insurance policy No. F-146222 for P100,000.00.
The period of the policy was from 22 December 1989 to 22 December 1990
and covered the following: "Stock-in-trade consisting principally of dry
goods such as RTW's for men and women wear and other usual to
assured's business."
The petitioner declared in the policy under the subheading entitled CO-
INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for
P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks
amounting to P392,130.50, itemized as follows:
Zenco Sales, Inc P55,698.00
F. Legaspi Gen. Merchandise 86,432.50
Cebu Tesing Textiles 250,000.00 (on credit)
—————
P392,130.50
The policy contained the following condition:
3. The insured shall give notice to the Company of any insurance or
insurances already affected, or which may subsequently be effected,
covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured, and unless such
notice be given and the particulars of such insurance or insurances be
stated therein or endorsed in this policy pursuant to Section 50 of the
Insurance Code, by or on behalf of the Company before the occurrence of
any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the
total insurance or insurances in force at the time of the loss or damage is
not more than P200,000.00.
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at
the public market of San Francisco, Agusan del Sur. The petitioner's insured
stock-in-trade were completely destroyed prompting him to file with the
private respondent a claim under the policy. On 28 December 1990, the
private respondent denied the claim because it found that at the time of
the loss the petitioner's stocks-in-trade were likewise covered by fire
insurance policies No. GA-28146 and No. GA-28144, for P100,000.00 each,
issued by the Cebu Branch of the Philippines First Insurance Co., Inc.
(hereinafter PFIC). 3 These policies indicate that the insured was "Messrs.
Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause
reading:
MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles,
Cebu City as their interest may appear subject to the terms of this policy.
CO-INSURANCE DECLARED: P100,000. — Phils. First CEB/F 24758.4
The basis of the private respondent's denial was the petitioner's alleged
violation of Condition 3 of the policy.
The petitioner then filed a complaint 5 against the private respondent with
the Insurance Commission (Case No. 3340) for the recovery of P100,000.00
under fire insurance policy No. F-14622 and for attorney's fees and costs of
litigation. He attached as Annex "AM"6 thereof his letter of 18 January
1991 which asked for the reconsideration of the denial. He admitted in the
said letter that at the time he obtained the private respondent's fire
insurance policy he knew that the two policies issued by the PFIC were
already in existence; however, he had no knowledge of the provision in the
private respondent's policy requiring him to inform it of the prior policies;
this requirement was not mentioned to him by the private respondent's
agent; and had it been mentioned, he would not have withheld such
information. He further asserted that the total of the amounts claimed
under the three policies was below the actual value of his stocks at the
time of loss, which was P1,000,000.00.
In its answer, the private respondent specifically denied the allegations in
the complaint and set up as its principal defense the violation of Condition
3 of the policy.
In its decision of 21 June 1993,8 the Insurance Commission found that the
petitioner did not violate Condition 3 as he had no knowledge of the
existence of the two fire insurance policies obtained from the PFIC; that it
was Cebu Tesing Textiles which procured the PFIC policies without
informing him or securing his consent; and that Cebu Tesing Textile, as his
creditor, had insurable interest on the stocks. These findings were based
on the petitioner's testimony that he came to know of the PFIC policies
only when he filed his claim with the private respondent and that Cebu
Tesing Textile obtained them and paid for their premiums without
informing him thereof. The Insurance Commission then decreed:
WHEREFORE, judgment is hereby rendered ordering the respondent
company to pay complainant the sum of P100,000.00 with legal interest
from the time the complaint was filed until fully satisfied plus the amount
of P10,000.00 as attorney's fees. With costs. The compulsory counterclaim
of respondent is hereby dismissed.
Its motion for the reconsideration of the decision 9 having been denied by
the Insurance Commission in its resolution of 20 August 1993, 10 the
private respondent appealed to the Court of Appeals by way of a petition
for review. The petition was docketed as CA-G.R. SP No. 31916.
In its decision of 29 December 1993, 11 the Court of Appeals reversed the
decision of the Insurance Commission because it found that the petitioner
knew of the existence of the two other policies issued by the PFIC. It said:
It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144
that the insurance was taken in the name of private respondent [petitioner
herein]. The policy states that "DISCOUNT MART (MR. ARMANDO
GEAGONIA, PROP)" was the assured and that "TESING TEXTILES" [was] only
the mortgagee of the goods.
In addition, the premiums on both policies were paid for by private
respondent, not by the Tesing Textiles which is alleged to have taken out
the other insurance without the knowledge of private respondent. This is
shown by Premium Invoices nos. 46632 and 46630. (Annexes M and N). In
both invoices, Tesing Textiles is indicated to be only the mortgagee of the
goods insured but the party to which they were issued were the
"DISCOUNT MART (MR. ARMANDO GEAGONIA)."
In is clear that it was the private respondent [petitioner herein] who took
out the policies on the same property subject of the insurance with
petitioner. Hence, in failing to disclose the existence of these insurances
private respondent violated Condition No. 3 of Fire Policy No. 1462. . . .
Indeed private respondent's allegation of lack of knowledge of the
provisions insurances is belied by his letter to petitioner [of 18 January
1991. The body of the letter reads as follows;]
xxx xxx xxx
Please be informed that I have no knowledge of the provision requiring me
to inform your office about my
prior insurance under FGA-28146 and F-CEB-24758. Your representative
did not mention about said requirement at the time he was convincing me
to insure with you. If he only die or even inquired if I had other existing
policies covering my establishment, I would have told him so. You will note
that at the time he talked to me until I decided to insure with your
company the two policies aforementioned were already in effect.
Therefore I would have no reason to withhold such information and I
would have desisted to part with my hard earned peso to pay the
insurance premiums [if] I know I could not recover anything.
Sir, I am only an ordinary businessman interested in protecting my
investments. The actual value of my stocks damaged by the fire was
estimated by the Police Department to be P1,000,000.00 (Please see xerox
copy of Police Report Annex "A"). My Income Statement as of December
31, 1989 or five months before the fire, shows my merchandise inventory
was already some P595,455.75. . . . These will support my claim that the
amount claimed under the three policies are much below the value of my
stocks lost.
xxx xxx xxx
The letter contradicts private respondent's pretension that he did not
know that there were other insurances taken on the stock-in-trade and
seriously puts in question his credibility.
His motion to reconsider the adverse decision having been denied, the
petitioner filed the instant petition. He contends therein that the Court of
Appeals acted with grave abuse of discretion amounting to lack or excess
of jurisdiction:
A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE
INSURANCE COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH THE
DUTY OF DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS
ACCORDED RESPECT AND EVEN FINALITY BY THE COURTS;
B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH
WERE NOT PRESENTED AS EVIDENCE DURING THE HEARING OR TRIAL; AND
C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER
HEREIN AGAINST THE PRIVATE RESPONDENT.
The chief issues that crop up from the first and third grounds are (a)
whether the petitioner had prior knowledge of the two insurance policies
issued by the PFIC when he obtained the fire insurance policy from the
private respondent, thereby, for not disclosing such fact, violating
Condition 3 of the policy, and (b) if he had, whether he is precluded from
recovering therefrom.
The second ground, which is based on the Court of Appeals' reliance on the
petitioner's letter of reconsideration of 18 January 1991, is without merit.
The petitioner claims that the said letter was not offered in evidence and
thus should not have been considered in deciding the case. However, as
correctly pointed out by the Court of Appeals, a copy of this letter was
attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M"
thereof and made integral part of the complaint. It has attained the status
of a judicial admission and since its due execution and authenticity was not
denied by the other party, the petitioner is bound by it even if it were not
introduced as an independent evidence.
As to the first issue, the Insurance Commission found that the petitioner
had no knowledge of the previous two policies. The Court of Appeals
disagreed and found otherwise in view of the explicit admission by the
petitioner in his letter to the private respondent of 18 January 1991, which
was quoted in the challenged decision of the Court of Appeals. These
divergent findings of fact constitute an exception to the general rule that in
petitions for review under Rule 45, only questions of law are involved and
findings of fact by the Court of Appeals are conclusive and binding upon
this Court.
We agree with the Court of Appeals that the petitioner knew of the prior
policies issued by the PFIC. His letter of 18 January 1991 to the private
respondent conclusively proves this knowledge. His testimony to the
contrary before the Insurance Commissioner and which the latter relied
upon cannot prevail over a written admission made ante litem motam. It
was, indeed, incredible that he did not know about the prior policies since
these policies were not new or original. Policy No. GA-28144 was a renewal
of Policy No. F-24758, while Policy No. GA-28146 had been renewed twice,
the previous policy being F-24792.
Condition 3 of the private respondent's Policy No. F-14622 is a condition
which is not proscribed by law. Its incorporation in the policy is allowed by
Section 75 of the Insurance Code 15 which provides that "[a] policy may
declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the
policy." Such a condition is a provision which invariably appears in fire
insurance policies and is intended to prevent an increase in the moral
hazard. It is commonly known as the additional or "other insurance" clause
and has been upheld as valid and as a warranty that no other insurance
exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the other insurance
must be upon same subject matter, the same interest therein, and the
same risk.
As to a mortgaged property, the mortgagor and the mortgagee have each
an independent insurable interest therein and both interests may be one
policy, or each may take out a separate policy covering his interest, either
at the same or at separate times. 18 The mortgagor's insurable interest
covers the full value of the mortgaged property, even though the mortgage
debt is equivalent to the full value of the property.19 The mortgagee's
insurable interest is to the extent of the debt, since the property is relied
upon as security thereof, and in insuring he is not insuring the property but
his interest or lien thereon. His insurable interest is prima facie the value
mortgaged and extends only to the amount of the debt, not exceeding the
value of the mortgaged property. 20 Thus, separate insurances covering
different insurable interests may be obtained by the mortgagor and the
mortgagee.
A mortgagor may, however, take out insurance for the benefit of the
mortgagee, which is the usual practice. The mortgagee may be made the
beneficial payee in several ways. He may become the assignee of the policy
with the consent of the insurer; or the mere pledgee without such consent;
or the original policy may contain a mortgage clause; or a rider making the
policy payable to the mortgagee "as his interest may appear" may be
attached; or a "standard mortgage clause," containing a collateral
independent contract between the mortgagee and insurer, may be
attached; or the policy, though by its terms payable absolutely to the
mortgagor, may have been procured by a mortgagor under a contract duty
to insure for the mortgagee's benefit, in which case the mortgagee
acquires an equitable lien upon the proceeds.
In the policy obtained by the mortgagor with loss payable clause in favor of
the mortgagee as his interest may appear, the mortgagee is only a
beneficiary under the contract, and recognized as such by the insurer but
not made a party to the contract himself. Hence, any act of the mortgagor
which defeats his right will also defeat the right of the mortgagee. 22 This
kind of policy covers only such interest as the mortgagee has at the issuing
of the policy.
On the other hand, a mortgagee may also procure a policy as a contracting
party in accordance with the terms of an agreement by which the
mortgagor is to pay the premiums upon such insurance. 24 It has been
noted, however, that although the mortgagee is himself the insured, as
where he applies for a policy, fully informs the authorized agent of his
interest, pays the premiums, and obtains on the assurance that it insures
him, the policy is in fact in the form used to insure a mortgagor with loss
payable clause.
The fire insurance policies issued by the PFIC name the petitioner as the
assured and contain a mortgage clause which reads:
Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as
their interest may appear subject to the terms of this policy.
This is clearly a simple loss payable clause, not a standard mortgage clause.
It must, however, be underscored that unlike the "other insurance" clauses
involved in General Insurance and Surety Corp. vs. Ng Hua 26 or in Pioneer
Insurance & Surety Corp. vs. Yap, 27 which read:
The insured shall give notice to the company of any insurance or
insurances already effected, or which may subsequently be effected
covering any of the property hereby insured, and unless such notice be
given and the particulars of such insurance or insurances be stated in or
endorsed on this Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefits under this Policy shall be
forfeited.
or in the 1930 case of Santa Ana vs. Commercial Union Assurance
Co. 28 which provided "that any outstanding insurance upon the whole or
a portion of the objects thereby assured must be declared by the insured
in writing and he must cause the company to add or insert it in the policy,
without which such policy shall be null and void, and the insured will not
be entitled to indemnity in case of loss," Condition 3 in the private
respondent's policy No. F-14622 does not absolutely declare void any
violation thereof. It expressly provides that the condition "shall not apply
when the total insurance or insurances in force at the time of the loss or
damage is not more than P200,000.00."
It is a cardinal rule on insurance that a policy or insurance contract is to be
interpreted liberally in favor of the insured and strictly against the
company, the reason being, undoubtedly, to afford the greatest protection
which the insured was endeavoring to secure when he applied for
insurance. It is also a cardinal principle of law that forfeitures are not
favored and that any construction which would result in the forfeiture of
the policy benefits for the person claiming thereunder, will be avoided, if it
is possible to construe the policy in a manner which would permit
recovery, as, for example, by finding a waiver for such forfeiture. 29 Stated
differently, provisions, conditions or exceptions in policies which tend to
work a forfeiture of insurance policies should be construed most strictly
against those for whose benefits they are inserted, and most favorably
toward those against whom they are intended to operate. 30 The reason
for this is that, except for riders which may later be inserted, the insured
sees the contract already in its final form and has had no voice in the
selection or arrangement of the words employed therein. On the other
hand, the language of the contract was carefully chosen and deliberated
upon by experts and legal advisers who had acted exclusively in the
interest of the insurers and the technical language employed therein is
rarely understood by ordinary laymen.
With these principles in mind, we are of the opinion that Condition 3 of the
subject policy is not totally free from ambiguity and must, perforce, be
meticulously analyzed. Such analysis leads us to conclude that (a) the
prohibition applies only to double insurance, and (b) the nullity of the
policy shall only be to the extent exceeding P200,000.00 of the total
policies obtained.
The first conclusion is supported by the portion of the condition referring
to other insurance "covering any of the property or properties consisting of
stocks in trade, goods in process and/or inventories only hereby insured,"
and the portion regarding the insured's declaration on the subheading CO-
INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum
of P50,000.00. A double insurance exists where the same person is insured
by several insurers separately in respect of the same subject and interest.
As earlier stated, the insurable interests of a mortgagor and a mortgagee
on the mortgaged property are distinct and separate. Since the two
policies of the PFIC do not cover the same interest as that covered by the
policy of the private respondent, no double insurance exists. The non-
disclosure then of the former policies was not fatal to the petitioner's right
to recover on the private respondent's policy.
Furthermore, by stating within Condition 3 itself that such condition shall
not apply if the total insurance in force at the time of loss does not exceed
P200,000.00, the private respondent was amenable to assume a co-
insurer's liability up to a loss not exceeding P200,000.00. What it had in
mind was to discourage over-insurance. Indeed, the rationale behind the
incorporation of "other insurance" clause in fire policies is to prevent over-
insurance and thus avert the perpetration of fraud. When a property
owner obtains insurance policies from two or more insurers in a total
amount that exceeds the property's value, the insured may have an
inducement to destroy the property for the purpose of collecting the
insurance. The public as well as the insurer is interested in preventing a
situation in which a fire would be profitable to the insured.32
WHEREFORE, the instant petition is hereby GRANTED. The decision of the
Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the decision of
the Insurance Commission in Case No. 3340 is REINSTATED.
Costs against private respondent Country Bankers Insurance Corporation.
SO ORDERED.
G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner, vs. COURT OF
APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari
is whether the petitioner is liable under the Money, Security, and Payroll
Robbery policy it issued to the private respondent or whether recovery
thereunder is precluded under the general exceptions clause thereof. Both
the trial court and the Court of Appeals held that there should be recovery.
The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of
Makati, Metro Manila, by private respondent Producers Bank of the
Philippines (hereinafter Producers) against petitioner Fortune Insurance
and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the
sum of P725,000.00 under the policy issued by Fortune. The sum was
allegedly lost during a robbery of Producer's armored vehicle while it was
in transit to transfer the money from its Pasay City Branch to its head office
in Makati. The case was docketed as Civil Case No. 1817 and assigned to
Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment
based on the following stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance
policy was issued, the duplicate original of which is hereto attached as
Exhibit "A";
2. An armored car of the plaintiff, while in the process of
transferring cash in the sum of P725,000.00 under the custody of its teller,
Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo
de Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said
cash. The robbery took place while the armored car was traveling along
Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y de
Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver
Magalong was assigned by PRC Management Systems with the plaintiff by
virtue of an Agreement executed on August 7, 1983, a duplicate original
copy of which is hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security
Services, Inc. with the plaintiff by virtue of a contract of Security Service
executed on October 25, 1982, a duplicate original copy of which is hereto
attached as Exhibit "C";
5. After an investigation conducted by the Pasay police authorities,
the driver Magalong and guard Atiga were charged, together with Edelmer
Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D.
532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy of
the complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the
aforesaid persons with the said crime before Branch 112 of the Regional
Trial Court of Pasay City. A copy of the said information is hereto attached
as Exhibit "E." The case is still being tried as of this date;
7. Demands were made by the plaintiff upon the defendant to pay
the amount of the loss of P725,000.00, but the latter refused to pay as the
loss is excluded from the coverage of the insurance policy, attached hereto
as Exhibit "A," specifically under page 1 thereof, "General Exceptions"
Section (b), which is marked as Exhibit "A-1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or authorized
representative of the Insured whether acting alone or in conjunction with
others. . . .
8. The plaintiff opposes the contention of the defendant and
contends that Atiga and Magalong are not its "officer, employee, . . .
trustee or authorized representative . . . at the time of the robbery.
On 26 April 1990, the trial court rendered its decision in favor of Producers.
The dispositive portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and
(a) orders defendant to pay plaintiff the net amount of P540,000.00
as liability under Policy No. 0207 (as mitigated by the P40,000.00 special
clause deduction and by the recovered sum of P145,000.00), with interest
thereon at the legal rate, until fully paid;
(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for
attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED.
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and
engaged Magalong and Atiga, their services as armored car driver and as
security guard having been merely offered by PRC Management and by
Unicorn Security and which latter firms assigned them to plaintiff. The
wages and salaries of both Magalong and Atiga are presumably paid by
their respective firms, which alone wields the power to dismiss them.
Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such — in a context
which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond
perhaps entitling plaintiff to request are replacement for such driver
guard. The finding is accordingly compelled that neither Magalong nor
Atiga were plaintiff's "employees" in avoidance of defendant's liability
under the policy, particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver
Magalong and guard Atiga were the "authorized representatives" of
plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from plaintiff's
Pasay Branch to its Makati Head Office. Quite plainly — it was teller
Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then
designated "messenger" adverted to in the policy.
Fortune appealed this decision to the Court of Appeals which docketed the
case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May
1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that
Magalong and Atiga were neither employees nor authorized
representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the
insured and strictly against the insurance company (New Life Enterprises
vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of
Appeals, 211 SCRA 554). 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 (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd.
vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation
is plain, ordinary and simple. No other interpretation is necessary. The
word "employee" must be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically
designed to protect labor and therefore its definition as to employer-
employee relationships insofar as the application/enforcement of said
Code is concerned must necessarily be inapplicable to an insurance
contract which defendant-appellant itself had formulated. Had it intended
to apply the Labor Code in defining what the word "employee" refers to, it
must/should have so stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of
plaintiff-appellee bank because it has no power to hire or to dismiss said
driver and security guard under the contracts (Exhs. 8 and C) except only to
ask for their replacements from the contractors.
On 20 June 1994, Fortune filed this petition for review on certiorari. It
alleges that the trial court and the Court of Appeals erred in holding it
liable under the insurance policy because the loss falls within the general
exceptions clause considering that driver Magalong and security guard
Atiga were Producers' authorized representatives or employees in the
transfer of the money and payroll from its branch office in Pasay City to its
head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver
to transfer its funds from one branch to another, they effectively and
necessarily became its authorized representatives in the care and custody
of the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It
asserts that the existence of an employer-employee relationship "is
determined by law and being such, it cannot be the subject of agreement."
Thus, if there was in reality an employer-employee relationship between
Producers, on the one hand, and Magalong and Atiga, on the other, the
provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that
Producers is not their employer and that it is absolved from any liability as
an employer, would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon
four standards: (1) the manner of selection and engagement of the
putative employee; (2) the mode of payment of wages; (3) the presence or
absence of a power to dismiss; and (4) the presence and absence of a
power to control the putative employee's conduct. Of the four, the right-
of-control test has been held to be the decisive factor. 6 It asserts that the
power of control over Magalong and Atiga was vested in and exercised by
Producers. Fortune further insists that PRC Management System and
Unicorn Security Services are but "labor-only" contractors under Article
106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. — There is "labor-only" contracting
where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and
placed by such persons are performing activities which are directly related
to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who
shall be responsible to the workers in the same manner and extent as if
the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of
Producers, following the ruling in International Timber Corp. vs. NLRC 7
that a finding that a contractor is a "labor-only" contractor is equivalent to
a finding that there is an employer-employee relationship between the
owner of the project and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not
its employees since it had nothing to do with their selection and
engagement, the payment of their wages, their dismissal, and the control
of their conduct. Producers argued that the rule in International Timber
Corp. is not applicable to all cases but only when it becomes necessary to
prevent any violation or circumvention of the Labor Code, a social
legislation whose provisions may set aside contracts entered into by
parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule in
American President Lines vs. Clave, to wit:
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the
latter which assigned Magalong as the driver of Producers' armored car
and was responsible for his faithful discharge of his duties and
responsibilities, and since Producers paid the monthly compensation of
P1,400.00 per driver to PRC Management Systems and not to Magalong, it
is clear that Magalong was not Producers' employee. As to Atiga,
Producers relies on the provision of its contract with Unicorn Security
Services which provides that the guards of the latter "are in no sense
employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a
theft or robbery insurance policy which is a form of casualty insurance.
Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability
arising from accident or mishap, excluding certain types of loss which by
law or custom are considered as falling exclusively within the scope of
insurance such as fire or marine. It includes, but is not limited to,
employer's liability insurance, public liability insurance, motor vehicle
liability insurance, plate glass insurance, burglary and theft insurance,
personal accident and health insurance as written by non-life insurance
companies, and other substantially similar kinds of insurance. (emphases
supplied)
Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty
insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of
insurance. Outside of these, the rights and obligations of the parties must
be determined by the terms of their contract, taking into consideration its
purpose and always in accordance with the general principles of insurance
law.
It has been aptly observed that in burglary, robbery, and theft insurance,
"the opportunity to defraud the insurer — the moral hazard — is so great
that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10
Persons frequently excluded under such provisions are those in the
insured's service and employment. 11 The purpose of the exception is to
guard against liability should the theft be committed by one having
unrestricted access to the property. 12 In such cases, the terms specifying
the excluded classes are to be given their meaning as understood in
common speech. The terms "service" and "employment" are generally
associated with the idea of selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity
therein should be resolved against the insurer, 15 or it should be construed
liberally in favor of the insured and strictly against the insurer. 16
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
obligation. 17 It goes without saying then that if the terms of the contract
are clear and unambiguous, there is no room for construction and such
terms cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and
conditions specified therein. 19 It is settled that the terms of the policy
constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same
rights as individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with
public policy.
With the foregoing principles in mind, it may now be asked whether
Magalong and Atiga qualify as employees or authorized representatives of
Producers under paragraph (b) of the general exceptions clause of the
policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or authorized
representative of the Insured whether acting alone or in conjunction with
others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning
of the terms "employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to
exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then the
term "employee," it must have had in mind any person who qualifies as
such as generally and universally understood, or jurisprudentially
established in the light of the four standards in the determination of the
employer-employee relationship, 21 or as statutorily declared even in a
limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of
the party employing them and not of the party who supplied them to the
employer.
Fortune claims that Producers' contracts with PRC Management Systems
and Unicorn Security Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is not the
employer of Magalong. Notwithstanding such express assumption of PRC
Management Systems and Unicorn Security Services that the drivers and
the security guards each shall supply to Producers are not the latter's
employees, it may, in fact, be that it is because the contracts are, indeed,
"labor-only" contracts. Whether they are is, in the light of the criteria
provided for in Article 106 of the Labor Code, a question of fact. Since the
parties opted to submit the case for judgment on the basis of their
stipulation of facts which are strictly limited to the insurance policy, the
contracts with PRC Management Systems and Unicorn Security Services,
the complaint for violation of P.D. No. 532, and the information therefor
filed by the City Fiscal of Pasay City, there is a paucity of evidence as to
whether the contracts between Producers and PRC Management Systems
and Unicorn Security Services are "labor-only" contracts.
But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn
Security Services were truly independent contractors, we are satisfied that
Magalong and Atiga were, in respect of the transfer of Producer's money
from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to
safely transfer the money to its head office, with Alampay to be
responsible for its custody in transit; Magalong to drive the armored
vehicle which would carry the money; and Atiga to provide the needed
security for the money, the vehicle, and his two other companions. In
short, for these particular tasks, the three acted as agents of Producers. A
"representative" is defined as one who represents or stands in the place of
another; one who represents others or another in a special capacity, as an
agent, and is interchangeable with "agent."
In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the
Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that
of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817
are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is
DISMISSED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-34200 September 30, 1982
REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON,
petitioners-appellants, vs. MANILA BANKERS LIFE INSURANCE
CORPORATION and the COURT OF FIRST INSTANCE OF RIZAL, BRANCH V,
QUEZON CITY, respondents-appellees.
VASQUEZ, J.:
The question of law raised in this case that justified a direct appeal from a
decision of the Court of First Instance Rizal, Branch V, Quezon City, to be
taken directly to the Supreme Court is whether or not the acceptance by
the private respondent insurance corporation of the premium and the
issuance of the corresponding certificate of insurance should be deemed a
waiver of the exclusionary condition of overage stated in the said
certificate of insurance.
The material facts are not in dispute. Sometime in April 1969, Carmen O,
Lapuz applied with respondent insurance corporation for insurance
coverage against accident and injuries. She filled up the blank application
form given to her and filed the same with the respondent insurance
corporation. In the said application form which was dated April 15, 1969,
she gave the date of her birth as July 11, 1904. On the same date, she paid
the sum of P20.00 representing the premium for which she was issued the
corresponding receipt signed by an authorized agent of the respondent
insurance corporation. (Rollo, p. 27.) Upon the filing of said application and
the payment of the premium on the policy applied for, the respondent
insurance corporation issued to Carmen O. Lapuz its Certificate of
Insurance No. 128866. (Rollo, p. 28.) The policy was to be effective for a
period of 90 days.
On May 31, 1969 or during the effectivity of Certificate of Insurance No.
12886, Carmen O. Lapuz died in a vehicular accident in the North Diversion
Road.
On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and
who was the named beneficiary in the policy, filed her claim for the
proceeds of the insurance, submitting all the necessary papers and other
requisites with the private respondent. Her claim having been denied,
Regina L. Edillon instituted this action in the Court of First Instance of Rizal
on August 27, 1969.
In resisting the claim of the petitioner, the respondent insurance
corporation relies on a provision contained in the Certificate of Insurance,
excluding its liability to pay claims under the policy in behalf of "persons
who are under the age of sixteen (16) years of age or over the age of sixty
(60) years ..." It is pointed out that the insured being over sixty (60) years
of age when she applied for the insurance coverage, the policy was null
and void, and no risk on the part of the respondent insurance corporation
had arisen therefrom.
The trial court sustained the contention of the private respondent and
dismissed the complaint; ordered the petitioner to pay attorney's fees in
the sum of ONE THOUSAND (P1,000.00) PESOS in favor of the private
respondent; and ordered the private respondent to return the sum of
TWENTY (P20.00) PESOS received by way of premium on the insurancy
policy. It was reasoned out that a policy of insurance being a contract of
adhesion, it was the duty of the insured to know the terms of the contract
he or she is entering into; the insured in this case, upon learning from its
terms that she could not have been qualified under the conditions stated
in said contract, what she should have done is simply to ask for a refund of
the premium that she paid. It was further argued by the trial court that the
ruling calling for a liberal interpretation of an insurance contract in favor of
the insured and strictly against the insurer may not be applied in the
present case in view of the peculiar facts and circumstances obtaining
therein.
We REVERSE the judgment of the trial court. The age of the insured
Carmen 0. Lapuz was not concealed to the insurance company. Her
application for insurance coverage which was on a printed form furnished
by private respondent and which contained very few items of information
clearly indicated her age of the time of filing the same to be almost 65
years of age. Despite such information which could hardly be overlooked in
the application form, considering its prominence thereon and its
materiality to the coverage applied for, the respondent insurance
corporation received her payment of premium and issued the
corresponding certificate of insurance without question. The accident
which resulted in the death of the insured, a risk covered by the policy,
occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the insurance
coverage was applied for. There was sufficient time for the private
respondent to process the application and to notice that the applicant was
over 60 years of age and thereby cancel the policy on that ground if it was
minded to do so. If the private respondent failed to act, it is either because
it was willing to waive such disqualification; or, through the negligence or
incompetence of its employees for which it has only itself to blame, it
simply overlooked such fact. Under the circumstances, the insurance
corporation is already deemed in estoppel. It inaction to revoke the policy
despite a departure from the exclusionary condition contained in the said
policy constituted a waiver of such condition, as was held in the case of
"Que Chee Gan vs. Law Union Insurance Co., Ltd.,", 98 Phil. 85. This case
involved a claim on an insurance policy which contained a provision as to
the installation of fire hydrants the number of which depended on the
height of the external wan perimeter of the bodega that was insured.
When it was determined that the bodega should have eleven (11) fire
hydrants in the compound as required by the terms of the policy, instead
of only two (2) that it had, the claim under the policy was resisted on that
ground. In ruling that the said deviation from the terms of the policy did
not prevent the claim under the same, this Court stated the following:
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 an that the number of hydrants
demanded therein never existed from the very beginning, the appellant
nevertheless 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 claim 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
Que 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 it 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
known facts, and the insurer is stopped thereafter 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 execute 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 is 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 be
abhorent to fairminded men. It would be to allow the company to treat the
policy as valid long enough to get the premium 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, 543544).
A similar view was upheld in the case of Capital Insurance & Surety Co., Inc.
vs. Plastic Era Co., Inc., 65 SCRA 134, which involved a violation of the
provision of the policy requiring the payment of premiums before the
insurance shall become effective. The company issued the policy upon the
execution of a promissory note for the payment of the premium. A check
given subsequent by the insured as partial payment of the premium was
dishonored for lack of funds. Despite such deviation from the terms of the
policy, the insurer was held liable.
Significantly, in the case before Us the Capital Insurance accepted the
promise of Plastic Era to pay the insurance premium within thirty (30) days
from the effective date of policy. By so doing, it has impliedly agreed to
modify the tenor of the insurance policy and in effect, waived the provision
therein that it would only pay for the loss or damage in case the same
occurs after the payment of the premium. Considering that the insurance
policy is silent as to the mode of payment, Capital Insurance is deemed to
have accepted the promissory note in payment of the premium. This
rendered the policy immediately operative on the date it was delivered.
The view taken in most cases in the United States:
... is that although one of conditions of an insurance policy is that "it shall
not be valid or binding until the first premium is paid", if it is silent as to
the mode of payment, promissory notes received by the company must be
deemed to have been accepted in payment of the premium. In other
words, a requirement for the payment of the first or initial premium in
advance or actual cash may be waived by acceptance of a promissory
note...
WHEREFORE, the judgment appealed from is hereby REVERSED and SET
ASIDE. In lieu thereof, the private respondent insurance corporation is
hereby ordered to pay to the petitioner the sum of TEN THOUSAND
(P10,000.00) PESOS as proceeds of Insurance Certificate No. 128866 with
interest at the legal rate from May 31, 1969 until fully paid, the further
sum of TWO THOUSAND (P2,000.00) PESOS as and for attorney's fees, and
the costs of suit.
SO ORDERED.
G.R. No. 78860 May 28, 1990
PERLA COMPANIA DE SEGUROS, INC., petitioner, vs. HONORABLE COURT
OF APPEALS and MILAGROS CAYAS, respondents.
FERNAN, C.J.:
This is a petition for review on certiorari of the decision of the Court of
Appeals 1 affirming in toto the decision of the Regional Trial Court of
Cavite, Branch XVI, 2 the dispositive portion of which states:
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering
defendant Perla Compania de Seguros, Inc. to pay plaintiff Milagros Cayas
the sum of P50,000.00 under its maximum liability as provided for in the
insurance policy; and the sum of P5,000.00 as reasonable attorney's fee
with costs against said defendant.
SO ORDERED.
Private respondent Milagros Cayas was the registered owner of a Mazda
bus with serial No. TA3H4 P-000445 and plate No. PUB-4G-593. 4 Said
passenger vehicle was insured with Perla Compania de Seguros, Inc. (PCSI)
under policy No. LTO/60CC04241 issued on February 3, 1978. 5
On December 17, 1978, the bus figured in an accident in Naic, Cavite
injuring several of its passengers. One of them, 19-year old Edgardo Perea,
sued Milagros Cayas for damages in the Court of First Instance of Cavite,
Branch 6 docketed as Civil Case No. NC-794; while three others, namely:
Rosario del Carmen, Ricardo Magsarili and Charlie Antolin, agreed to a
settlement of P4,000.00 each with Milagros Cayas.
At the pre-trial of Civil Case No. NC-794, Milagros Cayas failed to appear
and hence, she was declared as in default. After trial, the court rendered a
decision 7 in favor of Perea with its dispositive portion reading thus:
WHEREFORE, under our present imperatives, judgment is hereby rendered
in favor of the plaintiffs and against the defendant Milagros Cayas who is
hereby ordered to compensate the plaintiff' Edgar Perea with damages in
the sum of Ten Thousand (Pl0,000.00) Pesos for the medical predicament
he found himself as damaging consequences of defendant Milagros Cayas
complete lack of diligence of a good father of a family' when she secured
the driving services of one Oscar Figueroa on December, 17, 1978; the sum
of Ten Thousand (P10,000.00) Pesos for exemplary damages; the sum of
Five Thousand (P5,000.00) Pesos for moral damages; the sum of Seven
Thousand (P7,000.00) Pesos for Attorney's fees, under the imperatives of
the monetary power of the peso today;
With costs against the defendant.
SO ORDERED.
When the decision in Civil Case No. NC-794 was about to be executed
against her, Milagros Cayas filed a complaint against PCSI in the Office of
the Insurance Commissioner praying that PCSI be ordered to pay
P40,000.00 for all the claims against her arising from the vehicular accident
plus legal and other expenses. Realizing her procedural mistake, she later
withdrew said complaint.
Consequently, on November 11, 1981, Milagros Cayas filed a complaint for
a sum of money and damages against PCSI in the Court of First Instance of
Cavite (Civil Case No. N-4161). She alleged therein that to satisfy the
judgment in Civil Case No. NC-794, her house and lot were levied upon and
sold at public auction for P38,200; 10 that to avoid numerous suits and the
"detention" of the insured vehicle, she paid P4,000 to each of the following
injured passengers: Rosario del Carmen, Ricardo Magsarili and Charlie
Antolin; that she could not have suffered said financial setback had the
counsel for PCSI, who also represented her, appeared at the trial of Civil
Case No. NC-794 and attended to the claims of the three other victims;
that she sought reimbursement of said amounts from the defendant,
which notwithstanding the fact that her claim was within its contractual
liability under the insurance policy, refused to make such re-imbursement;
that she suffered moral damages as a consequence of such refusal, and
that she was constrained to secure the services of counsel to protect her
rights. She prayed that judgment be rendered directing PCSI to pay her
P50,000 for compensation of the injured victims, such sum as the court
might approximate as damages, and P6,000 as attorney's fees.
In view of Milagros Cayas' failure to prosecute the case, the court motu
propio ordered its dismissal without prejudice. 11 Alleging that she had not
received a copy of the answer to the complaint, and that "out of
sportsmanship", she did not file a motion to hold PCSI in default, Milagros
Cayas moved for the reconsideration of the dismissal order. Said motion
for reconsideration was acted upon favorably by the court in its order of
March 31, 1982.
About two months later, Milagros Cayas filed a motion to declare PCSI in
default for its failure to file an answer. The motion was granted and
plaintiff was allowed to adduce evidence ex-parte. On July 13, 1982, the
court rendered judgment by default ordering PCSI to pay Milagros Cayas
P50,000 as compensation for the injured passengers, P5,000 as moral
damages and P5,000 as attorney's fees.
Said decision was set aside after the PCSI filed a motion therefor. Trial of
the case ensued. In due course, the court promulgated a decision in Civil
Case No. N-4161, the dispositive portion of which was quoted earlier,
finding that:
In disavowing its obligation to plaintiff under the insurance policy,
defendant advanced the proposition that before it can be made to pay, the
liability must first be determined in an appropriate court action. And so
plaintiffs liability was determined in that case filed against her by Perea in
the Naic CFI. Still, despite this determination of liability, defendant sought
escape from its obligation by positing the theory that plaintiff Milagros
Cayas lost the Naic case due to her negligence because of which, efforts
exerted by defendant's lawyers in protecting Cayas' rights proved futile
and rendered nugatory. Blame was laid entirely on plaintiff by defendant
for losing the Naic case. Defendant labored under the impression that had
Cayas cooperated fully with defendant's lawyers, the latter could have won
the suit and thus relieved of any obligation to Perea Defendant's posture is
stretching the factual circumstances of the Naic case too far. But even
accepting defendant's postulate, it cannot be said, nor was it shown
positively and convincingly, that if the Naic case had proceeded on trial on
the merits, a decision favorable to Milagros Cayas could have been
obtained. Nor was it definitely established that if the pre-trial was
undertaken in that case, defendant's lawyers could have mitigated the
claim for damages by Perea against Cayas.
The court, however, held that inasmuch as Milagros Cayas failed to
establish that she underwant moral suffering and mental anguish to justify
her prayer for damages, there should be no such award. But, there being
proof that she was compelled to engage the services of counsel to protect
her rights under the insurance policy, the court allowed attorney's fees in
the amount of P5,000.
PCSI appealed to the Court of Appeals, which, in its decision of May 8,
1987 affirmed in toto the lower court's decision. Its motion for
reconsideration having been denied by said appellate court, PCSI filed the
instant petition charging the Court of Appeals with having erred in
affirming in toto the decision of the lower court.
At the outset, we hold as factual and therefore undeserving of this Court's
attention, petitioner's assertions that private respondent lost Civil Case No.
NC-794 because of her negligence and that there is no proof that the
decision in said case has been executed. Said contentions, having been
raised and threshed out in the Court of Appeals and rejected by it, may no
longer be addressed to this Court.
Petitioner's other contentions are primarily concerned with the extent of
its liability to private respondent under the insurance policy. This, we
consider to be the only issue in this case.
Petitioner seeks to limit its liability only to the payment made by private
respondent to Perea and only up to the amount of P12,000.00. It
altogether denies liability for the payments made by private respondents
to the other three (3) injured passengers Rosario del Carmen, Ricardo
Magsarili and Charlie Antolin in the amount of P4,000.00 each or a total of
P12,000.00.
There is merit in petitioner's assertions.
The insurance policy involved explicitly limits petitioner's liability to
P12,000.00 per person and to P50,000.00 per accident. 13 Pertinent
provisions of the policy also state:
SECTION I-Liability to the Public
xxx xxx xxx
3. The Limit of Liability stated in Schedule A as applicable (a) to
THIRD PARTY is the limit of the Company's liability for all damages arising
out of death, bodily injury and damage to property combined so sustained
as the result of any one accident; (b) "per person" for PASSENGER liability
is the limit of the Company's liability for all damages arising out of death or
bodily injury sustained by one person as the result of any one accident: (c)
"per accident" for PASSENGER liability is, subject to the above provisions
respecting per person, the total limit of the Company's liability for all such
damages arising out of death or bodily injury sustained by two or more
persons as the result of any one accident.
Conditions Applicable to All Sections
xxx xxx xxx
5. No admission, offer, promise or payment shall be made by or on
behalf of the insured without the written consent of the Company which
shall be entitled, if it so desires, to take over and conduct in his (sic) name
the defense or settlement of any claim, or to prosecute in his (sic) name
for its own benefit any claim for indemnity or damages or otherwise, and
shall have full discretion in the conduct of any proceedings in the
settlement of any claim, and the insured shall give all such information and
assistance as the Company may require. If the Company shall make any
payment in settlement of any claim, and such payment includes any
amount not covered by this Policy, the Insured shall repay the Company
the amount not so covered.
We have ruled in Stokes vs. Malayan Insurance Co., Inc., 14 that the terms
of the contract constitute the measure of the insurer's liability and
compliance therewith is a condition precedent to the insured's right of
recovery from the insurer.
In the case at bar, the insurance policy clearly and categorically placed
petitioner's liability for all damages arising out of death or bodily injury
sustained by one person as a result of any one accident at P12,000.00. Said
amount complied with the minimum fixed by the law then prevailing,
Section 377 of Presidential Decree No. 612 (which was retained by P.D. No.
1460, the Insurance Code of 1978), which provided that the liability of land
transportation vehicle operators for bodily injuries sustained by a
passenger arising out of the use of their vehicles shall not be less than
P12,000. In other words, under the law, the minimum liability is P12,000
per passenger. Petitioner's liability under the insurance contract not being
less than P12,000.00, and therefore not contrary to law, morals, good
customs, public order or public policy, said stipulation must be upheld as
effective, valid and binding as between the parties.
In like manner, we rule as valid and binding upon private respondent the
condition above-quoted requiring her to secure the written permission of
petitioner before effecting any payment in settlement of any claim against
her. There is nothing unreasonable, arbitrary or objectionable in this
stipulation as would warrant its nullification. The same was obviously
designed to safeguard the insurer's interest against collusion between the
insured and the claimants.
In her cross-examination before the trial court, Milagros Cayas admitted,
thus:
Atty. Yabut:
q With respect to the other injured passengers of your bus wherein
you made payments you did not secure the consent of defendant (herein
petitioner) Perla Compania de Seguros when you made those payments?
a I informed them about that
q But they did not give you the written authority that you were
supposed to pay those claims?
a No, sir .
It being specifically required that petitioner's written consent be first
secured before any payment in settlement of any claim could be made,
private respondent is precluded from seeking reimbursement of the
payments made to del Carmen, Magsarili and Antolin in view of her failure
to comply with the condition contained in the insurance policy.
Clearly, the fundamental principle that contracts are respected as the law
between the contracting parties finds application in the present case. 17
Thus, it was error on the part of the trial and appellate courts to have
disregarded the stipulations of the parties and to have substituted their
own interpretation of the insurance policy. In Phil. American General
Insurance Co., Inc vs. Mutuc, 18 we ruled that contracts which are the
private laws of the contracting parties should be fulfilled according to the
literal sense of their stipulations, if their terms are clear and leave no room
for doubt as to the intention of the contracting parties, for contracts are
obligatory, no matter what form they may be, whenever the essential
requisites for their validity are present.
Moreover, we stated in Pacific Oxygen & Acetylene Co. vs. Central Bank,"
19 that the first and fundamental duty of the courts is the application of
the law according to its express terms, interpretation being called for only
when such literal application is impossible.
We observe that although Milagros Cayas was able to prove a total loss of
only P44,000.00, petitioner was made liable for the amount of P50,000.00,
the maximum liability per accident stipulated in the policy. This is patent
error. An insurance indemnity, being merely an assistance or restitution
insofar as can be fairly ascertained, cannot be availed of by any accident
victim or claimant as an instrument of enrichment by reason of an
accident.
Finally, we find no reason to disturb the award of attorney's fees.
WHEREFORE, the decision of the Court of Appeals is hereby modified in
that petitioner shall pay Milagros Cayas the amount of Twelve Thousand
Pesos (P12,000. 00) plus legal interest from the promulgation of the
decision of the lower court until it is fully paid and attorney's fees in the
amount of P5,000.00. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-39419 April 12, 1982
MAPALAD AISPORNA, petitioner, vs. THE COURT OF APPEALS and THE
PEOPLE OF THE PHILIPPINES, respondents.
DE CASTRO, J.:
In this petition for certiorari, petitioner-accused Aisporna seeks the
reversal of the decision dated August 14, 1974 1 in CA-G.R. No. 13243-CR
entitled "People of the Philippines, plaintiff-appellee, vs. Mapalad
Aisporna, defendant-appellant" of respondent Court of Appeals affirming
the judgment of the City Court of Cabanatuan 2 rendered on August 2,
1971 which found the petitioner guilty for having violated Section 189 of
the Insurance Act (Act No. 2427, as amended) and sentenced her to pay a
fine of P500.00 with subsidiary imprisonment in case of insolvency, and to
pay the costs.
Petitioner Aisporna was charged in the City Court of Cabanatuan for
violation of Section 189 of the Insurance Act on November 21, 1970 in an
information 3 which reads as follows:
That on or before the 21st day of June, 1969, in the City of Cabanatuan,
Republic of the Philippines, and within the jurisdiction of this Honorable
Court, the above-named accused, did then and there, wilfully, unlawfully
and feloniously act as agent in the solicitation or procurement of an
application for insurance by soliciting therefor the application of one
Eugenio S. Isidro, for and in behalf of Perla Compania de Seguros, Inc., a
duly organized insurance company, registered under the laws of the
Republic of the Philippines, resulting in the issuance of a Broad Personal
Accident Policy No. 28PI-RSA 0001 in the amount not exceeding FIVE
THOUSAND PESOS (P5,000.00) dated June 21, 1969, without said accused
having first secured a certificate of authority to act as such agent from the
office of the Insurance Commissioner, Republic of the Philippines.
CONTRARY TO LAW.
The facts, 4 as found by the respondent Court of Appeals are quoted
hereunder:
IT RESULTING: That there is no debate that since 7 March, 1969 and as of
21 June, 1969, appellant's husband, Rodolfo S. Aisporna was duly licensed
by Insurance Commission as agent to Perla Compania de Seguros, with
license to expire on 30 June, 1970, Exh. C; on that date, at Cabanatuan
City, Personal Accident Policy, Exh. D was issued by Perla thru its author
representative, Rodolfo S. Aisporna, for a period of twelve (12) months
with beneficiary as Ana M. Isidro, and for P5,000.00; apparently, insured
died by violence during lifetime of policy, and for reasons not explained in
record, present information was filed by Fiscal, with assistance of private
prosecutor, charging wife of Rodolfo with violation of Sec. 189 of Insurance
Law for having, wilfully, unlawfully, and feloniously acted, "as agent in the
solicitation for insurance by soliciting therefore the application of one
Eugenio S. Isidro for and in behalf of Perla Compaña de Seguros, ... without
said accused having first secured a certificate of authority to act as such
agent from the office of the Insurance Commission, Republic of the
Philippines."
and in the trial, People presented evidence that was hardly disputed, that
aforementioned policy was issued with active participation of appellant
wife of Rodolfo, against which appellant in her defense sought to show
that being the wife of true agent, Rodolfo, she naturally helped him in his
work, as clerk, and that policy was merely a renewal and was issued
because Isidro had called by telephone to renew, and at that time, her
husband, Rodolfo, was absent and so she left a note on top of her
husband's desk to renew ...
Consequently, the trial court found herein petitioner guilty as charged. On
appeal, the trial court's decision was affirmed by the respondent appellate
court finding the petitioner guilty of a violation of the first paragraph of
Section 189 of the Insurance Act. Hence, this present recourse was filed on
October 22, 1974.
In its resolution of October 28, 1974, 6 this Court resolved, without giving
due course to this instant petition, to require the respondent to comment
on the aforesaid petition. In the comment 7 filed on December 20, 1974,
the respondent, represented by the Office of the Solicitor General,
submitted that petitioner may not be considered as having violated
Section 189 of the Insurance Act. 8 On April 3, 1975, petitioner submitted
his Brief 9 while the Solicitor General, on behalf of the respondent, filed a
manifestation 10 in lieu of a Brief on May 3, 1975 reiterating his stand that
the petitioner has not violated Section 189 of the Insurance Act.
In seeking reversal of the judgment of conviction, petitioner assigns the
following errors 11 allegedly committed by the appellate court:
1. THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT
RECEIPT OF COMPENSATION IS NOT AN ESSENTIAL ELEMENT OF THE
CRIME DEFINED BY THE FIRST PARAGRAPH OF SECTION 189 OF THE
INSURANCE ACT.
2. THE RESPONDENT COURT OF APPEALS ERRED IN GIVING DUE
WEIGHT TO EXHIBITS F, F-1, TO F-17, INCLUSIVE SUFFICIENT TO ESTABLISH
PETITIONER'S GUILT BEYOND REASONABLE DOUBT.
3. THE RESPONDENT COURT OF APPEALS ERRED IN NOT
ACQUITTING HEREIN PETITIONER.
We find the petition meritorious.
The main issue raised is whether or not a person can be convicted of
having violated the first paragraph of Section 189 of the Insurance Act
without reference to the second paragraph of the same section. In other
words, it is necessary to determine whether or not the agent mentioned in
the first paragraph of the aforesaid section is governed by the definition of
an insurance agent found on its second paragraph.
The pertinent provision of Section 189 of the Insurance Act reads as
follows:
No insurance company doing business within the Philippine Islands, nor
any agent thereof, shall pay any commission or other compensation to any
person for services in obtaining new insurance, unless such person shall
have first procured from the Insurance Commissioner a certificate of
authority to act as an agent of such company as hereinafter provided. No
person shall act as agent, sub-agent, or broker in the solicitation of
procurement of applications for insurance, or receive for services in
obtaining new insurance, any commission or other compensation from any
insurance company doing business in the Philippine Islands, or agent
thereof, without first procuring a certificate of authority so to act from the
Insurance Commissioner, which must be renewed annually on the first day
of January, or within six months thereafter. Such certificate shall be issued
by the Insurance Commissioner only upon the written application of
persons desiring such authority, such application being approved and
countersigned by the company such person desires to represent, and shall
be upon a form approved by the Insurance Commissioner, giving such
information as he may require. The Insurance Commissioner shall have the
right to refuse to issue or renew and to revoke any such certificate in his
discretion. No such certificate shall be valid, however, in any event after
the first day of July of the year following the issuing of such certificate.
Renewal certificates may be issued upon the application of the company.
Any person who for compensation solicits or obtains insurance on behalf
of any insurance company, or transmits for a person other than himself an
application for a policy of insurance to or from such company or offers or
assumes to act in the negotiating of such insurance, shall be an insurance
agent within the intent of this section, and shall thereby become liable to
all the duties, requirements, liabilities, and penalties to which an agent of
such company is subject.
Any person or company violating the provisions of this section shall be
fined in the sum of five hundred pesos. On the conviction of any person
acting as agent, sub-agent, or broker, of the commission of any offense
connected with the business of insurance, the Insurance Commissioner
shall immediately revoke the certificate of authority issued to him and no
such certificate shall thereafter be issued to such convicted person.
A careful perusal of the above-quoted provision shows that the first
paragraph thereof prohibits a person from acting as agent, sub-agent or
broker in the solicitation or procurement of applications for insurance
without first procuring a certificate of authority so to act from the
Insurance Commissioner, while its second paragraph defines who is an
insurance agent within the intent of this section and, finally, the third
paragraph thereof prescribes the penalty to be imposed for its violation.
The respondent appellate court ruled that the petitioner is prosecuted not
under the second paragraph of Section 189 of the aforesaid Act but under
its first paragraph. Thus —
... it can no longer be denied that it was appellant's most active endeavors
that resulted in issuance of policy to Isidro, she was there and then acting
as agent, and received the pay thereof — her defense that she was only
acting as helper of her husband can no longer be sustained, neither her
point that she received no compensation for issuance of the policy because
any person who for compensation solicits or obtains insurance on behalf of
any insurance company or transmits for a person other than himself an
application for a policy of insurance to or from such company or offers or
assumes to act in the negotiating of such insurance, shall be an insurance
agent within the intent of this section, and shall thereby become liable to
all the duties, requirements, liabilities, and penalties, to which an agent of
such company is subject. paragraph 2, Sec. 189, Insurance Law,
now it is true that information does not even allege that she had obtained
the insurance, for compensation which is the gist of the offense in Section
189 of the Insurance Law in its 2nd paragraph, but what appellant
apparently overlooks is that she is prosecuted not under the 2nd but under
the 1st paragraph of Sec. 189 wherein it is provided that,
No person shall act as agent, sub-agent, or broker, in the solicitation or
procurement of applications for insurance, or receive for services in
obtaining new insurance any commission or other compensation from any
insurance company doing business in the Philippine Island, or agent
thereof, without first procuring a certificate of authority to act from the
insurance commissioner, which must be renewed annually on the first day
of January, or within six months thereafter.
therefore, there was no technical defect in the wording of the charge, so
that Errors 2 and 4 must be overruled.
From the above-mentioned ruling, the respondent appellate court seems to
imply that the definition of an insurance agent under the second paragraph
of Section 189 is not applicable to the insurance agent mentioned in the
first paragraph. Parenthetically, the respondent court concludes that under
the second paragraph of Section 189, a person is an insurance agent if he
solicits and obtains an insurance for compensation, but, in its first
paragraph, there is no necessity that a person solicits an insurance for
compensation in order to be called an insurance agent.
We find this to be a reversible error. As correctly pointed out by the
Solicitor General, the definition of an insurance agent as found in the
second paragraph of Section 189 is intended to define the word "agent"
mentioned in the first and second paragraphs of the aforesaid section.
More significantly, in its second paragraph, it is explicitly provided that the
definition of an insurance agent is within the intent of Section 189. Hence
—
Any person who for compensation ... shall be an insurance agent within
the intent of this section, ...
Patently, the definition of an insurance agent under the second paragraph
holds true with respect to the agent mentioned in the other two
paragraphs of the said section. The second paragraph of Section 189 is a
definition and interpretative clause intended to qualify the term "agent"
mentioned in both the first and third paragraphs of the aforesaid section.
Applying the definition of an insurance agent in the second paragraph to
the agent mentioned in the first and second paragraphs would give
harmony to the aforesaid three paragraphs of Section 189. Legislative
intent must be ascertained from a consideration of the statute as a whole.
The particular words, clauses and phrases should not be studied as
detached and isolated expressions, but the whole and every part of the
statute must be considered in fixing the meaning of any of its parts and in
order to produce harmonious whole. 13 A statute must be so construed as
to harmonize and give effect to all its provisions whenever possible. 14 The
meaning of the law, it must be borne in mind, is not to be extracted from
any single part, portion or section or from isolated words and phrases,
clauses or sentences but from a general consideration or view of the act as
a whole. 15 Every part of the statute must be interpreted with reference to
the context. This means that every part of the statute must be considered
together with the other parts, and kept subservient to the general intent of
the whole enactment, not separately and independently. 16 More
importantly, the doctrine of associated words (Noscitur a Sociis) provides
that where a particular word or phrase in a statement is ambiguous in
itself or is equally susceptible of various meanings, its true meaning may
be made clear and specific by considering the company in which it is found
or with which it is associated.
Considering that the definition of an insurance agent as found in the
second paragraph is also applicable to the agent mentioned in the first
paragraph, to receive a compensation by the agent is an essential element
for a violation of the first paragraph of the aforesaid section. The appellate
court has established ultimately that the petitioner-accused did not receive
any compensation for the issuance of the insurance policy of Eugenio Isidro.
Nevertheless, the accused was convicted by the appellate court for,
according to the latter, the receipt of compensation for issuing an
insurance policy is not an essential element for a violation of the first
paragraph of Section 189 of the Insurance Act.
We rule otherwise. Under the Texas Penal Code 1911, Article 689, making
it a misdemeanor for any person for direct or indirect compensation to
solicit insurance without a certificate of authority to act as an insurance
agent, an information, failing to allege that the solicitor was to receive
compensation either directly or indirectly, charges no offense. 18 In the
case of Bolen vs. Stake, 19 the provision of Section 3750, Snyder's
Compiled Laws of Oklahoma 1909 is intended to penalize persons only
who acted as insurance solicitors without license, and while acting in such
capacity negotiated and concluded insurance contracts for compensation.
It must be noted that the information, in the case at bar, does not allege
that the negotiation of an insurance contracts by the accused with Eugenio
Isidro was one for compensation. This allegation is essential, and having
been omitted, a conviction of the accused could not be sustained. It is well-
settled in Our jurisprudence that to warrant conviction, every element of
the crime must be alleged and proved.
After going over the records of this case, We are fully convinced, as the
Solicitor General maintains, that accused did not violate Section 189 of the
Insurance Act.
WHEREFORE, the judgment appealed from is reversed and the accused is
acquitted of the crime charged, with costs de oficio.
SO ORDERED.
[G.R. No. 136914. January 25, 2002]
COUNTRY BANKERS INSURANCE CORPORATION, petitioner, vs. LIANGA
BAY AND COMMUNITY MULTI-PURPOSE COOPERATIVE, INC.,
respondent.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1]of the
Court of Appeals[2]dated December 29, 1998 in CA-G.R. CV Case No.
36902 affirming in toto the Decision[3]dated December 26, 1991 of the
Regional Trial Court of Lianga, Surigao del Sur, Branch 28, in Civil Case No.
L-518 which ordered petitioner Country Bankers Insurance Corporation to
fully pay the insurance claim of respondent Lianga Bay and Community
Multi-Purpose Cooperative, Inc., under Fire Insurance Policy No. F-1397,
for loss sustained as a result of the fire that occurred on July 1, 1989 in the
amount of Two Hundred Thousand Pesos (P200,000.00), with interest at
twelve percent (12%) per annum from the date of filing of the complaint
until fully paid, as well as Fifty Thousand Pesos (P50,000.00) as actual
damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five
Thousand Pesos (P5,000.00) as litigation expenses, Ten Thousand Pesos
(P10,000.00) as attorneys fees, and the costs of suit.
The facts are undisputed:
The petitioner is a domestic corporation principally engaged in the
insurance business wherein it undertakes, for a consideration, to
indemnify another against loss, damage or liability from an unknown or
contingent event including fire while the respondent is a duly registered
cooperative judicially declared insolvent and represented by the elected
assignee, Cornelio Jamero.
It appears that sometime in 1989, the petitioner and the respondent
entered into a contract of fire insurance. Under Fire Insurance Policy No. F-
1397, the petitioner insured the respondents stocks-in-trade against fire
loss, damage or liability during the period starting from June 20, 1989 at
4:00 p.m. to June 20, 1990 at 4:00 p.m., for the sum of Two Hundred
Thousand Pesos (P200,000.00).
On July 1, 1989, at or about 12:40 a.m., the respondents building located
at Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire and
reduced to ashes, resulting in the total loss of the respondents stocks-in-
trade, pieces of furnitures and fixtures, equipments and records.
Due to the loss, the respondent filed an insurance claim with the petitioner
under its Fire Insurance Policy No. F-1397, submitting: (a) the Spot Report
of Pfc. Arturo V. Juarbal, INP Investigator, dated July 1, 1989; (b) the Sworn
Statement of Jose Lomocso; and (c) the Sworn Statement of Ernesto
Urbiztondo.
The petitioner, however, denied the insurance claim on the ground that,
based on the submitted documents, the building was set on fire by two (2)
NPA rebels who wanted to obtain canned goods, rice and medicines as
provisions for their comrades in the forest, and that such loss was an
excepted risk under paragraph No. 6 of the policy conditions of Fire
Insurance Policy No. F-1397, which provides:
This insurance does not cover any loss or damage occasioned by or
through or in consequence, directly or indirectly, of any of the following
occurrences, namely:
xxx xxx xxx
(d) Mutiny, riot, military or popular uprising, insurrection, rebellion,
revolution, military or usurped power.
Any loss or damage happening during the existence of abnormal conditions
(whether physical or otherwise) which are occasioned by or through or in
consequence, directly or indirectly, of any of said occurrences shall be
deemed to be loss or damage which is not covered by this insurance,
except to the extent that the Insured shall prove that such loss or damage
happened independently of the existence of such abnormal conditions.
Finding the denial of its claim unacceptable, the respondent then
instituted in the trial court the complaint for recovery of loss, damage or
liability against petitioner. The petitioner answered the complaint and
reiterated the ground it earlier cited to deny the insurance claim, that is,
that the loss was due to NPA rebels, an excepted risk under the fire
insurance policy.
In due time, the trial court rendered its Decision dated December 26, 1991
in favor of the respondent, declaring that:
Based on its findings, it is therefore the considered opinion of this Court, as
it so holds, that the defenses raised by defendant-Country Bankers has
utterly crumbled on account of its inherent weakness, incredibility and
unreliability, and after applying those helpful tools like common sense,
logic and the Courts honest appraisal of the real and actual situation
obtaining in this area, such defenses remains (sic) unimpressive and
unconvincing, and therefore, the defendant-Country Bankers has to be
irreversibly adjudged liable, as it should be, to plaintiff-Insolvent
Cooperative, represented in this action by its Assignee, Cornelio Jamero,
and thus, ordering said defendant-Country Bankers to pay the plaintiff-
Insolvent Cooperative, as follows:
1. To fully pay the insurance claim for the loss the insured-plaintiff
sustained as a result of the fire under its Fire Insurance Policy No. F-1397 in
its full face value of P200,000.00 with interest of 12% per annum from date
of filing of the complaint until the same is fully paid;
2. To pay as and in the concept of actual or compensatory damages in the
total sum of P50,000.00;
3. To pay as and in the concept of exemplary damages in the total sum of
P50,000.00;
4. To pay in the concept of litigation expenses the sum of P5,000.00;
5. To pay by way of reimbursement the attorneys fees in the sum of
P10,000.00; and
6. To pay the costs of the suit.
For being unsubstantiated with credible and positive evidence, the
counterclaim is dismissed.
IT IS SO ORDERED.
Petitioner interposed an appeal to the Court of Appeals. On December 29,
1998, the appellate court affirmed the challenged decision of the trial
court in its entirety. Petitioner now comes before us via the instant
petition anchored on three (3) assigned errors,[4]to wit:
1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE
CREDENCE TO THE SPOT REPORT OF PFC. ARTURO JUARBAL (EXH. 3) AND
THE SWORN STATEMENT OF JOSE LOMOCSO (EXH. 4) THAT THE
RESPONDENTS STOCK-IN-TRADE WAS BURNED BY THE NPA REBELS, HENCE
AN EXCEPTED RISK UNDER THE FIRE INSURANCE POLICY.
2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER
LIABLE FOR 12% INTEREST PER ANNUM ON THE FACE VALUE OF THE
POLICY FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE
PETITIONER LIABLE FOR ACTUAL AND EXEMPLARY DAMAGES, LITIGATION
EXPENSES, ATTORNEYS FEES AND COST OF SUIT.
A party is bound by his own affirmative allegations. This is a well-known
postulate echoed in Section 1 of Rule 131 of the Revised Rules of Court.
Each party must prove his own affirmative allegations by the amount of
evidence required by law which in civil cases, as in this case, is
preponderance of evidence, to obtain a favorable judgment.
In the instant case, the petitioner does not dispute that the respondents
stocks-in-trade were insured against fire loss, damage or liability under Fire
Insurance Policy No. F- 1397 and that the respondent lost its stocks-in-
trade in a fire that occurred on July 1, 1989, within the duration of said fire
insurance. The petitioner, however, posits the view that the cause of the
loss was an excepted risk under the terms of the fire insurance policy.
Where a risk is excepted by the terms of a policy which insures against
other perils or hazards, loss from such a risk constitutes a defense which
the insurer may urge, since it has not assumed that risk, and from this it
follows that an insurer seeking to defeat a claim because of an exception
or limitation in the policy has the burden of proving that the loss comes
within the purview of the exception or limitation set up. If a proof is made
of a loss apparently within a contract of insurance, the burden is upon the
insurer to prove that the loss arose from a cause of loss which is excepted
or for which it is not liable, or from a cause which limits its liability. Stated
elsewise, since the petitioner in this case is defending on the ground of
non-coverage and relying upon an exemption or exception clause in the
fire insurance policy, it has the burden of proving the facts upon which
such excepted risk is based, by a preponderance of evidence. But
petitioner failed to do so.
The petitioner relies on the Sworn Statements of Jose Lomocso and
Ernesto Urbiztondo as well as on the Spot Report of Pfc. Arturo V. Juarbal
dated July 1, 1989, more particularly the following statement therein:
xxx investigation revealed by Jose Lomocso that those armed men wanted
to get can goods and rice for their consumption in the forest PD
investigation further disclosed that the perpetrator are member (sic) of the
NPA PD end x x x
A witness can testify only to those facts which he knows of his personal
knowledge, which means those facts which are derived from his
perception.[8]Consequently, a witness may not testify as to what he
merely learned from others either because he was told or read or heard
the same. Such testimony is considered hearsay and may not be received
as proof of the truth of what he has learned. Such is the hearsay rule which
applies not only to oral testimony or statements but also to written
evidence as well.
The hearsay rule is based upon serious concerns about the trustworthiness
and reliability of hearsay evidence inasmuch as such evidence are not
given under oath or solemn affirmation and, more importantly, have not
been subjected to cross-examination by opposing counsel to test the
perception, memory, veracity and articulateness of the out-of-court
declarant or actor upon whose reliability on which the worth of the out-of-
court statement depends.
Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are
inadmissible in evidence, for being hearsay, inasmuch as they did not take
the witness stand and could not therefore be cross-examined.
There are exceptions to the hearsay rule, among which are entries in
official records. To be admissible in evidence, however, three (3) requisites
must concur, to wit:
(a) that the entry was made by a public officer, or by another person
specially enjoined by law to do so;
(b) that it was made by the public officer in the performance of his duties,
or by such other person in the performance of a duty specially enjoined by
law; and
(c) that the public officer or other person had sufficient knowledge of the
facts by him stated, which must have been acquired by him personally or
through official information.
The third requisite was not met in this case since no investigation,
independent of the statements gathered from Jose Lomocso, was
conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner itself pointed
out, citing the testimony of Pfc. Arturo Juarbal,[13]the latters Spot Report
was based on the personal knowledge of the caretaker Jose Lomocso who
witnessed every single incident surrounding the facts and circumstances of
the case. This argument undeniably weakens the petitioners defense, for
the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose
Lomocso to the effect that NPA rebels allegedly set fire to the respondents
building is inadmissible in evidence, for the purpose of proving the truth of
the statements contained in the said report, for being hearsay.
The said Spot Report is admissible only insofar as it constitutes part of the
testimony of Pfc. Arturo V. Juarbal since he himself took the witness stand
and was available for cross-examination. The portions of his Spot Report
which were of his personal knowledge or which consisted of his
perceptions and conclusions are not hearsay. The rest of the said report
relative to the statement of Jose Lomocso may be considered as
independently relevant statements gathered in the course of Juarbals
investigation and may be admitted as such but not necessarily to prove the
truth thereof.
The petitioners evidence to prove its defense is sadly wanting and thus,
gives rise to its liability to the respondent under Fire Insurance Policy No.
F-1397. Nonetheless, we do not sustain the trial courts imposition of
twelve percent (12%) interest on the insurance claim as well as the
monetary award for actual and exemplary damages, litigation expenses
and attorneys fees for lack of legal and valid basis.
Concerning the application of the proper interest rates, the following
guidelines were set in Eastern Shipping Lines, Inc. v. Court of Appeals and
Mercantile Insurance Co., Inc.:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts, is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on Damages of the Civil
Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.
In the said case of Eastern Shipping, the Court further observed that a
forbearance in the context of the usury law is a contractual obligation of
lender or creditor to refrain, during a given period of time, from requiring
the borrower or debtor to repay a loan or debt then due and payable.
Considering the foregoing, the insurance claim in this case is evidently not
a forbearance of money, goods or credit, and thus the interest rate should
be as it is hereby fixed at six percent (6%) computed from the date of filing
of the complaint.
We find no justification for the award of actual damages of Fifty Thousand
Pesos (P50,000.00). Well-entrenched is the doctrine that actual,
compensatory and consequential damages must be proved, and cannot be
presumed.[16]That part of the dispositive portion of the Decision of the
trial court ordering the petitioner to pay actual damages of Fifty Thousand
Pesos (P50,000.00) has no basis at all. The justification, if any, for such an
award of actual damages does not appear in the body of the decision of
the trial court. Neither is there any testimonial and documentary evidence
on the alleged actual damages of Fifty Thousand Pesos (P50,000.00) to
warrant such an award. Thus, the same must be deleted.
Concerning the award of exemplary damages for Fifty Thousand Pesos
(P50,000.00), we likewise find no legal and valid basis for granting the
same. Article 2229 of the New Civil Code provides that exemplary damages
may be imposed by way of example or correction for the public good.
Exemplary damages are imposed not to enrich one party or impoverish
another but to serve as a deterrent against or as a negative incentive to
curb socially deleterious actions. They are designed to permit the courts to
mould behavior that has socially deleterious consequences, and its
imposition is required by public policy to suppress the wanton acts of an
offender. However, it cannot be recovered as a matter of right. It is based
entirely on the discretion of the court. We find no cogent and valid reason
to award the same in the case at bar.
With respect to the award of litigation expenses and attorneys fees, Article
2208 of the New Civil Code[17]enumerates the instances where such may
be awarded and, in all cases, it must be reasonable, just and equitable if
the same were to be granted. Attorneys fees as part of damages are not
meant to enrich the winning party at the expense of the losing litigant.
They are not awarded every time a party prevails in a suit because of the
policy that no premium should be placed on the right to litigate.[18]The
award of attorneys fees is the exception rather than the general rule. As
such, it is necessary for the court to make findings of facts and law that
would bring the case within the exception and justify the grant of such
award. We find none in this case to warrant the award by the trial court of
litigation expenses and attorneys fees in the amounts of Five Thousand
Pesos (P5,000.00) and Ten Thousand Pesos (P10,000.00), respectively, and
therefore, the same must also be deleted.
WHEREFORE, the appealed Decision is MODIFIED. The rate of interest on
the adjudged principal amount of Two Hundred Thousand Pesos
(P200,000.00) shall be six percent (6%) per annum computed from the
date of filing of the Complaint in the trial court. The awards in the amounts
of Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand
Pesos (P50,000.00) as exemplary damages, Five Thousand Pesos
(P5,000.00) as litigation expenses, and Ten Thousand Pesos (P10,000.00) as
attorneys fees are hereby DELETED. Costs against the petitioner.
SO ORDERED.
G.R. No. 138941 October 8, 2001
AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. TANTUCO
ENTERPRISES, INC., respondent.
PUNO, J.:
Before us is a Petition for Review on Certiorari assailing the Decision of the
Court of Appeals in CA-G.R. CV No. 52221 promulgated on January 14,
1999, which affirmed in toto the Decision of the Regional Trial Court,
Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling
and refining industry. It owns two oil mills. Both are located at factory
compound at Iyam, Lucena City. It appears that respondent commenced its
business operations with only one oil mill. In 1988, it started operating its
second oil mill. The latter came to be commonly referred to as the new oil
mill.
The two oil mills were separately covered by fire insurance policies issued
by petitioner American Home Assurance Co., Philippine Branch.1 The first
oil mill was insured for three million pesos (P3,000,000.00) under Policy
No. 306-7432324-3 for the period March 1, 1991 to 1992.2 The new oil mill
was insured for six million pesos (P6,000,000.00) under Policy No. 306-
7432321-9 for the same term. Official receipts indicating payment for the
full amount of the premium were issued by the petitioner's agent.
A fire that broke out in the early morning of September 30,1991 gutted
and consumed the new oil mill. Respondent immediately notified the
petitioner of the incident. The latter then sent its appraisers who inspected
the burned premises and the properties destroyed. Thereafter, in a letter
dated October 15, 1991, petitioner rejected respondent's claim for the
insurance proceeds on the ground that no policy was issued by it covering
the burned oil mill. It stated that the description of the insured
establishment referred to another building thus: "Our policy nos. 306-
7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance coverage
to your oil mill under Building No. 5, whilst the affected oil mill was under
Building No. 14. "
A complaint for specific performance and damages was consequently
instituted by the respondent with the RTC, Branch 53 of Lucena City. On
October 16, 1995, after trial, the lower court rendered a Decision finding
the petitioner liable on the insurance policy thus:
"WHEREFORE, judgment is rendered in favor of the plaintiff ordering
defendant to pay plaintiff:
(a) P4,406,536.40 representing damages for loss by fire of its insured
property with interest at the legal rate;
(b) P80,000.00 for litigation expenses;
(c) P300,000.00 for and as attorney's fees; and
(d) Pay the costs.
SO ORDERED."
Petitioner assailed this judgment before the Court of Appeals. The
appellate court upheld the same in a Decision promulgated on January 14,
1999, the pertinent portion of which states:
"WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and
the trial court's Decision dated October 16, 1995 is hereby AFFIRMED in
toto.
SO ORDERED."
Petitioner moved for reconsideration. The motion, however, was denied
for lack of merit in a Resolution promulgated on June 10, 1999.
Hence, the present course of action, where petitioner ascribes to the
appellate court the following errors:
"(1) The Court of Appeals erred in its conclusion that the issue of non-
payment of the premium was beyond its jurisdiction because it was raised
for the first time on appeal."
"(2) The Court of Appeals erred in its legal interpretation of 'Fire
Extinguishing Appliances Warranty' of the policy."
"(3) With due respect, the conclusion of the Court of Appeals giving no
regard to the parole evidence rule and the principle of estoppel is
erroneous."
The petition is devoid of merit.
The primary reason advanced by the petitioner in resisting the claim of the
respondent is that the burned oil mill is not covered by any insurance
policy. According to it, the oil mill insured is specifically described in the
policy by its boundaries in the following manner:
"Front: by a driveway thence at 18 meters distance by Bldg. No. 2.
Right: by an open space thence by Bldg. No. 4.
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
Rear: by an open space thence at 8 meters distance."
However, it argues that this specific boundary description clearly pertains,
not to the burned oil mill, but to the other mill. In other words, the oil mill
gutted by fire was not the one described by the specific boundaries in the
contested policy.
What exacerbates respondent's predicament, petitioner posits, is that it
did not have the supposed wrong description or mistake corrected.
Despite the fact that the policy in question was issued way back in 1988, or
about three years before the fire, and despite the "Important Notice" in
the policy that "Please read and examine the policy and if incorrect, return
it immediately for alteration," respondent apparently did not call
petitioner's attention with respect to the misdescription.
By way of conclusion, petitioner argues that respondent is "barred by the
parole evidence rule from presenting evidence (other than the policy in
question) of its self-serving intention (sic) that it intended really to insure
the burned oil mill," just as it is "barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, because it
retained the policy without having the same corrected before the fire by
an endorsement in accordance with its Condition No. 28."
These contentions can not pass judicial muster.
In construing the words used descriptive of a building insured, the greatest
liberality is shown by the courts in giving effect to the insurance.11 In view
of the custom of insurance agents to examine buildings before writing
policies upon them, and since a mistake as to the identity and character of
the building is extremely unlikely, the courts are inclined to consider that
the policy of insurance covers any building which the parties manifestly
intended to insure, however inaccurate the description may be.12
Notwithstanding, therefore, the misdescription in the policy, it is beyond
dispute, to our mind, that what the parties manifestly intended to insure
was the new oil mill. This is obvious from the categorical statement
embodied in the policy, extending its protection:
"On machineries and equipment with complete accessories usual to a
coconut oil mill including stocks of copra, copra cake and copra mills whilst
contained in the new oil mill building, situate (sic) at UNNO. ALONG
NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.''13 (emphasis
supplied.)
If the parties really intended to protect the first oil mill, then there is no
need to specify it as new.
Indeed, it would be absurd to assume that respondent would protect its
first oil mill for different amounts and leave uncovered its second one. As
mentioned earlier, the first oil mill is already covered under Policy No. 306-
7432324-4 issued by the petitioner. It is unthinkable for respondent to
obtain the other policy from the very same company. The latter ought to
know that a second agreement over that same realty results in its over
insurance.
The imperfection in the description of the insured oil mill's boundaries can
be attributed to a misunderstanding between the petitioner's general
agent, Mr. Alfredo Borja, and its policy issuing clerk, who made the error of
copying the boundaries of the first oil mill when typing the policy to be
issued for the new one. As testified to by Mr. Borja:
"Atty. G. Camaligan:
Q: What did you do when you received the report?
A: I told them as will be shown by the map the intention really of Mr.
Edison Tantuco is to cover the new oil mill that is why when I presented
the existing policy of the old policy, the policy issuing clerk just merely (sic)
copied the wording from the old policy and what she typed is that the
description of the boundaries from the old policy was copied but she
inserted covering the new oil mill and to me at that time the important
thing is that it covered the new oil mill because it is just within one
compound and there are only two oil mill[s] and so just enough, I had the
policy prepared. In fact, two policies were prepared having the same date
one for the old one and the other for the new oil mill and exactly the same
policy period, sir." (emphasis supplied)
It is thus clear that the source of the discrepancy happened during the
preparation of the written contract.
These facts lead us to hold that the present case falls within one of the
recognized exceptions to the parole evidence rule. Under the Rules of
Court, a party may present evidence to modify, explain or add to the terms
of the written agreement if he puts in issue in his pleading, among others,
its failure to express the true intent and agreement of the parties
thereto.15 Here, the contractual intention of the parties cannot be
understood from a mere reading of the instrument. Thus, while the
contract explicitly stipulated that it was for the insurance of the new oil
mill, the boundary description written on the policy concededly pertains to
the first oil mill. This irreconcilable difference can only be clarified by
admitting evidence aliunde, which will explain the imperfection and clarify
the intent of the parties.
Anent petitioner's argument that the respondent is barred by estoppel
from claiming that the description of the insured oil mill in the policy was
wrong, we find that the same proceeds from a wrong assumption.
Evidence on record reveals that respondent's operating manager, Mr.
Edison Tantuco, notified Mr. Borja (the petitioner's agent with whom
respondent negotiated for the contract) about the inaccurate description
in the policy. However, Mr. Borja assured Mr. Tantuco that the use of the
adjective new will distinguish the insured property. The assurance
convinced respondent, despite the impreciseness in the specification of
the boundaries, the insurance will cover the new oil mill. This can be seen
from the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:
Q: You mentioned, sir, that at least in so far as Exhibit A is concern you
have read what the policy contents. (sic)
Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2
particularly the boundaries of the property insured by the insurance policy
Exhibit A, will you tell us as the manager of the company whether the
boundaries stated in Exhibit A-2 are the boundaries of the old (sic) mill that
was burned or not.
A: It was not, I called up Mr. Borja regarding this matter and he told
me that what is important is the word new oil mill. Mr. Borja said, as a
matter of fact, you can never insured (sic) one property with two (2)
policies, you will only do that if you will make to increase the amount and
it is by indorsement not by another policy, sir.
We again stress that the object of the court in construing a contract is to
ascertain the intent of the parties to the contract and to enforce the
agreement which the parties have entered into. In determining what the
parties intended, the courts will read and construe the policy as a whole
and if possible, give effect to all the parts of the contract, keeping in mind
always, however, the prime rule that in the event of doubt, this doubt is to
be resolved against the insurer. In determining the intent of the parties to
the contract, the courts will consider the purpose and object of the
contract.
In a further attempt to avoid liability, petitioner claims that respondent
forfeited the renewal policy for its failure to pay the full amount of the
premium and breach of the Fire Extinguishing Appliances Warranty.
The amount of the premium stated on the face of the policy was
P89,770.20. From the admission of respondent's own witness, Mr. Borja,
which the petitioner cited, the former only paid it P75,147.00, leaving a
difference of P14,623.20. The deficiency, petitioner argues, suffices to
invalidate the policy, in accordance with Section 77 of the Insurance Code.
The Court of Appeals refused to consider this contention of the petitioner.
It held that this issue was raised for the first time on appeal, hence, beyond
its jurisdiction to resolve, pursuant to Rule 46, Section 18 of the Rules of
Court.
Petitioner, however, contests this finding of the appellate court. It insists
that the issue was raised in paragraph 24 of its Answer, viz.:
"24. Plaintiff has not complied with the condition of the policy and
renewal certificate that the renewal premium should be paid on or before
renewal date."
Petitioner adds that the issue was the subject of the cross-examination of
Mr. Borja, who acknowledged that the paid amount was lacking by
P14,623.20 by reason of a discount or rebate, which rebate under Sec. 361
of the Insurance Code is illegal.
The argument fails to impress. It is true that the asseverations petitioner
made in paragraph 24 of its Answer ostensibly spoke of the policy's
condition for payment of the renewal premium on time and respondent's
non-compliance with it. Yet, it did not contain any specific and definite
allegation that respondent did not pay the premium, or that it did not pay
the full amount, or that it did not pay the amount on time.
Likewise, when the issues to be resolved in the trial court were formulated
at the pre-trial proceedings, the question of the supposed inadequate
payment was never raised. Most significant to point, petitioner fatally
neglected to present, during the whole course of the trial, any witness to
testify that respondent indeed failed to pay the full amount of the
premium. The thrust of the cross-examination of Mr. Borja, on the other
hand, was not for the purpose of proving this fact. Though it briefly
touched on the alleged deficiency, such was made in the course of
discussing a discount or rebate, which the agent apparently gave the
respondent. Certainly, the whole tenor of Mr. Borja's testimony, both
during direct and cross examinations, implicitly assumed a valid and
subsisting insurance policy. It must be remembered that he was called to
the stand basically to demonstrate that an existing policy issued by the
petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express terms of
the Fire Extinguishing Appliances Warranty. The said warranty provides:
"WARRANTED that during the currency of this Policy, Fire Extinguishing
Appliances as mentioned below shall be maintained in efficient working
order on the premises to which insurance applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and the
Company shall no longer be liable for any loss which may occur."20
Petitioner argues that the warranty clearly obligates the insured to
maintain all the appliances specified therein. The breach occurred when
the respondent failed to install internal fire hydrants inside the burned
building as warranted. This fact was admitted by the oil mill's expeller
operator, Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate court's
conclusion that the aforementioned warranty did not require respondent
to provide for all the fire extinguishing appliances enumerated therein.
Additionally, we find that neither did it require that the appliances are
restricted to those mentioned in the warranty. In other words, what the
warranty mandates is that respondent should maintain in efficient working
condition within the premises of the insured property, fire fighting
equipments such as, but not limited to, those identified in the list, which
will serve as the oil mill's first line of defense in case any part of it bursts
into flame.
To be sure, respondent was able to comply with the warranty. Within the
vicinity of the new oil mill can be found the following devices: numerous
portable fire extinguishers, two fire hoses,21 fire hydrant,22 and an
emergency fire engine.23 All of these equipments were in efficient working
order when the fire occurred.
It ought to be remembered that not only are warranties strictly construed
against the insurer, but they should, likewise, by themselves be reasonably
interpreted.24 That reasonableness is to be ascertained in light of the
factual conditions prevailing in each case. Here, we find that there is no
more need for an internal hydrant considering that inside the burned
building were: (1) numerous portable fire extinguishers, (2) an emergency
fire engine, and (3) a fire hose which has a connection to one of the
external hydrants.
IN VIEW WHEREOF, finding no reversible error in the impugned Decision,
the instant petition is hereby DISMISSED.
SO ORDERED.
G.R. No. 169737 February 12, 2008
BLUE CROSS HEALTH CARE, INC., Petitioner, v s . NEOMI* and DANILO
OLIVARES,Respondents.
CORONA, J.:
This is a petition for review on certiorari of a decision and resolution of the
Court of Appeals (CA) dated July 29, 2005 and September 21, 2005,
respectively, in CA-G.R. SP No. 84163 which affirmed the decision of the
Regional Trial Court (RTC), Makati City, Branch 61 dated February 2, 2004
in Civil Case No. 03-1153, which in turn reversed the decision of the
Metropolitan Trial Court (MeTC), Makati City, Branch 66 dated August 5,
2003 in Civil Case No. 80867.
Respondent Neomi T. Olivares applied for a health care program with
petitioner Blue Cross Health Care, Inc., a health maintenance firm. For the
period October 16, 2002 to October 15, 2003, she paid the amount of
P11,117. For the same period, she also availed of the additional service of
limitless consultations for an additional amount of P1,000. She paid these
amounts in full on October 17, 2002. The application was approved on
October 22, 2002. In the health care agreement, ailments due to pre-
existing conditions were excluded from the coverage.
On November 30, 2002, or barely 38 days from the effectivity of her health
insurance, respondent Neomi suffered a stroke and was admitted at the
Medical City which was one of the hospitals accredited by petitioner.
During her confinement, she underwent several laboratory tests. On
December 2, 2002, her attending physician, Dr. Edmundo Saniel,[8]
informed her that she could be discharged from the hospital. She incurred
hospital expenses amounting to P34,217.20. Consequently, she requested
from the representative of petitioner at Medical City a letter of
authorization in order to settle her medical bills. But petitioner refused to
issue the letter and suspended payment pending the submission of a
certification from her attending physician that the stroke she suffered was
not caused by a pre-existing condition.
She was discharged from the hospital on December 3, 2002. On December
5, 2002, she demanded that petitioner pay her medical bill. When
petitioner still refused, she and her husband, respondent Danilo Olivares,
were constrained to settle the bill.[10] They thereafter filed a complaint
for collection of sum of money against petitioner in the MeTC on January
8, 2003.[11] In its answer dated January 24, 2003, petitioner maintained
that it had not yet denied respondents' claim as it was still awaiting Dr.
Saniel's report.
In a letter to petitioner dated February 14, 2003, Dr. Saniel stated that:
This is in response to your letter dated February 13, 2003. [Respondent]
Neomi T. Olivares called by phone on January 29, 2003. She stated that she
is invoking patient-physician confidentiality. That she no longer has any
relationship with [petitioner]. And that I should not release any medical
information concerning her neurologic status to anyone without her
approval. Hence, the same day I instructed my secretary to inform your
office thru Ms. Bernie regarding [respondent's] wishes.
xxx xxx xxx
In a decision dated August 5, 2003, the MeTC dismissed the complaint for
lack of cause of action. It held:
xxx the best person to determine whether or not the stroke she suffered
was not caused by pre-existing conditions is her attending physician Dr.
Saniel who treated her and conducted the test during her confinement. xxx
But since the evidence on record reveals that it was no less than
[respondent Neomi] herself who prevented her attending physician from
issuing the required certification, petitioner cannot be faulted from
suspending payment of her claim, for until and unless it can be shown from
the findings made by her attending physician that the stroke she suffered
was not due to pre-existing conditions could she demand entitlement to
the benefits of her policy.
On appeal, the RTC, in a decision dated February 2, 2004, reversed the
ruling of the MeTC and ordered petitioner to pay respondents the
following amounts: (1) P34,217.20 representing the medical bill in Medical
City and P1,000 as reimbursement for consultation fees, with legal interest
from the filing of the complaint until fully paid; (2) P20,000 as moral
damages; (3) P20,000 as exemplary damages; (4) P20,000 as attorney's
fees and (5) costs of suit.[14] The RTC held that it was the burden of
petitioner to prove that the stroke of respondent Neomi was excluded
from the coverage of the health care program for being caused by a pre-
existing condition. It was not able to discharge that burden.
Aggrieved, petitioner filed a petition for review under Rule 42 of the Rules
of Court in the CA. In a decision promulgated on July 29, 2005, the CA
affirmed the decision of the RTC. It denied reconsideration in a resolution
promulgated on September 21, 2005. Hence this petition which raises the
following issues: (1) whether petitioner was able to prove that respondent
Neomi's stroke was caused by a pre-existing condition and therefore was
excluded from the coverage of the health care agreement and (2) whether
it was liable for moral and exemplary damages and attorney's fees.
The health care agreement defined a pre-existing condition as:
x x x a disability which existed before the commencement date of
membership whose natural history can be clinically determined, whether
or not the Member was aware of such illness or condition. Such conditions
also include disabilities existing prior to reinstatement date in the case of
lapse of an Agreement. Notwithstanding, the following disabilities but not
to the exclusion of others are considered pre-existing conditions including
their complications when occurring during the first year of a Members
coverage:
I. Tumor of Internal Organs XIX. Diabetes Mellitus

II. Hemorrhoids/Anal Fistula XX. Collagen/Auto-Immune disease

III. Diseased tonsils and sinus conditions requiring surgery After the Member has been continuously covered for 12 months, this pre-
existing provision shall no longer be applicable except for illnesses
IV. Cataract/Glaucoma specifically excluded by an endorsement and made part of this Agreement.

V. Pathological Abnormalities of nasal septum or turbinates Under this provision, disabilities which existed before the commencement
of the agreement are excluded from its coverage if they become manifest
VI. Goiter and other thyroid disorders
within one year from its effectivity. Stated otherwise, petitioner is not
VII. Hernia/Benign prostatic hypertrophy liable for pre-existing conditions if they occur within one year from the
time the agreement takes effect.
VIII. Endometriosis
Petitioner argues that respondents prevented Dr. Saniel from submitting
IX. Asthma/Chronic Obstructive Lung disease his report regarding the medical condition of Neomi. Hence, it contends
that the presumption that evidence willfully suppressed would be adverse
X. Epilepsy
if produced should apply in its favor.
XI. Scholiosis/Herniated disc and other Spinal column
Respondents counter that the burden was on petitioner to prove that
abnormalities
Neomi's stroke was excluded from the coverage of their agreement
XII. Tuberculosis because it was due to a pre-existing condition. It failed to prove this.[18]

XIII. Cholecysitis We agree with respondents.

XIV. Gastric or Duodenal ulcer In Philamcare Health Systems, Inc. v. CA,[19] we ruled that a health care
agreement is in the nature of a non-life insurance.[20] It is an established
XV. Hallux valgus rule in insurance contracts that when their terms contain limitations on
liability, they should be construed strictly against the insurer. These are
XVI. Hypertension and other Cardiovascular diseases contracts of adhesion the terms of which must be interpreted and
enforced stringently against the insurer which prepared the contract. This
XVII. Calculi
doctrine is equally applicable to health care agreements.
XVIII. Tumors of skin, muscular tissue, bone or any form of blood
Petitioner never presented any evidence to prove that respondent Neomi's
dyscracias
stroke was due to a pre-existing condition. It merely speculated that Dr.
Saniel's report would be adverse to Neomi, based on her invocation of the
doctor-patient privilege. This was a disputable presumption at best.
Section 3 (e), Rule 131 of the Rules of Court states:
Sec. 3. Disputable presumptions. ― The following presumptions are
satisfactory if uncontradicted, but may be contradicted and overcome by
other evidence:
xxx xxx xxx
(e) That evidence willfully suppressed would be adverse if produced.
Suffice it to say that this presumption does not apply if (a) the evidence is
at the disposal of both parties; (b) the suppression was not willful; (c) it is
merely corroborative or cumulative and (d) the suppression is an exercise
of a privilege.[22] Here, respondents' refusal to present or allow the
presentation of Dr. Saniel's report was justified. It was privileged
communication between physician and patient.
Furthermore, as already stated, limitations of liability on the part of the
insurer or health care provider must be construed in such a way as to
preclude it from evading its obligations. Accordingly, they should be
scrutinized by the courts with extreme jealousy[23] and care and with a
jaundiced eye.[24] Since petitioner had the burden of proving exception to
liability, it should have made its own assessment of whether respondent
Neomi had a pre-existing condition when it failed to obtain the attending
physician's report. It could not just passively wait for Dr. Saniel's report to
bail it out. The mere reliance on a disputable presumption does not meet
the strict standard required under our jurisprudence.
Next, petitioner argues that it should not be held liable for moral and
exemplary damages, and attorney's fees since it did not act in bad faith in
denying respondent Neomi's claim. It insists that it waited in good faith for
Dr. Saniel's report and that, based on general medical findings, it had
reasonable ground to believe that her stroke was due to a pre-existing
condition, considering it occurred only 38 days after the coverage took
effect.
We disagree.
The RTC and CA found that there was a factual basis for the damages
adjudged against petitioner. They found that it was guilty of bad faith in
denying a claim based merely on its own perception that there was a pre-
existing condition:
[Respondents] have sufficiently shown that [they] were forced to engage in
a dispute with [petitioner] over a legitimate claim while [respondent
Neomi was] still experiencing the effects of a stroke and forced to pay for
her medical bills during and after her hospitalization despite being covered
by [petitioners] health care program, thereby suffering in the process
extreme mental anguish, shock, serious anxiety and great stress. [They]
have shown that because of the refusal of [petitioner] to issue a letter of
authorization and to pay [respondent Neomi's] hospital bills, [they had] to
engage the services of counsel for a fee of P20,000.00. Finally, the refusal
of petitioner to pay respondent Neomi's bills smacks of bad faith, as its
refusal [was] merely based on its own perception that a stroke is a pre-
existing condition. (emphasis supplied)
This is a factual matter binding and conclusive on this Court.[26] We see no
reason to disturb these findings.
WHEREFORE, the petition is hereby DENIED. The July 29, 2005 decision and
September 21, 2005 resolution of the Court of Appeals in CA-G.R. SP No.
84163 are AFFIRMED.
Treble costs against petitioner.
SO ORDERED.
G.R. No. 166245 April 9, 2008
ETERNAL GARDENS MEMORIAL PARK CORPORATION, Petitioner, vs. THE
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, Respondent.
VELASCO, JR., J.:
The Case
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 Facts
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as Creditor
Group Life Policy No. P-1920[2] with petitioner Eternal Gardens Memorial
Park Corporation (Eternal). Under the policy, the clients of Eternal 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:
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.
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:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
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.
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.[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 purchasers. In relation to the instant petition, Eternal complied
by submitting a letter dated December 29, 1982,[4] containing a list of
insurable balances of its lot buyers for October 1982. One of those
included in the list as new business was a certain John Chuang. His balance
of payments was 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, 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 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.
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.
The Courts Ruling
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such
rule is subject to exceptions, as enunciated in Sampayan v. Court of
Appeals:
(1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings the [CA] went beyond
the issues of the case, or 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.
On the other hand, Philamlife claims that the evidence presented by Philamlife primarily claims that Eternal did not even know where the
Eternal is insufficient, arguing that Eternal must present evidence showing original insurance application of Chuang was, as shown by the testimony of
that Philamlife received a copy of Chuangs insurance application. Edilberto Mendoza:

The evidence on record supports Eternals position. Atty. Arevalo:

The fact of the matter is, the letter dated December 29, 1982, which Q Where is the original of the application form which is required in case of
Philamlife stamped as received, states that the insurance forms for the new coverage?
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 [Mendoza:]
the attachments. Such receipt is an admission by Philamlife against its own
A It is [a] standard operating procedure for the new client to fill up two
interest.[13] The burden of evidence has shifted to Philamlife, which must
copies of this form and the original of this is submitted to Philamlife
prove that the letter did not contain Chuangs insurance application.
together with the monthly remittances and the second copy is remained or
However, Philamlife failed to do so; thus, Philamlife is deemed to have
retained with the marketing department of Eternal Gardens.
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 We move to strike out the answer as it is not responsive as counsel is
correct and accounted for. merely asking for the location and does not [ask] for the number of copy.

Philamlifes allegation that Eternals witnesses ran out of credibility and Atty. Arevalo:
reliability due to inconsistencies is groundless. The trial court is in the best
position to determine the reliability and credibility of the witnesses, Q Where is the original?
because it has the opportunity to observe firsthand the witnesses
[Mendoza:]
demeanor, conduct, and attitude. Findings of the trial court on such
matters are binding and conclusive on the appellate court, unless some A As far as I remember I do not know where the original but when I
facts or circumstances of weight and substance have been overlooked, submitted with that payment together with the new clients all the originals
misapprehended, or misinterpreted,[14] that, if considered, might affect I see to it before I sign the transmittal letter the originals are attached
the result of the case. therein.

An examination of the testimonies of the witnesses mentioned by In other words, the witness admitted not knowing where the original
Philamlife, however, reveals no overlooked facts of substance and value. 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.
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.
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. (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.
Clearly, the vague contractual provision, in Creditor Group Life Policy No.
P-1920 dated December 10, 1980, must be construed in favor of the
insured and in favor of the effectivity of the insurance contract.
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision
in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996
Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is
hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds
of the Life Insurance Policy of Chuang;

On the other hand, the seemingly conflicting provisions must be (2) To pay Eternal legal interest at the rate of six percent (6%) per annum
harmonized to mean that upon a partys purchase of a memorial lot on of PhP 100,000 from the time of extra-judicial demand by Eternal until
installment from Eternal, an insurance contract covering the lot purchaser Philamlifes receipt of the May 29, 1996 RTC Decision on June 17, 1996;
is created and the same is effective, valid, and binding until terminated by
Philamlife by disapproving the insurance application. The second sentence (3) To pay Eternal legal interest at the rate of twelve percent (12%) per
of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is annum of PhP 100,000 from June 17, 1996 until full payment of this award;
in the nature of a resolutory condition which would lead to the cessation and
of the insurance contract. Moreover, the mere inaction of the insurer on
(4) To pay Eternal attorneys fees in the amount of PhP 10,000.
the insurance application must not work to prejudice the insured; it cannot
be interpreted as a termination of the insurance contract. The termination No costs.
of the insurance contract by the insurer must be explicit and unambiguous.
SO ORDERED.
As a final note, to characterize the insurer and the insured as contracting
parties on equal footing is inaccurate at best. Insurance contracts are
wholly prepared by the insurer with vast amounts of experience in the
industry purposefully used to its advantage. More often than not,
insurance contracts are contracts of adhesion containing technical terms
and conditions of the industry, confusing if at all understandable to
laypersons, that are imposed on those who wish to avail of insurance. As
such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the
insured are to be delineated. Hence, in order to protect the interest of
insurance applicants, insurance companies must be obligated to act with
haste upon insurance applications, to either deny or approve the same, or
otherwise be bound to honor the application as a valid, binding, and
effective insurance contract.