INSURANCE LAW QUIZ

1. BONIFACIO BROS. V. MORA (Avelino)

Facts: Enrique Mora mortgaged his Oldsmobile sedan car to HS Reyes Inc. with the condition that Mora would insure the car
with HS Reyes as beneficiary. The car was then insured with State Insurance Company and the policy delivered to Mora. During
the effectivity of the insurance contract, the car figured in an accident. The company then assigned the accident to an insurance
appraiser for investigation and appraisal of the damage. Mora without the knowledge and consent of HS Reyes, authorized
Bonifacio Bros to fix the car, using materials supplied by the Ayala Auto Parts Company.

For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent to the insurer’s appraiser. The insurance company
drew a check in the amount of the insurance proceeds and entrusted the check to its appraiser for delivery to the proper party. The
car was delivered to Mora without the consent of HS Reyes, and without payment to Bonifacio Bros and Ayala. Upon the theory
that the insurance proceeds should be directly paid to them, Bonifacio and Ayala filed a complaint against Mora and the insurer
with the municipal court for the collection of P2,102.73. The insurance company filed its answer with a counterclaim for
interpleader, requiring Bonifacio and HS Reyes to interplead in order to determine who has a better right to the proceeds.

Issue: Whether there is privity of contract between Bonficacio and Ayala on one hand and State Insurance on the other.

Held: NONE. It is fundamental that contracts take effect only between the parties thereto, except in some specific instance provided
by law where the contract contains some stipulation in favor of a third person. Such stipulation is known as a stipulation pour autrui;
or a provision in favor of a third person not a party to the contract.

Under this doctrine, a 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. Consequently, a third person NOT a party
to the contract has NO action against the parties thereto, and cannot generally demand the enforcement of the same.

The question of whether a third person has an enforceable interest in a contract must be settled by determining whether the
contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed purpose
of conferring favor upon such third person. IN this connection, this court has laid down the rule that the fairest test to determine
whether the interest of a 3rd person in a contract is a stipulation pour autrui or merely an incidental interest, is to rely upon the
intention of the parties as disclosed by their contract.

In the instant case, the insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any
repairmen or material men in case of repair of the car in question. The parties to the insurance contract omitted such stipulation,
which is a circumstance that supports the said conclusion. On the other hand, the "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.

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, by the
insured and third person. In this case, no contract of trust, express or implied. In this case, no contract of trust, expressed or implied
exists. We, therefore, agree with the trial court that no cause of action exists in favor of the appellants in so far as the proceeds of
insurance are concerned. The appellant's claim, if at all, is merely equitable in nature and must be made effective through
Enrique Mora who entered into a contract with the Bonifacio Bros Inc. This conclusion is deducible not only from the principle
governing the operation and effect of insurance contracts in general, but is clearly covered by the express provisions of section 50
of the Insurance Act (now Sec. 53).

The policy in question has been so framed that "Loss, if any, is payable to H. S. Reyes, Inc." which unmistakably shows the intention
of the parties.

2. Heirs of Ildefonso Coscolluela, Sr., Inc. vs. Rico General Insurance Corporation (1989) (USAD)

Facts: Petitioner is a domestic corporation and the owner of an Isuzu KBD pick-up truck. The said truck was insured with private
respondent RGIC.

Within the period covered by the insurance, the vehicle was subsequently severely damaged and rendered unserviceable when
fired upon by a group of unidentified armed persons at Hacienda Puyas, Murcia, Negros Occidental. In the same incident,
four (4) persons died.

The petitioner filed a claim of P80,000.00 for the repair of the vehicle but private respondent refused to grant it. As a
consequence, the petitioner filed a complaint with the RTC of Bacolod City to recover the claim of P80,000.00.

The private respondent filed a motion to dismiss alleging that the complaint lacks a cause of action because firing by armed
men is a risk excepted under the provisions in the insurance policy. The private respondent alleged that the firing was “an

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 indirect consequence of rebellion, insurrection, or civil commotion” which falls within the exception of their insurance policy,
viz:

“The Company shall not be liable under any section of the Policy in respect of:

xxx

3. …any accident, loss, or damage or liability directly, or indirectly, proximately or occasioned by, or traceable
to, or arising out of, or in connection with... civil commotion, mutiny, rebellion, insurrection, military or
usurped power, or by any direct or indirect consequence thereof…” (Emphasis supplied)

The petitioner opposed the motion, saying that the quoted provision does not apply in the absence of an official governmental
proclamation of any of the above-enumerated conditions.

RTC: Ordered the dismissal of the complaint for lack of cause of action stating that the damage arose from a civil commotion or
was a direct result thereof.

CA: On certiorari, affirmed the RTC’s dismissal order.

Issue: Whether the claim by the petitioner lacks a cause of action?

Ruling: No. The private respondent's invocation of the exceptions clause in the insurance policy as the basis for its non-liability
and the consequent dismissal of the complaint is without merit.

The allegations set forth in the complaint sufficiently established a cause of action. The following are the requisites of a cause of
action: (a) a right in favor of the plaintiff by whatever means and under whatever law is arises or is created; (b) an obligation
on the part of the named defendant to respect, or not to violate such right; and (c) an act or omission on the part of the said
defendant constituting a violation of the plaintiff’s right or a breach of the obligation of the defendant to the plaintiff.

The facts as alleged clearly define the existence of a right of the petitioner to a just claim against the insurer for the payment of the
indemnity for a loss due to an event against which the petitioner’s vehicle was insured.

When the terms of an insurance contract contain limitations on liability, the court "should construe them in such a way as to preclude
the insurer from non-compliance with his obligations." A policy of insurance with a narration of exceptions tending to work a
forfeiture of the policy shall be interpreted liberally in favor of the insured and strictly against the insurance company or the party
for whose benefit they are inserted.

The insurance contract mentioned therein manifests a right to pursue a claim and a duty on the part of the insurer or private
respondent to compensate the insured in case of a risk insured against.

The refusal of the insurer to satisfy the claim and the consequent loss to the petitioner in incurring the cost of acquiring legal
assistance on the matter constitutes a violation or an injury brought to the petitioner.

There is, therefore, a sufficient cause of action which the trial court can render a valid judgment. However, the facts alleged in the
complaint do not give a complete scenario of the real nature of the firing incident. Hence, it was incumbent upon the trial judge to
have made a deeper scrutiny into the circumstances of the case by receiving evidence instead of summarily disposing of the case.

The question on the nature of the firing incident for the purpose of determining whether or not the insurer is liable must first be
threshed out and resolved in a full-blown trial.

WHEREFORE, considering the foregoing, the petition is hereby GRANTED. The decision of the respondent CA affirming the
dismissal order by the RTC is hereby REVERSED and SET ASIDE. Let the case be remanded to the lower court for trial on the
merits.

3. COUNTRY BANKERS INSURANCE CORP. VS. LIANGA BAY & COMMUNITY MULTI-PURPOSE
COOPERATIVE, INC. (GLACITA)

Facts: Country Banker’s Insurance Corp. (CBIC) insured the building of respondent Lianga Bay and Community Multi-
Purpose Corp., Inc. against fire, loss, damage, or liability during the period starting June 20, 1990 for the sum of
Php.200,000.00.

On July 1, 1989 at about 12:40 in the morning a fire occurred. The respondent filed the insurance claim but the petition
denied the same on the ground that the building was set on fire by two NPA rebels and that such loss was an excepted risk
under par.6 of the conditions of the insurance policy that the insurance does not cover any loss or damage occasioned by
among others, mutiny, riot, military or any uprising. Respondent filed an action for recovery of loss, damage or liability
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 against petitioner and the Trial Court ordered the petition to pay the full value of the insurance.

Issue: Whether or not the insurance corporation is exempted to pay based on the exception clause in the insurance policy.

Held: The Supreme Court held that the insurance corporation has the burden of proof to show that the loss comes within the
purview of the exception or limitation set-up. But the insurance corporation cannot use a witness to prove that the fire was
caused by the NPA rebels on the basis that the witness learned this from others. Such testimony is considered hearsay and
may not be received as proof of the truth of what he has learned. The petitioner, failing to prove the exception, cannot rely
upon on exemption or exception clause in the fire insurance policy. The petition was granted.

#4. DBP Pool of Accredited Insurance Companies vs Radio Mindanao Network Inc
G.R. NO. 147039 January 27, 2006 (DAMILES)

Facts: In the evening of July 27, 1988, respondents radio station located in SSS Building, Bacolod City, was razed by fire causing
damage in the amount of P 1,044,040.00. Respondent sought recovery under the two insurance policies but the claims were
denied on the ground that the cause of loss was an excepted risk excluded under condition no. 6 (c) and (d), to wit: 6. This
insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the
following consequences, namely: (c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be
declared or not), civil war. (d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or
usurped power. The insurers maintained that based on witnesses and evidence gathered at the site, the fire was caused by the
members of the Communist Party of the Philippines/New People’s Army. Hence the refusal to honor their obligations.

The trial court and the CA found in favor of the respondent. In its findings, both courts mentioned the fact that there was no credible
evidence presented that the CCP/NPA did in fact cause the fire that gutted the radio station in Bacolod.

Issue: (1) WON the insurance companies are liable to pay Radio Mindanao Network under the insurance policies? (PRIMARY
ISSUE)

(2) Whether or not the testimonies of the by standers can be admitted as part of res gestae. (EXTRA ISSUE ONLY)

Ruling: (1) Yes. The Court will not disturb the factual findings of the appellant and trial courts absent compelling reason. Under
this mode of review, the jurisdiction of the court is limited to reviewing only errors of law. Particularly in cases of insurance disputes
with regard to excepted risks, it is the insurance companies which have the burden to prove that the loss comes within the purview
of the exception or limitation set up. It is sufficient for the insured to prove the fact of damage or loss. Once the insured makes out
a prima facie case in its favor, the duty or burden of evidence shifts to the insurer to controvert said prima facie case.

Disposition Petition dismissed. Decision of the CA is affirmed.

(2) No. A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which
are derived from his perception. A witness may not testify as to what he merely learned from others either because he was told or
read or heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned.
The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such
evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-examination by
opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or actor upon whose
reliability on which the worth of the out-of-court statement depends.

Res gestae, as an exception to the hearsay rule, refers to those exclamations and statements made by either the participants,
victims, or spectators to a crime immediately before, during, or after the commission of the crime, when the circumstances
are such that the statements were made as a spontaneous reaction or utterance inspired by the excitement of the occasion
and there was no opportunity for the declarant to deliberate and to fabricate a false statement. The rule in res gestae applies
when the declarant himself did not testify and provided that the testimony of the witness who heard the declarant complies with the
following requisites: (1) that the principal act, the res gestae, be a startling occurrence; (2) the statements were made before the
declarant had the time to contrive or devise a falsehood; and (3) that the statements must concern the occurrence in question and its
immediate attending circumstances.

The Court is not convinced to accept the declarations as part of res gestae. While it may concede that these statements were made
by the bystanders during a startling occurrence, it cannot be said however, that these utterances were made spontaneously by the
bystanders and before they had the time to contrive or devise a falsehood. Both SFO III Rochar and Lt. Col. Torres received the
bystanders statements while they were making their investigations during and after the fire. It is reasonable to assume that when
these statements were noted down, the bystanders already had enough time and opportunity to mill around, talk to one another and
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exchange information, not to mention theories and speculations, as is the usual experience in disquieting situations where hysteria
is likely to take place. It cannot therefore be ascertained whether these utterances were the products of truth. That the utterances
may be mere idle talk is not remote.

5. FGU INSURANCE CORPORATION, vs. CA G.R. No. 137775. March 31, 2005 (NAZARIO)

FACTS:

 Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the shipping business. It
owned the M/T ANCO tugboat and the D/B Lucio barge that were operated as common carriers.
 Since the D/B Lucio had no engine of its own, it could not maneuver by itself and had to be towed by a tugboat for it to
move from one place to another.
 On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B Lucio, for
towage by M/T ANCO, when the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September 1979,
the clouds over the area were dark and the waves were already big.
 The arrastre workers unloading the cargoes of SMC on board the D/B Lucio began to complain about their difficulty in
unloading the cargoes. SMC’s District Sales Supervisor, Fernando Macabuag, requested ANCO’s representative to transfer
the barge to a safer place because the vessel might not be able to withstand the big waves. ANCO’s representative did not
heed the request because he was confident that the barge could withstand the waves.
 At around midnight, the barge run aground and was broken and the cargoes of beer in the barge were swept away. As a
consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage and Damages against ANCO.
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the complaint were indeed loaded on
the vessel belonging to ANCO. It claimed however that it had an agreement with SMC that ANCO would not be liable for
any losses or damages resulting to the cargoes by reason of fortuitous event. Third-party defendant FGU admitted the
existence of the Insurance Policy under Marine Cover Note No. 29591 but maintained that the alleged loss of the cargoes
covered by the said insurance policy cannot be attributed directly or indirectly to any of the risks insured against in the said
insurance policy.

DECISION OF LOWER COURTS:

(1) RTC-Cebu: The estate of Ang Gui and Co To is liable to SMC for the amount of the lost shipment. With respect to the Third-
Party complaint, the court a quo found FGU liable to bear Fifty-Three Percent (53%) of the amount of the lost cargoes. While the
cargoes were indeed lost due to fortuitous event, there was failure on ANCO’s part, through their representatives, to observe the
degree of diligence required that would exonerate them from liability.

(2) CA: affirmed RTC in toto.

ISSUES: (1) Whether ANCO’s representatives was able to exercise the extraordinary degree of diligence required by the law to
exculpate them from liability for the loss of the cargoes.

(2) Whether or not FGU can be held liable under the insurance policy to reimburse ANCO for the loss of the cargoes despite the
findings of the respondent court that such loss was occasioned by the blatant negligence of the latter’s employees.

RULING: (1) No. In this case, the calamity that caused the loss of the cargoes was not unforeseen nor was it unavoidable. In fact,
the other vessels in the port of San Jose, Antique, managed to transfer to another place, a circumstance which prompted SMC’s
District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to no avail. The D/B Lucio had no engine and
could not maneuver by itself. Even if ANCO’s representatives wanted to transfer it, they no longer had any means to do so as the
tugboat M/T ANCO had already departed, leaving the barge to its own devices. The captain of the tugboat should have had the
foresight not to leave the barge alone considering the pending storm.

(2) No, FGU is not liable. The ordinary negligence of the insured and his agents has long been held as a part of the risk which the
insurer takes upon himself, and the existence of which, where it is the proximate cause of the loss, does not absolve the insurer from
liability. But willful exposure, gross negligence, negligence amounting to misconduct, etc., have often been held to release the
insurer from such liability.

In the case at bar, both the trial court and the appellate court had concluded from the evidence that the crewmembers of
both the D/B Lucio and the M/T ANCO were blatantly negligent. To wit: There was blatant negligence on the part of the
employees of defendants-appellants when the patron (operator) of the tug boat immediately left the barge at the San Jose,
Antique wharf despite the looming bad weather. The negligence of the defendants- appellants is proved by the fact that on 01
October 1979, the only simple vessel left at the wharf in San Jose was the D/B Lucio.

This Court, taking into account the circumstances present in the instant case, concludes that the blatant negligence of ANCO’s
employees is of such gross character that it amounts to a wrongful act that must exonerate FGU from liability under the insurance
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contract.

6. UNION MANUFACTURING CO., INC. and the REPUBLIC BANK,

vs. PHILIPPINE GUARANTY CO., INC., (SERNEO)

FERNANDO, J.

In a suit arising from a fire insurance policy, the insurer, Philippine Guaranty Co., Inc., defendant in the lower court and now
appellee, was able to avoid liability upon proof that there was a violation of a warranty. There was no denial thereof from the
insured, Union Manufacturing Co., Inc.

Facts:
 Union Manufacturing Co., Inc. (Union) obtained certain loans, overdrafts and other credit accommodations from the
Republic Bank (Republic). To secure the payment thereof, the former executed a real and chattel mortgages on certain
properties;
 As additional condition of the mortgage contract, Union undertook to secure insurance coverage over the mortgaged
properties;
 However, it failed to do so despite the fact that Cua Tok, its general manager, was reminded of said requirement. Because of
this, Republic procured from the defendant, Philippine Guaranty Co., Inc. (PGC) an insurance coverage on loss against fire
for P500,000.00 over the properties of the Union as described in defendant's 'Cover Note' with the annotation that loss or
damage, if any, under said Cover Note is payable to Republic as its interest may appear, subject however to the printed
conditions of said defendant's Fire Insurance Policy Form;
 A Fire Insurance Policy was issued for the sum of P500,000.00 in favor of the assured, Union for which the corresponding
premium was paid by the Republic to the PGC;
 That sometime on September 6, 1964, a fire occurred in the premises of the Union;
 Union filed its fire claim with the defendant PGC thru its adjuster, H. H. Bayne Adjustment Co., which was denied by said
defendant on the following grounds:
 When the defendant PGC issued the Fire Insurance Policy over the properties of the Union, the same were already
covered by other fire insurance policies from other insurance companies;
 When said defendant's Fire Insurance Policy was already in full force and effect, the Union without the consent of
the defendant, obtained other insurance policies totalling P305,000.00 over the same properties prior to the fire;
 The lower court and CA ruled in favor of PGC, holding both Union and Republic cannot recover due to the violation of
the condition of the policy to the effect that it did not reveal the existence of other insurance policies over the same properties,
and that on the other hand said Union represented that there were no other insurance policies at the time of the issuance of
said defendant's policy.

Issue: W/N Republic should be held accountable along with Union, thus rendering it unable to recover from PGC, even though
Union was the one who violated the conditions of the policy?

Ruling: Yes. The SC affirmed the rulings (which are bolstered by authoritative precedents) of the lower court.

It is to Santa Ana v. Commercial Union Assurance Co.,6 a 1930 decision, that one turns to for the first explicit formulation as to the
controlling principle. As was made clear in the opinion of this Court, penned by Justice Villa-Real: "Without deciding whether
notice of other insurance upon the same property must be given in writing, or whether a verbal notice is sufficient to render
an insurance valid which requires such notice, whether oral or written, we hold that in the absolute absence of such notice
when it is one of the conditions specified in the fire insurance policy, the policy is null and void."7

The next year, in Ang Giok Chip v. Springfield Fire & Marine Ins. Co.,8 the conformity of the insured to the terms of the policy,
implied from the failure to express any disagreement with what is provided for, was stressed in these words of the ponente, Justice
Malcolm: "It is admitted that the policy before us was accepted by the plaintiff. The receipt of this policy by the insured
without objection binds both the acceptor and the insured to the terms thereof. The insured may not thereafter be heard to
say that he did not read the policy or know its terms, since it is his duty to read his policy and it will be assumed that he did
so." 9

As far back as 1915, in Young v. Midland Textile Insurance Company, 10 it was categorically set forth that as a condition precedent
to the right of recovery, there must be compliance on the part of the insured with the terms of the policy. As stated in the
opinion of the Court through Justice Johnson: "If the insured has violated or failed to perform the conditions of the contract,
and such a violation or want of performance has not been waived by the insurer, then the insured cannot recover. Courts
are not permitted to make contracts for the parties. The function and duty of the courts consist simply in enforcing and
carrying out the contracts actually made. While it is true, as a general rule, that contracts of insurance are construed most
favorably to the insured, yet contracts of insurance, like other contracts, are to be construed according to the sense and

Insurance Quiz |page no. 5

meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous they must be taken
and understood in their plain, ordinary and popular sense." 11

More specifically, there was a reiteration of this Santa Ana ruling in a decision by the then Justice, later Chief Justice, Bengzon,
in General Insurance & Surety Corp. v. Ng Hua. 12 Thus: "The annotation then, must be deemed to be a warranty that the
property was not insured by any other policy. Violation thereof entitles the insurer to rescind. (Sec. 69, Insurance Act) Such
misrepresentation is fatal in the light of our views in Santa Ana v. Commercial Union Assurance Company, Ltd. The materiality of
non-disclosure of other insurance policies is not open to doubt."

As a matter of fact, in a 1966 decision, Misamis Lumber Corp. v. Capital Ins. & Surety Co., Inc., 14 Justice J.B.L. Reyes, for this
Court, made manifest anew its adherence to such a principle in the face of an assertion that thereby a highly unfavorable provision
for the insured would be accorded recognition. This is the language used: "The insurance contract may be rather onerous ('one
sided', as the lower court put it), but that in itself does not justify the abrogation of its express terms, terms which the insured
accepted or adhered to and which is the law between the contracting parties." 15

With such a legally crippling blow, the effort of the Republic Bank, the main plaintiff and now the sole appellant, to recover on such
policy as mortgagee, by virtue of the cover note in the insurance policy providing that it is entitled to the payment of loss or damages
as its interest may appear, was in vain. The defect being legally incurable, its appeal is likewise futile. We affirm.

7. Pioneer Insurance & Surety Co v Yap, 61 SCRA 426 (1974) (BANAYAN)

FACTS:
This is an appeal by certiorari from the decision of the CA, affirming the judgment of the CFI Manila, which the latter
court declared Yap to be entitled to recover from Pioneer Insurance & Surety Corporation, the full amount of the damage insured
in Policy No. 4219.
Respondent Oliva Yap was the owner of a store in a two-storey building located in Manila. On April 19, 1962, Yap took
out a fire policy from Pioneer Insurance for ₱ 25,000.00 covering her stocks, office furniture, fixtures and fittings of every kind and
description. Among the conditions in the policy was: “The insured shall give notice to the company of any insurance or insurance
already effected, or which may subsequently be effected, covering any of the property hereby insured and unless such notice be
given and the particulars of such insurance be stated in or indorsed on this policy by or on behalf of the company before the
occurrence of any loss or damage, all benefits under this policy shall be forfeited.”
At the time of the insurance, an insurance for ₱ 20,000.00 issued by the Great American Insurance Company covering the
same properties was noted on said policy as co-insurance. On September 26, 1962, Yap took out another Fire Policy for ₱ 20,000.00
covering the same properties, from the Federal Insurance Company, Inc. which new policy was however procured without notice to
and without the written consent of Pioneer Ins. and therefore, was not noted as a co-insurance in Policy No. 4219.
On December 19, 1962, a fire broke out in the building and the said store was burned. Yap filed an insurance claim, but
the same was denied on the ground of “breach and/or violative of any/or all terms and conditions of Policy No. 4219.
ISSUE: Whether petitioner should be absolved from liability on the policy
RULING:
YES. By the plain terms of the policy, other insurance without the consent of petitioner would ipso facto avoid the contract.
It required no affirmative act of election on the part of the company to make operative the clause avoiding the contract, wherever
the specified conditions should occur. Its obligations ceased, unless, being informed of the fact, it consented to the additional
insurance. The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus avert the perpetration
of fraud. The public, as well as the insurer, is interested in preventing the situation in which a fire would be profitable to the insured.
WHEREFORE, the appealed judgment of the Court of Appeals is reversed and set aside, and the petitioner absolved from all liability
under the policy. Costs against respondent Yap.

8. Finman General Assurance Corp. v CA, 361 SCRA 214 (2011) (JADRAQUE)

FACTS: Private respondent (PR) obtained a fire insurance policy from petitioner covering certain properties, e.g., office, furniture,
fixtures, shop machinery and other trade equipment. PR filed with petitioner an insurance claim for the loss due to fire. Acting
thereon, petitioner appointed Adjuster H.H. Bayne to undertake the valuation and adjustment of the loss. H.H. Bayne then required
PR to file a formal claim and submit proof of loss. PR submitted its Sworn Statement of Loss and Formal Claim signed by private
respondent’s Manager. It likewise submitted Proof of Loss signed by its Accounting Manager. Despite repeated demands by PR,
petitioner refused to pay the insurance claim. Thus, PR was constrained to file a complaint against petitioner for the unpaid insurance
claim. In its Answer, petitioner maintained that the claim of PR could not be allowed because it failed to comply with Policy
Condition No. 13 regarding the submission of certain documents to prove the loss.

ISSUE: Whether the insurer is liable for the loss

Insurance Quiz |page no. 6

RULING: YES. A perusal of the records shows that private respondent, after the occurrence of the fire, immediately notified
petitioner thereof. Thereafter, private respondent submitted the following documents: (1) Sworn Statement of Loss and Formal
Claim (Exhibit C) and; (2) Proof of Loss (Exhibit D). The submission of these documents, to the Court’s mind, constitutes substantial
compliance with the above provision. Indeed, as regards the submission of documents to prove loss, substantial, not strict as urged
by petitioner, compliance with the requirements will always be deemed sufficient.8

In any case, petitioner itself acknowledged its liability when through its Finance Manager, Rosauro Maghirang, it signed the
document indicating that the amount due private respondent is P842,683.40 (Exhibit E).

9. Malayan Insurance Co., Inc. V. Arnaldo (1987) (MORALES)

FACTS: Malayan insurance co., Inc. (MICO) issued to Coronacion Pinca, Fire Insurance Policy for her property effective July 22,
1981, until July 22, 1982. MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice
to Pinca. However, payment of the premium for Pinca was received by Domingo Adora, agent of MICO. Adora remitted this
payment to MICO,together with other payments. On January 1982,Pinca's property was completely burned

On Feb 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled earlier but Adora
refused to accept it and instead demanded for payment.

Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance
Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen days such notice, and the reglementary
period began to run again after June 13, 1981, date of its receipt of notice of the denial of the said motion for reconsideration. As
the herein petition was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by four days. Insurance
Commission: favored Pinca. MICO appealed

ISSUE: Whether MICO should be liable because its agent Adora was authorized to receive it.

HELD: YES. SEC. 77. An insurer is entitled to 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.

SEC. 306. xxx xxx xxx

Any insurance company which delivers to an insurance agant or insurance broker a policy or contract of insurance shall be demmed
to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of
insurance at the time of its issuance or delivery or which becomes due thereon.

Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment
is complete when the money delivered is into the agent's hands and is a discharge of the indebtedness owing to the principal.

SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured,
and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or
more of the following:

(a) non-payment of premium;

(b) conviction of a crime arising out of acts increasing the hazard insured against;

(c) discovery of fraud or material misrepresentation;

(d) discovery of willful, or reckless acts or commissions increasing the hazard insured against;

(e) physical changes in the property insured which result in the property becoming uninsurable;or

(f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation
of this Code. As for the method of cancellation, Section 65 provides as follows:

SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named
insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and
(b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.

A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured;

(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned;

Insurance Quiz |page no. 7

(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy;

(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured,
the insurer will furnish the facts on which the cancellation is based.

All MICO's offers to show that the cancellation was communicated to the insured is its employee's testimony that the said
cancellation was sent "by mail through our mailing section" without more. It stands to reason that if Pinca had really received the
said notice, she would not have made payment on the original policy on December 24, 1981. Instead, she would have asked for a
new insurance, effective on that date and until one year later, and so taken advantage of the extended period.

Incidentally, Adora had not been informed of the cancellation either and saw no reason not to accept the said payment. Although
Pinca's payment was remitted to MICO's by its agent on January 15, 1982, MICO sought to return it to Adora only on February 5,
1982, after it presumably had learned of the occurrence of the loss insured against on January 18, 1982 make the motives of MICO
highly suspicious

10. UNITED MERCHANTS CORPORATION VS. COUNTRY BANKERS INSURANCE CORPORATION

G.R. NO. 198588, JULY 11, 2012 (CULAJARA)

 United Merchants was a manufacturer and retailer of Christmas lights. It insured (fire policy) its Christmas lights stored in
the warehouse with Country Bankers. The warehouse was burned down, hence, United sought indemnity from Country
Bankers.
 Country Bankers rejected the claim on the ground of Condition 15 of the policy which states that: “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 devices are
used by the insured or anyone acting in his behalf to obtain any benefit under this Policy; or if the loss or damage be
occasioned by the willful act, or with the connivance of the insured, all the benefits under this Policy shall be forfeited.”
 Country Bankers alleged that United Merchants’ claim was fraudulent because its Statement of Inventory showed that it
had no stocks in trade as of December 31, 1995, and that United Maker’s suspicious purchases for the year 1996 did not
even amount to P25 million.
 United Merchants’ General Information Sheet and Financial Reports further revealed that it had insufficient capital, which
meant that United Makers could not afford the alleged P50 million worth of stocks in trade.
 United Merchants answered by saying that they have a certificate from the Bureau of Fire Protection which states that:
“The Bureau further certifies that no evidence was gathered to prove that the establishment was willfully, feloniously and
intentionally set on fire.”

Issue: Whether United Merchants is entitled to claim from Country Bankers the full coverage of the fire insurance. NO.

If loss is proved apparently within a contract of insurance, the burden is upon the insurer to establish that the loss arose
from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability.
In the present case, Country Bankers failed to discharge its primordial burden of establishing that the damage or loss was
caused by arson, a limitation of the policy. Nevertheless, just because the defense failed to prove arson does not mean that fraud
does not exist. In fact, fraud exists in this case.
The Court ruled that the submission of false invoices to the adjusters establishes a clear case of fraud and misrepresentation
which voids the insurer’s liability as per condition of the policy. A fraudulent discrepancy between the actual loss and that claimed
in the proof of loss voids the insurance policy.
Mere filing of such a claim will exonerate the insurer. Considering that all the circumstances point to the inevitable
conclusion that United Merchants padded its claim and was guilty of fraud, it violated Condition No. 15 of the Insurance Policy.
Thus, United Merchants forfeited whatever benefits it may be entitled under the Insurance Policy, including its insurance claim.

11. Pacific Timber Export Corporation vs. CA and Workmen’s Insurance Company (ISMAEL)

Facts: On March 1963, 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 Japan. Workmen’s Insurance issued a cover note insuring
the cargo of the plaintiff subject to its terms and conditions. On April 2, 1963, two marine policies were issued. 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, some of the logs intended to be exported
were lost due to bad weather during loading operations in the Diapitan Bay. Pacific Timber informed Workmen’s about the loss of
32 pieces of logs. Although dated April 4, 1963, the letter was received in the office of the defendant only on April 15, 1963.
Workmen 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 the two marine policies but within the 1,250,000 bd. ft. covered by Cover Note insured.

Workmen denied the claim on the ground the 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 32 logs that were lost may be

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considered as covered under Cover Note because the said Note had become null and void by virtue of the issuance of Marine
Policies.

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.

Ruling: No. No.

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 law requires this ground of delay to be promptly and specifically asserted when a
claim on the insurance agreement is made. The facts show that instead of invoking the ground of delay in objecting to petitioner's
claim of recovery on the cover note it took steps clearly indicative that this particular ground for objection to the claim was never
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.
However, it never did in the Insurance Commission. Waiver can be raised against the defendant under Section 84 of the Insurance
Act.

Insurance Law

12. GEAGONIA VS CA [G.R. No. 114427. February 6, 1995] (FERRER)

Facts:
 Armando Geagonia is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On
December 22, 1989, he obtained from Country Bankers Insurance Corporation fire insurance policy No. F-14622 2 for
P100,000.00. The period of the policy was from December 22, 1989 to December 22, 1990 and covered the following:
"Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and other usual to assured's
business."
 Geagonia declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was
the co-insurer for P50,000.00. From 1989 to 1990, Geagonia had in his inventory stocks amounting to P392,130.50,
itemized as follows: Zenco Sales, Inc., P55,698.00; F. Legaspi Gen. Merchandise, 86,432.50; and Cebu Tesing Textiles,
250,000.00 (on credit); totalling P392,130.50.
 The policy contained the following condition, that "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."
 On May 27, 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan
del Sur. Geagonia's insured stocks-in-trade were completely destroyed prompting him to file with Country Bankers a claim
under the policy. On December 28, 1990, Country Bankers denied the claim because it found that at the time of the loss.

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  Geagonia's stocks-in-trade were likewise covered by fire insurance policies GA-28146 and GA-28144, for P100,000.00
each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (PFIC). These policies indicate that the insured
was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading ""MORTGAGEE: Loss, if
any, shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear subject to the terms of this
policy. CO-INSURANCE DECLARED: P100,000. — Phils. First CEB/F-24758" The basis of Country Bankers' denial
was Geagonia's alleged violation of Condition 3 of the policy.
 Geagonia then filed a complaint against Country Bankers with the Insurance Commission (Case 3340) for the recovery of
P100,000.00 under fire insurance policy F-14622 and for attorney's fees and costs of litigation. He attached his letter of
January 18, 1991 which asked for the reconsideration of the denial. He admitted in the said letter that at the time he obtained
Country Bankers's fire insurance policy he knew that the two policies issued by the PFIC were already in existence;
however, he had no knowledge of the provision in Country Bankers' policy requiring him to inform it of the prior policies;
this requirement was not mentioned to him by Country Bankers' agent; and had it been so mentioned, he would not have
withheld such information. He further asserted that the total of the amounts claimed under the three policies was below the
actual value of his stocks at the time of loss, which was P1,000,000.00.
 In its decision of June 21, 1993, the Insurance Commission found that Geagonia did not violate Condition 3 as he had no
knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles
which procured the PFIC policies without informing him or securing his consent; and that Cebu Tesing Textile, as his
creditor, had insurable interest on the stocks. These findings were based on Geagonia's testimony that he came to know of
the PFIC policies only when he filed his claim with Country Bankers and that Cebu Tesing Textile obtained them and paid
for their premiums without informing him thereof. The Insurance Commission ordered Country Bankers to pay Geagonia
the sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the amount of
P10,000.00 as attorney's fees. With costs. Its motion for the reconsideration of the decision having been denied by the
Insurance Commission in its resolution of August 20, 1993, Country Bankers appealed to the Court of Appeals by way of
a petition for review (CA-GR SP 31916). In its decision of December 29, 1993, the Court of Appeals reversed the decision
of the Insurance Commission because it found that Geagonia knew of the existence of the two other policies issued by the
PFIC. His motion to reconsider the adverse decision having been denied, Geagonia filed the petition for review on
certiorari.

Issue: W/N there is double insurance in the case at bar so as to deny Geagonia from recovering on the insurance policy

Ruling: NO.

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law. Its incorporation in the
policy is allowed by Section 75 of the Insurance Code 15 which provides that "[a] policy may declare that a violation of specified
provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy." Such a condition is a
provision which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is
commonly known as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other insurance
exists. Its violation would thus avoid the policy. 16 However, in order to constitute a violation, the other insurance must be upon
same subject matter, the same interest therein, and the same risk. 17

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and both interests
may be one policy, or each may take out a separate policy covering his interest, either at the same or at separate times. 18 The
mortgagor's insurable interest covers the full value of the mortgaged property, even though the mortgage debt is equivalent to the
full value of the property. 19 The mortgagee's insurable interest is to the extent of the debt, since the property is relied upon as
security thereof, and in insuring he is not insuring the property but his interest or lien thereon. His insurable interest is prima facie
the value mortgaged and extends only to the amount of the debt, not exceeding the value of the mortgaged property. 20 Thus, separate
insurances covering different insurable interests may be obtained by the mortgagor and the mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual practice. The mortgagee may be
made the beneficial payee in several ways. He may become the assignee of the policy with the consent of the insurer; or the mere
pledgee without such consent; or the original policy may contain a mortgage clause; or a rider making the policy payable to the
mortgagee "as his interest may appear" may be attached; or a "standard mortgage clause," containing a collateral independent
contract between the mortgagee and insurer, may be attached; or the policy, though by its terms payable absolutely to the mortgagor,
may have been procured by a mortgagor under a contract duty to insure for the mortgagee's benefit, in which case the mortgagee
acquires an equitable lien upon the proceeds. 21

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest may appear, the mortgagee
is only a beneficiary under the contract, and recognized as such by the insurer but not made a party to the contract himself. Hence,
any act of the mortgagor which defeats his right will also defeat the right of the mortgagee. 22 This kind of policy covers only such
interest as the mortgagee has at the issuing of the policy. 23

On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the terms of an agreement by
which the mortgagor is to pay the premiums upon such insurance. 24 It has been noted, however, that although the mortgagee is

Insurance Quiz |page no. 10

himself the insured, as where he applies for a policy, fully informs the authorized agent of his interest, pays the premiums, and
obtains on the assurance that it insures him, the policy is in fact in the form used to insure a mortgagor with loss payable clause. 25

XXX With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally free from ambiguity
and must, perforce, be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to double
insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other insurance "covering any of the property or
properties consisting of stocks in trade, goods in process and/or inventories only hereby insured," and the portion regarding the
insured's declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of
P50,000.00. A double insurance exists where the same person is insured by several insurers separately in respect of the same
subject and interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged property
are distinct and separate. Since the two policies of the PFIC do not cover the same interest as that covered by the policy of
the private respondent, no double insurance exists. The non-disclosure then of the former policies was not fatal to the petitioner's
right to recover on the private respondent's policy.

13. Philippine American Life Insurance Company v. Auditor General (TALIPAN)

Facts: Philippine American Life Insurance Company [Philamlife], a domestic life insurance corporation, and American International
Reinsurance Company [Airco] of Pembroke, Bermuda, a corporation organized under the laws of the Republic of Panama, entered
into an agreement — reinsurance treaty — which provides in its paragraph 1, Article I, the following:

Art. I. On and after the 1st day of January 1950, the Ceding Company [Philamlife] agrees to reinsure with AIRCO the entire first
excess of such life insurance on the lives of persons as may be written by the Ceding Company under direct application over and
above its maximum limit of retention for life insurance, and AIRCO binds itself, subject to the terms and provisions of this
agreement, to accept such reinsurances on the same terms and for an amount not exceeding its maximum limit for automatic
acceptance of life reinsurance. . . .

By the third paragraph of the same Article I, it is also stipulated that even though Philamlife "is already on a risk for its maximum
retention under policies previously issued, when new policies are applied for and issued [Philamlife] can cede automatically any
amount, within the limits . . . specified, on the same terms on which it would be willing to accept the risk for its own account, if it
did not already have its limit of retention."

Reinsurances under said reinsurance treaty of January 1, 1950 may also be had facultatively upon other cases pursuant to Article II
thereof, whereby Airco's liability begins from acceptance of the risk. These cases include those set forth in paragraph 2 of the treaty's
Article I which expressly excludes from automatic reinsurance the following: (a) any application for life insurance with Philamlife
which, together with other papers containing information as to insurability of the risk, shows that "the total amount of life insurance
(including accidental death benefit) applied for to or already issued by all companies [other life insurance companies which had
previously accepted the risk] exceeds the equivalent of Five Hundred Thousand Dollars ($500,000) United States currency," and
(b) any life on which Philamlife 'retains for its own account less than its regular maximum limit of retention for the age, sex, plan,
rating and occupation of the risk.'

Every life insurance policy reinsured under the aforecited agreement "shall be upon the yearly renewable term plan for the amount
at risk under the policy reinsured." 5

Philamlife agrees to pay premiums for all reinsurances "on an annual premium basis." 6

It is conceded that no question ever arose with respect to the remittances made by Philamlife to Airco before July 16, 1959, the date
of approval of the Margin Law.

The Central Bank of the Philippines collected the sum of P268,747.48 as foreign exchange margin on Philamlife remittances to
Airco purportedly totalling $610,998.63 and made subsequent to July 16, 1959.

Philamlife subsequently filed with the Central Bank a claim for the refund of the above sum of P268,747.48. The ground therefor
was that the reinsurance premiums so remitted were paid pursuant to the January 1, 1950 reinsurance treaty, and, therefore, were
pre-existing obligations expressly exempt from the margin fee. The Auditor of the Central Bank, on April 19, 1961, refused to pass
in audit Philamlife's claim for refund.

Issue: Whether the reinsurance premiums so remitted were exempt from the margin fee by virtue of reinsurance treaty

Ruling: the reinsurance treaty precedes the Margin Law by over nine years. Nothing in that treaty, however, obligates Philamlife to
remit to Airco a fixed, certain, and obligatory sum by way of reinsurance premiums. All that the reinsurance treaty provides on this
point is that Philamlife "agrees to reinsure." The treaty speaks of a probability; not a reality. For, without reinsurance, no premium
is due. Of course, the reinsurance treaty lays down the duty to remit premiums — if any reinsurance is effected upon the covenants

Insurance Quiz |page no. 11

in that treaty written. So it is that the reinsurance treaty per se cannot give rise to a contractual obligation calling for the payment of
foreign exchange "issued, approved and outstanding as of the date this Act [Republic Act 2609] takes effect."

For an exemption to come into play, there must be a reinsurance policy or, as in the reinsurance treaty provided, a "reinsurance
cession" 9 which may be automatic or facultative. 10

There should not be any misapprehension as to the distinction between a reinsurance treaty, on the one hand, and a reinsurance
policy or a reinsurance cession, on the other. The concept of one and the other is well expressed thus:

. . . A reinsurance policy is thus a contract of indemnity one insurer makes with another to protect the first insurer from a risk it has
already assumed. . . . In contradistinction a reinsurance treaty is merely an agreement between two insurance companies whereby
one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. The practice of issuing
policies by insurance companies includes, among other things, the issuance of reinsurance policies on standard risks and also on
substandard risks under special arrangements. The lumping of the different agreements under a contract has resulted in the term
known to the insurance world as "treaties." Such a treaty is, in fact, an agreement between insurance companies to cover the different
situations described. Reinsurance treaties and reinsurance policies are not synonymous. Treaties are contracts for insurance;
reinsurance policies or cessions . . . are contracts of insurance. 11

Philamlife's obligation to remit reinsurance premiums becomes fixed and definite upon the execution of the reinsurance cession.
Because, for every life insurance policy ceded to Airco, Philamlife agrees to pay premium. 12 It is only after a reinsurance cession
is made that payment of reinsurance premium may be exacted, as it is only after Philamlife seeks to remit that reinsurance premium
that the obligation to pay the margin fee arises.

Upon the premise that the margin fee of P268,747.48 was collected on remittances made on reinsurance effected on or after the
Margin Law took effect, refund thereof does not come within the coverage of the exemption circumscribed in Section 3 of the said
law.

The ruling of the Auditor General of October 24, 1961 denying refund is hereby affirmed.

14. Gibson v. Revilla, 92 SCRA 219 [1979] (ACEBEROS)

Facts: Lepanto Consolidated Mining Company filed a complaint against Malayan Insurance Company, Inc.The civil suit thus
instituted by Lepanto against Malayan was founded on the fact that Malayan issued a Marine Open Policy covering all shipments
of copper, gold and silver concentrates in bulk from Poro, San Fernando, La Union to Tacoma, Washington or to other places in the
United States.
Thereafter, Malayan obtained reinsurance abroad through Sedgwick, Collins & Co., Limited, a London insurance
brokerage. The Memorandum of Insurance issued by Sedgwick to Malayan listed three groups of underwriters or reinsurers – Lloyds
62.808%, Companies (I.L.U.) 34.705%, Other Companies 2.487%.
At the top of the list of underwriting members of Lloyds is Syndicate No. 448, assuming 2.48% of the risk assumed by the
reinsurer, which syndicate number petitioner Ivor Robert Dayton Gibson claims to be himself. Petitioner Ivor Robert Dayton Gibson
filed a motion to intervene as defendant, which motion was denied by the lower court.
Issue: Whether the lower court committed, reversible error in refusing the intervention of petitioner Ivor Robert Dayton Gibson in
the suit between Lepanto and Malayan

Ruling: We rule that the respondent Judge committed no error of law in denying petitioner's Motion to
Intervene. And neither has he abused his discretion in his denial of petitioner's Motion for Intervention.
We agree with the holding of the respondent Court that since movant Ivor Robert Dayton Gibson
appears to be only one of several re-insurers of the risks and liabilities assumed by Malayan Insurance Company, Inc., it is highly
probable that other re- insurers may likewise intervene. If petitioner is allowed to intervene, We hold that there is good and sufficient
basis for the Court a quo to declare that the trial between Lepanto and Malayan would be definitely disrupted and would certainly
unduly delay the proceedings between the parties especially at the stage where Lepanto had already rested its case and that the issues
would also be compounded as more parties and more matters will have to be litigated. In other words, the Court's discretion is
justified and reasonable.
We also hold that respondent Judge committed no reversible error in further sustaining the fourth ground of Lepanto's
Opposition to the Motion to Intervene that the rights, if any, of petitioner are not prejudiced by the present suit and will be fully
protected in a separate action against him and his co-insurers by Malayan.
Petitioner's contention that he has to pay once Malayan is finally adjudged to pay Lepanto because of the very nature of a contract
of reinsurance and considering that the re-insurer is obliged 'to pay as may be paid thereon' (referring to the original policies),
although this is subject to other stipulations and conditions of the reinsurance contract, is without merit. The general rule in the law
of reinsurance is that the re-insurer is entitled to avail itself of every defense which the re-insured (which is Malayan) might urge in
an action by the person originally insured (which is Lepanto). Specifically, the rule is stated thus:

Insurance Quiz |page no. 12

 "Sec. 1238. In an action on a contract of reinsurance, as a general rule the reinsurer is entitled to avail itself of every defense
which the reinsured might urge in an action by the person originally insured; . . ."
The same rule is stated otherwise in 44 Am. Jur. 2d, Sec. 1862, p. 793, as follows:
"Moreover, where an action is brought against the reinsurer by the reinsured, the former may assert any defense that the
latter might have made in an action on the policy of original insurance." (Eagle Ins. Co. vs. Lafayette Ins. Co., 91 Ind. 443)

As to the effect of the clause "to pay as may be paid thereon" contained in petitioner's re-insurance contract, Arnould, on the Law
of Marine Insurance and Average, 13th Ed., Vol. 1, Section 327, p. 315, states the rule, thus:
"It has been decided that this clause does not preclude the reinsurer from insisting upon proper proof that a loss strictly
within the terms of the original policy has taken place."
"This clause does not enable the original underwriter to recover from his re-insurer to an extent beyond the subscription of the
latter."

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby dismissed.

15. COQUIA V. FIELDMEN’S INSURANCE (Avelino)

Facts: Fieldmen’s Insurance co. Issued in favor of the Manila Yellow Taxicab a common carrier insurance policy with a stipulation
that the company shall indemnify the insured of the sums which the latter wmy be held liable for with respect to “death or bodily
injury to any faire-paying passenger including the driver and conductor”. The policy also stated that in “the event of the death of
the driver, the Company shall indemnify his personal representatives and at the Company’s option may make indemnity payable
directly to the claimants or heirs of the claimants.”

During the policy’s lifetime, a taxicab of the insured driven by Coquia met an accident and Coquia died. When the company refused
to pay the only heirs of Coquia, his parents, they institued this complaint. The company contends that plaintiffs have no cause of
action since the Coquias have no contractual relationship with the company.

Issue: Whether plaintiffs have the right to collect on the policy.

Held: YES. Athough, in general, only parties to a contract may bring an action based thereon, this rule is subject to exceptions, one
of which is found in the second paragraph of Article 1311 of the Civil Code of the Philippines, reading: "If a contract should contain
some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person." This is but the restatement of a well-known principle concerning contracts
pour autrui, the enforcement of which may be demanded by a third party for whose benefit it was made, although not a party to the
contract, before the stipulation in his favor has been revoked by the contracting parties

In the case at bar, the policy under consideration is typical of contracts pour autrui this character being made more manifest by the
fact that the deceased driver paid fifty percent (50%) of the corresponding premiums, which were deducted from his weekly
commissions. Under these conditions, it is clear that the Coquias — who, admittedly, are the sole heirs of the deceased — have a
direct cause of action against the Company, and, since they could have maintained this action by themselves, without the assistance
of the insured it goes without saying that they could and did properly join the latter in filing the complaint herein.

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Insurance Quiz |page no. 14