FIRST DIVISION

G.R. No. 124520 August 18, 1997

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

PADILLA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of
respondent Court of Appeals.
The undisputed facts of the case are as follows:
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private
respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.
2. One of the stipulations of the one (1) year lease contract states:
18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and
effects placed at any stall or store or space in the leased premises without first obtaining the
written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof
without the consent of the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . . 1
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by
fire the merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the
United Insurance Co., Inc. (hereinafter United) without the written consent of private respondent CKS.
4. On the day that the lease contract was to expire, fire broke out inside the leased premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote
the insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha
spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses.
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein
defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00
as exemplary damages, P20,000.00 as attorney's fees and costs of suit.

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

January 1996, affirming the trial court decision, deleting however the awards for exemplary damages and
attorney's fees. A motion for reconsideration by United was denied on 29 March 1996.
In the present petition, the following errors are assigned by petitioners to the Court of Appeals:
I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE
STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE
INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW,
MORALS AND PUBLIC POLICY
II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT
OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE
QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF THE
INSURANCE TO RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN
CONTRAVENTION OF THE INSURANCE LAW
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN
INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING
WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF THE
RESPONDENT CORPORATION. 2
The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease
contract entered into between CKS and the Cha spouses is valid insofar as it provides that any fire
insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased premises
is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written
consent of the latter.
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or public policy. 3
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit
of some person having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at
the time the insurance takes effect and at the time the loss occurs. 4 The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent a person from taking out
an insurance policy on property upon which he has no insurable interest and collecting the proceeds of
said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which
is void under Section 25 of the Insurance Code, which provides:
Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person
insured has or has not any interest in the property insured, or that the policy shall be received as
proof of such interest, and every policy executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise
inside the leased premises under the provisions of Section 17 of the Insurance Code which provide:
Sec. 17. The measure of an insurable interest in property is the extent to which the insured might
be damnified by loss of injury thereof.
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary
of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest
over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the
policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law
and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo
Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the
proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property
insured.
The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained
a fire insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct
issue which we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new
decision is hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and
Stella Uy-Cha.
SO ORDERED.

G.R. No. 147839

June 8, 2006

GAISANO
CAGAYAN,
INC.
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.

Petitioner,

DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000 of the Court
of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the
Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action
for damages of Insurance Company of North America (respondent) against Gaisano Cagayan, Inc.
(petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's motion for
reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI
separately obtained from respondent fire insurance policies with book debt endorsements. The insurance
policies provide for coverage on "book debts in connection with ready-made clothing materials which
have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines."2 The policies defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this Policy."3 The policies also
provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close
of every calendar month all amount shown in their books of accounts as unpaid and thus become
receivable item from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano
Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the
items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC
and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and
LSPI filed with respondent their claims under their respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of
ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that
respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their
rights against petitioner; that respondent made several demands for payment upon petitioner but these
went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable
because the property covered by the insurance policies were destroyed due to fortuities event or force
majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of contract
committed by it since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI
never communicated to it that they insured their properties; that it never consented to paying the claim of
the insured.6
At the pre-trial conference the parties failed to arrive at an amicable settlement. 7 Thus, trial on the merits
ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It held that the
fire was purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner;
that it has not been established that petitioner is the debtor of IMC and LSPI; that since the sales invoices
state that "it is further agreed that merely for purpose of securing the payment of purchase price, the
above-described merchandise remains the property of the vendor until the purchase price is fully paid",
IMC and LSPI retained ownership of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA. 9 On October 11, 2000, the CA rendered its decision setting
aside the decision of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new
one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the
insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until fully
paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the
insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.

With costs against the defendant-appellee.

SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity
and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner since the proviso
contained in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule
that if the thing is lost by a fortuitous event, the risk is borne by the owner of the thing at the time the loss
under the principle of res perit domino; that petitioner's obligation to IMC and LSPI is not the delivery of
the lost goods but the payment of its unpaid account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right
to go against petitioner; that, being a fire insurance with book debt endorsements, what was insured was
the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration 12 but it was denied by the CA in its Resolution dated April 11,
2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE
WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN
THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION
UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be
over credit since an insurance "on credit" belies not only the nature of fire insurance but the express
terms of the policies; that it was not credit that was insured since respondent paid on the occasion of the
loss of the insured goods to fire and not because of the non-payment by petitioner of any obligation; that,
even if the insurance is deemed as one over credit, there was no loss as the accounts were not yet due
since no prior demands were made by IMC and LSPI against petitioner for payment of the debt and such
demands came from respondent only after it had already paid IMC and LSPI under the fire insurance
policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI
assumed the risk of loss when they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no
valid insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner
upon delivery of the goods; that petitioner was not privy to the insurance contract or the payment between
respondent and its insured nor was its consent or approval ever secured; that this lack of privity
forecloses any real interest on the part of respondent in the obligation to pay, limiting its interest to
keeping the insured goods safe from fire.

For its part, respondent counters that while ownership over the ready- made clothing materials was
transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors
who stand to suffer direct pecuniary loss from its destruction by fire; that petitioner is liable for loss of the
ready-made clothing materials since it failed to overcome the presumption of liability under Article 1265 16
of the Civil Code; that the fire was caused through petitioner's negligence in failing to provide stringent
measures of caution, care and maintenance on its property because electric wires do not usually short
circuit unless there are defects in their installation or when there is lack of proper maintenance and
supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing to pay
respondent's valid claim and should be liable to respondent for contracted lawyer's fees, litigation
expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the
CA is limited to reviewing questions of law which involves no examination of the probative value of the
evidence presented by the litigants or any of them. 18 The Supreme Court is not a trier of facts; it is not its
function to analyze or weigh evidence all over again. 19 Accordingly, findings of fact of the appellate court
are generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved
by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of facts are conflicting; (6) when in making its findings the CA went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the
findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on
the supposed absence of evidence and contradicted by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred
in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI
since such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there is no room for
construction.22 In this case, the questioned insurance policies provide coverage for "book debts in
connection with ready-made clothing materials which have been sold or delivered to various customers
and dealers of the Insured anywhere in the Philippines." 23 ; and defined book debts as the "unpaid
account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered
under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the
insurance is the goods sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read
into it any alleged intention of the parties, the terms are to be understood literally just as they appear on
the face of the contract.25 Thus, what were insured against were the accounts of IMC and LSPI with

petitioner which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the
goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by
stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment
of the purchase price the above described merchandise remains the property of the vendor until the
purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of
the contract and the ownership in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the
time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is
borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest
is not determined by concept of title, but whether insured has substantial economic interest in the
property.28
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien
upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest, it is sufficient that the insured is so situated with reference to
the property that he would be liable to loss should it be injured or destroyed by the peril against which it is
insured.29 Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction. 30 Indeed, a vendor or seller retains an insurable interest in the property
sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction,
as where he has a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain to the
unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the
policies.

The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the
Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly,
petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor to make the payment even by reason of a
fortuitous event shall not relieve him of his liability. 33 The rationale for this is that the rule that an obligor
should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the
obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even
in case of fortuitous event. It does not apply when the obligation is pecuniary in nature. 34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that
the object thereof is designated merely by its class or genus without any particular designation or physical
segregation from all others of the same class, the loss or destruction of anything of the same kind even
without the debtor's fault and before he has incurred in delay will not have the effect of extinguishing the
obligation.35 This rule is based on the principle that the genus of a thing can never perish. Genus nunquan
perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific
property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case.
What is relevant here is whether it has been established that petitioner has outstanding accounts with
IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22" 38 show
that petitioner has an outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E" 39 is the
check voucher evidencing payment to IMC. Exhibit "F" 40 is the subrogation receipt executed by IMC in
favor of respondent upon receipt of the insurance proceeds. All these documents have been properly
identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to
establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim. 41 Respondent's action against petitioner is squarely sanctioned by Article
2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary
weight can be given to Exhibit "F Levi Strauss", 42 a letter dated April 23, 1991 from petitioner's General
Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It

only confirms the loss of Levi's products in the amount of P535,613.00 in the fire that razed petitioner's
building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was
offered in evidence. Thus, there is no evidence that respondent has been subrogated to any right which
LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's
case for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the
MODIFICATION that the order to pay the amount of P535,613.00 to respondent is DELETED for lack of
factual basis.
No pronouncement as to costs.
SO ORDERED.

BLUE CROSS HEALTH CARE, INC., Petitioner, vs. NEOMI * and DANILO OLIVARES, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari [1] of a decision[2] and resolution[3] of the Court of Appeals (CA)
dated July 29, 2005 and September 21, 2005, respectively, in CA-G.R. SP No. 84163 which affirmed the
decision of the Regional Trial Court (RTC), Makati City, Branch 61 dated February 2, 2004 in Civil Case
No. 03-1153,[4] which in turn reversed the decision of the Metropolitan Trial Court (MeTC), Makati City,
Branch
66
dated
August
5,
2003
in
Civil
Case
No.
80867. [5]
Respondent Neomi T. Olivares applied for a health care program with petitioner Blue Cross Health Care,
Inc., a health maintenance firm. For the period October 16, 2002 to October 15, 2003, [6] she paid the
amount of P11,117. For the same period, she also availed of the additional service of limitless
consultations for an additional amount of P1,000. She paid these amounts in full on October 17, 2002.
The application was approved on October 22, 2002. In the health care agreement, ailments due to preexisting
conditions
were
excluded
from
the
coverage. [7]
On November 30, 2002, or barely 38 days from the effectivity of her health insurance, respondent Neomi
suffered a stroke and was admitted at the Medical City which was one of the hospitals accredited by
petitioner. During her confinement, she underwent several laboratory tests. On December 2, 2002, her
attending physician, Dr. Edmundo Saniel,[8] informed her that she could be discharged from the hospital.
She incurred hospital expenses amounting to P34,217.20. Consequently, she requested from the
representative of petitioner at Medical City a letter of authorization in order to settle her medical bills. But
petitioner refused to issue the letter and suspended payment pending the submission of a certification
from her attending physician that the stroke she suffered was not caused by a pre-existing condition. [9]
She was discharged from the hospital on December 3, 2002. On December 5, 2002, she demanded that
petitioner pay her medical bill. When petitioner still refused, she and her husband, respondent Danilo
Olivares, were constrained to settle the bill. [10] They thereafter filed a complaint for collection of sum of
money against petitioner in the MeTC on January 8, 2003. [11] In its answer dated January 24, 2003,
petitioner maintained that it had not yet denied respondents' claim as it was still awaiting Dr. Saniel's
report.
In a letter to petitioner dated February 14, 2003, Dr. Saniel stated that:
This is in response to your letter dated February 13, 2003. [Respondent] Neomi T. Olivares called by
phone on January 29, 2003. She stated that she is invoking patient-physician confidentiality. That she no
longer has any relationship with [petitioner]. And that I should not release any medical information
concerning her neurologic status to anyone without her approval. Hence, the same day I instructed my
secretary to inform your office thru Ms. Bernie regarding [respondent's] wishes.
xxx
xxx
xxx[12]
In a decision dated August 5, 2003, the MeTC dismissed the complaint for lack of cause of action. It held:
xxx the best person to determine whether or not the stroke she suffered was not caused by pre-existing
conditions is her attending physician Dr. Saniel who treated her and conducted the test during her
confinement. xxx But since the evidence on record reveals that it was no less than [respondent Neomi]
herself who prevented her attending physician from issuing the required certification, petitioner cannot be
faulted from suspending payment of her claim, for until and unless it can be shown from the findings
made by her attending physician that the stroke she suffered was not due to pre-existing conditions could
she demand entitlement to the benefits of her policy.[13]
On appeal, the RTC, in a decision dated February 2, 2004, reversed the ruling of the MeTC and ordered
petitioner to pay respondents the following amounts: (1) P34,217.20 representing the medical bill in
Medical City and P1,000 as reimbursement for consultation fees, with legal interest from the filing of the
complaint until fully paid; (2) P20,000 as moral damages; (3) P20,000 as exemplary damages; (4)
P20,000 as attorney's fees and (5) costs of suit. [14] The RTC held that it was the burden of petitioner to

prove that the stroke of respondent Neomi was excluded from the coverage of the health care program for
being caused by a pre-existing condition. It was not able to discharge that burden. [15]
Aggrieved, petitioner filed a petition for review under Rule 42 of the Rules of Court in the CA. In a decision
promulgated on July 29, 2005, the CA affirmed the decision of the RTC. It denied reconsideration in a
resolution promulgated on September 21, 2005. Hence this petition which raises the following issues: (1)
whether petitioner was able to prove that respondent Neomi's stroke was caused by a pre-existing
condition and therefore was excluded from the coverage of the health care agreement and (2) whether it
was
liable
for
moral
and
exemplary
damages
and
attorney's
fees.
The health care agreement defined a pre-existing condition as:
x x x a disability which existed before the commencement date of membership whose natural history can
be clinically determined, whether or not the Member was aware of such illness or condition. Such
conditions also include disabilities existing prior to reinstatement date in the case of lapse of an
Agreement. Notwithstanding, the following disabilities but not to the exclusion of others are considered
pre-existing conditions including their complications when occurring during the first year of a Members
coverage:
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
XII.
XIII.
XIV.
XV.
XVI.
XVII.
XVIII.
XIX.
XX.

Tumor of Internal Organs

Hemorrhoids/Anal Fistula
Diseased tonsils and sinus conditions requiring surgery
Cataract/Glaucoma
Pathological Abnormalities of nasal septum or turbinates
Goiter and other thyroid disorders
Hernia/Benign prostatic hypertrophy
Endometriosis
Asthma/Chronic Obstructive Lung disease
Epilepsy
Scholiosis/Herniated disc and other Spinal column abnormalities
Tuberculosis
Cholecysitis
Gastric or Duodenal ulcer
Hallux valgus
Hypertension and other Cardiovascular diseases
Calculi
Tumors of skin, muscular tissue, bone or any form of blood dyscracias
Diabetes Mellitus
Collagen/Auto-Immune disease

After the Member has been continuously covered for 12 months, this pre-existing provision shall no longer
be applicable except for illnesses specifically excluded by an endorsement and made part of this
Agreement.[16]
Under this provision, disabilities which existed before the commencement of the agreement are excluded
from its coverage if they become manifest within one year from its effectivity. Stated otherwise, petitioner
is not liable for pre-existing conditions if they occur within one year from the time the agreement takes
effect.
Petitioner argues that respondents prevented Dr. Saniel from submitting his report regarding the medical
condition of Neomi. Hence, it contends that the presumption that evidence willfully suppressed would be
adverse
if
produced
should
apply
in
its
favor.[17]
Respondents counter that the burden was on petitioner to prove that Neomi's stroke was excluded from
the coverage of their agreement because it was due to a pre-existing condition. It failed to prove this. [18]

We

agree

with

respondents.

In Philamcare Health Systems, Inc. v. CA,[19] we ruled that a health care agreement is in the nature of a
non-life insurance.[20] It is an established rule in insurance contracts that when their terms contain
limitations on liability, they should be construed strictly against the insurer. These are contracts of
adhesion the terms of which must be interpreted and enforced stringently against the insurer which
prepared the contract. This doctrine is equally applicable to health care agreements. [21]
Petitioner never presented any evidence to prove that respondent Neomi's stroke was due to a preexisting condition. It merely speculated that Dr. Saniel's report would be adverse to Neomi, based on her
invocation of the doctor-patient privilege. This was a disputable presumption at best.
Section 3 (e), Rule 131 of the Rules of Court states:
Sec. 3. Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but
may be contradicted and overcome by other evidence:
xxx

xxx

xxx

(e) That evidence willfully suppressed would be adverse if produced.

Suffice it to say that this presumption does not apply if (a) the evidence is at the disposal of both parties;
(b) the suppression was not willful; (c) it is merely corroborative or cumulative and (d) the suppression is
an exercise of a privilege.[22] Here, respondents' refusal to present or allow the presentation of Dr. Saniel's
report was justified. It was privileged communication between physician and patient.
Furthermore, as already stated, limitations of liability on the part of the insurer or health care provider
must be construed in such a way as to preclude it from evading its obligations. Accordingly, they should
be scrutinized by the courts with extreme jealousy[23] and care and with a jaundiced eye.[24] Since
petitioner had the burden of proving exception to liability, it should have made its own assessment of
whether respondent Neomi had a pre-existing condition when it failed to obtain the attending physician's
report. It could not just passively wait for Dr. Saniel's report to bail it out. The mere reliance on a
disputable presumption does not meet the strict standard required under our jurisprudence.
Next, petitioner argues that it should not be held liable for moral and exemplary damages, and attorney's
fees since it did not act in bad faith in denying respondent Neomi's claim. It insists that it waited in good
faith for Dr. Saniel's report and that, based on general medical findings, it had reasonable ground to
believe that her stroke was due to a pre-existing condition, considering it occurred only 38 days after the
coverage
took
effect.[25]
Wedisagree.
The RTC and CA found that there was a factual basis for the damages adjudged against petitioner. They
found that it was guilty of bad faith in denying a claim based merely on its own perception that there was a
pre-existing condition:
[Respondents] have sufficiently shown that [they] were forced to engage in a dispute with [petitioner] over
a legitimate claim while [respondent Neomi was] still experiencing the effects of a stroke and forced to
pay for her medical bills during and after her hospitalization despite being covered by [petitioners] health
care program, thereby suffering in the process extreme mental anguish, shock, serious anxiety and great
stress. [They] have shown that because of the refusal of [petitioner] to issue a letter of authorization and
to pay [respondent Neomi's] hospital bills, [they had] to engage the services of counsel for a fee of
P20,000.00. Finally, the refusal of petitioner to pay respondent Neomi's bills smacks of bad faith , as its
refusal [was] merely based on its own perception that a stroke is a pre-existing condition. (emphasis
supplied)
This is a factual matter binding and conclusive on this Court. [26] We see no reason to disturb these
findings.

WHEREFORE, the petition is hereby DENIED. The July 29, 2005 decision and September 21, 2005
resolution of the Court of Appeals in CA-G.R. SP No. 84163 are AFFIRMED.
Treble

costs

against

petitioner.

SO ORDERED.

[G.R.

No.

166245,

April

09,

2008]

ETERNAL GARDENS MEMORIAL PARK CORPORATION, PETITIONER, VS. THE PHILIPPINE

AMERICAN
LIFE
INSURANCE
COMPANY,
RESPONDENT.
DECISION
VELASCO JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the
November 26, 2004 Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May
the inaction of the insurer on the insurance application be considered as approval of the application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered
into an agreement denominated as Creditor Group Life Policy No. P-1920 [2] with petitioner Eternal
Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased
burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage
depended upon the existing balance of the purchased burial lots. The policy was to be effective for a
period
of
one
year,
renewable
on
a
yearly
basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the
Assured for the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage
by the Company on its effective date is eligible for insurance under the Policy.
EVIDENCE

OF

INSURABILITY.

No medical examination shall be required for amounts of insurance up to P50,000.00. However, a

declaration of good health shall be required for all Lot Purchasers as part of the application. The
Company reserves the right to require further evidence of insurability satisfactory to the Company in
respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE

INSURANCE

BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance
of his loan (including arrears up to but not exceeding 2 months) as reported by the Assured to the
Company or the sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if
the
Lot
Purchaser
dies
while
insured
under
the
Policy.
EFFECTIVE

DATE

OF

BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by
the Company.[3]
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with
a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all
insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated

December 29, 1982,[4] containing a list of insurable balances of its lot buyers for October 1982. One of
those included in the list as "new business" was a certain John Chuang. His balance of payments was
PhP
100,000.
On
August
2,
1984,
Chuang
died.
Eternal sent a letter dated August 20, 1984 [5] to Philamlife, which served as an insurance claim for
Chuang's death. Attached to the claim were the following documents: (1) Chuang's Certificate of Death;
(2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant;
(4)
Certificate
of
Attending
Physician;
and
(5)
Assured's
Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984, [6] requiring Eternal to submit the following
documents relative to its insurance claim for Chuang's death: (1) Certificate of Claimant (with form
attached); (2) Assured's Certificate (with form attached); (3) Application for Insurance accomplished and
signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid
balance
of
Chuang
before
his
death.
Eternal transmitted the required documents through a letter dated November 14, 1984, [7] which was
received
by
Philamlife
on
November
15,
1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter's insurance claim.
This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25,
1986.[8]
In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter dated May 20,
1986,[9] a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens
Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00 each. No
application for Group Insurance was submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditor's Group Life Policy No. P-1920, under Evidence of Insurability provision,
"a declaration of good health shall be required for all Lot Purchasers as party of the application." We cite
further the provision on Effective Date of Coverage under the policy which states that "there shall be no
insurance if the application is not approved by the Company." Since no application had been submitted by
the Insured/Assured, prior to his death, for our approval but was submitted instead on November 15,
1984, after his death, Mr. John Uy Chuang was not covered under the Policy. We wish to point out that
Eternal Gardens being the Assured was a party to the Contract and was therefore aware of these
pertinent
provisions.
With regard to our acceptance of premiums, these do not connote our approval per se of the insurance
coverage but are held by us in trust for the payor until the prerequisites for insurance coverage shall have
been met. We will however, return all the premiums which have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money
against Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against
Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00,
representing the proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and,
to
pay
the
sum
of
P10,000.00
as
attorney's
fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang's application for insurance which he accomplished before
his death, as testified to by Eternal's witness and evidenced by the letter dated December 29, 1982,
stating, among others: "Encl: Phil-Am Life Insurance Application Forms & Cert." [10] It further ruled that due
to Philamlife's inaction from the submission of the requirements of the group insurance on December 29,
1982 to Chuang's death on August 2, 1984, as well as Philamlife's acceptance of the premiums during the
same period, Philamlife was deemed to have approved Chuang's application. The RTC said that since the
contract is a group life insurance, once proof of death is submitted, payment must follow.

Philamlife appealed to the CA, which ruled, thus:

WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED
and
SET
ASIDE,
and
the
complaint
is
DISMISSED.
No
costs.
SO ORDERED.[11]
The CA based its Decision on the factual finding that Chuang's application was not enclosed in Eternal's
letter dated December 29, 1982. It further ruled that the non-accomplishment of the submitted application
form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no application form,
Chuang
was
not
covered
by
Philamlife's
insurance.
Hence,

we

have

this

petition

with

the

following

grounds:

The Honorable Court of Appeals has decided a question of substance, not therefore determined by this
Honorable Court, or has decided it in a way not in accord with law or with the applicable jurisprudence, in
holding that:
I.

The application for insurance was not duly submitted to respondent PhilamLife before the death
of John Chuang;

II.

There was no valid insurance coverage; and

III.

Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.

The Court's Ruling

As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the
CA and first level courts, considering their findings of facts are conclusive and binding on this Court.
However, such rule is subject to exceptions, as enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion;
(4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the [CA] went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7) when the findings [of the CA] are
contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and
reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.[12] (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review
them.
Eternal claims that the evidence that it presented before the trial court supports its contention that it
submitted a copy of the insurance application of Chuang before his death. In Eternal's letter dated
December 29, 1982, a list of insurable interests of buyers for October 1982 was attached, including
Chuang in the list of new businesses. Eternal added it was noted at the bottom of said letter that the
corresponding "Phil-Am Life Insurance Application Forms & Cert." were enclosed in the letter that was
apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a copy of
the insurance application which was signed by Chuang himself and executed before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that
Eternal must present evidence showing that Philamlife received a copy of Chuang's insurance
application.

The

evidence

on

record

supports

Eternal's

position.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received,
states that the insurance forms for the attached list of burial lot buyers were attached to the letter. Such
stamp of receipt has the effect of acknowledging receipt of the letter together with the attachments. Such
receipt is an admission by Philamlife against its own interest. [13] The burden of evidence has shifted to
Philamlife, which must prove that the letter did not contain Chuang's insurance application. However,
Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang's insurance application.
To reiterate, it was Philamlife's bounden duty to make sure that before a transmittal letter is stamped as
received,
the
contents
of
the
letter
are
correct
and
accounted
for.
Philamlife's allegation that Eternal's witnesses ran out of credibility and reliability due to inconsistencies is
groundless. The trial court is in the best position to determine the reliability and credibility of the
witnesses, because it has the opportunity to observe firsthand the witnesses' demeanor, conduct, and
attitude. Findings of the trial court on such matters are binding and conclusive on the appellate court,
unless some facts or circumstances of weight and substance have been overlooked, misapprehended, or
misinterpreted,[14]
that,
if
considered,
might
affect
the
result
of
the
case. [15]
An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no
overlooked
facts
of
substance
and
value.
Philamlife primarily claims that Eternal did not even know where the original insurance application of
Chuang was, as shown by the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of new coverage?
[Mendoza:]

A It is [a] standard operating procedure for the new client to fill up two copies of this form and
the original of this is submitted to Philamlife together with the monthly remittances and the
second copy is remained or retained with the marketing department of Eternal Gardens.

Atty. Miranda:

We move to strike out the answer as it is not responsive as counsel is merely asking for the
location and does not [ask] for the number of copy.

Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted with that
payment together with the new clients all the originals I see to it before I sign the transmittal
letter the originals are attached therein.[16]
In other words, the witness admitted not knowing where the original insurance application was, but
believed that the application was transmitted to Philamlife as an attachment to a transmittal letter.

As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two
insurance application forms were accomplished and the testimony of Mendoza on who actually filled out
the application form, these are minor inconsistencies that do not affect the credibility of the witnesses.
Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial to affect the credibility of
witnesses, and these may even serve to strengthen their credibility as these negate any suspicion that the
testimonies
have
been
rehearsed.[17]
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution's evidence
as a whole or reflect on the witnesses' honesty. The test is whether the testimonies agree on essential
facts and whether the respective versions corroborate and substantially coincide with each other so as to
make a consistent and coherent whole.[18]
In the present case, the number of copies of the insurance application that Chuang executed is not at
issue, neither is whether the insurance application presented by Eternal has been falsified. Thus, the
inconsistencies pointed out by Philamlife are minor and do not affect the credibility of Eternal's witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss without approving the
application.
This

question

must

be

answered

in

the

affirmative.

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life
Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:
EFFECTIVE
DATE
OF
BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by
the Company.
An examination of the above provision would show ambiguity between its two sentences. The first
sentence appears to state that the insurance coverage of the clients of Eternal already became effective
upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve
the
insurance
contract
before
the
same
can
become
effective.
It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latter's interest.
Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving
any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should be construed liberally in favor of the insured and
strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from noncompliance with its obligations. [19] (Emphasis
supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above
ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should construe them in such
a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against the party which prepared the
contract, the insurer. By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture. [20]
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10,
1980, must be construed in favor of the insured and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party's
purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser

is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the
insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective
Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the
insurance contract. Moreover, the mere inaction of the insurer on the insurance application must not work
to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The
termination of the insurance contract by the insurer must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is
inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of
experience in the industry purposefully used to its advantage. More often than not, insurance contracts
are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all
understandable to laypersons, that are imposed on those who wish to avail of insurance. As such,
insurance contracts are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of
insurance applicants, insurance companies must be obligated to act with haste upon insurance
applications, to either deny or approve the same, or otherwise be bound to honor the application as a
valid,
binding,
and
effective
insurance
contract. [21]
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810
is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138 is
MODIFIED.
Philamlife
is
hereby
ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of
Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of
extra-judicial demand by Eternal until Philamlife's receipt of the May 29, 1996 RTC Decision on June 17,
1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June
17,
1996
until
full
payment
of
this
award;
and
(4)

To

pay

Eternal

attorney's

fees

in

the

amount

of

No

PhP

10,000.
costs.

SO ORDERED.

Manila
FIRST DIVISION
G.R. NO. 147039

January 27, 2006

DBP
POOL
OF
ACCREDITED
INSURANCE
vs.
RADIO MINDANAO NETWORK, INC., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:

COMPANIES,

Petitioner,

This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking the review of the
Decision1 dated November 16, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 56351, the
dispositive portion of which reads:
Wherefore, premises considered, the appealed Decision of the Regional Trial Court of Makati City, Branch
138 in Civil Case No. 90-602 is hereby AFFIRMED with MODIFICATION in that the interest rate is hereby
reduced to 6% per annum.
Costs against the defendants-appellants.
SO ORDERED.2
The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao Network, Inc.
(respondent) against DBP Pool of Accredited Insurance Companies (petitioner) and Provident Insurance
Corporation (Provident) for recovery of insurance benefits. Respondent owns several broadcasting
stations all over the country. Provident covered respondents transmitter equipment and generating set for
the amount of P13,550,000.00 under Fire Insurance Policy No. 30354, while petitioner covered
respondents transmitter, furniture, fixture and other transmitter facilities for the amount of P5,883,650.00
under Fire Insurance Policy No. F-66860.
In the evening of July 27, 1988, respondents radio station located in SSS Building, Bacolod City, was
razed by fire causing damage in the amount of P1,044,040.00. Respondent sought recovery under the
two insurance policies but the claims were denied on the ground that the cause of loss was an excepted
risk excluded under condition no. 6 (c) and (d), to wit:
6. This insurance does not cover any loss or damage occasioned by or through or in consequence,
directly or indirectly, of any of the following consequences, namely:
(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be declared or not),
civil war.
(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurped power. 3
The insurance companies maintained that the evidence showed that the fire was caused by members of
the Communist Party of the Philippines/New Peoples Army (CPP/NPA); and consequently, denied the
claims. Hence, respondent was constrained to file Civil Case No. 90-602 against petitioner and Provident.
After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a decision in favor of
respondent. The dispositive portion of the decision reads:
IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant Provident Insurance Corporation
is directed to pay plaintiff the amount of P450,000.00 representing the value of the destroyed property
insured under its Fire Insurance Policy plus 12% legal interest from March 2, 1990 the date of the filing of
the Complaint. Defendant DBP Pool Accredited Insurance Companies is likewise ordered to pay plaintiff
the sum of P602,600.00 representing the value of the destroyed property under its Fire Insurance Policy
plus 12% legal interest from March 2, 1990.
SO ORDERED.4

Both insurance companies appealed from the trial courts decision but the CA affirmed the decision, with
the modification that the applicable interest rate was reduced to 6% per annum. A motion for
reconsideration was filed by petitioner DBP which was denied by the CA per its Resolution dated January
30, 2001.5
Hence, herein petition by DBP Pool of Accredited Insurance Companies, 6 with the following assignment of
errors:
Assignment of Errors
THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE NO
SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY [sic] (20) ARMED MEN WHO
CUSED [sic] THE FIRE AT RESPONDENTS RMN PROPERTY AT BACOLOD CITY WERE MEMBERS
OF THE CPP-NPA.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT RESPONDENT RMN
CANNOT BEHELD [sic] FOR DAMAGES AND ATTORNEYS FEES FOR INSTITUTING THE PRESENT
ACTION AGAINST THE PETITIONER UNDER ARTICLES 21, 2208, 2229 AND 2232 OF THE CIVIL
CODE OF THE PHILIPPINES.7
Petitioner assails the factual finding of both the trial court and the CA that its evidence failed to support its
allegation that the loss was caused by an excepted risk, i.e., members of the CPP/NPA caused the fire. In
upholding respondents claim for indemnity, the trial court found that:
The only evidence which the Court can consider to determine if the fire was due to the intentional act
committed by the members of the New Peoples Army (NPA), are the testimony [sic] of witnesses Lt. Col.
Nicolas Torres and SPO3 Leonardo Rochar who were admittedly not present when the fire occurred.
Their testimony [sic] was [sic] limited to the fact that an investigation was conducted and in the course of
the investigation they were informed by bystanders that "heavily armed men entered the transmitter
house, poured gasoline in (sic) it and then lighted it. After that, they went out shouting "Mabuhay ang
NPA" (TSN, p. 12., August 2, 1995). The persons whom they investigated and actually saw the burning of
the station were not presented as witnesses. The documentary evidence particularly Exhibits "5" and "5C" do not satisfactorily prove that the author of the burning were members of the NPA. Exhibit "5-B" which
is a letter released by the NPA merely mentions some dissatisfaction with the activities of some people in
the media in Bacolod. There was no mention there of any threat on media facilities. 8
The CA went over the evidence on record and sustained the findings of the trial court, to wit:
To recapitulate, defendants-appellants presented the following to support its claim, to wit: police blotter of
the burning of DYHB, certification of the Negros Occidental Integrated National Police, Bacolod City
regarding the incident, letter of alleged NPA members Celso Magsilang claiming responsibility for the
burning of DYHB, fire investigation report dated July 29, 1988, and the testimonies of Lt. Col. Nicolas
Torres and SFO III Leonardo Rochas. We examined carefully the report on the police blotter of the
burning of DYHB, the certification issued by the Integrated National Police of Bacolod City and the fire
investigation report prepared by SFO III Rochas and there We found that none of them categorically
stated that the twenty (20) armed men which burned DYHB were members of the CPP/NPA. The said
documents simply stated that the said armed men were believed to be or suspected of being members

of the said group. Even SFO III Rochas admitted that he was not sure that the said armed men were
members of the CPP-NPA, thus:

In fact the only person who seems to be so sure that that the CPP-NPA had a hand in the burning of
DYHB was Lt. Col. Nicolas Torres. However, though We found him to be persuasive in his testimony
regarding how he came to arrive at his opinion, We cannot nevertheless admit his testimony as
conclusive proof that the CPP-NPA was really involved in the incident considering that he admitted that he
did not personally see the armed men even as he tried to pursue them. Note that when Lt. Col. Torres
was presented as witness, he was presented as an ordinary witness only and not an expert witness.
Hence, his opinion on the identity or membership of the armed men with the CPP-NPA is not admissible
in evidence.
Anent the letter of a certain Celso Magsilang, who claims to be a member of NPA-NIROC, being an
admission of person which is not a party to the present action, is likewise inadmissible in evidence under
Section 22, Rule 130 of the Rules of Court. The reason being that an admission is competent only when
the declarant, or someone identified in legal interest with him, is a party to the action. 9
The Court will not disturb these factual findings absent compelling or exceptional reasons. It should be
stressed that a review by certiorari under Rule 45 is a matter of discretion. Under this mode of review, the
jurisdiction of the Court is limited to reviewing only errors of law, not of fact. 10
Moreover, when supported by substantial evidence, findings of fact of the trial court as affirmed by the CA
are conclusive and binding on the parties, 11 which this Court will not review unless there are exceptional
circumstances. There are no exceptional circumstances in this case that would have impelled the Court to
depart from the factual findings of both the trial court and the CA.
Both the trial court and the CA were correct in ruling that petitioner failed to prove that the loss was
caused by an excepted risk.
Petitioner argues that private respondent is responsible for proving that the cause of the damage/loss is
covered by the insurance policy, as stipulated in the insurance policy, to wit:

Any loss or damage happening during the existence of abnormal conditions (whether physical or
otherwise) which are occasioned by or through in consequence directly or indirectly, of any of the said
occurrences shall be deemed to be loss or damage which is not covered by the insurance, except to the
extent that the Insured shall prove that such loss or damage happened independently of the existence of
such abnormal conditions.
In any action, suit or other proceeding where the Companies allege that by reason of the provisions of this
condition any loss or damage is not covered by this insurance, the burden of proving that such loss or
damage is covered shall be upon the Insured.12
An insurance contract, being a contract of adhesion, should be so interpreted as to carry out the purpose
for which the parties entered into the contract which is to insure against risks of loss or damage to the

goods. Limitations of liability should be regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from noncompliance with its obligations. 13
The "burden of proof" contemplated by the aforesaid provision actually refers to the "burden of evidence"
(burden of going forward).14 As applied in this case, it refers to the duty of the insured to show that the
loss or damage is covered by the policy. The foregoing clause notwithstanding, the burden of proof still
rests upon petitioner to prove that the damage or loss was caused by an excepted risk in order to escape
any liability under the contract.
Burden of proof is the duty of any party to present evidence to establish his claim or defense by the
amount of evidence required by law, which is preponderance of evidence in civil cases. The party,
whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to obtain a
favorable judgment. For the plaintiff, the burden of proof never parts. 15 For the defendant, an affirmative
defense is one which is not a denial of an essential ingredient in the plaintiffs cause of action, but one
which, if established, will be a good defense i.e. an "avoidance" of the claim. 16
Particularly, in insurance cases, where a risk is excepted by the terms of a policy which insures against
other perils or hazards, loss from such a risk constitutes a defense which the insurer may urge, since it
has not assumed that risk, and from this it follows that an insurer seeking to defeat a claim because of an
exception or limitation in the policy has the burden of proving that the loss comes within the purview of the
exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the
burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which
it is not liable, or from a cause which limits its liability.17
Consequently, it is sufficient for private respondent to prove the fact of damage or loss. Once respondent
makes out a prima facie case in its favor, the duty or the burden of evidence shifts to petitioner to
controvert respondents prima facie case. 18 In this case, since petitioner alleged an excepted risk, then the
burden of evidence shifted to petitioner to prove such exception. It is only when petitioner has sufficiently
proven that the damage or loss was caused by an excepted risk does the burden of evidence shift back to
respondent who is then under a duty of producing evidence to show why such excepted risk does not
release petitioner from any liability. Unfortunately for petitioner, it failed to discharge its primordial burden
of proving that the damage or loss was caused by an excepted risk.
Petitioner however, insists that the evidence on record established the identity of the author of the
damage. It argues that the trial court and the CA erred in not appreciating the reports of witnesses Lt. Col
Torres and SFO II Rochar that the bystanders they interviewed claimed that the perpetrators were
members of the CPP/NPA as an exception to the hearsay rule as part of res gestae.
A witness can testify only to those facts which he knows of his personal knowledge, which means those
facts which are derived from his perception. 19 A witness may not testify as to what he merely learned from
others either because he was told or read or heard the same. Such testimony is considered hearsay and
may not be received as proof of the truth of what he has learned. The hearsay rule is based upon serious
concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such evidence are not
given under oath or solemn affirmation and, more importantly, have not been subjected to crossexamination by opposing counsel to test the perception, memory, veracity and articulateness of the outof-court declarant or actor upon whose reliability on which the worth of the out-of-court statement
depends.20

Res gestae, as an exception to the hearsay rule, refers to those exclamations and statements made by
either the participants, victims, or spectators to a crime immediately before, during, or after the
commission of the crime, when the circumstances are such that the statements were made as a
spontaneous reaction or utterance inspired by the excitement of the occasion and there was no
opportunity for the declarant to deliberate and to fabricate a false statement. The rule in res gestae
applies when the declarant himself did not testify and provided that the testimony of the witness who
heard the declarant complies with the following requisites: (1) that the principal act, the res gestae, be a
startling occurrence; (2) the statements were made before the declarant had the time to contrive or devise
a falsehood; and (3) that the statements must concern the occurrence in question and its immediate
attending circumstances.21
The Court is not convinced to accept the declarations as part of res gestae. While it may concede that
these statements were made by the bystanders during a startling occurrence, it cannot be said however,
that these utterances were made spontaneously by the bystanders and before they had the time to
contrive or devise a falsehood. Both SFO III Rochar and Lt. Col. Torres received the bystanders
statements while they were making their investigations during and after the fire. It is reasonable to
assume that when these statements were noted down, the bystanders already had enough time and
opportunity to mill around, talk to one another and exchange information, not to mention theories and
speculations, as is the usual experience in disquieting situations where hysteria is likely to take place. It
cannot therefore be ascertained whether these utterances were the products of truth. That the utterances
may be mere idle talk is not remote.
At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these statements were made may be
considered as independently relevant statements gathered in the course of their investigation, and are
admissible not as to the veracity thereof but to the fact that they had been thus uttered. 22
Furthermore, admissibility of evidence should not be equated with its weight and sufficiency.23
Admissibility of evidence depends on its relevance and competence, while the weight of evidence
pertains to evidence already admitted and its tendency to convince and persuade. 24 Even assuming that
the declaration of the bystanders that it was the members of the CPP/NPA who caused the fire may be
admitted as evidence, it does not follow that such declarations are sufficient proof. These declarations
should be calibrated vis--vis the other evidence on record. And the trial court aptly noted that there is a
need for additional convincing proof, viz.:
The Court finds the foregoing to be insufficient to establish that the cause of the fire was the intentional
burning of the radio facilities by the rebels or an act of insurrection, rebellion or usurped power. Evidence
that persons who burned the radio facilities shouted "Mabuhay ang NPA" does not furnish logical
conclusion that they are member [sic] of the NPA or that their act was an act of rebellion or insurrection.
Additional convincing proof need be submitted. Defendants failed to discharge their responsibility to
present adequate proof that the loss was due to a risk excluded. 25
While the documentary evidence presented by petitioner, i.e., (1) the police blotter; (2) the certification
from the Bacolod Police Station; and (3) the Fire Investigation Report may be considered exceptions to
the hearsay rule, being entries in official records, nevertheless, as noted by the CA, none of these
documents categorically stated that the perpetrators were members of the CPP/NPA. 26 Rather, it was
stated in the police blotter that: "a group of persons accompanied by one (1) woman all believed to be
CPP/NPA more or less 20 persons suspected to be CPP/NPA," 27 while the certification from the
Bacolod Police station stated that " some 20 or more armed men believed to be members of the New

Peoples Army NPA,"28 and the fire investigation report concluded that "(I)t is therefore believed by this
Investigating Team that the cause of the fire is intentional, and the armed men suspected to be members
of the CPP/NPA where (sic) the ones responsible " 29 All these documents show that indeed, the
"suspected" executor of the fire were believed to be members of the CPP/NPA. But suspicion alone is not
sufficient, preponderance of evidence being the quantum of proof.
All told, the Court finds no reason to grant the present petition.
WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated November 16, 2000 and
Resolution dated January 30, 2001 rendered in CA-G.R. CV No. 56351 are AFFIRMED in toto.
SO ORDERED.

MANILA MAHOGANY MANUFACTURING CORPORATION vs. COURT OF APPEALS AND ZENITH

INSURANCE CORPORATION
(G.R.No. L-52756 (October 12, 1987)

...
FACTS:
Petitioner Manila Mahogany Manufacturing Corporation insured its Mercedes Benz 4-door
sedan with respondent Zenith Insurance Corporation. The insured vehicle was bumped and damaged by
a truck owned by San Miguel Corporation. For the damage caused, respondent company paid petitioner
five thousand pesos(P5,000.00) in amicable settlement. Petitioner's general manager executed a Release
of Claim, subrogating respondent company to all its right to action against San Miguel Corporation.
Thereafter, respondent company wrote Insurance Adjusters, Inc. to demand reimbursement from San
Miguel Corporation of the amount it had paid petitioner. Insurance Adjusters, Inc. refused reimbursement,
alleging that San Miguel Corporation had already paid petitioner P4, 500.00 for the damages to
petitioner's motor vehicle, as evidenced by a cash voucher and a Release of Claim executed by the
General Manager of petitioner discharging San Miguel Corporation from "all actions, claims, demands
the rights of action that now exist or hereafter develop arising out of or as a consequence of the
accident."Respondent insurance company thus demanded from petitioner reimbursement of the sum of P
4, 500.00 paid by San Miguel Corporation. Petitioner refused; hence, the instant case.
ISSUE:
Whether or not the respondent insurance company is subrogated to the rights of the petitioner against
San Miguel Corporation
HELD: YES
RULING:
The Supreme Court held that if a property is insured and the owner receives the indemnity from
the insurer, it is provided in [Article 2207 of the New Civil Code] that the insurer isdeemed subrogated

to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully
cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Under this legal
provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not
the insured. Hence, petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel Corporation
under its clear right to file a deficiency claim for damages incurred, against the wrongdoer, should the
insurance company not fully pay for the injury caused (Article 2207, New Civil Code).
However, when petitioner released San Miguel Corporation from any liability, petitioner's right to retain the
sum of P5, 000.00 no longer existed, thereby entitling private respondent to recover the same. The right
of subrogation can only exist after the insurer has paid the insured otherwise the insured will be deprived
of his right to full indemnity. If the insurance proceeds are not sufficient to cover the damages suffered by
the insured, then he may sue the party responsible for the damage for the remainder. To the extent of the
amount he has already received from, the insurer enjoys the right of subrogation. Since the insurer can be
subrogated to only such rights as the insured may have, should the insured ,after receiving payment
from the insurer, release the wrongdoer who caused the loss, the insurer loses his rights against the
latter. But in such a case, the insurer will be entitled to recover from the insured whatever it has paid to
the latter, unless the release was made with the consent of the insurer.
See More
GREAT PACIFIC LIFE v. CA (LEUTERIO)
316 SCRA 677
QUISUMBING; October 13, 1999
NATURE
Petition for Review of CA decision
FACTS
- A contract of group life insurance was executed
between petitioner Great Pacific Life Assurance
Corporation (hereinafter Grepalife) and Development
Bank of the Philippines (hereinafter DBP). Grepalife
agreed to insure the lives of eligible housing loan
mortgagors of DBP.
- In Nov. 1983, Dr. Wilfredo Leuterio, a physician and
a housing debtor of DBP applied for membership in
the group life insurance plan. In an application form,
Dr. Leuterio answered Qs concerning his health
condition as follows:
Q: Have you ever had, or consulted, a physician for
a heart condition, high blood pressure, cancer,
diabetes, lung, kidney or stomach disorder or any
other physical impairment? No.
Q: Are you now, to the best of your knowledge, in
good health? Yes.
- Grepalife issued an insurance coverage of Dr.
Leuterio, to the extent of his DBP mortgage
indebtedness of P86,200.00. In Aug. 1984, Dr.
Leuterio died due to "massive cerebral hemorrhage."
DBP submitted a death claim to Grepalife. Grepalife
denied the claim because Dr. Leuterio was not
physically healthy when he applied for an insurance.
Grepalife insisted that Dr. Leuterio did not disclose he
had been suffering from hypertension, which caused
his death. Allegedly, such non-disclosure constituted
concealment that justified the denial of the claim.
- Herein respondent Medarda Leuterio, widow, filed a
complaint with RTC against Grepalife for "Specific

Performance with Damages." Dr. Mejia, who issued

the death certificate, testified that Dr. Leuterio
complained of headaches presumably due to high
blood pressure. The inference was not conclusive
because Dr. Leuterio was not autopsied, hence, other
causes were not ruled out.
- RTC ruled in favor of respondent widow and against
Grepalife. CA sustained the RTC decision. Hence, the
present petition.
ISSUES
1. WON CA erred in holding petitioner liable to DBP
as beneficiary in a group life insurance contract from
a complaint filed by the widow of the
decedent/mortgagor
2. WON CA erred in not finding that Dr. Leuterio
concealed that he had hypertension, which would
vitiate the insurance contract
3. WON CA erred in holding Grepalife liable for
P86,200.00 without proof of the actual outstanding
mortgage payable by the mortgagor to DBP
HELD
1. NO
Ratio Insured, being the person with whom the
contract was made, is primarily the proper person to
bring suit. Subject to some exceptions, insured may
thus sue, although the policy is taken wholly or in
part for the benefit of another person named or
unnamed, and although it is expressly made payable
to another as his interest may appear or otherwise.
Although a policy issued to a mortgagor is taken out
for the benefit of the mortgagee and is made payable
to him, yet the mortgagor may sue thereon in his
own name, especially where the mortgagee's interest
is less than the full amount recoverable under the
policy. (See Sec. 8, Insurance Code)
Reasoning
[a] The insured private respondent did not cede to
the mortgagee all his rights or interests in the
insurance, the policy stating that: In the event of
the debtor's death before his indebtedness with the
Creditor (DBP) shall have been fully paid, an amount
to pay the outstanding indebtedness shall first be
paid to the creditor and the balance of sum assured,
if there is any, shall then be paid to the
beneficiary/ies designated by the debtor. When DBP
submitted the insurance claim against Grepalife, the
latter denied payment thereof, interposing the
defense of concealment committed by the insured.
Thereafter, DBP collected the debt from the
mortgagor and took the necessary action of
foreclosure on the residential lot of private
respondent.
[b] Since a policy of insurance upon life or health
may pass by transfer, will or succession to any
person, whether he has an insurable interest or not,
and such person may recover it whatever the insured

might have recovered, the widow of the decedent Dr.

Leuterio may file the suit against the insurer,
Grepalife.
2. NO
Ratio The fraudulent intent on the part of the
insured must be established to entitle the insurer to
rescind the contract. Misrepresentation as a defense
of the insurer to avoid liability is an affirmative
defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the
insurer. In the case at bar, the petitioner failed to
clearly and satisfactorily establish its defense, and is
therefore liable to pay the proceeds of the insurance.
Reasoning
[a] The insured, Dr. Leuterio, had answered in his
insurance application that he was in good health and
that he had not consulted a doctor or any of the
enumerated ailments, including hypertension; when
INSURANCE Page 44
he died the attending physician had certified in the
death certificate that the former died of cerebral
hemorrhage, probably secondary to hypertension.
From this report, petitioner Grepalife refused to pay
the insurance claim. It alleged that the insured had
concealed the fact that he had hypertension.
[b] Contrary to Grepalifes allegations, there was no
sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the
insured's widow who was not even sure if the
medicines taken by Dr. Leuterio were for
hypertension, the appellant had not proven nor
produced any witness who could attest to Dr.
Leuterio's medical history.
[c] Grepalife had failed to establish that there was
concealment made by the insured, hence, it cannot
refuse payment of the claim.
3. NO
- Considering the supervening event that DBP
foreclosed in 1995 their residential lot, in satisfaction
of mortgagor's outstanding loan, the insurance
proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries. Equity dictates
that DBP should not unjustly enrich itself at the
expense of another. Hence, it cannot collect the
insurance proceeds, after it already foreclosed on the
mortgage. The proceeds now rightly belong to Dr.
Leuterio's heirs represented by his widow, herein
private respondent.
- The Court ruled this issue based on the clear
provisions of the policy. The mortgagor paid the
premium according to the coverage of his insurance,
which states that: "The policy states that upon
receipt of due proof of the Debtor's death during the
terms of this insurance, a death benefit in the
amount of P86,200.00 shall be paid In the event of
the debtor's death before his indebtedness with the

creditor shall have been fully paid, an amount to pay

the outstanding indebtedness shall first be paid to
the Creditor and the balance of the Sum Assured, if
there is any shall then be paid to the beneficiary/ies
designated by the debtor." From this, it is clear that
Grepalife is liable and that Dr. Leuterios heirs must
get the proceeds.
Disposition Petition DENIED. CA Decision AFFIRMED
with modification.

DBP POOL OF ACCREDITED INSURANCE v.

RADIO MINDANAO NETWORK
480 SCRA 314
MARTINEZ; January 27, 2006
NATURE
Petition for certiorari
FACTS
- In the evening of July 27, 1988, the radio station of
Radio Mindanao Network located at the SSS Building
in Bacolod City was burned down causing damage in
the amount of over one million pesos. Respondent
sought to recover under two insurance policies but
the claims were denied on the basis that the case of
the loss was an excepted risk under condition no. 6
(c) and (d), to wit:
6. This insurance does not cover any loss or damage
occasioned by or through or in consequence, directly
or indirectly, of any of the following consequences,
namely:
(c) War, invasion, act of foreign enemies, hostilities,
or warlike operations (whether war be declared or
not), civic war.
(d) Mutiny, riot, military or popular uprising,
insurrection, rebellion, revolution, military or usurped
power.
- The insurers maintained that based on witnesses
and evidence gathered at the site, the fire was
caused by the members of the Communist Party of
the Philippines/New Peoples Army. Hence the refusal
to honor their obligations.
- The trial court and the CA found in favor of the
respondent. In its findings, both courts mentioned
the fact that there was no credible evidence
presented that the CCP/NPA did in fact cause the fire
that gutted the radio station in Bacolod.
ISSUE
WON the insurance companies are liable to pay Radio
Mindanao Network under the insurance policies
HELD
YES
- The Court will not disturb the factual findings of the
appellant and trial courts absent compelling reason.
Under this mode of review, the jurisdiction of the

court is limited to reviewing only errors of law.

- Particularly in cases of insurance disputes with
regard to excepted risks, it is the insurance
companies which have the burden to prove that the
loss comes within the purview of the exception or
limitation set up. It is sufficient for the insured to
prove the fact of damage or loss. Once the insured
makes out a prima facie case in its favor, the duty or
burden of evidence shifts to the insurer to controvert
said prima facie case.
Disposition Petition dismissed. Decision of the CA is
affirmed.
G.R. No. 171406
April 4, 2011
ASIAN TERMINALS, INC. vs. MALAYAN INSURANCE, CO., INC.
Facts:
On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on board the vessel MV
"Jinlian I" 60,000 plastic bags of soda ash dense from China to Manila. The shipment, with an invoice
value of US$456,000.00, was insured with respondent Malayan Insurance Company, Inc., and covered by
a Bill of Lading issued by Tianjin Navigation Company with Philippine Banking Corporation as the
consignee and Chemphil Albright and Wilson Corporation as the notify party. On November 21, 1995,
upon arrival of the vessel in Manila, the stevedores of petitioner Asian Terminals, Inc., a duly registered
domestic corporation engaged in providing arrastre and stevedoring services, unloaded the 60,000 bags
of soda ash dense from the vessel and brought them to the open storage area of petitioner for temporary
storage and safekeeping. When the unloading of the bags was completed on November 28, 1995, 2,702
bags were found to be in bad order condition. On November 29, 1995, the stevedores of petitioner began
loading the bags in the trucks of MEC Customs Brokerage for transport and delivery to the consignee. On
December 28, 1995, after all the bags were unloaded in the warehouses of the consignee, a total of 2,881
bags were in bad order condition due to spillage, caking, and hardening of the contents. On April 19,
1996, respondent, as insurer, paid the value of the lost/ damaged cargoes to the consignee in the amount
of P643,600.25.
On November 20, 1996, respondent, as subrogee of the consignee, filed before the RTC of
Manila a complaint for damages against petitioner (Asian Terminals, Inc.), the shipper (Inchcape Shipping
Services), and the cargo broker (MEC Customs Brokerage). The RTC rendered a decision finding
petitioner liable for the damage/loss sustained by the shipment but absolving the other defendants Inchcape Shipping Services and MEC Customs Brokerage. The RTC found that the proximate cause of
the damage/loss was the negligence of petitioners stevedores who handled the unloading of the cargoes
from the vessel. The RTC emphasized that despite the admonitions of Marine Cargo Surveyors not to use
steel hooks in retrieving and picking-up the bags, petitioners stevedores continued to use such tools,
which pierced the bags and caused the spillage. The RTC, thus, ruled that petitioner, as employer, is
liable for the acts and omissions of its stevedores and is ordered to pay plaintiff Malayan Insurance
Company, Inc.
Aggrieved, petitioner appealed to the CA but the appeal was denied. The CA agreed with the RTC
that the damage/loss was caused by the negligence of petitioners stevedores in handling and storing the
subject shipment. The CA likewise rejected petitioners assertion that it received the subject shipment in
bad order condition as this was disproved by the Marine Cargo Surveyors who testified that the actual
counting of bad order bags was done only after all the bags were unloaded from the vessel and that the
Turn Over Survey of Bad Order Cargoes (TOSBOC) upon which petitioner anchors its defense was
prepared only on November 28, 1995 or after the unloading of the bags was completed. Petitioner moved
for reconsideration but the CA denied the same in a Resolution for lack of merit.
Petitioners Arguments

1. Petitioner contends that respondent has no cause of action because it failed to present the
insurance contract or policy covering the subject shipment. Petitioner argues that the Subrogation
Receipt presented by respondent is not sufficient to prove that the subject shipment was insured
and that respondent was validly subrogated to the rights of the consignee. Thus, petitioner
submits that without proof of a valid subrogation, respondent is not entitled to any reimbursement.
2. Petitioner likewise puts in issue the finding of the RTC, which was affirmed by the CA, that the
proximate cause of the damage/loss to the shipment was the negligence of petitioners
stevedores. Petitioner avers that such finding is contrary to the documentary evidence, i.e., the
TOSBOC, the Request for Bad Order Survey (RESBOC) and the Report of Survey. According to
petitioner, these documents prove that it received the subject shipment in bad order condition and
that no additional damage was sustained by the subject shipment under its custody. Petitioner
asserts that although the TOSBOC was prepared only after all the bags were unloaded by
petitioners stevedores, this does not mean that the damage/loss was caused by its stevedores.
3. Petitioner also claims that the amount of damages should not be more than P5,000.00, pursuant
to its Management Contract for cargo handling services with the PPA. Petitioner contends that the
CA should have taken judicial notice of the said contract since it is an official act of an executive
department subject to judicial cognizance.
Respondents Arguments
1. Respondent, on the other hand, argues that the non-presentation of the insurance contract or
policy was not raised in the trial court. Thus, it cannot be raised for the first time on appeal.
Respondent likewise contends that under prevailing jurisprudence, presentation of the insurance
policy is not indispensable. Respondent further avers that "the right of subrogation has its roots in
equity - it is designed to promote and to accomplish justice and is the mode which equity adopts
to compel the ultimate payment of a debt by one who in justice, equity and good conscience
ought to pay."
2. Respondent likewise maintains that the RTC and the CA correctly found that the damage/loss
sustained by the subject shipment was caused by the negligent acts of petitioners stevedores.
Such factual findings of the RTC, affirmed by the CA, are conclusive and should no longer be
disturbed. In fact, under Section 1 of Rule 45 of the Rules of Court, only questions of law may be
raised in a petition for review on certiorari.
3. As to the Management Contract for cargo handling services, respondent contends that this is
outside the operation of judicial notice. And even if it is not, petitioners liability cannot be limited
by it since it is a contract of adhesion.
Issues:
(1) Whether the non-presentation of the insurance contract or policy is fatal to respondents cause of
action;
(2) Whether the proximate cause of the damage/loss to the shipment was the negligence of petitioners
stevedores; and
(3) Whether the court can take judicial notice of the Management Contract between petitioner and the
Philippine Ports Authority (PPA) in determining petitioners liability.
Ruling: The petition is bereft of merit.

(1) Whether or not the respondents non-presentation of the insurance contract or policy between the
respondent and the consignee is fatal to its cause of action. NO.

Non-presentation of the insurance contract or policy is not fatal in the instant case.

First of all, this was never raised as an issue before the RTC. Basic is the rule that "issues or grounds
not raised below cannot be resolved on review by the Supreme Court, for to allow the parties to raise new
issues is antithetical to the sporting idea of fair play, justice and due process." Besides, non-presentation
of the insurance contract or policy is not necessarily fatal.
In Delsan Transport Lines, Inc. v. Court of Appeals, the presentation in evidence of the marine
insurance policy is not indispensable before the insurer may recover from the common carrier the
insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by
itself, is sufficient to establish not only the relationship of the insurer and the assured shipper of
the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The
right of subrogation accrues simply upon payment by the insurance company of the insurance
claim.

In Home Insurance Corporation v. CA, the presentation of the insurance policy was necessary
because the shipment therein (hydraulic engines) passed through several stages with different
parties involved in each stage. In the absence of proof of stipulations to the contrary, the hauler
can be liable only for any damage that occurred from the time it received the cargo until it finally
delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the
cargo before it actually received it.

However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v.
Court of Appeals, the Court stated that the presentation of the insurance policy was not fatal because the
loss of the cargo undoubtedly occurred while on board the petitioners vessel, unlike in Home Insurance
in which the cargo passed through several stages with different parties and it could not be determined
when the damage to the cargo occurred, such that the insurer should be liable for it. As in Delsan, there is
no doubt that the loss of the cargo in the present case occurred while in petitioners custody. Similarly,
in this case, the presentation of the insurance contract or policy was not necessary. Although petitioner
objected to the admission of the Subrogation Receipt in its Comment to respondents formal offer of
evidence on the ground that respondent failed to present the insurance contract or policy, a perusal of
petitioners Answer and Pre-Trial Brief shows that petitioner never questioned respondents right to
subrogation, nor did it dispute the coverage of the insurance contract or policy. Since there was no issue
regarding the validity of the insurance contract or policy, or any provision thereof, respondent had no
reason to present the insurance contract or policy as evidence during the trial. Hence, the factual findings
of the CA, affirming the RTC, are binding and conclusive.
(2) Whether or not the proximate cause of the damage/loss to the shipment was the negligence of
petitioners stevedores. YES.
Both the RTC and the CA found the negligence of petitioners stevedores to be the proximate cause
of the damage/loss to the shipment. In disregarding the contention of petitioner that such finding is
contrary to the documentary evidence, the CA had this to say: ATI, however, contends that the finding of
the trial court was contrary to the documentary evidence of record, particularly, the Turn Over Survey of
Bad Order Cargoes dated November 28, 1995, which was executed prior to the turn-over of the cargo by
the carrier to the arrastre operator ATI, and which showed that the shipment already contained 2,702
damaged bags. However, contrary to ATIs assertion, the witnesses marine cargo surveyors of Inchcape
for the vessel Jinlian I which arrived on November 21, 1995 and up to completion of discharging on

November 28, 1995, testified that it was only after all the bags were unloaded from the vessel that the
actual counting of bad order bags was made.
There is no cogent reason to depart from the ruling of the trial court that ATI should be made liable for
the 2,702 bags of damaged shipment. Needless to state, it is hornbook doctrine that the assessment of
witnesses and their testimonies is a matter best undertaken by the trial court, which had the opportunity to
observe the demeanor, conduct or attitude of the witnesses. The findings of the trial court on this point are
accorded great respect and will not be reversed on appeal, unless it overlooked substantial facts and
circumstances which, if considered, would materially affect the result of the case. The proximate cause of
the damage (i.e., torn bags, spillage of contents and caked/hardened portions of the contents) was the
improper handling of the cargoes by ATIs stevedores; and ATI has not satisfactorily rebutted plaintiffappellees evidence on the negligence of ATIs stevedores in the handling and safekeeping of the
cargoes.
Indeed, from the nature of the damage caused to the shipment, i.e., torn bags, spillage of contents
and hardened or caked portions of the contents, it is not difficult to see that the damage caused was due
to the negligence of ATIs stevedores who used steel hooks to retrieve the bags from the higher portions
of the piles thereby piercing the bags and spilling their contents, and who piled the bags in the open
storage area of ATI with insufficient cover thereby exposing them to the elements and [causing] the
contents to cake or harden. Clearly, the finding of negligence on the part of petitioners stevedores is
supported by both testimonial and documentary evidence. Hence, we see no reason to disturb the same.
(3) Whether the court can take judicial notice of the Management Contract between petitioner and
the Philippine Ports Authority (PPA) in determining petitioners liability. NO.
Finally, petitioner implores us to take judicial notice of Section 7.01, Article VII of the Management
Contract for cargo handling services it entered with the PPA, which limits petitioners liability to P5,000.00
per package. Unfortunately for the petitioner, it cannot avail of judicial notice.
The Management Contract entered into by petitioner and the PPA is not among the matters which the
courts can take judicial notice of. It cannot be considered an official act of the executive department. The
PPA, which was created by virtue of Presidential Decree No. 857, as amended, is a government-owned
and controlled corporation in charge of administering the ports in the country. Obviously, the PPA was only
performing a proprietary function when it entered into a Management Contract with petitioner. As such,
judicial notice cannot be applied.

RIZAL SURETY & INSURANCE COMPANY V CA(TRANSWORLD KNITTING MILLS, INC.)

336
SCRA
12PURISIMA;
July
18,
2000
NATURE Petition for Review on Certiorari under Rule 45 of the Rules of Court
FACTS
Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy No. 45727 in favor of
Transworld Knitting Mills, Inc. (Transworld).- Pertinent portions of subject policy on the buildings insured,
and location thereof, read:"On stocks of finished and/or unfinished products, raw materials and supplies
of every kind and description, the properties of the Insureds and/or held by them in trust, on commission
or on joint account with others and/or for which they (sic) responsible in case of loss whilst contained
and/or stored during the currency of this Policy in the premises occupied by them forming part of the
buildings situate (sic) within own Compound atMAGDALO STREET, BARRIO UGONG, PASIG,METRO
MANILA,
PHILIPPINES,
BLOCK
NO.601.
xxx...............xxx...............xxx Said building of four-span lofty one storey in height with mezzanine portions
is constructed of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and
occupied as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices,
warehouse
and
caretakers
quarters.
'Bounds in front partly by one-storey concrete building under galvanized iron roof occupied as canteen
and guardhouse, partly by building of two and partly one storey constructed of concrete below, timber
above under galvanized iron roof occupied as garage and quarters and partly by open space and/or
tracking/ packing, beyond which is the aforementioned Magdalo Street; on its right and left by driveway,
thence
open
spaces,
and
at
the
rear
by
open
spaces.'"
- The same pieces of property insured with the petitioner were also insured with New India Assurance
Company, Ltd., (New India).- Fire broke out in the compound of Transworld, razing the middle portion of
its four-span building and partly gutting the left and right sections thereof. A two-storey building (behind
said four-span building) where fun and amusement machines and spare parts were stored, was also
destroyed by the fire.- Transworld filed its insurance claims with Rizal Surety & Insurance Company and
New India Assurance Company but to no avail.- Private respondent brought against the said insurance
companies an action for collection of sum of money and damages.- Petitioner Rizal Insurance countered
that its fire insurance policy sued upon covered only the contents of the four-span building, which was
partly burned, and not the damage caused by the fire on the two-storey annex building.- The trial court
dismissed the case as against The New India Assurance Co., Ltd. but ordered defendant Rizal Surety
And Insurance Company to pay Transwrold (sic) Knitting Mills, Inc.- Both the petitioner, Rizal Insurance
Company, and private respondent, Transworld Knitting Mills,Inc., went to the Court of Appeals, which
required New India Assurance Company to pay plaintiff-appellant the amount of P1,818,604.19 while the
Rizal Surety has to pay the plaintiff-appellantP470,328.67.- New India appealed to the Court theorizing
inter alia that the private respondent could not be compensated for the loss of the fun and amusement
machines and spare parts stored at the two-storey building because it (Transworld)had no insurable
interest in said goods or items.- The Court denied the appeal with finality.- Petitioner Rizal Insurance and
private respondent Transworld, interposed a Motion for Reconsideration before the Court of Appeals,
which reconsidered its decision of July 15, 1993, as regards the imposition of interest.- Undaunted,
petitioner
Rizal
Surety
&
Insurance
Company
found
its
way
to
the
Court.
ISSUE
WON the fire insurance policy litigated upon protected only the contents of the main building (four-span),
and
did
not
include
those
stored
in
the
two-storey
annex
building
HELD
NO- Resolution of the issue posited hinges on the proper interpretation of the stipulation in subject fire
insurance policy regarding its coverage, which reads:"xxx contained and/or stored during the currency of
this Policy in the premises occupied by them forming part of the buildings situate (sic) within own
Compound xxx"- It can be gleaned unerringly that the fire insurance policy in question did not limit its
coverage to what were stored in the four-span building. As opined by the trial court of origin, two
requirements must concur in order that the said fun and amusement machines and spare parts would be
deemed protected by the fire insurance policy under scrutiny, to wit:"First, said properties must be

contained and/or stored in the areas occupied by Transworld and second, said areas must form part of
the building described in the policy xxx"- Said building of four-span lofty one storey in height with
mezzanine portions is constructed of reinforced concrete and hollow blocks and/or concrete under
galvanized iron roof and occupied as hosiery mills, garment and lingerie factory, transistor-stereo
assembly plant, offices, ware house and caretakers quarter.- The Court is mindful of the well-entrenched
doctrine that factual findings by the Court of Appeals are conclusive on the parties and not reviewable by
this Court, and the same carry even more weight when the Court of Appeals has affirmed the findings of
fact arrived at by the lower court.- In the case under consideration, both the trial court and the Court of
Appeals found that the so called annex " was not an annex building but an integral and inseparable part
of the four-span building described in the policy and consequently, the machines and spare parts stored
therein were covered by the fire insurance in dispute.- Verily, the two-storey building involved, a
permanent structure which adjoins and intercommunicates with the "first right span of the lofty storey
building", formed part thereof, and meets the requisites for compensability under the fire insurance policy
sued upon.- So also, considering that the two-storey building aforementioned was already existing when
subject fire insurance policy contract was entered into, petitioner should have specifically excluded the
said two-storey building from the coverage of the fire insurance if minded to exclude the same but if did
not, and instead, went on to provide that such fire insurance policy covers the products, raw material s
and supplies stored within the premises of respondent Transworld which was an integral part of the fourspan building occupied by Transworld, knowing full well the existence of such building adjoining and
intercommunicating with the right section of the four-span building.- Indeed, the stipulation as to the
coverage of the fire insurance policy under controversy has created a doubt regarding the portions of the
building
insured
thereby.
Article
1377
of
the
New
Civil
Code
provides:
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused
the
obscurity"
- Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety
Insurance Company, whose lawyer or managers drafted the fire insurance policy contract under scrutiny.
Citing the aforecited provision of law in point, the Court inLandicho vs. Government Service Insurance
System, ruled:"This is particularly true as regards insurance policies, in respect of which it is settled that
the terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x x are to be construed
strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved' and the
reason for this is that the 'insured usually has no voice in the selection or arrangement of the words
employed and that the language of the contract is selected with great care and deliberation by experts
and legal advisers employed by, and acting exclusively in the interest of, the insurance company.' "
- Equally relevant is the following disquisition of the Court in Fieldsmens Insurance Company, Inc.
vs.Vda. De Songco, to wit: "'This rigid application of the rule on ambiguities has become necessary in
view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and
concentration of capital, endowed with overwhelming economic power, manage to impose upon parties
dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his
participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labeled since
Raymond Saleilles 'contracts by adherence' (contracts [sic] d'adhesion), in contrast to these entered into
by parties bargaining on an equal footing, such contracts(of which policies of insurance and international
bills of lading are prime example) obviously call for greater strictness and vigilance on the part of courts of
justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming
traps
for
the
unwary.'"
- The issue of whether or not Transworld has an insurable interest in the fun and amusement machines
and spare parts, which entitles it to be indemnified for the loss thereof, had been settled in G.R. No. L111118,
entitled
New India Assurance Company, Ltd., vs. Court of Appeals, where the appeal of New India from the
decision of the Court of Appeals under review, was denied with finality by this Court on February 2, 1994.
- The rule on conclusiveness of judgment, which obtains under the premises, precludes the relitigation of
a particular fact or issue in another action between the same parties based on a different claim or cause
of action. "xxx the judgment in the prior action operates as estoppels only as to those matters in issue or
points controverter, upon the determination of which the finding or judgment was rendered. In fine, the

previous judgment is conclusive in the second case, only as those matters actually and directly
controverter
and
determined
and
not
as
to
matters
merely
involved
therein."
Disposition Decision and the Resolution of the CAWERE AFFIRMED intoto. No pronouncement as to
costs

PAN MALAYAN INSURANCE v. CA (THE FOODAND AGRICULTURAL ORGANIZATION OF

THEUNITED
NATIONS)
201
SCRA
382REGALADO;
September
5,
1991
FACTS
The Food and Agricultural Organization of the United Nations (hereinafter referred to as FAO), intended
and made arrangements to send to Kampuchea 1,500 metric petitions of IR-36 certified rice seeds to be
distributed to the people for seedling purposes- LUZTEVECO was to ship the cargo amounting
toUS$83,325.92 in respect of one lot of 1,500 metric petitions winch is the subject of the present action.
The cargo was loaded on board LUZTEVECO Barge No. LC-3000 and consisted of 34,122 bags of IR36certified rice seeds purchased by FAO from the Bureau of Plant Industry for P4, 602,270.00- FAO
secured insurance coverage in the amount of P5, 250,000.00 from petitioner, Pan Malayan Insurance
Corporation- On June 16, 1980, FAO gave instructions toLUZTEVECO to leave for Vaung Tau, Vietnam to
deliver the cargo which, by its nature, could not withstand delay because of the inherent risks of
termination and/or spoilage. On the same date, the insurance premiums on the shipment was paid by
FAO petitioner- On June 26, 1980, FAO was advised of the sinking of the barge in the China Sea, hence it
informed petitioner thereof and, later, formally filed its claim under the marine insurance policy. On July
29, 1980, FAO was informed by LUSTEVECO of the recovery of the lost shipment, for which reason FAO
formally filed its claim with LUZTEVECO for compensation of damage to its cargo- LUZTEVECO failed
and refused to pay. Pan Malayan likewise failed to pay for the losses and damages sustained by FAO by
reason of its inability to recover the value of the shipment from LUZTEVECO- Pan Malayan claims that
part of the cargo was recovered and thus the claim by FAO was unwarranted. This is evidenced by two
surveys upon the cargo wherein it was found that only around 78%was lost. - FAO filed a civil case
against both LUZTEVECO and Pan Malayan. Trial court found in favor of FAO and ordered both to pay
jointly and severally the full amount of the claim. This was affirmed by CA
ISSUE
1. WON respondent court committed a reversible error in holding that the trial court is correct in holding
that
there
is
a
total
loss
of
the
shipment
HELD
1. NO- The law classifies loss into either total or partial. Total loss may be actual or absolute, or it may
otherwise be constructive or technical. Petitioner submits that respondent court erred in ruling that there
was total loss of the shipment despite the fact that only 27,922 bags of rice seeds out of 34,122bags were
rendered valueless to FAO and the shipment sustained only a loss of 78%. - FAO, however, claims that,
for all intents and purposes, it has practically lost its total or entire shipment in this case, inclusive of
expenses, premium fees, and so forth, despite the alleged recovery by defendant LUZTEVECO. As found
by the court below and reproduced with approval by respondent court, FAO" has never been
compensated
for
this
total

loss or damage, a fact which is not denied nor controverter- If there were some cargoes saved, by
LUZTEVECO, private respondent abandoned it and the same was sold or used for the benefit of
LUZTEVECO or Pan Malayan Corporation. Under Sections 129 and 130 of the New Insurance Code, a
total
loss
may
either
be
actual
or
constructive.
In case of total loss in Marine Insurance, the assured is entitled to recover from the underwriter the whole
amount
of
his
subscription
- SEC. 130. An actual total loss is caused by: (c) Any damage to the thing which renders it valueless to
the owner for the purpose for which he held it; or (d) any other event which effectively deprives the owner
of the possession, at the port of destination of the thing insured.-as said and proven, the seeds were of
fragile nature. And the wetting of said seeds affected the state of seeds. Thus rendering them useless for
FAO. Although there were bags which were recovered, these were stained and not in the same
condition it was brought in. in addition to this, FAO did not receive any compensation for said recovered
bags as the same were distributed by LUZVETECO without authorization of FAO- the complete physical
destruction of the subject matter is not essential to constitute an actual total loss. Such a loss may exist
where the form and specie of the thing is destroyed, although the materials of which it consisted still exist
(Great
Western
Ins.
Co.
vs.
Fogarty,
N.Y.,
19
Wall
640,
22
L
d. 216), as where the cargo by the process of decomposition or other chemical agency no longer remains
the same kind of thing as before (Williams. Cole, 16 Me. 207). - It is thus clear that FAO suffered actual
total loss under Section 130 of the Insurance Code, specifically under paragraphs (c) and (d) thereof,
recompense for which it has been denied up to the present-Section 135 of the Insurance Code explicitly
provides that "(u)pon an actual total loss, a person insured is entitled to payment without notice of
abandonment." This is a statutory adoption of a longstanding doctrine in maritime insurance law that
incase of actual total loss, the right of the insured to claim the whole insurance is absolute, without need
of a notice of abandonment

Great Pacific Life Assurance Corporation vs Court of Appeals

On November 20, 2011
1

Insurance Code Parties to an Insurance Contract Group Life Insurance Concealment

There was an existing group life insurance executed between Great Pacific Life Assurance
(Grepalife) and the Development Bank of the Philippines (DBP). Grepalife agreed to insure the
lives of eligible housing loan mortgagors of DBP. In November 1983, Wilfredo Leuterio,
mortgagor of DBP applied to be a member of the group life insurance. He filled out a form where
he indicated he never consulted any physician regarding any illness (heart condition etc) and that
he is in good health. He was eventually included in the group life insurance and he was covered
for the amount of his indebtedness (P86,200.00).
In August 1984, Wilfredo died. DBP submitted a death claim but it was denied by Grepalife as it
insisted that Wilfredo actually concealed that he was suffering from hypertension at the time of

his insurance application. Grepalife relied on the statement made by the doctor who issued
Wilfredos death certificate wherein it was stated that Wilfredos immediate cause of death was
massive cerebral hemorrhage secondary to hypertension or hypertension as a possible cause of
death.
Since Grepalife refused to pay the insurance claim filed by DBP, Medarda Leuterio (widow)
sued Grepalife. Grepalife assailed the suit and insisted that Medarda is not a proper party in
interest. The lower court ruled in favor of Medarda and the court ordered Grepalife to pay the
amount of the insurance to DBP. The Court of Appeals affirmed this decision in 1993. Grepalife
appealed to the Supreme Court. In 1995, pending resolution of the case in the SC, DBP
foreclosed the property of Medarda.
ISSUE: Whether or not Grepalife is liable to pay the insurance claim.
HELD: Yes. Grepalife is liable to pay the insurance claim. Medarda is a proper party in interest
(note that it was Wilfredo who has been paying the premium, as the insured, he is the real party
in interest and this status was transferred to his widow). The group life insurance or mortgage
redemption insurance provides that DBP as the mortgagee is merely an assignee of Wilfredo;
and that in the event of Wilfredos death before his indebtedness to DBP is paid, proceeds from
the insurance shall first be applied to the sum of the balance insured. But this does not cease
Wilfredo to be a party to the insurance contract.
Grepalife failed to prove that Wilfredo concealed that he was suffering from hypertension at the
time of his application. The doctors finding as to the cause of death is not conclusive because no
autopsy was conducted. The doctor who issued the death certificate has no knowledge of
Wilfredos hospital confinement [if there are any]. The fraudulent intent on the part of the
insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a
defense of the insurer to avoid liability is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon the insurer.
Grepalife must however pay the claim to Medarda considering that DBP already foreclosed the
property.

FIRST DIVISION
G.R. No. 125678

March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,

vs.
COURT OF APPEALS and JULITA TRINOS, respondents.

YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage
with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no
to the following question:
Have you or any of your family members ever consulted or been treated for high blood pressure,
heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).1
The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,
respondents husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of out-patient benefits such as annual
physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1,
1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was
increased to a maximum sum of P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the
hospital, respondent tried to claim the benefits under the health care agreement. However,
petitioner denied her claim saying that the Health Care Agreement was void. According to
petitioner, there was a concealment regarding Ernanis medical history. Doctors at the MMC
allegedly discovered at the time of Ernanis confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at
home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties,
however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani
had fever and was feeling very weak. Respondent was constrained to bring him back to the
Chinese General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an
action for damages against petitioner and its president, Dr. Benito Reverente, which was
docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral
damages and attorneys fees. After trial, the lower court ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff
Julita Trinos, ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos
in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the
same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for
damages and absolved petitioner Reverente.4 Petitioners motion for reconsideration was
denied.5 Hence, petitioner brought the instant petition for review, raising the primary argument
that a health care agreement is not an insurance contract; hence the incontestability clause
under the Insurance Code6 does not apply.
Petitioner argues that the agreement grants living benefits, such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of
the agreement until its expiration one-year thereafter. Petitioner also points out that only medical
and hospitalization benefits are given under the agreement without any indemnification, unlike in
an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts which last
longer,7 petitioner argues that the incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it is not an insurance
company, which is governed by the Insurance Commission, but a Health Maintenance
Organization under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from
an unknown or contingent event. An insurance contract exists where the following elements
concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and

5. In consideration of the insurers promise, the insured pays a premium.8

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
future, which may damnify a person having an insurable interest against him, may be insured
against. Every person has an insurable interest in the life and health of himself. Section 10
provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he
has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property
or service, of which death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondents husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity.9 Once the member incurs hospital, medical or any
other expense arising from sickness, injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in his application. It
appears that in the application for health coverage, petitioners required respondents husband to
sign an express authorization for any person, organization or entity that has any record or
knowledge of his health to furnish any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or examination.10 Specifically, the Health
Care Agreement signed by respondents husband states:
We hereby declare and agree that all statement and answers contained herein and in any
addendum annexed to this application are full, complete and true and bind all parties in interest
under the Agreement herein applied for, that there shall be no contract of health care coverage
unless and until an Agreement is issued on this application and the full Membership Fee
according to the mode of payment applied for is actually paid during the lifetime and good health
of proposed Members; that no information acquired by any Representative of PhilamCare shall
be binding upon PhilamCare unless set out in writing in the application;that any physician is, by
these presents, expressly authorized to disclose or give testimony at anytime relative to any
information acquired by him in his professional capacity upon any question affecting the
eligibility for health care coverage of the Proposed Members and that the acceptance of any

Agreement issued on this application shall be a ratification of any correction in or addition to this
application as stated in the space for Home Office Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for authorization
to inquire about the applicants medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of my
health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all
information relative to any hospitalization, consultation, treatment or any other medical advice or
examination. This authorization is in connection with the application for health care coverage
only. A photographic copy of this authorization shall be as valid as the original.12 (Underscoring
ours)
Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:
Failure to disclose or misrepresentation of any material information by the member in the
application or medical examination, whether intentional or unintentional, shall automatically
invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to
return of all Membership Fees paid. An undisclosed or misrepresented information is deemed
material if its revelation would have resulted in the declination of the applicant by Philamcare or
the assessment of a higher Membership Fee for the benefit or benefits applied for.13
The answer assailed by petitioner was in response to the question relating to the medical history
of the applicant. This largely depends on opinion rather than fact, especially coming from
respondents husband who was not a medical doctor. Where matters of opinion or judgment are
called for, answers made in good faith and without intent to deceive will not avoid a policy even
though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of
the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the
risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the
statement is material to the risk, if the statement is obviously of the foregoing character, since in
such case the insurer is not justified in relying upon such statement, but is obligated to make
further inquiry. There is a clear distinction between such a case and one in which the insured is
fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he
then knows, to be actually untrue, or the impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual
fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract.16 Concealment as a defense for the health care provider or insurer to avoid

liability is an affirmative defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer. In any case, with or without the authority
to investigate, petitioner is liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer the same to the extent agreed
upon. In the end, the liability of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he avails of the covered benefits
which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a
contract of insurance. The right to rescind should be exercised previous to the commencement
of an action on the contract.17 In this case, no rescission was made. Besides, the cancellation of
health care agreements as in insurance policies require the concurrence of the following
conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based.18
None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the
insurer from non-compliance with his obligation.19 Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which prepared the contract the
insurer.20 By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer
and liberally in favor of the insured, especially to avoid forfeiture.21 This is equally applicable to
Health Care Agreements. The phraseology used in medical or hospital service contracts, such as
the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should be strictly construed against the
provider.22
Anent the incontestability of the membership of respondents husband, we quote with approval
the following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc.
had twelve months from the date of issuance of the Agreement within which to contest the
membership of the patient if he had previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having
expired, the defense of concealment or misrepresentation no longer lie.23
Finally, petitioner alleges that respondent was not the legal wife of the deceased member
considering that at the time of their marriage, the deceased was previously married to another
woman who was still alive. The health care agreement is in the nature of a contract of indemnity.
Hence, payment should be made to the party who incurred the expenses. It is not controverted
that respondent paid all the hospital and medical expenses. She is therefore entitled to
reimbursement. The records adequately prove the expenses incurred by respondent for the
deceaseds hospitalization, medication and the professional fees of the attending physicians.24
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the
Court of Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.

G.R. No. 183526

VIOLETA R. LALICAN,

Petitioner,

Present:

CARPIO MORALES,* J.,

CHICO-NAZARIO,**
- versus -

Acting Chairperson,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

THE
INSULAR
LIFE
ASSURANCE
COMPANY
LIMITED,
AS
REPRESENTED BY THE
PRESIDENT VICENTE R.
AVILON,
Respondent.

Promulgated:

August 25, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

CHICO-NAZARIO, J.:
Challenged in this Petition for Review on Certiorari under
Rule 45 of the Rules of Court are the Decision dated 30 August

2007 and the Orders dated 10 April 2008 and 3 July 2008 of the
Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case
No. 2177. In its assailed Decision, the RTC dismissed the claim for
death benefits filed by petitioner Violeta R. Lalican (Violeta)
against respondent Insular Life Assurance Company Limited
(Insular Life); while in its questioned Orders dated 10 April 2008
and 3 July 2008, respectively, the RTC declared the finality of the
aforesaid Decision and denied petitioners Notice of Appeal.
The factual and procedural antecedents of the case, as
culled from the records, are as follows:
Violeta is the widow of the deceased Eulogio C. Lalican
(Eulogio).
During his lifetime, Eulogio applied for an insurance policy
with Insular Life. On 24 April 1997, Insular Life, through Josephine
Malaluan (Malaluan), its agent in Gapan City, issued in favor of
Eulogio

Policy

Endowment

No.

Variable

9011992,
Income

which

contained

Package

Flexi

a
Plan

20-Year
worth

P500,000.00, with two riders valued at P500,000.00 each. Thus,

the value of the policy amounted to P1,500,000.00. Violeta was
named as the primary beneficiary.
Under the terms of Policy No. 9011992, Eulogio was to pay
the premiums on a quarterly basis in the amount of P8,062.00,
payable every 24 April, 24 July, 24 October and 24 January of
each year, until the end of the 20-year period of the policy.

According to the Policy Contract, there was a grace period of 31

days for the payment of each premium subsequent to the first. If
any premium was not paid on or before the due date, the policy
would be in default, and if the premium remained unpaid until the
end of the grace period, the policy would automatically lapse and
become void.
Eulogio paid the premiums due on 24 July 1997 and 24
October 1997. However, he failed to pay the premium due on 24
January 1998, even after the lapse of the grace period of 31
days. Policy No. 9011992, therefore, lapsed and became void.
Eulogio submitted to the Cabanatuan District Office of
Insular Life, through Malaluan, on 26 May 1998, an Application for
Reinstatement of Policy No. 9011992, together with the amount of
P8,062.00 to pay for the premium due on 24 January 1998. In a
letter dated 17 July 1998, Insular Life notified Eulogio that his
Application for Reinstatement could not be fully processed
because, although he already deposited P8,062.00 as payment for
the 24 January 1998 premium, he left unpaid the overdue interest
thereon amounting to P322.48.

Thus, Insular Life instructed

Eulogio to pay the amount of interest and to file another

application for reinstatement. Eulogio was likewise advised by
Malaluan to pay the premiums that subsequently became due on
24 April 1998 and 24 July 1998, plus interest.
On 17 September 1998, Eulogio went to Malaluans house
and submitted a second Application for Reinstatement of Policy

No. 9011992, including the amount of P17,500.00, representing

payments for the overdue interest on the premium for 24 January
1998, and the premiums which became due on 24 April 1998 and
24 July 1998. As Malaluan was away on a business errand, her
husband received Eulogios second Application for Reinstatement
and issued a receipt for the amount Eulogio deposited.
A while later, on the same day, 17 September 1998, Eulogio
died of cardio-respiratory arrest secondary to el
ectrocution.
Without knowing of Eulogios death, Malaluan forwarded to
the Insular Life Regional Office in the City of San Fernando, on 18
September 1998, Eulogios second Application for Reinstatement
of Policy No. 9011992 and P17,500.00 deposit. However, Insular
Life no longer acted upon Eulogios second Application for
Reinstatement, as the former was informed on 21 September
1998 that Eulogio had already passed away.
On 28 September 1998, Violeta filed with Insular Life a claim
for payment of the full proceeds of Policy No. 9011992.
In a letter dated 14 January 1999, Insular Life informed
Violeta that her claim could not be granted since, at the time of
Eulogios death, Policy No. 9011992 had already lapsed, and
Eulogio failed to reinstate the same. According to the Application
for Reinstatement, the policy would only be considered reinstated

upon approval of the application by Insular Life during the

applicants lifetime and good health, and whatever amount the
applicant paid in connection thereto was considered to be a
deposit only until approval of said application. Enclosed with the
14 January 1999 letter of Insular Life to Violeta was DBP Check
No. 0000309734, for the amount of P25,417.00, drawn in Violetas
favor, representing the full refund of the payments made by
Eulogio on Policy No. 9011992.
On 12 February 1998, Violeta requested a reconsideration of
the disallowance of her claim. In a letter dated 10 March 1999,
Insular Life stated that it could not find any reason to reconsider
its decision rejecting Violetas claim. Insular Life again tendered
to

Violeta

the

above-mentioned

check

in

the

amount

of

P25,417.00.
Violeta returned the letter dated 10 March 1999 and the
check enclosed therein to the Cabanatuan District Office of Insular
Life. Violetas counsel subsequently sent a letter dated 8 July
1999 to Insular Life, demanding payment of the full proceeds of
Policy No. 9011992. On 11 August 1999, Insular Life responded to
the said demand letter by agreeing to conduct a re-evaluation of
Violetas claim.
Without waiting for the result of the re-evaluation by Insular
Life, Violeta filed with the RTC, on 11 October 1999, a Complaint
for Death Claim Benefit, which was docketed as Civil Case No.
2177. Violeta alleged that Insular Life engaged in unfair claim

settlement practice and deliberately failed to act with reasonable

promptness on her insurance claim. Violeta prayed that Insular
Life be ordered to pay her death claim benefits on Policy No.
9011992, in the amount of

P1,500,000.00, plus interests,

attorneys fees, and cost of suit.

Insular Life filed with the RTC an Answer with Counterclaim,

asserting that Violetas Complaint had no legal or factual bases.
Insular Life maintained that Policy No. 9011992, on which Violeta
sought to recover, was rendered void by the non-payment of the
24

January

1998

premium

and

non-compliance

requirements for the reinstatement of the same.

with

the

By way of

counterclaim, Insular Life prayed that Violeta be ordered to pay

attorneys fees and expenses of litigation incurred by the former.
Violeta, in her Reply and Answer to Counterclaim, asserted
that the requirements for the reinstatement of Policy No. 9011992
had been complied with and the defenses put up by Insular Life
were purely invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision
in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed lapsed
and Eulogio needed to have the same reinstated:

[The] arguments [of Insular Life] are not without basis. When
the premiums for April 24 and July 24, 1998 were not paid by [Eulogio]
even after the lapse of the 31-day grace period, his insurance policy
necessarily lapsed. This is clear from the terms and conditions of the
contract between [Insular Life] and [Eulogio] which are written in [the]
Policy provisions of Policy No. 9011992 x x x.

The RTC, taking into account the clear provisions of the

Policy Contract between Eulogio and Insular Life and the
Application for Reinstatement Eulogio subsequently signed and
submitted to Insular Life, held that Eulogio was not able to fully
comply with the requirements for the reinstatement of Policy No.
9011992:
The well-settled rule is that a contract has the force of law
between the parties. In the instant case, the terms of the insurance
contract between [Eulogio] and [Insular Life] were spelled out in the
policy provisions of Insurance Policy No. 9011992. There is likewise no
dispute that said insurance contract is by nature a contract of
adhesion[,] which is defined as one in which one of the contracting
parties imposes a ready-made form of contract which the other party
may accept or reject but cannot modify. (Polotan, Sr. vs. CA, 296
SCRA 247).

xxxx

The New Lexicon Websters Dictionary defines ambiguity as the

quality of having more than one meaning and an idea, statement or
expression capable of being understood in more than one sense. In
Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the Supreme
Court stated that[:]

Any ambiguity in a contract, whose terms are susceptible

of different interpretations as a result thereby, must be
read and construed against the party who drafted it on
the assumption that it could have been avoided by the
exercise of a little care.

In the instant case, the dispute arises from the aforequoted provisions written on the face of the second application
for reinstatement. Examining the said provisions, the court
finds the same clearly written in terms that are simple enough
to admit of only one interpretation. They are clearly not
ambiguous, equivocal or uncertain that would need further
construction. The same are written on the very face of the
application just above the space where [Eulogio] signed his
name. It is inconceivable that he signed it without reading and
understanding its import.

Similarly, the provisions of the policy provisions (sic) earlier

mentioned are written in simple and clear laymans language,
rendering it free from any ambiguity that would require a legal
interpretation or construction. Thus, the court believes that [Eulogio]
was well aware that when he filed the said application for
reinstatement, his lapsed policy was not automatically reinstated and
that its approval was subject to certain conditions. Nowhere in the
policy or in the application for reinstatement was it ever
mentioned that the payment of premiums would have the
effect of an automatic and immediate renewal of the lapsed
policy. Instead, what was clearly stated in the application for
reinstatement is that pending approval thereof, the premiums
paid would be treated as a deposit only and shall not bind the
company until this application is finally approved during
my/our lifetime and good health[.]

Again, the court finds nothing in the aforesaid provisions that

would even suggest an ambiguity either in the words used or in the
manner they were written. [Violeta] did not present any proof that
[Eulogio] was not conversant with the English language. Hence, his
having personally signed the application for reinstatement[,] which
consisted only of one page, could only mean that he has read its
contents and that he understood them. x x x

Therefore, consistent with the above Supreme Court ruling and

finding no ambiguity both in the policy provisions of Policy No.
9011992 and in the application for reinstatement subject of this case,
the court finds no merit in [Violetas] contention that the policy
provision stating that [the lapsed policy of Eulogio] should be
reinstated during his lifetime is ambiguous and should be construed in
his favor. It is true that [Eulogio] submitted his application for
reinstatement, together with his premium and interest payments, to
[Insular Life] through its agent Josephine Malaluan in the morning of
September 17, 1998. Unfortunately, he died in the afternoon of that
same day. It was only on the following day, September 18, 1998 that
Ms. Malaluan brought the said document to [the regional office of
Insular Life] in San Fernando, Pampanga for approval. As correctly
pointed out by [Insular Life] there was no more application to
approve because the applicant was already dead and no
insurance company would issue an insurance policy to a dead
person. (Emphases ours.)

The RTC, in the end, explained that:

While the court truly empathizes with the [Violeta] for the loss
of her husband, it cannot express the same by interpreting the
insurance agreement in her favor where there is no need for such
interpretation. It is conceded that [Eulogios] payment of overdue
premiums and interest was received by [Insular Life] through its agent
Ms. Malaluan. It is also true that [the] application for reinstatement
was filed by [Eulogio] a day before his death. However, there is
nothing that would justify a conclusion that such receipt
amounted to an automatic reinstatement of the policy that has
already lapsed. The evidence suggests clearly that no such
automatic renewal was contemplated in the contract between
[Eulogio] and [Insular Life]. Neither was it shown that Ms.
Malaluan was the officer authorized to approve the application
for reinstatement and that her receipt of the documents
submitted by [Eulogio] amounted to its approval. (Emphasis
ours.)

The fallo of the RTC Decision thus reads:

WHEREFORE, all the foregoing premises considered and

finding that [Violeta] has failed to establish by preponderance of
evidence her cause of action against the defendant, let this case be, as
it is hereby DISMISSED.

On 14 September 2007, Violeta filed a Motion for

Reconsideration of the afore-mentioned RTC Decision. Insular Life
opposed the said motion, averring that the arguments raised
therein were merely a rehash of the issues already considered
and addressed by the RTC. In an Order dated 8 November 2007,
the RTC denied Violetas Motion for Reconsideration, finding no
cogent and compelling reason to disturb its earlier findings. Per
the Registry Return Receipt on record, the 8 November 2007
Order of the RTC was received by Violeta on 3 December 2007.

In the interim, on 22 November 2007, Violeta filed with the

RTC a Reply to the Motion for Reconsideration, wherein she
reiterated the prayer in her Motion for Reconsideration for the
setting aside of the Decision dated 30 August 2007. Despite

already receiving on 3 December 2007, a copy of the RTC Order

dated

November

2007,

which

denied

her

Motion

for

Reconsideration, Violeta still filed with the RTC, on 26 February

2008, a Reply Extended Discussion elaborating on the arguments
she had previously made in her Motion for Reconsideration and
Reply.

On 10 April 2008, the RTC issued an Order, declaring that

the Decision dated 30 August 2007 in Civil Case No. 2177 had
already attained finality in view of Violetas failure to file the
appropriate notice of appeal within the reglementary period.
Thus, any further discussions on the issues raised by Violeta in
her Reply and Reply Extended Discussion would be moot and
academic.

Violeta filed with the RTC, on 20 May 2008, a Notice of

Appeal with Motion, praying that the Order dated 10 April 2008 be
set aside and that she be allowed to file an appeal with the Court
of Appeals.

In an Order dated 3 July 2008, the RTC denied Violetas

Notice of Appeal with Motion given that the Decision dated 30
August 2007 had long since attained finality.

Violeta directly elevated her case to this Court via the

instant Petition for Review on Certiorari, raising the following
issues for consideration:

1.

Whether or not the Decision of the court a quo dated August

30, 2007, can still be reviewed despite having allegedly attained
finality and despite the fact that the mode of appeal that has
been availed of by Violeta is erroneous?

2.

Whether or not the Regional Trial Court in its original

jurisdiction has decided the case on a question of law not in
accord with law and applicable decisions of the Supreme Court?

Violeta insists that her former counsel committed an honest

mistake in filing a Reply, instead of a Notice of Appeal of the RTC
Decision dated 30 August 2007; and in the computation of the
reglementary period for appealing the said judgment.

Violeta

claims that her former counsel suffered from poor health, which
rapidly deteriorated from the first week of July 2008 until the
latters death just shortly after the filing of the instant Petition on
8 August 2008. In light of these circumstances, Violeta entreat
this Court to admit and give due course to her appeal even if the
same was filed out of time.

Violeta further posits that the Court should address the

question of law arising in this case involving the interpretation of
the second sentence of Section 19 of the Insurance Code, which
provides:

Section. 19. x x x [I]nterest in the life or health of a person

insured must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs.

On the basis thereof, Violeta argues that Eulogio still had

insurable interest in his own life when he reinstated Policy No.
9011992 just before he passed away on 17 September 1998. The
RTC should have construed the provisions of the Policy Contract
and Application for Reinstatement in favor of the insured Eulogio
and against the insurer Insular Life, and considered the special
circumstances of the case, to rule that Eulogio had complied with
the requisites for the reinstatement of Policy No. 9011992 prior to
his death, and that Violeta is entitled to claim the proceeds of said
policy as the primary beneficiary thereof.

The Petition lacks merit.

At the outset, the Court notes that the elevation of the case
to us via the instant Petition for Review on Certiorari is not
justified. Rule 41, Section 1 of the Rules of Court, provides that
no appeal may be taken from an order disallowing or dismissing
an appeal. In such a case, the aggrieved party may file a Petition
for Certiorari under Rule 65 of the Rules of Court.

Furthermore, the RTC Decision dated 30 August 2007,

assailed in this Petition, had long become final and executory.
Violeta filed a Motion for Reconsideration thereof, but the RTC
denied the same in an Order dated 8 November 2007.

The

records of the case reveal that Violeta received a copy of the 8

November 2007 Order on 3 December 2007. Thus, Violeta had
15 days from said date of receipt, or until 18 December 2007,
to file a Notice of Appeal. Violeta filed a Notice of Appeal only on
20 May 2008, more than five months after receipt of the RTC
Order

dated

November

2007

denying

her

Motion

for

Reconsideration.

Violetas claim that her former counsels failure to file the

proper remedy within the reglementary period was an honest
mistake, attributable to the latters deteriorating health, is
unpersuasive.

Violeta merely made a general averment of her former

counsels poor health, lacking relevant details and supporting
evidence.

By Violetas own admission, her former counsels

health rapidly deteriorated only by the first week of July 2008.

The events pertinent to Violetas Notice of Appeal took place
months before July 2008, i.e., a copy of the RTC Order dated 8
November 2007, denying Violetas Motion for Reconsideration of
the Decision dated 30 August 2007, was received on

December 2007; and Violetas Notice of Appeal was filed on 20

May 2008. There is utter lack of proof to show that Violetas
former counsel was already suffering from ill health during these
times; or that the illness of Violetas former counsel would have
affected his judgment and competence as a lawyer.

Moreover, the failure of her former counsel to file a Notice of

Appeal within the reglementary period binds Violeta, which failure
the latter cannot now disown on the basis of her bare allegation
and self-serving pronouncement that the former was ill. A client
is bound by his counsels mistakes and negligence.

The Court, therefore, finds no reversible error on the part of

the RTC in denying Violetas Notice of Appeal for being filed

beyond the reglementary period. Without an appeal having been

timely filed, the RTC Decision dated 30 August 2007 in Civil Case
No. 2177 already became final and executory.

A judgment becomes "final and executory" by operation of

law. Finality becomes a fact when the reglementary period to
appeal lapses and no appeal is perfected within such period. As a
consequence, no court (not even this Court) can exercise
appellate jurisdiction to review a case or modify a decision that
has become final.

When a final judgment is executory, it

becomes immutable and unalterable. It may no longer be

modified in any respect either by the court, which rendered it or
even by this Court. The doctrine is founded on considerations of
public policy and sound practice that, at the risk of occasional
errors, judgments must become final at some definite point in
time.

The only recognized exceptions to the doctrine of

immutability and unalterability are the correction of clerical
errors, the so-called nunc pro tunc entries, which cause no
prejudice to any party, and void judgments. The instant case
does not fall under any of these exceptions.

Even if the Court ignores the procedural lapses committed

herein, and proceeds to resolve the substantive issues raised, the
Petition must still fail.

Violeta makes it appear that her present Petition involves

a question of law, particularly, whether Eulogio had an existing
insurable interest in his own life until the day of his death.

An insurable interest is one of the most basic and essential

requirements in an insurance contract. In general, an insurable
interest is that interest which a person is deemed to have in the
subject matter insured, where he has a relation or connection with
or concern in it, such that the person will derive pecuniary benefit
or advantage from the preservation of the subject matter insured
and will suffer pecuniary loss or damage from its destruction,
termination, or injury by the happening of the event insured
against. The existence of an insurable interest gives a person the
legal right to insure the subject matter of the policy of insurance.
Section 10 of the Insurance Code indeed provides that every
person has an insurable interest in his own life. Section 19 of the
same code also states that an interest in the life or health of a
person insured must exist when the insurance takes effect, but
need not exist thereafter or when the loss occurs.

Upon more extensive study of the Petition, it becomes

evident that the matter of insurable interest is entirely irrelevant
in the case at bar. It is actually beyond question that while
Eulogio was still alive, he had an insurable interest in his own life,
which he did insure under Policy No. 9011992. The real point of
contention herein is whether Eulogio was able to reinstate the
lapsed insurance policy on his life before his death on 17
September 1998.

The Court rules in the negative.

Before proceeding, the Court must correct the erroneous

declaration of the RTC in its 30 August 2007 Decision that Policy
No. 9011992 lapsed because of Eulogios non-payment of the
premiums which became due on 24 April 1998 and 24 July
1998. Policy No. 9011992 had lapsed and become void earlier,
on 24 February 1998, upon the expiration of the 31-day grace
period for payment of the premium, which fell due on 24 January
1998, without any payment having been made.

That Policy No. 9011992 had already lapsed is a fact beyond

dispute. Eulogios filing of his first Application for Reinstatement
with Insular Life, through Malaluan, on 26 May 1998, constitutes
an admission that Policy No. 9011992 had lapsed by then. Insular
Life did not act on Eulogios first Application for Reinstatement,
since the amount Eulogio simultaneously deposited was sufficient
to cover only the P8,062.00 overdue premium for 24 January
1998, but not the P322.48 overdue interests thereon. On 17
September 1998, Eulogio submitted a second Application for
Reinstatement to Insular Life, again through Malaluan, depositing
at the same time P17,500.00, to cover payment for the overdue
interest on the premium for 24 January 1998, and the premiums
that had also become due on 24 April 1998 and 24 July 1998. On
the very same day, Eulogio passed away.

To reinstate a policy means to restore the same to

premium-paying status after it has been permitted to lapse. Both
the Policy Contract and the Application for Reinstatement provide
for specific conditions for the reinstatement of a lapsed policy.

The Policy Contract between Eulogio and Insular Life

identified the following conditions for reinstatement should the
policy lapse:

10. REINSTATEMENT

You may reinstate this policy at any time within three years
after it lapsed if the following conditions are met: (1) the policy has not
been surrendered for its cash value or the period of extension as a
term insurance has not expired; (2) evidence of insurability satisfactory
to [Insular Life] is furnished; (3) overdue premiums are paid with
compound interest at a rate not exceeding that which would have been
applicable to said premium and indebtedness in the policy years prior
to reinstatement; and (4) indebtedness which existed at the time of
lapsation is paid or renewed.

Additional conditions for reinstatement of a lapsed policy

were stated in the Application for Reinstatement which Eulogio
signed and submitted, to wit:

I/We agree that said Policy shall not be considered reinstated until
this application is approved by the Company during my/our
lifetime and good health and until all other Company
requirements for the reinstatement of said Policy are fully
satisfied.

I/We further agree that any payment made or to be made in

connection with this application shall be considered as deposit
only and shall not bind the Company until this application is
finally approved by the Company during my/our lifetime and
good health. If this application is disapproved, I/We also agree to
accept the refund of all payments made in connection herewith,
without interest, and to surrender the receipts for such payment.
(Emphases ours.)

In the instant case, Eulogios death rendered impossible full

compliance with the conditions for reinstatement of Policy No.
9011992. True, Eulogio, before his death, managed to file his
Application for Reinstatement and deposit the amount for
payment of his overdue premiums and interests thereon with
Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been
processed and approved by Insular Life during Eulogios lifetime
and good health.

Relevant herein is the following pronouncement of the

Court in Andres v. The Crown Life Insurance Company, citing
McGuire v. The Manufacturer's Life Insurance Co.:

The stipulation in a life insurance policy giving the insured the

privilege to reinstate it upon written application does not give the
insured absolute right to such reinstatement by the mere filing of an
application. The insurer has the right to deny the reinstatement
if it is not satisfied as to the insurability of the insured and if the latter
does not pay all overdue premium and all other indebtedness to the
insurer. After the death of the insured the insurance Company
cannot be compelled to entertain an application for
reinstatement of the policy because the conditions precedent to
reinstatement can no longer be determined and satisfied. (Emphases
ours.)

It does not matter that when he died, Eulogios Application

for Reinstatement and deposits for the overdue premiums and
interests were already with Malaluan. Insular Life, through the
Policy Contract, expressly limits the power or authority of its
insurance agents, thus:

Our agents have no authority to make or modify this contract,

to extend the time limit for payment of premiums, to waive any
lapsation, forfeiture or any of our rights or requirements, such powers
being limited to our president, vice-president or persons authorized by
the Board of Trustees and only in writing. (Emphasis ours.)

Malaluan did not have the authority to approve Eulogios

Application for Reinstatement. Malaluan still had to turn over to
Insular

Life

Eulogios

Application

for

Reinstatement

and

accompanying deposits, for processing and approval by the latter.

The Court agrees with the RTC that the conditions for
reinstatement under the Policy Contract and Application for
Reinstatement were written in clear and simple language, which
could not admit of any meaning or interpretation other than those
that they so obviously embody. A construction in favor of the
insured is not called for, as there is no ambiguity in the said
provisions in the first place.

The words thereof are clear,

unequivocal, and simple enough so as to preclude any mistake in

the appreciation of the same.

Violeta did not adduce any evidence that Eulogio might have
failed to fully understand the import and meaning of the
provisions

of

his

Policy

Contract

and/or

Application

for

Reinstatement, both of which he voluntarily signed. While it is a

cardinal principle of insurance law that a policy or contract of
insurance is to be construed liberally in favor of the insured and
strictly as against the insurer company, yet, contracts of
insurance, like other contracts, are to be construed according to
the sense and meaning of the terms, which the parties
themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and
popular sense.

Eulogios death, just hours after filing his Application for

Reinstatement and depositing his payment for overdue premiums
and interests with Malaluan, does not constitute a special
circumstance that can persuade this Court to already consider
Policy No. 9011992 reinstated. Said circumstance cannot override
the clear and express provisions of the Policy Contract and
Application for Reinstatement, and operate to remove the
prerogative of Insular Life thereunder to approve or disapprove

the Application for Reinstatement.

Even though the Court

commiserates with Violeta, as the tragic and fateful turn of events

leaves her practically empty-handed, the Court cannot arbitrarily
burden Insular Life with the payment of proceeds on a lapsed
insurance policy. Justice and fairness must equally apply to all
parties to a case. Courts are not permitted to make contracts for
the parties. The function and duty of the courts consist simply in
enforcing and carrying out the contracts actually made.

Policy No. 9011992 remained lapsed and void, not having

been reinstated in accordance with the Policy Contract and
Application for Reinstatement before Eulogios death.

Violeta,

therefore, cannot claim any death benefits from Insular Life on the
basis of Policy No. 9011992; but she is entitled to receive the full
refund of the payments made by Eulogio thereon.

WHEREFORE, premises considered, the Court DENIES the

instant Petition for Review on Certiorari under Rule 45 of the Rules
of Court. The Court AFFIRMS the Orders dated 10 April 2008 and
3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No.
2177, denying petitioner Violeta R. Lalicans Notice of Appeal, on
the ground that the Decision dated 30 August 2007 subject
thereof, was already final and executory. No costs.

SO ORDERED.