464 SCRA 448 – Insurance Code – Protection and Indemnity Club – Mutual Insurance

Company – Certificate of Authority

White Gold Marine Services, Inc. owns several shipping vessels. Steamship Mutual
Underwriting Association, Ltd. (based in Bermuda) is a protection and indemnity club which
is an association composed of shipowners in general who band together for the specific
purpose of providing insurance cover on a mutual basis against liabilities incidental to
shipowning that the members incur in favor of third parties. White Gold, through Pioneer
Insurance (agent of Steamship Mutual here), procured a protection and indemnity coverage
from Steamship Mutual. Steamship Mutual does not have authority from the Insurance
Commission to conduct insurance business in the Philippines but its collection agent here
(Pioneer Insurance) has been licensed to conduct insurance business.
Later, Steamship Mutual filed a case for collection of sum of money against White Gold due
to the latter’s failure to pay its balance with the former. White Gold averred that Steamship
Mutual has no license [hence it cannot collect]. Nor can it collect through Pioneer Insurance
because, though Pioneer Insurance is licensed as an insurance company, it is not licensed
to be an insurance broker/agent. Steamship Mutual insisted it is not conducting insurance
business here and is merely a protection and indemnity club. The Insurance Commission as
well as the Court of Appeals ruled against White Gold.
ISSUE: Whether or not Steamship Mutual needs a license to operate in the Philippines.
HELD: Yes. The test to determine if a contract is an insurance contract or not, depends on
the nature of the promise, the act required to be performed, and the exact nature of the
agreement in the light of the occurrence, contingency, or circumstances under which the
performance becomes requisite. It is not by what it is called. If it is a contract of indemnity, it
must be a contract of insurance. In fact, a protection and indemnity club is a form of
insurance where the members are both the insurers and the insured. It is a mutual
insurance company. The club indemnifies the member for whatever risks it may incur
against a third party where the third party is other than the club and the members. Hence,
Steamship Mutual needs to procure a license from the Insurance Commission in order to
continue operating here.
Pioneer Insurance also needs to secure another license as an insurance broker/agent of
Steamship Mutual pursuant to Section 299 of the Insurance Code.
VERENDIA V. CA
G.R. No. 75605 January 22, 1993

FIDELITY & SURETY CO. V. VERENDIA & CA

G.R. No. 76399 January 22, 1993

FACTS: Petitioner Rafael Verendia's residential building was insured with Fidelity and Surety Insurance
Company and two others, Country Bankers Insurance and Development Insurance, with Monte de
Piedad & Savings Bank as beneficiary. The insured building was completely destroyed by fire. With this,
petitioner claim for the insurance on which Fidelity refused to give depending on its issued Fire
Insurance Policy F-1887. Fidelity, among other things, averred that the policy was avoided by reason of
over-insurance, that Verendia maliciously represented that the building at the time of the fire was
leased under a contract executed on 25 June 1980 to a certain Roberto Garcia, when actually it was a
Marcelo Garcia who was the lessee.

ISSUE: Whether or not Verendia forfeited all benefits due to his presentation of a false declaration
(contract signed by Roberto, when in fact it was Marcelo Garcia who signed it) to support his claim.

HELD: Yes. Verendia, having presented a false declaration to support his claim for benefits in the form of
a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in the
absence of proof that Fidelity waived such provision. Worse yet, by presenting a false lease contract,
Verendia, reprehensibly disregarded the principle that insurance contracts are uberrimae fidae and
demand the most abundant good faith

Based on previously decided cases:

Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and
conditions constitute the measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right to recovery from the insurer. As it is also a contract of adhesion, an
insurance contract should be liberally construed in favor of the insured and strictly against the insurer
company which usually prepares it.

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease
contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be
strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically
Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under
the policy shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be made
or used in support thereof, or if any fraudulent means or devises are used by the Insured or anyone
acting in his behalf to obtain any benefit under the policy.”
 Rizal Surety vs. CA
0
336 SCRA 12 (2000)

o INSURANCE LAW: Interpretation of Insurance Contracts

FACTS:

Rizal Surety & Insurance Company issued a fire insurance policy in favor of Transworld
Knitting Mills, Inc. The subject policy stated that Rizal Surety is “responsible in case of
loss whilst contained and/or stored during the currency of this Policy in the premises
occupied by them forming part of the buildings situated within own Compound xxx.” The
policy also described therein the four-span building covered by the same.

On Jan. 12, 1981, fire broke out in the compound, razing the middle portion of its four-
span building and partly gutting the left and right sections thereof. A two-storey building
(behind said four-span building) was also destroyed by the fire.

ISSUE:

o Whether or not Rizal Surety is liable for loss of the two-storey building considering that the fire
insurance policy sued upon covered only the contents of the four-span building

HELD:

Both the trial court and the CA found that the so-called “annex” as not an annex building
but an integral and inseparable part of the four-span building described in the policy and
consequently, the machines and spare parts stored therein were covered by the fire
insurance in dispute.

So also, considering that the two-storey building aforementioned was already existing
when subject fire insurance policy contract was entered into on Jan. 12, 1981, having
been constructed some time in 1978, petitioner should have specifically excluded the
said two-storey building from the coverage of the fire insurance if minded to exclude the
same but if did not, and instead, went on to provide that such fire insurance policy
covers the products, raw materials and supplies stored within the premises of
Transworld which was an integral part of the four-span building occupied by Transworld,
knowing fully well the existence of such building adjoining and intercommunicating with
the right section of the four-span building.
Also, in case of doubt in the stipulation as to the coverage of the fire insurance policy,
under Art. 1377 of the New Civil Code, the doubt should be resolved against the Rizal
Surety, whose layer or managers drafted the fire insurance policy contract under
scrutiny.

In Landicho vs. Government Service Insurance System, the Court ruled that “the terms
in an insurance policy, which are ambiguous, equivocal or uncertain x x x 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 forfeiture is involved, and the reason for this is that the insured usually
has no voice in the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation by experts and
legal advisers employed by, and acting exclusively in the interest of, the insurance
company.”
PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF
APPEALS
July 2, 2014 § Leave a comment

G.R. No. 125678, March 18, 2002 (YNARES-SANTIAGO, J.)

FACTS:

Ernani Trinos applied for a health care coverage with Philamcare Health Systems, Inc. To the question

‘Have you or any of your family members ever consulted or been treated for high blood pressure, heart

trouble, diabetes, cancer, liver disease, asthma or peptic ulcer?’, Ernani answered ‘No’. Under the

agreement, Ernani is entitled to avail of hospitalization benefits and out-patient benefits. The coverage

was approved for a period of one year from March 1, 1988 to March 1, 1989. The agreement was however

extended yearly until June 1, 1990 which increased the amount of coverage to a maximum sum of

P75,000 per disability.

During the period of said coverage, Ernani suffered a heart attack and was confined at the Manila Medical

Center (MMC) for one month. While in the hospital, his wife Julita tried to claim the benefits under the

health care agreement. However, the Philamcare denied her claim alleging that the agreement was void

because Ernani concealed his medical history. Doctors at the MMC allegedly discovered at the time of

Ernani’s confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the

application form. Thus, Julita paid for all the hospitalization expenses.

After Ernani was discharged from the MMC, he was attended by a physical therapist at home. Later, he was

admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her

husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak.
Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same

day.

Julita filed an action for damages and reimbursement of her expenses plus moral damages attorney’s fees

against Philamcare and its president, Dr. Benito Reverente. The Regional Trial court or Manila rendered

judgment in favor of Julita. On appeal, the decision of the trial court was affirmed but deleted all awards

for damages and absolved petitioner Reverente. Hence, this petition for review raising the primary

argument that a health care agreement is not an insurance contract; hence the “incontestability clause”

under the Insurance Code does not apply.

ISSUES:

(1) Whether or not the health care agreement is not an insurance contract

(2) Whether or not there is concealment of material fact made by Ernani

HELD:

(1)YES. Section2 (1)of the Insurance Code defines a contract of insurance as an agreement whereby one

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

unknown or contingent event.

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,

which my damnify a person having an insurable against him, may be insured against. Every person has an

insurable interest in the life and health of himself.

Section 10 provides that every person has an insurable interest in the life and health (1) of himself, of his

spouse and of his children.

The insurable interest of respondent’s husband in obtaining the health care agreement was his own

health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of

indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury

or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon

under the contract.

(2) NO. The answer assailed by petitioner was in response to the question relating to the medical history

of the applicant. This largely depends on opinion rather than fact, especially coming from respondent’s

husband who was not a medical doctor. Where matters of opinion or judgment are called for answers

made I good faith and without intent to deceive will not avoid a policy even though they are untrue.

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance

contract. Concealment as a defense for the health care provider or insurer to avoid liability is an

affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests

upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable

for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is

bound to answer to the extent agreed upon. In the end, the liability of the health care provider attaches

once the member is hospitalized for the disease or injury covered by the agreement or wherever he avails

of the covered benefits which he has prepaid.

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. This is equally

applicable to Health Care Agreements.

Fortune v CA G.R. No. 115278 May 23, 1995
J. Davide Jr.

Facts:
Producers Bank’s money was stolen while it was being transported from Pasay to Makati. The
people guarding the money were charged with the theft. The bank filed a claim for the amount of
Php 725,000, and such was refused by the insurance corporation due to the stipulation:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of

(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. . . .
In the trial court, the bank claimed that the suspects were not any of the above mentioned. They won
the case. The appellatecourt affirmed on the basis that the bank had no power to hire or dismiss the
guard and could only ask for replacements from the security agency.

Issue: Did the guards fall under the general exceptions clause of the insurance policy and thus
absolved the insurance company from liability?

Held: Yes to both. Petition granted.

Ratio:
The insurance agency contended that the guards automatically became the authorized
representatives of the bank when they cited International Timber Corp. vs. NLRC where a
contractor is a "labor-only" contractor in the sense that there is an employer-employee relationship
between the owner of the project and the employees of the "labor-only" contractor.
They cited Art. 106. Of the Labor Code which said:
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.
The bank asserted that the guards 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.
They cited a case where an employee-employer relationship was governed by (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.
The case was governed by Article 174 of the Insurance Code where it stated that casualty insurance
awarded an amount to loss cause by accident or mishap.
“The term "employee," should be read as a 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, 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.”
But even if the contracts were not labor-only, the bank entrusted the suspects with the duty to safely
transfer the money to its head office, thus, they were representatives. According to the court, “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.’”

Insurance Case Digest: Gulf Resorts Inc. V.

Philippine Charter Insurance Corp. (2005)
G.R. No. 156167 May 16, 2005

Lessons Applicable: Stipulations Cannot Be Segregated (Insurance)

FACTS:

 Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance
Company which includes loss or damage to shock to any of the property insured
by this Policy occasioned by or through or in consequence of earthquake
 July 16, 1990: an earthquake struck Central Luzon and Northern Luzon so the
properties and 2 swimming pools in its Agoo Playa Resort were damaged
 August 23, 1990: Gulf's claim was denied on the ground that its insurance policy
only afforded earthquake shock coverage to the two swimming pools of the
resort
 Petitioner contends that pursuant to this rider, no qualifications were placed on
the scope of the earthquake shock coverage. Thus, the policy extended
earthquake shock coverage to all of the insured properties.
 RTC: Favored American Home - endorsement rider means that only the two
swimming pools were insured against earthquake shock
 CA: affirmed RTC
ISSUE: W/N Gulf can claim for its properties aside from the 2 swimming pools

HELD: YES. Affirmed.

 It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other.
 All its parts are reflective of the true intent of the parties.
Insurance Code

Section 2(1)

contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event

 An insurance premium is the consideration paid an insurer for undertaking to

indemnify the insured against a specified peril.
 In the subject policy, no premium payments were made with regard to
earthquake shock coverage, except on the two swimming pools.

MANILA MAHOGANY MFG CORP V CA & ZENITH INSURANCE

OCT 12, 1997; PADILLA, J

FACTS:
 From March 6, 1970 – 1971, petitioner insured its Mercedes Benz 4-door sedan w/ respondent
insurance company. On May 4, 1970, vehicle was bumped and damaged by a truck owned by
San Miguel Corp (SMC).
 Zenith paid P5K to petitioner in amicable settlement. Petitioner’s general manager executed a
Release Claim, subrogating respondent company to all its right to action against SMC
 Dec. 11, 1972 – respondent co. wrote Insurance Adjusters Inc. To demand reimbursement from
SMC. Insurance Adjusters refused saying that SMC had already paid petitioner P4,500 for the
damages to petitioner’s vehicle, as evidenced by a cash voucher and Release of Claim executed
by the GM of petitioner discharging SMC from “all actions, claims, demands the rights of action
that now exist or hereafter develop arising out of or as a consequence of the accident
  Respondent demanded the P4.5K amount from petitioner. Petitioner refused. Suit filed for
recovery.
 City Court ordered petitioner to pay respondent. CFI affirmed. CA affirmed with modification
that petitioner was to pay respondent the total amount of 5K it had received from respondent
co.
Petitioner’s argument: Since the total damages were valued at P9,486.43 and only 5K was received by
petitioner from respondent, petitioner argues that it was entitled to go after SMC to claim the additional
which was eventually paid to it
Respondent’s argument: No qualification to its right of subrogation

ISUE: WON petitioner should pay respondent despite the subrogation in the Release of Claim was
conditioned on recovery of the total amount of damages petitioner has sustained?

HELD/RATIO: NO.
 SC: no other evidence to support its allegation that a gentleman’s agreement existed between
the parties, not embodied in the Release of Claim, such Release of Claim must be taken as the
best evidence of the intent and purpose of the parties
 CA correct in holding petitioner should reimburse respondent 5K
o When Manila Mahogany executed another release claim discharging SMC from all rights
of action after the insurer had paid the proceeds of the policy – the compromise
agreement of 5K- the insurer is entitled to recover from the insured the amount of
insurance money paid
o Petitioner by its own acts released SMC, thereby defeating respondent’s right of
subrogation, the right of action against the insurer was also nullified
 Since the insurer can be subrogated to only such rights as the insured may have, should the
insured, after receiving payment from the insurer, release the wrongdoer who caused the loss,
the insurer losses his rights against the latter. But in such a case, the insurer will be entitled to
recover from the insured whatever it has paid to the latter, unless the release was made w/ the
consent of the insurer

DISPOSITIVE: PETITION DENIED

FEDEX vs. AHAC and PHILAM INSURANCE COMPANY, INC

G.R. No. 150094
August 18, 2004
FACTS: Shipper SMITHKLINE USA delivered to carrier Burlington Air
Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a
shipment of 109 cartons of veterinary biologicals for delivery to consignee
SMITHKLINE and French Overseas Company in Makati City. The shipment was
covered by Burlington Airway Bill No. 11263825 with the words, ‘REFRIGERATE
WHEN NOT IN TRANSIT’ and ‘PERISHABLE’ stamp marked on its face. That
same day, Burlington insured the cargoes with American Home Assurance Company
(AHAC). The following day, Burlington turned over the custody of said cargoes to
FEDEX which transported the same to Manila.
The shipments arrived in Manila and was immediately stored at [Cargohaus Inc.’s]
warehouse. Prior to the arrival of the cargoes, FEDEX informed GETC Cargo
International Corporation, the customs broker hired by the consignee to facilitate the
release of its cargoes from the Bureau of Customs, of the impending arrival of its
client’s cargoes.

12 days after the cargoes arrived in Manila, DIONEDA, a non-licensed custom’s

broker who was assigned by GETC, found out, while he was about to cause the
release of the said cargoes, that the same [were] stored only in a room with 2 air
conditioners running, to cool the place instead of a refrigerator. DIONEDA, upon
instructions from GETC, did not proceed with the withdrawal of the vaccines and
instead, samples of the same were taken and brought to the Bureau of Animal Industry
of the Department of Agriculture in the Philippines by SMITHKLINE for
examination wherein it was discovered that the ‘ELISA reading of vaccinates sera are
below the positive reference serum.’

As a consequence of the foregoing result of the veterinary biologics test,

SMITHKLINE abandoned the shipment and, declaring ‘total loss’ for the unusable
shipment, filed a claim with AHAC through its representative in the Philippines, the
Philam Insurance Co., Inc. (PHILAM) which recompensed SMITHKLINE for the
whole insured amount. Thereafter, PHILAM filed an action for damages against the
FEDEX imputing negligence on either or both of them in the handling of the cargo.

Trial ensued and ultimately concluded with the FEDEX being held solidarily liable for
the loss. Aggrieved, petitioner appealed to the CA. The appellate court ruled in favor
of PHILAM and held that the shipping Receipts were a prima facie proof that the
goods had indeed been delivered to the carrier in good condition.

ISSUE: Is FEDEX liable for damage to or loss of the insured goods

HELD: petition granted. Assailed decision reversed insofar as it pertains to FEDEX
Prescription of Claim
From the initial proceedings in the trial court up to the present, petitioner has tirelessly
pointed out that respondents’ claim and right of action are already barred. Indeed, this
fact has never been denied by respondents and is plainly evident from the records.

Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:

“6. No action shall be maintained in the case of damage to or partial loss of the
shipment unless a written notice, sufficiently describing the goods concerned, the
approximate date of the damage or loss, and the details of the claim, is presented by
shipper or consignee to an office of Burlington within (14) days from the date the
goods are placed at the disposal of the person entitled to delivery, or in the case of
total loss (including non-delivery) unless presented within (120) days from the date of
issue of the [Airway Bill]. xxx
Relevantly, petitioner’s airway bill states:

“12./12.1 The person entitled to delivery must make a complaint to the carrier
in writing in the case:
12.1.1 of visible damage to the goods, immediately after discovery of the damage and
at the latest within fourteen (14) days from receipt of the goods; xxx

Article 26 of the Warsaw Convention, on the other hand, provides:

Xxx (2) In case of damage, the person entitled to delivery must complain to the
carrier forthwith after the discovery of the damage, and, at the latest, within 3 days
from the date of receipt in the case of baggage and 7 days from the date of receipt in
the case of goods. xx

(3) Every complaint must be made in writing upon the document of transportation
or by separate notice in writing dispatched within the times aforesaid.

(4) Failing complaint within the times aforesaid, no action shall lie against the
carrier, save in the case of fraud on his part.” xxx

Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the time limitation
therefor actually constitutes a condition precedent to the accrual of a right of action
against a carrier for loss of or damage to the goods. The shipper or consignee must
allege and prove the fulfillment of the condition. If it fails to do so, no right of action
against the carrier can accrue in favor of the former. The aforementioned requirement
is a reasonable condition precedent; it does not constitute a limitation of action.

The requirement of giving notice of loss of or injury to the goods is not an empty
formalism. The fundamental reasons for such a stipulation are (1) to inform the
carrier that the cargo has been damaged, and that it is being charged with liability
therefor; and (2) to give it an opportunity to examine the nature and extent of the
injury. “This protects the carrier by affording it an opportunity to make an
investigation of a claim while the matter is fresh and easily investigated so as to
safeguard itself from false and fraudulent claims.

NOTES: as to proper payee:

The Certificate specifies that loss of or damage to the insured cargo is “payable to
order x x x upon surrender of this Certificate.” Such wording conveys the right of
collecting on any such damage or loss, as fully as if the property were covered by a
special policy in the name of the holder itself. At the back of the Certificate appears
the signature of the representative of Burlington. This document has thus been duly
indorsed in blank and is deemed a bearer instrument.

Since the Certificate was in the possession of Smithkline, the latter had the right of
collecting or of being indemnified for loss of or damage to the insured shipment, as
fully as if the property were covered by a special policy in the name of the
holder. Hence, being the holder of the Certificate and having an insurable interest in
the goods, Smithkline was the proper payee of the insurance proceeds.

Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a
subrogation Receipt in favor of respondents. The latter were thus authorized “to file
claims and begin suit against any such carrier, vessel, person, corporation or
government.” Undeniably, the consignee had a legal right to receive the goods in the
same condition it was delivered for transport to petitioner. If that right was violated,
the consignee would have a cause of action against the person responsible therefor.
Advertisements
ETERNAL VS. PHILAMLIFE
G.R. No. 166245
April 09, 2008

FACTS: Respondent Philamlife entered into an agreement denominated as Creditor

Group Life Policy 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 relevant provisions of the policy are:

ELIGIBILITY.
xx
EVIDENCE OF INSURABILITY.
xx
LIFE INSURANCE BENEFIT.
xx

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.

xx

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. Eternal complied by
submitting a letter dated December 29, 1982, 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 100K. on August 2, 1984,
Chuang died.

Eternal sent a letter dated to Philamlife, which served as an insurance claim for
Chuang’s death. Attached to the claim were certain documents. In reply, Philamlife
wrote Eternal a letter requiring Eternal to submit the additional documents relative to
its insurance claim for Chuang’s death. Eternal transmitted the required documents
through a letter which was received by Philamlife.
After more than a year, Philamlife had not furnished Eternal with any reply to the
latter’s insurance claim. This prompted Eternal to demand from Philamlife the
payment of the claim for PhP 100,000.
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a
letter 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

Eternal filed a case with the RTC for a sum of money against Philamlife, which
decided in favor of Eternal, ordering Philamlife to pay the former 100K representing
the proceeds of the policy.

CA reversed. Hence this petition.

ISSUE: WON Philamlife should pay the 100K insurance proceeds

HELD: petition granted.

YES

An examination of the provision of the POLICY under effective date of benefit,

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 latter’s interest

On the other hand, the seemingly conflicting provisions must be harmonized to mean
that upon a party’s purchase of a memorial lot on installment from Eternal, an
insurance contract covering the lot purchaser is created and the same is effective,
valid, and binding until terminated by Philamlife by disapproving the insurance
application. The second sentence of the Creditor Group Life Policy on the Effective
Date of Benefit is in the nature of a resolutory condition which would lead to the
cessation of the insurance contract. Moreover, the mere inaction of the insurer on the
insurance application must not work to prejudice the insured; it cannot be interpreted
as a termination of the insurance contract. The termination of the insurance contract
by the insurer must be explicit and unambiguous.

RAFAEL ENRIQUEZ vs. SUN LIFE ASSURANCE COMPANY OF

CANADA G.R. No. L-15895 November 29, 1920
FACTS:
On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance Company of Canada
through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager
of the company's Manila office and was given a provisional receipt.

The application was forwarded to the head office of the company at Montreal, Canada and on
November 26, 1917 a notice of acceptance was sent by cable to Manila. (There is no evidence however,
whether on the same day the cable was received notice was sent by the Manila office of Herrer that
the application had been accepted)
On December 4, 1917, the policy was issued. On December 18, 1917, Herrer communicated his desire
to withdraw his application through his lawyer.

The local office replied to Mr. Torres, stating that the policy had been issued, and called attention to
the notification of November 26, 1917. The reply was received by Herrer's council a day after the latter
died.

Plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from the defendant
life insurance company the sum of pesos 6,000 paid by the deceased for a life annuity. The trial court
gave judgment for the defendant.

ISSUE:

Whether or not the insurance contract between Sun Life and Herrer has been perfected

RULING:

No, the contract for a life annuity in the case at bar was not perfected because it has not been proved
satisfactorily that the acceptance of the application ever came to the knowledge of the applicant.

An acceptance of an offer of insurance not actually or constructively communicated to the proposer

does not make a contract. Only the mailing of acceptance, it has been said, completes the contract of
insurance, as the locus poenitentiae is ended when the acceptance has passed beyond the control of
the party.

An acceptance made by letter shall not bind the person making the offer except from the time it came
to his knowledge (Civil Code Art. 1262). When a letter or other mail matter is addressed and mailed
with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee
as soon as it could have been transmitted to him in the ordinary course of the mails. But if any one of
these elemental facts fails to appear, it is fatal to the presumption. A letter will not be presumed to
have been received by the addressee unless it is shown that it was deposited in the post-office,
properly addressed and stamped.

Great Pacific v CA G.R. No. L-31845 April 30, 1979

J. De Castro

Facts:
Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen. He supplied the essential data
which petitioner Mondragon, the Branch Manager, wrote on the form. The latter paid the
annual premium the sum of P1,077.75 going over to the Company, but he retained the amount of
P1,317.00 as his commission for being a duly authorized agent of Pacific Life.
Upon the payment of the insurance premium, the binding deposit receipt was issued Ngo Hing.
Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application form his
strong recommendation for the approval of the insurance application. Then Mondragon received a
letter from Pacific Life disapproving the insurance application. The letter stated that the said life
insurance application for 20-year endowment plan is not available for minors below seven years old,
but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the
offer is acceptable, the Juvenile Non-Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific Life again strongly recommending the approval of the 20-year endowment insurance
plan to children, pointing out that since the customers were asking for such coverage.

Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the recovery before the Court of First Instance of
Cebu, which ruled against him.

Issues:
1. Whether the binding deposit receipt constituted a temporary contract of the life insurance in
question
2. Whether Ngo Hing concealed the state of health and physical condition of Helen Go, which
rendered void the policy

Held: No. Yes. Petition dismissed.

Ratio:
The receipt was intended to be merely a provisional insurance contract. Its perfection was subject to
compliance of the following conditions: (1) that the company shall be satisfied that the applicant was
insurable on standard rates; (2) that if the company does not accept the application and offers to
issue a policy for a different plan, the insurance contract shall not be binding until the applicant
accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the company
disapproves the application, the insurance applied for shall not be in force at any time, and
the premium paid shall be returned to the applicant.
The receipt is merely an acknowledgment that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the
insurance company. There was still approval or rejection the same on the basis of whether or not the
applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.
The binding deposit receipt is conditional and does not insure outright. This was held in Lim v Sun.
The deposit paid by private respondent shall have to be refunded by Pacific Life.
2. Ngo Hing had deliberately concealed the state of health of his daughter Helen Go. When he
supplied data, he was fully aware that his one-year old daughter is typically a mongoloid child. He
withheld the fact material to the risk insured.
“The contract of insurance is one of perfect good faith uberrima fides meaning good
faith, absolute and perfect candor or openness and honesty; the absence of any concealment or
demotion, however slight.”
The concealment entitles the insurer to rescind the contract of insurance.

Insurance Case Digest: Cha V. CA (1997)

G.R. No. 124520 August 18, 1997

Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)

Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code

FACTS:

 Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation entered a 1
year lease contract with a stipulation not to insure against fire the chattels,
merchandise, textiles, goods and effects placed at any stall or store or space in the
leased premises without first obtaining the written consent and approval of the
lessor. But it insured against loss by fire their merchandise inside the leased
premises for P500,000 with the United Insurance Co., Inc. without the written
consent of CKS
 On the day the lease contract was to expire, fire broke out inside the leased
premises and CKS learning that the spouses procured an insurance wrote to United
to have the proceeds be paid directly to them. But United refused so CKS filed
against Spouses Cha and United.
 RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay
P50,000 as exemplary damages, P20,000 as attorney’s fees and costs of suit
 CA: deleted exemplary damages and attorney’s fees
ISSUE: W/N the CKS has insurable interest because the spouses Cha violated the
stipulation
HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.

 Sec. 18. No contract or policy of insurance on property shall be enforceable except

for the benefit of some person having an insurable interest in the property insured
 A non-life insurance policy such as the fire insurance policy taken by petitioner-
spouses over their merchandise is primarily a contract of indemnity. Insurable
interest in the property insured must exist a t the time the insurance takes effect
and at the time the loss occurs. The basis of such requirement of insurable interest
in property insured is based on sound public policy: to prevent a person from taking
out an insurance policy on property upon which he has no insurable interest and
collecting the proceeds of said policy in case of loss of the property. In such a case,
the contract of insurance is a mere wager which is void under Section 25 of the
Insurance Code.
 SECTION 25. Every stipulation in a policy of Insurance for the payment of loss,
whether the person insured has or has not any interest in the property insured, or
that the policy shall be received as proof of such interest, and every policy executed
by way of gaming or wagering, is void
 Section 17. The measure of an insurable interest in property is the extent to which
the insured might be damnified by loss of injury thereof
 The automatic assignment of the policy to CKS under the provision of the lease
contract previously quoted is void for being contrary to law and/or public
policy. The proceeds of the fire insurance policy thus rightfully belong to the
spouses. The liability of the Cha spouses to CKS for violating their lease contract in
that Cha spouses obtained a fire insurance policy over their own merchandise,
without the consent of CKS, is a separate and distinct issue which we do not resolve
in this case.

Geagonia v CA G.R. No. 114427 February 6, 1995

Facts:
Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for P100,000.00.
The 1 year policy and covered thestock trading of dry goods.

The policy noted the requirement that

"3. 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 or properties consisting of stocks
in trade, goods in process and/or inventories only hereby insured, and unless 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."
The petitioners’ stocks were destroyed by fire. He then filed a claim which was subsequently denied
because the petitioner’s stocks were covered by two other fire insurance policies for Php 200,000
issued by PFIC. The basis of the private respondent's denial was the petitioner's alleged violation of
Condition 3 of the policy.
Geagonia then filed a complaint against the private respondent in the Insurance Commission for the
recovery of P100,000.00 under fire insurance policy and damages. He claimed that he knew the
existence of the other two policies. But, he said that he had no knowledge of the provision in the
private respondent's policy requiring him to inform it of the prior policies and this requirement was
not mentioned to him by the private respondent's agent.

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 w/c procured the PFIC policies w/o informing him or securing his consent; and
that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.

The Insurance Commission then ordered the respondent company to pay complainant the sum of
P100,000.00 with interest and attorney’s fees.
CA 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.

Issues:
1. WON the petitioner had not disclosed the two insurance policies when he obtained the fire
insurance and thereby violated Condition 3 of the policy.

2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted

Ratio:
1. The court agreed with the CA 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.
2. 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.
With these principles in mind, Condition 3 of the subject policy is not totally free from ambiguity and
must 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.
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.

Insurance Case Digest: Rizal Commercial

Banking Corporation V. CA (1998)
G.R.Nos. 128833 April 20, 1998
Lessons Applicable: Assignee (Insurance)

FACTS:

 RCBC Binondo Branch initially granted a credit facility of P30M to Goyu & Sons,
Inc. GOYU’s applied again and through Binondo Branch key officer's Uy’s and Lao’s
recommendation, RCBC’s executive committee increased its credit facility to P50M
to P90M and finally to P117M.
 As security, GOYU executed 2 real estate mortgages and 2 chattel mortgages in
favor of RCBC.
 GOYU obtained in its name 10 insurance policy on the mortgaged properties
from Malayan Insurance Company, Inc. (MICO). In February 1992, he was issued 8
insurance policies in favor of RCBC.
 April 27, 1992: One of GOYU’s factory buildings was burned so he claimed against
MICO for the loss who denied contending that the insurance policies were
either attached pursuant to writs of attachments/garnishments or that creditors are
claiming to have a better right
 GOYU filed a complaint for specific performance and damages at the RTC
 RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over the
proceeds of the insurance policies, but said claims were also denied for the same
reasons that MICO denied GOYU’s claims
 RTC: Confirmed GOYU’s other creditors (Urban Bank, Alfredo Sebastian, and
Philippine Trust Company) obtained their writs of attachment covering an aggregate
amount of P14,938,080.23 and ordered that 10 insurance policies be deposited with
the court minus the said amount so MICO deposited P50,505,594.60.
 Another Garnishment of P8,696,838.75 was handed down
 RTC: favored GOYU against MICO for the claim, RCBC for damages and to pay RCBC
its loan
 CA: Modified by increasing the damages in favor of GOYU
 In G.R. No. 128834, RCBC seeks right to intervene in the action between Alfredo C.
Sebastian (the creditor) and GOYU (the debtor), where the subject insurance
policies were attached in favor of Sebastian
 RTC and CA: endorsements do not bear the signature of any officer of GOYU concluded that the
endorsements favoring RCBC as defective.

ISSUE: W/N RCBC as mortgagee, has any right over the insurance policies taken by
GOYU, the mortgagor, in case of the occurrence of loss

HELD: YES.

 mortgagor and a mortgagee have separate and distinct insurable interests in the
same mortgaged property, such that each one of them may insure the same
property for his own sole benefit
 although it appears that GOYU obtained the subject insurance policies naming itself
as the sole payee, the intentions of the parties as shown by their contemporaneous
acts, must be given due consideration in order to better serve the interest of justice
and equity
 8 endorsement documents were prepared by Alchester in favor of RCBC
 MICO, a sister company of RCBC
 GOYU continued to enjoy the benefits of the credit facilities extended to it by RCBC.
 GOYU is at the very least estopped from assailing their operative effects.
 The two courts below erred in failing to see that the promissory notes which they
ruled should be excluded for bearing dates which are after that of the fire, are mere
renewals of previous ones
 RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the
fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the
said insurance policies
 insurance company to be held liable for unreasonably delaying and withholding payment of insurance
proceeds, the delay must be wanton, oppressive, or malevolent - not shown
 Sebastian’s right as attaching creditor must yield to the preferential rights of RCBC over the Malayan
insurance policies as first mortgagee.

Insurance Case Digest: Gaisano Cagayan,

Inc. V. Insurance Company Of North America
(2006)

G.R. No. 147839 June 8, 2006

Lessons Applicable: Existing Interest (Insurance)

Laws Applicable: Article 1504,Article 1263, Article 2207 of the Civil Code, Section 13
of Insurance Code

FACTS:

 Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. while Levi Strauss
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned
by Levi Strauss & Co
 IMC and LSPI separately obtained from Insurance Company of North America fire insurance policies
for their book debt endorsements related to their ready-made clothing materials which
have been sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines which are unpaid 45 days after the time of the loss
 February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano
Cagayan, Inc., containing the ready-made clothing materials sold and delivered by IMC and
LSPI was consumed by fire.
 February 4, 1992: Insurance Company of North America filed a complaint for damages
against Gaisano Cagayan, Inc. alleges that IMC and LSPI filed their claims under
 their respective fire insurance policies which it paid thus it was subrogated to
their rights
 Gaisano Cagayan, Inc: not be held liable because it was destroyed due to
fortuities event or force majeure
 RTC: IMC and LSPI retained ownership of the delivered goods until fully paid, it
must bear the loss (res perit domino)
 CA: Reversed - sales invoices is an exception under Article 1504 (1) of the Civil
Code to res perit domino
ISSUE: W/N Insurance Company of North America can claim against Gaisano Cagayan
for the debt that was isnured

HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED

 insurance policy is clear that the subject of the insurance is the book debts and NOT goods sold and
delivered to the customers and dealers of the insured
 ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein
is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at
the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance
of the contract and the ownership in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from
the time of such delivery;

 IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's
interest is not determined by concept of title, but whether insured has substantial economic interest in
the property
 Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether
real or personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same
Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest
founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of
which the expectancy arises.
 Anyone has an insurable interest in property who derives a benefit from its existence or would suffer
loss from its destruction.
 it is sufficient that the insured is so situated with reference to the property that he would be liable to
loss should it be injured or destroyed by the peril against which it is insured
 an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or
possession of, the subject
 matter of the insurance, and neither the title nor a beneficial interest is requisite
to the existence of such an interest
 insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI
that remained unpaid 45 days after the fire - obligation is pecuniary in nature
 obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds
true when the obligation consists in the delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event
 Article 1263 of the Civil Code in an obligation to deliver a generic thing, the loss
or destruction of anything of the same kind does not extinguish the obligation
(Genus nunquan perit)
 The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as
insurer and IMC as the insured, but also the amount paid to settle the insurance claim
 Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract.
 As to LSPI, no subrogation receipt was offered in evidence.
 Failure to substantiate the claim of subrogation is fatal to petitioner's case for
recovery of the amount of P535,613

Pacific Timber v CA G.R. No. L-38613 February 25,

1982
J. De Castro

Facts:
The plaintiff secured temporary insurance from the defendant for its exportation of 1,250,000 board
feet of Philippine Lauan and Apitong logs to be shipped from Quezon Province to Okinawa and
Tokyo, Japan.
Workmen’s Insurance issued a cover note insuring the cargo of the plaintiff subject to its terms and
conditions.

The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033. Policy No. 53 H0 1033 was
for 542 pieces of logs equivalent to 499,950 board feet. Policy No. 53 H0 1033 was for 853 pieces of
logs equivalent to 695,548 board feet. The total cargo insured under the two marine policies
consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of the cover note, but before the issuance of the two marine policies Nos. 53 HO
1032 and 53 HO 1033, some of the logs intended to be exported were lost during loading operations
in the Diapitan Bay.
While the logs were alongside the vessel, bad weather developed resulting in 75 pieces of logs
which were rafted together co break loose from each other. 45 pieces of logs were salvaged, but 30
pieces were verified to have been lost or washed away as a result of the accident.

Pacific Timber informed Workmen’s about the loss of 32 pieces of logs during loading of SS
woodlock.
Although dated April 4, 1963, the letter was received in the office of the defendant only on April 15,
1963. The plaintiff claimed for insurance to the value of P19,286.79.
Woodmen’s requested an adjustment company to assess the damage. It submitted its report, where
it found that the loss of 30 pieces of logs is not covered by Policies Nos. 53 HO 1032 and 1033 but
within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00.
The adjustment company submitted a computation of the defendant's probable liability on the loss
sustained by the shipment, in the total amount of P11,042.04.

Woodmen’s wrote the plaintiff denying the latter's claim on the ground they defendant's investigation
revealed that the entire shipment of logs covered by the two marine policies were received in good
order at their point of destination. It was further stated that the said loss may be considered as
covered under Cover Note No. 1010 because the said Note had become null and void by virtue of
the issuance of Marine Policy Nos. 53 HO 1032 and 1033.
The denial of the claim by the defendant was brought by the plaintiff to the attention of the Insurance
Commissioner. The Insurance Commissioner ruled in favor of indemnifying Pacific Timber. The
company added that the cover note is null and void for lack of valuable consideration. The trial court
ruled in petitioner’s favor while the CA dismissed the case. Hence this appeal.

Issues:
WON the cover note was null and void for lack of valuable consideration
WON the Insurance company was absolved from responsibility due to unreasonable delay in giving
notice of loss.

Held: No. No. Judgment reversed.

Ratio:

1. The fact that no separate premium was paid on the Cover Note before the loss occurred does not
militate against the validity of the contention even if no such premium was paid. All Cover Notes do
not contain particulars of the shipment that would serve as basis for the computation of the
premiums. Also, no separate premiums are required to be paid on a Cover Note.
The petitioner paid in full all the premiums, hence there was no account unpaid on the insurance
coverage and the cover note. If the note is to be treated as a separate policy instead of integrating it
to the regular policies, the purpose of the note would be meaningless. It is a contract, not a
mere application for insurance.
It may be true that the marine insurance policies issued were for logs no longer including those
which had been lost during loading operations. This had to be so because the risk insured against is
for loss during transit, because the logs were safely placed aboard.
The non-payment of premium on the Cover Note is, therefore, no cause for the petitioner to lose
what is due it as if there had been payment of premium, for non-payment by it was not chargeable
against its fault. Had all the logs been lost during the loading operations, but after the issuance of the
Cover Note, liability on the note would have already arisen even before payment of premium.
Otherwise, the note would serve no practical purpose in the realm of commerce, and is supported by
the doctrine that where a policy is delivered without requiring payment of the premium, the
presumption is that a credit was intended and policy is valid.
2. The defense of delay can’t be sustained. The facts show that instead of invoking the ground of
delay in objecting to petitioner's claim of recovery on the cover note, the insurer never had this in its
mind. It has a duty to inquire when the loss took place, so that it could determine whether delay
would be a valid ground of objection.
There was enough time for insurer to determine if petitioner was guilty of delay in communicating the
loss to respondent company. It never did in the Insurance Commission. Waiver can be raised
against it under Section 84 of the Insurance Act.

Great Pacific v CA G.R. No. L-31845 April 30, 1979

J. De Castro

Facts:
Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen. He supplied the essential data
which petitioner Mondragon, the Branch Manager, wrote on the form. The latter paid the
annual premium the sum of P1,077.75 going over to the Company, but he retained the amount of
P1,317.00 as his commission for being a duly authorized agent of Pacific Life.

Upon the payment of the insurance premium, the binding deposit receipt was issued Ngo Hing.
Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application form his
strong recommendation for the approval of the insurance application. Then Mondragon received a
letter from Pacific Life disapproving the insurance application. The letter stated that the said life
insurance application for 20-year endowment plan is not available for minors below seven years old,
but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the
offer is acceptable, the Juvenile Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific Life again strongly recommending the approval of the 20-year endowment insurance
plan to children, pointing out that since the customers were asking for such coverage.
Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the recovery before the Court of First Instance of
Cebu, which ruled against him.

Issues:

1. Whether the binding deposit receipt constituted a temporary contract of the life insurance in
question

2. Whether Ngo Hing concealed the state of health and physical condition of Helen Go, which
rendered void the policy

Held: No. Yes. Petition dismissed.

Ratio:
The receipt was intended to be merely a provisional insurance contract. Its perfection was subject to
compliance of the following conditions: (1) that the company shall be satisfied that the applicant was
insurable on standard rates; (2) that if the company does not accept the application and offers to
issue a policy for a different plan, the insurance contract shall not be binding until the applicant
accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the company
disapproves the application, the insurance applied for shall not be in force at any time, and
the premium paid shall be returned to the applicant.
The receipt is merely an acknowledgment that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the
insurance company. There was still approval or rejection the same on the basis of whether or not the
applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.
The binding deposit receipt is conditional and does not insure outright. This was held in Lim v Sun.
The deposit paid by private respondent shall have to be refunded by Pacific Life.

2. Ngo Hing had deliberately concealed the state of health of his daughter Helen Go. When he
supplied data, he was fully aware that his one-year old daughter is typically a mongoloid child. He
withheld the fact material to the risk insured.
“The contract of insurance is one of perfect good faith uberrima fides meaning good
faith, absolute and perfect candor or openness and honesty; the absence of any concealment or
demotion, however slight.”
The concealment entitles the insurer to rescind the contract of insurance.
G.R. No. 95546 November 6, 1992
MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner, vs. THE COURT OF APPEALS, AMERICAN
HOME ASSURANCE CO., represented by American International Underwriters (Phils.), Inc., respondent.
FACTS:
Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by American
International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium
Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building and premises, for a
period beginning 1 March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The
premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all
of which were accepted by private respondent.
Successive renewals of the policies were made in the same manner. On 1984, the policy was again renewed
and petitioner made two installment payments, both accepted by private respondent, the first on 6 February
1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused to pay
the balance of the premium.

Private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy.
Petitioner explained that it discontinued the payment of premiums because the policy did not contain a credit
clause in its favor. Petitioner further claimed that the policy was never binding and valid, and no risk attached
to the policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85, and
in its answer with amended counterclaim, sought the refund of P924,206.10 representing the premium
payments for 1982-85.

DECISION OF LOWER COURTS:

(1) Trial Court: dismissed the complaint and counterclaim
(2) CA: ordering herein petitioner to pay the balance of the premiums due

ISSUE:
Whether payment by installment of the premiums due on an insurance policy invalidates the contract of
insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance Code, as amended, which
provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of
a life or an industrial life policy whenever the grace period provision applies.

RULING:
No, the contract remains valid even if the premiums were paid on installments. Certainly, basic principles of
equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although
paid on installments, and later deny liability on the lame excuse that the premiums were not prepared in full.
At the very least, both parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted.
Moreover, as correctly observed by the appellate court, where the risk is entire and the contract is indivisible,
the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for
any period, however brief or momentary. The obligation to pay premiums when due is ordinarily as
indivisible obligation to pay the entire premium.

UCPB v Masagana G.R. No. 137172. April 4, 2001

C.J. Davide

Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of
the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing
Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal of
the five insurance policies on Respondent’s properties; (b) declaring the replacement-
renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering
Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by
the renewal-replacement policies. The modification consisted in the (1) deletion of the trial court’s
declaration that three of the policies were in force from August 1991 to August 1992; and (2)
reduction of the award of the attorney’s fees from 25% to 10% of the total amount due the
Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.

The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s
properties were razed by fire. On July 13, 1992, plaintiff tendered five checks for P225,753.45
as renewal premium payments. A receipt was issued. On July 14, 1992, Masagana made its formal
demand for indemnification for the burned insured properties. UCPB then rejected Masagana’s
claims under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.

The Court of Appeals disagreed with UCPB’s argument that Masagana’s tender of payment of the
premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond
the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the
policy period mails or delivers to the assured at the address shown in the policy notice of its intention
not to renew the policy or to condition its renewal upon reduction of limits or elimination of
coverages, the assured shall be entitled to renew the policy upon payment of the premium due on
the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which
had procured insurance coverage from UCPB for a number of years, had been granted a 60 to 90-
day credit term for the renewal of the policies. Such a practice had existed up to the time the claims
were filed. Most of the premiums have been paid for more than 60 days after the issuance. Also, no
timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance
policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22,
1992 had been extended or renewed by an implied credit arrangement though actual payment
of premium was tendered on a later date and after the occurrence of the risk insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-
renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail
was received by Masagana. Also, the premiums were paid within the grace period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s
advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums.
Held: No. Petition denied.

Ratio:

Section 77 of the Insurance Code provides: No policy or contract of insurance issued by an

insurance company is valid and binding unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides: Any acknowledgment in a policy or
contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any stipulation therein that it shall not be binding
until premium is actually paid.

Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy binding
despite the fact that premium is actually unpaid. Section 77 does not expressly prohibit an
agreement granting credit extension. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer may grant
credit extension for the payment of the premium. If the insurer has granted the insured a credit term
for the payment of the premium and loss occurs before the expiration of the term, recovery on the
policy should be allowed even though the premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against Petitioner, which had
consistently granted a 60- to 90-day credit term for the payment of premiums. Estoppel bars it from
taking refuge since Masagana relied in good faith on such practice. Estoppel then is the fifth
exception.

American Home v Chua G.R. No. 130421. June 28,

1999
C.J. Davide

Facts:
Chua obtained from American Home a fire insurance covering the stock-in-trade of his business.
The insurance was due to expire on March 25, 1990.
On April 5, 1990, Chua issued a check for P2,983.50 to American Home’s agent, James Uy, as
payment for the renewal of the policy. The official receipt was issued on April 10. In turn, the latter
a renewal certificate. A new insurance policy was issued where petitioner undertook to indemnify
respondent for any damage or loss arising from fire up to P200,000 March 20, 1990 to March 25,
1991.
On April 6, 1990, the business was completely razed by fire. Total loss was estimated between
P4,000,000 and P5,000,000. Respondent filed an insurance claim with petitioner and four other co-
insurers, namely, Pioneer Insurance, Prudential Guarantee, Filipino Merchants and Domestic
Insurance. Petitioner refused to honor the claim hence, the respondent filed an action in the trial
court.
American Home claimed there was no existing contract because respondent did not pay
the premium. Even with a contract, they contended that he was ineligible bacue of his fraudulent
tax returns, his failure to establish the actual loss and his failure to notify to petitioner of any
insurance already effected. The trial court ruled in favor of respondent because the respondent paid
by way of check a day before the fire occurred and that the other insurance companies promptly
paid the claims. American homes was made to pay 750,000 in damages.

The Court of Appeals found that respondent’s claim was substantially proved and petitioner’s
unjustified refusal to pay the claim entitled respondent to the award of damages.
American Home filed the petition reiterating its stand that there was no existing insurance contract
between the parties. It invoked Section 77 of the Insurance Code, which provides that no policy or
contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid and the case of Arce v. Capital Insurance that until
the premium is paid there is no insurance.

Issues:
1. Whether there was a valid payment of premium, considering that respondent’s check was cashed
after the occurrence of the fire
2. Whether respondent violated the policy by his submission of fraudulent documents and non-
disclosure of the other existing insurance contracts
3. Whether respondent is entitled to the award of damages.

Held: Yes. No. Yes, but not all damages valid. Petition granted. Damages modified.

Ratio:
1. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment
by respondent to petitioner. The court respected this.
The renewal certificate issued to respondent contained the acknowledgment that premium had been
paid.
In the instant case, the best evidence of such authority is the fact that petitioner accepted the check
and issued the officialreceipt for the payment. It is, as well, bound by its agent’s acknowledgment of
receipt of payment.
Section 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive
evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein
that it shall not be binding until the premium is actually paid.
2. Submission of the alleged fraudulent documents pertained to respondent’s income tax returns for
1987 to 1989. Respondent, however, presented a BIR certification that he had paid the proper taxes
for the said years. Since this is a question of fact, the finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers,
non-disclosure is a violation that entitles the insurer to avoid the policy. The purpose for the
inclusion of this clause is to prevent an increase in the moral hazard. The relevant provision is
Section 75, 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.

Respondent acquired several co-insurers and he failed to disclose this information to

petitioner. Nonetheless, petitioner is estopped from invoking this argument due to the loss
adjuster’s admission of previous knowledge of the co-insurers.
It cannot be said that petitioner was deceived by respondent by the latter’s non-disclosure of the
other insurance contracts when petitioner actually had prior knowledge thereof. The loss adjuster,
being an employee of petitioner, is deemed a representative of the latter whose awareness of the
other insurance contracts binds petitioner.
3. Petitioner is liable to pay the loss. But there is merit in petitioner’s grievance against the damages
and attorney’s fees awarded. There was no basis for an award for loss of profit. This cannot be
shouldered by petitioner whose obligation is limited to the object of insurance.
There was no fraud to justify moral damages. Exemplary damages can’t be awarded because the
defendant never acted in a reckless manner to claim insurance. Attorney’s fees can’t be recovered
as part of damages because no premium should be placed on the right to litigate.

Tibay v CA G.R. No. 119655. May 24, 1996

J. Bellosillo:

Facts:
Fortune Life issued a fire insurance Policy to Tibay on her two-storey residential building at Zobel
Street, Makati City. The insurance was for P600,000.00 covering the period from January 23, 1987
to January 23, 1988. On January 23 1987, Tibay only paid P600.00 of 3,000 peso premium and left
a balance.
The insured building was completely destroyed by fire. Tibay then paid the balance. On the same
day, she filed a claim on the policy. Her claim was accordingly referred to the adjuster, Goodwill,
which immediately wrote Violeta requesting her to furnish it with the necessary documents for the
investigation and processing of her claim. Petitioner complied, and she signed a non-waiver
agreement.
Fortune denied the claim for violation of the Insurance Code. Tibay sued for damages in the amount
of P600,000.00 representing the total coverage of the policy.
The trial court ruled for petitioners and made fortune liable for the total value of the insured building
and personal properties. The Court of Appeals reversed the court by removing liability from Fortune
after returning the premium.
Hence this petition for review.
The petitioner contended that Fortune remained liable under the subject fire insurance policy in spite
of the failure of petitioners to pay their premium in full.

Issue: May a fire insurance policy be valid, binding and enforceable upon mere partial payment
of premium?

Held: No. Petition dismissed.

Ratio:
The pertinent provisions read:

2. This policy including any renewal thereof and/or any endorsement thereon is not in force until
the premium has been fully paid to and duly receipted by the Company in the manner provided
herein.
This policy shall be deemed effective, valid and binding upon the Company only when the premiums
therefor have actuallybeen paid in full and duly acknowledged in a receipt signed by any
authorized official of the company
Where the premium has only been partially paid and the balance paid only after the peril insured
against has occurred, the insurance contract did not take effect and the insured cannot collect at all
on the policy. The Insurance Code which says that no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium has been paid.
What does “unless and until the premium thereof has been paid” mean?

Escosura v. San Miguel- the legislative practice was to interpret “with pay” in accordance to the
intention of distinguish between full and partial payment, where the modifying term is used.

Petitioners used Philippine Phoenix v. Woodworks, where partial payment of the premium made the
policy effective during the whole period of the policy.
The SC didn’t consider the 1967 Phoenix case as persuasive due to the different factual scenario.

In Makati Tuscany v CA, the parties mutually agreed that the premiums could be paid in
installments, hence, this Court refused to invalidate the insurance policy.
Nothing in Article 77 of the Code suggested that the parties may not agree to allow payment of the
premiums in installment, or to consider the contract as valid and binding upon payment of the
first premium.
Phoenix and Tuscany demonstrated the waiver of prepayment in full by the insurer. In this case
however, there was no waiver. There was a stipulation that the policy wasn’t in force until
the premium has been fully paid and receipted.
There was no juridical tie of indemnification from the fractional payment of premium. The insurance
contract itself expressly provided that the policy would be effective only when the premium was paid
in full.
Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in
force. If the premium is not paid in the manner prescribed in the policy as intended by the parties
the policy is ineffective. Partial payment even when accepted as a partial payment will not keep the
policy alive.
South Sea v CA stipulated 2 exceptions to the requirement of payment of the entire premium as a
prerequisite to the validity of the insurance contract. These are when in case the insurance
coverage relates to life or insurance when a grace period applies, and when the insurer makes a
written acknowledgment of the receipt of premium to be conclusive evidence of payment.
Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect
on the proceeds of the policy.

“The terms of the insurance policy constitute the measure of the insurer’s liability. 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.”

Dissent:
J. Vitug
“All the calculations of the company are based on the hypothesis of prompt payments. They not only
calculate on the receipt of the premiums when due, but on the compounding interest upon them. It is
on this basis that they are enabled to offer assurance at the favorable rates they do.”

The failure of appellants to fully pay their premium prevented the contract of insurance from
becoming binding an Fortune. This series of acts is tainted with misrepresentation and violates the
uberrimae fidae principle of insurance contracts.
Tibay had entered into a "Non-Waiver Agreement" with the adjuster which permitted Fortune to claim
non-payment of premium as a defense.
The law neither requires, nor measures the strength of the vinculum juris by any specific amount
of premium payment. Payment on the premium, partly or in full, is made by the insured which the
insurer accepts. In fine, it is either that a juridical tie exists (by such payment) or that it is not extant
at all (by an absence thereof). Once the juridical relation comes into being, the full efficacy follows.
This is a partially performed contract.
The non-payment of the balance shouldn’t result in an automatic cancellation of the contract;
otherwise, the right to decide the effectivity of the contract would become potestative.
Instead, the parties should be able to demand from each other the performance of whatever
obligations they had assumedor, if desired, sue timely for the rescission of the contract.
In the meanwhile, the contract endures, and an occurrence of the risk insured riggers the insurer's
liability. Also, legal compensation arises where insurer's liability to the insured would simply be
reduced by the balance of the premium.
It must here be noted that the insured had made, and the insurer had accepted
partial premium payment on the policy weeks before the risk insured against took place. An
insurance is an aleatory contract effective upon its perfection although the occurrence of a condition
or event may later dictate the demandability of certain obligations. Fortune’s stipulation that
insurance shall not "be . . . in force until the premium has been fully paid," and that it "shall be
deemed effective, valid and binding upon the company only when the premiums therefor
have actually been paid in full and duly acknowledged," override the efficaciousness of the insurance
contract despite the payment and acceptance.

Article 78 of the Insurance Code “An acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid“
Even if a portion was paid in the premium, the insurance coverage becomes effective and binding,
any stipulation in the policy to the contrary notwithstanding.

Bonifacio Bros., Inc. V. Mora (1967)

G.R. No. L-20853 May 29, 1967

Lessons Applicable: stipulation pour autrui (Insurance)

FACTS:

 Enrique Mora, owner of Oldsmobile sedan model 1956, mortgaged it to H.S.

Reyes, Inc., with the condition that they would be the beneficiary of its
insurance
 June 23, 1959: The sedan was insured with State Bonding & Insurance Co., Inc
 During the period of effectivity, the sedan met an accident and it was appraised
by Bayne Adjustment Co. and repaired it with Bonifacio Bros. and the parts were
supplied by Ayala Auto Parts Co. This was all done without the knowledge of
H.S. Reyes. Enrique was billed P2,102.73 through Bayne. The insurance
company drew a check deducting P100 for franchise and entrusted it to Bayne
payable to Enrique or H.S. Reyes.
 Still unpaid, the sedan was delivered to Enrique without the Knowledge of H.S.
Reyes
 Bonifacio Bros and Ayala Auto filed in the MTC on the theory that the insurance
proceeds should be paid directly to them
 CFI affirmed MTC: H.S. Reyes, Inc. as having a better right

ISSUE: W/N there is privity between Bonifacio Bro and Ayala Auto against the insurance
company

HELD: NO. Judgment affirmed

 GR: contracts take effect only between the parties thereto

 EX: some specific instances provided by law where the contract contains some
stipulation in favor of a third person - stipulation pour autrui
 provision in favor of a third person not a party to the contract
 third person is allowed to avail himself of a benefit granted to him by the terms of the contract,
provided that the contracting parties have clearly and deliberately conferred a favor upon such person
 stipulation pour autrui must be clearly expressed - none here
 "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc."
indicating that it was only the H.S. Reyes, Inc. which they intended to benefit.
 stipulation merely establishes the procedure that the insured has to follow in order to be entitled to
indemnity for repair
 a policy of insurance is a distinct and independent contract between the insured and insurer, and third
persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there
be some contract of trust, expressed or implied between the insured and third person
 "loss" in insurance law embraces injury or damage
 The injury or damage sustained by the insured in consequence of the happening of one or more of the
accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to
indemnify the insured

Vda. De Consuegra v. GSIS -

Retirement Insurance Benefits
37 SCRA 315
Facts:
> Jose Consuegra was employed as a shop foreman of the Office of the District Engineer in Surigao
Del Norte.
> When he was still alive, he contracted two marriages:
o First – Rosario Diaz; 2 children = Jose Consuegra Jr. and Pedro but both predeceased him
o 2nd – Basilia Berdin; 7 children. (this was contracted in GF while the first marriage subsisted)
> Being a GSIS member when he died, the proceeds of his life insurance were paid by the GSIS to
Berdin and her children who were the beneficiaries named in the policy.
> Since he was in the gov’t service for 22.5028 years, he was entitled to retirement insurance
benefits, for which no beneficiary was designated.
> Both families filed their claims with the GSIS, which ruled that the legal heirs were Diaz who is
entitled to one-half or 8/16 of the retirement benefits and Berdin and her children were entitled to the
remaining half, each to receive an equal share of 1/16.
> Berdin went to CFI on appeal. CFI affirmed GSIS decision.

Issue:
To whom should the retirement insurance benefits be paid?

Held:
Both families are entitled to half of the retirement benefits.
The beneficiary named in the life insurance does NOT automatically become the beneficiary in the
retirement insurance. When Consuegra, during the early part of 1943, or before 1943, designated
his beneficiaries in his life insurance, he could NOT have intended those beneficiaries of his life
insurance as also the beneficiaries of his retirement insurance because the provisions on retirement
insurance under the GSIS came about only when CA 186 was amended by RA 660 on June 18,
1951.

Sec. 11(b) clearly indicates that there is need for the employee to file an application for retirement
insurance benefits when he becomes a GSIS member and to state his beneficiary. The life
insurance and the retirement insurance are two separate and distinct systems of benefits paid out
from 2 separate and distinct funds.
In case of failure to name a beneficiary in an insurance policy, the proceeds will accrue to the estate
of the insured. And when there exists two marriages, each family will be entitled to one-half of the
estate.