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G.R. NO. 198588 July 11, 2012

DOCTRINE: If there is evidence showing that a claim which the insured submitted was false
and fraudulent both as to the kind, quality, and amount of the goods and their value destroyed by
the fire, such a proof of claim is a bar against the insured from recovering on the policy even for
the amount of his actual loss.

FACTS: Petitioner United Marchants Corporation (UMC) is engaged in the business of buying,
selling, and manufacturing Christmas lights. It leased a warehouse at 19-B Dagot Street, San
Jose Subdivision, Barrio Manresa, Quezon City.
• On September 6, 1995,UMC's General Manager Alfredo Tan insured UMC's stocks in
trade of Christmas lights against fire with respondent Country Bankers Insurance
Corporation (CBIC) for P15,000,000.00 – valid for one year. The property insured include
stocks in trade only.
• On May 7, 1996, UMC and CBIC executed Endorsement F/96-154 to form part of the
policy: providing that UMC’s stocks in trade were insured against additional perils, to wit:
“typhoon, flood, ext. cover, and full earthquake.” The sum insured was also increase to
P50M effective May 7, 1996 to January 10, 1997.
• On 9 May 1996, CBIC issued Endorsement F/96-157 where the name of the assured was
changed from Alfredo Tan to UMC.
• On July 3, 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM
Adjustment Corporation (CRM) to investigate and evaluate UMC’s loss by reason of the
fire. CBIC's reinsurer, Central Surety, likewise requested the National Bureau of
Investigation (NBI) to conduct a parallel investigation.
• On July 6, 1996, UMC, through CRM, submitted to CBIC its Sworn Statement of Formal
Claim, with proofs of its loss.
• On November 20, 1996, UMC demanded for at least 50% payment of its claim from
CBIC, which the latter rejected due to breach of Condition No. 15 of the policy stating
“If the claim be in any respect fraudulent, or if any false declaration be made or
used in support thereof, or if any fraudulent means or devices are used by the
Insured or anyone acting in his behalf to obtain any benefit under this Policy; or if
the loss or damage be occasioned by the willful act, or with the connivance of the
Insured, all the benefits under this Policy shall be forfeited.”
• On February 19, 1998, UMC filed a complaint against CBIC with the RTC of Manila.
However, in its Answer with Compulsory Counterclaim dated Marc 4, 1998, CBIC
admitted the issuance of the Insurance Policy to UMC but raised the following defenses:
1. That the Complaint states no cause of action;
2. That UMC's claim has already prescribed; and
3. That UMC's fire claim is tainted with fraud.
CBIC alleged that UMC's claim was fraudulent because UMC's Statement of Inventory
showed that it had no stocks in trade as of December 31 1995, and that UMC's
suspicious purchases for the year 1996 did not even amount to P25,000,000.00. UMC's
GIS and Financial Reports further revealed that it had insufficient capital, which meant
UMC could not afford the alleged P50,000,000.00 worth of stocks in trade.
• In its reply, dated March 20, 1998, UMC denied violation of Condition No. 15. UMC
claimed that it did not make any false declaration because the invoices were genuine and
the Statement of Inventory was for internal revenue purposes only, not for its insurance

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• During trial, UMC presented five witnesses (attesting to the contents of the warehouse
during the time of the fire). They were:
1. Josie Ebora – UMC’s disbursing officer
2. Annie Pabustan
3. Cesar Martinez – Metropolitan Bank and Trust Company Officer
4. Ernesto Luna – delivery checker od Straight Commercial Cargo Forwarders
5. Dominador Victorio – CRM’s adjuster
On the other hand, CBIC presented the claims of Edgare Caguindagan (a SEC
representative), Atty. Cabrera, and NBI Investigator Arnold Lazaro. Cabrera and Lazaro
testified that they were hired by Central Surety to investigate UMC's claim. On 19
November 1996, they concluded that arson was committed based from their interview
with barangay officials and the pictures showing that blackened surfaces were present at
different parts of the warehouse. On cross-examination, Lazaro admitted that they did not
conduct a forensic investigation of the warehouse, nor did they file a case for arson.

RTC RULING: Ruled for UMC’s entitlement to the insurance proceeds. It particularly holds that
“Fraud is never presumed but must be proved by clear and convincing evidence.” The conflicting
findings of defendant's adjuster, CRM Adjustment [with stress] and that made by Atty. Cabrera &
Mr. Lazaro for Central Surety shall be resolved in favor of the former. Definitely the former's
finding is more credible as it was made soon after the fire while that of the latter was done 4
months later. Certainly it would be a different situation as the site was no longer the same after
the clearing up operation which is normal after a fire incident. The Christmas lights and parts
could have been swept away. Hence the finding of the latter appears to be speculative to benefit
the reinsurer and which defendant wants to adopt to avoid liability. The CRM Adjustment report
found no arson and confirmed substantial stocks in the burned warehouse.

CA RULING: Ruled in favor of CBIC. It held UMC’s claim under the Insurance Policy is void.
The CA found that the fire was intentional in origin, considering the array of evidence submitted
by CBIC, particularly the pictures taken and the reports of Cabrera and Lazaro, as opposed to
UMC's failure to explain the details of the alleged fire accident. In addition, it found that UMC's
claim was overvalued through fraudulent transactions.

ISSUE: WON UMC is entitled to claim from CBIC the full coverage of its fire insurance policy.

Particularly, in insurance cases, once an insured makes out a prima facie case in its favor, the
burden of evidence shifts to the insurer to controvert the insured's prima facie case. In the present
case, UMC established a prima facie case against CBIC. CBIC does not dispute that UMC's
stocks in trade were insured against fire under the Insurance Policy and that the warehouse,
where UMC's stocks in trade were stored, was gutted by fire on July 3, 1996, within the duration
of the fire insurance. However, since CBIC alleged an excepted risk, then the burden of evidence
shifted to CBIC to prove such exception.
In the present case, CBIC's evidence did not prove that the fire was intentionally caused by the
insured. First, the findings of CBIC's witnesses, Cabrera and Lazaro, were based on an
investigation conducted more than four months after the fire. The testimonies of Cabrera and
Lazaro, as to the boxes doused with kerosene as told to them by barangay officials, are hearsay
because the barangay officials were not presented in court. Cabrera and Lazaro even admitted
that they did not conduct a forensic investigation of the warehouse nor did they file a case for
arson. Second, the Sworn Statement of Formal Claim submitted by UMC, through CRM, states
that the cause of the fire was "faulty electrical wiring/accidental in nature." CBIC is bound by this
evidence because in its Answer, it admitted that it designated CRM to evaluate UMC's loss. Third,

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the Certification by the Bureau of Fire Protection states that the fire was accidental in origin. This
Certification enjoys the presumption of regularity, which CBIC failed to rebut.

AS TO THE ISSUE OF FRAUD (Ito yung nagalter ng ruling na supposedly pwede magclaim
yung UMC)
Contrary to UMC's allegation, CBIC's failure to prove arson does not mean that it also failed to
prove fraud.

In the present case, arson and fraud are two separate grounds based on two different sets of
evidence, either of which can void the insurance claim of UMC. The absence of one does not
necessarily result in the absence of the other. Thus, on the allegation of fraud, we affirm the
findings of the Court of Appeals. In the present case, as proof of its loss of stocks in trade
amounting to P50,000,000.00, UMC submitted its Sworn Statement of Formal Claim together with
the following documents: (1) letters of credit and invoices for raw materials, Christmas lights and
cartons purchased; (2) charges for assembling the Christmas lights; and (3) delivery receipts of
the raw materials. However, the charges for assembling the Christmas lights and delivery receipts
could not support its insurance claim. The Insurance Policy provides that CBIC agreed to insure
UMC's stocks in trade. UMC defined stock in trade as tangible personal property kept for sale or
trade. Applying UMC's definition, only the letters of credit and invoices for raw materials,
Christmas lights and cartons may be considered.

The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade
purchased for 1996 amounts to P20,000,000.00 which were purchased in one month. Thus, UMC
needs to prove purchases amounting to P30,000,000.00 worth of stocks in trade for 1995 and
prior years. However, in the Statement of Inventory it submitted to the BIR, which is considered
an entry in official records, UMC stated that it had no stocks in trade as of 31 December 1995. In
its defense, UMC alleged that it did not include as stocks in trade the raw materials to be
assembled as Christmas lights, which it had on 31 December 1995. However, as proof of its loss,
UMC submitted invoices for raw materials, knowing that the insurance covers only stocks in

Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries Manufacturer Phils. were
suspicious. The purchases, based on the invoices and without any supporting contract, amounted
to P19,550,400.00 worth of Christmas lights from 20 January 1996 to 23 February 1996. The
uncontroverted testimony of Cabrera revealed that there was no Fuze Industries Manufacturer
Phils. located at "55 Mahinhin St., Teacher's Village, Quezon City," the business address
appearing in the invoices and the records of the Department of Trade & Industry.

According to jurisprudence, submission of false invoices to the adjusters

establishes a clear case of fraud and misrepresentation which voids the insurer’s
liability as per condition of the policy. Their falsity is the best evidence of the
fraudulent character of plaintiff’s claim. Furthermore, it has long been settled that
a false and material statement made with an intent to deceive or defraud voids an
insurance policy. In the present case, the claim is twenty five times the actual
claim proved.

On UMC's allegation that it did not breach any warranty, it may be argued that the discrepancies
do not, by themselves, amount to a breach of warranty. However, the Insurance Code provides
that "a policy may declare that a violation of specified provisions thereof shall avoid it." Thus, in
fire insurance policies, which contain provisions such as Condition No. 15 of the Insurance Policy,
a fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer.

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G.R. NO. 136914 January 25, 2002

DOCTRINE: If a proof is made of a loss apparently within a contract of insurance, the burden is
upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it
is not liable, or from a cause which limits its liability.

Also material in this case: A witness can testify only to those facts which he knows of his personal
knowledge, which means those facts which are derived from his perception. Consequently, a
witness may not testify as to what he merely learned from others either because he was told or
read or heard the same. Such testimony is considered hearsay and may not be received as proof
of the truth of what he has learned.

FACTS: Petitioner – insurer; Respondent - insured

• In 1989, petitioner and respondent entered into a contract of fire insurance. The former
insured the latter’s stock-in-trade against fire loss, damage or liability during the period
starting from June 20, 1989 (4PM) to June 20, 1990 (4PM) for the sum of P200,000.00.
• On July 1, 1989, at or about 12:40AM, respondent’s building was gutted by fire and
reduced to ashes, resulting in the total loss of the respondent’s stock-in-trade, pieces of
furniture and fixtures, equipment and records – prompting respondent to file an insurance
claim with petitioner, submitting the following:
a. Spot Report of PFC. Arturo V. Juarbal, INP Investigator (dtd July 1, 1989)
b. Sworn Statement of Jose Lomocso; and
c. Sworn Statement of Ernesto Urbiztondo
• The petitioner denied the insurance claim on the ground that, based on the submitted
documents, the building was set on fire by 2 NPA rebels who wanted to obtain canned
goods, rice and medicines as provisions for their comrades in the forest, and that such
loss was an expected risk under par. 6 of the policy conditions of the Fire Insurance
Policy they entered into; To wit:
“This insurance does NOT cover any loss or damage occasioned by or through
or in consequence, directly or indirectly, of any of the following occurrences,
xxx xxx xxx
(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution,
military or usurped power.

Any loss or damage happening during the existence of abnormal conditions

(whether physical or otherwise) which are occasioned by or through or in
consequence, directly or indirectly, of any of said occurrences shall be deemed to
be loss or damage which is not covered by this insurance, except to the extent
that the Insured shall prove that such loss or damage happened independently of
the existence of such abnormal conditions.”
• Finding the denial of its claim unacceptable, respondent then instituted in the RTC a
complaint for recovery of loss, damage and liability, against petitioner – who just
reiterated the ground it earlier cited in denying the insurance claim.

RTC RULING: In favor of respondents. It found petitioner’s defenses utterly crumbled on

account of its inherent weakness, incredibility and unreliability, and after applying those helpful
tools like common sense, logic and the Court’s honest appraisal of the real and actual situation
obtaining in this are, such defenses remains unimpressive and unconvincing, and therefore
adjudging petitioners as liable, as it should be, to respondent.

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CA RULING: Affirmed the challenged decision of the RTC in its entirety.

ISSUE: WON petitioner is liable to respondent.

Petitioner posits the view that the cause of the loss was an expected risk under the terms of the
fire insurance policy.

Where a risk is excepted by the terms of a policy which insures against other perils or hazards,
loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed
that risk, and from this it follows that an insurer seeking to defeat a claim because of an exception
or limitation in the policy has the burden of proving that the loss comes within the purview of the
exception or limitation set up. If a proof is made of a loss apparently within a contract of
insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which
is excepted or for which it is not liable, or from a cause which limits its liability. Stated elsewise,
since the petitioner in this case is defending on the ground of non-coverage and relying upon an
exemption or exception clause in the fire insurance policy, it has the burden of proving the facts
upon which such excepted risk is based, by a preponderance of evidence. But petitioner
failed to do so.

The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well
as on the Spot Report of Pfc. Arturo V. Juarbal dated July 1, 1989, more particularly the following
statement therein:
“. . . investigation revealed by Jose Lomocso that those armed men wanted to get can
goods and rice for their consumption in the forest PD investigation further disclosed that
the perpetrator are member (sic) of the NPA PD end. . . .”

A witness can testify only to those facts which he knows of his personal knowledge, which means
those facts which are derived from his perception. Consequently, a witness may not testify as to
what he merely learned from others either because he was told or read or heard the same. Such
testimony is considered hearsay and may not be received as proof of the truth of what he has
learned. Such is the hearsay rule which applies not only to oral testimony or statements but also
to written evidence as well.

The Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible
in evidence, for being hearsay, inasmuch as they did not take the witness stand
and could not therefore be cross-examined.

There are exceptions to the hearsay rule, among which are entries in official records. To be
admissible in evidence, however, three (3) requisites must concur, to wit:
a. That the entry was made by a public officer, or by another person specially enjoined by
law to do so;
b. That it was made by the public officer in the performance of his duties, or by such other
person in the performance of a duty specially enjoined by law; and
c. That the public officer or other person had sufficient knowledge of the facts by him stated,
which must have been acquired by him personally or through official information.

The third requisite was not met in this case since no investigation, independent of the statements
gathered from Jose Lomocso, was conducted by PFC. Juarbal. The said Spot Report is
admissible only insofar as it constitutes part of the testimony of Pfc. Arturo V. Juarbal since he
himself took the witness stand and was available for cross- examination.

The petitioner's evidence to prove its defense is sadly wanting and thus, gives rise to its liability to

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the respondent under Fire Insurance Policy No. F-1397.

Nonetheless, the court does not sustain the trial court's imposition of twelve percent (12%)
interest on the insurance claim as well as the monetary award for actual and exemplary
damages, litigation expenses and attorney's fees for lack of legal and valid b

G.R. NO. 133777, MARCH 31, 2005

& G.R. NO. 140704, MARCH 31, 2005


[This is a consolidated case] ANCO Enterprises Company (ANCO), a partnership between Ang
Gui and Co To, was engaged in the shipment business. It owned M/T ANCO tugbat and D/B
Lucio barge. Since D/B Lucio has no engine of its own, it needed to be maneuvered by M/T
ANCO to move place to place.

On Sept. 23, 1997, San Miguel Corp. shipped from Mandaue, Cebu the following:

Bill of Lading No. Shipment Destination

1 25,000 cases Pale Pilsen Estancia, Iloilo
350 cases Cerveza Negra
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra

On Sept. 30, 1 PM, both vessels arrived at San Jose, Antique. M/T ANCO immediately left the
barge upon reaching the destination. As the day passed, the clouds were getting darker and the
waves bigger, making it difficult for the arrastres to unload the cargoes. SMC’s Sales Supervisor,
Fernando Macabuag, requested ANCO’s representative to transfer the barge to a safer place but
the latter did not heed such request. At the time, only 10,790 cases of beer were discharged. At
about 10 or 11 PM of October 1, the crew of D/B Lucio abandoned the vessel because the
barge’s rope was cut by the big waves. At midnight, the vessel was totally swept away.

ANCO failed to deliver 29,210 cases of Pale Pilsen and 550 cases of Cerveza Negra, this
prompted SMC to claim against it the amount of Php 1,346,197. It likewise filed a complaint for
breach of contract and damages.

ANCO claimed that it had an agreement with SMC that the former would not be liable for losses
due to fortuitous event. Since it was caused by a storm, it should not be held liable.

ANCO now files a third party complaint against FGU as its insurer, to the extent of 20,000 cases
with the amount of Php 858,500 under Marine Policy No. 29591. According to ANCO, it is one of
the risks insured against.

FGU, in its answer, maintained that the event is not one of the risks insured against. According to
them, they are only liable for: (a) total loss of shipment; (b) loss of any case as a result of the
sinking; (c) loss a result of the vessel being on fire. Further, it alleged that it failed to exercise

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extraordinary diligence in the care and supervision of the cargoes to prevent its loss or

The RTC ruled that the event is fortuitous, however there was failure on the part of ANCO and its
representatives to observe the required diligence to exonerate them from liability. CA affirmed.


(1) W/N there was negligence on the part of ANCO and its representatives;
(2) W/N FGU can be held liable under the insurance policy to reimburse ANCO for the loss of


(1) YES. As a rule, findings of the trial court affirmed by the appellate court, are deemed final
and conclusive. The SC cannot review especially if there had been substantial evidence.
It is not the function of this court to analyze or weigh the evidence except upon showing
of grave abuse or palpable error. Moreso, a careful study of the reason showed no
cogent reason for the SC to disturb the previous rulings.
(2) NO, it had been blatantly negligent. One of the purpose for taking our insurance is to
protect the insured against the consequences of his own negligence and that of his
agents. Thus, it is a basic rule in insurance that the carelessness and negligence of the
insured or his agents constitute no defense on the part of the insurer. This rule however
presupposes that the loss has occurred due to causes which could not have been
prevented by the insured, despite the exercise of due diligence.

There was blatant negligence on the part of the employees of defendants- appellants
when the patron (operator) of the tug boat immediately left the barge at the San Jose,
Antique wharf despite the looming bad weather. Negligence was likewise exhibited by the
defendants-appellants' representative who did not heed Macabuag's request that the
barge be moved to a more secure place. The prudent thing to do, as was done by the
other sea vessels at San Jose, Antique during the time in question, was to transfer the
vessel to a safer wharf The negligence of the defendants-appellants is proved by the fact
that on 01 October 1979, the only simple vessel left at the wharf in San Jose was the D/B
Lucio. The Court concludes that concludes that the blatant negligence of ANCO's
employees is of such gross character that it amounts to a wrongful act which must
exonerate FGU from liability under the insurance contract.

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G.R. NO. 82036, MAY 27, 1997


At about 5:30 am, July 20, 1980, Feliza Vineza de Mendoza (78 y.o.), was on her way to hear
mass at Tayuman Cathedral. While plodding Tayuman cor. Gregorio Perfecto Sts., she was hit by
a fast-running taxi, as seen by three witnesses who gave their separate accounts, to wit:

(1) Witness 1 – Rolando Marvilla

After Mendoza was run over, he held her on his lap to help her, but Mendoza was already
in shock and could not talk. At this moment, a private jeep stopped and helped the old
woman and brought her to Mary Johnston Hospital in Tondo. He likewise noticed the cab
to be a Lady Love Taxi with Plate No. 438, painted maroon, with a baggage bar attached
on the compartment, and an antennae on its right side.
(2) Witness 2 – Enesto Lopez
A jeepney driver, he was on his return tip from Rizal Avenue when he saw Vicente
Mendoza (plaintiff) and his brother crying in the accident scene. He was able to help them
locate their mother. They were advised to transfer her at National Orthopedic Hospital
because of her fractured bones, but she was instead brought to UST Hospital, where she
expired at 9 am. He likewise noticed the reflectorized decorations at the back of the cab
(3) Witness 3 – Eulogio Tabalno
Made a similar description as to the abovementioned, and said that because of the
reckless and imprudent manner of driving of the cab driver, he was only able to see the
last digit of the plate number, which was ‘8’

The police collaborated the admissions of the witnesses and proceeded to the Lady Love Taxi
garage where they impounded the vehicle matching with the statements.

Defendant Armando, Abellon, the registered owner of Lady Love Taxi bearing No. 438-HA,
Pilipinas Taxi certified that on the same date, it was driven by Rodrigo Dumlao. Rodrigo Dumlao
absconded in the criminal case.

Plaintiff filed a complaint for damages against Armando Abellon and Rodrigo Dumlao.
Subsequently, the complaint was amended to include the petitioner as compulsory insurer of the
Certificate of Cover nO 1447785-3.

The RTC rendered judgement in favor of the private respondent, ordering Travellers Insurance
and Surety Corporation, Abellon and Dumlao to pay jointly and severally the following amounts:

(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the rate
of 12% per annum from October 17, 1980, when the complaint was filed, until the said amount is
fully paid; (b) P30,000.00 as death indemnity; 

(c) P25,000.00 as moral damages; 

(d) P10,000.00 as by way of corrective or exemplary damages, and 

(e) Another P10,000.00 by way of attorney's fees and other litigation 

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W/N Petitioner should be held liable


NO. Where the contract provides for indemnity against liability to third persons, then third persons
to whom the insured is liable can sue the insurer. Where the contract is for indemnity against
actual loss or payment, then third persons cannot proceed against the insurer, the contract being
solely to reimburse the insured for liability actually discharged by him thru payment to third
persons, said third persons' recourse being thus limited to the insured alone. But in the case at
bar, there was no contract show. What then was the basis of the RTC and the CA to say that the
insurance contract was a third-party liability insurance policy?

Consequently, the trial court was confused as it did not distinguish between the private
respondent's cause of action against the owner and the driver of the Lady Love taxicab and his
cause of action against petitioner. The former is based on torts and quasi-delicts, while the latter
is based on contract.

Even assuming arguendo that there was such a contract, private respondent's cause of action
cannot prevail because he failed to file the written claim mandated by the Insurance Code Sec.
384 provided that a claim shall be filed within 6 months from the accident, but was superseded by
the ruling in Summit Guaranty and Insurance Co., Inc v. De Guzman, which ruled that: "action or
suit for recovery of damage due to loss or injury must be brought in proper cases, with the
Commissioner or the Courts within one year from denial of the claim, otherwise the claimant's
right of action shall prescribe" )

He is deemed, under thislegal provision, to have waived his rights as against petitioner-insurer.


G.R. No. 92383 July 17, 1992

• Petitioner issued personal accident insurance policy to Felix Lim Jr with face value of
• Lim died two months later because of a bullet wound in his head.
• As recollected by the Lim’s secretary, who was the only eyewitness to his death; it was
on October 6, 1982, Lim, on a happy mood, was playing with his handgun from which he
had previously removed the magazine. He pointed the gun to his secretary who pushes it
aside saying that it might be loaded. Lim assured her its not and pointed to his temple.
The next moment there was an explosion and Lim slumped to the floor. He was dead
before he fell.
• As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim was
rejected. The petitioner agreed that there was no suicide. It argued, however that there
was no accident either.
• The widow sued the petitioner in the RTC of Zamboanga City and was sustained. The
trial court rendered a decision in favor of private respondent.
• The petitioner cites one of the four exceptions provided for in the insurance contract and
contends that the private petitioner's claim is barred by such provision. It is there stated:
Exceptions —

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The company shall not be liable in respect of.

1. Bodily injury.
xxx xxx xxx
b. consequent upon:
1. The insured persons attempting to commit suicide or willfully exposing
himself to needless peril except in an attempt to save human life.

Whether the insurer is liable to the insured under the insurance contract

The term "accident" has been defined as follows:
• The words "accident" and "accidental" have never acquired any technical signification in
law, and when used in an insurance contract are to be construed and considered
according to the ordinary understanding and common usage and speech of people
generally. In substance, the courts are practically agreed that the words "accident" and
"accidental" mean that which happens by change or fortuitously, without intention or
design, and which is unexpected, unusual, and unforeseen. The definition that has
usually been adopted by the courts is that an accident is an event that takes place
without one's foresight or expectation — an event that proceeds from an unknown cause,
or is an unusual effect of a known case, and therefore not expected.
• An accident is an event which happens without any human agency or, if happening
through human agency, an event which, under the circumstances, is unusual to and not
expected by the person to whom it happens. It has also been defined as an injury which
happens by reason of some violence or casualty to the insured without his design,
consent, or voluntary co-operation.

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death
was indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, says
that "there is no accident when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings about their injury or
death." There was such a happening. This was the firing of the gun, which was the additional
unexpected and independent and unforeseen occurrence that led to the insured person's death.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner
contends that the insured willfully exposed himself to needless peril and thus removed himself
from the coverage of the insurance policy.

It should be noted at the outset that suicide and willful exposure to needless peril are in pari
materia because they both signify a disregard for one's life. The only difference is in degree, as
suicide imports a positive act of ending such life whereas the second act indicates a reckless
risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one
thousand meters above the ground and without any safety device may not actually be intending to
commit suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully
exposing himself to needless peril" within the meaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to his temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun is
per se dangerous and should therefore be handled cautiously in every case. That posture is
arguable. But what is not is that, as the secretary testified, Lim had removed the
magazine from the gun and believed it was no longer dangerous. He expressly
assured her that the gun was not loaded. It is submitted that Lim did not willfully
expose himself to needless peril when he pointed the gun to his temple because

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the fact is that he thought it was not unsafe to do so. The act was precisely
intended to assure Nalagon that the gun was indeed harmless.

Lim was unquestionably negligent, and that negligence cost him his own life. But
it should not prevent his widow from recovering from the insurance policy he
obtained precisely against accident. There is nothing in the policy that relieves the insurer
of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed
to his own accident. Indeed, most accidents are caused by negligence. There are only four
exceptions expressly made in the contract to relieve the insurer from liability, and
none of these exceptions is applicable in the case at bar. *

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor
of the assured. There is no reason to deviate from this rule, especially in view of the
circumstances of this case as above analyzed.




G.R. No. 92383 July 17, 1992

• Private respondent obtained a fire insurance policy from petitioner (then doing business
under the name Summa Insurance Corporation) covering certain properties, e.g., office,
furniture, fixtures, shop machinery and other trade Equipment
• USIPHIL Inc. filed an insurance claim against petitioner for the loss of its insured
properties due to fire. USIPHIL submitted a Sworn Statement of Loss and Formal Claim
signed by USIPHIL Manager, and Proof of Loss signed by USIPHIL Accounting Manager
and countersigned by the Adjuster's representative.
• The amount of insurance claim was later agreed upon by the parties, but petitioner
refused to pay the same despite repeated demands.
• Thus, private respondent was constrained to file a complaint against petitioner for the
unpaid insurance claim.
• Petitioner alleged in its answer that the private respondent’s claim could not be allowed
because of non-compliance of policy condition No. 13 on the submission of certain
documents to prove the loss.
• Both the trial court and the Court of Appeals ruled in favor of USIPHIL.
• According to petitioner, in complete disregard of the foregoing requirements (see full text
for requirements mentioned in the letter), private respondent never submitted any of the
documents mentioned therein. Further, petitioner assails the award in favor of private
respondent of an interest rate of 24% per annum. Since there was allegedly no express
finding that petitioner unreasonably denied or withheld the payment of the subject
insurance claim, then the award of 24% per annum is not proper. Petitioner opines that
the judgment should only bear the legal interest rate of 12% per annum for the delay in
the payment of the claim.

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1. Whether or not private respondent substantially complied with what was agreed, hence,
making petitioner liable to pay the proceeds of the claim
2. Whether or not the legal interest rate for the delay should only be pegged at 12%

1. YES. There was substantial compliance of policy condition No. 13. USIPHIL immediately
notified petitioner of the fire and thereafter submitted the required documents.

Both the trial court and the CA concur in holding that private respondent had substantially
complied with Policy Condition No. 13 which reads:
13. The insured shall give immediate written notice to the Company of any loss, protect the
property from further damage, forthwith separate the damaged and undamaged personal
property, put it in the best possible order, furnish a complete inventory of the destroyed,
damaged, and undamaged property, showing in detail quantities, costs, actual cash value and the
COMPANY A PROOF OF LOSS, signed and sworn to by the insured, stating the knowledge and
belief of the insured as to the following: the time and origin of the loss, the interest of the insured
and of all others in the property, the actual cash value of each item thereof and the amount of loss
thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering
any of said property, any changes in the title, use, occupation, location, possession or exposures
of said property since the issuing of this policy by whom and for what purpose any buildings
herein described and the several parts thereof were occupied at the time of loss and whether or
not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules
in all policies, and if required verified plans and specifications of any building, fixtures, or
machinery destroyed or damaged. The insured, as often as may be reasonably required, shall
exhibit to any person designated by the company all that remains of any property herein
described, and submit to examination under oath by any person named by the Company, and
subscribe the same; and, as often as may be reasonably required, shall produce for examination
all books of account, bills, invoices, and other vouchers or certified copies thereof if originals be
lost, at such reasonable time and place as may be designated by the Company or its
representative and shall permit extracts and copies thereof to be made.
No claim under this policy shall be payable unless the terms of this condition have been complied

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

Further, petitioner itself acknowledged its liability when through its Finance
Manager, Rosauro Maghirang, it signed the document indicating that the amount
due private respondent is P842,683.40.

2. NO. The imposition of 24% interest per annum computed from May 3, 1985 until fully
paid, is authorized by Sections 243 and 244 of the Insurance Code:

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SECTION 243. The amount of any loss or damage for which an insurer may be liable, under
any policy other than life insurance policy, shall be paid within thirty days after proof of loss is
received by the insurer and ascertainment of the loss or damage is made either by agreement
between the insured and the insurer or by arbitration; but if such ascertainment is not had or
made within sixty days after such receipt by the insurer of the proof of loss, then the loss or
damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or
damage within the time prescribed herein will entitle the assured to collect interest on the
proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by
the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is

SECTION 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a
finding as to whether the payment of the claim of the insured has been unreasonably denied or
withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages
which shall consist of attorney's fees and other expenses incurred by the insured person by
reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling
prescribed by the Monetary Board of the amount of the claim due the insured, from the date
following the time prescribed in section two hundred forty-two or in section two hundred forty-
three, as the case may be, until the claim is fully satisfied: Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be considered prima facie evidence of
reasonable delay in payment.

Notably, under Section 244, a prima facie evidence of unreasonable delay in payment of the
claim is created by the failure of the insurer to pay the claim within the time fixed in both Sections
243 and 244. Further, Section 29 of the policy itself provides for the payment of such interest:

29. Settlement of claim clause. The amount of any loss or damage for which the company may be
liable, under this policy shall be paid within thirty days after proof of loss is received by the
company and ascertainment of the loss or damage is made either in an agreement between the
insured and the company or by arbitration; but if such ascertainment is not had or made within
sixty days after such receipt by the company of the proof of loss, then the loss or damage shall be
paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the
time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for
the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board. unless
such failure or refusal to pay is based on the grounds (sic) that the claim is fraudulent.

The policy itself obliges petitioner to pay the insurance claim within thirty days
after proof of loss and ascertainment of the loss made in an agreement between
private respondent and petitioner. In this case, as found by the CA, petitioner and
private respondent signed the agreement indicating that the amount due private
respondent was P842,683.40 on April 2, 1985. Petitioner thus had until May 2,
1985 to pay private respondent's insurance. For its failure to do so, the CA and
the trial court rightfully directed petitioner to pay, inter alia, 24% interest per
annum in accordance with the above quoted provisions.

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G.R. No. 132607;May 5, 1999

➔ At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court
seeking a reversal of the decision of the Court of Appeals which affirmed the decision of
the trial court of origin finding the petitioner herein, Cebu Shipyard and Engineering
Works, Inc. (CSEW) negligent and liable for damages to the private respondent, William
Lines, Inc., and to the insurer, Prudential Guarantee Assurance Company, Inc.
" Cebu Shipyard and Engineering Works, Inc. (CSEW) is a domestic corporation engaged
in the business of dry-docking and repairing of marine vessels while the private
respondent, Prudential Guarantee and Assurance, Inc. (Prudential), also a domestic
corporation is in the non-life-insurance business.
" W illiam Lines, Inc. (plaintiff below) is in the shipping business.
○ It was the owner of M/V Manila City, a luxury passenger-cargo vessel, which
caught fire and sank on February 16, 1991.
" At the time of the unfortunate occurrence sued upon, subject vessel was insured
with Prudential for P45,000,000.00 pesos for hull and machinery.
○ The Hull Policy included an "Additional Perils (INCHMAREE)" Clause covering
loss of or damage to the vessel through the negligence of, among others, ship
" Petitioner CSEW was also insured by Prudential for third party liability
under a Ship repairer's Legal Liability Insurance Policy.
○ The policy was for P10 million only, under the limited liability clause, to wit: "7.
Limit of Liability The limit of liability under this insurance, in respect of any one
accident or series of accidents, arising out of one occurrence, shall be [P10
million], including liability for costs and expense which are either: (a) incurred with
the written consent of the underwriters hereon; or (b) awarded against the
" While the M/V Manila City was undergoing dry-docking and repairs within the premises of
CSEW, the master, officers and crew of M/V Manila City stayed in the vessel, using their
cabins as living quarters. Other employees hired by William Lines to do repairs and
maintenance work on the vessel were also present during the dry-docking.
" On February 16, 1991, after subject vessel was transferred to the docking quay, it caught
fire and sank, resulting to its eventual total loss.
" William Lines, Inc. filed a complaint for damages against CSEW, alleging that the fire
which broke out in M/V Manila City was caused by CSEW's negligence and lack of car.
○ An amended complaint was filed impleading Prudential as co-plaintiff,
after the latter had paid William Lines, Inc. the value of the hull and machinery
insurance on the M/V Manila City.
○ As a result of such payment Prudential was subrogated to the claim of
P45 million, representing the value of the said insurance it paid.
" the trial court a quo came out with a judgment against CSEW,
" CSEW (defendant below) appealed the aforesaid decision to the Court of Appeals.

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" During the pendency of the appeal, CSEW and William Lines presented a "Joint Motion
for Partial Dismissal" with prejudice, on the basis of the amicable settlement inked
between Cebu Shipyard and William Lines only.
" the Court of Appeals ordered the partial dismissal of the case insofar as CSEW and
William Lines were concerned
○ the Court of Appeals affirmed the appealed decision of the trial court
" With the denial of its motion for reconsideration by the Court of Appeal's Resolution,
CSEW found its way to this court via the present petition

Issue: WON Prudential is entitled to be subrogated to the rights of William Lines

Held: YES
★ On the issue of subrogation, petitioner contends that Prudential is not entitled to be
subrogated to the rights of William Lines, Inc., theorizing that (1) the fire which gutted M/V
Manila City was an excluded risk and (2) it is a co-assured under the Marine Hull
Insurance Policy
★ It is petitioner's submission that the loss of M/V Manila City or damage thereto is
expressly excluded from the coverage of the insurance because the same resulted from
"want of due diligence by the Assured, Owners or Managers" which is not included in the
risks insured against.
○ Again, this theory of petitioner is bereft of any factual or legal basis. It proceeds
from a wrong premise that the fire which gutted subject vessel was caused by the
negligence of the employees of William Lines, Inc.
○ To repeat, the issue of who between the parties was negligent has already been
resolved against Cebu Shipyard and Engineering Works, Inc.
" Upon proof of payment by Prudential to William Lines, Inc., the former was
subrogated to the right of the latter to indemnification from CSEW .
○ As aptly ruled by the Court of Appeals, the law on the matter is succinct and
clear, to wit: ARTICLE 2207. If the plaintiff's property has been insured, and he
has received indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. 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.
" Thus, when Prudential, after due verification of the merit and validity of the insurance
claim of William Lines, Inc., paid the latter the total amount covered by its insurance
policy, it was subrogated to the right of the latter to recover the insured loss from the
liable party, CSEW
★ Petitioner theorizes further that there can be no right of subrogation as it is deemed a
coassured under the subject insurance policy. To buttress its stance that it is a co-
assured, petitioner placed reliance on Clause 20 of the Work Order which states: 20. The
insurance on the vessel should be maintained by the customer and/or owner of the
vessel during the period the contract is in effect.

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★According to petitioner, under the aforecited clause, William Lines, Inc., agreed to
assume the risk of loss of the vessel while under drydock or repair and to such extent, it
is benefited and effectively constituted as a co-assured under the policy.
" This theory of petitioner is devoid of sustainable merit. Clause 20 of the Work Order in
question is clear in the sense that it requires William Lines to maintain insurance on the
vessel during the period of dry-docking or repair. Concededly, such a stipulation works to
the benefit of CSEW as the shiprepairer. However, the fact that CSEW benefits from the
said stipulation does not automatically make it as a co-assured of William Lines.
" The intention of the parties to make each other a co-assured under an insurance policy is
to be gleaned principally from the insurance contract or policy itself and not from any
other contract or agreement because the insurance policy denominates the assured and
the beneficiaries of the insurance.
" The hull and machinery insurance procured by William Lines, Inc. from Prudential named
only "William Lines, Inc." as the assured. There was no manifestation of any intention of
William Lines, Inc. to constitute CSEW as a co-assured under subject policy. Thus,
when the insurance policy involved named only William Lines, Inc. as the
assured thereunder, the claim of CSEW that it is a co-assured is
★ Finally, CSEW argues that even assuming that it was negligent and therefore liable to
William Lines, Inc., by stipulation in the Contract or Work Order its liability is limited to
One Million (P1,000,000.00) Pesos only, and Prudential a mere subrogee of William
Lines, Inc., should only be entitled to collect the sum stipulated in the said contract.
" Although in this jurisdiction, contracts of adhesion have been consistently upheld as valid
per se; as binding as an ordinary contract, the Court recognizes instances when reliance
on such contracts cannot be favored especially where the facts and circumstances
warrant that subject stipulations be disregarded
" It is worthy to note that M/V Manila City was insured with Prudential for Forty
Five Million (P45,000,000.00) Pesos.
○ To determine the validity and sustainability of the claim of William Lines, Inc., for
a total loss, Prudential conducted its own inquiry. Upon thorough investigation by
its hull surveyor, M/V Manila City was found to be beyond economical salvage
and repair.
○ The evaluation of the average adjuster also reported a constructive total loss.
○ The said claim of William Lines, Inc., was then found to be valid and
compensable such that Prudential paid the latter the total value of its insurance
claim. Furthermore, it was ascertained that the replacement cost of the vessel
(the price of a vessel similar to M/V Manila City), amounts to Fifty Five Million
(P55,000,000.00) Pesos.
" Considering the aforestated circumstances, let alone the fact that negligence on the part
of petitioner has been sufficiently proven, it would indeed be unfair and inequitable to limit
the liability of petitioner to One Million Pesos only.
" As aptly held by the trial court, "it is rather unconscionable if not overstrained." To allow
CSEW to limit its liability to One Million Pesos notwithstanding the fact that the total loss
suffered by the assured and paid for by Prudential amounted to Forty Five Million
(P45,000,000.00) Pesos would sanction the exercise of a degree of diligence short of
what is ordinarily required because, then, it would not be difficult for petitioner to escape

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liability by the simple expedient of paying an amount very much lower than the actual
damage or loss suffered by William Lines, Inc.




➔ Vector Shipping Corporation (Vector) and Francisco Soriano appeal the decision
promulgated on July 22, 2003, 1 whereby the Court of Appeals (CA) held them jointly and
severally liable to pay P7,455,421.08 to American Home Assurance Company
(respondent) as and by way of actual damages on the basis of respondent being the
subrogee of its insured Caltex Philippines, Inc. (Caltex).
" Vector was the operator of the motor tanker M/T Vector, while Soriano was the
registered owner of the M/T Vector. American Home (Respondent) is a domestic
insurance corporation
" Caltex entered into a contract of affreightment with Vector for the transport of Caltex's
petroleum cargo through the M/T Vector.
" Caltex insured the petroleum cargo with respondent american home for P7,455,421.08
under Marine Open Policy No. 34-5093-6. 4
" In the evening of December 20, 1987, the M/T Vector and the M/V Doña Paz, the latter a
vessel owned and operated by Sulpicio Lines, Inc., collided in the open sea.
○ The collision led to the sinking of both vessels. The entire petroleum cargo of
Caltex on board the M/T Vector perished.
" On July 12, 1988, respondent American Home indemnified Caltex for the loss of
the petroleum cargo in the full amount of P7,455,421.08.
" On March 5, 1992, respondent American Home filed a complaint against Vector,
Soriano, and Sulpicio Lines, Inc. to recover the full amount of P7,455,421.08 it paid
to Caltex
○ The case was raffled to Branch 145 of the Regional Trial Court (RTC) in Makati
" RTC issued a resolution dismissing Civil Case No. 92- 620 on the following grounds:
○ This action is upon a quasi-delict and as such must be commenced
within four [4] years from the day they may be brought
○ The tort complained of in this case occurred on 20 December 1987. The action
arising therefrom would under the law prescribe, unless interrupted, on 20
December 1991.
○ When the case was filed against defendants Vector Shipping and Francisco
Soriano on 5 March 1992, the action not having been interrupted, had already
prescribed. Under the same situation, the cross-claim of Sulpicio Lines against
Vector Shipping and Francisco Soriano filed on 25 June 1992 had likewise

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○ The letter of demand upon defendant Sulpicio Lines allegedly on November 1991
did not interrupt the [tolling] of the prescriptive period. Under such circumstances,
the action against Sulpicio Lines had likewise prescribed.
" Respondent appealed to the CA, which promulgated its assailed decision on July 22,
2003 reversing the RTC.
○ Although thereby absolving Sulpicio Lines, Inc. of any liability to respondent, the
CA held Vector and Soriano jointly and severally liable to respondent for the
reimbursement of the amount of P7,455,421.08 paid to Caltex
○ After a careful perusal of the factual milieu and the evidence adduced by the
parties, We are constrained to rule that the relationship that existed between
Caltex and M/V Dona Paz is that of a quasi-delict while that between Caltex and
M/T Vector is culpa contractual based on a Contract of Affreightment or a charter
○ Under Article 1144 of the New Civil Code, actions based on written
contract must be brought within 10 years from the time the right of
action accrued. A passenger of a ship, or his heirs, can bring an action based
on culpa contractual within a period of 10 years because the ticket issued for the
transportation is by itself a complete written contract
○ Article 2207 of the Civil Code on subrogation is explicit that 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 should be subrogated to the
rights of the insured against the wrongdoer or the person who has
violated the contract.
○ Undoubtedly, the herein appellant has the rights of a subrogee to recover from
M/T Vector what it has paid by way of indemnity to Caltex

Issue: Whether this action of respondent was already barred by prescription for bringing it only on
March 5, 1992.
" (A related issue concerns the proper determination of the nature of the cause of action as
arising either from a quasi-delict or a breach of contract.)

Held: NO
" We concur with the CA's ruling that respondent's action did not yet prescribe. The legal
provision governing this case was not Article 1146 of the Civil Code, but Article 1144
of the Civil Code, which states:
○ Article 1144.The following actions must be brought within ten years from the time
the cause of action accrues: (1) Upon a written contract; (2) Upon an obligation
created by law; (3) Upon a judgment.
" We need to clarify, however, that we cannot adopt the CA's characterization of the cause
of action as based on the contract of affreightment between Caltex and Vector, with the
breach of contract being the failure of Vector to make the M/T Vector seaworthy, as to
make this action come under Article 1144 (1), supra.
" Instead, we find and hold that that the present action was not upon a written contract, but
upon an obligation created by law. Hence, it came under Article1144 (2) of
the Civil Code.

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" This is because the subrogation of respondent to the rights of Caltex as the
insured was by virtue of the express provision of law embodied in Article
2207 of the Civil Code, to wit: Article 2207. If the plaintiff's property has been insured,
and he has received indemnity from the insurance company for the injury or loss arising
out of the wrong or breach of contract complained of, the insurance company shall
be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. 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.
" Verily, the contract of affreightment that Caltex and Vector entered into did not give rise to
the legal obligation of Vector and Soriano to pay the demand for reimbursement by
respondent because it concerned only the agreement for the transport of Caltex's
petroleum cargo.
○ As the Court has aptly put it in Pan Malayan Insurance Corporation v. Court of
Appeals, respondent's right of subrogation pursuant to Article 2207, was "not
dependent upon, nor d[id] it grow out of, any privity of contract or upon written
assignment of claim [but] accrue[d] simply upon payment of the insurance
claim by the insurer."
" Considering that the cause of action accrued as of the time respondent actually
indemnified Caltex in the amount of P7,455,421.08 on July 12, 1988, 19 the action was
not yet barred by the time of the filing of its complaint on March 5, 1992, 20 which was
well within the 10-year period prescribed by Article 1144 of the Civil Code.


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

Doctrine: A double insurance exists where the same person is insured by several insurers
separately in respect of the same subject and interest. As earlier stated, the insurable interests of
a mortgagor and a mortgagee on the mortgaged property are distinct and separate. Since the two
policies of the PFIC do not cover the same interest as that covered by the policy of the private
respondent, no double insurance exists. The non-disclosure then of the former policies was not
fatal to the petitioner's right to recover on the private respondent's policy.

Petitioner: Armando Geagonia

Respondents: Court of Appeals, Country Bankers Insurance Corporation

• Armando Geagonia is the owner of Norman's Mart located in the public market of San
Francisco, Agusan del Sur. On 22 December 1989, he obtained from Country Bankers a fire
insurance policy for P100,000.00. The period of the policy was from December 22, 1989 to
December 22, 1990 and covered the following: "Stock-in-trade consisting principally
of dry goods such as RTW 's for men and women wear and other usual to
assured's business."

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• He declared in the policy under the subheading entitled CO-INSURANCE that Mercantile
Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, the petitioner had
in his inventory stocks amounting to P392,130.50.
• The policy contained the following condition:
o "3. The insured shall give notice to the Company of any insurance or insurances
already effected, or which may subsequently be effected, covering any of the
property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured, and unless notice be given and the particulars of
such insurance or insurances be stated therein or endorsed in this policy pursuant to
Section 50 of the Insurance Code, by or on behalf of the Company before the
occurrence of any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the total
insurance or insurances in force at the time of the loss or damage is not more than
• On May 27, 1990, a fire of accidental origin broke out at around 7:30 p.m. at the public
market of San Francisco, Agusan del Sur. The petitioner's insured stocks-in-trade were
completely destroyed. He filed a claim under his fire insurance policy but it was denied
because Country Bankers found that at the time of the loss the petitioner's stocks-in-trade
were likewise covered by 2 fire insurance policies for P100,000.00 each, issued by the
Cebu Branch of the Philippines First Insurance Co., Inc . (hereinafter PFIC). These
policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando
Geagonia, Prop.)" The basis of the private respondent's denial was the petitioner's alleged
violation of Condition 3 of the policy.
o MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu Tesing Textiles,
Cebu City as their interest may appear subject to the terms of this policy. CO-
• Geagonia filed a complaint against Country Bankers before the Insurance Commission for the
recovery of P100,000.00 under fire insurance policy.
o He admitted that at the time he obtained the Country Banker’s fire insurance policy
he knew that the 2 policies issued by the PFIC were already in existence; however,
he had no knowledge of the provision in the private respondent's policy requiring him
to inform it of the prior policies.
• Insurance Commission - petitioner did not violate Condition 3 as he had no knowledge of
the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu
Tesing Textiles which procured the PFIC policies without informing him or securing his
consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.
• CA – reversed the decision of the Commission.

ISSUE: WON Geagonia violated Condition 3 in the policy thus precluding him from recovering
therefrom (No) / WON there is double insurance (No)

• No. Condition 3 partakes of the nature provided in Section 75 of the Insurance
Code "a policy may declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy." It is commonly
known as the additional or "other insurance" clause and has been upheld as valid and
as a warranty that no other insurance exists. Its violation would thus avoid the
policy. However, in order to constitute a violation, the other insurance must be upon the
same subject matter, the same interest therein, and the same risk.
• As to a mortgaged property, the mortgagor and the mortgagee have each an independent
insurable interest therein and both interests may be covered by one policy, or each may take
out a separate policy covering his interest, either at the same or at separate times. The

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mortgagor's insurable interest covers the full value of the mortgaged property, even though
the mortgage debt is equivalent to the full value of the property.
• In the policy obtained by the mortgagor with loss payable clause in favor of the
mortgagee as his interest may appear, the mortgagee is only a beneficiary under
the contract, and recognized as such by the insurer but not made a party to the contract
itself. Hence, any act of the mortgagor which defeats his right will also defeat the right of the
mortgagee. This kind of policy covers only such interest as the mortgagee has at the issuing
of the policy.
• Clearly, the fire insurance policies issued by the PFIC name the petitioner as the assured and
contain a mortgage clause which is understood as a simple loss payable clause, not a
standard mortgage clause.
• Condition 3 of the subject policy is not totally free from ambiguity and must, perforce, be
meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies
only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding
P200,000.00 of the total policies obtained.
• By stating within Condition 3 itself that such condition shall not apply if the total insurance in
force at the time of loss does not exceed P200,000.00, the private respondent was amenable
to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind
was to discourage over-insurance.
• WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals
in CA-G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Commission in
Case No. 3340 is REINSTATED.

10. Malayan Insurance Co. v. Philippines First Insurance

G.R. No. 184300. July 11, 2012
Reyes, J.

Doctrine: Even though the two concerned insurance policies were issued over the same goods
and cover the same risk, there arises no double insurance since they were issued to two different
persons/entities having distinct insurable interests. Necessarily, over insurance by double
insurance cannot likewise exist.

Petitioner: Malayan Insurance Co., Inc

Respondents: Philippines First Insurance Co., Inc. and Reputable Forwarder Services, Inc

• Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services,
Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter
undertook to transport and deliver the former's products to its customers, dealers or
• November 18, 1993, W yeth procured Marine Policy No. MAR 13797 (Marine Policy)
from respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its
interest over its own products. The policy covers all risks of direct physical loss or damage
from any external cause, if by land, and provides a limit of P6,000,000.00 per any one land
• Dec 1993 - Wyeth executed its annual contract of carriage with Reputable. It turned out,
however, that the contract was not signed by W yeth representatives but was
signed by Reputable’s representatives. Under the contract, Reputable undertook to

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answer for "all risks with respect to the goods and shall be liable to the COMPANY (Wyeth),
for the loss, destruction, or damage. The contract also required Reputable to secure
an insurance policy on W yeth’s goods.
• 1994 - Reputable signed a Special Risk Insurance Policy (SR Policy) with
petitioner Malayan for the amount of P1,000,000.00.
• October 6, 1994 - Reputable received from Wyeth 1,000 boxes of Promil infant formula worth
P2,357,582.70 to be delivered in Mercury Drug Corporation in Libis, QC. Unfortunately, the
truck was hijacked by about 10 armed men. They threatened to kill the truck driver and two of
his helpers should they refuse to turn over the truck and its contents to the said highway
robbers. The hijacked truck was recovered two weeks later without its cargo.
• PFIC paid Wyeth P2,133,257.00 as indemnity. Then PFIC demanded from Reputable
reimbursement but it was not ignored. Thus, PFIC instituted an action for sum of money
against Reputable. Reputable counters by saying that is a "private corporation engaged in
the business of a common carrier” and it cannot be made liable since the cause of the loss
was force majeure
• Reputable impleaded Malayan as third-party defendant in an effort to collect the amount
covered in the SR Policy. Malayan argued that insurance does not cover any loss or
damage to property which at the time of the happening of such loss or damage is insured by
any marine policy and that the SR Policy expressly excluded third-party liability.
• RTC - Reputable is liable to PFIC (pay the actual cost if damage, adjustment fees, cost of
suit, attorney’s fees) and Malayan was likewise liable to Reputable (insurance policy of P1M,
cost of suit, attorney’s fees)
• CA - sustained the decision
• Reputable and Malayan filed their respective appeals
o Reputable - RTC erred in holding that its contract of carriage with Wyeth was binding
despite Wyeth s failure to sign the same and provisions of the contract are unreasonable,
unjust, and contrary to law and public policy. Contends that it is exempt from liability for
acts committed by thieves/robbers
o Malayan - invoked Section 5 of its SR Policy (The insurance does not cover any
loss or damage to property which at the time of the happening of such loss or damage is
insured) and since the Marine Policy from PFIC is more than enough to indemnify the
hijacked cargo, PFIC alone must bear the loss.

ISSUE: W ON there is double insurance

• No. While it is true that the Marine Policy and the SR Policy were both issued over the same
subject matter and both covered the same peril insured against, it is, however, beyond cavil
that the said policies were issued to two different persons or entities. It is
undisputed that W yeth is the recognized insured of PFIC under its Marine Policy,
while Reputable is the recognized insured of Malayan under the SR Policy. The
fact that Reputable procured Malayan's SR Policy over the goods of Wyeth pursuant merely
to the stipulated requirement under its contract of carriage with the latter does not make
Reputable a mere agent of Wyeth in obtaining the said SR Policy.
• Section 5 is actually the other insurance clause (also called "additional insurance" and
"double insurance") Section 5 does not provide for the nullity of the SR Policy but simply limits
the liability of Malayan only up to the excess of the amount that was not covered by the other
insurance policy.
• The Court ruled that in order to constitute a violation of the clause, the other insurance
must be upon same subject matter, the same interest therein, and the same
risk. Thus, even though the multiple insurance policies involved were all issued in the
name of the same assured, over the same subject matter and covering the same risk, it

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was ruled that there was no violation of the "other insurance clause" since there was no
double insurance.
• Section 12 of the SR Policy, on the other hand, is the over insurance clause. More
particularly, it covers the situation where there is over insurance due to double insurance.
• Requisites of Double insurance:
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
• Reputable is not solidarily liable with Malayan. There is solidary liability only when
the obligation expressly so states, when the law so provides or when the nature of the
obligation so requires.
• Where the insurance contract provides for indemnity against liability to third persons, the
liability of the insurer is direct and such third persons can directly sue the insurer. Malayan's
and Reputable's respective liabilities arose from different obligations- Malayan's is based on
the SR Policy while Reputable's is based on the contract of carriage.

G.R. No. L-19255, January 18, 1958


" On January 1, 1950, Philippine American Life Insurance Company [Philamlife], and
American International Reinsurance Company [Airco], entered into an agreement —
reinsurance treaty — which provides that Philamlife agrees to reinsure with Airco the
entire excess of such life insurance of the lives of persons as may be written by Philam. It
is also stipulated that even though Philamlife "is already on a risk for its maximum
retention under policies previously issued, when new policies are applied for and issued
[Philamlife] can cede automatically any amount, within the limits . . . specified, on the
same terms on which it would be willing to accept the risk for its own account, if it did not
already have its limit of retention."

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

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Every life insurance policy reinsured under the aforecited agreement "shall be upon the
yearly renewable term plan for the amount at risk under the policy reinsured."
Philamlife agrees to pay premiums for all reinsurances "on an annual premium basis."

" It is conceded that no question ever arose with respect to the remittances
made by Philamlife to Airco before July 16, 1959, the date of approval of the Margin Law.
" The Central Bank of the Philippines collected the sum of P268,747.48 as foreign
exchange margin on Philamlife remittances to Airco purportedly totalling $610,998.63 and
made subsequent to July 16, 1959.
" Philamlife filed with the Central Bank a claim for the refund of the above sum of
P268,747.48. The ground therefor was that the reinsurance premiums so remitted
were paid pursuant to the January 1, 1950 reinsurance treaty, and,
therefore, were pre-existing obligations expressly exempt from the margin
" Monetary Board resolved that "reinsurance contracts entered into and approved by the
Central Bank before July 17, 1959 are exempt from the payment of the 25% foreign
exchange margin, even if remittances thereof are made after July 17, 1959," because
such remittances "are only made in the implementation of a mother contract, a continuing
contract, which is the reinsurance treaty."
" The foregoing resolution notwithstanding, the Auditor of the Central Bank, refused to pass
in audit Philamlife's claim for refund. Philamlife sought reconsideration with the Auditor
General which was denied. .Hence this petition for review.

ISSUE: WON Philamlife was covered with the exception

HELD: No. The thrust of petitioner's argument is that the premia remitted were in pursuance of
its reinsurance treaty with Airco of January 1, 1950, a contract antedating the Margin Law, which
took effect only on July 16, 1959. But the validity of such claim must be tested by the provisions of
Section 3 of the Margin Law which expressly withholds the enforcement of the provisions of
said Act on "contractual obligations calling for payment of foreign exchange issued approved and
outstanding as of the date this Act takes effect and the extension thereof, with the same terms
and conditions as the original contractual obligations."

True, the reinsurance treaty precedes the Margin Law by over nine years. Nothing
in that treaty, however, obligates Philamlife to remit to Airco a fixed, certain, and
obligatory sum by way of reinsurance premiums. All that the reinsurance treaty provides
on this point is that Philamlife "agrees to reinsure." The treaty speaks of a probability; not a
reality. For, without reinsurance, no premium is due. Of course, the reinsurance treaty lays down
the duty to remit premiums — if any reinsurance is effected upon the covenants in that treaty
written. So it is that the reinsurance treaty per se cannot give rise to a contractual obligation
calling for the payment of foreign exchange "issued, approved and outstanding as of the date this
Act [Republic Act 2609] takes effect."

For an exemption to come into play, there must be a reinsurance policy or , as in

the reinsurance treaty provided, a "reinsurance cession" which may be automatic
or facultative. There should not be any misapprehension as to the distinction between a
reinsurance treaty, on the one hand, and a reinsurance policy or a reinsurance cession, on the

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other. A reinsurance policy is thus a contract of indemnity one insurer makes with another to
protect the first insurer from a risk it has already assumed. . A reinsurance treaty is merely an
agreement between two insurance companies whereby one agrees to cede and the other to
accept reinsurance business pursuant to provisions specified in the treaty. The practice of issuing
policies by insurance companies includes, among other things, the issuance of reinsurance
policies on standard risks and also on substandard risks under special arrangements. The
lumping of the different agreements under a contract has resulted in the term known to the
insurance world as "treaties." Such a treaty is, in fact, an agreement between insurance
companies to cover the different situations described. Treaties are contracts for insurance;
reinsurance policies or cessions . . . are contracts of insurance.

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

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


G.R. No. 192159, January 25, 2017

• Petitioner Communication and Information Systems Corporation (CISC) and respondent
Mark Sensing Australia Pty. Ltd. (MSAPL) entered into a Memorandum of Agreement
(MOA) dated March 1, 2002 whereby MSAPL appointed CISC as "the exclusive AGENT of
[MSAPL] to PCSO during the [lifetime] of the recently concluded Memorandum of Agreement
entered into between [MSAPL], PCSO and other parties."
• The recent agreement referred to in the MOA is the thermal paper and bet slip supply
contract (the Supply Contract) between the PCSO, MSAPL, and three other suppliers,
namely Lamco Paper Products Company, Inc. (Lamco Paper), Consolidated Paper Products,
Inc. (Consolidated Paper) and Trojan Computer Forms Manufacturing Corporation (Trojan
Computer Forms).
• As consideration for CISC's services, MSAPL agreed to pay CISC a commission of 24.5% of
future gross sales to PCSO, exclusive of duties and taxes, for six years.
• After initially complying with its obligation under the MOA, MSAPL stopped remitting
commissions to CISC during the second quarter of 2004. MSAPL justified its action by
claiming that Carolina de Jesus, President of CISC, violated her authority when she
negotiated the Supply Contract with PCSO and three of MSAPL's competitors.
• According to MSAPL, it lost almost one-half of its business with PCSO because the Supply
Contract provided that MSAPL's business with PCSO shall be limited to the latter's Luzon
operations, with MSAPL supplying 70% of thermal rolls and 50% of bet slips.
• MSAPL pointed out that it used to have a Build Operate Transfer (BOT) Agreement with
PCSO where it undertook to build a thermal paper and bet slip manufacturing facility to
supply all requirements of PCSO. However, PCSO unilaterally cancelled the BOT Agreement
and granted supply contracts to Lamco Paper, Consolidated Paper and Trojan Computer
Forms, which ultimately resulted in litigation between the parties. The suit was eventually

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settled when PCSO, MSAPL, and the three other suppliers entered into the Supply Contract,
which was submitted and approved by the Regional Trial Court (RTC), Branch 224 of
Quezon City, as a compromise agreement. MSAPL felt shortchanged by CISC's efforts and
thus decided to withhold payment of commissions.
• As a result of MSAPL's refusal to pay, CISC filed a complaint before the RTC in Quezon City
for specific performance against MSAPL, Mark Sensing Philippines, Inc. (MSPI), Atty.
Ofelia Cajigal, and PCSO. CISC prayed that private respondents be ordered to comply with
its obligations under the MOA. It also asked the RTC to issue a writ of preliminary mandatory
injunction and/or writ of attachment.
• RTC denied CISC's prayer for mandatory injunctive relief but ordered the PCSO to hold the
amount being contested until the final determination of the case. It later reversed itself,
holding that its jurisdiction is limited to the amount stated in the complaint and therefore had
no jurisdiction to order PCSO to withhold payments in excess of such amount. This order of
reversal became the subject of a separate petition for certiorari filed by CISC before the CA.
The CA later reversed the RTC and ordered that the additional docket fees shall
constitute a lien on the judgment.
• RTC granted CISC's application for issuance of a writ of preliminary attachment, stating that
"the non-payment of the agreed commission constitutes fraud on the part of the
defendant MSAPL in their performance of their obligation to the plaintiff.” The RTC found that
MSAPL is a foreign corporation based in Australia, and its Philippine subsidiary, MSPI, has
no other asset except for its collectibles from PCSO. Thus, the RTC concluded that CISC
may be left without any security if ever MSAPL is found liable. But the RTC limited the
attachment to P4,861,312.00, which is the amount stated in the complaint, instead of the
amount sought to be attached by CISC, i.e., P113,197,309.10. 17 The RTC explained that it
"will have to await the Supreme Court judgment over the issue of whether [it] has jurisdiction
on the amounts in the excess of the amount prayed for by the plaintiff in their complaint"
since MSAPL appealed the adverse judgment in CA-G.R. SP No. 96620 to us.
• We later denied MSAPL's petition for review assailing the CA Decision in CA- G.R. SP No.
96620 (subsequently docketed as G.R. No. 179073) in a Resolution dated November 12,
• In view of this development, CISC moved to amend the order of attachment to include
unpaid commissions in excess of the amount stated in the complaint.
• On December 22, 2008, the RTC granted CISC's motion and issued a new writ of preliminary
attachment.21 On April 13, 2009, the RTC, acting on the partial motions for reconsideration
by both CISC and MSAPL, modified the amount covered by the writ to reflect the correct
amount prayed for by CISC in its previous motion to amend the attachment order conditioned
upon the latter's payment of additional docket fees. It also denied MSAPL's opposition to the
attachment order for lack of merit. 22 On July 2, 2009, the RTC modified its order insofar as
it allowed CISC to pay docket fees within a reasonable time.
• CISC posted a bond in the amount of P113,197,309.10 through Plaridel Surety
and Insurance Company (Plaridel) in favor of MSAPL, which the RTC
approved on the same date.
• Two days later, MSAPL filed a motion to determine the sufficiency of the bond because of
questions regarding the financial capacity of Plaridel. But before the RTC could act on this
motion, MSAPL, apparently getting hold of Plaridel's latest financial statements, moved to
recall and set aside the approval of the attachment bond on the ground that Plaridel had no
capacity to underwrite the bond pursuant to Section 215 of the old Insurance Code 26
because its net worth was only P214,820,566.00 and could therefore only underwrite up to
• RTC denied MSAPL's motion, finding that although Plaridel cannot underwrite the bond
by itself, the amount covered by the attachment bond "was likewise re-insured to sixteen
other insurance companies." However, "for the best interest of both parties," the RTC

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ordered Plaridel to submit proof that the amount of P95,819,770.91 was

reinsured. Plaridel submitted its compliance attaching therein the reinsurance contracts.
• CA: MSAPL, MSPI and Atty. Ofelia Cajigal filed a petition for certiorari before the CA
assailing the Orders of the RTC. CA granted the petition. It concluded that the petition
for certiorari was filed on time because MSAPL did not abandon their right to impugn the
evidence submitted in the application for the writ of preliminary attachment, because they
filed a motion to determine the sufficiency of the bond. On the merits, it held that the RTC
exceeded its authority when it "ordered the issuance of the writ [of preliminary attachment]
despite a dearth of evidence to clearly establish [CISC's] entitlement thereto, let alone the
latter's failure to comply with all requirements therefor." Noting that the posting of the
attachment bond is a jurisdictional requirement, the CA concluded that since
Plaridel's capacity for single risk coverage is limited to 20% of its net worth,
or P57,866,599.80, the RTC "should have set aside the second writ outright
for non-compliance with Sections 3 and 4 of Rule 57."

ISSUE: whether courts may approve an attachment bond which has been reinsured as to the
excess of the issuer's statutory retention limit

• Applying the rule in San Juan, MSAPL's challenge to the order dated April 13, 2009 was
clearly time-barred. The 60-day reglementary period for challenging the RTC's
issuance of the amended writ of attachment should be count ed from April 27,
2009, the date when MSAPL received a copy of the April 13, 2009 Order
denying MSAPL's motion for reconsideration of the December 22, 2008 Order
which granted CISC's motion to amend the writ of preliminary attachment.
• The CA, however, considered MSAPL's act of ling a motion to determine the sufficiency of
the bond as a defnitive indication that private respondents have not "abandoned their right to
impugn the evidence submitted in the application for the second writ as erroneous for 2
1. MSAPL's motion never impugned the propriety and factual bases of the RTC's
issuance of the amended writ of attachment; and
2. even if it did, the motion would be considered as a second motion for
reconsideration, which could not have stayed the reglementary period within which
to file a petition for certiorari assailing an interlocutory order.
• We emphasize that the provisions on reglementary periods are strictly applied, indispensable
as they are to the prevention of needless delays, and are necessary to the orderly and
speedy discharge of judicial business. The timeliness of ling a petition for certiorari is
mandatory and jurisdictional, and should not be trifled with
• Meanwhile, the Orders dated July 2, 2009 and July 8, 2009 resolved incidental issues with
respect to the issuance of the amended writ of attachment, namely:
(1) when the additional docket fees should be paid; and
(2) the approval of the attachment bond.
As regards the first incidental issue, the RTC allowed CISC to pay the additional docket fees
"within a reasonable time but in no case beyond its applicable prescriptive or reglementary
period." MSAPL, instead of ling a motion for reconsideration of the July 2, 2009 Order,
elected to file a motion to compel CISC to pay the required docket fees on August 14, 2009.
Evidently, MSAPL already recognized the validity of the July 2, 2009 Order and sought
CISC's compliance with the Order. Notably, the motion remained pending before the RTC
when MSAPL filed its petition for certiorari with the CA. We find that the petition for certiorari,
insofar as it questions the alleged non- payment of docket fees, was prematurely led
because the RTC has yet to rule on this issue.
• This leaves the July 8, 2009 Order which approved the attachment bond Plaridel submitted.
It was directly challenged by MSAPL when the latter filed a motion to determine the

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sufficiency of the bond because of questions regarding Plaridel's financial capacity. Before
the RTC could act on the motion, however, MSAPL filed an urgent motion to recall and set
aside the approval of the attachment bond, dated July 21, 2009, on the ground that the
attachment bond underwritten by Plaridel exceeded its retention limit under
the Insurance Code. The RTC resolved these two motions jointly in its September 4,
2009 Order, holding that Section 215 allows insurance companies to insure a
single risk in excess of retention limits provided that the excess amount is
ceded to reinsurers, and consequently affirming its approval of the attachment
• Section 215 of the old Insurance Code, limits the amount of risk that
insurance companies can retain to a maximum of 20% of its net worth.
However, in computing the retention limit, risks that have been ceded to
authorized reinsurers are ipso jure deducted.
• In mathematical terms, the amount of retained risk is computed by deducting
ceded/reinsured risk from insurable risk. If the resulting amount is below 20%
of the insurer's net worth, then the retention limit is not breached.
• In this case, both the RTC and CA determined that, based on Plaridel's financial statement
that was attached to its certificate of authority issued by the Insurance Commission, its net
worth is P289,332,999.00.50 Plaridel's retention limit is therefore P57,866,599.80, which is
below the P113,197,309.10 face value of the attachment bond. However, it only retained an
insurable risk of P17,377,938.19 because the remaining amount of P98,819,770.91 was
ceded to 16 other insurance companies. Thus, the risk retained by Plaridel is
actually P40 Million below its maximum retention limit. Therefore, the approval of
the attachment bond by the RTC was in order. Apparently, MSAPL failed to appreciate that
by dividing the risk through reinsurance, Plaridel's attachment bond actually became more
reliable — as it is no longer dependent on the financial stability of one company — and,
therefore, more beneficial to MSAPL.
• In cancelling Plaridel's insurance bond, the CA also found that because the reinsurance
contracts were issued in favor of Plaridel, and not MSAPL, these failed to comply with the
requirement of Section 4, Rule 57 of the Rules of Court requiring the bond to be executed to
the adverse party. This led the CA to conclude that "the bond has been improperly and
insufficiently posted." We reverse the CA and so hold that the reinsurance contracts were
correctly issued in favor of Plaridel. A contract of reinsurance is one by which an
insurer (the "direct insurer" or "cedant") procures a third person (the
"reinsurer") to insure him against loss or liability by reason of such original
insurance. It is a separate and distinct arrangement from the original contract
of insurance, whose contracted risk is insured in the reinsurance agreement.
The reinsurer's contractual relationship is with the direct insurer, not the
original insured, and the latter has no interest in and is generally not privy to
the contract of reinsurance. Put simply, reinsurance is the "insurance of an
• By its nature, reinsurance contracts are issued in favor of the direct insurer
because the subject of such contracts is the direct insurer's risk — in this
case, Plaridel's contingent liability to MSAPL — and not the risk assumed
under the original policy.
• The requirement under Section 4, Rule 57 of the Rules of Court that the
applicant’s bond be executed to the adverse party necessarily pertains only to
the attachment bond itself and not to any underlying reinsurance contract.
With or without reinsurance, the obligation of the surety to the party against
whom the writ of attachment is issued remains the same.
• Petition granted.