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Philippine Health Care v provide the members of a group with health services,

is not engaged in the insurance business.


CIR G.R. No. 167330
For the purpose of determining what "doing an
September 18, 2009 insurance business" means, we have to scrutinize the
J. Corona operations of the business as a whole. This is of
course only prudent and appropriate, taking into
Facts: account laws applicable to those in the insurance
business.
Philippine Health Care’s objectives were:
"[t]o establish, maintain, conduct and operate a Petitioner, as an HMO, is not part of the insurance
prepaid group practice health care delivery system or industry. This is evident from the fact that it is not
a health maintenance organization to take care of the supervised by the Insurance Commission but by the
sick and disabled persons enrolled in the health care Department of Health. In fact, in a letter dated
plan and to provide for the administrative, legal, and September 3, 2000, the
financial responsibilities of the organization.” Insurance Commissioner confirmed that petitioner is
not engaged in the insurance business.
It lost the case in 2004 when it was made to pay over
100 million in VAT deficiencies. At the time the MFR As to whether the business is covered by the DST, we
was filed, it was able to avail of tax amnesty under RA can see that while the contract did contains all the
9840 by paying 5 percent of the tax or 5 million pesos. elements of an insurance contract, as stated in Sec
2., Par 1 of the Insurance Code, the primary purpose
Petitioner passed an MFR but the CA denied. Hence, of the company is to render service. The primary
this case. purpose of the parties in making the contract may
negate the existence of an insurance contract.
Issue: Also, there is no loss, damage or liability on the part
Was petitioner, as an HMO, engaged in the of the member that should be indemnified by
business of insurance during the pertinent taxable petitioner as an HMO. Under the agreement, the
years, and was thus liable for DST? member pays petitioner a predetermined
consideration in exchange for the hospital, medical
Held: No. Mfr granted. CIR must desist from and professional services rendered by the petitioner’s
collecting tax. physician or affiliated physician to him.

Ratio: In other words, there is nothing in petitioner's


Section 185 of the NIRC . Stamp tax on fidelity bonds agreements that gives rise to a monetary liability on
and other insurance policies. – On all policies of the part of the member to any third party-provider of
insurance or bonds or obligations of the nature of medical services which might in turn necessitate
indemnity for loss, damage, or liability made or indemnification from petitioner. The terms "indemnify"
renewed by any person, association or company or or "indemnity" presume that a liability or claim has
corporation transacting the business of accident, already been incurred. There is no indemnity
fidelity, employer’s liability, plate, glass, precisely because the member merely avails of
steam boiler, burglar, elevator, automatic sprinkler, or medical services to be paid or already paid in
other branch of insurance (except life, marine, inland, advance at a pre-agreed price under the agreements.
and fire insurance). Also, a member can take advantage of the bulk of the
benefits anytime, e.g. laboratory services, x-ray,
Two requisites must concur before the DST routine annual physical examination and
can apply, namely: (1) the document must be a policy consultations, vaccine administration as well as family
of insurance or an obligation in the nature of planning counseling, even in the absence of any peril,
indemnity and (2) the maker should be transacting the loss or damage on his or her part.
business of accident, fidelity, employer’s liability, Petitioner is obliged to reimburse the member who
plate, glass, steam boiler, burglar, elevator, automatic receives care from a non-participating physician or
sprinkler, or other branch of insurance (except life, hospital. However, this is only a very minor part of the
marine, inland, and fire insurance). list of services available. The assumption of the
Under RA 7875, an HMO is "an entity that provides, expense by petitioner is not confined to the happening
offers or arranges for coverage of designated health of a contingency but includes incidents even in the
services needed by plan members for a fixed prepaid absence of illness or injury.
premium."
Consequently, there is a need to distinguish prepaid
Various courts in the United States have determined service contracts (like those of petitioner) from the
that HMOs are not in the insurance business. One usual insurance contracts.
test that they have applied is whether the assumption
of risk and indemnification of loss are the principal However, assuming that petitioner’s commitment to
object and purpose of the organization or whether provide medical services to its members can be
they are merely incidental to its business. If these are construed as an acceptance of the risk that it will shell
the principal objectives, the business is that of out more than the prepaid fees, it still will not qualify
insurance. But if such is incidental and service is the as an insurance contract because petitioner’s
principal purpose, then the business is not insurance. objective is to provide medical services at
Applying the "principal object and purpose test," there reduced cost, not to distribute risk like an insurer.
is significant American case law supporting the
argument that a corporation, whose main object is to If it had been the intent of the legislature to impose
DST on health care agreements, it could have done
so in clear and categorical terms. It had many Insurance Company, Inc. (Malayan) under Open
opportunities to do so. But it did not. The fact that the Policy No. M/OP/2000/001-582. P & I Association is
NIRC contained no specific provision on the DST the third party liability insurer of Loadstar Shipping.
liability of health care agreements of HMOs at a time
they were already known as such, belies any On said date (September 10, 2000), MV "Bobcat"
legislative intent to impose it on them. As a matter of sailed from Poro Point, San Fernando, La Union
fact, petitioner was assessed its DST liability only on bound for Isabel, Leyte. On September 12, 2000,
January 27, 2000, after more than a decade in the while in the vicinity of Cresta de Gallo, the vessel’s
business as an HMO. chief officer on routine inspection found a crack on
starboard sideof the main deck which caused
In view of petitioner’s availment of the benefits of [RA seawater to enter and wet the cargo inside Cargo
9840], and without conceding the merits of this case Hold No. 2 forward/aft. The cracks at the top deck
as discussed above, respondent concedes that such starboard side of Cargo Hold No. 2, measuring 1.21
tax amnesty extinguishes the tax liabilities of meters long x 0.39 meters wide, and at top deck aft
petitioner. section starboard side on other point, measuring 0.82
meters long x 0.32 meters wide, were welded.
Our Insurance Code was based on California and
New York laws. When a statute has been adopted Immediately after the vessel arrived at Isabel, Leyte
from some other state or country and said statute has anchorage area, on September 13, 2000, PASAR and
previously been construed by the courts of such state Philex’s representatives boarded and inspected the
or country, the statute is deemed to have been vessel and undertook sampling of the copper
adopted with the construction given concentrates. In its preliminary report dated
September 15, 2000, the Elite Adjusters and
Surveyor, Inc. (Elite Surveyor) confirmed that samples
of copper concentrates from Cargo Hold No. 2 were
G.R. No. 185565 November 26, 2014 contaminated by seawater. Consequently, PASAR
rejected 750 MT of the 2,300 MT cargo discharged
LOADSTAR SHIPPING COMPANY, from Cargo Hold No. 2.
INCORPORATED and LOADSTAR
INTERNATIONAL SHIPPING COMPANY, On November 6, 2000, PASAR sent a formal notice of
INCORPORATED, Petitioners, claim in the amount of [P]37,477,361.31 to Loadstar
vs. Shipping. In its final report dated November 16, 2000,
MALAYAN INSURANCE COMPANY, Elite Surveyor recommended payment to the assured
INCORPORATED, Respondent. the amount of [P]32,351,102.32 as adjusted. On the
basis of such recommendation, Malayan paid PASAR
DECISION the amount of [P]32,351,102.32.

REYES, J.: Meanwhile, on November 24, 2000, Malayan wrote


Loadstar Shipping informing the latter of a prospective
This is a Petition for Review on Certiorari1 filed by buyer for the damaged copper concentrates and the
Loadstai Shipping Company, Incorporated and opportunity to nominate/refer other salvage buyers to
Loadstar International Shipping Company, PASAR. On November 29, 2000, Malayan wrote
Incorporated (petitioners) against Malayan Insurance Loadstar Shipping informing the latter of the
Company, Incorporated (Malayan) seeking to set acceptance of PASAR’s proposal to take the
aside the Decision2 dated April 14, 2008 and damaged copper concentrates at a residual value of
Resolution3 dated December 11, 2008 of the Court of US$90,000.00. On December 9, 2000, Loadstar
Appeals (CA) in CA-G.R. CV No. 82758, which Shipping wrote Malayan requesting for the reversal of
reversed and set aside the Decision4 dated March 31, its decision to accept PASAR’s proposal and the
2004 of the Regional Trial Court of Manila, Branch 34, conduct of a public bidding to allow Loadstar Shipping
in Civil Case No. 01-101885. to match or top PASAR’s bid by 10%.

The facts as found by the CA, are as follows: On January 23, 2001, PASAR signed a subrogation
receipt in favor of Malayan. To recover the amount
paid and in the exercise of its right of subrogation,
Loadstar International Shipping, Inc.(Loadstar
Malayan demanded reimbursement from Loadstar
Shipping) and Philippine Associated Smelting and
Shipping, which refused to comply. Consequently, on
Refining Corporation (PASAR) entered into a Contract
September 19, 2001, Malayan instituted with the RTC
of Affreightment for domestic bulk transport of the
a complaint for damages. The complaint was later
latter’s copper concentrates for a period of one year
amended to include Loadstar International as party
from November 1, 1998 to October 31, 1999. The
defendant.
contract was extended up to the end of October 2000.
In its amended complaint, Malayan mainly alleged
On September 10, 2000, 5,065.47 wet metric tons
that as a direct and natural consequence of the
(WMT) of copper concentrates were loaded in Cargo
unseaworthiness of the vessel, PASAR suffered loss
Hold Nos. 1 and 2 of MV "Bobcat", a marine vessel
of the cargo. It prayed for the amount of
owned by Loadstar International Shipping Co., Inc.
[P]33,934,948.75, representing actual damages plus
(Loadstar International) and operated by Loadstar
legal interest fromdate of filing of the complaint until
Shipping under a charter party agreement. The
fully paid, and attorney’s fees in the amount of not
shipper and consignee under the Bill of Lading are
less than [P]500,000.00. It also sought to declare the
Philex Mining Corporation (Philex) and PASAR,
respectively. The cargo was insured with Malayan
bill of lading as void since it violates the provisions of was attached to Malayan’s compliance was still an
Articles 1734 and 1745 of the Civil Code. unreadable machine copy thereof.5 (Citations omitted)

On October 30, 2002, Loadstar Shipping and Ruling of the CA


Loadstar International filed their answer with
counterclaim, denying plaintiff appellant’s allegations On April 14, 2008, the CA rendered its Decision,6 the
and averring as follows: that they are not engaged in dispositive portion of which reads: WHEREFORE, the
the business as common carriers but as private appeal is GRANTED. The Decision dated March 31,
carriers; that the vessel was seaworthy and 2004 of the RTC, Branch 34, Manila in Civil Case No.
defendants-appellees exercised the required diligence 01-101885, is REVERSED and SET ASIDE. In lieu
under the law; that the entry of water into Cargo Hold thereof, a new judgment is entered, ORDERING
No. 2 must have been caused by force majeureor defendants-appellees to pay plaintiff-appellant
heavy weather; that due to the inherent nature of the ₱33,934,948.75 as actual damages, plus legal
cargo and the use of water in its production process, interest at 6% annually from the date of the trial
the same cannot be considered damaged or court’s decision. Upon the finality of the decision, the
contaminated; that defendants-appellees were denied total amount of the judgment shall earn annual
reasonable opportunity to participate in the salvage interest at 12% until full payment.
sale; that the claim had prescribed in accordance with
the bill of lading provisions and the Code of SO ORDERED.7
Commerce; that plaintiff-appellant’s claim is
excessive, grossly overstated, unreasonable and
On December 11, 2008, the CA modified the above
unsubstantiated; that their liability, if any, should not
decision through a Resolution,8 the fallo thereof
exceed the CIFvalue of the lost/damaged cargo as set
states:
forth in the bill of lading, charter party or customary
rules of trade; and that the arbitration clause in the
contract of affreightment should be followed. WHEREFORE, the Motion for Reconsiderationis
PARTLY GRANTED. The decision of this Court dated
April 14, 2008 is PARTIALLY RECONSIDERED and
After trial, and considering that the billof lading, which
MODIFIED. Defendants-appellees are ORDERED to
was marked as Exhibit "B", is unreadable, the RTC
pay to plaintiff-appellant ₱33,934,948.74 as actual
issued on February 17, 2004 an order directing the
damages, less US$90,000.00, computed at the
counsel for Malayan to furnish it with a clearer copy of
exchange rate prevailing on November 29, 2000, plus
the same within three (3) days from receipt of the
legal interest at 6% annually from the date of the trial
order. On February 23, 2004, Malayan filed a
court’s decision. Upon the finality of the decision, the
compliance attaching thereto copy of the bill of lading.
total amount of the judgment shall earn annual
interest at 12% until full payment.
On March 31, 2004, the RTC rendered a judgment
dismissing the complaint as well as the counterclaim.
SO ORDERED.9
The RTC was convinced that the vessel was
seaworthy at the time of loading and that the damage
was attributable to the perils of the sea (natural The CA discussed that the amount of US$90,000.00
disaster) and not due to the fault or negligence of should have been deducted from Malayan’s claim
Loadstar Shipping. against the petitioners in order to prevent undue
enrichment on the part of Malayan. Otherwise,
Malayan would recover from the petitioners not
The RTC found that although contaminated by
merely the entire amount of 33,934,948.74 as actual
seawater, the copper concentrates can still be used.
damages, but would also end up unjustly enriching
Itgave credence to the testimony of Francisco
itself in the amount of US$90,000.00 – the residual
Esguerra, defendants-appellees’ expert witness, that
value of the subject copper concentrates it sold to
despite high chlorine content, the copper
Philippine Associated Smelting and Refining
concentrates remain intact and will not lose their
Corporation (PASAR) on November 29, 2000.10 Issues
value. The gold and silver remain with the
grains/concentrates even if soaked with seawater and
does not melt. The RTC observed that the purchase In sum, the grounds presented by the petitioners for
agreement between PASAR and Philex contains a the Court’s consideration are the following:
penalty clause and has no rejection clause. Despite
this agreement, the parties failed to sit down and I.
assess the penalty.
THE [CA] HAS NO BASIS IN REVERSING THE
The RTC also found that defendants-appellees were DECISION OF THE TRIAL COURT. THERE IS
not afforded the opportunity to object or participate or NOTHING IN THE DECISION OF THE HONORABLE
nominate a participant in the sale of the contaminated COURT THAT REVERSED THE FACTUAL
copper concentrates to lessen the damages to be FINDINGS AND CONCLUSIONS OF THE TRIAL
paid. No record was presented to show that a public COURT, THAT THERE WAS NO ACTUAL LOSS OR
bidding was conducted. Malayan sold the DAMAGE TO THE CARGO OF COPPER
contaminated copper concentrates to PASAR at a low CONCENTRATES WHICH WOULD MAKE
price then paid PASAR the total value of the damaged LOADSTAR AS THE SHIPOWNER LIABLE FOR A
concentrate without deducting anything from the CARGO CLAIM. CONSEQUENTLY, THERE IS NO
claim. BASIS FOR THE COURT TO ORDER LOADSTAR
TO PAY ACTUAL DAMAGES IN THE AMOUNT OF
Finally, the RTC denied the prayer to declare the Bill PH₱33 MILLION.11
of Lading null and void for lack of basis because what
II. Code ofCommerce shall govern the contract between
the parties.
M/V BOBCAT IS A PRIVATE CARRIER, THE
HONORABLE COURT HAD NO BASIS IN RULING Malayan paid PASAR the amount of 32,351,102.32
THAT IT IS A COMMON CARRIER. THE DECISION covering the latter’s claim of damage to the
OF THE TRIAL COURT IS BEREFT OF ANY cargo.18 This is based on the recommendation of Elite
CATEGORICAL FINDING THAT M/V BOBCAT IS A Adjustors and Surveyors, Inc. (Elite) which both
COMMON CARRIER.12 Malayan and PASAR agreed to. The computation of
Elite is presented as follows:
III.
Computation of Loss Payable.We computed for the
THE HONORABLE COURT OFAPPEALS insured value of the loss and loss payable, based on
COMMITTED A REVERSIBLE ERROR IN RULING the following pertinent data:
THAT RESPONDENT’S PAYMENT TO PASAR, ON
THE BASIS OF THE LATTER’S FRAUDULENT 1) Total quantity shipped - 5,065.47 wet metric
CLAIM, ENTITLED RESPONDENT AUTOMATIC tons and at risk or (Risk Note and B/L)
RIGHT OF RECOVERY BY VIRTUE OF 4,568.907 dry metric tons
SUBROGATION.13
2) Total sum insured - [P]212,032,203.77
Ruling of the Court (Risk Note and Endorsement)

I. Proof of actual damages 3) Quantity damaged: 777.290 wet metric tons


or (Pasar Laboratory Cert. & 696.336 dry
It is not disputed that the copper concentrates carried metric tons discharge & sampling Cert.dated
by M/V Bobcat from Poro Point, La Union to Isabel, September 21, 2000)
Leyte were indeed contaminated with seawater. The
issue lies on whether such contamination resulted to Computation:
damage, and the costs thereof, if any,incurred by the
insured PASAR. Total sum insured x Qty. damaged=
Insured value of damage
The petitioners argued that the copper concentrates,
despite being dampened with seawater, is neither Total Qty. in DMT (DMT) (DMT)
subject to penalty nor rejection. Under the Philex
Mining Corporation (Philex)-PASAR Purchase [P] 212,032,203.77 x 696.336 DMT =
Contract Agreement, there is no rejection clause. [P]32,315,312.32
Instead, there is a pre-agreed formula for the
imposition of penalty in case other elements
4,568.907 DMT
exceeding the provided minimum level would be
found on the concentrates.14 Since the chlorine
content on the copper concentrates is still below the Insured value of damage = [P]
minimum level provided under the Philex-PASAR 32,315,312.3219
purchase contract, no penalty may be imposed
against the petitioners.15 Based on the preceding computation, the sum of
₱32,315,312.32 represents damages for the total loss
Malayan opposed the petitioners’ invocation of the ofthat portion of the cargo which were contaminated
Philex-PASAR purchase agreement, stating that the with seawater and not merely the depreciation in its
contract involved in this case is a contract of value. Strangely though, after claiming damages for
affreightment between the petitioners and PASAR, the total loss of that portion, PASAR bought back the
not the agreement between Philex and PASAR, which contaminated copper concentrates from Malayan at
was a contract for the sale of copper concentrates.16 the price of US$90,000.00. The fact of repurchase is
enough to conclude that the contamination of the
copper concentrates cannot be considered as total
On this score, the Court agrees withMalayan that
loss on the part of PASAR.
contrary to the trial court’s disquisition, the petitioners
cannot validly invoke the penalty clause under the
Philex-PASAR purchase agreement, where penalties The following provisions of the Code of Commerce
are to be imposed by the buyer PASAR against the state how damages on goods delivered by the carrier
seller Philex if some elements exceeding the agreed should be appraised:
limitations are found on the copper concentrates upon
delivery. The petitioners are not privy tothe contract of Article 361. The merchandise shall be transported at
sale of the copper concentrates. The contract the risk and venture of the shipper, if the contrary has
between PASAR and the petitioners is a contract of not been expressly stipulated. As a consequence, all
carriage of goods and not a contract of sale. the losses and deteriorations which the goods may
Therefore, the petitioners and PASAR are bound by suffer during the transportation by reason of fortuitous
the laws on transportation of goods and their contract event, force majeure, or the inherent nature and
of affreightment. Since the Contract of defect of the goods, shall be for the account and risk
Affreightment17 between the petitioners and PASAR is of the shipper. Proof of these accidents is incumbent
silent as regards the computation of damages, upon the carrier.
whereas the bill of lading presented before the trial
court is undecipherable, the New Civil Code and the Article 362. Nevertheless, the carrier shall be liable for
the losses and damages resulting from the causes
mentioned in the preceding article if it is proved, as If the effect of damage on the goods consisted merely
against him, that they arose through his negligence or of diminution in value, the carrier is bound to pay only
by reason of his having failed to take the precautions the difference between its price on that day and its
which usage has established among careful persons, depreciated value as provided under Article 364.
unless the shipper has committed fraud in the bill of
lading, representing the goods to be of a kind or Malayan, as the insurer of PASAR, neither stated nor
quality different from what they really were. proved that the goods are rendered useless or unfit
for the purpose intended by PASAR due to
If, notwithstanding the precautions referred to in this contamination with seawater. Hence, there is no basis
article, the goods transported run the risk of being for the goods’ rejection under Article 365 of the Code
lost, on account of their nature or by reason of of Commerce. Clearly, it is erroneous for Malayan to
unavoidable accident, there being no time for their reimburse PASAR as though the latter suffered from
owners to dispose of them, the carrier may proceed to total loss of goods in the absence of proof that
sell them, placing them for this purpose at the PASAR sustained such kind of loss. Otherwise, there
disposal of the judicial authority or of the officials will be no difference inthe indemnification of goods
designated by special provisions. which were not delivered at all; or delivered but
rendered useless, compared against those which
xxxx were delivered albeit, there is diminution in value.

Article 364. If the effect of the damage referred to in Malayan also failed to establish the legal basis of its
Article 361 is merely a diminution in the value of the decision to sell back the rejected copper concentrates
goods, the obligation of the carrier shall be reduced to to PASAR. It cannot be ascertained how and when
the payment of the amount which, in the judgment of Malayan deemed itself asthe owner of the rejected
experts, constitutes such difference in value. copper concentrates to have these validly disposed
of. If the goods were rejected, it only means there was
Article 365. If, in consequence of the damage, the no acceptance on the part of PASAR from the carrier.
goods are rendered useless for sale and consumption Furthermore, PASAR and Malayan simply agreed on
for the purposes for which they are properly destined, the purchase price of US$90,000.00 without any
the consignee shall not be bound to receive them, allegation or proof that the said price was the
and he may have them in the hands of the carrier, depreciated value based on the appraisal of experts
demanding of the latter their value at the current price as provided under Article 364 of the Code of
on that day. Commerce.

If among the damaged goods there should be some II. Subrogation of Malayan to the rights of PASAR
pieces in good condition and without any defect, the
foregoing provision shall be applicable with respect to Malayan’s claim against the petitioners is based on
those damaged and the consignee shall receive those subrogation to the rights possessed by PASAR as
which are sound, this segregation to be made by consignee of the allegedly damaged goods. The right
distinct and separate pieces and without dividing a of subrogation stems from Article 2207 of the New
single object, unless the consignee proves the Civil Code which states:
impossibility of conveniently making use of them in
this form. Art. 2207. If the plaintiff’s property has been insured,
and he has received indemnity from the insurance
The same rule shall be applied to merchandise in company for the injury or loss arising out of the wrong
bales or packages, separating those parcels which or breach of contract complained of, the insurance
appear sound. company shall be subrogated to the rights of the
insured against the wrong doer or the person who has
From the above-cited provisions, if the goods are violated the contract. If the amount paid by the
delivered but arrived at the destination in damaged insurance company does not fully cover the injury or
condition, the remedies to be pursued by the loss, the aggrieved party shall be entitled to recover
consignee depend on the extent of damage on the the deficiency from the person causing the loss or
goods. injury.

If the goods are rendered useless for sale, "The right of subrogation is not dependent upon, nor
consumption or for the intended purpose, the does it grow out of, any privity of contract or upon
consignee may reject the goods and demand the written assignment of claim. It accrues simply upon
payment of such goods at their marketprice on that payment of the insurance claim by the insurer."20 The
day pursuant to Article 365. In case the damaged right of subrogation is however, not absolute. "There
portion of the goods can be segregated from those are a few recognized exceptions to this rule. For
delivered in good condition, the consignee may reject instance, if the assured by his own act releases the
those in damaged condition and accept merely those wrongdoer or third party liable for the loss or damage,
which are in good condition. But if the consignee is from liability, the insurer’s right of subrogation is
able to prove that it is impossible to use those goods defeated. x x x Similarly, where the insurer pays the
which were delivered in good condition without the assured the value of the lostgoods without notifying
others, then the entire shipment may be rejected. To the carrier who has in good faith settled the assured’s
reiterate, under Article 365, the nature of damage claim for loss, the settlement is binding on both the
must be such that the goods are rendered useless for assured and the insurer, and the latter cannot bring
sale, consumption or intended purpose for the an action against the carrier on his right of
consignee to be able to validly reject them. subrogation. x x x And where the insurer pays the
assured for a loss which is not a risk covered by the
policy, thereby effecting ‘voluntary payment,’ the "The burden of proof is on the party who would be
former has no right of subrogation against the third defeated if no evidence would be presented on either
party liable for the loss x x x."21 side. The burden is to establish one’s case by a
preponderance of evidence which means that the
The rights of a subrogee cannot be superior to the evidence, as a whole, adduced by one side, is
rights possessed by a subrogor. "Subrogation is the superior tothat of the other. Actual damages are not
substitution of one person in the place of another with presumed. The claimant must prove the actual
reference to a lawful claim or right, so that he who is amount of loss with a reasonable degree of certainty
substituted succeeds to the rights of the other in premised upon competent proof and on the best
relation to a debt or claim, including its remedies or evidence obtainable. Specific facts that could afford a
securities. The rights to which the subrogee succeeds basis for measuring whatever compensatory or actual
are the same as, but not greaterthan, those of the damages are borne must be pointed out. Actual
person for whom he is substituted, that is, he cannot damages cannot be anchored on mere surmises,
acquire any claim, security or remedy the subrogor speculations or conjectures."24
did not have. In other words, a subrogee cannot
succeed to a right not possessed by the subrogor. A Having ruled that Malayan did not adduce proof of
subrogee in effect steps into the shoes of the insured pecuniary loss to PASAR for which the latter was
and can recover only ifthe insured likewise could have questionably indemnified, there is no necessity to
recovered."22 Consequently, an insurer indemnifies the expound further on the other issues raised by the
insured based on the loss or injury the latter actually petitioners and Malayan in this case.
suffered from. If there is no loss or injury, then there is
no obligation on the part of the insurer to indemnify WHEREFORE, the petition is GRANTED. The
the insured. Should the insurer pay the insured and it Decision dated April 14, 2008 and Resolution dated
turns out that indemnification is not due, or if due, the December 11, 2008 of the Court of Appeals in CA-
amount paid is excessive, the insurer takes the risk of G.R. CV No. 82758 are hereby REVERSED and SET
not being able to seek recompense from the alleged ASIDE. The Decision dated March 31, 2004 of the
wrongdoer. This is because the supposed subrogor Regional Trial Comi of Manila, Branch 34 in Civil
did not possessthe right to be indemnified and Case No·. 01-101885 is REINSTATED.
therefore, no right to collect is passed on to the
subrogee. As regards the determination of actual SO ORDERED.
damages, "[i]t is axiomatic that actual damages must
be proved with reasonable degree of certainty and a
party is entitled only to such compensation for the
pecuniary loss that was duly proven."23 Article 2199 of
the New Civil Code speaks of how actual damages
are awarded:

Art. 2199. Except as provided by law or by stipulation,


one is entitled to an adequate compensation only for
such pecuniary loss suffered by him as he has duly
proved. Such compensation is referred to as actual or
compensatory damages.

Whereas the CA modified its Decision dated April 14,


2008 by deducting the amount of US$90,000.00
fromthe award, the same is still iniquitous for the
petitioners because PASAR and Malayan never
proved the actual damages sustained by PASAR. It is
a flawed notion to merely accept that the salvage
value of the goods is US$90,000.00, since the price
was arbitrarily fixed between PASAR and Malayan.
Actual damages to PASAR, for example, could
include the diminution in value as appraised by
experts or the expenses which PASAR incurred for
the restoration of the copper concentrates to its
former condition, ifthere is damage and rectification is
still possible.

It is also note worthy that when the expert witness for


the petitioners, Engineer Francisco Esguerra
(Esguerra), testified as regards the lack of any
adverse effect of seawater on copper concentrates,
Malayan never presented evidence of its own in
refutation to Esguerra’s testimony. And, even if the
Court will disregard the entirety of his testimony, the
effect on Malayan’s cause of action is nil. As Malayan
is claiming for actual damages, it bears the burden of
proof to substantiate its claim.
Pacific Timber v CA G.R. consideration. The trial court ruled in petitioner’s favor
while the CA dismissed the case. Hence this appeal.
No. L-38613 February 25,
Issues:
1982 WON the cover note was null and void for lack of
J. De Castro valuable consideration
WON the Insurance company was absolved from
Facts: responsibility due to unreasonable delay in giving
The plaintiff secured temporary insurance from the notice of loss.
defendant for its exportation of 1,250,000 board feet
of Philippine Lauan and Apitong logs to be shipped Held: No. No. Judgment reversed.
from Quezon Province to Okinawa and Tokyo, Japan.
Workmen’s Insurance issued a cover note insuring Ratio:
the cargo of the plaintiff subject to its terms and 1. The fact that no separate premium was paid on the
conditions. Cover Note before the loss occurred does not militate
against the validity of the contention even if no such
The two marine policies bore the numbers 53 HO premium was paid. All Cover Notes do not contain
1032 and 53 HO 1033. Policy No. 53 H0 1033 was for particulars of the shipment that would serve as basis
542 pieces of logs equivalent to 499,950 board feet. for the computation of the premiums. Also, no
Policy No. 53 H0 1033 was for 853 pieces of logs separate premiums are required to be paid on a
equivalent to 695,548 board feet. The total cargo Cover Note.
insured under the two marine policies consisted of
1,395 logs, or the equivalent of 1,195.498 bd. ft. The petitioner paid in full all the premiums, hence
there was no account unpaid on the insurance
After the issuance of the cover note, but before the coverage and the cover note. If the note is to be
issuance of the two marine policies Nos. 53 HO 1032 treated as a separate policy instead of integrating it to
and 53 HO 1033, some of the logs intended to be the regular policies, the purpose of the note would be
exported were lost during loading operations in the meaningless. It is a contract, not a mere application
Diapitan Bay. for insurance.

While the logs were alongside the vessel, bad It may be true that the marine insurance policies
weather developed resulting in 75 pieces of logs issued were for logs no longer including those which
which were rafted together co break loose from each had been lost during loading operations. This had to
other. 45 pieces of logs were salvaged, but 30 pieces be so because the risk insured against is for loss
were verified to have been lost or washed away as a during transit, because the logs were safely placed
result of the accident. aboard.

Pacific Timber informed Workmen’s about the loss of The non-payment of premium on the Cover Note is,
32 pieces of logs during loading of SS woodlock. therefore, no cause for the petitioner to lose what is
Although dated April 4, 1963, the letter was received due it as if there had been payment of premium, for
in the office of the defendant only on April 15, 1963. non-payment by it was not chargeable against its
The plaintiff claimed for insurance to the value of fault. Had all the logs been lost during the loading
P19,286.79. operations, but after the issuance of the Cover Note,
liability on the note would have already arisen even
Woodmen’s requested an adjustment company to before payment of premium. Otherwise, the note
assess the damage. It submitted its report, where it would serve no practical purpose in the realm of
found that the loss of 30 pieces of logs is not covered commerce, and is supported by the doctrine that
by Policies Nos. 53 HO 1032 and 1033 but within the where a policy is delivered without requiring payment
1,250,000 bd. ft. covered by Cover Note 1010 insured of the premium, the presumption is that a credit was
for $70,000.00. intended and policy is valid.

The adjustment company submitted a computation of 2. The defense of delay can’t be sustained. The facts
the defendant's probable liability on the loss sustained show that instead of invoking the ground of delay in
by the shipment, in the total amount of P11,042.04. objecting to petitioner's claim of recovery on the cover
Woodmen’s wrote the plaintiff denying the latter's note, the insurer never had this in its mind. It has a
claim on the ground they defendant's investigation duty to inquire when the loss took place, so that it
revealed that the entire shipment of logs covered by could determine whether delay would be a
the two marine policies were received in good order at valid ground of objection.
their point of destination. It was further stated that the
said loss may be considered as covered under Cover There was enough time for insurer to determine if
Note No. 1010 because the said Note had become petitioner was guilty of delay in communicating the
null and void by virtue of the issuance of Marine loss to respondent company. It never did in the
Policy Nos. 53 HO 1032 and 1033. Insurance Commission. Waiver can be raised against
it under Section 84 of the Insurance Act.
The denial of the claim by the defendant was brought
by the plaintiff to the attention of the
Insurance Commissioner. The
Insurance Commissioner ruled in favor of
indemnifying Pacific Timber. The company added that
the cover note is null and void for lack of valuable
Great Pacific v CA G.R. No. The receipt is merely an acknowledgment that the
latter's branch office had received from the applicant
L-31845 April 30, 1979 the insurance premium and had accepted the
J. De Castro application subject for processing by the insurance
company. There was still approval or rejection the
Facts: same on the basis of whether or not the applicant is
Ngo Hing filed an application with the Great Pacific for "insurable on standard rates." Since Pacific
a twenty-year endowment policy in the amount of Life disapproved the insurance application of
P50,000.00 on the life of his one-year old daughter respondent Ngo Hing, the binding deposit receipt in
Helen. He supplied the essential data which petitioner question had never become in force at any time. The
Mondragon, the Branch Manager, wrote on the form. binding deposit receipt is conditional and does not
The latter paid the annual premium the sum of insure outright. This was held in Lim v Sun.
P1,077.75 going over to the Company, but he
retained the amount of P1,317.00 as his commission The deposit paid by private respondent shall have to
for being a duly authorized agent of Pacific Life. be refunded by Pacific Life.

Upon the payment of the insurance premium, the 2. Ngo Hing had deliberately concealed the state of
binding deposit receipt was issued Ngo Hing. health of his daughter Helen Go. When he supplied
Likewise, petitioner Mondragon handwrote at data, he was fully aware that his one-year old
the bottom of the back page of the application daughter is typically a mongoloid child. He withheld
form his strong recommendation for the approval of the fact material to the risk insured.
the insurance application. Then Mondragon received
a letter from Pacific Life disapproving the insurance “The contract of insurance is one of perfect good faith
application. The letter stated that the said life uberrima fides meaning good faith, absolute and
insurance application for 20-year endowment plan is perfect candor or openness and honesty; the absence
not available for minors below seven years old, but of any concealment or demotion, however slight.”
Pacific Life can consider the same under the Juvenile The concealment entitles the insurer to rescind the
Triple Action Plan, and advised that if the offer is contract of insurance.
acceptable, the Juvenile Non-Medical Declaration be
sent to the company.

The non-acceptance of the insurance plan by Pacific


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

Helen Go died of influenza. Ngo Hing sought the


payment of the proceeds of the insurance, but having
failed in his effort, he filed the action for the recovery
before the Court of First Instance of Cebu, which
ruled against him.

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

Held: No. Yes. Petition dismissed.

Ratio:
The receipt was intended to be merely a provisional
insurance contract. Its perfection was subject to
compliance of the following conditions: (1) that the
company shall be satisfied that the applicant was
insurable on standard rates; (2) that if the company
does not accept the application and offers to issue a
policy for a different plan, the insurance contract shall
not be binding until the applicant accepts the policy
offered; otherwise, the deposit shall be refunded; and
(3) that if the company disapproves the application,
the insurance applied for shall not be in force at any
time, and the premium paid shall be returned to the
applicant.
1. G.R. No. 211212, June 08, 2016
The respondents reiterated their claim against
SUN LIFE OF CANADA (PHILIPPINES), Sun Life thru a letter dated September 17, 2001.
INC., Petitioner, v. MA. DAISY'S. SIBYA, Sun Life, however, refused to heed the
JESUS MANUEL S. SIBYA III, JAIME LUIS S. respondents' requests and instead filed a
SIBYA, AND THE ESTATE OF THE DECEASED Complaint for Rescission before the RTC and
ATTY. JESUS SIBYA, JR., Respondents. prayed for judicial confirmation of Atty. Jesus
Jr.'s rescission of insurance policy.10
DECISION
In its Complaint, Sun Life alleged that Atty. Jesus
Jr. did not disclose in his insurance application his
REYES, J.:
previous medical treatment at the National
Kidney Transplant Institute in May and August of
Before this Court is a petition for review 1994. According to Sun Life, the undisclosed fact
on certiorari1 under Rule 45 of the Rules of Court suggested that the insured was in "renal failure"
seeking to annul and set aside the and at a high risk medical condition.
Decision2 dated November 18, 2013 and Consequently, had it known such fact, it would
Resolution3 dated February 13, 2014 of the Court not have issued the insurance policy in favor of
of Appeals (CA) in CA-G.R. CV. No. 93269. In Atty. Jesus Jr.11
both instances, the CA affirmed the
Decision4 dated March 16, 2009 of the Regional For their defense, the respondents claimed that
Trial Court (RTC) of Makati City, Branch 136, in Atty. Jesus Jr. did not commit misrepresentation
Civil Case No. 01-1506, ordering petitioner Sun in his application for insurance. They averred that
Life of Canada (Philippines), Inc. (Sun Life) to Atty. Jesus Jr. was in good faith when he signed
pay Ma. Daisy S. Sibya (Ma. Daisy), Jesus Manuel the insurance application and even authorized
S. Sibya III, and Jaime Luis S. Sibya Sun Life to inquire further into his medical history
(respondents) the amounts of P1,000,000.00 as for verification purposes. According to them, the
death benefits, P100,000.00 as moral damages, complaint is just a ploy to avoid the payment of
P100,000.00 as exemplary damages, and insurance claims.12
P100,000.00 as attorney's fees and costs of suit.
Insofar as the charges for violation of Sections Ruling of the RTC
241 and 242 of Presidential Decree No. 612, or
the Insurance Code of the Philippines, however, On March 16, 2009, the RTC issued its
the CA modified the decision of the RTC and Decision13 dismissing the complaint for lack of
absolved Sun Life therein. merit. The RTC held that Sun Life violated
Sections 241, paragraph 1(b), (d), and (e)14 and
Statement of Facts of the Case 24215 of the Insurance Code when it refused to
pay the rightful claim of the respondents.
On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Moreover, the RTC ordered Sun Life to pay the
Jesus Jr.) applied for life insurance with Sun Life. amounts of P1,000,000.00 as death benefits,
In his Application for Insurance, he indicated that P100,000.00 as moral damages, P100,000.00 as
he had sought advice for kidney problems.5 Atty. exemplary damages, and P100,000.00 as
Jesus Jr. indicated the following in his attorney's fees and costs of suit.
application:
chanRoblesvirtualLawlibrary The RTC held that Atty. Jesus Jr. did not commit
"Last 1987, had undergone lithotripsy due to material concealment and misrepresentation
kidney stone under Dr. Jesus Benjamin Mendoza when he applied for life insurance with Sun Life.
at National Kidney Institute, discharged after 3 It observed that given the disclosures and the
days, no recurrence as waiver and authorization to investigate executed
claimed."6ChanRoblesVirtualawlibrary by Atty. Jesus Jr. to Sun Life, the latter had all
On February 5, 2001, Sun Life approved Atty. the means of ascertaining the facts allegedly
Jesus Jr.'s application and issued Insurance Policy concealed by the applicant.16
No. 031097335. The policy indicated the
respondents as beneficiaries and entitles them to Aggrieved, Sun Life elevated the case to the CA.
a death benefit of P1,000,000.00 should Atty.
Jesus Jr. dies on or before February 5, 2021, or a Ruling of the CA
sum of money if Atty. Jesus Jr. is still living on
the endowment date.7 On appeal, the CA issued its Decision17 dated
November 18, 2013 affirming the RTC decision in
On May 11, 2001, Atty. Jesus Jr. died as a result ordering Sun Life to pay death benefits and
of a gunshot wound in San Joaquin, Iloilo. As damages in favor of the respondents. The CA,
such, Ma. Daisy filed a Claimant's Statement with however, modified the RTC decision by absolving
Sun Life to seek the death benefits indicated in Sun Life from the charges of violation of Sections
his insurance policy.8 241 and 242 of the Insurance Code.18
In a letter dated August 27, 2001, however, Sun The CA ruled that the evidence on records show
Life denied the claim on the ground that the that there was no fraudulent intent on the part of
details on Atty. Jesus Jr.'s medical history were Atty. Jesus Jr. in submitting his insurance
not disclosed in his application. Simultaneously, application. Instead, it found that Atty. Jesus Jr.
Sun Life tendered a check representing the admitted in his application that he had sought
refund of the premiums paid by Atty. Jesus Jr.9 medical treatment for kidney ailment.19
misrepresentation.
Sun Life filed a Motion for Partial
Reconsideration20 dated December 11, 2013 but As correctly observed by the CA, Atty. Jesus Jr.
the same was denied in a Resolution21 dated admitted in his application his medical treatment
February 13, 2014. for kidney ailment. Moreover, he executed an
authorization in favor of Sun Life to conduct
Undaunted, Sun Life filed an appeal by way of investigation in reference with his medical
petition for review on certiorari under Rule 45 of history. The decision in part states:
the Rules of Court before this Court. chanRoblesvirtualLawlibrary
Records show that in the Application for
The Issue Insurance, [Atty. Jesus Jr.] admitted that he had
sought medical treatment for kidney ailment.
Essentially, the main issue of the instant case is When asked to provide details on the said
whether or not the CA erred when it affirmed the medication, [Atty. Jesus Jr.] indicated the
RTC decision finding that there was no following information: year ("1987"), medical
concealment or misrepresentation when Atty. procedure ("undergone lithotripsy due to kidney
Jesus Jr. submitted his insurance application with stone"), length of confinement ("3 days"),
Sun Life. attending physician ("Dr. Jesus Benjamin
Mendoza") and the hospital ("National Kidney
Ruling of the Court Institute").

The petition has no merit. It appears that [Atty. Jesus Jr.] also signed the
Authorization which gave [Sun Life] the
In Manila Bankers Life Insurance Corporation v. opportunity to obtain information on the facts
Aban,22 the Court held that if the insured dies disclosed by [Atty. Jesus Jr.] in his insurance
within the two-year contestability period, the application. x x x
insurer is bound to make good its obligation
under the policy, regardless of the presence or xxxx
lack of concealment or misrepresentation. The
Court held: Given the express language of the Authorization,
chanRoblesvirtualLawlibrary it cannot be said that [Atty. Jesus Jr.] concealed
Section 48 serves a noble purpose, as it his medical history since [Sun Life] had the
regulates the actions of both the insurer and the means of ascertaining [Atty. Jesus Jr.'s] medical
insured. Under the provision, an insurer is given record.
two years - from the effectivity of a life insurance
contract and while the insured is alive - to With regard to allegations of misrepresentation,
discover or prove that the policy is void ab we note that [Atty. Jesus Jr.] was not a medical
initio or is rescindible by reason of the fraudulent doctor, and his answer "no recurrence" may be
concealment or misrepresentation of the insured construed as an honest opinion. Where matters
or his agent. After the two-year period of opinion or judgment are called for, answers
lapses, or when the insured dies within the made in good faith and without intent to deceive
period, the insurer must make good on the will not avoid a policy even though they are
policy, even though the policy was obtained untrue.24 (Citations omitted and italics in the
by fraud, concealment, or original)
misrepresentation. This is not to say that Indeed, the intent to defraud on the part of the
insurance fraud must be rewarded, but that insured must be ascertained to merit rescission
insurers who recklessly and indiscriminately of the insurance contract. Concealment as a
solicit and obtain business must be penalized, for defense for the insurer to avoid liability is an
such recklessness and lack of discrimination affirmative defense and the duty to establish
ultimately work to the detriment of bona such defense by satisfactory and convincing
fide takers of insurance and the public in evidence rests upon the provider or insurer.25 In
general.23 (Emphasis ours) the present case, Sun Life failed to clearly and
In the present case, Sun Life issued Atty. Jesus satisfactorily establish its allegations, and is
Jr.'s policy on February 5, 2001. Thus, it has two therefore liable to pay the proceeds of the
years from its issuance, to investigate and verify insurance.
whether the policy was obtained by fraud,
concealment, or misrepresentation. Upon the Moreover, well-settled is the rule that this Court
death of Atty. Jesus Jr., however, on May 11, is not a trier of facts. Factual findings of the
2001, or a mere three months from the issuance lower courts are entitled to great weight and
of the policy, Sun Life loses its right to rescind respect on appeal, and in fact accorded finality
the policy. As discussed in Manila Bankers, the when supported by substantial evidence on the
death of the insured within the two-year period record.26
will render the right of the insurer to rescind the
policy nugatory. As such, the incontestability WHEREFORE, the petition for review
period will now set in. is DENIED. The Decision dated November 18,
2013 and Resolution dated February 13, 2014 of
Assuming, however, for the sake of argument, the Court of Appeals in CA-G.R. CV. No. 93269
that the incontestability period has not yet set in, are hereby AFFIRMED.
the Court agrees, nonetheless, with the CA when
it held that Sun Life failed to show that Atty. SO ORDERED.cralawlawlibrary
Jesus Jr. committed concealment and
2. G.R. No. 204736, November 28, 2016 being hypertensive, and his kidneys have become atretic or
shrunken. A copy of each of the Admission and Discharge
MANULIFE PHILIPPINES, Record and PGIS' Interns' Progress Notes and Operative
INC.,1 Petitioners, v. HERMENEGILDA Record of the [CDH] is attached hereto and made an integral
YBAÑEZ, Respondent. part hereof as Annex "K", "K-1", and "K-2", respectively.

(2) Insured’s confinement at the CDH from 9 May 2002 to 14


DECISION
May 2002, wherein he was diagnosed to have acute
pancreatitis, in addition to being hypertensive. A copy [of]
DEL CASTILLO, J.: each of the Insured's Admission and Discharge Record and
Doctor's History/Progress Notes is attached hereto and made
Assailed in this Petition for Review on Certiorari2 are the an integral part hereof as Annex "L" and "L-1", respectively.
April 26, 2012 Decision3 of the Court of Appeals (CA) in CA-
G.R. CV No. 95561 and its December 10, 2012 (3) Insured's diagnosis for leptospirosis in 2000. A copy [of]
Resolution4 which affirmed the April 22, 2008 Decision5 and each of the Insured's Admission and Discharge Record and
the June 15, 2009 Order6 of the Regional Trial Court (RTC), History Sheet is attached hereto and made an integral part
Branch 57, Makati City in Civil Case No. 04-1119. hereof as Annex "M" and "M-1", respectively.

Factual Antecedents xxxx


2.8. Due to the Insured's concealment of material facts at the
Before the RTC of Makati City, Manulife Philippines, Inc. time the subject insurance policies were applied for and
(Manulife) instituted a Complaint7 for Rescission of Insurance issued, [Manulife] exercised its right to rescind the subject
Contracts against Hermenegilda Ybañez (Hermenegilda) and insurance contracts and denied the claims on those policies.
the BPI Family Savings Bank (BPI Family). This was
docketed as Civil Case No. 04-1119. x x x x16
Manulife thus prayed that judgment be rendered finding its act
It is alleged in the Complaint that Insurance Policy Nos.
of rescinding the subject insurance policies proper; declaring
6066517-18 and 6300532-69 (subject insurance policies) which
these subject insurance policies null and void; and
Manulife issued on October 25, 2002 and on July 25, 2003,
respectively, both in favor of Dr. Gumersindo Solidum discharging. it from any obligation whatsoever under these
Ybañez (insured), were void due to concealment or policies.17
misrepresentation of material facts in the latter's applications
In her Answer, Hermenegilda countered that:
for life insurance, particularly the forms entitled Non-Medical
6. [Manulife's own insurance agent, Ms. Elvira Monteclaros
Evidence dated August 28, 2002 (NME),10 Medical Evidence
herself] assured [the insured,] that there would be no problem
Exam dated September 10, 2002 (MEE), 11 and the Declaration
of Insurability in the Application for Life Insurance (DOI) regarding the application for the insurance policy. In tact, it
dated July 9, 2003;12 that Hermenegilda, wife of the said was Monteclaros who filled up everything in the questionnaire
(Annex "C" of the [C]omplaint), so that [all that the insured
insured, was revocably designated as beneficiary in the subject
needed to do was sign it,] and it's done. [It was also Ms.
insurance policies; that on November 17, 2003, when one of
Monteclaros who herself] checked in advance all the boxes in
the subject insurance policies had been in force for only one
Annex "C," [that the insured himself was required to answer
year and three months, while the other for only four months,
the insured died; that on December 10, 2003, Hermenegilda, or check].
now widow to the said insured, filed a Claimant's Statement-
xxxx
Death Claim13 with respect to the subject insurance policies;
that the Death Certificate dated November 17, 2003 14 stated
10. The four grounds for denial as enumerated in Annex "N"
that the insured had "Hepatocellular CA., Crd Stage 4,
secondary to Uric Acid Nephropathy; SAM Nephropathy of the complaint are refuted as follows:
recurrent malignant pleural effusion; NASCVC"; that 1) [The insured's] hospital confinement on 27 December 2000
at [the CDH was] due to right parotid swelling secondary to
Manulife conducted an investigation into the circumstances
tumor [for which he] underwent Parotidectomy on 28
leading to the said insured's death, in view of the
December 2000. (There is an obvious scar and disfigurement
aforementioned entries in the said insured's Death Certificate;
in the right side of [the insured's] face, in front, and below his
that Manulife thereafter concluded that the insured
misrepresented or concealed material facts at the time the ear. This [ought to] have been easily noticed by [Manulife's
subject insurance policies were applied for; and that for this company] physician, Dr. [Winifredo] Lumapas.
reason Manulife accordingly denied Hermenegilda's death
2) [The insured's] history of Hypertension [has been] noted 03
claims and refunded the premiums that the insured paid on the
years prior to [the insured's] admission on 27 December 2000.
subject insurance policies.15
(This is not something serious or fatal)
Manulife also set forth in said Complaint the details of the
insured's supposed misrepresentation/s or concealment/s, to 3) [The insured's] history of Leptospirosis in 2000. (This is not
confirmed)
wit:
4) [The insured's] hospital confinement [at the CDH] on 09
2.6. On the basis of the authority granted by [Hermenegilda] May 2002 with findings of Agute Pancreatitis (This is related
in her Claimant's Statement (Annex "H"), [Manulife] to the gallstones of [the insured]. When the gallbladder is
conducted an investigation [into] the Insured's medical records diseased, distention is impossible and its pressure regulating
and history, and discovered that the Insured concealed function is lost - a fact that may explain high incidence of
material facts which the law, good faith, and fair dealing pancreatitis in patient with cholecystic disease. [The insured]
required him to reveal when he answered the [NME] (Annex had cholecystitis, so his acute pancreatitis is related to the
"C"), [the MEE] (Annex "D"), and [the DOI] (Annex "E"), as cholecystitis and chol[e]lithiasis (gallstones).
follows:
(1) Insured's confinement at the Cebu Doctors' Hospital xxxx
[CDH] from 27 December 2000 to 31 December 2000, 11. [Manulife] accepted [the insured's] application, and now
wherein he underwent total parotidectomy on 28 December that a claim for the benefits [is] made, [Manulife now] says
2000 due to the swelling of his right parotid gland and the that [the insured] misrepresented and concealed his past
presence of a tumor, and was found to have had a history of
illnesses[!] In the form filled up by [Dr. Winifredo F. 18. It is interesting to note that the answers in the insurance
Lumapas,] Manulife's [company] physician, dated 9/10/02, agent's form for [the insured] (Annex "C" of the Complaint)
[the insured] checked the column which says ''yes" (to] the did not jibe with the answers [made by] Dr. Lumapas in
following questions: Annex "D" of the Complaint. This only boosts Hermenegilda's
claim that x x x indeed, it was the Manulife's agent herself,
 Have you had electrocardiograms, when, why, result? (Ms. Montesclaros) who checked all the items in the said form
([Manulife's company physician] wrote the answer to speed up the insurance application and its approval, [so she
which stated that result was normal.) could] get her commission as soon as possible.

 Have you seen a doctor, or had treatment operation 19. In fine, at the time when both insurance policies in
on hospital case during the last five years? question were submitted for approval to [Manulife, the latter
had had all the forewarnings that should have put it on guard
or on notice that things were not what it wanted them to be,
12. x x x It is rather strange that [the insured's] parotidectomy reason enough to bestir it into exercising greater prudence and
was not included in the report when the scar of that operation caution to further inquire into) the health or medical history of
can not be concealed because it caused a disfigurement in the [the insured]. In particular, Manulife ought to have noted the
right side of his face in front and below his ear. This is just too fact that the insured was at that time already 65 years old, x x
obvious to be overlooked by [Manulife's company physician] x that he had a previous operation, and x x x that his health
who examined and interviewed [the insured] before accepting was "below average. x x x18
the policy. x x x On November 25, 2005, BPI Family filed a
Manifestation19 praying that either it be dropped from the case
13. x x x [Undoubtedly, Manulife] had the option to inquire or that the case be dismissed with respect to it (BPI Family),
further [into the insured's physical condition, because the because it no longer had any interest in the subject insurance
insured had given it authority to do so] based on the authority policies as asssignee because the insureds obligation with it
given by [the insured. And how come that Manulife] was able (BPI Family) had already been settled or paid. Since no
to gather all [these] information now and not before [the objection was interposed to this prayer by either Manulife or
insured] was ensured? x x x Hermenegilda, the RTC granted this prayer in its Order of
November 25, 2005.20
xxxx
Then in the Second Order dated November 25, 2005,21 the
16. Moreover, in the comments of [the said] Dr. Lumapas, RTC considered the pre-trial as terminated. Trial then ensued.
(Annex "D" of the Complaint), he said the physical condition
of [the] then prospective insurance policy holder, [the insured, Manulife presented its sole witness in the person of Ms.
was] "below average". x x x [Estoppel now bars Manulife Jessiebelle Victoriano (Victoriano), the Senior Manager of its
from claiming the contrary.] Claims and Settlements Department.22 The oral testimony of
this witness chiefly involved identifying herself as the Senior
17. [Especially] worth noting are the [following] comments of Manager of Manulife's Claims and Settlements Department
[the said Dr. Lumapas, on the insured's answer to the and also identifying the following pieces of evidence;23 the
questionnaires] - (Annex "D" of the Complaint), [to wit:] subject insurance policies; NME, MEE, DOI; the Assignment
"4. d. Have you had any electrocardiograms, when, why, of Policy No. 6066517-1 to BPI Family as collateral, dated
result. "Yes" July 9, 2003; its Letter dated July 10, 2003 re: assignment of
said Policy; death claim filed by Hermenegilda on December
- on June 2002 at CDH, Cebu City 10, 2003; the insured's Death Certificate; the Marriage
Contract between the insured and Hermenegilda; copies of
= Cardiac clearance for surgery CDH's Admission and Discharge Records of the insured for
December 2000 re: parotidectomy; copies of CDH's PGIS'
= Result normal Interns' Notes and CDH Operative Record dated December 28,
2000 re: hypertension; copies of CDH's Admission and
16. Have you seen a doctor, or had treatment, operation or Discharge Record of the insured for May 2002, and the
hospital care during the last 5 years? "Yes" admitted at Doctor's History/Progress Notes re: acute pancreatitis and
[CDH,] Cebu City by Dr. Lamberto Garcia and Dr. Jorge Ang hypertension; copies of CDH's Admission and Discharge
for Chronic Calculous Chol[e]cystitis Record of the insured for October 2003 re: leptospirosis;
letters dated March 24, 2004 to Hermenegilda and BPI
= Cholecystectomy done [J]une 7[,] 2002 by Dr. Ang Family; and BPI Checks deposited on April 10, 2004 and May
14, 2004 to the bank accounts of BPI Family and
= Biopsy: Gallbladder Chronic Calculous Cholecystitis Hermenegilda, respectively, representing the premium refund.
= CBC, Hepatitis Panel done - all negative results except In its Order of October 2, 2006,24 the RTC admitted all these
hepatitis antigen (+) exhibits.
18. Do you. consume alcohol beverages? If so, how Like Manulife, Hermenegilda, in an1plication of her case, also
much? Yes, consumes 12 shots of whisky during socials. called only one witness to the witness stand: her counsel of
record, Atty. Edgardo Mayol (Atty. Mayol), whose testimony
25. The abdomen - Abnormality of any viscus, genitalia or focused on his professional engagement with Hermenegilda
evidence of hernia or operation - post cholecystectomy scar. and the monetary expenses he incurred in attending to the
hearings in this case.25cralawred Hermenegilda thereafter filed
26. The head and neck - vision, optic, fundi, hearing, speech, her Formal Offer of Evidence26 wherein she proffered the
thyroid etc. Yes wears eyeglasses for reading. (This is where following: NME, MEE, DOI, the insured's driver's license, her
[Manulife's company physician] should have written the scar letter dated May 8, 2004 protesting the denial by Manulife of
of [the insured's] parotidectomy as shown in the picture). her insurance claim, the contract of services between her and
Atty. Mayol, the official receipts for plane tickets, terminal
32. From your knowledge of this person would you consider fees, and boarding passes, attesting to Atty. Mayol's plane
his/ her health to be Average [ ] Below average [/] Poor [ ] travels to and from Cebu City to attend to this case. These
were all admitted by the RTC.27
(Underscoring ours)
Ruling of the Regional Trial Court misrepresentation or concealment in insurance is an
affirmative defense, which the insurer must establish by
After due proceedings, the RTC dismissed Manulife's convincing evidence if it is to avoid liability; and that in this
Complaint, thus: case the one and only witness presented by Manulife utterly
WHEREFORE, premises duly considered, judgment is hereby failed to prove the basic elements of the alleged
rendered DISMISSING the instant case for insufficiency of misrepresentation/s or concealment/s of material facts imputed
evidence. by Manulife against the now deceased insured. The CA held
that there is no basis for Manulife's claim that it is exempted
[Manulife] is hereby ordered to pay [Hermenegilda] actual from the duty of proving the insured's supposed
expenses in the sum of P40,050.00 and attorney's fees in the misrepresentation/s or concealment/s, as these had allegedly
sum of P100,000. been admitted already in Hermenegilda's Answer; that in the
absence of authentication by a competent witness, the
[Hermenegilda's] claim for moral and exemplary damages is purported CDH medical records of the insured are deemed
denied for lack of evidence. hearsay hence, inadmissible, and devoid of probative value;
and that the medical certificate, even if admitted in evidence
SO ORDERED.28 as an exception to the hearsay rule, was still without probative
The RTC found no merit at all in Manulife's Complaint for value because the physician or doctor or the hospital's official
rescission of the subject insurance policies because it utterly who issued it, was not called to the witness stand to validate it
failed to prove that the insured had committed the alleged or to attest to it.
misrepresentation/s or concealment/s. In fact, Victoriano, the
one and only witness that Manulife called to the witness stand, Manulife moved for reconsideration36 of the CA's Decision,
gave no firsthand, direct evidence at all relative to the but this was denied by the CA in its Resolution of December
particulars of the alleged misrepresentation/s or concealment/s 10, 2012;37 hence, the present recourse.
that the insured allegedly practiced or committed against it.
This witness did not testify at all in respect to the Issue
circumstances under which these documentary exhibits were
executed, nor yet about what these documentary exhibits Whether the CA committed any reversible error in affirming
purported to embody. The RTC stressed that the CDH medical the RTC Decision dismissing Manulife's Complaint for
records that might or could have established the insured's rescission of insurance contracts for failure to prove
misrepresentation/s or concealment/s were inadmissible for concealment on the part of the insured.
being hearsay, because Manulife did not present the physician
or doctor, or any responsible official of the CDH, who could Our Ruling
confirm the due execution and authenticity of its medical
records; that if anything, Manulife itself admitted in its The present recourse essentially challenges anew the findings
Reply29 that its very own company physician, Dr. Winifredo of fact by both the RTC and the CA that the Complaint for
Lumapas, had duly noted the insured's scar, even as the same rescission of the insurance policies in question will not prosper
company physician also categorized in the MEE the insured's because Manulife failed to prove concealment on the part of
health as "below average"; and that in short, it is evident that the insured. This is not allowed. It is horn-book law that in
Manulife thus had had ample opportunity to verify and to appeal by certiorari to this Court under Rule 45 of the Revised
inquire further into the insured's medical history commencing Rules of Court, the findings of fact by the CA especially
from the date of the MEE but opted not to do so; and that if where such findings of fact are affirmatory or confirmatory of
things did not come up to its standards or expectations, it was the findings of fact of the RTC, as in this case, are conclusive
totally at liberty to reject the insured's applications altogether, upon this Court. The reason is simple: this Court not being a
or it could have demanded a higher premium for the insurance trial court, it does not embark upon the task of dissecting,
coverage. analyzing, evaluating, calibrating or weighing all over again
the evidence, testimonial or documentary, that the parties
The RTC further ruled that Hermenegilda was entitled to adduced during trial. Of course, there are exceptions to this
attorney's fees in the sum of P100,000.00 and actual expenses rule, such as (1) when the conclusion is grounded upon
in the amount of P40,050.00, because she was compelled to speculations, surmises or conjectures; (2) when the inference
litigate to defend her interest against Manulife's patently is manifestly mistaken, absurd or impossible; (3) when there is
unjustified act in rejecting her clearly valid and lawful claim. a grave abuse of discretion; (4) when the judgment is based on
The RTC also found merit in Hermenegilda's claims relative a misapprehension of facts; (5) when the findings of fact are
to the expenses she paid her Cebu-based counsel. conflicting; (6) when there is no citation of specific evidence
on which the factual findings are based; (7) when the findings
In its Order of June 15, 2009,30 the RTC denied tor lack of of absence of facts is contradicted by the presence of evidence
merit Manulife's motion for reconsideration31 and on record; (8) when the findings of the CA are contrary to the
Hermenegilda's motion for partial reconsideration.32 findings of the RTC; (9) when the CA manifestly overlooked
certain relevant and undisputed facts that, if properly
From the RTC's Decision, Manulife filed a Notice of considered, would justify a different conclusion; (10) when the
Appeal33 which was given due course by the RTC in its Order findings of the CA are beyond the issues of the case; and, (11)
of June 11, 2010.34 when the CA's findings are contrary to the admission of both
parties.38 We are satisfied that none of these exceptions
Ruling of the Court of Appeals obtains in the Petition at bench. Thus, this Court must defer to
the findings of fact of the RTC - as affirmed or confirmed by
In its appellate review, the CA virtually adopted en toto the the CA - that Manulife's Complaint for rescission of the
findings of facts made by, and the conclusions of law arrived insurance policies in question was totally bereft of factual and
at, by the RTC. Thus, the CA decreed: legal bases because it had utterly failed to prove that the
WHEREFORE, the instant appeal is DENIED. TI1e assailed insured had committed the alleged misrepresentation/s or
Decision dated April 22, 2008 and Order dated Jtn1e 15, 2009 concealment/s of material facts imputed against him. The RTC
of the Regional Trial Court of Makati, Branch 57, are hereby correctly held that the CDH's medical records that might have
AFFIRMED. established the insured's purported misrepresentation/s or
concealment/s was inadmissible for being hearsay, given the
SO ORDERED.35 fact that Manulife failed to present the physician or any
The CA, like the RTC, found Manulife's Complaint bereft of responsible official of the CDH who could confirm or attest to
legal and factual bases. The CA ruled that it is settled that the due execution and authenticity of the alleged medical
records. Manulife had utterly failed to prove by convincing
evidence that it had been beguiled, inveigled, or cajoled into Petitioner issued Insurance Policy No. 747411
selling the insurance to the insured who purportedly with (the policy), with a face value of P100,000.00, in
malice and deceit passed himself off as thoroughly sound and Sotero's favor on August 30, 1993, after the
healthy, and thus a fit and proper applicant for life insurance. requisite medical examination and payment of
Manulife's sole witness gave no evidence at all relative to the the insurance premium.6cralaw virtualaw library
particulars of the purported concealment or misrepresentation
allegedly perpetrated by the insured. In fact, Victoriano
On April 10, 1996,7 when the insurance policy
merely perfunctorily identified the documentary exhibits
had been in force for more than two years and
adduced by Manulife; she never testified in regard to the
circumstances attending the execution of these documentary seven months, Sotero died. Respondent filed a
exhibits much less in regard to its contents. Of course, the claim for the insurance proceeds on July 9, 1996.
mere mechanical act of identifying these documentary Petitioner conducted an investigation into the
exhibits, without the testimonies of the actual participating claim,8 and came out with the following findings:
parties thereto, adds up to nothing. These documentary
exhibits did not automatically validate or explain themselves. 1. Sotero did not personally apply for
"The fraudulent intent on the part of the insured must be insurance coverage, as she was
established to entitle the insurer to rescind the contract. illiterate;chanr0blesvirtualawlibrary
Misrepresentation as a defense of the insurer to avoid liability
is an affirmative defense and the duty to establish such 2. Sotero was sickly since
defense by satisfactory and convincing evidence rests upon the 1990;chanr0blesvirtualawlibrary
insurer."39 For failure of Manulife to prove intent to defraud
on the part of the insured, it cannot validly sue for rescission 3. Sotero did not have the financial capability
of insurance contracts.
to pay the insurance premiums on
Insurance Policy No.
WHEREFORE, the Petition is DENIED. The assailed
Decision of the Court of Appeals dated April 26, 2012 in CA- 747411;chanr0blesvirtualawlibrary
G.R. CV No. 95561 and its December 10, 2012 Resolution,
are AFFIRMED. 4. Sotero did not sign the July 3, 1993
application for insurance;9 [and]
SO ORDERED. cralawlawlibrary
5. Respondent was the one .who filed the
insurance application, and x x x
designated herself as the
3. G.R. No. 175666, July 29, 2013
beneficiary.10cralaw virtualaw library

MANILA BANKERS LIFE INSURANCE


For the above reasons, petitioner denied
CORPORATION, Petitioner, v. CRESENCIA P.
respondent's claim on April 16, 1997 and
ABAN, Respondent.
refunded the premiums paid on the
policy.11cralaw virtualaw library
DECISION
On April 24, 1997, petitioner filed a civil case for
DEL CASTILLO, J.: rescission and/or annulment of the policy, which
was docketed as Civil Case No. 97-867 and
The ultimate aim of Section 48 of the Insurance assigned to Branch 134 of the Makati Regional
Code is to compel insurers to solicit business Trial Court. The main thesis of the Complaint was
from or provide insurance coverage only to that the policy was obtained by fraud,
legitimate and bona fide clients, by requiring concealment and/or misrepresentation under the
them to thoroughly investigate those they insure Insurance Code,12 which thus renders it voidable
within two years from effectivity of the policy and under Article 139013 of the Civil Code.
while the insured is still alive. If they do not, they
will be obligated to honor claims on the policies Respondent filed a Motion to Dismiss14 claiming
they issue, regardless of fraud, concealment or that petitioner's cause of action was barred by
misrepresentation. The law assumes that they prescription pursuant to Section 48 of the
will do just that and not sit on their laurels, Insurance Code, which provides as follows:
indiscriminately soliciting and accepting insurance Whenever a right to rescind a contract of
business from any Tom, Dick and Harry. insurance is given to the insurer by any provision
of this chapter, such right must be exercised
Assailed in this Petition for Review previous to the commencement of an action on
on Certiorari1 are the September 28, 2005 the contract.
Decision2 of the Court of Appeals (CA) in CA-G.R.
CV No. 62286 and its November 9, 2006 After a policy of life insurance made payable on
Resolution3 denying the petitioner's Motion for the death of the insured shall have been in force
Reconsideration.4cralaw virtualaw library during the lifetime of the insured for a period of
two years from the date of its issue or of its last
Factual Antecedents reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindible by reason
On July 3, 1993, Delia Sotero (Sotero) took out a of the fraudulent concealment or
life insurance policy from Manila Bankers Life misrepresentation of the insured or his agent.
Insurance Corporation (Bankers Life), designating During the proceedings on the Motion to Dismiss,
respondent Cresencia P. Aban (Aban), her petitioner's investigator testified in court, stating
niece,5 as her beneficiary. among others that the insurance underwriter who
solicited the insurance is a cousin of respondent's Issues
husband, Dindo Aban,15 and that it was the
respondent who paid the annual premiums on the Petitioner raises the following issues for
policy.16cralaw virtualaw library resolution:

Ruling of the Regional Trial Court I

[WHETHER] THE COURT OF APPEALS ERRED IN


On December 9, 1997, the trial court issued an SUSTAINING THE ORDER OF THE TRIAL COURT
Order17 granting respondent's Motion to Dismiss, DISMISSING THE COMPLAINT ON THE GROUND
thus: OF PRESCRIPTION IN CONTRAVENTION (OF)
WHEREFORE, defendant CRESENCIA P. ABAN's PERTINENT LAWS AND APPLICABLE
Motion to Dismiss is hereby granted. Civil Case JURISPRUDENCE.
No. 97-867 is hereby dismissed.
II
SO ORDERED.18cralaw virtualaw library
In dismissing the case, the trial court found that [WHETHER] THE COURT OF APPEALS ERRED IN
Sotero, and not respondent, was the one who SUSTAINING THE APPLICATION OF THE
procured the insurance; thus, Sotero could INCONTESTABILITY PROVISION IN THE
legally take out insurance on her own life and INSURANCE CODE BY THE TRIAL COURT.
validly designate - as she did — respondent as
the beneficiary. It held further that under Section III
48, petitioner had only two years from the
effectivity of the policy to question the same; [WHETHER] THE COURT OF APPEALS ERRED IN
since the policy had been in force for more than DENYING PETITIONER'S MOTION FOR
two years, petitioner is now barred from RECONSIDERATION.23cralaw virtualaw library
contesting the same or seeking a rescission or
annulment thereof. Petitioner's Arguments

Petitioner moved for reconsideration, but in In praying that the CA Decision be reversed and
another Order19 dated October 20, 1998, the trial that the case be remanded to the trial court for
court stood its ground. the conduct of further proceedings, petitioner
argues in its Petition and Reply24 that Section 48
Petitioner interposed an appeal with the CA, cannot apply to a case where the beneficiary
docketed as CA-G.R. CV No. 62286. Petitioner under the insurance contract posed as the
questioned the dismissal of Civil Case No. 97- insured and obtained the policy under fraudulent
867, arguing that the trial court erred in applying circumstances. It adds that respondent, who was
Section 48 and declaring that prescription has set merely Sotero's niece, had no insurable interest
in. It contended that since it was respondent - in the life of her aunt.
and not Sotero - who obtained the insurance, the
policy issued was rendered void ab initio for want Relying on the results of the investigation that it
of insurable interest. conducted after the claim for the insurance
proceeds was filed, petitioner insists that
Ruling of the Court of Appeals respondent's claim was spurious, as it appeared
that Sotero did not actually apply for insurance
On September 28, 2005, the CA issued the coverage, was unlettered, sickly, and had no
assailed Decision, which contained the following visible source of income to pay for the insurance
decretal portion: premiums; and that respondent was an impostor,
WHEREFORE, in the light of all the foregoing, posing as Sotero and fraudulently obtaining
the instant appeal is DISMISSED for lack of insurance in the latter's name without her
merit. knowledge and consent.

SO ORDERED.20cralaw virtualaw library Petitioner adds that Insurance Policy No. 747411
The CA thus sustained the trial court. Applying was void ab initio and could not have given rise
Section 48 to petitioner's case, the CA held that to rights and obligations; as such, the action for
petitioner may no longer prove that the subject the declaration of its nullity or inexistence does
policy was void ab initio or rescindible by reason not prescribe.25cralaw virtualaw library
of fraudulent concealment or misrepresentation
after the lapse of more than two years from its Respondent's Arguments
issuance. It ratiocinated that petitioner was
equipped with ample means to determine, within Respondent, on the other hand, essentially
the first two years of the policy, whether fraud, argues in her Comment26 that the CA is correct in
concealment or misrepresentation was present applying Section 48. She adds that petitioner's
when the insurance coverage was obtained. If it new allegation in its Petition that the policy is
failed to do so within the statutory two-year void ab initio merits no attention, having failed to
period, then the insured must be protected and raise the same below, as it had claimed originally
allowed to claim upon the policy. that the policy was merely voidable.

Petitioner moved for reconsideration,21 but the On the issue of insurable interest, respondent
CA denied the same in its November 9, 2006 echoes the CA's pronouncement that since it was
Resolution.22 Hence, the present Petition. Sotero who obtained the insurance, insurable
interest was present. Under Section 10 of the forewarns scheming individuals that their
Insurance Code, Sotero had insurable interest in attempts at insurance fraud would be timely
her own life, and could validly designate anyone uncovered - thus deterring them from venturing
as her beneficiary. Respondent submits that the into such nefarious enterprise. At the same time,
CA's findings of fact leading to such conclusion legitimate policy holders are absolutely protected
should be respected. from unwarranted denial of their claims or delay
in the collection of insurance proceeds occasioned
Our Ruling by allegations of fraud, concealment, or
misrepresentation by insurers, claims which may
The Court denies the Petition. no longer be set up after the two-year period
expires as ordained under the law.
The Court will not depart from the trial and
appellate courts' finding that it was Sotero who Thus, the self-regulating feature of Section 48
obtained the insurance for herself, designating lies in the fact that both the insurer and the
respondent as her beneficiary. Both courts are in insured are given the assurance that any
accord in this respect, and the Court is loath to dishonest scheme to obtain life insurance would
disturb this. While petitioner insists that its be exposed, and attempts at unduly denying a
independent investigation on the claim reveals claim would be struck down. Life insurance
that it was respondent, posing as Sotero, who policies that pass the statutory two-year period
obtained the insurance, this claim is no longer are essentially treated as legitimate and beyond
feasible in the wake of the courts' finding that it question, and the individuals who wield them are
was Sotero who obtained the insurance for made secure by the thought that they will be
herself. This finding of fact binds the Court. paid promptly upon claim. In this manner,
Section 48 contributes to the stability of the
With the above crucial finding of fact - that it was insurance industry.
Sotero who obtained the insurance for herself -
petitioner's case is severely weakened, if not Section 48 prevents a situation where the insurer
totally disproved. Allegations of fraud, which are knowingly continues to accept annual premium
predicated on respondent's alleged posing as payments on life insurance, only to later on deny
Sotero and forgery of her signature in the a claim on the policy on specious claims of
insurance application, are at once belied by the fraudulent concealment and misrepresentation,
trial and appellate courts' finding that Sotero such as what obtains in the instant case. Thus,
herself took out the insurance for herself. instead of conducting at the first instance an
"[Fraudulent intent on the part of the insured investigation into the circumstances surrounding
must be established to entitle the insurer to the issuance of insurance Policy No. 747411
rescind the contract"27 In the absence of proof of which would have timely exposed the supposed
such fraudulent intent, no right to rescind arises. flaws and irregularities attending it as it now
professes, petitioner appears to have turned a
Moreover, the results and conclusions arrived at blind eye and opted instead to continue collecting
during the investigation conducted unilaterally by the premiums on the policy. For nearly three
petitioner after the claim was filed may simply be years, petitioner collected the premiums and
dismissed as self-serving and may not form the devoted the same to its own profit. It cannot now
basis of a cause of action given the existence and deny the claim when it is called to account.
application of Section 48, as will be discussed at Section 48 must be applied to it with full force
length below. and effect.

Section 48 serves a noble purpose, as it The Court therefore agrees fully with the
regulates the actions of both the insurer and the appellate court's pronouncement that -
insured. Under the provision, an insurer is given [t]he "incontestability clause" is a provision in
two years - from the effectivity of a life insurance law that after a policy of life insurance made
contract and while the insured is alive - to payable on the death of the insured shall have
discover or prove that the policy is void ab been in force during the lifetime of the insured
initio or is rescindible by reason of the fraudulent for a period of two (2) years from the date of its
concealment or misrepresentation of the insured issue or of its last reinstatement, the insurer
or his agent. After the two-year period lapses, or cannot prove that the policy is void ab initio or is
when the insured dies within the period, the rescindible by reason of fraudulent concealment
insurer must make good on the policy, even or misrepresentation of the insured or his agent.
though the policy was obtained by fraud,
concealment, or misrepresentation. This is not to The purpose of the law is to give protection to
say that insurance fraud must be rewarded, but the insured or his beneficiary by limiting the
that insurers who recklessly and indiscriminately rescinding of the contract of insurance on the
solicit and obtain business must be penalized, for ground of fraudulent concealment or
such recklessness and lack of discrimination misrepresentation to a period of only two (2)
ultimately work to the detriment of bona years from the issuance of the policy or its last
fide takers of insurance and the public in general. reinstatement.

Section 48 regulates both the actions of the The insurer is deemed to have the necessary
insurers and prospective takers of life insurance. facilities to discover such fraudulent concealment
It gives insurers enough time to inquire whether or misrepresentation within a period of two (2)
the policy was obtained by fraud, concealment, years. It is not fair for the insurer to collect the
or misrepresentation; on the other hand, it premiums as long as the insured is still alive,
only to raise the issue of fraudulent concealment and not alter claims for insurance proceeds are
or misrepresentation when the insured dies in filed with them.
order to defeat the right of the beneficiary to
recover under the policy. Besides, if insurers cannot vouch for the integrity
and honesty of their insurance agents/salesmen
At least two (2) years from the issuance of the and the insurance policies they issue, then they
policy or its last reinstatement, the beneficiary is should cease doing business. If they could not
given the stability to recover under the policy properly screen their agents or salesmen before
when the insured dies. The provision also makes taking them in to market their products, or if
clear when the two-year period should commence they do not thoroughly investigate the insurance
in case the policy should lapse and is reinstated, contracts they enter into with their clients, then
that is, from the date of the last reinstatement. they have only themselves to blame. Otherwise
said, insurers cannot be allowed to collect
After two years, the defenses of concealment or premiums on insurance policies, use these
misrepresentation, no matter how patent or well- amounts collected and invest the same through
founded, will no longer lie. the years, generating profits and returns
therefrom for their own benefit, and thereafter
Congress felt this was a sufficient answer to the conveniently deny insurance claims by
various tactics employed by insurance companies questioning the authority or integrity of their own
to avoid liability. agents or the insurance policies they issued to
their premium-paying clients. This is exactly one
The so-called "incontestability clause" precludes of the schemes which Section 48 aims to
the insurer from raising the defenses of false prevent.
representations or concealment of material facts
insofar as health and previous diseases are Insurers may not be allowed to delay the
concerned if the insurance has been in force for payment of claims by filing frivolous cases in
at least two years during the insured’s lifetime. court, hoping that the inevitable may be put off
The phrase "during the lifetime" found in Section for years - or even decades — by the pendency
48 simply means that the policy is no longer of these unnecessary court cases. In the
considered in force after the insured has died. meantime, they benefit from collecting the
The key phrase in the second paragraph of interest and/or returns on both the premiums
Section 48 is "for a period of two years." previously paid by the insured and the insurance
proceeds which should otherwise go to their
As borne by the records, the policy was issued on beneficiaries. The business of insurance is a
August 30. 1993, the insured died on April 10, highly regulated commercial activity in the
1996, and the claim was denied on April 16, country,29 and is imbued with public
1997. The insurance policy was thus in force for a interest.30 "[A]n insurance contract is a contract
period of 3 years, 7 months, and 24 days. of adhesion which must be construed liberally in
Considering that the insured died after the two- favor of the insured and strictly against the
year period, the plaintiff-appellant is, therefore, insurer in order to safeguard the [former's]
barred from proving that the policy is void ab interest."31cralaw virtualaw library
initio by reason of the insured fraudulent
concealment or misrepresentation or want of WHEREFORE, the Petition is DENIED. The
insurable interest on the part of the beneficiary, assailed September 28, 2005 Decision and the
herein defendant-appellee. November 9, 2006 Resolution of the Court of
Appeals in CA-G.R. CV No. 62286
Well-settled is the rule that it is the plaintiff- are AFFIRMED.
appellant's burden to show that the factual
findings of the trial court are not based on SO ORDERED.
substantial evidence or that its conclusions are
contrary to applicable law and jurisprudence. The
plaintiff-appellant failed to discharge that 4. G.R. No. 195176
burden.28cralaw virtualaw library
Petitioner claims that its insurance agent, who THE INSULAR LIFE ASSURANCE COMPANY,
solicited the Sotero account, happens to be the LTD., Petitioner,
cousin of respondent's husband, and thus vs.
insinuates that both connived to commit PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y.
insurance fraud. If this were truly the case, then KHU, Respondents.
petitioner would have discovered the scheme
earlier if it had in earnest conducted an DECISION
investigation into the circumstances surrounding
the Sotero policy. But because it did not and it DEL CASTILLO, J.:
investigated the Sotero account only after a claim
was filed thereon more than two years later,
The date of last reinstatement mentioned in Section 48
naturally it was unable to detect the scheme. For of the Insurance Code pertains to the date that the
its negligence and inaction, the Court cannot insurer approved· the application for reinstatement.
sympathize with its plight. Instead, its case However, in light of the ambiguity in the insurance
precisely provides the strong argument for documents to this case, this Court adopts the
requiring insurers to diligently conduct interpretation favorable to the insured in determining the
investigations on each policy they issue within date when the reinstatement was approved.
the two-year period mandated under Section 48,
Assailed in this Petition for Review on Certiorari1 are the Antecedent cause: b. Congestive heart failure,
June 24, 2010 Decision2 of the Court of Appeals (CA), Diffuse myocardial ischemia.
which dismissed the Petition in CA-GR. CV No. 81730,
and its December 13, 2010 Resolution3 which denied Underlying cause: c. Diabetes Neuropathy,
the petitioner Insular Life Assurance Company Ltd. 's Alcoholism, and Pneumonia.12
(Insular Life) motion for partial reconsideration.4
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and
Factual Antecedents Frederick Y. Khu (collectively, Felipe’s beneficiaries or
respondents) filed with Insular Life a claim for benefit
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for under the reinstated policy. This claim was denied.
a life insurance policy with Insular Life under the latter’s Instead, Insular Life advised Felipe’s beneficiaries that it
Diamond Jubilee Insurance Plan. Felipe accomplished had decided to rescind the reinstated policy on the
the required medical questionnaire wherein he did not grounds of concealment and misrepresentation by
declare any illness or adverse medical condition. Insular Felipe.
Life thereafter issued him Policy Number A000015683
with a face value of P1 million. This took effect on June Hence, respondents instituted a complaint for specific
22, 1997.5 performance with damages. Respondents prayed that
the reinstated life insurance policy be declared valid,
On June 23, 1999, Felipe’s policy lapsed due to non- enforceable and binding on Insular Life; and that the
payment of the premium covering the period from June latter be ordered to pay unto Felipe’s beneficiaries the
22, 1999 to June 23, 2000.6 proceeds of this policy, among others.13

On September 7, 1999, Felipe applied for the In its Answer, Insular Life countered that Felipe did not
reinstatement of his policy and paid P25,020.00 as disclose the ailments (viz., Type 2 Diabetes Mellitus,
premium. Except for the change in his occupation of Diabetes Nephropathy and Alcoholic Liver Cirrhosis with
being self-employed to being the Municipal Mayor of Ascites) that he already had prior to his application for
Binuangan, Misamis Oriental, all the other information reinstatement of his insurance policy; and that it would
submitted by Felipe in his application for reinstatement not have reinstated the insurance policy had Felipe
was virtually identical to those mentioned in his original disclosed the material information on his adverse health
policy.7 condition. It contended that when Felipe died, the policy
was still
On October 12, 1999, Insular Life advised Felipe that his
application for reinstatement may only be considered if contestable.14
he agreed to certain conditions such as payment of
additional premium and the cancellation of the riders Ruling of the Regional Trial Court (RTC)
pertaining to
On December 12, 2003, the RTC, Branch 39 of Cagayan
premium waiver and accidental death benefits. Felipe de Oro City found15 for Felipe’s beneficiaries, thus:
agreed to these conditions8 and on December 27, 1999
paid the agreed additional premium of P3,054.50.9
WHEREFORE, in view of the foregoing, plaintiffs having
substantiated [their] claim by preponderance of
On January 7, 2000, Insular Life issued Endorsement evidence, judgment is hereby rendered in their favor and
No. PNA000015683, which reads: against defendants, ordering the latter to pay jointly and
severally the
This certifies that as agreed by the Insured, the
reinstatement of this policy has been approved by the sum of One Million (P1,000,000.00) Pesos with legal
Company on the understanding that the following rate of interest from the date of demand until it is fully
changes are made on the policy effective June 22, 1999: paid representing the face value of Plan Diamond
Jubilee No. PN-A000015683 issued to insured the late
1. The EXTRA PREMIUM is imposed; and Felipe N. Khu[,] Sr; the sum of P20,000.00 as moral
damages; P30,000.00 as attorney’s fees; P10,000.00 as
2. The ACCIDENTAL DEATH BENEFIT (ADB) litigation expenses.
and WAIVER OF PREMIUM DISABILITY (WPD)
rider originally attached to and forming parts of SO ORDERED.16
this policy [are] deleted.
In ordering Insular Life to pay Felipe’s beneficiaries, the
In consequence thereof, the premium rates on this policy RTC agreed with the latter’s claim that the insurance
are adjusted to P28,000.00 annually, P14,843.00 semi- policy was reinstated on June 22, 1999. The RTC cited
annually and P7,557.00 quarterly, Philippine currency. 10 the ruling in Malayan Insurance Corporation v. Court of

On June 23, 2000, Felipe paid the annual premium in Appeals17 that any ambiguity in a contract of insurance
the amount of P28,000.00 covering the period from June should be resolved strictly against the insurer upon the
22, 2000 to June 22, 2001. And on July 2, 2001, he also principle that an insurance contract is a contract of
paid the same amount as annual premium covering the adhesion.18 The RTC also held that the reinstated
period from June 22, 2001 to June 21, 2002.11 insurance policy had already become incontestable by
the time of Felipe’s death on September 22, 2001 since
On September 22, 2001, Felipe died. His Certificate of more than two years had already lapsed from the date of
Death enumerated the following as causes of death: the policy’s reinstatement on June 22, 1999. The RTC
noted that since it was Insular Life itself that supplied all
the pertinent forms relative to the reinstated policy, then
Immediate cause: a. End stage renal failure,
it is barred from taking advantage of any
Hepatic failure
ambiguity/obscurity perceived therein particularly as
regards the date when the reinstated insurance policy policy" or to the subsequent phrase "changes are made
became effective. on the policy;" that granting that there was any obscurity
or ambiguity in the insurance policy, the same should be
Ruling of the Court of Appeals laid at the door of Insular Life as it was this insurance
company that prepared the necessary documents that
make up the same;27 and that given the CA’s finding
On June 24, 2010, the CA issued the assailed
which effectively affirmed the RTC’s finding on this
Decision19 which contained the following decretal
portion: particular issue, it stands to reason that the insurance
policy had indeed become incontestable upon the date
of Felipe’s death.28
WHEREFORE, the appeal is DISMISSED. The assailed
Judgment of the lower court is AFFIRMED with the
Our Ruling
MODIFICATION that the award of moral damages,
attorney’s fees and litigation expenses [is] DELETED.
We deny the Petition.
SO ORDERED.20
The Insurance Code pertinently provides that:
The CA upheld the RTC’s ruling on the non-
contestability of the reinstated insurance policy on the Sec. 48. Whenever a right to rescind a contract of
date the insured died. It declared that contrary to Insular insurance is given to the insurer by any provision of this
Life’s contention, there in fact exists a genuine ambiguity chapter, such right must be exercised previous to the
or obscurity in the language of the two documents commencement of an action on the contract.
prepared by Insular Life itself, viz., Felipe’s Letter of
Acceptance and Insular Life’s Endorsement; that given After a policy of life insurance made payable on the
the obscurity/ambiguity in the language of these two death of the insured shall have been in force during the
documents, the construction/interpretation that favors lifetime of the insured for a period of two years from the
the insured’s right to recover should be adopted; and date of its issue or of its last reinstatement, the insurer
that in keeping with this principle, the insurance policy in cannot prove that the policy is void ab initio or is
dispute must be deemed reinstated as of June 22, rescindible by reason of the fraudulent concealment or
1999.21 misrepresentation of the insured or his agent.

Insular Life moved for partial reconsideration22 but this The rationale for this provision was discussed by the
was denied by the CA in its Resolution of December 13, Court in Manila Bankers Life Insurance Corporation v.
2010.23 Hence, the present Petition. Aban,29

Issue Section 48 regulates both the actions of the insurers and


prospective takers of life insurance. It gives insurers
The fundamental issue to be resolved in this case is enough time to inquire whether the policy was obtained
whether Felipe’s reinstated life insurance policy is by fraud, concealment, or misrepresentation; on the
already incontestable at the time of his death. other hand, it forewarns scheming individuals that their
attempts at insurance fraud would be timely uncovered –
thus deterring them from venturing into such nefarious
Petitioner’s Arguments
enterprise. At the same time, legitimate policy holders
are absolutely protected from unwarranted denial of their
In praying for the reversal of the CA Decision, Insular claims or delay in the collection of insurance proceeds
Life basically argues that respondents should not be occasioned by allegations of fraud, concealment, or
allowed to recover on the reinstated insurance policy misrepresentation by insurers, claims which may no
because the two-year contestability period had not yet longer be set up after the two-year period expires as
lapsed inasmuch as the insurance policy was reinstated ordained under the law.
only on December 27, 1999, whereas Felipe died on
September 22, 2001;24 that the CA overlooked the fact
xxxx
that Felipe paid the additional extra premium only on
December 27, 1999, hence, it is only upon this date that
the reinstated policy had become effective; that the CA The Court therefore agrees fully with the appellate
erred in declaring that resort to the principles of statutory court’s pronouncement that-
construction is still necessary to resolve that question
given that the Application for Reinstatement, the Letter xxxx
of Acceptance and the Endorsement in and by
themselves already embodied unequivocal provisions ‘The insurer is deemed to have the necessary facilities to
stipulating that the two-year contestability clause should discover such fraudulent concealment or
be reckoned from the date of approval of the misrepresentation within a period of two (2) years. It is
reinstatement;25 and that Felipe’s misrepresentation and not fair for the insurer to collect the premiums as long as
concealment of material facts in regard to his health or the insured is still alive, only to raise the issue of
adverse medical condition gave it (Insular Life) the right fraudulent concealment or misrepresentation when the
to rescind the contract of insurance and consequently, insured dies in order to defeat the right of the beneficiary
the right to deny the claim of Felipe’s beneficiaries for to recover under the policy.
death benefits under the disputed policy. 26
At least two (2) years from the issuance of the policy or
Respondents’ Arguments its last reinstatement, the beneficiary is given the stability
to recover under the policy when the insured dies. The
Respondents maintain that the phrase "effective June provision also makes clear when the two-year period
22, 1999" found in both the Letter of Acceptance and in should commence in case the policy should lapse and is
the Endorsement is unclear whether it refers to the reinstated, that is, from the date of the last
subject of the sentence, i.e., the "reinstatement of this reinstatement’.
In Lalican v. The Insular Life Assurance Company, [xx] Accept the cancellation of the
Limited,30 which coincidentally also involves the herein Premium waiver & Accidental death
petitioner, it was there held that the reinstatement of the benefit.
insured’s policy is to be reckoned from the date when
the []

application was processed and approved by the insurer. I am/we are agreeable to the above condition/s. Please
There, we stressed that: proceed with the reinstatement of the policy.

To reinstate a policy means to restore the same to Very truly yours,


premium-paying status after it has been permitted to
lapse. x x x Felipe N. Khu, Sr.

xxxx
After Felipe accomplished this form, Insular Life, through
its Regional Administrative Manager, Jesse James R.
In the instant case, Eulogio’s death rendered impossible Toyhorada, issued an Endorsement33 dated January 7,
full compliance with the conditions for reinstatement of 2000. For emphasis, the Endorsement is again quoted
Policy No. 9011992. True, Eulogio, before his death, as follows:
managed to file his Application for Reinstatement and
deposit
ENDORSEMENT

the amount for payment of his overdue premiums and PN-A000015683


interests thereon with Malaluan; but Policy No. 9011992
could only be considered reinstated after the Application
for Reinstatement had been processed and approved by This certifies that as agreed to by the Insured, the
Insular Life during Eulogio’s lifetime and good health.31 reinstatement of this policy has been approved by the
Company on the understanding that the following
changes are made on the policy effective June 22, 1999:
Thus, it is settled that the reinstatement of an insurance
policy should be reckoned from the date when the same
was approved by the insurer. 1. The EXTRA PREMIUM is imposed;
and
In this case, the parties differ as to when the
reinstatement was actually approved. Insular Life claims 2. The ACCIDENTAL DEATH BENEFIT
that it approved the reinstatement only on December 27, (ADB) and WAIVER OF PREMIUM
1999. On the other hand, respondents contend that it DISABILITY (WPD) rider originally
was on June attached to and forming parts of this
policy is deleted.
22, 1999 that the reinstatement took effect.
In consequence thereof, the PREMIUM RATES on this
policy are adjusted to [P]28,000.00 annuallly,
The resolution of this issue hinges on the following [P]14,843.00 semi-annually and [P]7,557.00 quarterly,
documents: 1) Letter of Acceptance; and 2) the Philippine Currency.
Endorsement.
Cagayan de Oro City, 07 January 2000.
The Letter of Acceptance32 wherein Felipe affixed his
RCV/
signature was actually drafted and prepared by Insular
Life. This pro-forma document reads as follows:
(Signed) Authorized Signature
LETTER OF ACCEPTANCE
Based on the foregoing, we find that the CA did not
commit any error in holding that the subject insurance
Place: Cag. De [O]ro City policy be considered as reinstated on June 22, 1999.
This finding must be upheld not only because it accords
The Insular Life Assurance Co., Ltd. with the evidence, but also because this is favorable to
P.O. Box 128, MANILA the insured who was not responsible for causing the
ambiguity or obscurity in the insurance contract.34
Policy No. A000015683
The CA expounded on this point thus –
Gentlemen:
The Court discerns a genuine ambiguity or obscurity in
Thru your Reinstatement Section, I/WE learned that this the language of the two documents.
policy may be reinstated provided I/we agree to the
following condition/s indicated with a check mark: In the Letter of Acceptance, Khu declared that he was
accepting "the imposition of an extra/additional x x x
[xx] Accept the imposition of an premium of P5.00 a year per thousand of insurance;
extra/additional extra premium of effective June 22, 1999". It is true that the phrase as
[P]5.00 a year per thousand of used in this
insurance; effective June 22, 1999
particular paragraph does not refer explicitly to the
[ ] Accept the rating on the WPD at ____ effectivity of the reinstatement. But the Court notes that
at standard rates; the ABD at _____ the the reinstatement was conditioned upon the payment of
standard rates; the SAR at P____ additional premium not only prospectively, that is, to
annually per thousand of Insurance; cover the
remainder of the annual period of coverage, but also Indeed, more than two years had lapsed from the time
retroactively, that is for the period starting June 22, the subject insurance policy was reinstated on June 22,
1999. Hence, by paying the amount of P3,054.50 on 1999 vis-a-vis Felipe’s death on September 22,
December 27, 1999 in addition to the P25,020.00 he had 2001.1âwphi1 As such, the subject insurance policy has
earlier paid on September 7, 1999, Khu had paid for the already become incontestable at the time of Felipe’s
insurance coverage starting June 22, 1999. At the very death.
least, this circumstance has engendered a true lacuna.
Finally, we agree with the CA that there is neither basis
In the Endorsement, the obscurity is patent. In the first nor justification for the RTC’s award of moral damages,
sentence of the Endorsement, it is not entirely clear attorney’s fees and litigation expenses; hence this award
whether the phrase "effective June 22, 1999" refers to must be deleted.
the subject of the sentence, namely "the reinstatement
of this policy," or to the subsequent phrase "changes are WHEREFORE, the Petition is DENIED. The assailed
made on the policy." .June 24, 2010 Decision and December 13, 2010
Resolution of the Court of Appeals in CA-GR. CV No.
The court below is correct. Given the obscurity of the 81730 are AFFIRMED.
language, the construction favorable to the insured will
be adopted by the courts. SO ORDERED.

Accordingly, the subject policy is deemed reinstated as 5. G.R. No. 186983 February 22, 2012
of June 22, 1999. Thus, the period of contestability has
lapsed.35 MA. LOURDES S. FLORENDO, Petitioner,
vs.
In Eternal Gardens Memorial Park Corporation v. The PHILAM PLANS, INC., PERLA ABCEDE MA.
Philippine American Life Insurance Company,36 we ruled CELESTE ABCEDE, Respondents.
in favor of the insured and in favor of the effectivity of the
insurance contract in the midst of ambiguity in DECISION
the insurance contract provisions. We held that:
ABAD, J.:
It must be remembered that an insurance contract is a
contract of adhesion which must be construed liberally in
This case is about an insured’s alleged concealment in
favor of the insured and strictly against the insurer in
his pension plan application of his true state of health
order to safeguard the latter’s interest. Thus,
and its effect on the life insurance portion of that plan in
in Malayan Insurance Corporation v. Court of Appeals,
case of death.
this Court held that:
The Facts and the Case
Indemnity and liability insurance policies are construed
in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the On October 23, 1997 Manuel Florendo filed an
contract or policy is prepared by the insurer. A contract application for comprehensive pension plan with
of insurance, being a contract of adhesion, par respondent Philam Plans, Inc. (Philam Plans) after some
excellence, any ambiguity therein should be convincing by respondent Perla Abcede. The plan had a
resolved against the insurer; in other words, it should pre-need price of ₱997,050.00, payable in 10 years, and
be construed liberally in favor of the insured and strictly had a maturity value of ₱2,890,000.00 after 20
against the insurer. Limitations of liability should be years.1 Manuel signed the application and left to Perla
regarded with extreme jealousy and must be construed the task of supplying the information needed in the
in such a way as to preclude the insurer from application.2 Respondent Ma. Celeste Abcede, Perla’s
noncompliance with its obligations. daughter, signed the application as sales counselor.3

xxxx Aside from pension benefits, the comprehensive pension


plan also provided life insurance coverage to
Florendo.4 This was covered by a Group Master Policy
As a final note, to characterize the insurer and the that Philippine American Life Insurance Company
insured as contracting parties on equal footing is (Philam Life) issued to Philam Plans.5 Under the master
inaccurate at best. Insurance contracts are wholly policy, Philam Life was to automatically provide life
prepared by the insurer with vast amounts of experience insurance coverage, including accidental death, to all
in the industry who signed up for Philam Plans’ comprehensive pension
plan.6 If the plan holder died before the maturity of the
purposefully used to its advantage. More often than not, plan, his beneficiary was to instead receive the proceeds
insurance contracts are contracts of adhesion containing of the life insurance, equivalent to the pre-need price.
technical terms and conditions of the industry, confusing Further, the life insurance was to take care of any unpaid
if at all understandable to laypersons, that are imposed premium until the pension plan matured, entitling the
on those who wish to avail of insurance. As such, beneficiary to the maturity value of the pension plan. 7
insurance contracts are imbued with public interest that
must be considered whenever the rights and obligations On October 30, 1997 Philam Plans issued Pension Plan
of the insurer and the insured are to be delineated. Agreement PP430055848 to Manuel, with petitioner Ma.
Hence, in order to protect the interest of insurance Lourdes S. Florendo, his wife, as beneficiary. In time,
applicants, insurance companies must be obligated to Manuel paid his quarterly premiums.9
act with haste upon insurance applications, to either
deny or approve the same, or otherwise be bound to Eleven months later or on September 15, 1998, Manuel
honor the application as a valid, binding, and effective died of blood poisoning. Subsequently, Lourdes filed a
insurance contract.37 claim with Philam Plans for the payment of the benefits
under her husband’s plan.10 Because Manuel died before
his pension plan matured and his wife was to get only that he had been under treatment for heart condition
the benefits of his life insurance, Philam Plans forwarded and diabetes for more than five years preceding his
her claim to Philam Life.11 submission of that application. But he kept those crucial
facts from Philam Plans.
On May 3, 1999 Philam Plans wrote Lourdes a
letter,12 declining her claim. Philam Life found that Besides, when Manuel signed the pension plan
Manuel was on maintenance medicine for his heart and application, he adopted as his own the written
had an implanted pacemaker. Further, he suffered from representations and declarations embodied in it. It is
diabetes mellitus and was taking insulin. Lourdes clear from these representations that he concealed his
renewed her demand for payment under the plan13 but chronic heart ailment and diabetes from Philam Plans.
Philam Plans rejected it,14 prompting her to file the The pertinent portion of his representations and
present action against the pension plan company before declarations read as follows:
the Regional Trial Court (RTC) of Quezon City. 15
I hereby represent and declare to the best of my
On March 30, 2006 the RTC rendered knowledge that:
judgment,16 ordering Philam Plans, Perla and Ma.
Celeste, solidarily, to pay Lourdes all the benefits from xxxx
her husband’s pension plan, namely: ₱997,050.00, the
proceeds of his term insurance, and ₱2,890,000.00 (c) I have never been treated for heart condition,
lump sum pension benefit upon maturity of his plan; high blood pressure, cancer, diabetes, lung,
₱100,000.00 as moral damages; and to pay the costs of kidney or stomach disorder or any other physical
the suit. The RTC ruled that Manuel was not guilty of impairment in the last five years.
concealing the state of his health from his pension plan
application.
(d) I am in good health and physical condition.
On December 18, 2007 the Court of Appeals (CA)
reversed the RTC decision,17 holding that insurance If your answer to any of the statements above reveal
policies are traditionally contracts uberrimae fidae or otherwise, please give details in the space provided for:
contracts of utmost good faith. As such, it required
Manuel to disclose to Philam Plans conditions affecting Date of confinement :
the risk of which he was aware or material facts that he ____________________________
knew or ought to know.18
Name of Hospital or Clinic :
Issues Presented ____________________________

The issues presented in this case are: Name of Attending Physician :


____________________________
1. Whether or not the CA erred in finding
Manuel guilty of concealing his illness when he Findings :
kept blank and did not answer questions in his ____________________________
pension plan application regarding the ailments
he suffered from; Others: (Please specify) :
____________________________
2. Whether or not the CA erred in holding that
Manuel was bound by the failure of respondents x x x x.20 (Emphasis supplied)
Perla and Ma. Celeste to declare the condition of
Manuel’s health in the pension plan application; Since Manuel signed the application without filling in
and the details regarding his continuing treatments for heart
condition and diabetes, the assumption is that he has
3. Whether or not the CA erred in finding that never been treated for the said illnesses in the last five
Philam Plans’ approval of Manuel’s pension plan years preceding his application. This is implicit from the
application and acceptance of his premium phrase "If your answer to any of the statements above
payments precluded it from denying Lourdes’ (specifically, the statement: I have never been treated for
claim. heart condition or diabetes) reveal otherwise, please give
details in the space provided for." But this is untrue since
Rulings of the Court he had been on "Coumadin," a treatment for venous
thrombosis,21 and insulin, a drug used in the treatment of
One. Lourdes points out that, seeing the unfilled spaces diabetes mellitus, at that time.22
in Manuel’s pension plan application relating to his
medical history, Philam Plans should have returned it to Lourdes insists that Manuel had concealed nothing since
him for completion. Since Philam Plans chose to approve Perla, the soliciting agent, knew that Manuel had a
the application just as it was, it cannot cry concealment pacemaker implanted on his chest in the 70s or about 20
on Manuel’s part. Further, Lourdes adds that Philam years before he signed up for the pension plan.23 But by
Plans never queried Manuel directly regarding the state its tenor, the responsibility for preparing the application
of his health. Consequently, it could not blame him for belonged to Manuel. Nothing in it implies that someone
not mentioning it.19 else may provide the information that Philam Plans
needed. Manuel cannot sign the application and disown
But Lourdes is shifting to Philam Plans the burden of the responsibility for having it filled up. If he furnished
putting on the pension plan application the true state of Perla the needed information and delegated to her the
Manuel’s health. She forgets that since Philam Plans filling up of the application, then she acted on his
waived medical examination for Manuel, it had to rely instruction, not on Philam Plans’ instruction.
largely on his stating the truth regarding his health in his
application. For, after all, he knew more than anyone
Lourdes next points out that it made no difference if INSURANCE CO. to PHILAM PLANS, INC.30 (Emphasis
Manuel failed to reveal the fact that he had a pacemaker supplied)
implant in the early 70s since this did not fall within the
five-year timeframe that the disclosure As the Court said in New Life Enterprises v. Court of
contemplated.24 But a pacemaker is an electronic device Appeals:31
implanted into the body and connected to the wall of the
heart, designed to provide regular, mild, electric shock
It may be true that x x x insured persons may accept
that stimulates the contraction of the heart muscles and
policies without reading them, and that this is not
restores normalcy to the heartbeat.25 That Manuel still
negligence per se. But, this is not without any exception.
had his pacemaker when he applied for a pension plan in
It is and was incumbent upon petitioner Sy to read the
October 1997 is an admission that he remained under
insurance contracts, and this can be reasonably expected
treatment for irregular heartbeat within five years
of him considering that he has been a businessman since
preceding that application.
1965 and the contract concerns indemnity in case of loss
in his money-making trade of which important
Besides, as already stated, Manuel had been taking consideration he could not have been unaware as it was
medicine for his heart condition and diabetes when he precisely the reason for his procuring the same.32
submitted his pension plan application. These clearly fell
within the five-year period. More, even if Perla’s
The same may be said of Manuel, a civil engineer and
knowledge of Manuel’s pacemaker may be applied to
manager of a construction company.33 He could be
Philam Plans under the theory of imputed
expected to know that one must read every document,
knowledge,26 it is not claimed that Perla was aware of his
especially if it creates rights and obligations affecting
two other afflictions that needed medical treatments.
him, before signing the same. Manuel is not unschooled
Pursuant to Section 2727 of the Insurance Code, Manuel’s
that the Court must come to his succor. It could
concealment entitles Philam Plans to rescind its contract
reasonably be expected that he would not trifle with
of insurance with him.
something that would provide additional financial
security to him and to his wife in his twilight years.
Two. Lourdes contends that the mere fact that Manuel
signed the application in blank and let Perla fill in the
Three. In a final attempt to defend her claim for benefits
required details did not make her his agent and bind him
under Manuel’s pension plan, Lourdes points out that
to her concealment of his true state of health. Since there
any defect or insufficiency in the information provided
is no evidence of collusion between them, Perla’s fault
by his pension plan application should be deemed
must be considered solely her own and cannot prejudice
waived after the same has been approved, the policy has
Manuel.28
been issued, and the premiums have been collected. 34

But Manuel forgot that in signing the pension plan


The Court cannot agree. The comprehensive pension
application, he certified that he wrote all the information
plan that Philam Plans issued contains a one-year
stated in it or had someone do it under his direction.
incontestability period. It states:
Thus:
VIII. INCONTESTABILITY
APPLICATION FOR PENSION PLAN
(Comprehensive)
After this Agreement has remained in force for one (1)
year, we can no longer contest for health reasons any
I hereby apply to purchase from PHILAM PLANS, INC. a
claim for insurance under this Agreement, except for the
Pension Plan Program described herein in accordance
reason that installment has not been paid (lapsed), or
with the General Provisions set forth in this application
that you are not insurable at the time you bought this
and hereby certify that the date and other information
pension program by reason of age. If this Agreement
stated herein are written by me or under my direction. x
lapses but is reinstated afterwards, the one (1) year
x x.29 (Emphasis supplied)
contestability period shall start again on the date of
approval of your request for reinstatement.35 1âwphi1
Assuming that it was Perla who filled up the application
form, Manuel is still bound by what it contains since he
The above incontestability clause precludes the insurer
certified that he authorized her action. Philam Plans had
from disowning liability under the policy it issued on the
every right to act on the faith of that certification.
ground of concealment or misrepresentation regarding
the health of the insured after a year of its issuance.
Lourdes could not seek comfort from her claim that
Perla had assured Manuel that the state of his health
Since Manuel died on the eleventh month following the
would not hinder the approval of his application and that
issuance of his plan,36 the one year incontestability
what is written on his application made no difference to
period has not yet set in. Consequently, Philam Plans
the insurance company. But, indubitably, Manuel was
was not barred from questioning Lourdes’ entitlement to
made aware when he signed the pension plan application
the benefits of her husband’s pension plan.
that, in granting the same, Philam Plans and Philam Life
were acting on the truth of the representations contained
in that application. Thus: WHEREFORE, the Court AFFIRMS in its entirety the
decision of the Court of Appeals in CA-G.R. CV 87085
dated December 18, 2007.
DECLARATIONS AND REPRESENTATIONS
6. G.R. No. 200784 August 7, 2013
xxxx
MALAYAN INSURANCE COMPANY,
I agree that the insurance coverage of this application is
INC., PETITIONER,
based on the truth of the foregoing representations and
vs.
is subject to the provisions of the Group Life Insurance
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
Policy issued by THE PHILIPPINE AMERICAN LIFE
DECISION the fire insurance policy, plus interest thereon at the rate
of 12% per annum from the time of loss on October 12,
MENDOZA, J.: 1997 until fully paid;

Challenged in this petition for review on certiorari under b)


Rule 45 of the Rules of Court is the October 27, 2011
Decision1 of the Court of Appeals (CA), which affirmed To pay plaintiff the sum of FIVE HUNDRED THOUSAND
with modification the September 17, 2009 Decision2 of PESOS (Ph₱500,000.00) as and by way of attorney’s
the Regional Trial Court, Branch 15, Manila (RTC), and fees; [and,]
its February 24, 2012 Resolution3 denying the motion for
reconsideration filed by petitioner Malayan Insurance c)
Company., Inc. (Malayan).
To pay the costs of suit.
The Facts
SO ORDERED.5
The undisputed factual antecedents were succinctly
summarized by the CA as follows: The RTC explained that Malayan is liable to indemnify
PAP for the loss under the subject fire insurance policy
On May 13, 1996, Malayan Insurance Company because, although there was a change in the condition
(Malayan) issued Fire Insurance Policy No. F-00227- of the thing insured as a result of the transfer of the
000073 to PAP Co., Ltd. (PAP Co.) for the latter’s subject machineries to another location, said insurance
machineries and equipment located at Sanyo Precision company failed to show proof that such transfer resulted
Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, in the increase of the risk insured against. In the
Cavite (Sanyo Building). The insurance, which was for absence of proof that the alteration of the thing insured
Fifteen Million Pesos (?15,000,000.00) and effective for increased the risk, the contract of fire insurance is not
a period of one (1) year, was procured by PAP Co. for affected per Article 169 of the Insurance Code.
Rizal Commercial Banking Corporation (RCBC), the
mortgagee of the insured machineries and equipment.
The RTC further stated that PAP’s notice to Rizal
Commercial Banking Corporation (RCBC) sufficiently
After the passage of almost a year but prior to the complied with the notice requirement under the policy
expiration of the insurance coverage, PAP Co. renewed considering that it was RCBC which procured the
the policy on an "as is" basis. Pursuant thereto, a insurance. PAP acted in good faith in notifying RCBC
renewal policy, Fire Insurance Policy No. F-00227- about the transfer and the latter even conducted an
000079, was issued by Malayan to PAP Co. for the inspection of the machinery in its new location.
period May 13, 1997 to May 13, 1998.
Not contented, Malayan appealed the RTC decision to
On October 12, 1997 and during the subsistence of the the CA basically arguing that the trial court erred in
renewal policy, the insured machineries and equipment ordering it to indemnify PAP for the loss of the subject
were totally lost by fire. Hence, PAP Co. filed a fire machineries since the latter, without notice and/or
insurance claim with Malayan in the amount insured. consent, transferred the same to a location different from
that indicated in the fire insurance policy.
In a letter, dated December 15, 1997, Malayan denied
the claim upon the ground that, at the time of the loss, Ruling of the CA
the insured machineries and equipment were transferred
by PAP Co. to a location different from that indicated in
On October 27, 2011, the CA rendered the assailed
the policy. Specifically, that the insured machineries
decision which affirmed the RTC decision but deleted
were transferred in September 1996 from the Sanyo the attorney’s fees. The decretal portion of the CA
Building to the Pace Pacific Bldg., Lot 14, Block 14, decision reads:
Phase III, PEZA, Rosario, Cavite (Pace Pacific).
Contesting the denial, PAP Co. argued that Malayan
cannot avoid liability as it was informed of the transfer by WHEREFORE, the assailed dispositions are MODIFIED.
RCBC, the party duty-bound to relay such information. As modified, Malayan Insurance Company must
However, Malayan reiterated its denial of PAP Co.’s indemnify PAP Co. Ltd the amount of Fifteen Million
claim. Distraught, PAP Co. filed the complaint below Pesos (Ph₱15,000,000.00) for the loss under the fire
against Malayan.4 insurance policy, plus interest thereon at the rate of 12%
per annum from the time of loss on October 12, 1997
until fully paid. However, the Five Hundred Thousand
Ruling of the RTC Pesos (Ph₱500,000.00) awarded to PAP Co., Ltd. as
attorney’s fees is DELETED. With costs.
On September 17, 2009, the RTC handed down its
decision, ordering Malayan to pay PAP Company Ltd
SO ORDERED.6
(PAP) an indemnity for the loss under the fire insurance
policy as well as for attorney’s fees. The dispositive
portion of the RTC decision reads: The CA wrote that Malayan failed to show proof that
there was a prohibition on the transfer of the insured
properties during the efficacy of the insurance policy.
WHEREFORE, premises considered, judgment is
Malayan also failed to show that its contractual consent
hereby rendered in favor of the plaintiff. Defendant is
was needed before carrying out a transfer of the insured
hereby ordered: properties. Despite its bare claim that the original and
the renewed insurance policies contained provisions on
a) transfer limitations of the insured properties, Malayan
never cited the specific provisions.
To pay plaintiff the sum of FIFTEEN MILLION PESOS
(₱15,000,000.00) as and for indemnity for the loss under
The CA further stated that even if there was such a IN ANY EVENT, RESPONDENT PAP CO. NEVER
provision on transfer restrictions of the insured DISPUTED THAT THERE ARE CONDITIONS AND
properties, still Malayan could not escape liability LIMITATIONS TO THE RENEWAL POLICY WHICH
because the transfer was made during the subsistence ARE THE REASONS WHY ITS CLAIM WAS DENIED IN
of the original policy, not the renewal policy. PAP THE FIRST PLACE. IN FACT, THE BEST PROOF
transferred the insured properties from the Sanyo THAT RESPONDENT PAP CO. RECOGNIZES THESE
Factory to the Pace Pacific Building (Pace Factory) CONDITIONS AND LIMITATIONS IS THE FACT THAT
sometime in September 1996. Therefore, Malayan was ITS ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL
aware or should have been aware of such transfer when ASSERTION THAT IT SUPPOSEDLY NOTIFIED
it issued the renewal policy on May 14, 1997. The CA PETITIONER MALAYAN OF THE TRANSFER AS
opined that since an insurance policy was a contract of REQUIRED BY THE INSURANCE POLICY.
adhesion, any ambiguity must be resolved against the
party that prepared the contract, which, in this case, was MOREOVER, PETITIONER MALAYAN PRESENTED
Malayan. EVIDENCE THAT THERE WAS AN INCREASE IN RISK
BECAUSE OF THE UNILATERAL TRANSFER OF THE
Finally, the CA added that Malayan failed to show that INSURED PROPERTIES. IN FACT, THIS PIECE OF
the transfer of the insured properties increased the risk EVIDENCE WAS UNREBUTTED BY RESPONDENT
of the loss. It, thus, could not use such transfer as an PAP CO.
excuse for not paying the indemnity to PAP. Although
the insurance proceeds were payable to RCBC, PAP II
could still sue Malayan to enforce its rights on the policy
because it remained a party to the insurance contract.
THE COURT OF APPEALS DEPARTED FROM, AND
DID NOT APPLY, THE LAW AND ESTABLISHED
Not in conformity with the CA decision, Malayan filed this DECISIONS OF THE HONORABLE COURT WHEN IT
petition for review anchored on the following IMPOSED INTEREST AT THE RATE OF TWELVE
PERCENT (12%) INTEREST FROM THE TIME OF THE
GROUNDS LOSS UNTIL FULLY PAID.

I JURISPRUDENCE DICTATES THAT LIABILITY


UNDER AN INSURANCE POLICY IS NOT A LOAN OR
THE COURT OF APPEALS HAS DECIDED THE CASE FORBEARANCE OF MONEY FROM WHICH A
IN A MANNER NOT IN ACCORDANCE WITH THE LAW BREACH ENTITLES A PLAINTIFF TO AN AWARD OF
AND APPLICABLE DECISIONS OF THE HONORABLE INTEREST AT THE RATE OF TWELVE PERCENT
COURT WHEN IT AFFIRMED THE DECISION OF THE (12%) PER ANNUM.
TRIAL COURT AND THUS RULING IN THE
QUESTIONED DECISION AND RESOLUTION THAT MORE IMPORTANTLY, SECTIONS 234 AND 244 OF
PETITIONER MALAYAN IS LIABLE UNDER THE THE INSURANCE CODE SHOULD NOT HAVE BEEN
INSURANCE CONTRACT BECAUSE: APPLIED BY THE COURT OF APPEALS BECAUSE
THERE WAS NEVER ANY FINDING THAT
CONTRARY TO THE CONCLUSION OF THE COURT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED
OF APPEALS, PETITIONER MALAYAN WAS ABLE TO OR WITHHELD THE PROCEEDS OF THE
PROVE AND IT IS NOT DENIED, THAT ON THE FACE INSURANCE POLICY BECAUSE IN THE FIRST
OF THE RENEWAL POLICY ISSUED TO PLACE, THERE WAS A LEGITIMATE DISPUTE OR
RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE DIFFERENCE IN OPINION ON WHETHER
WARRANTY OR A REPRESENTATION MADE BY THE RESPONDENT PAP CO. COMMITTED
INSURED THAT THE "LOCATION OF THE RISK" WAS CONCEALMENT, MISREPRESENTATION AND
AT THE SANYO BUILDING. IT IS LIKEWISE BREACH OF AN AFFIRMATIVE WARRANTY WHICH
UNDISPUTED THAT WHEN THE RENEWAL POLICY ENTITLES PETITIONER MALAYAN TO RESCIND THE
WAS ISSUED TO RESPONDENT PAP CO., THE INSURANCE POLICY AND/OR TO CONSIDER THE
INSURED PROPERTIES WERE NOT AT THE SANYO CLAIM AS VOIDED.
BUILDING BUT WERE AT A DIFFERENT LOCATION,
THAT IS, AT THE PACE FACTORY AND IT WAS IN III
THIS DIFFERENT LOCATION WHEN THE LOSS
INSURED AGAINST OCCURRED. THESE SET OF THE COURT OF APPEALS HAS DECIDED THE CASE
UNDISPUTED FACTS, BY ITSELF ALREADY IN A MANNER NOT IN ACCORDANCE WITH THE LAW
ENTITLES PETITIONER MALAYAN TO CONSIDER AND APPLICABLE DECISIONS OF THE HONORABLE
THE RENEWAL POLICY AS AVOIDED OR COURT WHEN IT AGREED WITH THE TRIAL COURT
RESCINDED BY LAW, BECAUSE OF CONCEALMENT, AND HELD IN THE QUESTIONED DECISION THAT
MISREPRESENTATION AND BREACH OF AN THE PROCEEDS OF THE INSURANCE CONTRACT IS
AFFIRMATIVE WARRANTY UNDER SECTIONS 27, 45 PAYABLE TO RESPONDENT PAP CO. DESPITE THE
AND 74 IN RELATION TO SECTION 31 OF THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE
INSURANCE CODE, RESPECTIVELY. INSURANCE POLICY.

RESPONDENT PAP CO. WAS NEVER ABLE TO IV


SHOW THAT IT DID NOT COMMIT CONCEALMENT,
MISREPRESENTATION OR BREACH OF AN THE COURT OF APPEALS ERRED AND DEPARTED
AFFIRMATIVE WARRANTY WHEN IT FAILED TO
FROM ESTABLISHED LAW AND JURISPRUDENCE
PROVE THAT IT INFORMED PETITIONER MALAYAN
WHEN IT HELD IN THE QUESTIONED DECISION AND
THAT THE INSURED PROPERTIES HAD BEEN
RESOLUTION THAT THE INTERPRETATION MOST
TRANSFERRED TO A LOCATION DIFFERENT FROM
FAVORABLE TO THE INSURED SHALL BE
WHAT WAS INDICATED IN THE INSURANCE POLICY. ADOPTED.7
Malayan basically argues that it cannot be held liable As can be gleaned from the pleadings, it is not disputed
under the insurance contract because PAP committed that on May 13, 1996, PAP obtained a ?15,000,000.00
concealment, misrepresentation and breach of an fire insurance policy from Malayan covering its
affirmative warranty under the renewal policy when it machineries and equipment effective for one (1) year or
transferred the location of the insured properties without until May 13, 1997; that the policy expressly stated that
informing it. Such transfer affected the correct estimation the insured properties were located at "Sanyo Precision
of the risk which should have enabled Malayan to decide Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA,
whether it was willing to assume such risk and, if so, at Rosario, Cavite"; that before its expiration, the policy
what rate of premium. The transfer also affected was renewed11 on an "as is" basis for another year or
Malayan’s ability to control the risk by guarding against until May 13, 1998; that the subject properties were later
the increase of the risk brought about by the change in transferred to the Pace Factory also in PEZA; and that
conditions, specifically the change in the location of the on October 12, 1997, during the effectivity of the renewal
risk. policy, a fire broke out at the Pace Factory which totally
burned the insured properties.
Malayan claims that PAP concealed a material fact in
violation of Section 27 of the Insurance Code8 when it The policy forbade the removal of the insured properties
did not inform Malayan of the actual and new location of unless sanctioned by Malayan
the insured properties. In fact, before the issuance of the
renewal policy on May 14, 1997, PAP even informed it Condition No. 9(c) of the renewal policy provides:
that there would be no changes in the renewal policy.
Malayan also argues that PAP is guilty of breach of
9. Under any of the following circumstances the
warranty under the renewal policy in violation of Section
insurance ceases to attach as regards the property
74 of the Insurance Code9 when, contrary to its
affected unless the insured, before the occurrence of
affirmation in the renewal policy that the insured
any loss or damage, obtains the sanction of the
properties were located at the Sanyo Factory, these company signified by endorsement upon the policy, by
were already transferred to the Pace Factory. Malayan
or on behalf of the Company:
adds that PAP is guilty of misrepresentation upon a
material fact in violation of Section 45 of the Insurance
Code10 when it informed Malayan that there would be no xxx xxx xxx
changes in the original policy, and that the original policy
would be renewed on an "as is" basis. (c) If property insured be removed to any building or
place other than in that which is herein stated to be
Malayan further argues that PAP failed to discharge the insured.12
burden of proving that the transfer of the insured
properties under the insurance policy was with its Evidently, by the clear and express condition in the
knowledge and consent. Granting that PAP informed renewal policy, the removal of the insured property to
RCBC of the transfer or change of location of the insured any building or place required the consent of Malayan.
properties, the same is irrelevant and does not bind Any transfer effected by the insured, without the
Malayan considering that RCBC is a corporation vested insurer’s consent, would free the latter from any liability.
with separate and distinct juridical personality. Malayan
did not consent to be the principal of RCBC. RCBC did The respondent failed to notify, and to obtain the
not also act as Malayan’s representative. consent of, Malayan regarding the removal

With regard to the alleged increase of risk, Malayan The records are bereft of any convincing and concrete
insists that there is evidence of an increase in risk as a evidence that Malayan was notified of the transfer of the
result of the unilateral transfer of the insured properties. insured properties from the Sanyo factory to the Pace
According to Malayan, the Sanyo Factory was occupied factory. The Court has combed the records and found
as a factory of automotive/computer parts by the nothing that would show that Malayan was duly notified
assured and factory of zinc & aluminum die cast and of the transfer of the insured properties.
plastic gear for copy machine by Sanyo Precision Phils.,
Inc. with a rate of 0.449% under 6.1.2 A, while Pace What PAP did to prove that Malayan was notified was to
Factory was occupied as factory that repacked silicone show that it relayed the fact of transfer to RCBC, the
sealant to plastic cylinders with a rate of 0.657% under entity which made the referral and the named beneficiary
6.1.2 A. in the policy. Malayan and RCBC might have been sister
companies, but such fact did not make one an agent of
PAP’s position the other. The fact that RCBC referred PAP to Malayan
did not clothe it with authority to represent and bind the
On the other hand, PAP counters that there is no said insurance company. After the referral, PAP dealt
evidence of any misrepresentation, concealment or directly with Malayan.
deception on its part and that its claim is not fraudulent.
It insists that it can still sue to protect its rights and The respondent overlooked the fact that during the
interest on the policy notwithstanding the fact that the November 9, 2006 hearing,13 its counsel stipulated in
proceeds of the same was payable to RCBC, and that it open court that it was Malayan’s authorized insurance
can collect interest at the rate of 12% per annum on the agent, Rodolfo Talusan, who procured the original policy
proceeds of the policy because its claim for indemnity from Malayan, not RCBC. This was the reason why
was unduly delayed without legal justification. Talusan’s testimony was dispensed with.

The Court’s Ruling Moreover, in the previous hearing held on November 17,
2005,14 PAP’s hostile witness, Alexander Barrera,
The Court agrees with the position of Malayan that it Administrative Assistant of Malayan, testified that he was
cannot be held liable for the loss of the insured the one who procured Malayan’s renewal policy, not
properties under the fire insurance policy. RCBC, and that RCBC merely referred fire insurance
clients to Malayan. He stressed, however, that no written
referral agreement exists between RCBC and Malayan. How many secretaries do you have at that time in your
He also denied that PAP notified Malayan about the office?
transfer before the renewal policy was issued. He added
that PAP, through Maricar Jardiniano (Jardiniano), A
informed him that the fire insurance would be renewed
on an "as is basis."15
Only one, sir.

Granting that any notice to RCBC was binding on Q


Malayan, PAP’s claim that it notified RCBC and Malayan
was not indubitably established. At best, PAP could only
come up with the hearsay testimony of its principal Do you know a certain Maricar Jardiniano?
witness, Branch Manager Katsumi Yoneda (Mr.
Yoneda), who testified as follows: A

Q Yes, sir.

What did you do as Branch Manager of Pap Co. Ltd.? Q

A Why do you know her?

What I did I instructed my Secretary, because these A


equipment was bank loan and because of the insurance
I told my secretary to notify. Because she is my secretary.

Q Q

To notify whom? So how many secretaries did you have at that time?

A A

I told my Secretary to inform the bank. Two, sir.

Q Q

You are referring to RCBC? What happened with the instruction that you gave to
your secretary Dory Ramos about the matter of
A informing the defendant Malayan Insurance Co of the
new location of the insured properties?
Yes, sir.
A
xxxx
She informed me that the notification was already given
Q to Malayan Insurance.

After the RCBC was informed in the manner you stated, Q


what did you do regarding the new location of these
properties at Pace Pacific Bldg. insofar as Malayan Aside from what she told you how did you know that the
Insurance Company is concerned? information was properly relayed by the said secretary,
Dory Ramos, to Malayan Insurance?
A
A
After that transfer, we informed the RCBC about the
transfer of the equipment and also Malayan Insurance I asked her, Dory Ramos, did you inform Malayan
but we were not able to contact Malayan Insurance so I Insurance and she said yes, sir.
instructed again my secretary to inform Malayan about
the transfer. Q

Q Now after you were told by your secretary, Dory Ramos,


that she was able to inform Malayan Insurance
Who was the secretary you instructed to contact Company about the transfer of the properties insured to
Malayan Insurance, the defendant in this case? the new location, do you know what happened insofar
this information was given to the defendant Malayan
A Insurance?

Dory Ramos. A

Q I heard that someone from Malayan Insurance came


over to our company.

Q
Did you come to know who was that person who came The transfer from the Sanyo Factory to the PACE
to your place at Pace Pacific? Factory increased the risk.

A The courts below held that even if Malayan was not


notified thereof, the transfer of the insured properties to
I do not know, sir. the Pace Factory was insignificant as it did not increase
the risk.
Q
Malayan argues that the change of location of the
subject properties from the Sanyo Factory to the Pace
How did you know that this person from Malayan
Factory increased the hazard to which the insured
Insurance came to your place?
properties were exposed. Malayan wrote:
A
With regards to the exposure of the risk under the old
location, this was occupied as factory of
It is according to the report given to me. automotive/computer parts by the assured, and factory
of zinc & aluminum die cast, plastic gear for copy
Q machine by Sanyo Precision Phils., Inc. with a rate of
0.449% under 6.1.2 A. But under Pace Pacific Mfg.
Who gave that report to you? Corporation this was occupied as factory that repacks
silicone sealant to plastic cylinders with a rate of 0.657%
A under 6.1.2 A. Hence, there was an increase in the
hazard as indicated by the increase in rate.18
Dory Ramos.
The Court agrees with Malayan that the transfer to the
Pace Factory exposed the properties to a hazardous
Q
environment and negatively affected the fire rating stated
in the renewal policy. The increase in tariff rate from
Was that report in writing or verbally done? 0.449% to 0.657% put the subject properties at a greater
risk of loss. Such increase in risk would necessarily
A entail an increase in the premium payment on the fire
policy.
Verbal.16 [Emphases supplied]
Unfortunately, PAP chose to remain completely silent on
The testimony of Mr. Yoneda consisted of hearsay this very crucial point. Despite the importance of the
matters. He obviously had no personal knowledge of the issue, PAP failed to refute Malayan’s argument on the
notice to either Malayan or RCBC. PAP should have increased risk.
presented his secretaries, Dory Ramos and Maricar
Jardiniano, at the witness stand. His testimony alone Malayan is entitled to rescind the insurance contract
was unreliable.
Considering that the original policy was renewed on an
Moreover, the Court takes note of the fact that Mr. "as is basis," it follows that the renewal policy carried
Yoneda admitted that the insured properties were with it the same stipulations and limitations. The terms
transferred to a different location only after the renewal and conditions in the renewal policy provided, among
of the fire insurance policy. others, that the location of the risk insured against is at
the Sanyo factory in PEZA. The subject insured
COURT properties, however, were totally burned at the Pace
Factory. Although it was also located in PEZA, Pace
Q Factory was not the location stipulated in the renewal
policy. There being an unconsented removal, the
transfer was at PAP’s own risk. Consequently, it must
When did you transfer the machineries and equipments suffer the consequences of the fire. Thus, the Court
before the renewal or after the renewal of the insurance? agrees with the report of Cunningham Toplis Philippines,
Inc., an international loss adjuster which investigated the
A fire incident at the Pace Factory, which opined that
"[g]iven that the location of risk covered under the policy
After the renewal. is not the location affected, the policy will, therefore, not
respond to this loss/claim."19
COURT
It can also be said that with the transfer of the location of
Q the subject properties, without notice and without
Malayan’s consent, after the renewal of the policy, PAP
clearly committed concealment, misrepresentation and a
You understand my question?
breach of a material warranty. Section 26 of the
Insurance Code provides:
A
Section 26. A neglect to communicate that which a party
Yes, Your Honor.17 [Emphasis supplied] knows and ought to communicate, is called a
concealment.
This enfeebles PAP’s position that the subject properties
were already transferred to the Pace factory before the
policy was renewed.
Under Section 27 of the Insurance Code, "a to clear from the customs authorities and withdraw,
concealment entitles the injured party to rescind a transport, and deliver to its warehouse, cargoes
contract of insurance." consisting of 200 cartons of gum Arabic with a total
weight of 5,000 kilograms valued at US21,750.00.
Moreover, under Section 168 of the Insurance Code, the
insurer is entitled to rescind the insurance contract in
The said cargoes arrived in Manila on August 14, 2004
case of an alteration in the use or condition of the thing
insured. Section 168 of the Insurance Code provides, as and were brought to Ocean Links Container Terminal
follows: Center, Inc. pending their release by the Bureau of
Customs (BOC) and on September 2, 2004, respondent
Section 68. An alteration in the use or condition of a Transmodal withdrew the same cargoes and delivered
thing insured from that to which it is limited by the policy them to Sytengco's warehouse. It was noted in the
made without the consent of the insurer, by means delivery receipt that all the containers were wet.
within the control of the insured, and increasing the risks,
entitles an insurer to rescind a contract of fire insurance.
In a preliminary survey conducted by Elite Adjusters and
Surveyors, Inc. (Elite Surveyors), it was found that 187
Accordingly, an insurer can exercise its right to rescind
an insurance contract when the following conditions are cartons had water marks and the contents of the 13 wet
present, to wit: cartons were partly hardened. On October 13, 2004, a
re-inspection was conducted and it was found that the
1) the policy limits the use or condition of the contents of the randomly opened 20 cartons were about
thing insured; 40% to 60% hardened, while 8 cartons had marks of
previous wetting. In its final report dated October 27,
2) there is an alteration in said use or condition; 2004, Elite Surveyor fixed the computed loss payable at
P728,712.00 after adjustment of 50% loss allowance.
3) the alteration is without the consent of the
insurer; Thus, on November 2, 2004, Sytengco demanded from
respondent Transmodal the payment of P1,457,424.00
4) the alteration is made by means within the as compensation for total loss of shipment. On that
insured’s control; and
same date, petitioner Equitable Insurance, as insurer of
the cargoes per Marine Open Policy No. MN-MRN-HO-
5) the alteration increases the risk of loss.20
000549 paid Sytengco's claim for P728,712.00. On
October 4, 2004, Sytengco then signed a subrogation
In the case at bench, all these circumstances are
present. It was clearly established that the renewal receipt and loss receipt in favor of petitioner Equitable
policy stipulated that the insured properties were located Insurance. As such, petitioner Equitable Insurance
at the Sanyo factory; that PAP removed the properties demanded from respondent Transmodal reimbursement
without the consent of Malayan; and that the alteration of of the payment given to Sytengco.
the location increased the risk of loss.
Thereafter, petitioner Equitable Insurance filed a
WHEREFORE, the October 27, 2011 Decision of the complaint for damages invoking its right as subrogee
Court of Appeals is hereby REVERSED and SET
after paying Sytengco's insurance claim and averred that
ASIDE. Petitioner Malayan Insurance Company, Inc. is
hereby declared NOT liable for the loss of the insured respondent Transmodal's fault and gross negligence
machineries and equipment suffered by PAP Co., Ltd. were the causes of the damages sustained by
Sytengco's shipment. Petitioner Equitable Insurance
SO ORDERED. prayed for the payment of P728,712.00 actual damages
with 6% interest from the date of the filing of the
complaint until full payment, plus attorney's fees and
cost of suit.
EQUITABLE INSURANCE
CORPORATION, Petitioner, v. TRANSMODAL Respondent Transmodal denied knowledge of an
INTERNATIONAL, INC., Respondent. insurance policy and claimed that petitioner Equitable
G.R. No. 223592, August 07, 2017 Insurance has no cause of action against it because the
damages to the cargoes were not due to its fault or
This is to resolve the Petition for Review gross negligence. According to the same respondent,
on Certiorari under Rule 45 of the Rules of Court, dated the cargoes arrived at Sytengco's warehouse around
May 11, 2016, of petitioner Equitable Insurance 11:30 in the morning of September 1, 2004, however,
Corporation that seeks to reverse and set aside the Sytengco did not immediately receive the said cargoes
Decision1 dated September 15, 2015 and and as a result, the cargoes got wet due to the rain that
Resolution2 dated March 17, 2016 of the Court of occurred on the night of September 1, 2004.
Appeals (CA) reversing the Decision3 dated June 18, Respondent Transmodal also questioned the timeliness
2013 of the Regional Trial Court (RTC), Branch 26, of Sytengco's formal claim for payment which was
Manila in a civil case for actual damages. allegedly made more than 14 days from the time the
cargoes were placed at its disposal in contravention of
The facts follow. the stipulations in the delivery receipts.

Sytengco Enterprises Corporation (Sytengco) hired The RTC, in its Decision dated June 18, 2013, found in
respondent Transmodal International, Inc. (Transmodal)
favor of petitioner Equitable Insurance, thus, the 3. THE HONORABLE COURT OF APPEALS ERRED IN
following dispositive portion of said decision: NOT APPLYING THE CASE OF TISON V. COURT OF
WHEREFORE, based on the foregoing, judgment is APPEALS, 276 SCRA 582;
hereby rendered in favor of the plaintiff and against the
defendant, ordering the latter to pay the following: 4. THE HONORABLE COURT OF APPEALS ERRED IN
NOT APPLYING THE CASE OF COMPAÑA MARITIMA
(1) Actual damages in the amount of Php728,712.00 V. INSURANCE COMPANY OF NORTH AMERICA, 12
plus 6% interest from judicial demand until full payment; SCRA 213;

(2) Attorney's fees in the amount equivalent to 10% of 5. THE HONORABLE COURT OF APPEALS ERRED IN
the amount claimed; NOT APPLYING THE CASE OF DELSAN TRANSPORT
LINES, INC. V. COURT OF APPEALS, 273 SCRA 262;
(3) Costs of suit. SO ORDERED.4
According to the RTC, petitioner Equitable Insurance 6. THE HONORABLE COURT OF APPEALS ERRED IN
was able to prove by substantial evidence its right to NOT APPLYING THE STATUTORY PRESUMPTION
institute an action as subrogee of Sytengco. It also ruled OF FAULT AND NEGLIGENCE.6
that petitioner Equitable Insurance's non-presentation of It is the contention of petitioner Equitable Insurance that
the insurance policy and non-compliance with Section 7, the CA erred in not applying certain jurisprudence on this
Rule 8 of the Rules of Court on actionable document case which it deemed applicable. It also argues that the
were raised for the first time in respondent Transmodal's present case is not a suit between the insured Sytengco
memorandum and also noted that petitioner Equitable and the insurer but one between the consignee
Insurance had, in fact, submitted a copy of the insurance Sytengco and the respondent common carrier since
contract. petitioner Equitable Insurance merely stepped into the
shoes of the said insured who has a direct cause of
Respondent Transmodal appealed the RTC's decision to action against respondent Transmodal on account of the
the CA. The CA, on September 15, 2015, promulgated damage sustained by the subject cargo, thus, the carrier
its decision reversing the RTC's decision. It disposed of cannot set up as defense any defect in the insurance
the appeal as follows: policy because it cannot avoid its liability to the
consignee under the contract of carriage which binds it
WHEREFORE, the appeal is hereby GRANTED. The to pay any loss or damage that may be caused to the
June 18,2013 Decision of the Regional Trial Court, cargo involved therein.
Branch 26, Manila in Civil Case No. 06-114861 is
REVERSED and SET ASIDE. Accordingly, Equitable In its Comment7 dated July 25, 2016, respondent
Insurance Corp.'s complaint is DISMISSED for failure to Transmodal avers that the CA did not err in not applying
prove cause of action. certain jurisprudence in the latter's decision. Respondent
Transmodal further refutes all the assigned errors that
SO ORDERED.5 petitioner Equitable Insurance enumerated in its petition.
The CA ruled that there was no proof of insurance of the
cargoes at the time of the loss and that the subrogation A closer look at the arguments raised in the petition
was improper. According to the CA, the insurance would show that petitioner is indeed asking this Court to
contract was neither attached in the complaint nor review the factual findings of the CA which is not within
offered in evidence for the perusal and appreciation of the scope of a petition for review under Rule 45 of the
the RTC, and what was presented was just the marine Rules of Court. However, this Court has recognized
risk note. exceptions to the rule that the findings of fact of the CA
are conclusive and binding in the following instances: (1)
Hence, the present petition after the CA denied when the findings are grounded entirely on speculation,
petitioner Equitable Insurance's motion for surmises or conjectures; (2) when the inference made is
reconsideration. manifestly mistaken, absurd or impossible; (3) when
there is grave abuse of discretion; (4) when the
Petitioner Equitable Insurance enumerates the following judgment is based on a misapprehension of facts; (5)
assignment of errors: when the findings of facts are conflicting; (6) when in
making its findings the CA went beyond the issues of the
1. THE HONORABLE COURT OF APPEALS ERRED IN case, or its findings are contrary to the admissions of
NOT DECLARING THAT THE CASE OF MALAYAN both the appellant and the appellee; (7) when the
INSURANCE CO., INC. V. REGIS BROKERAGE CORP. findings are contrary to the trial court; (8) when the
(G.R. NO. 172156, NOVEMBER 23, 2007) IS NOT findings are conclusions without citation of specific
APPLICABLE IN THE INSTANT CASE; evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioner's main
2. THE HONORABLE COURT OF APPEALS ERRED IN and reply briefs are not disputed by the respondent; (10)
NOT DECLARING THAT THE FACTS SURROUNDING when the findings of fact are premised on the supposed
THE CASE OF MALAYAN INSURANCE CO., INC. V. absence of evidence and contradicted by the evidence
REGIS BROKERAGE CORP. (G.R. NO. 172156, on record; and (11) when the CA manifestly overlooked
NOVEMBER 23, 2007) IS DIFFERENT FROM THE certain relevant facts not disputed by the parties, which,
FACTS ATTENDING THE INSTANT CASE; if properly considered, would justify a different
conclusion.8 Considering that the findings of facts of the
RTC and the CA are glaringly in contrast, this Court present the marine insurance policy whereas in the
deems it proper to review the present case. present case, petitioner has presented not only the
marine risk note but also Marine Open Policy No. MN-
In ruling that petitioner's subrogation right is improper, MOP-HO-000009913 which were all admitted in
the CA stated that it found no proof of insurance of the evidence.
cargoes at the time of their loss. It also found that what
was presented in court was the marine risk note and not Indeed, a perusal of the records would show that
the insurance contract or policy, thus: petitioner is correct in its claim that the marine insurance
policy was offered as evidence. In fact, in the questioned
A perusal of the complaint and the other documentary decision of the CA, the latter, mentioned such policy,
evidence submitted by Equitable Insurance such as the thus:
preliminary and final report clearly shows that the claims
for damages and subrogation were based on Policy No. Contrary to the ruling of the RTC, the marine policy was
MN-MRN-HO-0005479. However, said insurance not at all presented. As borne by the records, only the
contract was neither attached in the complaint nor marine risk note and EQUITABLE INSURANCE
offered in evidence for the perusal and CORPORATION Marine Policy No. MN-MOP-HO-
appreciation of the court a quo. Instead, Equitable 0000099 were offered in evidence. These pieces of
Insurance presented the marine risk note. For clarity, We evidence are immaterial to Equitable Insurance's cause
quote the pertinent portions of the marine risk note, of action. We have earlier pointed out that a marine risk
note is insufficient to prove the insurer's claim. Although
Line & Subline the marine risk note provided that it "has all the force
MARINE CARGO and effect of the terms and conditions of EQUITABLE
RISK NOTE INSURANCE CORPORATION Marine Policy No. MN-
Policy No.: MOP-HO-0000099," there is nothing in the records
MN-MRN-HO-0005479 showing that the said policy is related to Policy No. MN-
Issue date Sep. 08, 2004 MRN-HO-005479 which was the basis of Equitable
Invoice No. 59298 V Insurance's complaint. It did not escape our attention
that the second page of the marine risk note explicitly
Assured: SYTENGCO ENTERPRISES CORPORATION stated that it was "attached to and forming part of the
Address: 10RESTHAVEN ST. Policy No. MN-MRN-005479." Thus, without the
SAN FRANCISCO DEL MONTE presentation of Policy No. MN-MRN-005479, We cannot
SUBDIVISION, simply assume that the terms and conditions, including
QUEZON CITY, METRO MANILA the period of coverage, of such policy are similar to
Marine Policy No. MN-MOP-HO-0000099.14
We have this day noted the undermentioned risk in your As such, respondent had the opportunity to examine the
favor and hereby guarantee that this document has all said documents or to object to its presentation as pieces
the force and effect of the terms and conditions of of evidence. The records also show that respondent was
EQUITABLE INSURANCE CORPORATION Marine able to cross-examine petitioner's witness regarding the
Policy No. MN-MOP-HO-0000099. said documents. Thus, it was well established that
petitioner has the right to step into the shoes of the
L/C AMOUNT: USD 21,750.00 MARK-UP: 20% insured who has a direct cause of action against herein
SUM INSURED: PHP 1,457,424.00 EXCHANGE respondent on account of the damages sustained by the
RATE: 55.8400 cargoes. "Subrogation is the substitution of one person
in the place of another with reference to a lawful claim or
CARGO: 200 CTNS. GUM ARABIC POWDER KB-120 right, so that he who is substituted succeeds to the rights
of the other in relation to a debt or claim, including its
Supplier: JUMBO TRADING CO., LTD. remedies or securities."15 The right of subrogation
Vessel: ASIAN ZEPHYR VOYAGE No.: 062N springs from Article 2207 of the Civil Code which states:
BL#:MNL04086310
ETD: 09-AUG-04 ETA: 13-AUG-04
From: THAILAND To: Manila, Philippines9 Art. 2207. If the plaintiffs property has been insured, and
he has received indemnity from the insurance company
As such, according to the CA, the case of Eastern for the injury or loss arising out of the wrong or breach of
Shipping Lines, Inc. v. Prudential Guarantee and contract complained of, the insurance company shall be
Assurance, Inc.10 is applicable, wherein this Court held subrogated to the rights of the insured against the
that a marine risk note is not an insurance policy. The wrongdoer or the person who has violated the contract.
CA also found applicable this Court's ruling in Malayan If the amount paid by the insurance company does not
Insurance Co., Inc. v. Regis Brokerage Corp.,11 stating fully cover the injury or loss, the aggrieved party shall be
that a marine policy is constitutive of the insurer-insured entitled to recover the deficiency from the person
relationship, thus, such document should have been causing the loss or injury.
attached to the complaint as mandated by Section The records further show that petitioner was able to
7,12 Rule 8 of the Rules of Court. accomplish its obligation under the insurance policy as it
has paid the assured of its insurance claim in the
Petitioner, however, insists that the CA erred in applying amount of P728,712,00 as evidenced by, among others,
the case of Malayan because the plaintiff therein did not the Subrogation Receipt,16 Loss Receipt,17 Check
Voucher,18 and Equitable PCI Bank Check No. contract was deemed not fatal to the insurer's cause of
0000013925.19 The payment by the insurer to the action because the loss of the cargo undoubtedly
insured operates as an equitable assignment to the occurred while on board the petitioner's vessel.
insurer of all the remedies which the insured may have
against the third party whose negligence or wrongful act The same rationale was the basis of the judgment
caused the loss. The right of subrogation is not in International Container Terminal Services, Inc. v. FGU
dependent upon, nor does it grow out of any privity of Insurance Corporation, wherein the arrastre operator
contract or upon payment by the insurance company of was found liable for the lost shipment despite the failure
the insurance claim. It accrues simply upon payment by of the insurance company to offer in evidence the
the insurance company of the insurance claim.20 insurance contract or policy. As in Delsan, it was certain
that the loss of the cargo occurred while in the
This Court's ruling in Asian Terminals, Inc. v. First petitioner's custody.22
Lepanto-Taisho Insurance Corporation21 is highly In view thereof, the RTC did not err in its ruling,
instructive, thus: thus:.rary
Defendant in its memorandum, raised the issue that
As a general rule, the marine insurance policy needs to plaintiff failed to attach in its complaint a copy of the
be presented in evidence before the insurer may recover Marine Open Insurance Policy, thus, it failed to establish
the insured value of the lost/damaged cargo in the its cause of action as subrogee of the consignee quoting
exercise of its subrogatory right. In Malayan Insurance the case of Malayan Insurance Co., Inc. v. Regis
Co., Inc. v. Regis Brokerage Corp., the Court stated that Brokerage Corp.
the presentation of the contract constitutive of the
insurance relationship between the consignee and The above-mentioned case is not applicable in the
insurer is critical because it is the legal basis of the instant case. In Malayan Insurance Co. v. Regis
latter's right to subrogation. Brokerage, Malayan did not submit the copy of the
insurance contract or policy. In the instant case, plaintiff
In Home Insurance Corporation v. CA, the Court also submitted the copy of the insurance contract. In fact, the
held that the insurance contract was necessary to prove non-presentation of the insurance contract is not fatal to
that it covered the hauling portion of the shipment and its cause of action.
was not limited to the transport of the cargo while at sea.
The shipment in that case passed through six stages In the more recent case of Asian Terminals, Inc. v.
with different parties involved in each stage until it Malayan Insurance Co., Inc., it was held:
reached the consignee. The insurance contract, which
was not presented in evidence, was necessary to Similarly, in this case, the presentation of the insurance
determine the scope of the insurer's liability, if any, since contract or policy was not necessary. Although petitioner
no evidence was adduced indicating at what stage in the objected to the admission of the Subrogation Receipt in
handling process the damage to the cargo was its Comment to respondent's formal offer of evidence on
sustained. the ground that respondent failed to present the
insurance contract or policy, a perusal of petitioner's
An analogous disposition was arrived at in Answer and Pre-trial Brief shows that petitioner never
the Wallem case cited by ATI wherein the Court held questioned respondent's right to subrogation, nor did it
that the insurance contract must be presented in dispute the coverage of the insurance contract or policy.
evidence in order to determine the extent of its Since there was no issue regarding the validity of the
coverage. It was further ruled therein that the liability of insurance contract or policy, or any provision thereof,
the carrier from whom reimbursement was demanded respondent had no reason to present the insurance
was not established with certainty because the alleged contract or policy as evidence during the trial.
shortage incurred by the cargoes was not definitively
determined. Perusal of the records likewise show that the defendant
failed to raise the issue of non-compliance with Section
Nevertheless, the rule is not inflexible. In certain 7, Rule 8 of the 1997 Rules of Procedure and the non-
instances, the Court has admitted exceptions by presentation of insurance policy during the pre-trial. In
declaring that a marine insurance policy is dispensable the same case, it was held:.rary
evidence in reimbursement claims instituted by the Petitioner claims that respondent's non-presentation of
insurer. the insurance contract or policy between the respondent
and the consignee is fatal to its cause of action.
In Delsan Transport Lines, Inc. v. CA, the Court ruled
that the right of subrogation accrues simply upon We do not agree.
payment by the insurance company of the insurance
claim. Hence, presentation in evidence of the marine First of all, this was never raised as an issue before the
insurance policy is not indispensable before the insurer RTC. In fact, it is not among the issues agreed upon by
may recover from the common carrier the insured value the parties to be resolved during the pre-trial. As we
of the lost cargo in the exercise of its subrogatory right. have said, the determination of issues during the pre-trial
The subrogation receipt, by itself, was held sufficient to conference bars the consideration of other questions,
establish not only the relationship between the insurer whether during trial or on appeal. Thus, [t]he parties
and consignee, but also the amount paid to settle the must disclose during pre-trial all issues they intend to
insurance claim. The presentation of the insurance raise during the trial, except those involving privileged or
impeaching matters. x x x The basis of the rule is simple. Development Insurance and Surety Corporation
Petitioners are bound by the delimitation of the issues (respondent), viz.:ChanRoblesVirtualawlibrary
during the pre-trial because they themselves agreed to IN VIEW OF THE FOREGOING, the decision appealed
the same. from is reversed, and the defendant-appellant ordered to
Plaintiff was able to prove by substantial evidence their pay the plaintiff-appellee the sum of P55,620.60 with
right to institute this action as subrogee of the insured. interest at 6 percent per annum from the date of the
The defendant did not present any evidence or witness denial of the claim on October 9, 1996 until payment.
to bolster their defense and to contradict plaintiffs
allegation.23 SO ORDERED.5.rary
I
To reiterate, in this case, petitioner was able to present
as evidence the marine open policy that vested upon it, The facts are undisputed. Petitioner was the registered
its rights as a subrogee. Subrogation is designed to owner of a 1992 Mitsubishi Montero with plate number
promote and to accomplish justice and is the mode GTJ-777 (vehicle), while respondent is a domestic
which equity adopts to compel the ultimate payment of a corporation engaged in the insurance business.6 On
debt by one who injustice, equity and good conscience September 27, 1996, respondent issued a
ought to pay.24 7
comprehensive commercial vehicle policy to petitioner
in the amount of P1,500,000.00 over the vehicle for a
WHEREFORE, the Petition for Review period of one year commencing on September 27, 1996
on Certiorari under Rule 45 of the Rules of Court, dated up to September 27, 1997.8 Respondent also issued two
May 11, 2016, of petitioner Equitable Insurance other commercial vehicle policies to petitioner covering
Corporation is GRANTED. Consequently, the Decision two other motor vehicles for the same period.9
dated September 15, 2015 and Resolution dated March
17, 2016 of the Court of Appeals in CA-G.R. CV No. To collect the premiums and other charges on the
101296 are REVERSED and SET ASIDE, and the policies, respondent's agent, Trans-Pacific Underwriters
Decision dated June 18, 2013 of the Regional Trial Agency (Trans-Pacific), issued a statement of account to
Court, Branch 26, Manila petitioner's company, Noah's Ark Merchandising (Noah's
is AFFIRMED and REINSTATED. Ark).10 Noah's Ark immediately processed the payments
and issued a Far East Bank check dated September 27,
SO ORDERED. 1996 payable to Trans-Pacific on the same day.11 The
check bearing the amount of P140,893.50 represents
Carpio, (Chairperson), Mendoza, Leonen, and Martires, payment for the three insurance policies, with
JJ., concur. P55,620.60 for the premium and other charges over the
vehicle.12 However, nobody from Trans-Pacific picked up
the check that day (September 27) because its president
and general manager, Rolando Herradura, was
celebrating his birthday. Trans-Pacific informed Noah's
Ark that its messenger would get the check the next day,
September 28.13

In the evening of September 27, 1996, while under the


official custody of Noah's Ark marketing manager
Achilles Pacquing (Pacquing) as a service company
vehicle, the vehicle was stolen in the vicinity of SM
Megamall at Ortigas, Mandaluyong City. Pacquing
reported the loss to the Philippine National Police Traffic
Management Command at Camp Crame in Quezon
City.14 Despite search and retrieval efforts, the vehicle
was not recovered.15

Oblivious of the incident, Trans-Pacific picked up the


JAIME T. GAISANO, Petitioner, v. DEVELOPMENT check the next day, September 28. It issued an official
INSURANCE AND SURETY receipt numbered 124713 dated September 28, 1996,
CORPORATION, Respondent. acknowledging the receipt of P55,620.60 for the
G.R. No. 190702, February 27, 2017 premium and other charges over the vehicle. 16 The
check issued to Trans-Pacific for P140,893.50 was
This is a petition for review on certiorari1 seeking to deposited with Metrobank for encashment on October 1,
nullify the Court of Appeals' (CA) September 11, 2009 1996.17
Decision2 and November 24, 2009 Resolution3 in CA-
G.R. CV No. 81225. The CA reversed the September On October 1, 1996, Pacquing informed petitioner of the
24, 2003 Decision4 of the Regional Trial Court (RTC) in vehicle's loss. Thereafter, petitioner reported the loss
Civil Case No. 97-85464. The RTC granted Jaime T. and filed a claim with respondent for the insurance
Gaisano's (petitioner) claim on the proceeds of the proceeds of P1,500,000.00.18 After investigation,
comprehensive commercial vehicle policy issued by respondent denied petitioner's claim on the ground that
there was no insurance contract.19 Petitioner, through
counsel, sent a final demand on July 7, the policy, and is in estoppel.40
1997.20 Respondent, however, refused to pay the
insurance proceeds or return the premium paid on the Petitioner also argues that assuming he is not entitled to
vehicle. recover insurance proceeds, but only to the return of the
premiums paid, then he should be able to recover the full
On October 9, 1997, petitioner filed a complaint for amount of P140,893.50, and not merely
collection of sum of money and damages21 with the RTC 41
P55,620.60. The insurance policy covered three
where it sought to collect the insurance proceeds from vehicles yet respondent's intention was merely to
respondent. In its Answer,22 respondent asserted that disregard the contract for only the lost
the non-payment of the premium rendered the policy 42
vehicle. According to petitioner, the principle of
ineffective. The premium was received by the mutuality of contracts is violated, at his expense, if
respondent only on October 2, 1996, and there was no respondent is allowed to be excused from performance
known loss covered by the policy to which the payment on the insurance contract only for one vehicle, but not as
could be applied.23 to the two others, just because no loss is suffered as to
the two. To allow this "would be to place exclusively in
In its Decision24 dated September 24, 2003, the RTC the hands of one of the contracting parties the right to
ruled in favor of petitioner. It considered the premium decide whether the contract should stand or not x x x."43
paid as of September 27, even if the check was received
only on September 28 because (1) respondent's agent, For failure of respondent to tile its comment to the
Trans-Pacific, acknowledged payment of the premium petition, we declared respondent to have waived its right
on that date, September 27, and (2) the check that to file a comment in our June 15, 2011 Resolution. 44
petitioner issued was honored by respondent in
acknowledgment of the authority of the agent to receive The lone issue here is whether there is a binding
it.25 Instead of returning the premium, respondent sent a insurance contract between petitioner and respondent.
checklist of requirements to petitioner and assigned an II
underwriter to investigate the claim.26 The RTC ruled
that it would be unjust and inequitable not to allow a We deny the petition.
recovery on the policy while allowing respondent to
retain the premium paid.27 Thus, petitioner was awarded Insurance is a contract whereby one undertakes for a
an indemnity of P1,500,000.00 and attorney's fees of consideration to indemnify another against loss, damage
P50,000.00.28 or liability arising from an unknown or contingent
event.45 Just like any other contract, it requires a cause
After respondent's motion for reconsideration was or consideration. The consideration is the premium,
denied,29 it filed a Notice of Appeal. 30 Records were which must be paid at the time and in the way and
forwarded to the CA.31 manner specified in the policy.46 If not so paid, the policy
will lapse and be forfeited by its own terms.47
The CA granted respondent's appeal.32 The CA upheld
respondent's position that an insurance contract The law, however, limits the parties' autonomy as to
becomes valid and binding only after the premium is when payment of premium may be made for the contract
paid pursuant to Section 77 of the Insurance Code to take effect. The general rule in insurance laws is that
(Presidential Decree No. 612, as amended by Republic unless the premium is paid, the insurance policy is not
Act No. 10607).33 It found that the premium was not yet valid and binding.48 Section 77 of the Insurance Code,
paid at the time of the loss on September 27, but only a applicable at the time of the issuance of the policy,
day after or on September 28, 1996, when the check provides:
was picked up by Trans-Pacific.34 It also found that none
of the exceptions to Section 77 obtains in this Sec. 77. An insurer is entitled to payment of the premium
case.35 Nevertheless, the CA ordered respondent to as soon as the thing insured is exposed to the peril
return the premium it received in the amount of insured against. Notwithstanding any agreement to the
P55,620.60, with interest at the rate of 6% per contrary, no policy or contract of insurance issued by an
annum from the date of the denial of the claim on insurance company is valid and binding unless and until
October 9, 1996 until payment.36 the premium thereof has been paid, except in the case
of a life or an industrial life policy whenever the grace
Hence petitioner filed this petition. He argues that there period provision applies.
was a valid and binding insurance contract between him In Tibay v. Court of Appeals,49 we emphasized the
and respondent.37 He submits that it comes within the importance of this rule. We explained that in an
exceptions to the rule in Section 77 of the Insurance insurance contract, both the insured and insurer
Code that no contract of insurance becomes binding undertake risks. On one hand, there is the insured, a
unless and until the premium thereof has been paid. The member of a group exposed to a particular peril, who
prohibitive tenor of Section 77 does not apply because contributes premiums under the risk of receiving nothing
the parties stipulated for the payment of in return in case the contingency does not happen; on
premiums.38 The parties intended the contract of the other, there is the insurer, who undertakes to pay the
insurance to be immediately effective upon issuance, entire sum agreed upon in case the contingency
despite non-payment of the premium, because happens. This risk-distributing mechanism operates
respondent trusted petitioner.39 He adds that respondent under a system where, by prompt payment of the
waived its right to a pre-payment in full of the terms of premiums, the insurer is able to meet its legal obligation
to maintain a legal reserve fund needed to meet its It can be seen at once that Section 77 does not restate
contingent obligations to the public. The premium, the portion of Section 72 expressly permitting an
therefore, is the elixir vitae or source of life of the agreement to extend the period to pay the premium. But
insurance business: are there exceptions to Section 77?

In the desire to safeguard the interest of the assured, it The answer is in the affirmative.
must not be ignored that the contract of insurance is
primarily a risk-distributing device, a mechanism by The first exception is provided by Section 77 itself, and
which all members of a group exposed to a particular that is, in case of a life or industrial life policy whenever
risk contribute premiums to an insurer. From these the grace period provision applies.
contributory funds are paid whatever losses occur due to
exposure to the peril insured against. Each party The second is that covered by Section 78 of the
therefore takes a risk: the insurer, that of being Insurance Code, which
compelled upon the happening of the contingency to pay provides:ChanRoblesVirtualawlibrary
the entire sum agreed upon, and the insured, that of SEC. 78. Any acknowledgment in a policy or contract of
parting with the amount required as premium. without insurance of the receipt of premium is conclusive
receiving anything therefor in case the contingency does evidence of its payment, so far as to make the policy
not happen. To ensure payment tor these losses, the law binding, notwithstanding any stipulation therein that it
mandates all insurance companies to maintain a legal shall not be binding until premium is actually paid.
reserve fund in favor of those claiming under their A third exception was laid down in Makati Tuscany
policies. It should be understood that the integrity of this Condominium Corporation vs. Court of Appeals, wherein
fund cannot be secured and maintained if by judicial fiat we ruled that Section 77 may not apply if the parties
partial offerings of premiums were to be construed as a have agreed to the payment in installments of the
legal nexus between the applicant and the insurer premium and partial payment has been made at the time
despite an express agreement to the contrary. For what of loss. We said therein,
could prevent the insurance applicant from deliberately thus:ChanRoblesVirtualawlibrary
or willfully holding back full premium payment and wait We hold that the subject policies are valid even if the
for the risk insured against to transpire and then premiums were paid on installments. The records clearly
conveniently pass on the balance of the premium to be show that the petitioners and private respondent
deducted from the proceeds of the insurance? x x x intended subject insurance policies to be binding and
xxx effective notwithstanding the staggered payment of the
premiums. The initial insurance contract entered into in
And so it must be. For it cannot be disputed that 1982 was renewed in 1983, then in 1984. In those three
premium is the elixir vitae of the insurance business years, the insurer accepted all the installment payments.
because by law the insurer must maintain a legal Such acceptance of payments speaks loudly of the
reserve fund to meet its contingent obligations to the insurer's intention to honor the policies it issued to
public, hence, the imperative need for its prompt petitioner. Certainly, basic principles of equity and
payment and full satisfaction. It must be emphasized fairness would not allow the insurer to continue
here that all actuarial calculations and various collecting and accepting the premiums, although paid on
tabulations of probabilities of losses under the risks installments, and later deny liability on the lame excuse
insured against are based on the sound hypothesis of that the premiums were not prepaid in full.
prompt payment of premiums. Upon this bedrock Not only that. In Tuscany, we also quoted with approval
insurance firms are enabled to other the assurance of the following pronouncement of the Court of Appeals in
security to the public at favorable rates. x x x 50 (Citations its Resolution denying the motion for reconsideration of
omitted.) its decision:ChanRoblesVirtualawlibrary
Here, there is no dispute that the check was delivered to While the import of Section 77 is that prepayment of
and was accepted by respondent's agent, Trans-Pacific, premiums is strictly required as a condition to the validity
only on September 28, 1996. No payment of premium of the contract, We are not prepared to rule that the
had thus been made at the time of the loss of the vehicle request to make installment payments duly approved by
on September 27, 1996. While petitioner claims that the insurer would prevent the entire contract of
Trans-Pacific was informed that the check was ready for insurance from going into effect despite payment and
pick-up on September 27, 1996, the notice of the acceptance of the initial premium or first installment.
availability of the check, by itself, does not produce the Section 78 of the Insurance Code in effect allows waiver
effect of payment of the premium. Trans-Pacific could by the insurer of the condition of prepayment by making
not be considered in delay in accepting the check an acknowledgment in the insurance policy of receipt of
because when it informed petitioner that it will only be premium as conclusive evidence of payment so far as to
able to pick-up the check the next day, petitioner did not make the policy binding despite the fact that premium is
protest to this, but instead allowed Trans-Pacific to do actually unpaid. Section 77 merely precludes the parties
so. Thus, at the time of loss, there was no payment of from stipulating that the policy is valid even if premiums
premium yet to make the insurance policy effective. are not paid, but docs not expressly prohibit an
agreement granting credit extension, and such an
There are, of course, exceptions to the rule that no agreement is not contrary to morals, good customs,
insurance contract takes effect unless premium is paid. public order or public policy (De Leon,' The Insurance
In UCPB General Insurance Co., Inc. v. Masagana Code, p. 175). So is an understanding to allow insured to
Telamart, Inc.,51 we said:ChanRoblesVirtualawlibrary pay premiums in installments not so prescribed. At the
very least, both parties should be deemed in estoppel to Inc. Both contemplate situations where the insurers have
question the arrangement they have voluntarily consistently granted the insured a credit extension or
accepted. term for the payment of the premium. Here, however,
By the approval of the aforequoted findings and petitioner failed to establish the fact of a grant by
conclusion of the Court of Appeals, Tuscany has respondent of a credit term in his favor, or that the grant
provided a fourth exception to Section 77, namely, that has been consistent. While there was mention of a credit
the insurer may grant credit extension for the payment of agreement between Trans-Pacific and respondent, such
the premium. This simply means that if the insurer has arrangement was not proven and was internal between
granted the insured a credit term for the payment of the agent and principal.55 Under the principle of relativity of
premium and loss occurs before the expiration of the contracts, contracts bind the parties who entered into it.
term, recovery on the policy should be allowed even It cannot favor or prejudice a third person, even if he is
though the premium is paid after the loss but within the aware of the contract and has acted with knowledge.56
credit term.
We cannot sustain petitioner's claim that the parties
x x x agreed that the insurance contract is immediately
effective upon issuance despite non payment of the
Finally in the instant case, it would be unjust and premiums. Even if there is a waiver of pre-payment of
inequitable if recovery on the policy would not be premiums, that in itself does not become an exception to
permitted against Petitioner, which had consistently Section 77, unless the insured clearly gave a credit term
granted a 60- to 90-day credit term for the payment of or extension. This is the clear import of the fourth
premiums despite its full awareness of Section 77. exception in the UCPB General Insurance Co., Inc. To
Estoppel bars it from taking refuge under said Section, rule otherwise would render nugatory the requirement in
since Respondent relied in good faith on such practice. Section 77 that "[n]otwithstanding any agreement to the
Estoppel then is the fifth exception to Section contrary, no policy or contract of insurance issued by an
77.52 (Citations omitted.) insurance company is valid and binding unless and until
In UCPB General Insurance Co., Inc., we summarized the premium thereof has been paid, x x x." Moreover,
the exceptions as follows: (1) in case of life or industrial the policy itself states:ChanRoblesVirtualawlibrary
life policy, whenever the grace period provision applies, WHEREAS THE INSURED, by his corresponding
as expressly provided by Section 77 itself; (2) where the proposal and declaration, and which shall be the basis of
insurer acknowledged in the policy or contract of this Contract and deemed incorporated herein, has
insurance itself the receipt of premium, even if premium applied to the company for the insurance hereinafter
has not been actually paid, as expressly provided by contained, subject to the payment of the Premium as
Section 78 itself; (3) where the parties agreed that consideration for such insurance.57 (Emphasis supplied.)
premium payment shall be in installments and partial The policy states that the insured's application for the
payment has been made at the time of loss, as held insurance is subject to the payment of the premium.
in Makati Tuscany Condominium Corp. v. Court of There is no waiver of pre-payment, in full or in
Appeals;53 (4) where the insurer granted the insured a installment, of the premiums under the policy.
credit term for the payment of the premium, and loss Consequently, respondent cannot be placed in estoppel.
occurs before the expiration of the term, as held
in Makati Tuscany Condominium Corp.; and (5) where Thus, we find that petitioner is not entitled to the
the insurer is in estoppel as when it has consistently insurance proceeds because no insurance policy
granted a 60 to 90-day credit term for the payment of became effective for lack of premium payment.
premiums.
The consequence of this declaration is that petitioner is
The insurance policy in question does not fall under the entitled to a return of the premium paid for the vehicle in
first to third exceptions laid out in UCPB General the amount of P55,620.60 under the principle of unjust
Insurance Co., Inc.: (1) the policy is not a life or industrial enrichment. There is unjust enrichment when a person
life policy; (2) the policy does not contain an unjustly retains a benefit to the loss of another, or when
acknowledgment of the receipt of premium but merely a a person retains money or property of another against
statement of account on its face;54 and (3) no payment of the fundamental principles of justice, equity and good
an installment was made at the time of loss on conscience.58 Petitioner cannot claim the full amount of
September 27. P140,893.50, which includes the payment of premiums
for the two other vehicles. These two policies are not
Petitioner argues that his case falls under the fourth and affected by our ruling on the policy subject of this case
fifth exceptions because the parties intended the because they were issued as separate and independent
contract of insurance to be immediately effective upon contracts of insurance.59 We, however, find that the
issuance, despite non-payment of the premium. This award shall earn legal interest of 6% from the time of
waiver to a pre-payment in full of the premium places extrajudicial demand on July 7, 1997.60
respondent in estoppel.
WHEREFORE, the petition is DENIED. The assailed
We do not agree with petitioner. Decision of the CA dated September 11, 2009 and the
Resolution dated November 24, 2009
The fourth and fifth exceptions to Section 77 operate are AFFIRMED with the MODIFICATION that
under the facts obtaining in Makati Tuscany respondent should return the amount of P55,620.60 with
Condominium Corp. and UCPB General Insurance Co., the legal interest computed at the rate of 6% per
annum reckoned from July 7, 1997 until finality of this 1. the Resolution[3] dated June 26, 2007 and
judgment. Thereafter, the total amount shall earn interest Order[4] dated December 4, 2007 issued by the
at the rate of 6% per annum from the finality of this Insurance Commission (IC);
judgment until its full satisfaction. 2. the Decision[5] dated September 17, 2008 and
Resolution[6] dated April 29, 2009 issued by the
SO ORDERED..rary Department of Finance (DOF); and
3. the Decision[7] dated January 8, 2010 and
Resolution[8] dated June 1, 2010 issued by the
Office of the President (OP).

These issuances upheld the ruling of the IC that


respondent Country Bankers Corporation (Country
Bankers) shall be subjected to disciplinary action
pursuant to Section 241 (now Section 247) and Section
247 (now Section 254) of the Insurance Code, as
amended,[9] if respondent Country Bankers does not
settle the subject claims presented by petitioner IPAMS.

The Facts and Antecedent Proceedings

As narrated by the CA in its assailed Decision, the


essential facts and antecedent proceedings of the
instant case are as follows:
In 2000, Industrial Personnel and Management Services,
Inc. (IPAMS) began recruiting registered nurses for work
deployment in the United States of America (U.S.). It
takes eighteen (18) to twenty four (24) months for the
entire immigration process to complete. As the process
requires huge amounts of money, such amounts are
advanced [to] the nurse applicants.

By reason of the advances made to the nurse


applicants, the latter were required to post surety bond.
The purpose of the bond is to guarantee the following
during its validity period: (a) that they will comply with the
entire immigration process, (b) that they will complete
the documents required, and (c) that they will pass all
the qualifying examinations for the issuance of
immigration visa. The Country Bankers Insurance
Corporation (Country Bankers for brevity) and IPAMS
agreed to provide bonds for the said nurses. [Under the
agreement of IPAMS and Country Bankers, the latter will
provide surety bonds and the premiums therefor were
paid by IPAMS on behalf of the nurse applicants.[10]]
[The surety bonds issued specifically state that the
liability of the surety company, i.e., respondent Country
Bankers, "shall be limited only to actual damages arising
INDUSTRIAL PERSONNEL AND MANAGEMENT from Breach of Contract by the applicant."[11]]
SERVICES, INC., PETITIONER, V. COUNTRY A Memorandum of Agreement (MOA) was executed by
BANKERS INSURANCE CORPORATION, the said parties on February 1, 2002 [which stipulated
RESPONDENT. the various requirements for collecting claims from
[ G.R. No. 194126, October 17, 2018 ] Country Bankers, namely:

B. REQUIREMENTS FOR CLAIM


CAGUIOA, J: Requirements are as follows:
Before this Court is a Petition for Review SURETY BOND:
on Certiorari[1] (Petition) under Rule 45 of the Rules of A. 1st demand letter requiring his/her to submit
Court filed by petitioner Industrial Personnel and complete documents.
Management Services, Inc. (IPAMS) assailing the B. 2nd Demand letter (follow up of above).
Decision[2] dated October 14, 2010 (assailed Decision) of C. Affidavit stating reason of any violation to be
the Court of Appeals (CA) Eleventh Division in CA-G.R. executed by responsible officer of Recruitment
SP No. 114683, which reversed and set aside the Agency;
following rulings: D. Statement of Account (detailed expenses).
E. Transmittal Claim Letter.[12] (Emphasis and
underscoring in the original)]
Claims Division of the [IC] [issued] a
[On the basis of the MOA, IPAMS submitted its claims [R]esolution[19] declaring the following:
under the surety bonds issued by Country Bankers. For
its part, Country Bankers, upon receipt of the documents "IN VIEW OF THE FOREGOING, this Commission
enumerated under the MOA, paid the claims to believes and so holds that there is no ground for the
IPAMS.[13]] According to IPAMS, starting 2004, some of refusal of CBIC to pay the claims of IPAMS. Its failure to
its claims were not anymore settled by Country Bankers. settle the claim after having entered into an Agreement
[In 2004, Country Bankers was not able to pay six (6) with the complainant, IPAMS, demonstrates
claims of IPAMS. The claims were not denied by respondent's bad faith in the fulfillment of their
Country Bankers, which instead asked for time within obligation, to the prejudice of the complainant.
which to pay the claims, as it alleged to be cash Accordingly, we find the insurance company liable to
strapped at that time. Thereafter, the number of unpaid settle the subject claim otherwise, this Commission shall
claims increased. By February 16, 2007, the total be constrained to take disciplinary action pursuant to
amount of unpaid claims was P11,309,411.56. Sections 241 and 247 of the Insurance Code, as
amended." (Underscoring supplied)
IPAMS took the matter up with the General Manager of
Country Bankers, Mr. Ignacio Ong (Ong). In response, The move by Country Bankers to reconsider the above
Country Bankers, through its letter[14] dated November resolution was denied by the [IC] in an [O]rder [20] dated
14, 2005 signed by Mr. Ong, acknowledged the December 4, 2007.
obligations of Country Bankers, apologized for the delay
in the payment of claims, and proposed to amortize the Country Bankers made an appeal before the [DOF]. The
settlement of claims by paying a semi-monthly amount of [DOF] decided to affirm the assailed orders of the [IC].
P850,000.00. In addition, Country Bankers promised to The dispositive portion of the said [D]ecision[21] [dated
pay future claims within a ninety (90)-day period. That September 30, 2008] reads:
commitment made by Country Bankers was not fulfilled "WHEREFORE, foregoing premises considered, the
and IPAMS had to deal with Country Bankers' new questioned Resolution of the Commission dated June
General Manager, Ms. Tess Valeriano (Valeriano). Ms. 26, 2007, as reiterated in its Order dated December 7,
Valeriano assured IPAMS that the obligations of Country 2007, is hereby AFFIRMED and that the same be
Bankers would be paid promptly. implemented in accordance with Sec. 241, in relation to
Sec. 247 of the Insurance Code and other pertinent rules
However, the counsel of Country Bankers, Atty. Marisol and regulations on the matter."
Caleja, started to oppose the payment of claims and
insisted on the production of official receipts of IPAMS A motion to reconsider the x x x aforementioned decision
on the expenses it incurred for the application of nurses. was filed but was denied [by the DOF in its
IPAMS opposed this, saying that the Country Bankers' Resolution[22] dated] April 29, 2009.
insistence on the production of official receipts was On appeal to the [OP], the ruling of the [DOF] was
contrary to, and not contemplated in, the MOA and was affirmed in a [D]ecision[23] docketed as O.P. Case No.
an impossible condition considering that the U.S. 09-E-190 and dated January 8, 2010[:
authorities did not issue official receipts. In lieu of official WHEREFORE, herein appeal is DISMISSED for lack of
receipts, IPAMS submitted statements of accounts, as merit. The Decision of the Secretary of Finance dated
provided in the MOA.[15]] September 17, 2008 and its Resolution dated April 29,
2009 are hereby AFFIRMED.][24]
Then, [in a letter[16] dated August 22, 2006,] Country A subsequent motion to reconsider the same was denied
Bankers limited the authority of its agent [assigned to the by the said office in its [R]esolution[25] dated June 1,
accounts of IPAMS,] Mr. Jaime C. Lacaba [(Lacaba),] to 2010.
transact business with IPAMS.
[Due to the unwillingness of Country Bankers to settle Hence, [the] instant [P]etition [for Review filed by
the claims of IPAMS, the latter sought the intervention of respondent Country Bankers before the CA under Rule
the IC, through a letter-complaint dated February 9, 43 of the Rules of Court.][26]
2007.[17] ] The Ruling of the CA
In its assailed Decision, the CA granted the Rule 43
Country Bankers on the other hand alleged that until the Petition filed by respondent Country Bankers, reversing
third quarter of 2006, it never received any complaint and setting aside the rulings of the IC, DOF, and OP, the
from IPAMS. Due to remarkable high loss ratio of dispositive portion of which states:
IPAMS, the latter's accounts were evaluated and audited WHEREFORE, premises considered, the petition
by the Country Bankers. The IPAMS was informed of the is GRANTED and the following issuances are
same problem. Instead of complying with the hereby REVERSED and SET ASIDE:
requirements for claim processes, IPAMS insisted that 1. June 1, 2010 decision of the Office of the
the supporting documents cannot be produced. President in O.P. Case No. 09-E-190;
2. January 8, 2010 decision of the Office of the
[The] [c]ontending parties went to a series of President in O.P. Case No. 09-E-190;
conferences to settle the differences but to no avail. The 3. Department of Finance resolution dated April 29,
[IC] therefore ordered the parties to submit [their] 2009;
respective Position Papers.[18] On June 26, 2007, the 4. Department of Finance decision dated
September 17, 2008;
5. Insurance Commission order dated December 4, Statements of Accounts with detailed expenses, without
2007; and the accompanying official receipts or any other "competent"
6. Insurance Commission resolution dated June evidence, cannot prove actual expenses. Hence,
26, 2007. respondent Country Bankers was supposedly justified in
not paying the claims of petitioner IPAMS.
SO ORDERED.[27] (Emphasis in the original)
The CA held that respondent Country Bankers was Autonomy of Contracts
justified in delaying the payment of the claims to
petitioner IPAMS because of the purported lack of At the onset, it is important to note that according to the
submission by petitioner IPAMS of official receipts and autonomy characteristic of contracts, the contracting
other "competent proof[28] on the expenses incurred by parties may establish such stipulations, clauses,
petitioner IPAMS in its recruitment of nurse applicants. terms and conditions as they may deem
The CA held that Section 241 (now Section 247) of the convenient, provided they are not contrary to law,
Insurance Code, which defines an unfair claim morals, good customs, public order, or public policy.[34]
settlement practice, and Section 247 (now Section 254), The stipulation of the MOA at issue is the provision
which provides for the suspension or revocation of the enumerating requirements (Requirements for Claim
insurer's authority to conduct business, should not be Clause) that must be presented by petitioner IPAMS in
made to apply to respondent Country Bankers because order to make a valid claim against the surety bond. To
of the failure of petitioner IPAMS to provide competent reiterate, the Requirements for Claim Clause provides:
proof of its claims.
B. REQUIREMENTS FOR CLAIM
Instead of filing a motion for reconsideration, petitioner
IPAMS decided to directly file the instant Requirements are as follows:
Petition[29] dated November 2, 2010 on November 4, SURETY BOND:
2010 before the Court. F. 1st demand letter requiring his/her to submit complete
documents.
On April 4, 2011, respondent Country Bankers filed its G. 2nd Demand letter (follow up of above).
Comment (To Petition for Review on Certiorari dated H. Affidavit stating reason of any violation to be executed
November 2, 2010).[30] On August 18, 2011, petitioner by responsible office of Recruitment Agency;
IPAMS filed its Reply.[31] I. Statement of Account (detailed expenses).
Issue J. Transmittal Claim Letter.[35] (Emphasis and
underscoring in the original)
Stripped to its core, the present Petition asks the Court
to resolve whether the CA erred in issuing its assailed Petitioner IPAMS and respondent Country Bankers in
Decision which reversed and set aside the rulings of the essence made a stipulation to the effect that mere
IC, DOF, and OP, which found that respondent Country demand letters, affidavits, and statements of accounts
Bankers has no ground to refuse the payment of are enough proof of actual damages — that more direct
petitioner IPAMS' claims and shall accordingly be and concrete proofs of expenditures by the petitioner
subjected to disciplinary action pursuant to Sections 241 such as official receipts have been dispensed with in
(now Section 247) and 247 (now Section 254) of the order to prove actual losses.
Insurance Code if the latter does not settle the subject
claims of petitioner IPAMS. As to why the parties agreed on the sufficiency of the
listed requirements under the MOA goes into the
The Court's Ruling motives of the parties, which is not hard to understand,
considering that the covered transactions, i.e., the
The appeal is partly meritorious. processing of applications of nurses in the U.S., are
In reversing and setting aside the rulings of the IC, DOF, generally not subject to the issuance of official receipts
and OP, the CA, in the main, found that as provisions of by the U.S. government and its agencies.[36]
applicable law are deemed written into contracts, Article Considering the foregoing, the question is crystallized:
2199 of the Civil Code[32] should be applied regarding Can the parties stipulate on the requirements that must
the MOA between petitioner IPAMS and respondent be presented in order to claim against a surety bond?
Country Bankers. The CA reasoned that since And the answer is a definite YES, pursuant to the
"[c]ompetent proof x x x must be presented to justify autonomy characteristic of contracts, they can. In an
award for actual damages,"[33] respondent Country insurance contract, founded on the autonomy of
Bankers was correct in not paying the subject claims of contracts, the parties are generally not prevented from
petitioner IPAMS because the latter failed to present imposing the terms and conditions that determine the
official receipts and other "competent" evidence contract's obligatory force.[37]
establishing the actual costs and expenses incurred by
petitioner IPAMS. Thus, the view posited by the CA that the Requirements
for Claim Clause is contrary to law because it is
Apparently, the CA concurred with the reason posited by incongruent with Article 2199 of the Civil Code and,
respondent Country Bankers for not paying the claims therefore, an exception to the rule on autonomy of
presented by petitioner IPAMS, i.e., the failure of contracts is erroneous. A more thorough examination of
petitioner IPAMS to present official receipts of expenses Article 2199 does not support the CA's view.
it incurred. Consequently, the CA found that mere Article 2199 of the Civil Code states:
Article 2199. Except as provided by law or by submission of official receipts as a requirement for the
stipulation, one is entitled to an adequate payment of claims, they would have included such
compensation only for such pecuniary loss suffered by requirement in the MOA. But they did not.
him as he has duly proved. Such compensation is
referred to as actual or compensatory damages. It is elementary that when the terms of an agreement
(Emphasis and underscoring supplied) have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be
The law is clear and unequivocal when it states that one no evidence on such terms other than the contents of
is entitled to adequate compensation for pecuniary loss the written agreement.[39] Further, when the terms of the
only for such losses as he has duly contract are clear and leave no doubt upon the intention
proved EXCEPT: (1) when the law provides of the contracting parties, the stipulations of the parties
otherwise, or (2) by stipulation of the parties. are controlling.[40]
Otherwise stated, the amount of actual damages is
limited to losses that were actually incurred and proven, In the case at hand, respondent Country Banker failed to
except when the law provides otherwise, or when the present any compelling evidence that convinces the
parties stipulate that actual damages are not limited to Court that the parties had the intention of adding
the actual losses incurred or that actual damages are to requirements other than the five requirements for
be proven by specific documents agreed upon. payment of claims enumerated in the Requirements for
Claim Clause. On the contrary, several circumstances
The submission of official show that the submission of official receipts was really
receipts and other pieces of NOT intended by the parties to be a precondition for the
evidence as a prerequisite payment of claims.
for the payment of claims
is excused by stipulation of As found by the OP in its Decision dated January 8,
the parties; and in lieu 2010, respondent Country Bankers "knew as a matter of
thereof, the presentation of IPAMS' regular course of business that these covered
statement of accounts with transactions are generally not issued official receipts by
detailed expenses, demand US government and its agencies and the US based
letters, and affidavits is, by professional organizations and institutions involved to
express stipulation, complete the requirements for the issuance of an
sufficient evidence for the immigrant visa."[41]
payment of claims.
Further, as found by the IC in its Resolution dated June
To reiterate, Article 2199 of the Civil Code explicitly 26, 2007, which the CA did not controvert in its assailed
provides that the prerequisite of proof for the recovery of Decision, respondent Country Bankers had previously
actual damages is not absolute. This was illustrated admitted liability and promised to make payment on
in People of the Philippines v. Jonjie Eso y Hungoy, et similar claims under the surety agreement even without
al.,[38] wherein this Court held that the requirement of the submission of official receipts.[42] In fact, respondent
providing actual proof found under Article 2199 for the Country Bankers had previously paid similar claims
recovery of actual and compensatory damages (in that made by petitioner IPAMS on the basis of the same set
case, funeral expenses) may. be dispensed with, of documents, even without the submission of official
considering that there was a stipulation to that effect receipts and other pieces of evidence.
made by the parties.
As the contemporaneous and subsequent acts of the
In the instant case, it is not disputed by any party that in contracting parties shall be principally considered in
the MOA entered into by the petitioner IPAMS and determining the intention of the parties,[43] and that, by
respondent Country Bankers, the parties expressly virtue of estoppel, an admission or representation is
agreed upon a list of requirements to be fulfilled by the rendered conclusive upon the person making it and
petitioner in order to claim from respondent Country cannot be denied or disproved as against the person
Bankers under the surety bond. relying thereon,[44] the prior actuations of respondent
Country Bankers clearly establish that it did not intend
Hence, it is crystal clear that the petitioner IPAMS and the submission of official receipts to be a prerequisite for
respondent Country Bankers, by express stipulation, the payment of claims. Respondent Country Bankers is
agreed that in order for the former to have a valid claim therefore estopped from claiming that the submission of
under the surety bond, the only requirements that need official receipts and other "competent proof” is a further
to be submitted are the two demand letters, an Affidavit requirement for the payment of claims.
stating reason of any violation to be executed by Hence, the Court finds that, by stipulation of petitioner
responsible officer of the Recruitment Agency, a IPAMS and respondent Country Bankers in their MOA,
Statement of Account detailing the expenses incurred, the parties waived the requirement of actually proving
and the Transmittal Claim Letter. Evidently, the parties the expenses incurred by petitioner IPAMS through the
did not include as preconditions for the payment of submission of official receipts and other documentary
claims the submission of official receipts or any evidence. Thus, respondent Country Bankers was not
other more direct or concrete piece of evidence to justified in denying the payment of claims presented by
substantiate the expenditures of petitioner IPAMS. If petitioner IPAMS based on the lack of official receipts.
the parties truly had the intention of treating the
Under the Insurance Code, reconciliation of our records with that of Mr. Lacaba.
all defects in the proof of After evaluating the total number of claims filed by
loss, which the insured IPAMS, we have come up with the final figure of
might remedy, are waived P20,575,492.25.
as grounds for objection
when the insurer omits to In this regard, we wish to propose to amortize the
specify to him without settlement of the said amount by paying you the semi-
unnecessary delay. monthly amount of P850,000.00 until the entire amount
of P20,575,492.25 is fully paid. With respect to future
While placing utmost concentration on Article 2199 of claims (after the cut-off date, October 28, 2005), we shall
the Civil Code in ruling that competent proof is required see to it that they are settled within the 90 days time
for the payment of the subject claims, the assailed frame allowed us.[54]
Decision of the CA failed to take into consideration the
applicable provisions of the Insurance Code. It bears stressing that respondent Country Bankers, after
undergoing an evaluation of the total number of claims of
The subject agreement of the parties indubitably petitioner IPAMS, undertook the settlement of such
contemplates a surety agreement,[45] which is governed claims even WITHOUT the submission of official
mainly by the Insurance Code, considering that a receipts.
contract of suretyship shall be deemed an insurance
contract within the contemplation of the Insurance Code In fact, respondent Country Bankers raised up the issue
if made by a surety which is doing an insurance on the missing official receipts and other evidence to
business.[46] In this case, the surety, i.e., respondent prove the expenses incurred by petitioner IPAMS only
Country Bankers, is admittedly an insurance company when the latter requested the intervention of the IC in
engaged in the business of insurance. In fact, the CA 2007. If respondent Country Bankers truly believed that
itself in its assailed Decision mentioned that a contract of the submission of official receipts was critical in
suretyship is defined and covered by the Insurance providing proof as to petitioner IPAMS' claims, then it
Code.[47] would have raised the issue on the lack of official
receipts at the earliest possible opportunity. This only
Moreover, the Insurance Code[48] specifically provides shows that the argument of respondent Country Bankers
applicable provisions on suretyship, stating that pertinent on the lack of official receipts was a mere afterthought to
provisions of the Civil Code shall only evade its obligation to pay the claims presented by
apply suppletorily whenever necessary in interpreting the petitioner IPAMS.
provisions of a contract of suretyship.[49] Jurisprudence
also holds that a specific law should prevail over a law of While not denying the existence of the said letter,
general character.[50] respondent Country Bankers attempts to downplay it by
arguing that the claims covered by the letter and the
Hence, in the resolution of the instant case, the CA erred claims raised by petitioner IPAMS before the IC are
in not considering the applicable provisions under the different and distinct from each other. Such argument
Insurance Code on the required proof of loss and when deserves scant consideration.
such requirement is waivable.
While the claims in the said letter may be different
Therefore, Section 92[51] of the Insurance Code must be from the specific claims presented before the IC,
taken into consideration. The said provision states that both sets of claims were similarly made under the
all defects in the proof of loss, which the insured might same suretyship agreement between the
remedy, are waived as grounds for objection when parties. Thus, the fact still remains that respondent
the insurer omits to specify to him without unnecessary Country Bankers had previously acknowledged the
delay. It is the duty of the insurer to indicate the defects validity of a set of claims under a surety bond within the
on the proofs of loss given, so that the deficiencies may purview of the Requirements for Claim Clause despite
be supplied by the insured. When the insurer recognizes the lack of official receipts and other pieces of evidence
his liability to pay the claim, there is waiver by the insurer aside from the required documents enumerated in the
of any defect in the proof of loss.[52] MOA. To be sure, it must also be pointed out that the
representations of respondent Country Bankers in the
In the instant case, it must be emphasized that said letter likewise refer to future and similar claims of
respondent Country Bankers, through its General petitioner IPAMS. Hence, respondent Country Bankers'
Manager, Mr. Ong, issued a letter dated November 14, attempt to downplay the ramifications of its letter dated
2005 which readily acknowledged the obligations of November 14, 2005 is puerile.
Country Bankers under the surety agreement,
apologized for the delay in the payment of claims, and Also, it must be emphasized that the IC, after holding a
proposed to amortize the settlement of claims by paying series of conferences between the parties and after the
a semi-monthly amount of P850,000.00.[53] In addition, assessment of the respective position papers and
Country Bankers promised to pay future claims within a evidence from both parties, made the factual finding in
90-day period: its Resolution dated June 26, 2007 that respondent
Country Bankers committed certain acts constituting a
First of all, allow us to apologize for the delay in our waiver of its right to require the presentation of additional
response to you considering that we still had to do some documents to prove the expenses incurred by petitioner
IPAMS, such as the issuance of the letter dated presentation of additional documents to prove the
November 14, 2005 and the acceptance by respondent expenses incurred by petitioner IPAMS.
Country Bankers of reimbursement from the nurse
applicants of petitioner IPAMS on the basis of the Accordingly, under Section 92 of the Insurance Code,
Statements of Accounts presented, even without any the failure to attach official receipts and other documents
official receipt attached.[55] In fact, the records show evidencing the expenses incurred by petitioner IPAMS,
that respondent Country Bankers does not deny the even assuming that it can be considered a defect on the
fact that it accepted the reimbursements from the required proof of loss, is therefore considered waived as
nurse applicants based on the Statements of ground for objecting the claims of petitioner IPAMS.
Accounts of petitioner IPAMS.[56] For the foregoing reasons, the ruling of the CA, which
sets aside the rulings of the IC, DOF, and OP, which
Furthermore, the DOF likewise factually determined that found that respondent Country Bankers has no ground
respondent Country Bankers, through its new General to refuse the payment of petitioner IPAMS' claims and
Manager, Ms. Valeriano, had assured IPAMS that the shall accordingly be subjected to disciplinary action
obligations of Country Bankers would be paid promptly, pursuant to Sections 241 (now Section 247) and 247
again, even without the submission of official receipts (now Section 254) of the Insurance Code if the latter
and other pieces of evidence.[57] The DOF similarly does not settle the subject claims of petitioner IPAMS,
found that the proposal by respondent Country Bankers should be reversed.
to amortize the settlement of petitioner IPAMS' claims by
paying the latter the semi-monthly amount of Be that as it may, despite the reversal of the CA's
P850,000.00 and respondent Country Bankers' assailed Decision, petitioner IPAMS' prayers for (1) the
acceptance of reimbursements from the nurse applicants suspension/revocation of the license of respondent
based on the mere Statements of Accounts submitted by Country Bankers due to its commission of an unfair
petitioner IPAMS are tantamount to an acknowledgment claim settlement practice for unreasonable delay in
on the part of respondent Country Bankers of its liability paying petitioner IPAMS' claim for the total amount of
for claims under the surety bonds. P21,230,643.19; (2) awarding of a total amount of
P21,230,643.19 and 20% thereof; and (3) awarding of
Moreover, the OP also factually found that respondent moral and exemplary damages, as well as attorney's
Country Bankers "knew as a matter of IPAMS' regular fees and judicial costs, are denied.
course of business that these covered transactions are
generally not issued official receipts by US government It must be stressed that the instant case resolved by the
and its agencies and the US based professional Court is not a claims adjudication case. The subject
organizations and institutions involved to complete the Resolution and Order of the IC that was concurred in by
requirements for the issuance of an immigrant visa."[58] the DOF and OP, which the Court now reinstates, were
issued in the IC's capacity as a regulator and not as an
These factual findings of three separate administrative adjudicator of claims, as admitted by the IC
agencies, which were not at all reversed or refuted by itself.[61] Hence, while the Court herein reinstates the IC's
the CA in its assailed Decision, should not be Resolution finding that disciplinary action is warranted in
perturbed by the Court without any compelling the eventuality that respondent Country Bankers
countervailing reason. The Court has continuously continues to delay settling the claims of petitioner
adopted the policy of respecting the findings of facts of IPAMS, the matter should be referred back to the IC so
specialized administrative agencies. that it could determine the remaining amount and extent
In Villafor v. Court of Appeals,[59] the Court held that the of the liability that should be settled by respondent
findings of fact of an administrative agency must be Country Bankers in order to avoid the IC's disciplinary
respected as long as they are supported by substantial action.
evidence, even if such evidence might not be
overwhelming or even preponderant, because it is not WHEREFORE, in view of the foregoing, the appeal is
the task of an appellate court to weigh once more the hereby PARTIALLY GRANTED. The Decision dated
evidence submitted before the administrative body and October 14, 2010 issued by the Court of Appeals in CA-
to substitute its own judgment for that of the G.R. SP No. 114683 is REVERSED AND SET ASIDE.
administrative agency in respect of sufficiency of The Resolution dated June 26, 2007 and Order dated
evidence.[60] December 4, 2007 issued by the Insurance Commission,
the Decision dated September 17, 2008 and Resolution
Hence, considering that the IC, through the Insurance dated April 29, 2009 issued by the Department of
Commissioner, is particularly tasked by the Insurance Finance, and the Decision dated January 8, 2010 and
Code to issue such rulings, instructions, circulars, orders Resolution dated June 1, 2010 issued by the Office of
and decisions as may be deemed necessary to secure the President are REINSTATED and AFFIRMED.
the enforcement of the provisions of the law, to ensure SO ORDERED.
the efficient regulation of the insurance industry, and
considering that there are no compelling reasons
provided by respondent Country Bankers to overthrow
the IC's factual findings, the Court upholds the findings
of the IC, as concurred in by both the DOF and OP, that
respondent Country Bankers committed certain acts
constituting a waiver of its right to require the

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