INSURANCE CASE DIGEST FIRE INSURANCE
ROMERO
 Ong Guan Can and The Bank of the Philippine Islands vs The Century
Insurance Co., LTD.
FACTS:
 the Court of the First Instance of Iloilo rendered a judgment in favor of the
plaintiff, sentencing the defendant company to pay him the sum of
P45,000, the value of certain policies of fire insurance, with legal interest.
 The defendant company appealed from this judgment, and now insists that
the same must be modified and that it must be permitted to rebuild the
house burnt, subject to the alignment of the street where the building was
erected, and that the appellant be relieved from the payment of the sum in
which said building was insured.
 A building of the plaintiff was insured against fire by the defendant in the
sum of P30,000, as well as the goods and merchandise therein contained in
the sum of P15,000.
 The house and merchandise insured were burnt while the policies issued
by the defendant in favor of the plaintiff were in force.
 The appellant contends that under clause 14 of the conditions of the
policies, it may rebuilt the house burnt, and although the house may be
smaller, yet it would be sufficient indemnity to the insured for the actual
loss suffered by him.
The clause cited by the appellant is as follows:
"The Company may at its option reinstate or replace the property damaged or
destroyed, or any part thereof, instead of paying the amount of the loss or damage,
or may join with any other Company or insurers in so doing, but the Company shall
not be bound to reinstate exactly or completely, but only as circumstances permit
and in reasonable sufficient manner, and in no case shall the Company be bound to
expend more in reinstatement than it would have cost to reinstate such property as it
was at the time of the occurrence of such loss or damage, nor more than the sum
insured by the Company thereon."
ISSUE: Whether or not the insurance company is liable to pay the petitioner instead
of rebuilding the insured property.
HELD: YES
 It must be noted that in alternative obligations, the debtor, the insurance
company in this case, must notify the creditor of his election, stating
which of the two presentations he is disposed to fulfill, in accordance with
article 1133 of the Civil Code.
 The object of this notice is to give the creditor, that is, the plaintiff in the
instant case, opportunity to express his consent, or to impugn the election
made by the debtor, and only after said notice shall the election take legal
CABIOS.ORINDAY.PADRID.PAJARITO.REYES.
effect when consented by the creditor, or if impugned by the latter, when
declared proper by a competent court.
 the record shows that the appellant company did not give a formal notice
of its election to rebuild, and while the witnesses, Cedrun and Cacho,
speak of the proposed reconstruction of the house destroyed, yet the
plaintiff did not give his assent to the proposition, for the reason that the
new house would be smaller and of materials of lower kind than those
employed in the construction of the house destroyed.
 The trial judge in his decision said that the rebuilding instead of payment
would be unjust and unequitable.
(2) Malayan Insurance v PAPCo
Insurer entitled to rescind contract when at the time of loss, the subject property was
transferred to a location different from that stipulated in the policy. From Sanyo
Building to Pace Pacific Bldg.
FACTS:
 On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire
Insurance Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the
latter’s machineries and equipment located at Sanyo Precision Phils.
Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo
Building). The insurance, which was for Fifteen Million Pesos
(?15,000,000.00) and effective for a period of one (1) year, was procured
by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the
mortgagee of the insured machineries and equipment.
 After the passage of almost a year but prior to the expiration of the
insurance coverage, PAP Co. renewed the policy on an "as is" basis.
Pursuant thereto, a renewal policy, Fire Insurance Policy No. F-00227-
000079, was issued by Malayan to PAP Co. for the period May 13, 1997
to May 13, 1998.
 On October 12, 1997 and during the subsistence of the renewal policy, the
insured machineries and equipment were totally lost by fire. Hence, PAP
Co. filed a fire insurance claim with Malayan in the amount insured.
 In a letter, dated December 15, 1997, Malayan denied the claim upon the
ground that, at the time of the loss, the insured machineries and equipment
were transferred by PAP Co. to a location different from that indicated in
the policy. Specifically, that the insured machineries were transferred in
September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot
14, Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting
the denial, PAP Co. argued that Malayan cannot avoid liability as it was
informed of the transfer by RCBC, the party duty-bound to relay such
information. However, Malayan reiterated its denial of PAP Co.’s claim.
Distraught, PAP Co. filed the complaint below against Malayan.
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INSURANCE CASE DIGEST FIRE INSURANCE
 RTC:On September 17, 2009, the RTC handed down its decision, ordering
Malayan to pay PAP Company Ltd (PAP) an indemnity for the loss under
the fire insurance policy as well as for attorney’s fees.
 Reasons for RTC Ruling
 -although there was a change in the condition of the thing insured as a
result of the transfer of the subject machineries to another location, said
insurance company failed to show proof that such transfer resulted in the
increase of the risk insured against.
 -PAP’s notice to Rizal Commercial Banking Corporation (RCBC)
sufficiently complied with the notice requirement under the policy
considering that it was RCBC which procured the insurance
 CA: Affirmed the RTC decision but removed attys fees.
 Reasons for CA ruling
 -Malayan failed to show proof that there was a prohibition on the transfer
of the insured properties during the efficacy of the insurance policy.
Malayan also failed to show that its contractual consent was needed before
carrying out a transfer of the insured properties
 -even if there was such a provision on transfer restrictions of the insured
properties, still Malayan could not escape liability because the transfer was
made during the subsistence of the original policy, not the renewal policy.
PAP transferred the insured properties from the Sanyo Factory to the Pace
Pacific Building (Pace Factory) sometime in September 1996. Therefore,
Malayan was aware or should have been aware of such transfer when it
issued the renewal policy on May 14, 1997.
 -Malayan failed to show that the transfer of the insured properties
increased the risk of the loss.
Issue: Won Malayan shall be held liable
Ruling: No.
 Malayan basically argues that it cannot be held liable under the insurance
contract because PAP committed concealment, misrepresentation and
breach of an affirmative warranty under the renewal policy when it
transferred the location of the insured properties without informing it.
Such transfer affected the correct estimation of the risk which should have
enabled Malayan to decide whether it was willing to assume such risk and,
if so, at what rate of premium. The transfer also affected Malayan’s ability
to control the risk by guarding against the increase of the risk brought
about by the change in conditions, specifically the change in the location
of the risk
 On the other hand, PAP counters that there is no evidence of any
misrepresentation, concealment or deception on its part and that its claim
is not fraudulent. It insists that it can still sue to protect its rights and
interest on the policy notwithstanding the fact that the proceeds of the
CABIOS.ORINDAY.PADRID.PAJARITO.REYES.ROMERO
same was payable to RCBC, and that it can collect interest at the rate of
12% per annum on the proceeds of the policy because its claim for
indemnity was unduly delayed without legal justification.
 SC:agrees with the position of Malayan that it cannot be held liable for the
loss of the insured properties under the fire insurance policy.
 Rationale:
 -the policy expressly stated that the insured properties were located at
"Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA,
Rosario, Cavite";
 -The policy forbade the removal of the insured properties unless
sanctioned by Malayan
 Condition No. 9(c) of the renewal policy provides:
Under any of the following circumstances the insurance ceases to attach as
regards the property affected unless the insured, before the occurrence of
any loss or damage, obtains the sanction of the company signified by
endorsement upon the policy, by or on behalf of the Company:
xxx xxx xxx
(c) If property insured be removed to any building or place other
than in that which is herein stated to be insured
 -What PAP did to prove that Malayan was notified was to show that it
relayed the fact of transfer to RCBC, the entity which made the referral
and the named beneficiary in the policy. Malayan and RCBC might have
been sister companies, but such fact did not make one an agent of the
other. The fact that RCBC referred PAP to Malayan did not clothe it with
authority to represent and bind the said insurance company. After the
referral, PAP dealt directly with Malayan.
 -Granting that any notice to RCBC was binding on Malayan, PAP’s claim
that it notified RCBC and Malayan was not indubitably established
 -PAPS Principal witness’ admissionthat the insured properties were
transferred to a different location only after the renewal of the fire
insurance policy enfeebles its claim enfeebles PAP’s position that the
subject properties were already transferred to the Pace factory before the
policy was renewed.
 -agrees with Malayan that the transfer to the Pace Factory exposed the
properties to a hazardous environment and negatively affected the fire
rating stated in the renewal policy. The increase in tariff rate from 0.449%
to 0.657% put the subject properties at a greater risk of loss
 Pertinent insu code provisions PD612
 Secs 26- concealment
 sec 27- rescission as a result of concealment
 sec 168 alteration now sec 170 in ra 10607
 Accordingly, an insurer can exercise its right to rescind an insurance
contract when the following conditions are present, to wit:
 1) the policy limits the use or condition of the thing insured;
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 2) there is an alteration in said use or condition;
 3) the alteration is without the consent of the insurer;
 4) the alteration is made by means within the insured’s control; and
 5) the alteration increases the risk of loss.20
 In the case at bench, all these circumstances are present. It was clearly
established that the renewal policy stipulated that the insured properties
were located at the Sanyo factory; that PAP removed the properties
without the consent of Malayan; and that the alteration of the location
increased the risk of loss.
 WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is
hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance
Company, Inc. is hereby declared NOT liable for the loss of the insured
machineries and equipment suffered by PAP Co., Ltd
(3) ALLIED BANKING CORPORATION vs . CHENG YONG and LILIA GAW
G.R. No. 151040
October 5, 2005
Facts:
Philippine Pacific Fishing Company, Inc. (Philippine Pacific) obtained from Allied
Banking Corporation (Allied Bank), a packing credit accommodation amounting to
P1,752,000.00. To secure the obligation, Marilyn Javier and the spouses Cheng
executed a Continuing Guaranty/Comprehensive Surety. Later, Philippine Pacific
defaulted in the payment of said obligation.
An intra-corporate dispute among its stockholders followed, prompting the filing
against Philippine Pacific of a petition for receivership before the Securities and
Exchange Commission (SEC), which petition was docketed as SEC Case No. 2042 .
Likewise, a criminal case for Estafa was filed against Marilyn Javier. the parties in
SEC Case No. 2042 agreed to create and constitute a management committee,
instead of placing Philippine Pacific under receivership. Hence, in an order, the SEC
formally created a management committee
However two days prior to the constitution of the management committee, Allied
Bank and Philippine Pacific agreed to restructure and convert the packing
credit accommodation into a simple loan. Philippine Pacific executed in favor of
Allied Bank a promissory note in the same amount as the packing credit
accommodation. Aside from affixing their signatures on the same promissory note in
their capacity as officers of Philippine Pacific, the spouses Cheng also signed the
note in their personal capacities and as co-makers thereof.Philippine Pacific failed to
pay according to the schedule of payments set out in the promissory note, prompting
the spouses Cheng to secure the note with substantial collateral by executing a deed
of chattel mortgage in favor of Allied Bank over a fishing vessel, "Jean III", a
Japanese-manufactured vessel with refrigerated hatches and glass freezers, owned
CABIOS.ORINDAY.PADRID.PAJARITO.REYES.ROMERO
by the spouses and registered in their names. Philippine Pacific again defaulted
payment. Hence, Allied Bank filed with the sheriff of Navotas an application for
extra-judicial foreclosure of the chattel mortgage constituted on "Jean III".
The spouses Cheng, to prevent the auction sale of the vessel, filed with the Regional
Trial Court an action for declaratory relief with prayer for injunctive remedies.
Initially, that court issued a writ of preliminary injunction restraining the sale but
later lifted it upon dismissal of the main case for declaratory relief. In the meantime,
the vessel sank at the port of Navotas resulting to its total loss. As per
certification of the Harbor Master of the Philippine Fisheries Development
Authority, the vessel sank due to unnoticed defects caused by its prolonged stay
in the fish port and the abandonment thereof. Shortly before the loss, charterer
Lig Marine Products, Inc. offered to purchase the vessel for Four Million Pesos
(P4,000,000.00).
Spouses Cheng filed with the Regional Trial Court a complaint for Injunction,
Annulment of Contracts and Damages with the provisional remedy of Preliminary
Injunction, against Allied Bank and the Ex-Officio Sheriff of Malabon praying that
the promissory note dated 12 August 1981 be declared void and unenforceable
because it was executed without the prior approval or ratification of the SEC-created
management committee in SEC Case No. 2042 , and to declare invalid the deed of
chattel mortgage over the vessel "Jean III" for having been constituted to secure a
void or unenforceable obligation. The complaint was docketed as Civil Case No.
10947 and raffled to Branch 145 of the court.
Meanwhile Allied Bank filed with the Ex-Officio Sheriff of Pasig an application for
extrajudicial foreclosure of the real estate mortgage constituted by the Cheng
spouses over their parcel of land covered by TCT No. (222143) 23843, located in
San Juan, Metro Manila (hereinafter referred to as the San Juan property), together
with the improvement thereon, consisting of a two-storey building belonging to
GCPI. It appears that said property was mortgaged by the spouses in favor of Allied
Bank on 31 May 1983 to partially secure the payment of the time loan granted by
the Bank to GCPI.
Despite GCPI's full payment of said loan, Allied Bank refused to release the
mortgage on the San Juan property, theorizing that it also secured the obligation of
the spouses Cheng as Philippine Pacific's co-makers of the promissory note dated 12
August 1981, in accordance with the stipulation in the deed of mortgage extending
coverage of the guaranty to "any other obligation owing to the mortgagee".
The spouses Cheng filed in Civil Case No. 10947 an amended complaint praying,
among others, that: (a) the promissory note of 12 August 1981 be declared void and
unenforceable; (b) the vessel be declared a total loss; and (c) Allied Bank be ordered
to pay them the value of the loss. And, in order to prevent Allied Bank and the Ex-
Officio Sheriff of Pasig from foreclosing the real estate mortgage over their San
Juan property, the spouses Cheng filed a supplemental complaint with an application
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INSURANCE CASE DIGEST FIRE INSURANCE
for a writ of preliminary injunction. A writ of preliminary injunction was, thereafter,
issued by the trial court.
Allied Bank filed a motion to dismiss the amended as well as the supplemental
complaints.
In its order, the trial court denied the motion with respect to the amended complaint,
for lack of merit, while deferring the resolution thereof as regards the supplemental
complaint until after trial because the ground alleged did not appear to be
indubitable.
Eventually, the trial court declared both the promissory note and the deed of chattel
mortgage over the vessel "Jean III" invalid and unenforceable. Therefrom, Allied
Bank went to the Court of Appeals (CA) via ordinary appeal under Rule 41 of the
Rules of Court, which appellate recourse. The Court of Appeals, in its Decision
partially reversed and set aside the appealed decision of the trial court insofar as it
(a) declared the promissory note as not valid and unenforceable and (b) ordered
Allied Bank to pay the spouses Cheng the amount of Four Million Pesos
(P4,000,000.00) for the loss of the fishing vessel and the sum of Thirty Thousand
Pesos (P30,000.00) as moral and exemplary damages.
Dissatisfied, Allied Bank immediately filed with this Court its petition for review on
certiorari in G.R. No. 151040, seeking to set aside and reverse only that portion of
the appellate court's decision which affirmed certain aspects of the trial court's
decision, i.e., (a) enjoining Allied Bank and the Ex-Officio Sheriff of Pasig from
proceeding with the foreclosure of the Real Estate Mortgage over the San Juan
property, (b) ordering Allied Bank to execute a release of the same mortgage in
favor of the spouses Cheng; (c) ordering Allied Bank to deliver the two (2) torrens
titles in favor of the spouses; and (d) ordering Allied Bank to pay attorney's fees and
costs. In short, Allied Bank faults the Court of Appeals for not reversing the trial
court's decision in its entirety.
The spouses Cheng filed with the Court of Appeals a motion for reconsideration,
disputing the appellate court's pronouncement that the promissory note and the deed
of chattel mortgage over the fishing vessel "Jean III" are valid and enforceable and
that the loss of said vessel must be borne by them. In its resolution, the appellate
court denied the motion. Hence, the spouses Cheng's own petition for review on
certiorari in G.R. No. 154109, seeking the reversal and setting aside of both the
appellate court's decision and resolution, it being their submission that said court
committed a grave and serious reversible error.
Issue: Whether or not the chattel mortgage over the fishing vessel "Jean III" can be
foreclosed for Philippine Pacific's failure to comply with its obligation under the
promissory note.
Ruling:
CABIOS.ORINDAY.PADRID.PAJARITO.REYES.ROMERO
Under the parole evidence rule, when the parties have reduced their agreement into
writing, they are deemed to have intended such written agreement to be the sole
repository and memorial of everything that they have agreed upon. All their prior
and contemporaneous agreements are deemed to be merged in the written document
so that, as between them and their successors-in-interest, such writing becomes
exclusive evidence of the terms thereof and any verbal agreement which tends to
vary, alter or modify the same is not admissible.
Here, the terms of the subject promissory note and the deed of chattel mortgage are
clear and explicit and devoid of any conditionality upon which its validity depends.
To be sure, Allied Bank was not a party to SEC Case No. 2042 where the
management committee was ordered created; hence, it would not be correct to
presume that it had notice of the existence of the management committee which,
incidentally, was still to be created when the subject promissory note was executed
on 12 August 1981. Notably, while the parties in SEC Case No. 2042 agreed to form
the management committee on 27 July 1981, it was only on 14 August 1981 when
the committee was actually created and its members appointed. Clearly then, the
subject promissory note was outside the realm of authority of the management
committee. Corollarily, the chattel mortgage accessory to it is likewise valid.
We thus declare and so hold that Allied Bank's foreclosure of the chattel mortgage
constituted over the vessel "Jean III" was justified. On this score, we also rule that
the loss of the mortgaged chattel brought about by its sinking must be borne not by
Allied Bank but by the spouses Cheng. As owners of the fishing vessel, it was
incumbent upon the spouses to insure it against loss. Thus, when the vessel sank
before the chattel mortgage could be foreclosed, uninsured as it is, its loss must be
borne by the spouses Cheng.
(4) DBP Pool of Accredited Insurance Companies vs Radio Mindanao
Network, Inc.
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INSURANCE CASE DIGEST FIRE INSURANCE
FACTS:
 Respondent filed for recovery of insurance benefits against petitioner.
 Respondent owns several broadcasting stations all over the country.
Provident covered respondent's transmitter equipment and generating set
for the amount of P13,550,000.00 under Fire Insurance Policy No. 30354,
while petitioner covered respondent's transmitter, furniture, fixture and
other transmitter facilities for the amount of P5,883,650.00 under Fire
Insurance Policy No. F-66860.
 respondent's radio station located in SSS Building, Bacolod City, was
razed by re causing damage in the amount of P1,044,040.00.
 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 insurance companies maintained that the evidence showed that the re
was caused by members of the Communist Party of the Philippines/New
People's Army (CPP/NPA); and consequently, denied the claims.
 The RTC rendered a decision in favor of the respondent.
 Petitioner assails the factual finding of both the trial court and the CA that
its evidence failed to support its allegation that the loss was caused by an
excepted risk, i.e., members of the CPP/NPA caused the fire. The only
evidence which the Court can consider to determine if the fire was due to
the intentional act committed by the members of the New People's Army
(NPA), are the testimony [sic] of witnesses Lt. Col. Nicolas Torres and
SPO3 Leonardo Rochar who were admittedly not present when the fire
occurred
 Petitioner argues that private respondent is responsible for proving that the
cause of the damage/loss is covered by the insurance policy, as stipulated
in the insurance policy, to wit:
Any loss or damage happening during the existence of abnormal conditions (whether
physical or otherwise) which are occasioned by or through in consequence directly
or indirectly, of any of the said occurrences shall be deemed to be loss or damage
which is not covered by the insurance, except to the extent that the Insured shall
prove that such loss or damage happened independently of the existence of such
abnormal conditions.
In any action, suit or other proceeding where the Companies allege that by reason of
the provisions of this condition any loss or damage is not covered by this insurance,
the burden of proving that such loss or damage is covered shall be upon the Insured.
CABIOS.ORINDAY.PADRID.PAJARITO.REYES.ROMERO
ISSUE: WON it was Radio Mindanao Network Inc who had the burden of proving
that the damage is covered by the insurance policy
HELD: NO
 An insurance contract, being a contract of adhesion, should be so
interpreted as to carry out the purpose for which the parties entered into
the contract which is to insure against risks of loss or damage to the goods.
Limitations of liability should be regarded with extreme jealousy and must
be construed in such a way as to preclude the insurer from noncompliance
with its obligations.
 An insurer seeking to defeat a claim because of an exception or limitation
in the policy has the burden of proving that the loss comes within the
purview of the exception or limitation set up.
o DBP claims that the burden of proving that the damage is
covered by the insurance policy fell on Radio Mindanao based
on this stipulation in the policy:
o “In any action, suit or other proceeding where the Companies
allege that by reason of the provisions of this condition any loss
or damage is not covered by this insurance, the burden of
proving that such loss or damage is covered shall be upon
the Insured.”
o The "burden of proof" contemplated by the aforesaid provision
actually refers to the "burden of evidence" (burden of going
forward). As applied in this case, it refers to the duty of the
insured to show that the loss or damage is covered by the policy.
o The foregoing clause notwithstanding, the burden of proof
still rests upon petitioner to prove that the damage or loss
was caused by an excepted risk in order to escape any
liability under the contract.
o Particularly, in insurance cases, where a risk is excepted by the
terms of a policy which insures against other perils or hazards,
loss from such a risk constitutes a defense which the insurer may
urge, since it has not assumed that risk, and from this it follows
that an insurer seeking to defeat a claim because of an
exception or limitation in the policy has the burden of
proving that the loss comes within the purview of the
exception or limitation set up.
o If a proof is made of a loss apparently within a contract of
insurance, the burden is upon the insurer to prove that the loss
arose from a cause of loss which is excepted or for which it is
not liable, or from a cause which limits its liability
o Consequently, it is sufficient for private respondent to prove the
fact of damage or loss. Once respondent makes out a prima facie
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INSURANCE CASE DIGEST FIRE INSURANCE CABIOS.ORINDAY.PADRID.PAJARITO.REYES.ROMERO

case in its favor, the duty or the burden of evidence shifts to

petitioner to controvert respondent’s prima facie case.
o In this case, since petitioner alleged an excepted risk, then the
burden of evidence shifted to petitioner to prove such exception.
It is only when petitioner has sufficiently proven that the
damage or loss was caused by an excepted risk does the burden
of evidence shift back to respondent who is then under a duty of
producing evidence to show why such excepted risk does not
release petitioner from any liability.
o Unfortunately for petitioner, it failed to discharge its primordial
burden of proving that the damage or loss was caused by an
excepted risk.