G.R. No.

125678 March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,

vs.
COURT OF APPEALS and JULITA TRINOS, respondents.

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage
with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to
the following question:

Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details).1

The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,
respondent’s husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual
physical examinations, preventive health care and other out-patient services.

Upon the termination of the agreement, the same was extended for another year from March 1, 1989
to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased
to a maximum sum of P75,000.00 per disability.2

During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the
hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner
denied her claim saying that the Health Care Agreement was void. According to petitioner, there was
a concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the
time of Ernani’s confinement that he was hypertensive, diabetic and asthmatic, contrary to his
answer in the application form. Thus, respondent paid the hospitalization expenses herself,
amounting to about P76,000.00.

After her husband was discharged from the MMC, he was attended by a physical therapist at home.
Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however,
respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and
was feeling very weak. Respondent was constrained to bring him back to the Chinese General
Hospital where he died on the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action
for damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil
Case No. 90-53795. She asked for reimbursement of her expenses plus moral damages and
attorney’s fees. After trial, the lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff
Julita Trinos, ordering:
 1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani
Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who
paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.

SO ORDERED.3

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for
damages and absolved petitioner Reverente.4 Petitioner’s motion for reconsideration was
denied.5 Hence, petitioner brought the instant petition for review, raising the primary argument that a
health care agreement is not an insurance contract; hence the "incontestability clause" under the
Insurance Code6 does not apply. 1âw phi 1.nêt

Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also points out that only medical and
hospitalization benefits are given under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts which last
longer,7 petitioner argues that the incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health Maintenance Organization under the
authority of the Department of Health.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and

5. In consideration of the insurer’s promise, the insured pays a premium.8

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
future, which may damnify a person having an insurable interest against him, may be insured
against. Every person has an insurable interest in the life and health of himself. Section 10 provides:

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

 (2) of any person on whom he depends wholly or in part for education or support, or in whom
he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money, respecting
property or service, of which death or illness might delay or prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondent’s husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity.9 Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider must
pay for the same to the extent agreed upon under the contract.

Petitioner argues that respondent’s husband concealed a material fact in his application. It appears
that in the application for health coverage, petitioners required respondent’s husband to sign an
express authorization for any person, organization or entity that has any record or knowledge of his
health to furnish any and all information relative to any hospitalization, consultation, treatment or any
other medical advice or examination.10 Specifically, the Health Care Agreement signed by
respondent’s husband states:

We hereby declare and agree that all statement and answers contained herein and in any
addendum annexed to this application are full, complete and true and bind all parties in
interest under the Agreement herein applied for, that there shall be no contract of health care
coverage unless and until an Agreement is issued on this application and the full
Membership Fee according to the mode of payment applied for is actually paid during the
lifetime and good health of proposed Members; that no information acquired by any
Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in
the application; that any physician is, by these presents, expressly authorized to disclose or
give testimony at anytime relative to any information acquired by him in his professional
capacity upon any question affecting the eligibility for health care coverage of the Proposed
Members and that the acceptance of any Agreement issued on this application shall be a
ratification of any correction in or addition to this application as stated in the space for Home
Office Endorsement.11 (Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for authorization to
inquire about the applicant’s medical history, thus:

I hereby authorize any person, organization, or entity that has any record or knowledge of my
health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all
information relative to any hospitalization, consultation, treatment or any other medical
advice or examination. This authorization is in connection with the application for health care
coverage only. A photographic copy of this authorization shall be as valid as the
original.12 (Underscoring ours)

Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:

Failure to disclose or misrepresentation of any material information by the member in the

application or medical examination, whether intentional or unintentional, shall automatically
invalidate the Agreement from the very beginning and liability of Philamcare shall be limited
to return of all Membership Fees paid. An undisclosed or misrepresented information is
deemed material if its revelation would have resulted in the declination of the applicant by
 Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied
for.13

The answer assailed by petitioner was in response to the question relating to the medical history of
the applicant. This largely depends on opinion rather than fact, especially coming from respondent’s
husband who was not a medical doctor. Where matters of opinion or judgment are called for,
answers made in good faith and without intent to deceive will not avoid a policy even though they are
untrue.14 Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of

the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of
the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although
the statement is material to the risk, if the statement is obviously of the foregoing character,
since in such case the insurer is not justified in relying upon such statement, but is obligated
to make further inquiry. There is a clear distinction between such a case and one in which
the insured is fraudulently and intentionally states to be true, as a matter of expectation or
belief, that which he then knows, to be actually untrue, or the impossibility of which is shown
by the facts within his knowledge, since in such case the intent to deceive the insurer is
obvious and amounts to actual fraud.15(Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract.16 Concealment as a defense for the health care provider or insurer to avoid
liability is an affirmative defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer. In any case, with or without the authority to
investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility
under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end,
the liability of the health care provider attaches once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails of the covered benefits which he has
prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a
contract of insurance." The right to rescind should be exercised previous to the commencement of
an action on the contract.17In this case, no rescission was made. Besides, the cancellation of health
care agreements as in insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based.18

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation.19 Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which prepared the contract – the insurer.20 By
reason of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of
the insured, especially to avoid forfeiture.21 This is equally applicable to Health Care Agreements.
The phraseology used in medical or hospital service contracts, such as the one at bar, must be
liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider.22

Anent the incontestability of the membership of respondent’s husband, we quote with approval the
following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems
Inc. had twelve months from the date of issuance of the Agreement within which to contest
the membership of the patient if he had previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer lie.23

Finally, petitioner alleges that respondent was not the legal wife of the deceased member
considering that at the time of their marriage, the deceased was previously married to another
woman who was still alive. The health care agreement is in the nature of a contract of indemnity.
Hence, payment should be made to the party who incurred the expenses. It is not controverted that
respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement.
The records adequately prove the expenses incurred by respondent for the deceased’s
hospitalization, medication and the professional fees of the attending physicians.24

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court
of Appeals dated December 14, 1995 is AFFIRMED.

SO ORDERED.
G.R. No. 124520 August 18, 1997

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners,
vs.
COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents.

PADILLA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a
decision of respondent Court of Appeals.

The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with
private respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.

2. One of the stipulations of the one (1) year lease contract states:

18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods
and effects placed at any stall or store or space in the leased premises without first obtaining
the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance
thereof without the consent of the LESSOR then the policy is deemed assigned and
transferred to the LESSOR for its own benefit; . . .1

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss
by fire the merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with
the United Insurance Co., Inc. (hereinafter United) without the written consent of private respondent
CKS.

4. On the day that the lease contract was to expire, fire broke out inside the leased premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it
wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract
(between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the
Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and
United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering
therein defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay
P50,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs of suit.

8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11

January 1996, affirming the trial court decision, deleting however the awards for exemplary damages
and attorney's fees. A motion for reconsideration by United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the Court of Appeals:
 I

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE

STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF
THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO
LAW, MORALS AND PUBLIC POLICY

II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE

CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND
THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR
OF PETITIONER

III

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN

INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN
CONTRAVENTION OF THE INSURANCE LAW

IV

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN

INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING
WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF
THE RESPONDENT CORPORATION.2

The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the
lease contract entered into between CKS and the Cha spouses is valid insofar as it provides that any
fire insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased
premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the
prior written consent of the latter.

It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or public policy.3

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist
at the time the insurance takes effect and at the time the loss occurs.4 The basis of such requirement
of insurable interest in property insured is based on sound public policy: to prevent a person from
taking out an insurance policy on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a
mere wager which is void under Section 25 of the Insurance Code, which provides:
 Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the
person insured has or has not any interest in the property insured, or that the policy shall be
received as proof of such interest, and every policy executed by way of gaming or wagering,
is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code
which provide:

Sec. 17. The measure of an insurable interest in property is the extent to which the insured
might be damnified by loss of injury thereof.

Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This
insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic
assignment of the policy to CKS under the provision of the lease contract previously quoted is void
for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully
belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United)
cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no
insurable interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses
obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a
separate and distinct issue which we do not resolve in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a
new decision is hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo
Cha and Stella Uy-Cha.

SO ORDERED.
 G.R. No. 211212, June 08, 2016

SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY'S. SIBYA, JESUS MANUEL S.
SIBYA III, JAIME LUIS S. SIBYA, AND THE ESTATE OF THE DECEASED ATTY. JESUS SIBYA,
JR., Respondents.

DECISION

REYES, J.:

Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to annul
and set aside the Decision2 dated November 18, 2013 and Resolution3 dated February 13, 2014 of the Court
of Appeals (CA) in CA-G.R. CV. No. 93269. In both instances, the CA affirmed the Decision4dated March 16,
2009 of the Regional Trial Court (RTC) of Makati City, Branch 136, in Civil Case No. 01-1506, ordering
petitioner Sun Life of Canada (Philippines), Inc. (Sun Life) to pay Ma. Daisy S. Sibya (Ma. Daisy), Jesus
Manuel S. Sibya III, and Jaime Luis S. Sibya (respondents) the amounts of P1,000,000.00 as death benefits,
P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney's fees
and costs of suit. Insofar as the charges for violation of Sections 241 and 242 of Presidential Decree No.
612, or the Insurance Code of the Philippines, however, the CA modified the decision of the RTC and
absolved Sun Life therein.

Statement of Facts of the Case

On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his
Application for Insurance, he indicated that he had sought advice for kidney problems.5 Atty. Jesus Jr.
indicated the following in his application:
chanRoble svirtual Lawlib ra ry

"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at National
Kidney Institute, discharged after 3 days, no recurrence as claimed."6 ChanRoblesVi rtua lawlib rary

On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy No.
031097335. The policy indicated the respondents as beneficiaries and entitles them to a death benefit of
P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty. Jesus
Jr. is still living on the endowment date.7

On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma.
Daisy filed a Claimant's Statement with Sun Life to seek the death benefits indicated in his insurance policy.8

In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details on
Atty. Jesus Jr.'s medical history were not disclosed in his application. Simultaneously, Sun Life tendered a
check representing the refund of the premiums paid by Atty. Jesus Jr.9

The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun Life,
however, refused to heed the respondents' requests and instead filed a Complaint for Rescission before the
RTC and prayed for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy.10

In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his
previous medical treatment at the National Kidney Transplant Institute in May and August of 1994.
According to Sun Life, the undisclosed fact suggested that the insured was in "renal failure" and at a high
risk medical condition. Consequently, had it known such fact, it would not have issued the insurance policy
in favor of Atty. Jesus Jr.11

For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his
application for insurance. They averred that Atty. Jesus Jr. was in good faith when he signed the insurance
application and even authorized Sun Life to inquire further into his medical history for verification purposes.
According to them, the complaint is just a ploy to avoid the payment of insurance claims.12

Ruling of the RTC

On March 16, 2009, the RTC issued its Decision13 dismissing the complaint for lack of merit. The RTC held
that Sun Life violated Sections 241, paragraph 1(b), (d), and (e)14 and 24215 of the Insurance Code when it
refused to pay the rightful claim of the respondents. Moreover, the RTC ordered Sun Life to pay the amounts
of P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00 as exemplary damages,
and P100,000.00 as attorney's fees and costs of suit.

The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when he
applied for life insurance with Sun Life. It observed that given the disclosures and the waiver and
authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the means of
ascertaining the facts allegedly concealed by the applicant.16

Aggrieved, Sun Life elevated the case to the CA.

Ruling of the CA

On appeal, the CA issued its Decision17 dated November 18, 2013 affirming the RTC decision in ordering Sun
Life to pay death benefits and damages in favor of the respondents. The CA, however, modified the RTC
decision by absolving Sun Life from the charges of violation of Sections 241 and 242 of the Insurance
Code.18

The CA ruled that the evidence on records show that there was no fraudulent intent on the part of Atty.
Jesus Jr. in submitting his insurance application. Instead, it found that Atty. Jesus Jr. admitted in his
application that he had sought medical treatment for kidney ailment.19

Sun Life filed a Motion for Partial Reconsideration20 dated December 11, 2013 but the same was denied in a
Resolution21 dated February 13, 2014.

Undaunted, Sun Life filed an appeal by way of petition for review on certiorari under Rule 45 of the Rules of
Court before this Court.

The Issue

Essentially, the main issue of the instant case is whether or not the CA erred when it affirmed the RTC
decision finding that there was no concealment or misrepresentation when Atty. Jesus Jr. submitted his
insurance application with Sun Life.

Ruling of the Court

The petition has no merit.

In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within the
two-year contestability period, the insurer is bound to make good its obligation under the policy, regardless
of the presence or lack of concealment or misrepresentation. The Court held:
chanRoble svirtual Lawlib ra ry

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the
provision, an insurer is given two years - from the effectivity of a life insurance contract and while the
insured is alive - to discover or prove that the policy is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period
lapses, or when the insured dies within the period, the insurer must make good on the policy,
even though the policy was obtained by fraud, concealment, or misrepresentation. This is not to
say that insurance fraud must be rewarded, but that insurers who recklessly and indiscriminately solicit and
obtain business must be penalized, for such recklessness and lack of discrimination ultimately work to the
detriment of bona fide takers of insurance and the public in general.23 (Emphasis ours)
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years from
its issuance, to investigate and verify whether the policy was obtained by fraud, concealment, or
misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three months
from the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed in Manila Bankers,
the death of the insured within the two-year period will render the right of the insurer to rescind the policy
nugatory. As such, the incontestability period will now set in.

Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the Court
agrees, nonetheless, with the CA when it held that Sun Life failed to show that Atty. Jesus Jr. committed
concealment and misrepresentation.

As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for kidney
ailment. Moreover, he executed an authorization in favor of Sun Life to conduct investigation in reference
with his medical history. The decision in part states:
chanRoble svirtual Lawlib ra ry

Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted that he had sought medical
treatment for kidney ailment. When asked to provide details on the said medication, [Atty. Jesus Jr.]
indicated the following information: year ("1987"), medical procedure ("undergone lithotripsy due to kidney
stone"), length of confinement ("3 days"), attending physician ("Dr. Jesus Benjamin Mendoza") and the
hospital ("National Kidney Institute").

It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun Life] the opportunity to
obtain information on the facts disclosed by [Atty. Jesus Jr.] in his insurance application. x x x

xxxx

Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed his
medical history since [Sun Life] had the means of ascertaining [Atty. Jesus Jr.'s] medical record.

With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical doctor, and
his answer "no recurrence" may be construed as an honest opinion. Where matters of opinion or judgment
are called for, answers made in good faith and without intent to deceive will not avoid a policy even though
they are untrue.24 (Citations omitted and italics in the original)
Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the
insurance contract. Concealment as a defense for the insurer to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or
insurer.25 In the present case, Sun Life failed to clearly and satisfactorily establish its allegations, and is
therefore liable to pay the proceeds of the insurance.

Moreover, well-settled is the rule that this Court is not a trier of facts. Factual findings of the lower courts
are entitled to great weight and respect on appeal, and in fact accorded finality when supported by
substantial evidence on the record.26

WHEREFORE, the petition for review is DENIED. The Decision dated November 18, 2013 and Resolution
dated February 13, 2014 of the Court of Appeals in CA-G.R. CV. No. 93269 are hereby AFFIRMED.

SO ORDERED. cralawlawlibra ry
G.R. No. 195176

THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner,

vs.
PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU, Respondents.

DECISION

DEL CASTILLO, J.:

The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date
that the insurer approved· the application for reinstatement. However, in light of the ambiguity in the
insurance documents to this case, this Court adopts the interpretation favorable to the insured in
determining the date when the reinstatement was approved.

Assailed in this Petition for Review on Certiorari1 are the June 24, 2010 Decision2 of the Court of
Appeals (CA), which dismissed the Petition in CA-GR. CV No. 81730, and its December 13, 2010
Resolution3 which denied the petitioner Insular Life Assurance Company Ltd. 's (Insular Life) motion
for partial reconsideration.4

Factual Antecedents

On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life
under the latter’s Diamond Jubilee Insurance Plan. Felipe accomplished the required medical
questionnaire wherein he did not declare any illness or adverse medical condition. Insular Life
thereafter issued him Policy Number A000015683 with a face value of P1 million. This took effect on
June 22, 1997.5

On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium covering the period
from June 22, 1999 to June 23, 2000.6

On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as
premium. Except for the change in his occupation of being self-employed to being the Municipal
Mayor of Binuangan, Misamis Oriental, all the other information submitted by Felipe in his
application for reinstatement was virtually identical to those mentioned in his original policy.7

On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be
considered if he agreed to certain conditions such as payment of additional premium and the
cancellation of the riders pertaining to

premium waiver and accidental death benefits. Felipe agreed to these conditions8 and on December
27, 1999 paid the agreed additional premium of P3,054.50.9

On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which reads:

This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by
the Company on the understanding that the following changes are made on the policy effective June
22, 1999:

1. The EXTRA PREMIUM is imposed; and

 2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY
(WPD) rider originally attached to and forming parts of this policy [are] deleted.

In consequence thereof, the premium rates on this policy are adjusted to P28,000.00 annually,
P14,843.00 semi-annually and P7,557.00 quarterly, Philippine currency.10

On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period
from June 22, 2000 to June 22, 2001. And on July 2, 2001, he also paid the same amount as annual
premium covering the period from June 22, 2001 to June 21, 2002.11

On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes of
death:

Immediate cause: a. End stage renal failure, Hepatic failure

Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.

Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia.12

On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipe’s
beneficiaries or respondents) filed with Insular Life a claim for benefit under the reinstated policy.
This claim was denied. Instead, Insular Life advised Felipe’s beneficiaries that it had decided to
rescind the reinstated policy on the grounds of concealment and misrepresentation by Felipe.

Hence, respondents instituted a complaint for specific performance with damages. Respondents
prayed that the reinstated life insurance policy be declared valid, enforceable and binding on Insular
Life; and that the latter be ordered to pay unto Felipe’s beneficiaries the proceeds of this policy,
among others.13

In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes
Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he already had prior
to his application for reinstatement of his insurance policy; and that it would not have reinstated the
insurance policy had Felipe disclosed the material information on his adverse health condition. It
contended that when Felipe died, the policy was still

contestable.14

Ruling of the Regional Trial Court (RTC)

On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found15 for Felipe’s
beneficiaries, thus:

WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by

preponderance of evidence, judgment is hereby rendered in their favor and against defendants,
ordering the latter to pay jointly and severally the

sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the date of demand until it
is fully paid representing the face value of Plan Diamond Jubilee No. PN-A000015683 issued to
insured the late Felipe N. Khu[,] Sr; the sum of P20,000.00 as moral damages; P30,000.00 as
attorney’s fees; P10,000.00 as litigation expenses.
SO ORDERED.16

In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the latter’s claim that the
insurance policy was reinstated on June 22, 1999. The RTC cited the ruling in Malayan Insurance
Corporation v. Court of

Appeals17 that any ambiguity in a contract of insurance should be resolved strictly against the insurer
upon the principle that an insurance contract is a contract of adhesion.18 The RTC also held that the
reinstated insurance policy had already become incontestable by the time of Felipe’s death on
September 22, 2001 since more than two years had already lapsed from the date of the policy’s
reinstatement on June 22, 1999. The RTC noted that since it was Insular Life itself that supplied all
the pertinent forms relative to the reinstated policy, then it is barred from taking advantage of any
ambiguity/obscurity perceived therein particularly as regards the date when the reinstated insurance
policy became effective.

Ruling of the Court of Appeals

On June 24, 2010, the CA issued the assailed Decision19 which contained the following decretal
portion:

WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is AFFIRMED
with the MODIFICATION that the award of moral damages, attorney’s fees and litigation expenses
[is] DELETED.

SO ORDERED.20

The CA upheld the RTC’s ruling on the non-contestability of the reinstated insurance policy on the
date the insured died. It declared that contrary to Insular Life’s contention, there in fact exists a
genuine ambiguity or obscurity in the language of the two documents prepared by Insular Life
itself, viz., Felipe’s Letter of Acceptance and Insular Life’s Endorsement; that given the
obscurity/ambiguity in the language of these two documents, the construction/interpretation that
favors the insured’s right to recover should be adopted; and that in keeping with this principle, the
insurance policy in dispute must be deemed reinstated as of June 22, 1999.21

Insular Life moved for partial reconsideration22 but this was denied by the CA in its Resolution of
December 13, 2010.23 Hence, the present Petition.

Issue

The fundamental issue to be resolved in this case is whether Felipe’s reinstated life insurance policy
is already incontestable at the time of his death.

Petitioner’s Arguments

In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should
not be allowed to recover on the reinstated insurance policy because the two-year contestability
period had not yet lapsed inasmuch as the insurance policy was reinstated only on December 27,
1999, whereas Felipe died on September 22, 2001;24 that the CA overlooked the fact that Felipe paid
the additional extra premium only on December 27, 1999, hence, it is only upon this date that the
reinstated policy had become effective; that the CA erred in declaring that resort to the principles of
statutory construction is still necessary to resolve that question given that the Application for
Reinstatement, the Letter of Acceptance and the Endorsement in and by themselves already
embodied unequivocal provisions stipulating that the two-year contestability clause should be
reckoned from the date of approval of the reinstatement;25 and that Felipe’s misrepresentation and
concealment of material facts in regard to his health or adverse medical condition gave it (Insular
Life) the right to rescind the contract of insurance and consequently, the right to deny the claim of
Felipe’s beneficiaries for death benefits under the disputed policy.26

Respondents’ Arguments

Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of
Acceptance and in the Endorsement is unclear whether it refers to the subject of the sentence, i.e.,
the "reinstatement of this policy" or to the subsequent phrase "changes are made on the policy;" that
granting that there was any obscurity or ambiguity in the insurance policy, the same should be laid at
the door of Insular Life as it was this insurance company that prepared the necessary documents
that make up the same;27 and that given the CA’s finding which effectively affirmed the RTC’s finding
on this particular issue, it stands to reason that the insurance policy had indeed become
incontestable upon the date of Felipe’s death.28

Our Ruling

We deny the Petition.

The Insurance Code pertinently provides that:

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision
of this chapter, such right must be exercised previous to the commencement of an action on the
contract.

After a policy of life insurance made payable on the death of the insured shall have been in force
during the lifetime of the insured for a period of two years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his agent.

The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance
Corporation v. Aban,29

Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives
insurers enough time to inquire whether the policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at
insurance fraud would be timely uncovered – thus deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy holders are absolutely protected from unwarranted
denial of their claims or delay in the collection of insurance proceeds occasioned by allegations of
fraud, concealment, or misrepresentation by insurers, claims which may no longer be set up after the
two-year period expires as ordained under the law.

xxxx

The Court therefore agrees fully with the appellate court’s pronouncement that-

xxxx
‘The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the premiums
as long as the insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover
under the policy.

At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given
the stability to recover under the policy when the insured dies. The provision also makes clear when
the two-year period should commence in case the policy should lapse and is reinstated, that is, from
the date of the last reinstatement’.

In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally also involves the
herein petitioner, it was there held that the reinstatement of the insured’s policy is to be reckoned
from the date when the

application was processed and approved by the insurer. There, we stressed that:

To reinstate a policy means to restore the same to premium-paying status after it has been permitted
to lapse. x x x

xxxx

In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his Application
for Reinstatement and deposit

the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy
No. 9011992 could only be considered reinstated after the Application for Reinstatement had been
processed and approved by Insular Life during Eulogio’s lifetime and good health.31

Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the date
when the same was approved by the insurer.

In this case, the parties differ as to when the reinstatement was actually approved. Insular Life
claims that it approved the reinstatement only on December 27, 1999. On the other hand,
respondents contend that it was on June

22, 1999 that the reinstatement took effect.

The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the
Endorsement.

The Letter of Acceptance32 wherein Felipe affixed his signature was actually drafted and prepared by
Insular Life. This pro-forma document reads as follows:

LETTER OF ACCEPTANCE

Place: Cag. De [O]ro City

The Insular Life Assurance Co., Ltd.

P.O. Box 128, MANILA
Policy No. A000015683

Gentlemen:

Thru your Reinstatement Section, I/WE learned that this policy may be reinstated provided I/we
agree to the following condition/s indicated with a check mark:

[xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a year per
thousand of insurance; effective June 22, 1999

[ ] Accept the rating on the WPD at ____ at standard rates; the ABD at _____ the standard
rates; the SAR at P____ annually per thousand of Insurance;

[xx] Accept the cancellation of the Premium waiver & Accidental death benefit.

[]

I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of the policy.

Very truly yours,

Felipe N. Khu, Sr.

After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager, Jesse
James R. Toyhorada, issued an Endorsement33 dated January 7, 2000. For emphasis, the
Endorsement is again quoted as follows:

ENDORSEMENT

PN-A000015683

This certifies that as agreed to by the Insured, the reinstatement of this policy has been approved by
the Company on the understanding that the following changes are made on the policy effective June
22, 1999:

1. The EXTRA PREMIUM is imposed; and

2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY

(WPD) rider originally attached to and forming parts of this policy is deleted.

In consequence thereof, the PREMIUM RATES on this policy are adjusted to [P]28,000.00 annuallly,
[P]14,843.00 semi-annually and [P]7,557.00 quarterly, Philippine Currency.

Cagayan de Oro City, 07 January 2000.

RCV/

(Signed) Authorized Signature

Based on the foregoing, we find that the CA did not commit any error in holding that the subject
insurance policy be considered as reinstated on June 22, 1999. This finding must be upheld not only
because it accords with the evidence, but also because this is favorable to the insured who was not
responsible for causing the ambiguity or obscurity in the insurance contract.34

The CA expounded on this point thus –

The Court discerns a genuine ambiguity or obscurity in the language of the two documents.

In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an
extra/additional x x x premium of P5.00 a year per thousand of insurance; effective June 22, 1999". It
is true that the phrase as used in this

particular paragraph does not refer explicitly to the effectivity of the reinstatement. But the Court
notes that the reinstatement was conditioned upon the payment of additional premium not only
prospectively, that is, to cover the

remainder of the annual period of coverage, but also retroactively, that is for the period starting June
22, 1999. Hence, by paying the amount of P3,054.50 on December 27, 1999 in addition to the
P25,020.00 he had earlier paid on September 7, 1999, Khu had paid for the insurance coverage
starting June 22, 1999. At the very least, this circumstance has engendered a true lacuna.

In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely
clear whether the phrase "effective June 22, 1999" refers to the subject of the sentence, namely "the
reinstatement of this policy," or to the subsequent phrase "changes are made on the policy."

The court below is correct. Given the obscurity of the language, the construction favorable to the
insured will be adopted by the courts.

Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of
contestability has lapsed.35

In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance
Company,36 we ruled in favor of the insured and in favor of the effectivity of the insurance contract in
the midst of ambiguity in the insurance contract provisions. We held that:

It must be remembered that an insurance contract is a contract of adhesion which must be

construed liberally in favor of the insured and strictly against the insurer in order to safeguard the
latter’s interest. Thus, in MalayanInsurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by
the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.

xxxx

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of
experience in the industry
purposefully used to its advantage. More often than not, insurance contracts are contracts of
adhesion containing technical terms and conditions of the industry, confusing if at all understandable
to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance
contracts are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest
of insurance applicants, insurance companies must be obligated to act with haste upon insurance
applications, to either deny or approve the same, or otherwise be bound to honor the application as
a valid, binding, and effective insurance contract.37

Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated
on June 22, 1999 vis-a-vis Felipe’s death on September 22, 2001. As such, the subject insurance
1âw phi 1

policy has already become incontestable at the time of Felipe’s death.

Finally, we agree with the CA that there is neither basis nor justification for the RTC’s award of moral
damages, attorney’s fees and litigation expenses; hence this award must be deleted.

WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010 Decision and December 13,
2010 Resolution of the Court of Appeals in CA-GR. CV No. 81730 are AFFIRMED.

SO ORDERED.
G.R. No. 138060 September 1, 2004

WILLIAM TIU, doing business under the name and style of "D’ Rough Riders," and VIRGILIO
TE LAS PIÑASpetitioners,
vs.
PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE
PHOENIX SURETY AND INSURANCE, INC., respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision1 of the
Court of Appeals in CA-G.R. CV No. 54354 affirming with modification the Decision2 of the Regional
Trial Court, 7th Judicial Region, Cebu City, Branch 20, in Civil Case No. CEB-5963 for breach of
contract of carriage, damages and attorney’s fees, and the Resolution dated February 26, 1999
denying the motion for reconsideration thereof.

The following facts are undisputed:

At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow Blocks and
General Merchandise" bearing plate number GBP-675 was loaded with firewood in Bogo,
Cebu and left for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just
as the truck passed over a bridge, one of its rear tires exploded. The driver, Sergio Pedrano,
then parked along the right side of the national highway and removed the damaged tire to
have it vulcanized at a nearby shop, about 700 meters away.3 Pedrano left his helper, Jose
Mitante, Jr. to keep watch over the stalled vehicle, and instructed the latter to place a spare
tire six fathoms away4 behind the stalled truck to serve as a warning for oncoming vehicles.
The truck’s tail lights were also left on. It was about 12:00 a.m., March 16, 1987.

At about 4:45 a.m., D’ Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te
Laspiñas was cruising along the national highway of Sitio Aggies, Poblacion, Compostela, Cebu.
The passenger bus was also bound for Cebu City, and had come from Maya, Daanbantayan, Cebu.
Among its passengers were the Spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado, who
were seated at the right side of the bus, about three (3) or four (4) places from the front seat.

As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then about 25
meters away.5 He applied the breaks and tried to swerve to the left to avoid hitting the truck. But it
was too late; the bus rammed into the truck’s left rear. The impact damaged the right side of the bus
and left several passengers injured. Pedro Arriesgado lost consciousness and suffered a fracture in
his right colles.6 His wife, Felisa, was brought to the Danao City Hospital. She was later transferred
to the Southern Island Medical Center where she died shortly thereafter.7

Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages
and attorney’s fees before the Regional Trial Court of Cebu City, Branch 20, against the petitioners,
D’ Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspiñas on May 27, 1987. The
respondent alleged that the passenger bus in question was cruising at a fast and high speed along
the national road, and that petitioner Laspiñas did not take precautionary measures to avoid the
accident.8 Thus:

6. That the accident resulted to the death of the plaintiff’s wife, Felisa Pepito Arriesgado, as
evidenced by a Certificate of Death, a xerox copy of which is hereto attached as integral part
 hereof and marked as ANNEX – "A", and physical injuries to several of its passengers,
including plaintiff himself who suffered a "COLLES FRACTURE RIGHT," per Medical
Certificate, a xerox copy of which is hereto attached as integral part hereof and marked as
ANNEX – "B" hereof.

7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspiñas of the
said Rough Riders passenger bus, plaintiff and his wife, Felisa Pepito Arriesgado, failed to
safely reach their destination which was Cebu City, the proximate cause of which was
defendant-driver’s failure to observe utmost diligence required of a very cautious person
under all circumstances.

8. That defendant William Tiu, being the owner and operator of the said Rough Riders
passenger bus which figured in the said accident, wherein plaintiff and his wife were riding at
the time of the accident, is therefore directly liable for the breach of contract of carriage for
his failure to transport plaintiff and his wife safely to their place of destination which was
Cebu City, and which failure in his obligation to transport safely his passengers was due to
and in consequence of his failure to exercise the diligence of a good father of the family in
the selection and supervision of his employees, particularly defendant-driver Virgilio Te
Laspiñas.9

The respondent prayed that judgment be rendered in his favor and that the petitioners be
condemned to pay the following damages:

1). To pay to plaintiff, jointly and severally, the amount of ₱30,000.00 for the death and
untimely demise of plaintiff’s wife, Felisa Pepito Arriesgado;

2). To pay to plaintiff, jointly and severally, the amount of ₱38,441.50, representing actual
expenses incurred by the plaintiff in connection with the death/burial of plaintiff’s wife;

3). To pay to plaintiff, jointly and severally, the amount of ₱1,113.80, representing
medical/hospitalization expenses incurred by plaintiff for the injuries sustained by him;

4). To pay to plaintiff, jointly and severally, the amount of ₱50,000.00 for moral damages;

5). To pay to plaintiff, jointly and severally, the amount of ₱50,000.00 by way of exemplary
damages;

6). To pay to plaintiff, jointly and severally, the amount of ₱20,000.00 for attorney’s fees;

7). To pay to plaintiff, jointly and severally, the amount of ₱5,000.00 for litigation expenses.

PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN LAW
AND EQUITY.10

The petitioners, for their part, filed a Third-Party Complaint11 on August 21, 1987 against the
following: respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s insurer;
respondent Benjamin Condor, the registered owner of the cargo truck; and respondent Sergio
Pedrano, the driver of the truck. They alleged that petitioner Laspiñas was negotiating the uphill
climb along the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and normal
speed. It was further alleged that the truck was parked in a slanted manner, its rear portion almost in
the middle of the highway, and that no early warning device was displayed. Petitioner Laspiñas
promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but despite his
efforts to avoid damage to property and physical injuries on the passengers, the right side portion of
the bus hit the cargo truck’s left rear. The petitioners further alleged, thus:

5. That the cargo truck mentioned in the aforequoted paragraph is owned and registered in
the name of the third-party defendant Benjamin Condor and was left unattended by its driver
Sergio Pedrano, one of the third-party defendants, at the time of the incident;

6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with marked (sic)
"Condor Hollow Blocks & General Merchandise," with Plate No. GBP-675 which was
recklessly and imprudently parked along the national highway of Compostela, Cebu during
the vehicular accident in question, and third-party defendant Benjamin Condor, as the
registered owner of the cargo truck who failed to exercise due diligence in the selection and
supervision of third-party defendant Sergio Pedrano, are jointly and severally liable to the
third-party plaintiffs for whatever liability that may be adjudged against said third-party
plaintiffs or are directly liable of (sic) the alleged death of plaintiff’s wife;

7. That in addition to all that are stated above and in the answer which are intended to show
reckless imprudence on the part of the third-party defendants, the third-party plaintiffs hereby
declare that during the vehicular accident in question, third-party defendant was clearly
violating Section 34, par. (g) of the Land Transportation and Traffic Code…

10. That the aforesaid passenger bus, owned and operated by third-party plaintiff William
Tiu, is covered by a common carrier liability insurance with Certificate of Cover No. 054940
issued by Philippine Phoenix Surety and Insurance, Inc., Cebu City Branch, in favor of third-
party plaintiff William Tiu which covers the period from July 22, 1986 to July 22, 1987 and
that the said insurance coverage was valid, binding and subsisting during the time of the
aforementioned incident (Annex "A" as part hereof);

11. That after the aforesaid alleged incident, third-party plaintiff notified third-party defendant
Philippine Phoenix Surety and Insurance, Inc., of the alleged incident hereto mentioned, but
to no avail;

12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be adversely
adjudged, they stand to pay damages sought by the plaintiff and therefore could also look up
to the Philippine Phoenix Surety and Insurance, Inc., for contribution, indemnification and/or
reimbursement of any liability or obligation that they might [be] adjudged per insurance
coverage duly entered into by and between third-party plaintiff William Tiu and third-party
defendant Philippine Phoenix Surety and Insurance, Inc.;…12

The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu, but
averred that it had already attended to and settled the claims of those who were injured during the
incident.13 It could not accede to the claim of respondent Arriesgado, as such claim was way beyond
the scheduled indemnity as contained in the contract of insurance.14

After the parties presented their respective evidence, the trial court ruled in favor of respondent
Arriesgado. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiff as

against defendant William Tiu ordering the latter to pay the plaintiff the following amounts:
 1 - The sum of FIFTY THOUSAND PESOS (₱50,000.00) as moral damages;

2 - The sum of FIFTY THOUSAND PESOS (₱50,000.00) as exemplary damages;

3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE

PESOS (₱38,441.00) as actual damages;

4 - The sum of TWENTY THOUSAND PESOS (₱20,000.00) as attorney’s fees;

5 - The sum of FIVE THOUSAND PESOS (₱5,000.00) as costs of suit;

SO ORDERED.15

According to the trial court, there was no dispute that petitioner William Tiu was engaged in business
as a common carrier, in view of his admission that D’ Rough Rider passenger bus which figured in
the accident was owned by him; that he had been engaged in the transportation business for 25
years with a sole proprietorship; and that he owned 34 buses. The trial court ruled that if petitioner
Laspiñas had not been driving at a fast pace, he could have easily swerved to the left to avoid hitting
the truck, thus, averting the unfortunate incident. It then concluded that petitioner Laspiñas was
negligent.

The trial court also ruled that the absence of an early warning device near the place where the truck
was parked was not sufficient to impute negligence on the part of respondent Pedrano, since the tail
lights of the truck were fully on, and the vicinity was well lighted by street lamps.16 It also found that
the testimony of petitioner Tiu, that he based the selection of his driver Laspiñas on efficiency and in-
service training, and that the latter had been so far an efficient and good driver for the past six years
of his employment, was insufficient to prove that he observed the diligence of a good father of a
family in the selection and supervision of his employees.

After the petitioner’s motion for reconsideration of the said decision was denied, the petitioners
elevated the case to the Court of Appeals on the following issues:

I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS RECKLESS AND

IMPRUDENT WHEN HE PARKED THE CARGO TRUCK IN AN OBLIQUE MANNER;

II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND SEVERALLY LIABLE
DIRECTLY TO PLAINTIFF-APPELLEE OR TO DEFENDANTS-APPELLANTS FOR
WHATEVER LIABILITY THAT MAY BE ADJUDGED TO THE SAID DEFENDANTS-
APPELLANTS;

III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIÑAS WAS GUILTY OF

GROSS NEGLIGENCE;

IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD EXERCISED THE DUE

DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE SELECTION AND SUPERVISION
OF HIS DRIVERS;

V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-APPELLANT

WILLIAM TIU IS LIABLE TO PLAINTIFF-APPELLEE, WHETHER THERE IS LEGAL AND
FACTUAL BASIS IN AWARDING EXCESSIVE MORAL DAMAGES, EX[E]MPLARY
 DAMAGES, ATTORNEY’S FEES AND LITIGATION EXPENSES TO PLAINTIFF-
APPELLEE;

VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX SURETY AND

INSURANCE, INC. IS LIABLE TO DEFENDANT- APPELLANT WILLIAM TIU.17

The appellate court rendered judgment affirming the trial court’s decision with the modification that
the awards for moral and exemplary damages were reduced to ₱25,000. The dispositive portion
reads:

WHEREFORE, the appealed Decision dated November 6, 1995 is hereby MODIFIED such
that the awards for moral and exemplary damages are each reduced to ₱25,000.00 or a total
of ₱50,000.00 for both. The judgment is AFFIRMED in all other respects.

SO ORDERED.18

According to the appellate court, the action of respondent Arriesgado was based not on quasi-delict
but on breach of contract of carriage. As a common carrier, it was incumbent upon petitioner Tiu to
prove that extraordinary diligence was observed in ensuring the safety of passengers during
transportation. Since the latter failed to do so, he should be held liable for respondent Arriesgado’s
claim. The CA also ruled that no evidence was presented against the respondent PPSII, and as
such, it could not be held liable for respondent Arriesgado’s claim, nor for contribution,
indemnification and/or reimbursement in case the petitioners were adjudged liable.

The petitioners now come to this Court and ascribe the following errors committed by the appellate
court:

I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING

RESPONDENTS BENJAMIN CONDOR AND SERGIO PEDRANO GUILTY OF
NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO
PETITIONERS FOR WHATEVER LIABILITY THAT MAY BE ADJUDGED AGAINST THEM.

II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS GUILTY

OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO.

III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONER WILLIAM

TIU LIABLE FOR EXEMPLARY DAMAGES, ATTORNEY’S FEES AND LITIGATION
EXPENSES.

IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT

PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. LIABLE TO RESPONDENT
PEDRO A. ARRIESGADO OR TO PETITIONER WILLIAM TIU.19

According to the petitioners, the appellate court erred in failing to appreciate the absence of an early
warning device and/or built-in reflectors at the front and back of the cargo truck, in clear violation of
Section 34, par. (g) of the Land Transportation and Traffic Code. They aver that such violation is
only a proof of respondent Pedrano’s negligence, as provided under Article 2185 of the New Civil
Code. They also question the appellate court’s failure to take into account that the truck was parked
in an oblique manner, its rear portion almost at the center of the road. As such, the proximate cause
of the incident was the gross recklessness and imprudence of respondent Pedrano, creating the
presumption of negligence on the part of respondent Condor in supervising his employees, which
presumption was not rebutted. The petitioners then contend that respondents Condor and Pedrano
should be held jointly and severally liable to respondent Arriesgado for the payment of the latter’s
claim.

The petitioners, likewise, aver that expert evidence should have been presented to prove that
petitioner Laspiñas was driving at a very fast speed, and that the CA could not reach such
conclusion by merely considering the damages on the cargo truck. It was also pointed out that
petitioner Tiu presented evidence that he had exercised the diligence of a good father of a family in
the selection and supervision of his drivers.

The petitioners further allege that there is no legal and factual basis to require petitioner Tiu to pay
exemplary damages as no evidence was presented to show that the latter acted in a fraudulent,
reckless and oppressive manner, or that he had an active participation in the negligent act of
petitioner Laspiñas.

Finally, the petitioners contend that respondent PPSII admitted in its answer that while it had
attended to and settled the claims of the other injured passengers, respondent Arriesgado’s claim
remained unsettled as it was beyond the scheduled indemnity under the insurance contract. The
petitioners argue that said respondent PPSII should have settled the said claim in accordance with
the scheduled indemnity instead of just denying the same.

On the other hand, respondent Arriesgado argues that two of the issues raised by the petitioners
involved questions of fact, not reviewable by the Supreme Court: the finding of negligence on the
part of the petitioners and their liability to him; and the award of exemplary damages, attorney’s fees
and litigation expenses in his favor. Invoking the principle of equity and justice, respondent
Arriesgado pointed out that if there was an error to be reviewed in the CA decision, it should be
geared towards the restoration of the moral and exemplary damages to ₱50,000 each, or a total of
₱100,000 which was reduced by the Court of Appeals to ₱25,000 each, or a total of only ₱50,000.

Respondent Arriesgado also alleged that respondents Condor and Pedrano, and respondent
Phoenix Surety, are parties with whom he had no contract of carriage, and had no cause of action
against. It was pointed out that only the petitioners needed to be sued, as driver and operator of the
ill-fated bus, on account of their failure to bring the Arriesgado Spouses to their place of destination
as agreed upon in the contract of carriage, using the utmost diligence of very cautious persons with
due regard for all circumstances.

Respondents Condor and Pedrano point out that, as correctly ruled by the Court of Appeals, the
proximate cause of the unfortunate incident was the fast speed at which petitioner Laspiñas was
driving the bus owned by petitioner Tiu. According to the respondents, the allegation that the truck
was not equipped with an early warning device could not in any way have prevented the incident
from happening. It was also pointed out that respondent Condor had always exercised the due
diligence required in the selection and supervision of his employees, and that he was not a party to
the contract of carriage between the petitioners and respondent Arriesgado.

Respondent PPSII, for its part, alleges that contrary to the allegation of petitioner Tiu, it settled all the
claims of those injured in accordance with the insurance contract. It further avers that it did not deny
respondent Arriesgado’s claim, and emphasizes that its liability should be within the scheduled limits
of indemnity under the said contract. The respondent concludes that while it is true that insurance
contracts are contracts of indemnity, the measure of the insurer’s liability is determined by the
insured’s compliance with the terms thereof.

The Court’s Ruling

At the outset, it must be stressed that this Court is not a trier of facts.20 Factual findings of the Court
of Appeals are final and may not be reviewed on appeal by this Court, except when the lower court
and the CA arrived at diverse factual findings.21 The petitioners in this case assail the finding of both
the trial and the appellate courts that petitioner Laspiñas was driving at a very fast speed before the
bus owned by petitioner Tiu collided with respondent Condor’s stalled truck. This is clearly one of
fact, not reviewable by the Court in a petition for review under Rule 45.22

On this ground alone, the petition is destined to fail.

However, considering that novel questions of law are likewise involved, the Court resolves to
examine and rule on the merits of the case.

Petitioner Laspiñas
Was negligent in driving
The Ill-fated bus

In his testimony before the trial court, petitioner Laspiñas claimed that he was traversing the two-
lane road at Compostela, Cebu at a speed of only forty (40) to fifty (50) kilometers per hour before
the incident occurred.23 He also admitted that he saw the truck which was parked in an "oblique
position" at about 25 meters before impact,24and tried to avoid hitting it by swerving to the left.
However, even in the absence of expert evidence, the damage sustained by the truck25 itself
supports the finding of both the trial court and the appellate court, that the D’ Rough Rider bus driven
by petitioner Laspiñas was traveling at a fast pace. Since he saw the stalled truck at a distance of 25
meters, petitioner Laspiñas had more than enough time to swerve to his left to avoid hitting it; that is,
if the speed of the bus was only 40 to 50 kilometers per hour as he claimed. As found by the Court of
Appeals, it is easier to believe that petitioner Laspiñas was driving at a very fast speed, since at 4:45
a.m., the hour of the accident, there were no oncoming vehicles at the opposite direction. Petitioner
Laspiñas could have swerved to the left lane with proper clearance, and, thus, could have avoided
the truck.26 Instinct, at the very least, would have prompted him to apply the breaks to avert the
impending disaster which he must have foreseen when he caught sight of the stalled truck. As we
had occasion to reiterate:

A man must use common sense, and exercise due reflection in all his acts; it is his duty to be
cautious, careful and prudent, if not from instinct, then through fear of recurring punishment.
He is responsible for such results as anyone might foresee and for acts which no one would
have performed except through culpable abandon. Otherwise, his own person, rights and
property, and those of his fellow beings, would ever be exposed to all manner of danger and
injury.27

We agree with the following findings of the trial court, which were affirmed by the CA on appeal:

A close study and evaluation of the testimonies and the documentary proofs submitted by
the parties which have direct bearing on the issue of negligence, this Court as shown by
preponderance of evidence that defendant Virgilio Te Laspiñas failed to observe
extraordinary diligence as a driver of the common carrier in this case. It is quite hard to
accept his version of the incident that he did not see at a reasonable distance ahead the
cargo truck that was parked when the Rough Rider [Bus] just came out of the bridge which is
on an (sic) [more] elevated position than the place where the cargo truck was parked. With
its headlights fully on, defendant driver of the Rough Rider was in a vantage position to see
the cargo truck ahead which was parked and he could just easily have avoided hitting and
bumping the same by maneuvering to the left without hitting the said cargo truck. Besides, it
is (sic) shown that there was still much room or space for the Rough Rider to pass at the left
 lane of the said national highway even if the cargo truck had occupied the entire right lane
thereof. It is not true that if the Rough Rider would proceed to pass through the left lane it
would fall into a canal considering that there was much space for it to pass without hitting
and bumping the cargo truck at the left lane of said national highway. The records, further,
showed that there was no incoming vehicle at the opposite lane of the national highway
which would have prevented the Rough Rider from not swerving to its left in order to avoid
hitting and bumping the parked cargo truck. But the evidence showed that the Rough Rider
instead of swerving to the still spacious left lane of the national highway plowed directly into
the parked cargo truck hitting the latter at its rear portion; and thus, the (sic) causing
damages not only to herein plaintiff but to the cargo truck as well.28

Indeed, petitioner Laspiñas’ negligence in driving the bus is apparent in the records. By his own
admission, he had just passed a bridge and was traversing the highway of Compostela, Cebu at a
speed of 40 to 50 kilometers per hour before the collision occurred. The maximum speed allowed by
law on a bridge is only 30 kilometers per hour.29And, as correctly pointed out by the trial court,
petitioner Laspiñas also violated Section 35 of the Land Transportation and Traffic Code, Republic
Act No. 4136, as amended: 1av vphil.net

Sec. 35. Restriction as to speed. – (a) Any person driving a motor vehicle on a highway shall
drive the same at a careful and prudent speed, not greater nor less than is reasonable and
proper, having due regard for the traffic, the width of the highway, and or any other condition
then and there existing; and no person shall drive any motor vehicle upon a highway at such
speed as to endanger the life, limb and property of any person, nor at a speed greater than
will permit him to bring the vehicle to a stop within the assured clear distance ahead.30

Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time
of the mishap, he was violating any traffic regulation.31

Petitioner Tiu failed to

Overcome the presumption
Of negligence against him as
One engaged in the business
Of common carriage

The rules which common carriers should observe as to the safety of their passengers are set forth in
the Civil Code, Articles 1733,32 175533 and 1756.34 In this case, respondent Arriesgado and his
deceased wife contracted with petitioner Tiu, as owner and operator of D’ Rough Riders bus service,
for transportation from Maya, Daanbantayan, Cebu, to Cebu City for the price of ₱18.00.35 It is
undisputed that the respondent and his wife were not safely transported to the destination agreed
upon. In actions for breach of contract, only the existence of such contract, and the fact that the
obligor, in this case the common carrier, failed to transport his passenger safely to his destination
are the matters that need to be proved.36 This is because under the said contract of carriage, the
petitioners assumed the express obligation to transport the respondent and his wife to their
destination safely and to observe extraordinary diligence with due regard for all circumstances.37 Any
injury suffered by the passengers in the course thereof is immediately attributable to the negligence
of the carrier.38 Upon the happening of the accident, the presumption of negligence at once arises,
and it becomes the duty of a common carrier to prove that he observed extraordinary diligence in the
care of his passengers.39 It must be stressed that in requiring the highest possible degree of
diligence from common carriers and in creating a presumption of negligence against them, the law
compels them to curb the recklessness of their drivers.40
While evidence may be submitted to overcome such presumption of negligence, it must be shown
that the carrier observed the required extraordinary diligence, which means that the carrier must
show the utmost diligence of very cautious persons as far as human care and foresight can provide,
or that the accident was caused by fortuitous event.41 As correctly found by the trial court, petitioner
Tiu failed to conclusively rebut such presumption. The negligence of petitioner Laspiñas as driver of
the passenger bus is, thus, binding against petitioner Tiu, as the owner of the passenger bus
engaged as a common carrier.42

The Doctrine of
Last Clear Chance
Is Inapplicable in the
Case at Bar

Contrary to the petitioner’s contention, the principle of last clear chance is inapplicable in the instant
case, as it only applies in a suit between the owners and drivers of two colliding vehicles. It does not
arise where a passenger demands responsibility from the carrier to enforce its contractual
obligations, for it would be inequitable to exempt the negligent driver and its owner on the ground
that the other driver was likewise guilty of negligence.43 The common law notion of last clear chance
permitted courts to grant recovery to a plaintiff who has also been negligent provided that the
defendant had the last clear chance to avoid the casualty and failed to do so. Accordingly, it is
difficult to see what role, if any, the common law of last clear chance doctrine has to play in a
jurisdiction where the common law concept of contributory negligence as an absolute bar to recovery
by the plaintiff, has itself been rejected, as it has been in Article 2179 of the Civil Code.44

Thus, petitioner Tiu cannot escape liability for the death of respondent Arriesgado’s wife due to the
negligence of petitioner Laspiñas, his employee, on this score.

Respondents Pedrano and

Condor were likewise
Negligent

In Phoenix Construction, Inc. v. Intermediate Appellate Court,45 where therein respondent Dionisio
sustained injuries when his vehicle rammed against a dump truck parked askew, the Court ruled that
the improper parking of a dump truck without any warning lights or reflector devices created an
unreasonable risk for anyone driving within the vicinity, and for having created such risk, the truck
driver must be held responsible. In ruling against the petitioner therein, the Court elucidated, thus:

… In our view, Dionisio’s negligence, although later in point of time than the truck driver’s
negligence, and therefore closer to the accident, was not an efficient intervening or
independent cause. What the petitioners describe as an "intervening cause" was no more
than a foreseeable consequence of the risk created by the negligent manner in which the
truck driver had parked the dump truck. In other words, the petitioner truck driver owed a
duty to private respondent Dionisio and others similarly situated not to impose upon them the
very risk the truck driver had created. Dionisio’s negligence was not that of an independent
and overpowering nature as to cut, as it were, the chain of causation in fact between the
improper parking of the dump truck and the accident, nor to sever the juris vinculum of
liability. …

…
 We hold that private respondent Dionisio’s negligence was "only contributory," that the
"immediate and proximate cause" of the injury remained the truck driver’s "lack of due
care."…46

In this case, both the trial and the appellate courts failed to consider that respondent Pedrano was
also negligent in leaving the truck parked askew without any warning lights or reflector devices to
alert oncoming vehicles, and that such failure created the presumption of negligence on the part of
his employer, respondent Condor, in supervising his employees properly and adequately. As we
ruled in Poblete v. Fabros:47

It is such a firmly established principle, as to have virtually formed part of the law itself, that
the negligence of the employee gives rise to the presumption of negligence on the part of the
employer. This is the presumed negligence in the selection and supervision of employee.
The theory of presumed negligence, in contrast with the American doctrine of respondeat
superior, where the negligence of the employee is conclusively presumed to be the
negligence of the employer, is clearly deducible from the last paragraph of Article 2180 of the
Civil Code which provides that the responsibility therein mentioned shall cease if the
employers prove that they observed all the diligence of a good father of a family to prevent
damages. …48

The petitioners were correct in invoking respondent Pedrano’s failure to observe Article IV, Section
34(g) of the Rep. Act No. 4136, which provides: 1avv phil.net

(g) Lights when parked or disabled. – Appropriate parking lights or flares visible one hundred
meters away shall be displayed at a corner of the vehicle whenever such vehicle is parked
on highways or in places that are not well-lighted or is placed in such manner as to endanger
passing traffic.

The manner in which the truck was parked clearly endangered oncoming traffic on both sides,
considering that the tire blowout which stalled the truck in the first place occurred in the wee hours of
the morning. The Court can only now surmise that the unfortunate incident could have been averted
had respondent Condor, the owner of the truck, equipped the said vehicle with lights, flares, or, at
the very least, an early warning device.49 Hence, we cannot subscribe to respondents Condor and
Pedrano’s claim that they should be absolved from liability because, as found by the trial and
appellate courts, the proximate cause of the collision was the fast speed at which petitioner Laspiñas
drove the bus. To accept this proposition would be to come too close to wiping out the fundamental
principle of law that a man must respond for the foreseeable consequences of his own negligent act
or omission. Indeed, our law on quasi-delicts seeks to reduce the risks and burdens of living in
society and to allocate them among its members. To accept this proposition would be to weaken the
very bonds of society.50

The Liability of
Respondent PPSII
as Insurer

The trial court in this case did not rule on the liability of respondent PPSII, while the appellate court
ruled that, as no evidence was presented against it, the insurance company is not liable.

A perusal of the records will show that when the petitioners filed the Third-Party Complaint against
respondent PPSII, they failed to attach a copy of the terms of the insurance contract itself. Only
Certificate of Cover No. 05494051 issued in favor of "Mr. William Tiu, Lahug, Cebu City" signed by
Cosme H. Boniel was appended to the third-party complaint. The date of issuance, July 22, 1986,
the period of insurance, from July 22, 1986 to July 22, 1987, as well as the following items, were
also indicated therein:

SCHEDULED VEHICLE

MODEL MAKE TYPE OF COLOR BLT FILE NO.

Isuzu Forward BODY blue mixed
Bus
PLATE SERIAL/CHASSIS MOTOR NO. AUTHORIZED UNLADEN
NO. NO. 677836 CAPACITY WEIGHT
PBP-724 SER450-1584124 50 6 Cyls. Kgs.
SECTION 1/11 *LIMITS OF LIABILITY PREMIUMS
₱50,000.00 PAID
A. THIRD PARTY LIABILITY ₱540.0052
B. PASSENGER LIABILITY Per Person Per Accident
₱12,000.00 ₱50,000

In its Answer53 to the Third-Party Complaint, the respondent PPSII admitted the existence of the
contract of insurance, in view of its failure to specifically deny the same as required under then
Section 8(a), Rule 8 of the Rules of Court,54 which reads:

Sec. 8. How to contest genuineness of such documents. When an action or defense is

founded upon a written instrument copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and due execution of the instrument shall
be deemed admitted unless the adverse party, under oath, specifically denies them, and sets
forth what he claims to be the facts; but the requirement of an oath does not apply when the
adverse party does not appear to be a party to the instrument or when compliance with an
order for inspection of the original instrument is refused.

In fact, respondent PPSII did not dispute the existence of such contract, and admitted that it was
liable thereon. It claimed, however, that it had attended to and settled the claims of those injured
during the incident, and set up the following as special affirmative defenses:

Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby reiterates and
incorporates by way of reference the preceding paragraphs and further states THAT:-

8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali
Palces who sustained injuries during the incident in question. In fact, it settled
financially their claims per vouchers duly signed by them and they duly executed
Affidavit[s] of Desistance to that effect, xerox copies of which are hereto attached as
Annexes 1, 2, 3, 4, 5, and 6 respectively;

9. With respect to the claim of plaintiff, herein answering third party defendant
through its authorized insurance adjuster attended to said claim. In fact, there were
negotiations to that effect. Only that it cannot accede to the demand of said claimant
considering that the claim was way beyond the scheduled indemnity as per contract
entered into with third party plaintiff William Tiu and third party defendant (Philippine
Phoenix Surety and Insurance, Inc.). Third party Plaintiff William Tiu knew all along
 the limitation as earlier stated, he being an old hand in the transportation
business;55…

Considering the admissions made by respondent PPSII, the existence of the insurance contract and
the salient terms thereof cannot be dispatched. It must be noted that after filing its answer,
respondent PPSII no longer objected to the presentation of evidence by respondent Arriesgado and
the insured petitioner Tiu. Even in its Memorandum56 before the Court, respondent PPSII admitted
the existence of the contract, but averred as follows:

Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification and/or
reimbursement. This has no basis under the contract. Under the contract, PPSII will pay all
sums necessary to discharge liability of the insured subject to the limits of liability but not to
exceed the limits of liability as so stated in the contract. Also, it is stated in the contract that
in the event of accident involving indemnity to more than one person, the limits of liability
shall not exceed the aggregate amount so specified by law to all persons to be indemnified.57

As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the
Compulsory Motor Vehicle Liability Insurance Law. It was expressly provided therein that the limit of
the insurer’s liability for each person was ₱12,000, while the limit per accident was pegged at
₱50,000. An insurer in an indemnity contract for third party liability is directly liable to the injured
party up to the extent specified in the agreement but it cannot be held solidarily liable beyond that
amount.58 The respondent PPSII could not then just deny petitioner Tiu’s claim; it should have paid
₱12,000 for the death of Felisa Arriesgado,59 and respondent Arriesgado’s hospitalization expenses
of ₱1,113.80, which the trial court found to have been duly supported by receipts. The total amount
of the claims, even when added to that of the other injured passengers which the respondent PPSII
claimed to have settled,60 would not exceed the ₱50,000 limit under the insurance agreement.

Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily
intended to provide compensation for the death or bodily injuries suffered by innocent third parties or
passengers as a result of the negligent operation and use of motor vehicles. The victims and/or their
dependents are assured of immediate financial assistance, regardless of the financial capacity of
motor vehicle owners.61 As the Court, speaking through Associate Justice Leonardo A. Quisumbing,
explained in Government Service Insurance System v. Court of Appeals:62

However, although the victim may proceed directly against the insurer for indemnity, the third
party liability is only up to the extent of the insurance policy and those required by law. While
it is true that where the insurance contract provides for indemnity against liability to third
persons, and such persons can directly sue the insurer, the direct liability of the insurer under
indemnity contracts against third party liability does not mean that the insurer can be held
liable in solidum with the insured and/or the other parties found at fault. For the liability of the
insurer is based on contract; that of the insured carrier or vehicle owner is based on tort. …

Obviously, the insurer could be held liable only up to the extent of what was provided for by
the contract of insurance, in accordance with the CMVLI law. At the time of the incident, the
schedule of indemnities for death and bodily injuries, professional fees and other charges
payable under a CMVLI coverage was provided for under the Insurance Memorandum
Circular (IMC) No. 5-78 which was approved on November 10, 1978. As therein provided,
the maximum indemnity for death was twelve thousand (₱12,000.00) pesos per victim. The
schedules for medical expenses were also provided by said IMC, specifically in paragraphs
(C) to (G).63
Damages to be
Awarded

The trial court correctly awarded moral damages in the amount of ₱50,000 in favor of respondent
Arriesgado. The award of exemplary damages by way of example or correction of the public
good,64 is likewise in order. As the Court ratiocinated in Kapalaran Bus Line v. Coronado:65

…While the immediate beneficiaries of the standard of extraordinary diligence are, of course,
the passengers and owners of cargo carried by a common carrier, they are not the only
persons that the law seeks to benefit. For if common carriers carefully observed the statutory
standard of extraordinary diligence in respect of their own passengers, they cannot help but
simultaneously benefit pedestrians and the passengers of other vehicles who are equally
entitled to the safe and convenient use of our roads and highways. The law seeks to stop
and prevent the slaughter and maiming of people (whether passengers or not) on our
highways and buses, the very size and power of which seem to inflame the minds of their
drivers. Article 2231 of the Civil Code explicitly authorizes the imposition of exemplary
damages in cases of quasi-delicts "if the defendant acted with gross negligence."…66

The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa Arriesgado, is
entitled to indemnity in the amount of ₱50,000.00.67

The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly and
severally liable for said amount, conformably with the following pronouncement of the Court in
Fabre, Jr. vs. Court of Appeals:68

The same rule of liability was applied in situations where the negligence of the driver of the
bus on which plaintiff was riding concurred with the negligence of a third party who was the
driver of another vehicle, thus causing an accident. In Anuran v. Buño, Batangas Laguna
Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila Transit Corporation v.
Court of Appeals, the bus company, its driver, the operator of the other vehicle and the driver
of the vehicle were jointly and severally held liable to the injured passenger or the latter’s
heirs. The basis of this allocation of liability was explained in Viluan v. Court of Appeals, thus:

"Nor should it make difference that the liability of petitioner [bus owner] springs from
contract while that of respondents [owner and driver of other vehicle] arises from
quasi-delict. As early as 1913, we already ruled in Gutierrez vs. Gutierrez, 56 Phil.
177, that in case of injury to a passenger due to the negligence of the driver of the
bus on which he was riding and of the driver of another vehicle, the drivers as well as
the owners of the two vehicles are jointly and severally liable for damages. Some
members of the Court, though, are of the view that under the circumstances they are
liable on quasi-delict."69

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the
Court of Appeals is AFFIRMED with MODIFICATIONS:

(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu are
ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado the total amount of
₱13,113.80;

(2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano are
ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado ₱50,000.00 as
 indemnity; ₱26,441.50 as actual damages; ₱50,000.00 as moral damages; ₱50,000.00 as
exemplary damages; and ₱20,000.00 as attorney’s fees.

SO ORDERED.
G.R. No. L-66935 November 11, 1985

ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber
Enterprises and ONG CHIONG, petitioners,
vs.
HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY
CORPORATION, respondent.

GUTIERREZ, JR., J.:

This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court
which absolved the respondent insurance company from liability on the grounds that the vessel
carrying the insured cargo was unseaworthy and the loss of said cargo was caused not by the perils
of the sea but by the perils of the ship.

On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier,
entered into a contract with the petitioners whereby the former would load and carry on board its
barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North
Harbor, Manila. The petitioners insured the logs against loss for P100,000.00 with respondent
Pioneer Insurance and Surety Corporation (Pioneer).

On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound,
Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment never reached
its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in
Palawan on its way to Manila. As alleged by the petitioners in their complaint and as found by both
the trial and appellate courts, the barge where the logs were loaded was not seaworthy such that it
developed a leak. The appellate court further found that one of the hatches was left open causing
water to enter the barge and because the barge was not provided with the necessary cover or
tarpaulin, the ordinary splash of sea waves brought more water inside the barge.

On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00
for the loss of the shipment plus P100,000.00 as unrealized profits but the latter ignored the
demand. Another letter was sent to respondent Pioneer claiming the full amount of P100,000.00
under the insurance policy but respondent refused to pay on the ground that its hability depended
upon the "Total loss by Total Loss of Vessel only". Hence, petitioners commenced Civil Case No.
86599 against Manila Bay and respondent Pioneer.

After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision
reads:

FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:

(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer

Insurance and Surety Corporation to pay plaintiffs, jointly and severally, the sum of
P100,000.00;

(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in

addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the
former as down payment for transporting the logs in question;
 (c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for
lack of merit, but as to its cross-claim against its co-defendant Manila Bay Lighterage
Corporation, the latter is ordered to reimburse the former for whatever amount it may
pay the plaintiffs as such surety;

(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed

for lack of merit;

(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary
damages are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's fees
in the sum of P10,000.00 is hereby granted, against both defendants, who are,
moreover ordered to pay the costs; and

(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%)
from March 25, 1975, until amount is fully paid.

Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal.
According to the petitioners, the transportation company is no longer doing business and is without
funds.

During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part
of the logs. The court ordered them to be sold to the highest bidder with the funds to be deposited in
a bank in the name of Civil Case No. 86599.

On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer
from liability after finding that there was a breach of implied warranty of seaworthiness on the part of
the petitioners and that the loss of the insured cargo was caused by the "perils of the ship" and not
by the "perils of the sea". It ruled that the loss is not covered by the marine insurance policy.

After the appellate court denied their motion for reconsideration, the petitioners filed this petition with
the following assignments of errors:

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES

OF MARINE CARGO INSURANCE, THERE IS A WARRANTY OF
SEAWORTHINESS BY THE CARGO OWNER.

II

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS

OF THE CARGO IN THIS CASE WAS CAUSED BY "PERILS OF THE SHIP" AND
NOT BY "PERILS OF THE SEA."

III

THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE

RETURN TO PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS
DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT
WERE RECOVERED.
In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness
provided for in the Insurance Code refers only to the responsibility of the shipowner who must see to
it that his ship is reasonably fit to make in safety the contemplated voyage.

The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do
with its seaworthiness. They argue that a cargo owner has no control over the structure of the ship,
its cables, anchors, fuel and provisions, the manner of loading his cargo and the cargo of other
shippers, and the hiring of a sufficient number of competent officers and seamen. The petitioners'
arguments have no merit.

There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to
appeal the questioned decision. However, the petitioners state that Manila Bay has ceased
operating as a firm and nothing may be recovered from it. They are, therefore, trying to recover their
losses from the insurer.

The liability of the insurance company is governed by law. Section 113 of the Insurance Code
provides:

In every marine insurance upon a ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy.

Section 99 of the same Code also provides in part.

Marine insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...

From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be
the subject of marine insurance and that once it is so made, the implied warranty of seaworthiness
immediately attaches to whoever is insuring the cargo whether he be the shipowner or not.

As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40
Phil. 40):

The same conclusion must be reached if the question be discussed with reference to
the seaworthiness of the ship. It is universally accepted that in every contract of
insurance upon anything which is the subject of marine insurance, a warranty is
implied that the ship shall be seaworthy at the time of the inception of the voyage.
This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...

Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in
ordinary marine insurance and may not be used by him as a defense in order to recover on the
marine insurance policy.

As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):

There was no look-out, and both that and the rate of speed were contrary to the
Canadian Statute. The exception of losses occasioned by unseaworthiness was in
 effect a warranty that a loss should not be so occasioned, and whether the fact of
unseaworthiness were known or unknown would be immaterial.

Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine
insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which
keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel
but he has full control in the choice of the common carrier that will transport his goods. Or the cargo
owner may enter into a contract of insurance which specifically provides that the insurer answers not
only for the perils of the sea but also provides for coverage of perils of the ship.

We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated
by the private respondents:

In marine cases, the risks insured against are "perils of the sea" (Chute v. North
River Ins. Co., Minn—214 NW 472, 55 ALR 933). The purpose of such insurance is
protection against contingencies and against possible damages and such a policy
does not cover a loss or injury which must inevitably take place in the ordinary
course of things. There is no doubt that the term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence of the elements, and does not
embrace all losses happening at sea. They insure against losses from extraordinary
occurrences only, such as stress of weather, winds and waves, lightning, tempests,
rocks and the like. These are understood to be the "perils of the sea" referred in the
policy, and not those ordinary perils which every vessel must encounter. "Perils of
the sea" has been said to include only such losses as are of extraordinary nature,
or arise from some overwhelming power, which cannot be guarded against by the
ordinary exertion of human skill and prudence. Damage done to a vessel by perils of
the sea includes every species of damages done to a vessel at sea, as distinguished
from the ordinary wear and tear of the voyage, and distinct from injuries suffered by
the vessel in consequence of her not being seaworthy at the outset of her voyage (as
in this case). It is also the general rule that everything which happens thru the
inherent vice of the thing, or by the act of the owners, master or shipper, shall not be
reputed a peril, if not otherwise borne in the policy. (14 RCL on Insurance, Sec. 384,
pp. 1203- 1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed.
787, 48 S. Ct. 459).

With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was
caused by the perils of the sea, not by the perils of the ship because as found by the trial court, the
barge was turned loose from the tugboat east of Cabuli Point "where it was buffeted by storm and
waves." Moreover, petitioners also maintain that barratry, against which the cargo was also insured,
existed when the personnel of the tugboat and the barge committed a mistake by turning loose the
barge from the tugboat east of Cabuli Point. The trial court also found that the stranding and
foundering of Mable 10 was due to improper loading of the logs as well as to a leak in the barge
which constituted negligence.

On the contention of the petitioners that the trial court found that the loss was occasioned by the
perils of the sea characterized by the "storm and waves" which buffeted the vessel, the records show
that the court ruled otherwise. It stated:

xxx xxx xxx

... The other affirmative defense of defendant Lighterage, 'That the supposed loss of
the logs was occasioned by force majeure... "was not supported by the evidence. At
 the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves, a
condition which is natural and normal in the open sea. The evidence shows that the
sinking of Mable 10 was due to improper loading of the logs on one side so that the
barge was tilting on one side and for that it did not navigate on even keel; that it was
no longer seaworthy that was why it developed leak; that the personnel of the
tugboat and the barge committed a mistake when it turned loose the barge from the
tugboat east of Cabuli point where it was buffeted by storm and waves, while the
tugboat proceeded to west of Cabuli point where it was protected by the mountain
side from the storm and waves coming from the east direction. ..."

In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier
developed a leak which allowed water to come in and that one of the hatches of said barge was
negligently left open by the person in charge thereof causing more water to come in and that "the
loss of said plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of defendant carrier
and/or defendant carrier's representatives on barge Mable 10."

It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the
perils of the sea. The facts clearly negate the petitioners' claim under the insurance policy. In the
case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, supra, we had occasion to elaborate
on the term "perils of the ship." We ruled:

It must be considered to be settled, furthermore, that a loss which, in the ordinary

course of events, results from the natural and inevitable action of the sea, from the
ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to
provide the vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly
called the "peril of the ship." The insurer undertakes to insure against perils of the
sea and similar perils, not against perils of the ship. As was well said by Lord
Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C.,
503, 509), there must, in order to make the insurer liable, be some casualty,
something which could not be foreseen as one of the necessary incidents of the
adventure. The purpose of the policy is to secure an indemnity against accidents
which may happen, not against events which must happen.

In the present case the entrance of the sea water into the ship's hold through the
defective pipe already described was not due to any accident which happened during
the voyage, but to the failure of the ship's owner properly to repair a defect of the
existence of which he was apprised. The loss was therefore more analogous to that
which directly results from simple unseaworthiness than to that which result from the
perils of the sea.

xxx xxx xxx

Suffice it to say that upon the authority of those cases there is no room to doubt the
liability of the shipowner for such a loss as occurred in this case. By parity of
reasoning the insurer is not liable; for generally speaking, the shipowner excepts the
perils of the sea from his engagement under the bill of lading, while this is the very
perils against which the insurer intends to give protection. As applied to the present
case it results that the owners of the damaged rice must look to the shipowner for
redress and not to the insurer.
Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of
the vessel's crew.

Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or
crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners, and to
the prejudice of the owner's interest." (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on
Law of Insurance, 1951, p. 929.)

Barratry necessarily requires a willful and intentional act in its commission. No honest error of
judgment or mere negligence, unless criminally gross, can be barratry. (See Vance on Law of
Insurance, p. 929 and cases cited therein.)

In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of
the vessel's crew. There was only simple negligence or lack of skill. Hence, the second assignment
of error must likewise be dismissed.

Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00
representing the amount of the salvaged logs should have been awarded to them. However, this
should be deducted from the amounts which have been adjudicated against Manila Bay Lighterage
Corporation by the trial court.

WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of
P8,000.00 representing the value of the salvaged logs which was ordered to be deposited in the
Manila Banking Corporation in the name of Civil Case No. 86599 is hereby awarded and ordered
paid to the petitioners. The liability adjudged against Manila Bay Lighterage Corporation in the
decision of the trial court is accordingly reduced by the same amount.

SO ORDERED.
G.R. No. 183272 October 15, 2014

SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner,

vs.
SANDRA TAN KIT and The Estate of the Deceased NORBERTO TAN KIT, respondents.

DECISION

DEL CASTILLO, J.:

The Court of Appeals' (CA) imposition of 12o/o interest on the ₱13,080.93 premium refund is the
only matter in question in this case.

This Petition for Review on Certiorari1 assails the October 17, 2007 Decision2 of CA in CA-GR. CV
No. 86923, which, among others, imposed a 12% per annum rate of interest reckoned from the time
of death of the insured until fully paid, on the premium to be reimbursed by petitioner Sun Life of
Canada (Philippines), Inc. (petitioner) to respondents Sandra Tan Kit (respondent Tan Kit) and the
Estate of the Deceased Norberto Tan Kit (respondent estate). Likewise assailed in this Petition is the
CA's June 12, 2008 Resolution3 denying petitioner's Motion for Reconsideration of the said Decision.

Factual Antecedents

Respondent Tan Kit is the widow and designated beneficiary of Norberto Tan Kit (Norberto), whose
application for a life insurance policy,4 with face value of ₱300,000.00, was granted by petitioner on
October 28, 1999. On February 19, 2001, or within the two-year contestability period,5 Norberto died
of disseminated gastric carcinoma.6Consequently, respondent Tan Kit filed a claim under the subject
policy.

In a Letter7 dated September 3, 2001, petitioner denied respondent Tan Kit’s claim on account of
Norberto’s failure to fully and faithfully disclose in his insurance application certain material and
relevant information about his health and smoking history. Specifically, Norberto answered "No" to
the question inquiring whether he had smoked cigarettes or cigars within the last 12 months prior to
filling out said application.8 However, the medical report of Dr. Anna Chua (Dr. Chua), one of the
several physicians that Norberto consulted for his illness, reveals that he was a smoker and had only
stopped smoking in August 1999. According to petitioner, its underwriters would not have approved
Norberto’s application for life insurance had they been given the correct information. Believing that
the policy is null and void, petitioner opined that its liability is limited to the refund of all the premiums
paid. Accordingly, it enclosed in the said letter a check for ₱13,080.93 representing the premium
refund.

In a letter9 dated September 13, 2001, respondent Tan Kit refused to accept the check and insisted
on the payment of the insurance proceeds.

On October 4, 2002, petitioner filed a Complaint10 for Rescission of Insurance Contract before the
Regional Trial Court (RTC) of Makati City.

Ruling of the Regional Trial Court

In its November 30, 2005 Decision,11 the RTC noted that petitioner’s physician, Dr. Charity Salvador
(Dr. Salvador), conducted medical examination on Norberto. Moreover, petitioner’s agent, Irma Joy
E. Javelosa (Javelosa), answered "NO" to the question "Are you aware of anything about the life to
be insured’s lifestyle, hazardous sports, habits, medical history, or any risk factor that would have an
adverse effect on insurability?" in her Agent’s Report. Javelosa also already knew Norberto two
years prior to the approval of the latter’s application for insurance. The RTC concluded that
petitioner, through the above-mentioned circumstances, had already cleared Norberto of any
misrepresentation that he may have committed. The RTC also opined that the affidavit of Dr. Chua,
presented as part of petitioner’s evidence and which confirmed the fact that the insured was a
smoker and only stopped smoking a year ago [1999], is hearsay since Dr. Chua did not testify in
court. Further, since Norberto had a subsisting insurance policy with petitioner during his application
for insurance subject of this case, it was incumbent upon petitioner to ascertain the health condition
of Norberto considering the additional burden that it was assuming. Lastly, petitioner did not comply
with the requirements for rescission of insurance contract as held in Philamcare Health Systems,
Inc. v. Court of Appeals.12 Thus, the dispositive portion of the RTC Decision:

WHEREFORE, in view of the foregoing considerations, this court hereby finds in favor of the
[respondents and] against the [petitioner], hence it hereby orders the [petitioner] to pay the
[respondent], Sandra Tan Kit, the sum of Philippine Pesos: THREE HUNDRED THOUSAND
(₱300,000.00), representing the face value of the insurance policy with interest at six percent (6%)
per annum from October 4, 2002 until fully paid.

Cost de oficio.

SO ORDERED.13

Petitioner moved for reconsideration,14 but was denied in an Order15 dated February 15, 2006.

Hence, petitioner appealed to the CA.

Ruling of the Court of Appeals

On appeal, the CA reversed and set aside the RTC’s ruling in its Decision16 dated October 17,
2007.

From the records, the CA found that prior to his death, Norberto had consulted two physicians, Dr.
Chua on August 19, 2000, and Dr. John Ledesma (Dr. Ledesma) on December 28, 2000, to whom
he confided that he had stopped smoking only in 1999. At the time therefore that he applied for
insurance policy on October 28, 1999, there is no truth to his claim that he did not smoke cigarettes
within 12 months prior to the said application. The CA thus held that Norberto is guilty of
concealment which misled petitioner in forming its estimates of the risks of the insurance policy. This
gave petitioner the right to rescind the insurance contract which it properly exercised in this case.

In addition, the CA held that the content of Norberto’s medical records are deemed admitted by
respondents since they failed to deny the same despite having received from petitioner a Request
for Admission pursuant to Rule 26 of the Rules of Court.17 And since an admission is in the nature of
evidence the legal effects of which form part of the records, the CA discredited the RTC’s ruling that
the subject medical records and the affidavits executed by Norberto’s physicians attesting to the
truth of the same were hearsay.

The dispositive portion of the CA Decision reads:

WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the appealed
Decision REVERSED and SET ASIDE, and in lieu thereof, a judgment is hereby rendered
GRANTING the complaint a quo.

Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of ₱13,080.93 representing

the [premium] paid by the insured with interest at the rate of 12% per annum from the time of the
death of the insured until fully paid.

SO ORDERED.18

The parties filed their separate motions for reconsideration.19 While respondents questioned the
factual and legal bases of the CA Decision, petitioner, on the other hand, assailed the imposition of
interest on the premium ordered refunded to respondents.

However, the appellate court denied the motions in its June 12, 2008 Resolution,20 viz:

WHEREFORE, the foregoing considered, the separate motions for reconsideration filed by the
[petitioner] and the [respondents] are hereby DENIED.

SO ORDERED.21

Only petitioner appealed to this Court through the present Petition for Review on Certiorari.

Issue

The sole issue in this case is whether petitioner is liable to pay interest on the premium to be
refunded to respondents.

The Parties’ Arguments

Petitioner argues that no interest should have been imposed on the premium to be refunded
because the CA Decision does not provide any legal or factual basis therefor; that petitioner directly
and timely tendered to respondents an amount representing the premium refund but they rejected it
since they opted to pursue their claim for the proceeds of the insurance policy; that respondents
should bear the consequence of their unsound decision of rejecting the refund tendered to them;
and, that petitioner is not guilty of delay or of invalid or unjust rescission as to make it liable for
interest. Hence, following the ruling in Tio Khe Chio v. Court of Appeals,22 no interest can be
assessed against petitioner.

Respondents, on the other hand, contend that the reimbursement of premium is clearly a money
obligation or one that arises from forbearance of money, hence, the imposition of 12% interest per
annum is just, proper and supported by jurisprudence. While they admit that they refused the tender
of payment of the premium refund, they aver that they only did so because they did not want to
abandon their claim for the proceeds of the insurance policy. In any case, what petitioner should
have done under the circumstances was to consign the amount of payment in court during the
pendency of the case.

Our Ruling

Tio Khe Chio is not applicable in this case.

Petitioner avers that Tio Khe Chio, albeit pertaining to marine insurance, is instructive on the issue of
payment of interest. There, the Court pointed to Sections 243 and 244 of the Insurance Code which
1âwphi 1

explicitly provide for payment of interest when there is unjustified refusal or withholding of payment
of the claim by the insurer, 23 and to Article 220924 of the New Civil Code which likewise provides for
payment of interest when the debtor is in delay.

The Court finds, however, that Tio Khe Chio is not applicable here as it deals with payment of
interest on the insurance proceeds in which the claim therefor was either unreasonably denied or
withheld or the insurer incurred delay in the payment thereof. In this case, what is involved is an
order for petitioner to refund to respondents the insurance premium paid by Norberto as a
consequence of the rescission of the insurance contract on account of the latter’s concealment of
material information in his insurance application. Moreover, petitioner did not unreasonably deny or
withhold the insurance proceeds as it was satisfactorily established that Norberto was guilty of
concealment.

Nature of interest imposed by the CA

There are two kinds of interest – monetary and compensatory.

"Monetary interest refers to the compensation set by the parties for the use or forbearance of
money."25 No such interest shall be due unless it has been expressly stipulated in writing.26 "On the
other hand, compensatory interest refers to the penalty or indemnity for damages imposed by law or
by the courts."27 The interest mentioned in Articles 2209 and 221228of the Civil Code applies to
compensatory interest.29

Clearly and contrary to respondents’ assertion, the interest imposed by the CA is not monetary
interest because aside from the fact that there is no use or forbearance of money involved in this
case, the subject interest was not one which was agreed upon by the parties in writing. This being
the case and judging from the tenor of the CA, to wit:

Accordingly, [petitioner] is ordered to reimburse [respondents] the sum of ₱13,080.93 representing

the [premium] paid by the insured with interest at the rate of 12% per annum from time of death of
the insured until fully paid.30

there can be no other conclusion than that the interest imposed by the appellate court is in the
nature of compensatory interest.

The CA incorrectly imposed compensatory interest on the premium refund reckoned from the time of
death of the insured until fully paid

As a form of damages, compensatory interest is due only if the obligor is proven to have failed to
comply with his obligation.31

In this case, it is undisputed that simultaneous to its giving of notice to respondents that it was
rescinding the policy due to concealment, petitioner tendered the refund of premium by attaching to
the said notice a check representing the amount of refund. However, respondents refused to accept
the same since they were seeking for the release of the proceeds of the policy. Because of this
discord, petitioner filed for judicial rescission of the contract. Petitioner, after receiving an adverse
judgment from the RTC, appealed to the CA. And as may be recalled, the appellate court found
Norberto guilty of concealment and thus upheld the rescission of the insurance contract and
consequently decreed the obligation of petitioner to return to respondents the premium paid by
Norberto. Moreover, we find that petitioner did not incur delay or unjustifiably deny the claim.
Based on the foregoing, we find that petitioner properly complied with its obligation under the law
and contract. Hence, it should not be made liable to pay compensatory interest.

Considering the prevailing circumstances of the case, we hereby direct petitioner to reimburse the
premium paid within 15 days from date of finality of this Decision. If petitioner fails to pay within the
said period, then the amount shall be deemed equivalent to a forbearance of credit.32 In such a case,
the rate of interest shall be 6% per annum.33

WHEREFORE, the assailed October 17, 2007 Decision of the Court of Appeals in CA-G.R. CV No.
86923 is MODIFIED in that petitioner Sun Life of Canada (Philippines), Inc. is ordered to reimburse
to respondents Sandra Tan Kit and the Estate of the Deceased Norberto Tan Kit the sum of
~13,080.93 representing the premium paid by the insured within fifteen (15) days from date of finality
of this Decision. If the amount is not reimbursed within said period, the same shall earn interest of
6% per annum until fully paid.

SO ORDERED.
G.R. No. 185565 November 26, 2014

LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR INTERNATIONAL

SHIPPING COMPANY, INCORPORATED, Petitioners,
vs.
MALAYAN INSURANCE COMPANY, INCORPORATED, Respondent.

DECISION

REYES, J.:

This is a Petition for Review on Certiorari1 filed by Loadstai Shipping Company, Incorporated and
Loadstar International Shipping Company, Incorporated (petitioners) against Malayan Insurance
Company, Incorporated (Malayan) seeking to set aside the Decision2 dated April 14, 2008 and
Resolution3 dated December 11, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 82758, which
reversed and set aside the Decision4 dated March 31, 2004 of the Regional Trial Court of Manila,
Branch 34, in Civil Case No. 01-101885.

The facts as found by the CA, are as follows:

Loadstar International Shipping, Inc.(Loadstar Shipping) and Philippine Associated Smelting and
Refining Corporation (PASAR) entered into a Contract of Affreightment for domestic bulk transport of
the latter’s copper concentrates for a period of one year from November 1, 1998 to October 31,
1999. The contract was extended up to the end of October 2000.

On September 10, 2000, 5,065.47 wet metric tons (WMT) of copper concentrates were loaded in
Cargo Hold Nos. 1 and 2 of MV "Bobcat", a marine vessel owned by Loadstar International Shipping
Co., Inc. (Loadstar International) and operated by Loadstar Shipping under a charter party
agreement. The shipper and consignee under the Bill of Lading are Philex Mining Corporation
(Philex) and PASAR, respectively. The cargo was insured with Malayan Insurance Company, Inc.
(Malayan) under Open Policy No. M/OP/2000/001-582. P & I Association is the third party liability
insurer of Loadstar Shipping.

On said date (September 10, 2000), MV "Bobcat" sailed from Poro Point, San Fernando, La Union
bound for Isabel, Leyte. On September 12, 2000, while in the vicinity of Cresta de Gallo, the vessel’s
chief officer on routine inspection found a crack on starboard sideof the main deck which caused
seawater to enter and wet the cargo inside Cargo Hold No. 2 forward/aft. The cracks at the top deck
starboard side of Cargo Hold No. 2, measuring 1.21 meters long x 0.39 meters wide, and at top deck
aft section starboard side on other point, measuring 0.82 meters long x 0.32 meters wide, were
welded.

Immediately after the vessel arrived at Isabel, Leyte anchorage area, on September 13, 2000,
PASAR and Philex’s representatives boarded and inspected the vessel and undertook sampling of
the copper concentrates. In its preliminary report dated September 15, 2000, the Elite Adjusters and
Surveyor, Inc. (Elite Surveyor) confirmed that samples of copper concentrates from Cargo Hold No.
2 were contaminated by seawater. Consequently, PASAR rejected 750 MT of the 2,300 MT cargo
discharged from Cargo Hold No. 2.

On November 6, 2000, PASAR sent a formal notice of claim in the amount of [P]37,477,361.31 to
Loadstar Shipping. In its final report dated November 16, 2000, Elite Surveyor recommended
payment to the assured the amount of [P]32,351,102.32 as adjusted. On the basis of such
recommendation, Malayan paid PASAR the amount of [P]32,351,102.32.
Meanwhile, on November 24, 2000, Malayan wrote Loadstar Shipping informing the latter of a
prospective buyer for the damaged copper concentrates and the opportunity to nominate/refer other
salvage buyers to PASAR. On November 29, 2000, Malayan wrote Loadstar Shipping informing the
latter of the acceptance of PASAR’s proposal to take the damaged copper concentrates at a residual
value of US$90,000.00. On December 9, 2000, Loadstar Shipping wrote Malayan requesting for the
reversal of its decision to accept PASAR’s proposal and the conduct of a public bidding to allow
Loadstar Shipping to match or top PASAR’s bid by 10%.

On January 23, 2001, PASAR signed a subrogation receipt in favor of Malayan. To recover the
amount paid and in the exercise of its right of subrogation, Malayan demanded reimbursement from
Loadstar Shipping, which refused to comply. Consequently, on September 19, 2001, Malayan
instituted with the RTC a complaint for damages. The complaint was later amended to include
Loadstar International as party defendant.

In its amended complaint, Malayan mainly alleged that as a direct and natural consequence of the
unseaworthiness of the vessel, PASAR suffered loss of the cargo. It prayed for the amount of
[P]33,934,948.75, representing actual damages plus legal interest fromdate of filing of the complaint
until fully paid, and attorney’s fees in the amount of not less than [P]500,000.00. It also sought to
declare the bill of lading as void since it violates the provisions of Articles 1734 and 1745 of the Civil
Code.

On October 30, 2002, Loadstar Shipping and Loadstar International filed their answer with
counterclaim, denying plaintiff appellant’s allegations and averring as follows: that they are not
engaged in the business as common carriers but as private carriers; that the vessel was seaworthy
and defendants-appellees exercised the required diligence under the law; that the entry of water into
Cargo Hold No. 2 must have been caused by force majeureor heavy weather; that due to the
inherent nature of the cargo and the use of water in its production process, the same cannot be
considered damaged or contaminated; that defendants-appellees were denied reasonable
opportunity to participate in the salvage sale; that the claim had prescribed in accordance with the
bill of lading provisions and the Code of Commerce; that plaintiff-appellant’s claim is excessive,
grossly overstated, unreasonable and unsubstantiated; that their liability, if any, should not exceed
the CIFvalue of the lost/damaged cargo as set forth in the bill of lading, charter party or customary
rules of trade; and that the arbitration clause in the contract of affreightment should be followed.

After trial, and considering that the billof lading, which was marked as Exhibit "B", is unreadable, the
RTC issued on February 17, 2004 an order directing the counsel for Malayan to furnish it with a
clearer copy of the same within three (3) days from receipt of the order. On February 23, 2004,
Malayan filed a compliance attaching thereto copy of the bill of lading.

On March 31, 2004, the RTC rendered a judgment dismissing the complaint as well as the
counterclaim. The RTC was convinced that the vessel was seaworthy at the time of loading and that
the damage was attributable to the perils of the sea (natural disaster) and not due to the fault or
negligence of Loadstar Shipping.

The RTC found that although contaminated by seawater, the copper concentrates can still be used.
Itgave credence to the testimony of Francisco Esguerra, defendants-appellees’ expert witness, that
despite high chlorine content, the copper concentrates remain intact and will not lose their value.
The gold and silver remain with the grains/concentrates even if soaked with seawater and does not
melt. The RTC observed that the purchase agreement between PASAR and Philex contains a
penalty clause and has no rejection clause. Despite this agreement, the parties failed to sit down
and assess the penalty.
The RTC also found that defendants-appellees were not afforded the opportunity to object or
participate or nominate a participant in the sale of the contaminated copper concentrates to lessen
the damages to be paid. No record was presented to show that a public bidding was conducted.
Malayan sold the contaminated copper concentrates to PASAR at a low price then paid PASAR the
total value of the damaged concentrate without deducting anything from the claim.

Finally, the RTC denied the prayer to declare the Bill of Lading null and void for lack of basis
because what was attached to Malayan’s compliance was still an unreadable machine copy
thereof.5 (Citations omitted)

Ruling of the CA

On April 14, 2008, the CA rendered its Decision,6 the dispositive portion of which reads:
WHEREFORE, the appeal is GRANTED. The Decision dated March 31, 2004 of the RTC, Branch
34, Manila in Civil Case No. 01-101885, is REVERSED and SET ASIDE. In lieu thereof, a new
judgment is entered, ORDERING defendants-appellees to pay plaintiff-appellant ₱33,934,948.75 as
actual damages, plus legal interest at 6% annually from the date of the trial court’s decision. Upon
the finality of the decision, the total amount of the judgment shall earn annual interest at 12% until
full payment.

SO ORDERED.7

On December 11, 2008, the CA modified the above decision through a Resolution,8 the fallo thereof
states:

WHEREFORE, the Motion for Reconsiderationis PARTLY GRANTED. The decision of this Court
dated April 14, 2008 is PARTIALLY RECONSIDERED and MODIFIED. Defendants-appellees are
ORDERED to pay to plaintiff-appellant ₱33,934,948.74 as actual damages, less US$90,000.00,
computed at the exchange rate prevailing on November 29, 2000, plus legal interest at 6% annually
from the date of the trial court’s decision. Upon the finality of the decision, the total amount of the
judgment shall earn annual interest at 12% until full payment.

SO ORDERED.9

The CA discussed that the amount of US$90,000.00 should have been deducted from Malayan’s
claim against the petitioners in order to prevent undue enrichment on the part of Malayan.
Otherwise, Malayan would recover from the petitioners not merely the entire amount of
33,934,948.74 as actual damages, but would also end up unjustly enriching itself in the amount of
US$90,000.00 – the residual value of the subject copper concentrates it sold to Philippine
Associated Smelting and Refining Corporation (PASAR) on November 29, 2000.10 Issues

In sum, the grounds presented by the petitioners for the Court’s consideration are the following:

I.

THE [CA] HAS NO BASIS IN REVERSING THE DECISION OF THE TRIAL COURT. THERE IS
NOTHING IN THE DECISION OF THE HONORABLE COURT THAT REVERSED THE FACTUAL
FINDINGS AND CONCLUSIONS OF THE TRIAL COURT, THAT THERE WAS NO ACTUAL LOSS
OR DAMAGE TO THE CARGO OF COPPER CONCENTRATES WHICH WOULD MAKE
LOADSTAR AS THE SHIPOWNER LIABLE FOR A CARGO CLAIM. CONSEQUENTLY, THERE IS
NO BASIS FOR THE COURT TO ORDER LOADSTAR TO PAY ACTUAL DAMAGES IN THE
AMOUNT OF PH₱33 MILLION.11

II.

M/V BOBCAT IS A PRIVATE CARRIER, THE HONORABLE COURT HAD NO BASIS IN RULING
THAT IT IS A COMMON CARRIER. THE DECISION OF THE TRIAL COURT IS BEREFT OF ANY
CATEGORICAL FINDING THAT M/V BOBCAT IS A COMMON CARRIER.12

III.

THE HONORABLE COURT OFAPPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT

RESPONDENT’S PAYMENT TO PASAR, ON THE BASIS OF THE LATTER’S FRAUDULENT
CLAIM, ENTITLED RESPONDENT AUTOMATIC RIGHT OF RECOVERY BY VIRTUE OF
SUBROGATION.13

Ruling of the Court

I. Proof of actual damages

It is not disputed that the copper concentrates carried by M/V Bobcat from Poro Point, La Union to
Isabel, Leyte were indeed contaminated with seawater. The issue lies on whether such
contamination resulted to damage, and the costs thereof, if any,incurred by the insured PASAR.

The petitioners argued that the copper concentrates, despite being dampened with seawater, is
neither subject to penalty nor rejection. Under the Philex Mining Corporation (Philex)-PASAR
Purchase Contract Agreement, there is no rejection clause. Instead, there is a pre-agreed formula
for the imposition of penalty in case other elements exceeding the provided minimum level would be
found on the concentrates.14 Since the chlorine content on the copper concentrates is still below the
minimum level provided under the Philex-PASAR purchase contract, no penalty may be imposed
against the petitioners.15

Malayan opposed the petitioners’ invocation of the Philex-PASAR purchase agreement, stating that
the contract involved in this case is a contract of affreightment between the petitioners and PASAR,
not the agreement between Philex and PASAR, which was a contract for the sale of copper
concentrates.16

On this score, the Court agrees withMalayan that contrary to the trial court’s disquisition, the
petitioners cannot validly invoke the penalty clause under the Philex-PASAR purchase agreement,
where penalties are to be imposed by the buyer PASAR against the seller Philex if some elements
exceeding the agreed limitations are found on the copper concentrates upon delivery. The
petitioners are not privy tothe contract of sale of the copper concentrates. The contract between
PASAR and the petitioners is a contract of carriage of goods and not a contract of sale. Therefore,
the petitioners and PASAR are bound by the laws on transportation of goods and their contract of
affreightment. Since the Contract of Affreightment17 between the petitioners and PASAR is silent as
regards the computation of damages, whereas the bill of lading presented before the trial court is
undecipherable, the New Civil Code and the Code ofCommerce shall govern the contract between
the parties.
Malayan paid PASAR the amount of 32,351,102.32 covering the latter’s claim of damage to the
cargo.18 This is based on the recommendation of Elite Adjustors and Surveyors, Inc. (Elite) which
both Malayan and PASAR agreed to. The computation of Elite is presented as follows:

Computation of Loss Payable.We computed for the insured value of the loss and loss payable,
based on the following pertinent data:

1) Total quantity shipped - 5,065.47 wet metric tons and at risk or (Risk Note and B/L)
4,568.907 dry metric tons

2) Total sum insured - [P]212,032,203.77 (Risk Note and Endorsement)

3) Quantity damaged: 777.290 wet metric tons or (Pasar Laboratory Cert. & 696.336 dry
metric tons discharge & sampling Cert.dated September 21, 2000)

Computation:

Total sum insured x Qty. damaged= Insured value of damage

Total Qty. in DMT (DMT) (DMT)

[P] 212,032,203.77 x 696.336 DMT = [P]32,315,312.32

4,568.907 DMT

Insured value of damage = [P] 32,315,312.3219

Based on the preceding computation, the sum of ₱32,315,312.32 represents damages for the total
loss ofthat portion of the cargo which were contaminated with seawater and not merely the
depreciation in its value. Strangely though, after claiming damages for the total loss of that portion,
PASAR bought back the contaminated copper concentrates from Malayan at the price of
US$90,000.00. The fact of repurchase is enough to conclude that the contamination of the copper
concentrates cannot be considered as total loss on the part of PASAR.

The following provisions of the Code of Commerce state how damages on goods delivered by the
carrier should be appraised:

Article 361. The merchandise shall be transported at the risk and venture of the shipper, if the
contrary has not been expressly stipulated. As a consequence, all the losses and deteriorations
which the goods may suffer during the transportation by reason of fortuitous event, force majeure, or
the inherent nature and defect of the goods, shall be for the account and risk of the shipper. Proof of
these accidents is incumbent upon the carrier.

Article 362. Nevertheless, the carrier shall be liable for the losses and damages resulting from the
causes mentioned in the preceding article if it is proved, as against him, that they arose through his
negligence or by reason of his having failed to take the precautions which usage has established
among careful persons, unless the shipper has committed fraud in the bill of lading, representing the
goods to be of a kind or quality different from what they really were.

If, notwithstanding the precautions referred to in this article, the goods transported run the risk of
being lost, on account of their nature or by reason of unavoidable accident, there being no time for
their owners to dispose of them, the carrier may proceed to sell them, placing them for this purpose
at the disposal of the judicial authority or of the officials designated by special provisions.

xxxx

Article 364. If the effect of the damage referred to in Article 361 is merely a diminution in the value of
the goods, the obligation of the carrier shall be reduced to the payment of the amount which, in the
judgment of experts, constitutes such difference in value.

Article 365. If, in consequence of the damage, the goods are rendered useless for sale and
consumption for the purposes for which they are properly destined, the consignee shall not be bound
to receive them, and he may have them in the hands of the carrier, demanding of the latter their
value at the current price on that day.

If among the damaged goods there should be some pieces in good condition and without any defect,
the foregoing provision shall be applicable with respect to those damaged and the consignee shall
receive those which are sound, this segregation to be made by distinct and separate pieces and
without dividing a single object, unless the consignee proves the impossibility of conveniently making
use of them in this form.

The same rule shall be applied to merchandise in bales or packages, separating those parcels which
appear sound.

From the above-cited provisions, if the goods are delivered but arrived at the destination in damaged
condition, the remedies to be pursued by the consignee depend on the extent of damage on the
goods.

If the goods are rendered useless for sale, consumption or for the intended purpose, the consignee
may reject the goods and demand the payment of such goods at their marketprice on that day
pursuant to Article 365. In case the damaged portion of the goods can be segregated from those
delivered in good condition, the consignee may reject those in damaged condition and accept merely
those which are in good condition. But if the consignee is able to prove that it is impossible to use
those goods which were delivered in good condition without the others, then the entire shipment may
be rejected. To reiterate, under Article 365, the nature of damage must be such that the goods are
rendered useless for sale, consumption or intended purpose for the consignee to be able to validly
reject them.

If the effect of damage on the goods consisted merely of diminution in value, the carrier is bound to
pay only the difference between its price on that day and its depreciated value as provided under
Article 364.

Malayan, as the insurer of PASAR, neither stated nor proved that the goods are rendered useless or
unfit for the purpose intended by PASAR due to contamination with seawater. Hence, there is no
basis for the goods’ rejection under Article 365 of the Code of Commerce. Clearly, it is erroneous for
Malayan to reimburse PASAR as though the latter suffered from total loss of goods in the absence of
proof that PASAR sustained such kind of loss. Otherwise, there will be no difference inthe
indemnification of goods which were not delivered at all; or delivered but rendered useless,
compared against those which were delivered albeit, there is diminution in value.

Malayan also failed to establish the legal basis of its decision to sell back the rejected copper
concentrates to PASAR. It cannot be ascertained how and when Malayan deemed itself asthe owner
of the rejected copper concentrates to have these validly disposed of. If the goods were rejected, it
only means there was no acceptance on the part of PASAR from the carrier. Furthermore, PASAR
and Malayan simply agreed on the purchase price of US$90,000.00 without any allegation or proof
that the said price was the depreciated value based on the appraisal of experts as provided under
Article 364 of the Code of Commerce.

II. Subrogation of Malayan to the rights of PASAR

Malayan’s claim against the petitioners is based on subrogation to the rights possessed by PASAR
as consignee of the allegedly damaged goods. The right of subrogation stems from Article 2207 of
the New Civil Code which states:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrong doer or
the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury.

"The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon payment of the insurance claim by the
insurer."20 The right of subrogation is however, not absolute. "There are a few recognized exceptions
to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for
the loss or damage, from liability, the insurer’s right of subrogation is defeated. x x x Similarly, where
the insurer pays the assured the value of the lostgoods without notifying the carrier who has in good
faith settled the assured’s claim for loss, the settlement is binding on both the assured and the
insurer, and the latter cannot bring an action against the carrier on his right of subrogation. x x x And
where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby
effecting ‘voluntary payment,’ the former has no right of subrogation against the third party liable for
the loss x x x."21

The rights of a subrogee cannot be superior to the rights possessed by a subrogor. "Subrogation is
the substitution of one person in the place of another with reference to a lawful claim or right, so that
he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its
remedies or securities. The rights to which the subrogee succeeds are the same as, but not
greaterthan, those of the person for whom he is substituted, that is, he cannot acquire any claim,
security or remedy the subrogor did not have. In other words, a subrogee cannot succeed to a right
not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can
recover only ifthe insured likewise could have recovered."22 Consequently, an insurer indemnifies the
insured based on the loss or injury the latter actually suffered from. If there is no loss or injury, then
there is no obligation on the part of the insurer to indemnify the insured. Should the insurer pay the
insured and it turns out that indemnification is not due, or if due, the amount paid is excessive, the
insurer takes the risk of not being able to seek recompense from the alleged wrongdoer. This is
because the supposed subrogor did not possessthe right to be indemnified and therefore, no right to
collect is passed on to the subrogee. As regards the determination of actual damages, "[i]t is
axiomatic that actual damages must be proved with reasonable degree of certainty and a party is
entitled only to such compensation for the pecuniary loss that was duly proven."23 Article 2199 of the
New Civil Code speaks of how actual damages are awarded:

Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred
to as actual or compensatory damages.
Whereas the CA modified its Decision dated April 14, 2008 by deducting the amount of
US$90,000.00 fromthe award, the same is still iniquitous for the petitioners because PASAR and
Malayan never proved the actual damages sustained by PASAR. It is a flawed notion to merely
accept that the salvage value of the goods is US$90,000.00, since the price was arbitrarily fixed
between PASAR and Malayan. Actual damages to PASAR, for example, could include the
diminution in value as appraised by experts or the expenses which PASAR incurred for the
restoration of the copper concentrates to its former condition, ifthere is damage and rectification is
still possible.

It is also note worthy that when the expert witness for the petitioners, Engineer Francisco Esguerra
(Esguerra), testified as regards the lack of any adverse effect of seawater on copper concentrates,
Malayan never presented evidence of its own in refutation to Esguerra’s testimony. And, even if the
Court will disregard the entirety of his testimony, the effect on Malayan’s cause of action is nil. As
Malayan is claiming for actual damages, it bears the burden of proof to substantiate its claim.

"The burden of proof is on the party who would be defeated if no evidence would be presented on
either side. The burden is to establish one’s case by a preponderance of evidence which means that
the evidence, as a whole, adduced by one side, is superior tothat of the other. Actual damages are
not presumed. The claimant must prove the actual amount of loss with a reasonable degree of
certainty premised upon competent proof and on the best evidence obtainable. Specific facts that
could afford a basis for measuring whatever compensatory or actual damages are borne must be
pointed out. Actual damages cannot be anchored on mere surmises, speculations or conjectures."24

Having ruled that Malayan did not adduce proof of pecuniary loss to PASAR for which the latter was
questionably indemnified, there is no necessity to expound further on the other issues raised by the
petitioners and Malayan in this case.

WHEREFORE, the petition is GRANTED. The Decision dated April 14, 2008 and Resolution dated
December 11, 2008 of the Court of Appeals in CA-G.R. CV No. 82758 are hereby REVERSED and
SET ASIDE. The Decision dated March 31, 2004 of the Regional Trial Comi of Manila, Branch 34 in
Civil Case No·. 01-101885 is REINSTATED.

SO ORDERED.
G.R. No. 207277

MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY. EMMANUEL G.

VILLANUEVA, SONNY RUBIN,1 ENGR. FRANCISCO MONDELO, and MICHAEL
REQUIJO,2 Petitioners.
vs.
EMMA CONCEPCION L. LIN,3 Respondent.

DECISION

DEL CASTILLO, J.:

Assailed in this Petition for Review on Certiorari4 are the December 21, 2012 Decision5 of the Court
of Appeals (CA) and its May 22, 2013 Resolution6 in CA-GR. SP No. 118894, both of which found no
grave abuse of discretion in the twin Orders issued by the Regional Trial Court (RTC) of Manila,
Branch 52, on September 29, 20107 and on January 25, 20118 in Civil Case No. 10-122738.

Factual Antecedents

On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a Complaint9 for Collection of Sum of
Money with Damages against Malayan Insurance Co., Inc. (Malayan), Yvonne Yuchengco (Yvonne),
Atty. Emmanuel Villanueva, Sonny Rubin, Engr. Francisco Mondelo, Michael Angelo Requijo
(collectively, the petitioners), and the Rizal Commercial and Banking Corporation (RCBC). This was
docketed as Civil Case No. 10-122738 of Branch 52 of the Manila RTC.

Lin alleged that she obtained various loans from RCBC secured by six clustered warehouses located
at Plaridel, Bulacan; that the five warehouses were insured with Malayan against fire for ₱56 million
while the remaining warehouse was insured for ₱2 million; that on February 24, 2008, the five
warehouses were gutted by fire; that on April 8, 2008 the Bureau of Fire Protection (BFP) issued a
Fire Clearance Certification to her (April 8, 2008 FCC) after having determined that the cause of fire
was accidental; that despite the foregoing, her demand for payment of her insurance claim was
denied since the forensic investigators hired by Malayan claimed that the cause of the fire was arson
and not accidental; that she sought assistance from the Insurance Commission (IC) which, after a
meeting among the parties and a conduct of reinvestigation into the cause/s of the fire,
recommended that Malayan pay Lin's insurance claim and/or accord great weight to the BFP's
findings; that in defiance thereof, Malayan still denied or refused to pay her insurance claim; and that
for these reasons, Malayan's corporate officers should also be held liable for acquiescing to
Malayan's unjustified refusal to pay her insurance claim.

As against RCBC, Lin averred that notwithstanding the loss of the mortgaged properties, the bank
refused to go after Malayan and instead insisted that she herself must pay the loans to RCBC,
otherwise, foreclosure proceedings would ensue; and that to add insult to injury, RCBC has been
compounding the interest on her loans, despite RCBC's failure or refusal to go after Malayan.

Lin thus prayed in Civil Case No. 10-122738 that judgment be rendered ordering petitioners to pay
her insurance claim plus interest on the amounts due or owing her; that her loans and mortgage to
RCBC be deemed extinguished as of February 2008; that RCBC be enjoined from foreclosing the
mortgage on the properties put up as collaterals; and that petitioners he ordered to pay her
₱l,217,928.88 in the concept of filing foes, costs of suit,₱l million as exemplary damages, and
₱500,000.00 as attorney’s fees.
Some five months later, or on June 17, 2010, Lin filed before the IC an administrative case 10 against
Malayan, represented this time by Yvonne. This was docketed as Administrative Case No. 431.

In this administrative case, Lin claimed that since it had been conclusively found that the cause of
the fire was "accidental," the only issue left to be resolved is whether Malayan should be held liable
for unfair claim settlement practice under Section 241 in relation to Section 247 of the Insurance
Code due to its unjustified refusal to settle her claim; and that in consequence of the foregoing
failings, Malayan's license to operate as a non-life insurance company should be revoked or
suspended, until such time that it fully complies with the IC Resolution ordering it to accord more
weight to the BFP's findings.

On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-122738 based on forum
shopping. It argued that the administrative case was instituted to prompt or incite IC into ordering
Malayan to pay her insurance claim; that the elements of forum shopping are present in these two
cases because there exists identity of parties since Malayan's individual officers who were
impleaded in the civil case are also involved in the administrative case; that the same interests are
shared and represented in both the civil and administrative cases; that there is identity of causes of
action and reliefs sought in the two cases since the administrative case is merely disguised as an
unfair claim settlement charge, although its real purpose is to allow Lin to recover her insurance
claim from Malayan; that Lin sought to obtain the same reliefs in the administrative case as in the
civil case; that Lin did not comply with her sworn undertaking in the Certification on Non-Forum
Shopping which she attached to the civil case, because she deliberately failed to notify the RTC
about the pending administrative case within five days from the filing thereof.

This motion to dismiss drew a Comment/Opposition, 11 which Lin filed on August 31, 2010.

Ruling of the Regional Trial Court

In its Order of September 29, 2010,12 the RTC denied the Motion to Dismiss, thus:

WHEREFORE, the MOTION TO DISMISS filed by [petitioners] is hereby DENIED for lack of merit.

Furnish the parties through their respective [counsels] with a copy each [of] the Order.

SO ORDERED.13

The RTC held that in the administrative case, Lin was seeking a relief clearly distinct from that
sought in the civil case; that while in the administrative case Lin prayed for the suspension or
revocation of Malayan's license to operate as a non-life insurance company, in the civil case Lin
prayed for the collection of a sum of money with damages; that it is abundantly clear that any
judgment that would be obtained in either case would not be res judicata to the other, hence, there is
no forum shopping to speak of.

In its Order of January 25, 2011, 14 the RTC likewise denied, for lack of merit, petitioners' Motion for
Reconsideration.

Ruling of the Court of Appeals

Petitioners thereafter sued out a Petition for Certiorari and Prohibition15 before the CA. However, in a
Decision 16dated December 21, 2012, the CA upheld the RTC, and disposed as follows:
WHEREFORE absent grave abuse of discretion on the part of respondent Judge, the Petition
for Certiorari and Prohibition (with Temporary Restraining Order and Preliminary Injunction) is
DISMISSED.

SO ORDERED.17

The CA, as did the RTC, found that Lin did not commit forum shopping chiefly for the reason that the
issues raised and the reliefs prayed for in the civil case were essentially different from those in the
administrative case, hence Lin had no duty at all to inform the RTC about the institution or pendency
of the administrative case.

The CA ruled that forum shopping exists where the elements of litis pendentia concurred, and where
a final judgment in one case will amount to res judicata in the other. The CA held that of the three
elements of forum shopping viz., (l) identity of parties, or at least such parties as would represent the
same interest in both actions, (2) identity of rights asserted and reliefs prayed for, the relief being
founded on the same facts, and (3) identity of the two proceedings such that any judgment rendered
in one action will, regardless of which party is successful, amount to res judicata in the other action
under consideration, only the first element may be deemed present in the instant case. The CA held
that there is here identity of parties in the civil and administrative cases because Lin is the
complainant in both the civil and administrative cases, and these actions were filed against the same
petitioners, the same RCBC and the same Malayan, represented by Yvonne, respectively. It held
that there is however no identity of rights asserted and reliefs prayed for because in the civil case, it
was Lin's assertion that petitioners had violated her rights to recover the full amount of her insurance
claim, which is why she prayed/demanded that petitioners pay her insurance claim plus damages;
whereas in the administrative case, Lin's assertion was that petitioners were guilty of unfair claim
settlement practice, for which reason she prayed that Malayan's license to operate as an insurance
company be revoked or suspended; that the judgment in the civil case, regardless of which party is
successful, would not amount to res judicata in the administrative case in view of the different issues
involved, the dissimilarity in the quantum of evidence required, and the distinct mode or procedure to
be observed in each case.

Petitioners moved for reconsideration 18 of the CA's Decision, but this motion was denied by the CA
in its Resolution of May 22, 2013.19

Issues

Before this Court, petitioners instituted the present Petition,20 which raises the following issues:

The [CA] not only decided questions of substance contrary to law and the applicable decisions of
this Honorable Court, it also sanctioned a flagrant departure from the accepted and usual course of
judicial proceedings.

A.

The [CA] erred in not dismissing the Civil Case on the ground of willful and deliberate [forum
shopping] despite the fact that the civil case and the administrative case both seek the payment of
the same fire insurance claim.

B.
The [CA] erred in not dismissing the civil case for failure on the part of [Lin] to comply with her
undertaking in her verification and certification of non-forum shopping appended to the civil
complaint.21

Petitioners' Arguments

In praying for the reversal of the CA Decision, petitioners argue that regardless of nomenclature, it is
Lin and no one else who filed the administrative case, and that she is not a mere complaining
witness therein; that it is settled that only substantial identity of parties is required for res judicata to
apply; that the sharing of the same interest is sufficient to constitute identity of parties; that Lin has
not denied that the subject of both the administrative case and the civil case involved the same fire
insurance claim; that there is here identity of causes of action, too, because the ultimate objective of
both the civil case and the administrative case is to compel Malayan to pay Lin's fire insurance claim;
that although the reliefs sought in the civil case and those in the administrative case are worded
differently, Lin was actually asking for the payment of her insurance claim in both cases; that it is
well-entrenched that a party cannot escape the operation of the principle in res judicata that a cause
of action cannot be litigated twice just by varying the form of action or the method of presenting the
case; that Go v. Office of the Ombudsman22is inapplicable because the issue in that case was
whether there was unreasonable delay in withholding the insured's claims, which would warrant the
revocation or suspension of the insurers' licenses, and not whether the insurers should pay the
insured's insurance claim; that Almendras Mining Corporation v. Office of the Insurance
Commission23does not apply to this case either, because the parties in said case agreed to submit
the case for resolution on the sole issue of whether the revocation or suspension of the insurer's
license was justified; and that petitioners will suffer irreparable injury as a consequence of having to
defend themselves in a case which should have been dismissed on the ground of forum shopping.

Respondents Arguments

Lin counters that as stressed in Go v. Office of the Ombudsman, 24 an administrative case for unfair
claim settlement practice may proceed simultaneously with, or independently of, the civil case for
collection of the insurance proceeds filed by the same claimant since a judgment in one will not
amount to res judicata to the other, and vice versa, due to the variance or differences in the issues,
in the quantum of evidence, and in the procedure to be followed in prosecuting the cases; that in this
case the CA cited the teaching in Go v. Office of the Ombudsman that there was no grave abuse of
discretion in the RTC's dismissal of petitioners' motion to dismiss; that the CA correctly held that the
RTC did not commit grave abuse of discretion in denying petitioners' motion to dismiss because the
elements of forum shopping were absent; that there is here no identity of parties because while she
(respondent) is the plaintiff in the civil case, she is only a complaining witness in the administrative
case since it is the IC that is the real party in interest in the administrative case; that the cause of
action in the civil case consists of Malayan's failure or refusal to pay her insurance claim, whereas in
the administrative case, it consists of Malayan's unfair claim settlement practice; that the issue in the
civil case is whether Malayan is liable to pay Lin's insurance claim, while the issue in the
administrative case is whether Malayan's license to operate should be revoked or suspended for
engaging in unfair claim settlement practice; and that the relief sought in the civil case consists in the
payment of a sum of money plus damages, while the relief in the administrative case consists of the
revocation or suspension of Malayan's license to operate as an insurance company. According to
Lin, although in the administrative case she prayed that the IC Resolution ordering Malayan to
accord weight to the BFP's findings be declared final, this did not mean that she was therein seeking
payment of her insurance claim, but rather that the IC can now impose the appropriate
administrative sanctions upon Malayan; that if Malayan felt compelled to pay Lin's insurance claim
for fear that its license to operate as an insurance firm might be suspended or revoked, then this is
just a logical result of its failure or refusal to pay the insurance claim; that the judgment in the civil
case will not amount to res judicata in the administrative case, and vice versa, pursuant to the case
law ruling in Go v. Office of the Ombudsman25and in Almendras v. Office of the Insurance
Commission, 26 both of which categorically allowed the insurance clain1ants therein to file both a civil
and an administrative case against insurers; that the rule against forum shopping was designed to
serve a noble purpose, viz., to be an instrument of justice, hence, it can in no way be interpreted to
subvert such a noble purpose.

Our Ruling

We deny this Petition. We hold that the case law rulings in the Go and Almendras cases27 control and
govern the case at bench.

First off, it is elementary that "an order denying a motion to dismiss is merely interlocutory and,
therefore, not appealable, x x x to x x x avoid undue inconvenience to the appealing party by having
to assail orders as they are promulgated by the court, when all such orders may be contested in a
single appeal."28

Secondly, petitioners herein utterly failed to prove that the RTC, in issuing the assailed Orders, acted
with grave abuse of discretion amounting to lack or excess of jurisdiction. "It is well-settled that an
act of a court or tribunal may only be considered to have been done in grave abuse of discretion
when the same was performed in a capricious or whimsical exercise of judgment which is equivalent
to lack or excess of jurisdiction."29 "[F]or grave abuse of discretion to exist, the abuse of discretion
must be patent and gross so as to amount to an evasion of a positive duty or a virtual refusal to
perform a duty enjoined by law, or to act at all in contemplation of law."30

In the present case, petitioners basically insist that Lin committed willful and deliberate forum
shopping which warrants the dismissal of her civil case because it is not much different from the
administrative case in terms of the parties involved, the causes of action pleaded, and the reliefs
prayed for. Petitioners also posit that another ground warranting the dismissal of the civil case was
Lin's failure to notify the RTC about the pendency of the administrative case within five days from the
filing thereof.

These arguments will not avail. The proscription against forum shopping is found in Section 5, Rule
7 of the Rules of Court, which provides:

SEC. 5. Certification against forum shopping. --The plaintiff or principal party shall certify under oath
in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification
annexed thereto and simultaneously filed therewith; (a) that he has not theretofore commenced any
action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and,
to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such
other pending action or claim, a complete statement of the present status thereof; and (c) if he
should thereafter learn that the same or similar action or claim has been filed or is pending, he shall
report that fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory
pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after hearing. The submission of a false
certification or non-compliance with any of the undertakings therein shall constitute indirect contempt
of court, without prejudice to the corresponding administrative and criminal actions. If the acts of the
party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be
ground for summary dismissal with prejudice and shall constitute direct contempt, as well as a cause
for administrative sanctions. (n)
The above-stated rule covers the very essence of forum shopping itself, and the constitutive
elements thereof viz., the cognate concepts of litis pendentia and res judicata -

x x x [T]he essence of forum shopping is the filing of multiple suits involving the same parties for the
same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable
judgment. It exists where the elements of litis pendentia are present or where a final judgment in one
case will amount to res judicata in another. On the other hand, for litis pendentia to be a ground for
the dismissal of an action, the following requisites must concur: (a) identity of parties, or at least
such parties who represent the same interests in both actions; (b) identity of rights asserted and
relief prayed for, the relief being founded on the same facts; and (c) the identity with respect to the
two preceding particulars in the two cases is such that any judgment that may be rendered in the
pending case, regardless of which party is successful, would amount to res judicata in the other
case.31

Res judicata, in turn, has the following requisites: "(1) the former judgment must be final; (2) it must
have been rendered by a court having jurisdiction over the subject matter and over the parties; (3) it
must be a judgment on the merits; and (4) there must be, between the first and second actions, (a)
identity of parties, (b) identity of subject matter, and (c) identity of cause of action."32

"The settled rule is that criminal and civil cases are altogether different from administrative matters,
such that the disposition in the first two will not inevitably govern the third and vice versa."33In the
context of the case at bar, matters handled by the IC are delineated as either regulatory or
adjudicatory, both of which have distinct characteristics, as postulated in Almendras Mining
Corporation v. Office of the Insurance Commission:34

The provisions of the Insurance Code (Presidential Decree [P.D.] No. 1460), as amended, clearly
indicate that the Office of the [IC] is an administrative agency vested with regulatory power as well
as with adjudicatory authority. Among the several regulatory or non-quasi-judicial duties of the
Insurance Commissioner under the Insurance Code is the authority to issue, or refuse issuance of, a
Certificate of Authority to a person or entity desirous of engaging in insurance business in the
Philippines, and to revoke or suspend such Certificate of Authority upon a finding of the existence of
statutory grounds for such revocation or suspension. The grounds for revocation or suspension of an
insurer's Certificate of Authority are set out in Section 241 and in Section 247 of the Insurance Code
as amended. The general regulatory authority of the Insurance Commissioner is described in
Section 414 of the Insurance Code, as amended, in the following terms:

'Section 414. The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit associations, and
trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this
Code, and shall, notwithstanding any existing laws to the contrary, have sole and exclusive authority
to regulate the issuance and sale of variable contracts as defined in section two hundred thirty-two
and to provide for the licensing of persons selling such contracts, and to issue such reasonable rules
and regulations governing the same.

The Commissioner may issue such rulings, instructions, circulars, orders[,] and decisions as he may
deem necessary to secure the enforcement of the provisions of this Code, subject to the approval of
the Secretary of Finance [DOF Secretary]. Except as otherwise specified, decisions made by the
Commissioner shall be appealable to the [DOF Secretary].' (Italics supplied)

which Section also specifies the authority to which a decision of the Insurance Commissioner
rendered in the exercise of its regulatory function may be appealed.
The adjudicatory authority of the Insurance Commissioner is generally described in Section 416 of
the Insurance Code, as amended, which reads as follows:

'Sec. 416. The Commissioner shall have the power to adjudicate claims and complaints involving
any loss, damage or liability for which an insurer may be answerable under any kind of policy or
contract of insurance, or for which such insurer may be liable under a contract of suretyship, or for
which a reinsurer may be sued under any contract or reinsurance it may have entered into, or for
which a mutual benefit association may be held liable under the membership certificates it has
issued to its members, where the amount of any such loss, damage or liability, excluding interests,
cost and attorney’s fees, being claimed or sued upon any kind of insurance, bond, reinsurance
contract, or membership certificate does not exceed in any single claim one hundred thousand
pesos.

xxxx

The authority to adjudicate granted to the Commissioner under this section shall be concurrent with
that of the civil courts, but the filing of a complaint with the Commissioner shall preclude the civil
courts from taking cognizance of a suit involving the same subject matter.' (Italics supplied)

Continuing, Section 416 (as amended by Batas Pambansa (B.P.) Blg. 874) also specifies the
authority to which appeal may be taken from a final order or decision of the Commissioner given in
the exercise of his adjudicatory or quasi-judicial power:

'Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force and
effect of a judgment. Any party may appeal from a final order, ruling or decision of the Commissioner
by filing with the Commissioner within thirty days from receipt of copy of such order, ruling or
decision a notice of appeal to the Intermediate Appellate Court (now the Court of Appeals) in the
manner provided for in the Rules of Court for appeals from the Regional Trial Court to the
Intermediate Appellate Court (now the Court of Appeals)

x x x x'

It may be noted that under Section 9 (3) of B.P. Big. 129, appeals from a final decision of the
Insurance Commissioner rendered in the exercise of his adjudicatory authority now fall within
the exclusive appellate jurisdiction of the Court of Appeals.35

Go v. Office of the Ombudsman36reiterated the above-stated distinctions vis-a-vis the principles

enunciating that a civil case before the trial court involving recovery of payment of the insured's
insurance claim plus damages, can proceed simultaneously with an administrative case before the
IC.37 Expounding on the foregoing points, this Court said -

**The findings of the trial court will not necessarily foreclose the administrative case before the [IC],
or [vice versa]. True, the parties are the same, and both actions are predicated on the same set of
facts, and will require identical evidence. But the issues to be resolved, the quantum of evidence, the
procedure to be followed[,] and the reliefs to be adjudged by these two bodies are different.

Petitioner's causes of action in Civil Case No. Q-95-23135 are predicated on the insurers' refusal to
pay her fire insurance claims despite notice, proofs of losses and other supporting documents. Thus,
petitioner prays in her complaint that the insurers be ordered to pay the full-insured value of the
losses, as embodied in their respective policies. Petitioner also sought payment of interests and
damages in her favor caused by the alleged delay and refusal of the insurers to pay her claims. The
principal issue then that must be resolved by the trial court is whether or not petitioner is entitled to
the payment of her insurance claims and damages. The matter of whether or not there is
unreasonable delay or denial of the claims is merely an incident to be resolved by the trial court,
necessary to ascertain petitioner's right to claim damages, as prescribed by Section 244 of the
Insurance Code.

On the other hand, the core, if not the sole bone of contention in Adm. Case No. RD-156, is the
issue of whether or not there was unreasonable delay or denial of the claims of petitioner, and if in
the affirmative, whether or not that would justify the suspension or revocation of the insurers'
licenses.

Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by a preponderance of
evidence, or simply put, such evidence that is of greater weight, or more convincing than that which
is offered in opposition to it. In Adm. Case No. RD-156, the degree of proof required of petitioner to
establish her claim is substantial evidence, which has been defined as that amount of relevant
evidence that a reasonable mind might accept as adequate to justify the conclusion.

In addition, the procedure to be followed by the trial court is governed by the Rules of Court, while
the [IC] has its own set of rules and it is not bound by the rigidities of technical rules of procedure.
These two bodies conduct independent means of ascertaining the ultimate facts of their respective
cases that will serve as basis for their respective decisions. 1âwphi1

If, for example, the trial court finds that there was no unreasonable delay or denial of her claims, it
does not automatically mean that there was in fact no such unreasonable delay or denial that would
justify the revocation or suspension of the licenses of the concerned insurance companies. It only
means that petitioner failed to prove by preponderance of evidence that she is entitled to damages.
Such finding would not restrain the [IC], in the exercise of its regulatory power, from making its own
finding of unreasonable delay or denial as long as it is supported by substantial evidence.

While the possibility that these two bodies will come up with conflicting resolutions on the same
issue is not far-fetched, the finding or conclusion of one would not necessarily be binding on the
other given the difference in the issues involved, the quantum of evidence required and the
procedure to be followed.

Moreover, public interest and public policy demand the speedy and inexpensive disposition of
administrative cases.

Hence, Adm. Case No. RD-156 may proceed alongside Civil Case No. Q-95-23135.38

As the aforecited cases are analogous in many aspects to the present case, both in respect to their
factual backdrop and in their jurisprudential teachings, the case law ruling in the Almendras and in
the Go cases must apply with implacable force to the present case. Consistency alone demands -
because justice cannot be inconsistent - that the final authoritative mandate in the cited cases must
produce an end result not much different from the present case.

All told, we find that the CA did not err in holding that the petitioners utterly failed to prove that the
RTC exhibited grave abuse of discretion, amounting to lack or excess of jurisdiction, which would
justify the issuance of the extraordinary writ of certiorari.39

WHEREFORE, the Petition is DENIED. The December 21, 2012 Decision and the May 22, 2013
Resolution of the Court of Appeals in CA-GR. SP No. 118894 are hereby AFFIRMED.
Costs against petitioners.

SO ORDERED.