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INSURANCE

Representation
QUA CHEE GAN vs. LAW UNION AND ROCK INSURANCE CO., LTD.
G.R. No. L-4611, December 17, 1955

(actually, case ‘to under representation but wala namang mention of representation kasi very rigid yung
discussion on warranties)

FACTS:

Qua Chee Gan, a merchant, owns 4 warehouses in Albay. He was using these warehouses to house crops
like copra and hemp. All warehouses, including its merchandise were insured by Law Union and Rock
Insurance for the amount of Php 370,000, with a loss payable clause to PNB, the mortgagee of the copra
and hemp. Further, the insurance states that Qua Chee Gan should install 11 hydrants in the warehouses’
premises. Qua Chee Gan installed only two, but Law Union nevertheless went on with the insurance policy
and collected premiums from Qua Chee Gan. The insurance contract also provides that “oil” should not be
stored within the premises of the warehouses.

A fire that lasted for a week on June 21, 1940 undermined the property, and Bodegas 1, 3 and 4 were totally
destroyed. The damage caused amounted to Php 398,000. Qua Chee Gan demanded insurance pay from
Law Union but the latter refused as it alleged that after investigation from their part, they found out that Qua
Chee Gan caused the fire. Law Union Qua Chee Gan, with his brother, Qua Chee Pao, and some
employees of his, were indicted and tried in 1940 for Arson but was subsequently acquitted for lack of
evidence. Qua Chee Gan then demanded that Law Union pay accordingly.

This time, Law Union averred that the insurance contract is void, assigning the following errors: (1) The rider
(memo of warranty) requires 11 hydrants to which a particular measurement was provided (1 hydrant every
150 ft), while petitioner only possessed. 2; (2) violation of hemp warranty against storage of gasoline since it
prohibits “oils”; (3) fire was due to fraud; and, (4) burned bodegas could not possibly have contained the
quantities of copra and hemp stated in the fire claims.

ISSUE/S:

(1) Whether or not the policies should be avoided for the reason that there was a breach of warranty.
(2) Whether or not the insured violated the hemp warranty provision against the storage of gasoline since
insured admitted there were 36 cans of gasoline in Bodega 2, which was a separate structure and not
affected by the fire.

HELD:
(1) NO, under the Memorandum of Warranty, there should be no less than 1 hydrant for each 150 feet of
external wall measurements of the compound, and since bodegas insured had an external wall per meter of
1640 feet, the insured should have 11 hydrants in the compound. But he only had 2.

Even so, the insurer is barred by estoppel to claim violation of the “fire hydrants warranty”, because
knowing that the number of hydrants it demanded never existed from the very beginning, appellant
nevertheless issued the policies subject to such warranty and received the corresponding premiums. The
insurance company was aware, even before the policies were issued, that in the premises there were only 2
hydrants and 2 others were owned by the Municipality of Tabaco, contrary to the requirements of the
warranties in question. Such fact appears from the positive testimony of the appellant’s representative
Jamiczon; and his denial cannot overcome that proof.

It should be close to conniving at fraud upon the insured to allow the insurer to claim now as void the policies
it issued to the insured, without warning him of the fatal defect, of which the insurer was informed, and after
it had misled the insured into believing that the policies were effective.

Am. Jur.: It is a well-settled rule that the insurer at the time of the issuance of a policy has the knowledge of
existing facts, which if insisted on, would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with known facts, and the insurer is stopped
thereafter from asserting the breach of such conditions.

The reason for the rule is: To allow a company to accept one’s money for a policy of insurance which it
knows to be void and of no effect, though it knows as it must that the insured believes it to be valid and
binding is so contrary to the dictates of honesty and fair dealing, as so closely related to positive fraud, as to
be abhorrent to fair-minded men. It would be to allow the company to treat the policy as valid long enough
to get the premium on it, and leave it at liberty to repudiate it the next moment.

Moreover, taking into account the well-known rule that ambiguities or obscurities must strictly be interpreted
against the party that cause them, the memorandum of warranty invoked by the insurer bars the latter from
questioning the existence of the appliances called for, since its initial expression “the undernoted appliances
for the extinction of fire being kept on the premises insured hereby..” admits of the interpretation as an
admission of the existence of such appliances which insurer cannot now contradict, should the parole
evidence apply.

(2) NO, It is well to note that gasoline is not specifically mentioned among the prohibited articles listed in the
so-called hemp warranty. The clause relied upon by the insurer speaks of “oils”. Ordinarily, oils mean
lubricants (animal and/or vegetable and/or mineral and/or their liquid products having a falsh point below 300
degrees Fahrenheit) and not gasoline or kerosene. Here again, by reason of the exclusive control of the
insurance company over the terms of the contract, the ambiguity must be held strictly against the insurer and
liberally in favor of the insured, specially to avoid a forfeiture.

The court also sees no reason why the prohibition of keeping gasoline in the premises could not be
expressed clearly and unmistakably, in the language public can readily understand, without esoteric
expressions.

Furthermore, the gasoline kept was only incidental to the insured’s business. It is a well settled rule that
keeping of inflammable oils in the premises though prohibited by the policy does NOT void it if such keeping
is incidental to the business. Also, the “hemp warranty” forbade the storage only in the building to which the
insurance applies, and/or in any building communicating therewith; and it is undisputed that no gasoline was
stored in the burnt bodegas and that Bodega No. 2 which was where the gasoline was found stood isolated
from the other bodegas, and which, notably, did not burn.

Warranties
AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO ENTERPRISES, INC.
G.R. No. 138941, October 8, 2001

FACTS:

Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry, and owns two mills
located in Lucena City. Initially, the business started with one oil mill and it was only in 1988 when it began
its operations in the new oil mill.

The new oil mills were separately covered by fire insurance policies issued by the petitioner. The first oil mill
was insured for Php 3,000,000 while the new oil mill was insured for Php 6,000,000, both from March 1991-
1992.

On September 30, 1991, a fire broke and gutted the new oil mill. Respondent immediately notified the
petitioner of the incident. The latter sent its appraisers who inspected the area. In a letter that came October
15, 1991, the petitioner rejected the claim on the ground that the description of the establishment on the
insurance referred to another building. Thus, prompting the respondent to file for specific performance and
damages in the RTC, that petitioner accordingly pay the ff: (a) Php 4,406,536.40 for the loss; (b) Php 80,000
for litigation expenses; (c) Php 300,000 for attorney’s fees. CA also affirmed the same.

ISSUE:
Whether or not the Court of Appeals erred in its legal interpretation of 'Fire Extinguishing
Appliances Warranty' of the policy?

HELD: NO

Rationale:

Petitioner: the oil mill gutted by fire was not the one described by the specific boundaries in the contested
policy.
- What exacerbates respondent's predicament is that it did not have the supposed wrong
description or mistake corrected.
- that respondent is "barred by the parole evidence rule from presenting evidence
- it is also "barred by estoppel from claiming that the description of the insured oil mill in the
policy was wrong, because it retained the policy without having the same corrected before the
fire by an endorsement in accordance with its Condition No. 28."

SC:
(1) In construing the words used descriptive of a building insured, the greatest liberality is shown by the
courts in giving effect to the insurance.

- In view of the custom of insurance agents to examine buildings before writing policies upon
them, and since a mistake as to the identity and character of the building is extremely
unlikely, the courts are inclined to consider that the policy of insurance covers any
building which the parties manifestly intended to insure, however inaccurate the
description may be

(2) Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that
what the parties manifestly intended to insure was the new oil mill. This is obvious from the
categorical statement embodied in the policy, extending its protection:
- "On machineries and equipment with complete accessories usual to a coconut oil mill including
stocks of copra, copra cake and copra mills whilst contained in the new oil mill building, situate
(sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.''
- If the parties really intended to protect the first oil mill, then there is no need to specify it
as new.

(3) Indeed, it would be absurd to assume that respondent would protect its first oil mill for different
amounts and leave uncovered its second one.
- As mentioned earlier, the first oil mill is already covered under Policy No. 306-7432324-4
issued by the petitioner. It is unthinkable for respondent to obtain the other policy from the very
same company. The latter ought to know that a second agreement over that same realty
results in its over insurance.

(4) As to Parole evidence issue:


- The imperfection in the description of the insured oil mill's boundaries can be attributed to a
misunderstanding between the petitioner's general agent, Mr. Alfredo Borja, and its policy
issuing clerk, who made the error of copying the boundaries of the first oil mill when typing the
policy to be issued for the new one.

- the present case falls within one of the recognized exceptions to the parole evidence
rule. Under the Rules of Court, a party may present evidence to modify, explain or add to
the terms of the written agreement if he puts in issue in his pleading, among others, its
failure to express the true intent and agreement of the parties thereto
- while the contract explicitly stipulated that it was for the insurance of the new oil mill, the
boundary description written on the policy concededly pertains to the first oil mill. This
irreconcilable difference can only be clarified by admitting evidence aliunde, which will explain
the imperfection and clarify the intent of the parties.

(5) As to estoppel issue:


- Evidence on record reveals that respondent's operating manager, Mr. Edison Tantuco, notified
Mr. Borja (the petitioner's agent with whom respondent negotiated for the contract) about the
inaccurate description in the policy.
- However, Mr. Borja assured Mr. Tantuco that the use of the adjective new will distinguish the
insured property. The assurance convinced respondent, despite the impreciseness in the
specification of the boundaries, the insurance will cover the new oil mill

(6) The object of the court in construing a contract is to ascertain the intent of the parties to the
contract and to enforce the agreement which the parties have entered into.
- In determining what the parties intended, the courts will read and construe the policy
as a whole and if possible, give effect to all the parts of the contract, keeping in mind
always, however, the prime rule that in the event of doubt, this doubt is to be resolved
against the insurer.
- In determining the intent of the parties to the contract, the courts will consider the
purpose and object of the contract

(7) Petitioner: claims that respondent forfeited the renewal policy for its failure to pay the full amount
of the premium and breach of the Fire Extinguishing Appliances Warranty.
- The Court of Appeals refused to consider this contention of the petitioner.
- It held that this issue was raised for the first time on appeal, hence, beyond its jurisdiction to
resolve, pursuant to Rule 46, Section 18 of the Rules of Court.
- Petitioner, however, contests this finding of the appellate court. It insists that the issue was
raised in paragraph 24 of its Answer
- SC: The argument fails to impress.
- It is true that the asseverations petitioner made in paragraph 24 of its Answer ostensibly spoke
of the policy's condition for payment of the renewal premium on time and respondent's non-
compliance with it. Yet, it did not contain any specific and definite allegation that respondent
did not pay the premium, or that it did not pay the full amount, or that it did not pay the amount
on time.
- Morever, the issue was never raised during the pre-trial

(8) Petitioner: respondent violated the express terms of the Fire Extinguishing Appliances Warranty.
- The breach occurred when the respondent failed to install internal fire hydrants inside the
burned building as warranted.
- SC: We agree with the appellate court's conclusion that the aforementioned warranty did not
require respondent to provide for all the fire extinguishing appliances enumerated therein.
- Additionally, we find that neither did it require that the appliances are restricted to those
mentioned in the warranty.
- In other words, what the warranty mandates is that respondent should maintain in efficient
working condition within the premises of the insured property, fire fighting equipments such as,
but not limited to, those identified in the list, which will serve as the oil mill's first line of defense
in case any part of it bursts into flame.

IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant petition is hereby
DISMISSED.

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