GREAT PACIFIC LIFE ASSURANCE CORP.
, petitioner, his DBP mortgage indebtedness amounting to eighty-six
vs.
COURT OF APPEALS AND MEDARDA V.
LEUTERIO, respondents.
QUISUMBING, J.:
This petition for review, under Rule 45 of the Rules of Court,
assails the Decision 1 dated May 17, 1993, of the Court of
Appeals and its Resolution 2 dated January 4, 1994 in CA-G.R.
CV No. 18341. The appellate court affirmed in toto the
judgment of the Misamis Oriental Regional Trial Court,
Branch 18, in an insurance claim filed by private respondent
against Great Pacific Life Assurance Co. The dispositive
portion of the trial court's decision reads:
WHEREFORE, judgment is rendered adjudging the defendant
GREAT PACIFIC LIFE ASSURANCE CORPORATION as insurer
under its Group policy No. G-1907, in relation to Certification
B-18558 liable and ordered to pay to the DEVELOPMENT
BANK OF THE PHILIPPINES as creditor of the insured Dr.
Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND
TWO HUNDRED PESOS (P86,200.00); dismissing the claims
for damages, attorney's fees and litigation expenses in the
complaint and counterclaim, with costs against the
defendant and dismissing the complaint in respect to the
plaintiffs, other than the widow-beneficiary, for lack of cause
of action. 3
The facts, as found by the Court of Appeals, are as follows:
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.
On November 11, 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 questions concerning his health condition as
follows:
7. 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?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good
health?
Answer: [x] Yes [ ] NO. 4
On November 15, 1983, Grepalife issued Certificate No. B-
18558, as insurance coverage of Dr. Leuterio, to the extent of
thousand, two hundred (P86,200.00) pesos.1âwphi1.nêt
On August 6, 1984, Dr. Leuterio died due to "massive
cerebral hemorrhage." Consequently, DBP submitted a death
claim to Grepalife. Grepalife denied the claim alleging that
Dr. Leuterio was not physically healthy when he applied for
an insurance coverage on November 15, 1983. 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.
On October 20, 1986, the widow of the late Dr. Leuterio,
respondent Medarda V. Leuterio, filed a complaint with the
Regional Trial Court of Misamis Oriental, Branch 18, against
Grepalife for "Specific Performance with Damages." 5During
the trial, Dr. Hernando Mejia, who issued the death
certificate, was called to testify. Dr. Mejia's findings, based
partly from the information given by the respondent widow,
stated 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.
On February 22, 1988, the trial court rendered a decision in
favor of respondent widow and against Grepalife. On May 17,
1993, the Court of Appeals sustained the trial court's
decision. Hence, the present petition. Petitioners interposed
the following assigned errors:
1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-
APPELLANT LIABLE TO THE DEVELOPMENT BANK OF THE
PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE
FOR PAYMENT OF THE PROCEEDS OF A MORTGAGE
REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFF'S
HUSBAND WILFREDO LEUTERIO ONE OF ITS LOAN
BORROWERS, INSTEAD OF DISMISSING THE CASE AGAINST
DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK
OF CAUSE OF ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE
CASE FOR WANT OF JURISDICTION OVER THE SUBJECT OR
NATURE OF THE ACTION AND OVER THE PERSON OF THE
DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-
APPELLANT TO PAY TO DBP THE AMOUNT OF P86,200.00
IN THE ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH
WAS THE ACTUAL AMOUNT PAYABLE TO DBP IN
ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT
WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN HOLDING THAT THERE
WAS NO CONCEALMENT OF MATERIAL INFORMATION ON
THE PART OF WILFREDO LEUTERIO IN HIS APPLICATION
FOR MEMBERSHIP IN THE GROUP LIFE INSURANCE PLAN
BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE
CLAIM ARISING FROM THE DEATH OF WILFREDO
LEUTERIO. 6
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals 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. Whether the Court of Appeals erred in not finding that Dr.
Leuterio concealed that he had hypertension, which would
vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife
liable in the amount of eighty six thousand, two hundred
(P86,200.00) pesos without proof of the actual outstanding
mortgage payable by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the
widow of Dr. Leuterio, not the real party in interest, hence
the trial court acquired no jurisdiction over the case. It
argues that when the Court of Appeals affirmed the trial
court's judgment, Grepalife was held liable to pay the
proceeds of insurance contract in favor of DBP, the
indispensable party who was not joined in the suit.
To resolve the issue, we must consider the insurable interest
in mortgaged properties and the parties to this type of
contract. The rationale of a group insurance policy of
mortgagors, otherwise known as the "mortgage redemption
insurance," is a device for the protection of both the
mortgagee and the mortgagor. On the part of the mortgagee,
it has to enter into such form of contract so that in the event
of the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds from
such insurance will be applied to the payment of the
mortgage debt, thereby relieving the heirs of the mortgagor
from paying the obligation. 7 In a similar vein, ample
protection is given to the mortgagor under such a concept so
that in the event of death; the mortgage obligation will be
extinguished by the application of the insurance proceeds to
the mortgage indebtedness. 8 Consequently, where the
mortgagor pays the insurance premium under the group
insurance policy, making the loss payable to the mortgagee,
the insurance is on the mortgagor's interest, and the
mortgagor continues to be a party to the contract. In this
type of policy insurance, the mortgagee is simply an
appointee of the insurance fund, such loss-payable clause
does not make the mortgagee a party to the contract. 9
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property
effects insurance in his own name providing that the loss
shall be payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed to be
upon the interest of the mortgagor, who does not cease to be
a party to the original contract, and any act of his, prior to
the loss, which would otherwise avoid the insurance, will
have the same effect, although the property is in the hands of
the mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same
effect as if it had been performed by the mortgagor.
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." 10 When DBP
submitted the insurance claim against petitioner, 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. 11 In Gonzales La O vs. Yek Tong Lin Fire
& Marine Ins. Co. 12 we held:
Insured, being the person with whom the contract was made,
is primarily the proper person to bring suit thereon. * *
* 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, * * *.
And in volume 33, page 82, of the same work, we read the
following:
Insured may be regarded as the real party in interest,
although he has assigned the policy for the purpose of
collection, or has assigned as collateral security any
judgment he may obtain. 13
And 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, 14the widow of
the decedent Dr. Leuterio may file the suit against the
insurer, Grepalife.
The second assigned error refers to an alleged concealment
that the petitioner interposed as its defense to annul the
insurance contract. Petitioner contends that Dr. Leuterio
failed to disclose that he had hypertension, which might have
caused his death. Concealment exists where the assured had
knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it
to the assured, but he designedly and intentionally withholds
the same. 15
Petitioner merely relied on the testimony of the attending
physician, Dr. Hernando Mejia, as supported by the
information given by the widow of the decedent. Grepalife
asserts that Dr. Mejia's technical diagnosis of the cause of
death of Dr. Leuterio was a duly documented hospital record,
and that the widow's declaration that her husband had
"possible hypertension several years ago" should not be
considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive
because Dr. Mejia did not conduct an autopsy on the body of
the decedent. As the attending physician, Dr. Mejia stated
that he had no knowledge of Dr. Leuterio's any previous
hospital confinement. 16 Dr. Leuterio's death certificate
stated that hypertension was only "the possible cause of
death." The private respondent's statement, as to the medical
history of her husband, was due to her unreliable
recollection of events. Hence, the statement of the physician
was properly considered by the trial court as hearsay.
The question of whether there was concealment was aptly
answered by the appellate court, thus:
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 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, the appellant insurance
company refused to pay the insurance claim. Appellant
alleged that the insured had concealed the fact that he had
hypertension.
Contrary to appellant's 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 . . .
xxx xxx xxx
Appellant insurance company had failed to establish that
there was concealment made by the insured, hence, it cannot
refuse payment of the claim. 17
The fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the
contract.18Misrepresentation 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. 19 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.1âwphi1.nêt
And that brings us to the last point in the review of the case
at bar. Petitioner claims that there was no evidence as to the
amount of Dr. Leuterio's outstanding indebtedness to DBP at
the time of the mortgagor's death. Hence, for private
respondent's failure to establish the same, the action for
specific performance should be dismissed. Petitioner's claim
is without merit. A life insurance policy is a valued
policy. 20 Unless the interest of a person insured is
susceptible of exact pecuniary measurement, the measure of
indemnity under a policy of insurance upon life or health is
the sum fixed in the policy. 21 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." 22(Emphasis omitted)
However, we noted that the Court of Appeals' decision was
promulgated on May 17, 1993. In private respondent's
memorandum, she states that DBP foreclosed in 1995 their
residential lot, in satisfaction of mortgagor's outstanding
loan. Considering this supervening event, 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 (Nemo cum alterius detrimenio protest). 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 Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision
and Resolution of the Court of Appeals in CA-G.R. CV 18341
is AFFIRMED with MODIFICATION that the petitioner is
ORDERED to pay the insurance proceeds amounting to
Eighty-six thousand, two hundred (P86,200.00) pesos to the
heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon
presentation of proof of prior settlement of mortgagor's
indebtedness to Development Bank of the Philippines. Costs
against petitioner. SO ORDERED.
G.R. No. 105135 June 22, 1995
SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO
and BERNARDA BACANI, respondents.
QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of
the Revised Rules of Court to reverse and set aside the
Decision dated February 21, 1992 of the Court of Appeals in
CA-G.R. CV No. 29068, and its Resolution dated April 22,
1992, denying reconsideration thereof.
We grant the petition.
I subjected to urinalysis, ultra-sonography and hematology
On April 15, 1986, Robert John B. Bacani procured a life
insurance contract for himself from petitioner. He was issued
Policy No. 3-903-766-X valued at P100,000.00, with double
indemnity in case of accidental death. The designated
beneficiary was his mother, respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash.
Respondent Bernarda Bacani filed a claim with petitioner,
seeking the benefits of the insurance policy taken by her son.
Petitioner conducted an investigation and its findings
prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda
Bacani, that the insured did not disclose material facts
relevant to the issuance of the policy, thus rendering the
contract of insurance voidable. A check representing the
total premiums paid in the amount of P10,172.00 was
attached to said letter.
Petitioner claimed that the insured gave false statements in
his application when he answered the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other
medical facility?
6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative
but limited his answer to a consultation with a certain Dr.
Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications. The other
questions were answered in the negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application
for insurance, the insured was examined and confined at the
Lung Center of the Philippines, where he was diagnosed for
renal failure. During his confinement, the deceased was
tests.
On November 17, 1988, respondent Bernarda Bacani and her
husband, respondent Rolando Bacani, filed an action for
specific performance against petitioner with the Regional
Trial Court, Branch 191, Valenzuela, Metro Manila. Petitioner
filed its answer with counterclaim and a list of exhibits
consisting of medical records furnished by the Lung Center
of the Philippines.
On January 14, 1990, private respondents filed a "Proposed
Stipulation with Prayer for Summary Judgment" where they
manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by
the decedent of his health condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the
authenticity and due execution of several documents as well
as allegations regarding the health of the insured. Private
respondents failed to oppose said request or reply thereto,
thereby rendering an admission of the matters alleged.
Petitioner then moved for a summary judgment and the trial
court decided in favor of private respondents. The
dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendant, condemning the latter to
pay the former the amount of One Hundred Thousand Pesos
(P100,000.00) the face value of insured's Insurance Policy
No. 3903766, and the Accidental Death Benefit in the amount
of One Hundred Thousand Pesos (P100,000.00) and further
sum of P5,000.00 in the concept of reasonable attorney's fees
and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-
44).
In ruling for private respondents, the trial court concluded
that the facts concealed by the insured were made in good
faith and under a belief that they need not be disclosed.
Moreover, it held that the health history of the insured was
immaterial since the insurance policy was "non-medical".
Petitioner appealed to the Court of Appeals, which affirmed
the decision of the trial court. The appellate court ruled that
petitioner cannot avoid its obligation by claiming
concealment because the cause of death was unrelated to the
facts concealed by the insured. It also sustained the finding
of the trial court that matters relating to the health history of
the insured were irrelevant since petitioner waived the
medical examination prior to the approval and issuance of
the insurance policy. Moreover, the appellate court agreed
with the trial court that the policy was "non-medical" (Rollo,
pp. 4-5).
Petitioner's motion for reconsideration was denied; hence,
this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the
appellate court are binding on this Court is not absolute and
admits of exceptions, such as when the judgment is based on
a misappreciation of the facts (Geronimo v. Court of Appeals,
224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded
that indeed there was concealment and misrepresentation,
however, the same was made in "good faith" and the facts
concealed or misrepresented were irrelevant since the policy
was "non-medical". We disagree.
Section 26 of The Insurance Code is explicit in requiring a
party to a contract of insurance to communicate to the other,
in good faith, all facts within his knowledge which are
material to the contract and as to which he makes no
warranty, and which the other has no means of ascertaining.
Said Section provides:
A neglect to communicate that which a party knows and
ought to communicate, is called concealment.
Materiality is to be determined not by the event, but solely
by the probable and reasonable influence of the facts upon
the party to whom communication is due, in forming his
estimate of the disadvantages of the proposed contract or in
making his inquiries (The Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is
specifically required to disclose to the insurer matters
relating to his health.
The information which the insured failed to disclose were
material and relevant to the approval and issuance of the
insurance policy. The matters concealed would have
definitely affected petitioner's action on his application,
either by approving it with the corresponding adjustment for
a higher premium or rejecting the same. Moreover, a
disclosure may have warranted a medical examination of the
insured by petitioner in order for it to reasonably assess the
risk involved in accepting the application.
In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993),
we held that materiality of the information withheld does
not depend on the state of mind of the insured. Neither does
it depend on the actual or physical events which ensue.
Thus, "goad faith" is no defense in concealment. The
insured's failure to disclose the fact that he was hospitalized
for two weeks prior to filing his application for insurance,
raises grave doubts about his bonafides. It appears that such
concealment was deliberate on his part.
The argument, that petitioner's waiver of the medical
examination of the insured debunks the materiality of the
facts concealed, is untenable. We reiterate our ruling
in Saturnino v. Philippine American Life Insurance Company, 7
SCRA 316 (1963), that " . . . the waiver of a medical
examination [in a non-medical insurance contract] renders
even more material the information required of the applicant
concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration
in deciding whether to issue the policy or not . . . "
Moreover, such argument of private respondents would
make Section 27 of the Insurance Code, which allows the
injured party to rescind a contract of insurance where there
is concealment, ineffective (See Vda. de Canilang v. Court of
Appeals, supra).
Anent the finding that the facts concealed had no bearing to
the cause of death of the insured, it is well settled that the
insured need not die of the disease he had failed to disclose
to the insurer. It is sufficient that his non-disclosure misled
the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries (Henson v.
The Philippine American Life Insurance Co., 56 O.G. No. 48
[1960]).
We, therefore, rule that petitioner properly exercised its
right to rescind the contract of insurance by reason of the
concealment employed by the insured. It must be
emphasized that rescission was exercised within the two-
year contestability period as recognized in Section 48 of The
Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of
the Court of Appeals is REVERSED and SET ASIDE.
SO ORDERED.
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos,
applied for a health care coverage with petitioner Philamcare
Health Systems, Inc. In the standard application form, he
answered no to the following question:
Have you or any of your family members ever consulted or
been treated for high blood pressure, heart trouble, diabetes,
cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details).1
The application was approved for a period of one year from
March 1, 1988 to March 1, 1989. Accordingly, he was issued
Health Care Agreement No. P010194. Under the agreement,
respondent’s husband was entitled to avail of hospitalization
benefits, whether ordinary or emergency, listed therein. He
was also entitled to avail of "out-patient benefits" such as
annual physical examinations, preventive health care and
other out-patient services.
Upon the termination of the agreement, the same was
extended for another year from March 1, 1989 to March 1,
1990, then from March 1, 1990 to June 1, 1990. The amount
of coverage was increased to a maximum sum of P75,000.00
per disability.2
During the period of his coverage, Ernani suffered a heart
attack and was confined at the Manila Medical Center (MMC)
for one month beginning March 9, 1990. While her husband
was in the hospital, respondent tried to claim the benefits
under the health care agreement. However, petitioner denied
her claim saying that the Health Care Agreement was void.
According to petitioner, there was a concealment regarding
Ernani’s medical history. Doctors at the MMC allegedly
discovered at the time of Ernani’s confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer
in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about
P76,000.00.
After her husband was discharged from the MMC, he was
attended by a physical therapist at home. Later, he was
admitted at the Chinese General Hospital. Due to financial
difficulties, however, respondent brought her husband home
again. In the morning of April 13, 1990, Ernani had fever and
was feeling very weak. Respondent was constrained to bring
him back to the Chinese General Hospital where he died on
the same day.
On July 24, 1990, respondent instituted with the Regional
Trial Court of Manila, Branch 44, an action for damages
against petitioner and its president, Dr. Benito Reverente,
which was docketed as Civil Case No. 90-53795. She asked
for reimbursement of her expenses plus moral damages and
attorney’s fees. After trial, the lower court ruled against
petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders
judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital
coverage of the late Ernani Trinos in the amount of
P76,000.00 plus interest, until the amount is fully paid to
plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages
of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as
exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs
of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the
trial court but deleted all awards for damages and absolved
petitioner Reverente.4 Petitioner’s motion for
reconsideration was denied.5 Hence, petitioner brought the
instant petition for review, raising the primary argument
that a health care agreement is not an insurance contract;
hence the "incontestability clause" under the Insurance
Code6 does not apply.1âwphi1.nêt
Petitioner argues that the agreement grants "living benefits,"
such as medical check-ups and hospitalization which a
member may immediately enjoy so long as he is alive upon
effectivity of the agreement until its expiration one-year
thereafter. Petitioner also points out that only medical and
hospitalization benefits are given under the agreement
without any indemnification, unlike in an insurance contract
where the insured is indemnified for his loss. Moreover,
since Health Care Agreements are only for a period of one
year, as compared to insurance contracts which last
longer,7 petitioner argues that the incontestability clause
does not apply, as the same requires an effectivity period of
at least two years. Petitioner further argues that it is not an
insurance company, which is governed by the Insurance
Commission, but a Health Maintenance Organization under
the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. An
insurance contract exists where the following elements
concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of
the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays
a premium.8
Section 3 of the Insurance Code states that any contingent or
unknown event, whether past or future, which may damnify
a person having an insurable interest against him, may be
insured against. Every person has an insurable interest in the
life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary
interest;
(3) of any person under a legal obligation to him for the
payment of money, respecting property or service, of which
death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest
vested in him depends.
In the case at bar, the insurable interest of respondent’s
husband in obtaining the health care agreement was his own
health. The health care agreement was in the nature of non-
life insurance, which is primarily a contract of
indemnity.9 Once the member incurs hospital, medical or any
other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for
the same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a
material fact in his application. It appears that in the
application for health coverage, petitioners required
respondent’s husband to sign an express authorization for
any person, organization or entity that has any record or
knowledge of his health to furnish any and all information
relative to any hospitalization, consultation, treatment or
any other medical advice or examination.10 Specifically, the
Health Care Agreement signed by respondent’s husband
states:
We hereby declare and agree that all statement and answers
contained herein and in any addendum annexed to this
application are full, complete and true and bind all parties in
interest under the Agreement herein applied for, that there
shall be no contract of health care coverage unless and until
an Agreement is issued on this application and the full
Membership Fee according to the mode of payment applied
for is actually paid during the lifetime and good health of
proposed Members; that no information acquired by any
Representative of PhilamCare shall be binding upon
PhilamCare unless set out in writing in the application; that
any physician is, by these presents, expressly authorized to
disclose or give testimony at anytime relative to any
information acquired by him in his professional capacity
upon any question affecting the eligibility for health care
coverage of the Proposed Members and that the acceptance
of any Agreement issued on this application shall be a
ratification of any correction in or addition to this
application as stated in the space for Home Office
Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally
required the applicant for authorization to inquire about the
applicant’s medical history, thus:
I hereby authorize any person, organization, or entity that
has any record or knowledge of my health and/or that of
__________ to give to the PhilamCare Health Systems, Inc. any
and all information relative to any hospitalization,
consultation, treatment or any other medical advice or
examination. This authorization is in connection with the
application for health care coverage only. A photographic
copy of this authorization shall be as valid as the
original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding
"Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material
information by the member in the application or medical
examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to
return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its
revelation would have resulted in the declination of the
applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.13
The answer assailed by petitioner was in response to the
question relating to the medical history of the applicant. This
largely depends on opinion rather than fact, especially
coming from respondent’s husband who was not a medical
doctor. Where matters of opinion or judgment are called for,
answers made in good faith and without intent to deceive
will not avoid a policy even though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation,
intention, belief, opinion, or judgment of the insured will not
avoid the policy if there is no actual fraud in inducing the
acceptance of the risk, or its acceptance at a lower rate of
premium, and this is likewise the rule although the
statement is material to the risk, if the statement is obviously
of the foregoing character, since in such case the insurer is
not justified in relying upon such statement, but is obligated
to make further inquiry. There is a clear distinction between
such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or
belief, that which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the
insurer is obvious and amounts to actual
fraud.15(Underscoring ours)
The fraudulent intent on the part of the insured must be
established to warrant rescission of the insurance
contract.16 Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense
and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer. In
any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract.
Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed
upon. In the end, the liability of the health care provider
attaches once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails of
the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment
entitles the injured party to rescind a contract of insurance."
The right to rescind should be exercised previous to the
commencement of an action on the contract.17In this case, no
rescission was made. Besides, the cancellation of health care
agreements as in insurance policies require the concurrence
of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective
date of the policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at
the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64
of the Insurance Code and upon request of insured, to
furnish facts on which cancellation is based.18
None of the above pre-conditions was fulfilled in this case.
When the terms of insurance contract contain limitations on
liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his
obligation.19 Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the
party which prepared the contract – the insurer.20 By reason
of the exclusive control of the insurance company over the
terms and phraseology of the insurance contract, ambiguity
must be strictly interpreted against the insurer and liberally
in favor of the insured, especially to avoid forfeiture.21 This is
equally applicable to Health Care Agreements. The
phraseology used in medical or hospital service contracts,
such as the one at bar, must be liberally construed in favor of
the subscriber, and if doubtful or reasonably susceptible of
two interpretations the construction conferring coverage is
to be adopted, and exclusionary clauses of doubtful import
should be strictly construed against the provider.22
Anent the incontestability of the membership of
respondent’s husband, we quote with approval the following
findings of the trial court:
(U)nder the title Claim procedures of expenses, the
defendant Philamcare Health Systems Inc. had twelve
months from the date of issuance of the Agreement within
which to contest the membership of the patient if he had
previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes
or hypertension. The periods having expired, the defense of
concealment or misrepresentation no longer lie.23
Finally, petitioner alleges that respondent was not the legal
wife of the deceased member considering that at the time of
their marriage, the deceased was previously married to
another woman who was still alive. The health care
agreement is in the nature of a contract of indemnity. Hence,
payment should be made to the party who incurred the
expenses. It is not controverted that respondent paid all the
hospital and medical expenses. She is therefore entitled to
reimbursement. The records adequately prove the expenses
incurred by respondent for the deceased’s hospitalization,
medication and the professional fees of the attending
physicians. 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.
THELMA VDA. DE CANILANG, petitioner,
vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE
ASSURANCE CORPORATION, respondents.
Simeon C. Sato for petitioner.
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B.
Claudio and was diagnosed as suffering from "sinus
tachycardia." The doctor prescribed the following fro
him: Trazepam, a tranquilizer; and Aptin, a beta-blocker
drug. Mr. Canilang consulted the same doctor again on 3
August 1982 and this time was found to have "acute
bronchitis."
On next day, 4 August 1982, Jaime Canilang applied for a
"non-medical" insurance policy with respondent Great
Pacific Life Assurance Company ("Great Pacific") naming his
wife, Thelma Canilang, as his beneficiary.1 Jaime Canilang
was issued ordinary life insurance Policy No. 345163, with
the face value of P19,700, effective as of 9 August 1982.
On 5 August 1983, Jaime Canilang died of "congestive heart
failure," "anemia," and "chronic anemia."2 Petitioner, widow
and beneficiary of the insured, filed a claim with Great Pacific
which the insurer denied on 5 December 1983 upon the
ground that the insured had concealed material information
from it.
Petitioner then filed a complaint against Great Pacific with
the Insurance Commission for recovery of the insurance
proceeds. During the hearing called by the Insurance
Commissioner, petitioner testified that she was not aware of
any serious illness suffered by her late husband3 and that, as
far as she knew, her husband had died because of a kidney
disorder.4 A deposition given by Dr. Wilfredo Claudio was
presented by petitioner. There Dr. Claudio stated that he was
the family physician of the deceased Jaime Canilang5 and that
he had previously treated him for "sinus tachycardia" and
"acute bronchitis."6 Great Pacific for its part presented Dr.
Esperanza Quismorio, a physician
and a medical underwriter working for Great Pacific.7 She
testified that the deceased's insurance application had been
approved on the basis of his medical declaration.8 She
explained that as a rule, medical examinations are required
only in cases where the applicant has indicated in his
application for insurance coverage that he has previously
undergone medical consultation and hospitalization.9
In a decision dated 5 November 1985, Insurance
Commissioner Armando Ansaldo ordered Great Pacific to
pay P19,700 plus legal interest and P2,000.00 as attorney's
fees after holding that:
1. the ailment of Jaime Canilang was not so serious that, even
if it had been disclosed, it would not have affected Great
Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into the health
condition of the applicant by the issuance of the policy
despite the lack of answers to "some of the pertinent
questions" in the insurance application;
3. there was no intentional concealment on the part of the
insured Jaime Canilang as he had thought that he was merely
suffering from a minor ailment and simple cold; 10 and
4. Batas Pambansa Blg. 847 which voids an insurance
contract, whether or not concealment was intentionally
made, was not applicable to Canilang's case as that law
became effective only on 1 June 1985.
On appeal by Great Pacific, the Court of Appeals reversed and
set aside the decision of the Insurance Commissioner and
dismissed Thelma Canilang's complaint and Great Pacific's
counterclaim. The Court of Appealed found that the use of
the word "intentionally" by the Insurance Commissioner in
defining and resolving the issue agreed upon by the parties
at pre-trial before the Insurance Commissioner was not
supported by the evidence; that the issue agreed upon by the
parties had been whether the deceased insured, Jaime
Canilang, made a material concealment as the state of his
health at the time of the filing of insurance application,
justifying respondent's denial of the claim. The Court of
Appeals also found that the failure of Jaime Canilang to
disclose previous medical consultation and treatment
constituted material information which should have been
communicated to Great Pacific to enable the latter to make
proper inquiries. The Court of Appeals finally held that
the Ng Gan Zee case which had
involved misrepresentation was not applicable in respect of
the case at bar which involves concealment.
Petitioner Thelma Canilang is now before this Court on a
Petition for Review on Certiorari alleging that:
1. . . . the Honorable Court of Appeals, speaking with due
respect, erred in not holding that the issue in the case agreed
upon between the parties before the Insurance Commission
is whether or not Jaime Canilang "intentionally" made
material concealment in stating his state of health;
2. . . . at any rate, the non-disclosure of certain facts about his
previous health conditions does not amount to fraud and
private respondent is deemed to have waived inquiry
thereto. 11
The medical declaration which was set out in the application
for insurance executed by Jaime Canilang read as follows:
MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any hospital, sanitarium or
infirmary, nor receive any medical or surgical
advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician for a
heart condition, high blood pressure, cancer, diabetes, lung,
kidney, stomach disorder, or any other physical impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
______________________________________________________________________
__________
GENERAL DECLARATION
I hereby declare that all the foregoing answers and
statements are complete, true and correct. I hereby agree
that if there be any fraud or misrepresentation in the above
statements material to the risk, the INSURANCE COMPANY
upon discovery within two (2) years from the effective date
of insurance shall have the right to declare such insurance
null and void. That the liabilities of the Company under the
said Policy/TA/Certificate shall accrue and begin only from
the date of commencement of risk stated in the
Policy/TA/Certificate, provided that the first premium is
paid and the Policy/TA/Certificate is delivered to, and
accepted by me in person, when I am in actual good health.
Signed at Manila his 4th day of August, 1992.
Illegible
——————————
Signature of Applicant. 12
We note that in addition to the negative statements made by
Mr. Canilang in paragraph 1 and 2 of the medical declaration,
he failed to disclose in the appropriate space, under the
caption "Exceptions," that he had twice consulted Dr.
Wilfredo B. Claudio who had found him to be suffering from
"sinus tachycardia" and "acute bronchitis."
The relevant statutory provisions as they stood at the time
Great Pacific issued the contract of insurance and at the time
Jaime Canilang died, are set out in P.D. No. 1460, also known
as the Insurance Code of 1978, which went into effect on 11
June 1978. These provisions read as follows:
Sec. 26. A neglect to communicate that which a party
knows and ought to communicate, is called a concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must
communicate to the other, in good faith, all factors within his
knowledge which are material to the contract and as to
which he makes no warranty, and which the other has not
the means of ascertaining. (Emphasis supplied)
Under the foregoing provisions, the information concealed
must be information which the concealing party knew and
"ought to [have] communicate[d]," that is to say, information
which was "material to the contract." The test of materiality
is contained in Section 31 of the Insurance Code of 1978
which reads:
Sec. 31. Materially is to be determined not by the event,
but solely by the probable and reasonable influence of the
facts upon the party to whom the communication is due, in
forming his estimate of the disadvantages of the proposed
contract, or in making his inquiries. (Emphasis supplied)
"Sinus tachycardia" is considered present "when the heart
rate exceeds 100 beats per minute." 13 The symptoms of this
condition include pounding in the chest and sometimes
faintness and weakness of the person affected. The following
elaboration was offered by Great Pacific and set out by the
Court of Appeals in its Decision:
Sinus tachycardia is defined as sinus-initiated; heart rate
faster than 100 beats per minute. (Harrison' s Principles of
Internal Medicine, 8th ed. [1978], p. 1193.) It is, among
others, a common reaction to heart disease, including
myocardial infarction, and heart failure per se. (Henry J.L.
Marriot, M.D., Electrocardiography, 6th ed., [1977], p. 127.)
The medication prescribed by Dr. Claudio for treatment of
Canilang's ailment on June 18, 1982, indicates the condition
that said physician was trying to manage. Thus, he
prescribed Trazepam, (Philippine Index of Medical
Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is
anti-anxiety, anti-convulsant, muscle-relaxant; and Aptin,
(Idem, p. 36) a cardiac drug, for palpitations and nervous
heart. Such treatment could have been a very material
information to the insurer in determining the action to be
take on Canilang's application for life insurance coverage. 14
We agree with the Court of Appeals that the information
which Jaime Canilang failed to disclose was material to the
ability of Great Pacific to estimate the probable risk he
presented as a subject of life insurance. Had Canilang
disclosed his visits to his doctor, the diagnosis made and
medicines prescribed by such doctor, in the insurance
application, it may be reasonably assumed that Great Pacific
would have made further inquiries and would have probably
refused to issue a non-medical insurance policy or, at the
very least, required a higher premium for the same
coverage. 15 The materiality of the information withheld by
Great Pacific did not depend upon the state of mind of Jaime
Canilang. A man's state of mind or subjective belief is not
capable of proof in our judicial process, except through proof
of external acts or failure to act from which inferences as to
his subjective belief may be reasonably drawn. Neither does
materiality depend upon the actual or physical events which
ensue. Materiality relates rather to the "probable and
reasonable influence of the facts" upon the party to whom
the communication should have been made, in assessing the
risk involved in making or omitting to make further inquiries
and in accepting the application for insurance; that
"probable and reasonable influence of the facts" concealed
must, of course, be determined objectively, by the judge
ultimately.
The insurance Great Pacific applied for was a "non-medical"
insurance policy. In Saturnino v. Philippine-American Life
Insurance Company, 16 this Court held that:
. . . if anything, the waiver of medical examination [in a non-
medical insurance contract] renders even more material the
information required of the applicant concerning previous
condition of health and diseases suffered, for such
information necessarily constitutes an important factor
which the insurer takes into consideration in deciding
whether to issue the policy or not . . . . 17 (Emphasis supplied)
The Insurance Commissioner had also ruled that the failure
of Great Pacific to convey certain information to the insurer
was not "intentional" in nature, for the reason that Jaime
Canilang believed that he was suffering from minor ailment
like a common cold. Section 27 of the Insurance Code of 1978
as it existed from 1974 up to 1985, that is, throughout the
time range material for present purposes, provided that:
Sec. 27. A concealment entitles the injured party to rescind a
contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914 up
to 1974, had provided:
Sec. 26. A concealment, whether intentional or unintentional,
entitles the injured party to rescind a contract of insurance.
(Emphasis supplied)
Upon the other hand, in 1985, the Insurance Code of 1978
was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of
the Insurance Code of 1978 so as to read as follows:
Sec. 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a contract
of insurance. (Emphasis supplied)
The unspoken theory of the Insurance Commissioner
appears to have been that by deleting the phrase "intentional
or unintentional," the Insurance Code of 1978 (prior to its
amendment by B.P. Blg. 874) intended to limit the kinds of
concealment which generate a right to rescind on the part of
the injured party to "intentional concealments." This
argument is not persuasive. As a simple matter of grammar,
it may be noted that "intentional" and "unintentional" cancel
each other out. The net result therefore of the phrase
"whether intentional or unitentional" is precisely to leave
unqualified the term "concealment." Thus, Section 27 of the
Insurance Code of 1978 is properly read as referring to
"any concealment" without regard to whether such
concealment is intentional or unintentional. The phrase
"whether intentional or unintentional" was in fact
superfluous. The deletion of the phrase "whether intentional
or unintentional" could not have had the effect of imposing
an affirmative requirement that a concealment must be
intentional if it is to entitle the injured party to rescind a
contract of insurance. The restoration in 1985 by B.P. Blg.
874 of the phrase "whether intentional or unintentional"
merely underscored the fact that all throughout (from 1914
to 1985), the statute did not require proof that concealment
must be "intentional" in order to authorize rescission by the
injured party.
In any case, in the case at bar, the nature of the facts not
conveyed to the insurer was such that the failure to
communicate must have been intentional rather than merely
inadvertent. For Jaime Canilang could not have been
unaware that his heart beat would at times rise to high and
alarming levels and that he had consulted a doctor twice in
the two (2) months before applying for non-medical
insurance. Indeed, the last medical consultation took place
just the day before the insurance application was filed. In all
probability, Jaime Canilang went to visit his doctor precisely
because of the discomfort and concern brought about by his
experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great
Pacific had waived inquiry into the concealment by issuing
the insurance policy notwithstanding Canilang's failure to set
out answers to some of the questions in the insurance
application. Such failure precisely constituted concealment
on the part of Canilang. Petitioner's argument, if accepted,
would obviously erase Section 27 from the Insurance Code of
1978.
It remains only to note that the Court of Appeals finding that
the parties had not agreed in the pretrial before the
Insurance Commission that the relevant issue was whether
or not Jaime Canilang had intentionally concealed material
information from the insurer, was supported by the evidence
of record, i.e., the Pre-trial Order itself dated 17 October
1984 and the Minutes of the Pre-trial Conference dated 15
October 1984, which "readily shows that the word
"intentional" does not appear in the statement or definition
of the issue in the said Order and Minutes." 18
WHEREFORE, the Petition for Review is DENIED for lack of
merit and the Decision of the Court of Appeals dated 16
October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED.
No pronouncement as to the costs.
SO ORDERED.
EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO
TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.
Ferry, De la Rosa and Associates for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the Court of
Appeals' decision affirming the decision of the Insurance
Commissioner which dismissed the petitioners' complaint
against respondent Philippine American Life Insurance
Company for the recovery of the proceeds from their late
father's policy. The facts of the case as found by the Court of
Appeals are:
Petitioners appeal from the Decision of the Insurance
Commissioner dismissing herein petitioners' complaint
against respondent Philippine American Life Insurance
Company for the recovery of the proceeds of Policy No.
1082467 in the amount of P 80,000.00.
On September 23,1973, Tan Lee Siong, father of herein
petitioners, applied for life insurance in the amount of P
80,000.00 with respondent company. Said application was
approved and Policy No. 1082467 was issued effective
November 6,1973, with petitioners the beneficiaries thereof
(Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit
B). Petitioners then filed with respondent company their
claim for the proceeds of the life insurance policy. However,
in a letter dated September 11, 1975, respondent company
denied petitioners' claim and rescinded the policy by reason
of the alleged misrepresentation and concealment of
material facts made by the deceased Tan Lee Siong in his
application for insurance (Exhibit 3). The premiums paid on
the policy were thereupon refunded .
Alleging that respondent company's refusal to pay them the
proceeds of the policy was unjustified and unreasonable,
petitioners filed on November 27, 1975, a complaint against
the former with the Office of the Insurance Commissioner,
docketed as I.C. Case No. 218.
After hearing the evidence of both parties, the Insurance
Commissioner rendered judgment on August 9, 1977,
dismissing petitioners' complaint. (Rollo, pp. 91-92)
The Court of Appeals dismissed ' the petitioners' appeal from
the Insurance Commissioner's decision for lack of merit
Hence, this petition.
The petitioners raise the following issues in their assignment
of errors, to wit:
A. The conclusion in law of respondent Court that
respondent insurer has the right to rescind the policy
contract when insured is already dead is not in accordance
with existing law and applicable jurisprudence.
B. The conclusion in law of respondent Court that
respondent insurer may be allowed to avoid the policy on
grounds of concealment by the deceased assured, is contrary
to the provisions of the policy contract itself, as well as, of
applicable legal provisions and established jurisprudence.
C. The inference of respondent Court that respondent insurer
was misled in issuing the policy are manifestly mistaken and
contrary to admitted evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no
longer had the right to rescind the contract of insurance as
rescission must allegedly be done during the lifetime of the
insured within two years and prior to the commencement of
action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of the
insured for a period of two years from the date of its issue or
of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the
fraudulent concealment or misrepresentation of the insured
or his agent.
According to the petitioners, the Insurance Law was
amended and the second paragraph of Section 48 added to
prevent the insurance company from exercising a right to
rescind after the death of the insured.
The so-called "incontestability clause" precludes the insurer
from raising the defenses of false representations or
concealment of material facts insofar as health and previous
diseases are concerned if the insurance has been in force for
at least two years during the insured's lifetime. The phrase
"during the lifetime" found in Section 48 simply means that
the policy is no longer considered in force after the insured
has died. The key phrase in the second paragraph of Section
48 is "for a period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the insured
died on April 26,1975. The policy was thus in force for a
period of only one year and five months. Considering that the
insured died before the two-year period had lapsed,
respondent company is not, therefore, barred from proving
that the policy is void ab initio by reason of the insured's
fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance
and refunded the premiums paid on September 11, 1975,
previous to the commencement of this action on November
27,1975. (Rollo, pp. 99-100)
xxx xxx xxx
The petitioners contend that there could have been no
concealment or misrepresentation by their late father
because Tan Lee Siong did not have to buy insurance. He was
only pressured by insistent salesmen to do so. The
petitioners state:
Here then is a case of an assured whose application was
submitted because of repeated visits and solicitations by the
insurer's agent. Assured did not knock at the door of the
insurer to buy insurance. He was the object of solicitations
and visits.
Assured was a man of means. He could have obtained a
bigger insurance, not just P 80,000.00. If his purpose were to
misrepresent and to conceal his ailments in anticipation of
death during the two-year period, he certainly could have
gotten a bigger insurance. He did not.
Insurer Philamlife could have presented as witness its
Medical Examiner Dr. Urbano Guinto. It was he who
accomplished the application, Part II, medical. Philamlife did
not.
Philamlife could have put to the witness stand its Agent
Bienvenido S. Guinto, a relative to Dr. Guinto, Again
Philamlife did not. (pp. 138139, Rollo)
xxx xxx xxx
This Honorable Supreme Court has had occasion to
denounce the pressure and practice indulged in by agents in
selling insurance. At one time or another most of us have
been subjected to that pressure, that practice. This court
took judicial cognizance of the whirlwind pressure of
insurance selling-especially of the agent's practice of
'supplying the information, preparing and answering the
application, submitting the application to their
companies, concluding the transactions and
otherwise smoothing out all difficulties.
We call attention to what this Honorable Court said in
Insular Life v. Feliciano, et al., 73 Phil. 201; at page 205:
It is of common knowledge that the selling of insurance
today is subjected to the whirlwind pressure of modern
salesmanship.
Insurance companies send detailed instructions to their
agents to solicit and procure applications.
These agents are to be found all over the length and breadth
of the land. They are stimulated to more active efforts by
contests and by the keen competition offered by the other
rival insurance companies.
They supply all the information, prepare and answer the
applications, submit the applications to their companies,
conclude the transactions, and otherwise smooth out all
difficulties.
The agents in short do what the company set them out to do.
The Insular Life case was decided some forty years ago when
the pressure of insurance salesmanship was not
overwhelming as it is now; when the population of this
country was less than one-fourth of what it is now; when the
insurance companies competing with one another could be
counted by the fingers. (pp. 140-142, Rollo)
xxx xxx xxx
In the face of all the above, it would be unjust if, having been
subjected to the whirlwind pressure of insurance
salesmanship this Court itself has long denounced, the
assured who dies within the two-year period, should stand
charged of fraudulent concealment and misrepresentation."
(p. 142, Rollo)
The legislative answer to the arguments posed by the
petitioners is the "incontestability clause" added by the
second paragraph of Section 48.
The insurer has two years from the date of issuance of the
insurance contract or of its last reinstatement within which
to contest the policy, whether or not, the insured still lives
within such period. After two years, the defenses of
concealment or misrepresentation, no matter how patent or
well founded, no longer lie. Congress felt this was a sufficient
answer to the various tactics employed by insurance
companies to avoid liability. The petitioners' interpretation
would give rise to the incongruous situation where the
beneficiaries of an insured who dies right after taking out
and paying for a life insurance policy, would be allowed to
collect on the policy even if the insured fraudulently
concealed material facts.
The petitioners argue that no evidence was presented to
show that the medical terms were explained in a layman's
language to the insured. They state that the insurer should
have presented its two medical field examiners as witnesses.
Moreover, the petitioners allege that the policy intends that
the medical examination must be conducted before its
issuance otherwise the insurer "waives whatever
imperfection by ratification."
We agree with the Court of Appeals which ruled:
On the other hand, petitioners argue that no evidence was
presented by respondent company to show that the
questions appearing in Part II of the application for
insurance were asked, explained to and understood by the
deceased so as to prove concealment on his part. The same is
not well taken. The deceased, by affixing his signature on the
application form, affirmed the correctness of all the entries
and answers appearing therein. It is but to be expected that
he, a businessman, would not have affixed his signature on
the application form unless he clearly understood its
significance. For, the presumption is that a person intends
the ordinary consequence of his voluntary act and takes
ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131,
Rules of Court].
The evidence for respondent company shows that on
September 19,1972, the deceased was examined by Dr.
Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was
complaining of progressive weight loss and abdominal pain
and was diagnosed to be suffering from hepatoma, (t.s.n.
August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr.
Wenceslao Vitug, testified that the deceased came to see him
on December 14, 1973 for consolation and claimed to have
been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit
6) Because of the concealment made by the deceased of his
consultations and treatments for hypertension, diabetes and
liver disorders, respondent company was thus misled into
accepting the risk and approving his application as medically
standard (Exhibit 5- C) and dispensing with further medical
investigation and examination (Exhibit 5-A). For as long as
no adverse medical history is revealed in the application
form, an applicant for insurance is presumed to be healthy
and physically fit and no further medical investigation or
examination is conducted by respondent company. (t.s.n.,
April 8,1976, pp. 6-8). (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine
print" or "contract of adhesion" rule in this case. (Sweet
Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners
cite:
It is a matter of common knowledge that large amounts of
money are collected from ignorant persons by companies
and associations which adopt high sounding titles and print
the amount of benefits they agree to pay in large black-faced
type, following such undertakings by fine print conditions
which destroy the substance of the promise. All provisions,
conditions, or exceptions which in any way tend to work a
forfeiture of the policy should be construed most strongly
against those for whose benefit they are inserted, and most
favorably toward those against whom they are meant to
operate. (Trinidad v. Orient Protective Assurance Assn., 67
Phil. 184)
There is no showing that the questions in the application
form for insurance regarding the insured's medical history
are in smaller print than the rest of the printed form or that
they are designed in such a way as to conceal from the
applicant their importance. If a warning in bold red letters or
a boxed warning similar to that required for cigarette
advertisements by the Surgeon General of the United States
is necessary, that is for Congress or the Insurance
Commission to provide as protection against high pressure
insurance salesmanship. We are limited in this petition to
ascertaining whether or not the respondent Court of Appeals
committed reversible error. It is the petitioners' burden to
show that the factual findings of the respondent court are
not based on substantial evidence or that its conclusions are
contrary to applicable law and jurisprudence. They have
failed to discharge that burden. WHEREFORE, the petition is
hereby DENIED for lack of merit. The questioned decision of
the Court of Appeals is AFFIRMED. SO ORDERED.
PRUDENTIAL GUARANTEE and ASSURANCE
INC., petitioner,
vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent.
G.R. No. 151991 June 20, 2006
TRANS-ASIA SHIPPING LINES, INC., petitioner,
vs.
PRUDENTIAL GUARANTEE and ASSURANCE
INC., Respondent.
 DECISION
CHICO-NAZARIO, J:
This is a consolidation of two separate Petitions for Review
on Certiorari filed by petitioner Prudential Guarantee and
Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and
Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No.
151991, assailing the Decision1 dated 6 November 2001 of
the Court of Appeals in CA G.R. CV No. 68278, which reversed
the Judgment2 dated 6 June 2000 of the Regional Trial Court
(RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The
29 January 2002 Resolution3 of the Court of Appeals, denying
PRUDENTIAL’s Motion for Reconsideration and TRANS-
ASIA’s Partial Motion for Reconsideration of the 6 November
2001 Decision, is likewise sought to be annulled and set
aside.
The Facts
The material antecedents as found by the court a quo and
adopted by the appellate court are as follows:
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia
Korea. In consideration of payment of premiums, defendant
[PRUDENTIAL] insured M/V Asia Korea for loss/damage of
the hull and machinery arising from perils, inter alia, of fire
and explosion for the sum of P40 Million, beginning [from]
the period [of] July 1, 1993 up to July 1, 1994. This is
evidenced by Marine Policy No. MH93/1363 (Exhibits "A" to
"A-11"). On October 25, 1993, while the policy was in force, a
fire broke out while [M/V Asia Korea was] undergoing
repairs at the port of Cebu. On October 26, 1993 plaintiff
[TRANS-ASIA] filed its notice of claim for damage sustained
by the vessel. This is evidenced by a letter/formal claim of
even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved its
right to subsequently notify defendant [PRUDENTIAL] as to
the full amount of the claim upon final survey and
determination by average adjuster Richard Hogg
International (Phil.) of the damage sustained by reason of
fire. An adjuster’s report on the fire in question was
submitted by Richard Hogg International together with the
U-Marine Surveyor Report (Exhibits "4" to "4-115").
On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a
document denominated "Loan and Trust receipt", a portion
of which read (sic):
"Received from Prudential Guarantee and Assurance, Inc.,
the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as
a loan without interest under Policy No. MH 93/1353 [sic],
repayable only in the event and to the extent that any net
recovery is made by Trans-Asia Shipping Corporation, from
any person or persons, corporation or corporations, or other
parties, on account of loss by any casualty for which they
may be liable occasioned by the 25 October 1993: Fire on
Board." (Exhibit "4")
In a letter dated 21 April 1997 defendant [PRUDENTIAL]
denied plaintiff’s claim (Exhibit "5"). The letter reads:
"After a careful review and evaluation of your claim arising
from the above-captioned incident, it has been ascertained
that you are in breach of policy conditions, among them
"WARRANTED VESSEL CLASSED AND CLASS MAINTAINED".
Accordingly, we regret to advise that your claim is not
compensable and hereby DENIED."
This was followed by defendant’s letter dated 21 July 1997
requesting the return or payment of the P3,000,000.00
within a period of ten (10) days from receipt of the letter
(Exhibit "6").4
Following this development, on 13 August 1997, TRANS-
ASIA filed a Complaint5 for Sum of Money against
PRUDENTIAL with the RTC of Cebu City, docketed as Civil
Case No. CEB-20709, wherein TRANS-ASIA sought the
amount of P8,395,072.26 from PRUDENTIAL, alleging that
the same represents the balance of the indemnity due upon
the insurance policy in the total amount of P11,395,072.26.
TRANS-ASIA similarly sought interest at 42% per annum
citing Section 2436 of Presidential Decreee No. 1460,
otherwise known as the "Insurance Code," as amended.
In its Answer,7 PRUDENTIAL denied the material allegations
of the Complaint and interposed the defense that TRANS-
ASIA breached insurance policy conditions, in particular:
"WARRANTED VESSEL CLASSED AND CLASS MAINTAINED."
PRUDENTIAL further alleged that it acted as facts and law
require and incurred no liability to TRANS-ASIA; that
TRANS-ASIA has no cause of action; and, that its claim has
been effectively waived and/or abandoned, or it is estopped
from pursuing the same. By way of a counterclaim,
PRUDENTIAL sought a refund of P3,000,000.00, which it
allegedly advanced to TRANS-ASIA by way of a loan without
interest and without prejudice to the final evaluation of the
claim, including the amounts of P500,000.00, for survey fees
and P200,000.00, representing attorney’s fees.
The Ruling of the Trial Court
On 6 June 2000, the court a quo rendered Judgment8 finding
for (therein defendant) PRUDENTIAL. It ruled that a
determination of the parties’ liabilities hinged on whether
TRANS-ASIA violated and breached the policy conditions on
WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It
interpreted the provision to mean that TRANS-ASIA is
required to maintain the vessel at a certain class at all times
pertinent during the life of the policy. According to the court
a quo, TRANS-ASIA failed to prove compliance of the terms
of the warranty, the violation thereof entitled PRUDENTIAL,
the insured party, to rescind the contract.9
Further, citing Section 10710 of the Insurance Code, the court
a quo ratiocinated that the concealment made by TRANS-
ASIA that the vessel was not adequately maintained to
preserve its class was a material concealment sufficient to
avoid the policy and, thus, entitled the injured party to
rescind the contract. The court a quo found merit in
PRUDENTIAL’s contention that there was nothing in the
adjustment of the particular average submitted by the
adjuster that would show that TRANS-ASIA was not in
breach of the policy. Ruling on the denominated loan and
trust receipt, the court a quo said that in substance and in
form, the same is a receipt for a loan. It held that if TRANS-
ASIA intended to receive the amount of P3,000,000.00 as
advance payment, it should have so clearly stated as such.
The court a quo did not award PRUDENTIAL’s claim for
P500,000.00, representing expert survey fees on the ground
of lack of sufficient basis in support thereof. Neither did it
award attorney’s fees on the rationalization that the instant
case does not fall under the exceptions stated in Article
220811 of the Civil Code. However, the court a quo granted
PRUDENTIAL’s counterclaim stating that there is factual and
legal basis for TRANS-ASIA to return the amount of
P3,000,000.00 by way of loan without interest.
The decretal portion of the Judgment of the RTC reads:
WHEREFORE, judgment is hereby rendered DISMISSING the
complaint for its failure to prove a cause of action.
On defendant’s counterclaim, plaintiff is directed to return
the sum of P3,000,000.00 representing the loan extended to
it by the defendant, within a period of ten (10) days from and
after this judgment shall have become final and executory.12
The Ruling of the Court of Appeals
On appeal by TRANS-ASIA, the Court of Appeals, in its
assailed Decision of 6 November 2001, reversed the 6 June
2000 Judgment of the RTC.
On the issue of TRANS-ASIA’s alleged breach of warranty of
the policy condition CLASSED AND CLASS MAINTAINED, the
Court of Appeals ruled that PRUDENTIAL, as the party
asserting the non-compensability of the loss had the burden
of proof to show that TRANS-ASIA breached the warranty,
which burden it failed to discharge. PRUDENTIAL cannot
rely on the lack of certification to the effect that TRANS-ASIA
was CLASSED AND CLASS MAINTAINED as its sole basis for
reaching the conclusion that the warranty was breached. The
Court of Appeals opined that the lack of a certification does
not necessarily mean that the warranty was breached by
TRANS-ASIA. Instead, the Court of Appeals considered
PRUDENTIAL’s admission that at the time the insurance
contract was entered into between the parties, the vessel
was properly classed by Bureau Veritas, a classification
society recognized by the industry. The Court of Appeals
similarly gave weight to the fact that it was the responsibility
of Richards Hogg International (Phils.) Inc., the average
adjuster hired by PRUDENTIAL, to secure a copy of such
certification to support its conclusion that mere absence of a
certification does not warrant denial of TRANS-ASIA’s claim
under the insurance policy.
In the same token, the Court of Appeals found the subject
warranty allegedly breached by TRANS-ASIA to be a rider
which, while contained in the policy, was inserted by
PRUDENTIAL without the intervention of TRANS-ASIA. As
such, it partakes of a nature of a contract d’adhesion which
should be construed against PRUDENTIAL, the party which
drafted the contract. Likewise, according to the Court of
Appeals, PRUDENTIAL’s renewal of the insurance policy
from noon of 1 July 1994 to noon of 1 July 1995, and then
again, until noon of 1 July 1996 must be deemed a waiver by
PRUDENTIAL of any breach of warranty committed by
TRANS-ASIA.
Further, the Court of Appeals, contrary to the ruling of the
court a quo, interpreted the transaction between
PRUDENTIAL and TRANS-ASIA as one of subrogation,
instead of a loan. The Court of Appeals concluded that
TRANS-ASIA has no obligation to pay back the amount of
P3,000.000.00 to PRUDENTIAL based on its finding that the
aforesaid amount was PRUDENTIAL’s partial payment to
TRANS-ASIA’s claim under the policy. Finally, the Court of
Appeals denied TRANS-ASIA’s prayer for attorney’s fees, but
held TRANS-ASIA entitled to double interest on the policy for
the duration of the delay of payment of the unpaid balance,
citing Section 24413 of the Insurance Code.
Finding for therein appellant TRANS-ASIA, the Court of
Appeals ruled in this wise:
WHEREFORE, the foregoing consideration, We find for
Appellant. The instant appeal is ALLOWED and the Judgment
appealed from REVERSED. The P3,000,000.00 initially paid
by appellee Prudential Guarantee Assurance Incorporated to
appellant Trans-Asia and covered by a "Loan and Trust
Receipt" dated 29 May 1995 is HELD to be in partial
settlement of the loss suffered by appellant and covered by
Marine Policy No. MH93/1363 issued by appellee. Further,
appellee is hereby ORDERED to pay appellant the additional
amount of P8,395,072.26 representing the balance of the loss
suffered by the latter as recommended by the average
adjuster Richard Hogg International (Philippines) in its
Report, with double interest starting from the time Richard
Hogg’s Survey Report was completed, or on 13 August 1996,
until the same is fully paid.
All other claims and counterclaims are hereby DISMISSED.
All costs against appellee.14
Not satisfied with the judgment, PRUDENTIAL and TRANS-
ASIA filed a Motion for Reconsideration and Partial Motion
for Reconsideration thereon, respectively, which motions
were denied by the Court of Appeals in the Resolution dated
29 January 2002.
The Issues
Aggrieved, PRUDENTIAL filed before this Court a Petition for
Review, docketed as G.R. No. 151890, relying on the
following grounds, viz:
I.
THE AWARD IS GROSSLY UNCONSCIONABLE.
II.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE
WAS NO VIOLATION BY TRANS-ASIA OF A MATERIAL
WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE
INSURANCE POLICY.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT
PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING
THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL
WARRANTY.
IV.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
WARRANTY CLAUSE EMBODIED IN THE INSURANCE
POLICY CONTRACT WAS A MERE RIDER.
V.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
ALLEGED RENEWALS OF THE POLICY CONSTITUTED A
WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH
OF THE WARRANTY BY TRANS-ASIA.
VI.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
"LOAN AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS
AN ADVANCE ON THE POLICY, THUS CONSTITUTING
PARTIAL PAYMENT THEREOF.
VII.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
ACCEPTANCE BY PRUDENTIAL OF THE FINDINGS OF
RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE
PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA
OF THE WARRANTY.
VIII.
THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE
TRIAL COURT, IN FINDING THAT PRUDENTIAL
"UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN
ORDERING PRUDENTIAL TO PAY TRANS-ASIA
P8,395,072.26 PLUS DOUBLE INTEREST FROM 13 AUGUST
1996, UNTIL [THE] SAME IS FULLY PAID.15
Similarly, TRANS-ASIA, disagreeing in the ruling of the Court
of Appeals filed a Petition for Review docketed as G.R. No.
151991, raising the following grounds for the allowance of
the petition, to wit:
I.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
AWARDING ATTORNEY’S FEES TO PETITIONER TRANS-
ASIA ON THE GROUND THAT SUCH CAN ONLY BE
AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208
OF THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON
THE PART OF RESPONDENT PRUDENTIAL IN DENYING
HEREIN PETITIONER TRANS-ASIA’S INSURANCE CLAIM.
II.
THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION
DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO
MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST
OF 12%, OR INTEREST AT THE RATE OF 24% PER
ANNUM.16
In our Resolution of 2 December 2002, we granted TRANS-
ASIA’s Motion for Consolidation17 of G.R. Nos. 151890 and
151991;18 hence, the instant consolidated petitions.
In sum, for our main resolution are: (1) the liability, if any, of
PRUDENTIAL to TRANS-ASIA arising from the subject
insurance contract; (2) the liability, if any, of TRANS-ASIA to
PRUDENTIAL arising from the transaction between the
parties as evidenced by a document denominated as "Loan
and Trust Receipt," dated 29 May 1995; and (3) the amount
of interest to be imposed on the liability, if any, of either or
both parties.
Ruling of the Court
Prefatorily, it must be emphasized that in a petition for
review, only questions of law, and not questions of fact, may
be raised.19 This rule may be disregarded only when the
findings of fact of the Court of Appeals are contrary to the
findings and conclusions of the trial court, or are not
supported by the evidence on record.20 In the case at bar, we
find an incongruence between the findings of fact of the
Court of Appeals and the court a quo, thus, in our
determination of the issues, we are constrained to assess the
evidence adduced by the parties to make appropriate
findings of facts as are necessary.
I.
A. PRUDENTIAL failed to establish that TRANS-ASIA violated
and breached the policy condition on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED, as contained in the
subject insurance contract.
In resisting the claim of TRANS-ASIA, PRUDENTIAL posits
that TRANS-ASIA violated an express and material warranty
in the subject insurance contract, i.e., Marine Insurance
Policy No. MH93/1363, specifically Warranty Clause No. 5
thereof, which stipulates that the insured vessel, "M/V ASIA
KOREA" is required to be CLASSED AND CLASS
MAINTAINED. According to PRUDENTIAL, on 25 October
1993, or at the time of the occurrence of the fire, "M/V ASIA
KOREA" was in violation of the warranty as it was not
CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits
that Warranty Clause No. 5 was a condition precedent to the
recovery of TRANS-ASIA under the policy, the violation of
which entitled PRUDENTIAL to rescind the contract under
Sec. 7421 of the Insurance Code.
The warranty condition CLASSED AND CLASS MAINTAINED
was explained by PRUDENTIAL’s Senior Manager of the
Marine and Aviation Division, Lucio Fernandez. The
pertinent portions of his testimony on direct examination is
reproduced hereunder, viz:
ATTY. LIM
Q Please tell the court, Mr. Witness, the result of the
evaluation of this claim, what final action was taken?
A It was eventually determined that there was a breach of
the policy condition, and basically there is a breach of policy
warranty condition and on that basis the claim was denied.
Q To refer you (sic) the "policy warranty condition," I am
showing to you a policy here marked as Exhibits "1", "1-A"
series, please point to the warranty in the policy which you
said was breached or violated by the plaintiff which
constituted your basis for denying the claim as you testified.
A Warranted Vessel Classed and Class Maintained.
ATTY. LIM
Witness pointing, Your Honor, to that portion in Exhibit "1-
A" which is the second page of the policy below the printed
words: "Clauses, Endorsements, Special Conditions and
Warranties," below this are several typewritten clauses and
the witness pointed out in particular the clause reading:
"Warranted Vessel Classed and Class Maintained."
COURT
Q Will you explain that particular phrase?
A Yes, a warranty is a condition that has to be complied with
by the insured. When we say a class warranty, it must be
entered in the classification society.
COURT
Slowly.
WITNESS
(continued)
A A classification society is an organization which sets
certain standards for a vessel to maintain in order to
maintain their membership in the classification society. So, if
they failed to meet that standard, they are considered not
members of that class, and thus breaching the warranty, that
requires them to maintain membership or to maintain their
class on that classification society. And it is not sufficient that
the member of this classification society at the time of a loss,
their membership must be continuous for the whole length
of the policy such that during the effectivity of the policy,
their classification is suspended, and then thereafter, they
get reinstated, that again still a breach of the warranty that
they maintained their class (sic). Our maintaining team
membership in the classification society thereby maintaining
the standards of the vessel (sic).
ATTY. LIM
Q Can you mention some classification societies that you
know?
A Well we have the Bureau Veritas, American Bureau of
Shipping, D&V Local Classification Society, The Philippine
Registration of Ships Society, China Classification, NKK and
Company Classification Society, and many others, we have
among others, there are over 20 worldwide. 22
At the outset, it must be emphasized that the party which
alleges a fact as a matter of defense has the burden of
proving it. PRUDENTIAL, as the party which asserted the
claim that TRANS-ASIA breached the warranty in the policy,
has the burden of evidence to establish the same. Hence, on
the part of PRUDENTIAL lies the initiative to show proof in
support of its defense; otherwise, failing to establish the
same, it remains self-serving. Clearly, if no evidence on the
alleged breach of TRANS-ASIA of the subject warranty is
shown, a fortiori, TRANS-ASIA would be successful in
claiming on the policy. It follows that PRUDENTIAL bears the
burden of evidence to establish the fact of breach.
In our rule on evidence, TRANS-ASIA, as the plaintiff below,
necessarily has the burden of proof to show proof of loss,
and the coverage thereof, in the subject insurance policy.
However, in the course of trial in a civil case, once plaintiff
makes out a prima facie case in his favor, the duty or the
burden of evidence shifts to defendant to controvert
plaintiff’s prima facie case, otherwise, a verdict must be
returned in favor of plaintiff.23 TRANS-ASIA was able to
establish proof of loss and the coverage of the loss, i.e., 25
October 1993: Fire on Board. Thereafter, the burden of
evidence shifted to PRUDENTIAL to counter TRANS-ASIA’s
case, and to prove its special and affirmative defense that
TRANS-ASIA was in violation of the particular condition on
CLASSED AND CLASS MAINTAINED.
We sustain the findings of the Court of Appeals that
PRUDENTIAL was not successful in discharging the burden
of evidence that TRANS-ASIA breached the subject policy
condition on CLASSED AND CLASS MAINTAINED.
Foremost, PRUDENTIAL, through the Senior Manager of its
Marine and Aviation Division, Lucio Fernandez, made a
categorical admission that at the time of the procurement of
the insurance contract in July 1993, TRANS-ASIA’s vessel,
"M/V Asia Korea" was properly classed by Bureau Veritas,
thus:
Q Kindly examine the records particularly the policy, please
tell us if you know whether M/V Asia Korea was classed at
the time (sic) policy was procured perthe (sic) insurance was
procured that Exhibit "1" on 1st July 1993 (sic).
WITNESS
A I recall that they were classed.
ATTY. LIM
Q With what classification society?
A I believe with Bureau Veritas.24
As found by the Court of Appeals and as supported by the
records, Bureau Veritas is a classification society recognized
in the marine industry. As it is undisputed that TRANS-ASIA
was properly classed at the time the contract of insurance
was entered into, thus, it becomes incumbent upon
PRUDENTIAL to show evidence that the status of TRANS-
ASIA as being properly CLASSED by Bureau Veritas had
shifted in violation of the warranty. Unfortunately,
PRUDENTIAL failed to support the allegation.
We are in accord with the ruling of the Court of Appeals that
the lack of a certification in PRUDENTIAL’s records to the
effect that TRANS-ASIA’s "M/V Asia Korea" was CLASSED
AND CLASS MAINTAINED at the time of the occurrence of
the fire cannot be tantamount to the conclusion that TRANS-
ASIA in fact breached the warranty contained in the policy.
With more reason must we sustain the findings of the Court
of Appeals on the ground that as admitted by PRUDENTIAL,
it was likewise the responsibility of the average adjuster,
Richards Hogg International (Phils.), Inc., to secure a copy of
such certification, and the alleged breach of TRANS-ASIA
cannot be gleaned from the average adjuster’s survey report,
or adjustment of particular average per "M/V Asia Korea" of
the 25 October 1993 fire on board.
We are not unmindful of the clear language of Sec. 74 of the
Insurance Code which provides that, "the violation of a
material warranty, or other material provision of a policy on
the part of either party thereto, entitles the other to rescind."
It is generally accepted that "[a] warranty is a statement or
promise set forth in the policy, or by reference incorporated
therein, the untruth or non-fulfillment of which in any
respect, and without reference to whether the insurer was in
fact prejudiced by such untruth or non-fulfillment, renders
the policy voidable by the insurer."25However, it is similarly
indubitable that for the breach of a warranty to avoid a
policy, the same must be duly shown by the party alleging
the same. We cannot sustain an allegation that is unfounded.
Consequently, PRUDENTIAL, not having shown that TRANS-
ASIA breached the warranty condition, CLASSED AND CLASS
MAINTAINED, it remains that TRANS-ASIA must be allowed
to recover its rightful claims on the policy.
B. Assuming arguendo that TRANS-ASIA violated the policy
condition on WARRANTED VESSEL CLASSED AND CLASS
MAINTAINED, PRUDENTIAL made a valid waiver of the
same.
The Court of Appeals, in reversing the Judgment of the RTC
which held that TRANS-ASIA breached the warranty
provision on CLASSED AND CLASS MAINTAINED,
underscored that PRUDENTIAL can be deemed to have made
a valid waiver of TRANS-ASIA’s breach of warranty as
alleged, ratiocinating, thus:
Third, after the loss, Prudential renewed the insurance policy
of Trans-Asia for two (2) consecutive years, from noon of 01
July 1994 to noon of 01 July 1995, and then again until noon
of 01 July 1996. This renewal is deemed a waiver of any
breach of warranty.26
PRUDENTIAL finds fault with the ruling of the appellate
court when it ruled that the renewal policies are deemed a
waiver of TRANS-ASIA’s alleged breach, averring herein that
the subsequent policies, designated as MH94/1595 and
MH95/1788 show that they were issued only on 1 July 1994
and 3 July 1995, respectively, prior to the time it made a
request to TRANS-ASIA that it be furnished a copy of the
certification specifying that the insured vessel "M/V Asia
Korea" was CLASSED AND CLASS MAINTAINED.
PRUDENTIAL posits that it came to know of the breach by
TRANS-ASIA of the subject warranty clause only on 21 April
1997. On even date, PRUDENTIAL sent TRANS-ASIA a letter
of denial, advising the latter that their claim is not
compensable. In fine, PRUDENTIAL would have this Court
believe that the issuance of the renewal policies cannot be a
waiver because they were issued without knowledge of the
alleged breach of warranty committed by TRANS-ASIA.27
We are not impressed. We do not find that the Court of
Appeals was in error when it held that PRUDENTIAL, in
renewing TRANS-ASIA’s insurance policy for two
consecutive years after the loss covered by Policy No.
MH93/1363, was considered to have waived TRANS-ASIA’s
breach of the subject warranty, if any. Breach of a warranty
or of a condition renders the contract defeasible at the
option of the insurer; but if he so elects, he may waive his
privilege and power to rescind by the mere expression of an
intention so to do. In that event his liability under the policy
continues as before.28 There can be no clearer intention of
the waiver of the alleged breach than the renewal of the
policy insurance granted by PRUDENTIAL to TRANS-ASIA in
MH94/1595 and MH95/1788, issued in the years 1994 and
1995, respectively.
To our mind, the argument is made even more credulous by
PRUDENTIAL’s lack of proof to support its allegation that the
renewals of the policies were taken only after a request was
made to TRANS-ASIA to furnish them a copy of the certificate
attesting that "M/V Asia Korea" was CLASSED AND CLASS
MAINTAINED. Notwithstanding PRUDENTIAL’s claim that no
certification was issued to that effect, it renewed the policy,
thereby, evidencing an intention to waive TRANS-ASIA’s
alleged breach. Clearly, by granting the renewal policies
twice and successively after the loss, the intent was to
benefit the insured, TRANS-ASIA, as well as to waive
compliance of the warranty.
The foregoing finding renders a determination of whether
the subject warranty is a rider, moot, as raised by the
PRUDENTIAL in its assignment of errors. Whether it is a
rider will not effectively alter the result for the reasons that:
(1) PRUDENTIAL was not able to discharge the burden of
evidence to show that TRANS-ASIA committed a breach,
thereof; and (2) assuming arguendo the commission of a
breach by TRANS-ASIA, the same was shown to have been
waived by PRUDENTIAL.
II.
A. The amount of P3,000,000.00 granted by PRUDENTIAL to
TRANS- ASIA via a transaction between the parties
evidenced by a document denominated as "Loan and Trust
Receipt," dated 29 May 1995 constituted partial payment on
the policy.
It is undisputed that TRANS-ASIA received from
PRUDENTIAL the amount of P3,000,000.00. The same was
evidenced by a transaction receipt denominated as a "Loan
and Trust Receipt," dated 29 May 1995, reproduced
hereunder:
LOAN AND TRUST RECEIPT
Claim File No. MH-93-025 May 29, 1995
P3,000,000.00
Check No. PCIB066755
Received FROM PRUDENTIAL GUARANTEE AND
ASSURANCE INC., the sum of PESOS THREE MILLION ONLY
(P3,000,000.00) as a loan without interest, under Policy No.
MH93/1353, repayable only in the event and to the extent
that any net recovery is made by TRANS ASIA SHIPPING
CORP., from any person or persons, corporation or
corporations, or other parties, on account of loss by any
casualty for which they may be liable, occasioned by the 25
October 1993: Fire on Board.
As security for such repayment, we hereby pledge to
PRUDENTIAL GUARANTEE AND ASSURANCE INC. whatever
recovery we may make and deliver to it all documents
necessary to prove our interest in said property. We also
hereby agree to promptly prosecute suit against such
persons, corporation or corporations through whose
negligence the aforesaid loss was caused or who may
otherwise be responsible therefore, with all due diligence, in
our own name, but at the expense of and under the exclusive
direction and control of PRUDENTIAL GUARANTEE AND
ASSURANCE INC.
TRANS-ASIA SHIPPING CORPORATION29
PRUDENTIAL largely contends that the "Loan and Trust
Receipt" executed by the parties evidenced a loan of
P3,000,000.00 which it granted to TRANS-ASIA, and not an
advance payment on the policy or a partial payment for the
loss. It further submits that it is a customary practice for
insurance companies in this country to extend loans
gratuitously as part of good business dealing with their
assured, in order to afford their assured the chance to
continue business without embarrassment while awaiting
outcome of the settlement of their claims.30 According to
PRUDENTIAL, the "Trust and Loan Agreement" did not
subrogate to it whatever rights and/or actions TRANS-ASIA
may have against third persons, and it cannot by no means
be taken that by virtue thereof, PRUDENTIAL was granted
irrevocable power of attorney by TRANS-ASIA, as the sole
power to prosecute lies solely with the latter.
The Court of Appeals held that the real character of the
transaction between the parties as evidenced by the "Loan
and Trust Receipt" is that of an advance payment by
PRUDENTIAL of TRANS-ASIA’s claim on the insurance, thus:
The Philippine Insurance Code (PD 1460 as amended) was
derived from the old Insurance Law Act No. 2427 of the
Philippine Legislature during the American Regime. The
Insurance Act was lifted verbatim from the law of California,
except Chapter V thereof, which was taken largely from the
insurance law of New York. Therefore, ruling case law in that
jurisdiction is to Us persuasive in interpreting provisions of
our own Insurance Code. In addition, the application of the
adopted statute should correspond in fundamental points
with the application in its country of origin x x x.
Likewise, it is settled in that jurisdiction that the (sic)
notwithstanding recitals in the Loan Receipt that the money
was intended as a loan does not detract from its real
character as payment of claim, thus:
"The receipt of money by the insured employers from a
surety company for losses on account of forgery of drafts by
an employee where no provision or repayment of the money
was made except upon condition that it be recovered from
other parties and neither interest nor security for the
asserted debts was provided for, the money constituted the
payment of a liability and not a mere loan, notwithstanding
recitals in the written receipt that the money was intended
as a mere loan."
What is clear from the wordings of the so-called "Loan and
Trust Receipt Agreement" is that appellant is obligated to
hand over to appellee "whatever recovery (Trans Asia) may
make and deliver to (Prudential) all documents necessary to
prove its interest in the said property." For all intents and
purposes therefore, the money receipted is payment under
the policy, with Prudential having the right of subrogation to
whatever net recovery Trans-Asia may obtain from third
parties resulting from the fire. In the law on insurance,
subrogation is an equitable assignment to the insurer of all
remedies which the insured may have against third person
whose negligence or wrongful act caused the loss covered by
the insurance policy, which is created as the legal effect of
payment by the insurer as an assignee in equity. The loss in
the first instance is that of the insured but after
reimbursement or compensation, it becomes the loss of the
insurer. It has been referred to as the doctrine of substitution
and rests on the principle that substantial justice should be
attained regardless of form, that is, its basis is the doing of
complete, essential, and perfect justice between all the
parties without regard to form.31
We agree. Notwithstanding its designation, the tenor of the
"Loan and Trust Receipt" evidences that the real nature of
the transaction between the parties was that the amount of
P3,000,000.00 was not intended as a loan whereby TRANS-
ASIA is obligated to pay PRUDENTIAL, but rather, the same
was a partial payment or an advance on the policy of the
claims due to TRANS-ASIA.
First, the amount of P3,000,000.00 constitutes an advance
payment to TRANS-ASIA by PRUDENTIAL, subrogating the
former to the extent of "any net recovery made by TRANS
ASIA SHIPPING CORP., from any person or persons,
corporation or corporations, or other parties, on account of
loss by any casualty for which they may be liable, occasioned
by the 25 October 1993: Fire on Board."32
Second, we find that per the "Loan and Trust Receipt," even
as TRANS-ASIA agreed to "promptly prosecute suit against
such persons, corporation or corporations through whose
negligence the aforesaid loss was caused or who may
otherwise be responsible therefore, with all due diligence" in
its name, the prosecution of the claims against such third
persons are to be carried on "at the expense of and under the
exclusive direction and control of PRUDENTIAL GUARANTEE
AND ASSURANCE INC."33 The clear import of the phrase "at
the expense of and under the exclusive direction and
control" as used in the "Loan and Trust Receipt" grants solely
to PRUDENTIAL the power to prosecute, even as the same is
carried in the name of TRANS-ASIA, thereby making TRANS-
ASIA merely an agent of PRUDENTIAL, the principal, in the
prosecution of the suit against parties who may have
occasioned the loss.
Third, per the subject "Loan and Trust Receipt," the
obligation of TRANS-ASIA to repay PRUDENTIAL is highly
speculative and contingent, i.e., only in the event and to the
extent that any net recovery is made by TRANS-ASIA from
any person on account of loss occasioned by the fire of 25
October 1993. The transaction, therefore, was made to
benefit TRANS-ASIA, such that, if no recovery from third
parties is made, PRUDENTIAL cannot be repaid the amount.
Verily, we do not think that this is constitutive of a
loan.34 The liberality in the tenor of the "Loan and Trust
Receipt" in favor of TRANS-ASIA leads to the conclusion that
the amount of P3,000,000.00 was a form of an advance
payment on TRANS-ASIA’s claim on MH93/1353.
III.
A. PRUDENTIAL is directed to pay TRANS-ASIA the amount
of P8,395,072.26, representing the balance of the loss
suffered by TRANS-ASIA and covered by Marine Policy No.
MH93/1363.
Our foregoing discussion supports the conclusion that
TRANS-ASIA is entitled to the unpaid claims covered by
Marine Policy No. MH93/1363, or a total amount of
P8,395,072.26.
B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA,
damages in the form of attorney’s fees equivalent to 10% of
P8,395,072.26.
The Court of Appeals denied the grant of attorney’s fees. It
held that attorney’s fees cannot be awarded absent a
showing of bad faith on the part of PRUDENTIAL in rejecting
TRANS-ASIA’s claim, notwithstanding that the rejection was
erroneous. According to the Court of Appeals, attorney’s fees
can be awarded only in the cases enumerated in Article 2208
of the Civil Code which finds no application in the instant
case.
We disagree. Sec. 244 of the Insurance Code grants damages
consisting of attorney’s fees and other expenses incurred by
the insured after a finding by the Insurance Commissioner or
the Court, as the case may be, of an unreasonable denial or
withholding of the payment of the claims due. Moreover, the
law imposes an interest of twice the ceiling prescribed by the
Monetary Board on the amount of the claim due the insured
from the date following the time prescribed in Section
24235 or in Section 243,36 as the case may be, until the claim
is fully satisfied. Finally, Section 244 considers the failure to
pay the claims within the time prescribed in Sections 242 or
243, when applicable, as prima facie evidence of
unreasonable delay in payment.
To the mind of this Court, Section 244 does not require a
showing of bad faith in order that attorney’s fees be granted.
As earlier stated, under Section 244, a prima facie evidence
of unreasonable delay in payment of the claim is created by
failure of the insurer to pay the claim within the time fixed in
both Sections 242 and 243 of the Insurance Code. As
established in Section 244, by reason of the delay and the
consequent filing of the suit by the insured, the insurers shall
be adjudged to pay damages which shall consist of attorney’s
fees and other expenses incurred by the insured.37
Section 244 reads:
In case of any litigation for the enforcement of any policy or
contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a
finding as to whether the payment of the claim of the insured
has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to
pay damages which shall consist of attorney’s fees and other
expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest
of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following
the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the
claim is fully satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said sections shall
be considered prima facie evidence of unreasonable delay in
payment.
Sections 243 and 244 of the Insurance Code apply when the
court finds an unreasonable delay or refusal in the payment
of the insurance claims.
In the case at bar, the facts as found by the Court of Appeals,
and confirmed by the records show that there was an
unreasonable delay by PRUDENTIAL in the payment of the
unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26
October 1993, a day after the occurrence of the fire in "M/V
Asia Korea", TRANS-ASIA filed its notice of claim. On 13
August 1996, the adjuster, Richards Hogg International
(Phils.), Inc., completed its survey report recommending the
amount of P11,395,072.26 as the total indemnity due to
TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a
letter39 addressed to TRANS-ASIA denied the latter’s claim
for the amount of P8,395,072.26 representing the balance of
the total indemnity. On 21 July 1997, PRUDENTIAL sent a
second letter40 to TRANS-ASIA seeking a return of the
amount of P3,000,000.00. On 13 August 1997, TRANS-ASIA
was constrained to file a complaint for sum of money against
PRUDENTIAL praying, inter alia, for the sum of
P8,395,072.26 representing the balance of the proceeds of
the insurance claim.
As can be gleaned from the foregoing, there was an
unreasonable delay on the part of PRUDENTIAL to pay
TRANS-ASIA, as in fact, it refuted the latter’s right to the
insurance claims, from the time proof of loss was shown and
the ascertainment of the loss was made by the insurance
adjuster. Evidently, PRUDENTIAL’s unreasonable delay in
satisfying TRANS-ASIA’s unpaid claims compelled the latter
to file a suit for collection.
Succinctly, an award equivalent to ten percent (10%) of the
unpaid proceeds of the policy as attorney’s fees to TRANS-
ASIA is reasonable under the circumstances, or otherwise
stated, ten percent (10%) of P8,395,072.26. In the case of
Cathay Insurance, Co., Inc. v. Court of Appeals,41 where a
finding of an unreasonable delay under Section 244 of the
Insurance Code was made by this Court, we grant an award
of attorney’s fees equivalent to ten percent (10%) of the total
proceeds. We find no reason to deviate from this judicial
precedent in the case at bar.
C. Further, the aggregate amount (P8,395,072.26 plus 10%
thereof as attorney’s fees) shall be imposed double interest
in accordance with Section 244 of the Insurance Code.
Section 244 of the Insurance Code is categorical in imposing
an interest twice the ceiling prescribed by the Monetary
Board due the insured, from the date following the time
prescribed in Section 242 or in Section 243, as the case may
be, until the claim is fully satisfied. In the case at bar, we find
Section 243 to be applicable as what is involved herein is a
marine insurance, clearly, a policy other than life insurance.
Section 243 is hereunder reproduced:
SEC. 243. The amount of any loss or damage for which an
insurer may be liable, under any policy other than life
insurance policy, shall be paid within thirty days after proof
of loss is received by the insurer and ascertainment of the
loss or damage is made either by agreement between the
insured and the insurer or by arbitration; but if such
ascertainment is not had or made within sixty days after
such receipt by the insurer of the proof of loss, then the loss
or damage shall be paid within ninety days after such
receipt. Refusal or failure to pay the loss or damage within
the time prescribed herein will entitle the assured to collect
interest on the proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is
based on the ground that the claim is fraudulent.
As specified, the assured is entitled to interest on the
proceeds for the duration of the delay at the rate of twice the
ceiling prescribed by the Monetary Board except when the
failure or refusal of the insurer to pay was founded on the
ground that the claim is fraudulent.
D. The term "double interest" as used in the Decision of the
Court of Appeals must be interpreted to mean 24% per
annum.
PRUDENTIAL assails the award of interest, granted by the
Court of Appeals, in favor of TRANS-ASIA in the assailed
Decision of 6 November 2001. It is PRUDENTIAL’s stance
that the award is extortionate and grossly unsconscionable.
In support thereto, PRUDENTIAL makes a reference to
TRANS-ASIA’s prayer in the Complaint filed with the court a
quo wherein the latter sought, "interest double the
prevailing rate of interest of 21% per annum now obtaining
in the banking business or plus 42% per annum pursuant to
Article 243 of the Insurance Code x x x."42
The contention fails to persuade. It is settled that an award of
double interest is lawful and justified under Sections 243
and 244 of the Insurance Code.43 In Finman General
Assurance Corporation v. Court of Appeals,44 this Court held
that the payment of 24% interest per annum is authorized by
the Insurance Code.45 There is no gainsaying that the term
"double interest" as used in Sections 243 and 244 can only
be interpreted to mean twice 12% per annum or 24% per
annum interest, thus:
The term "ceiling prescribed by the Monetary Board" means
the legal rate of interest of twelve per centum per annum
(12%) as prescribed by the Monetary Board in C.B. Circular
No. 416, pursuant to P.D. No. 116, amending the Usury Law;
so that when Sections 242, 243 and 244 of the Insurance
Code provide that the insurer shall be liable to pay interest
"twice the ceiling prescribed by the Monetary Board", it
means twice 12% per annum or 24% per annum interest on
the proceeds of the insurance.46
E. The payment of double interest should be counted from 13
September 1996.
The Court of Appeals, in imposing double interest for the
duration of the delay of the payment of the unpaid balance
due TRANS-ASIA, computed the same from 13 August 1996
until such time when the amount is fully paid. Although not
raised by the parties, we find the computation of the
duration of the delay made by the appellate court to be
patently erroneous.
To be sure, Section 243 imposes interest on the proceeds of
the policy for the duration of the delay at the rate of twice
the ceiling prescribed by the Monetary Board. Significantly,
Section 243 mandates the payment of any loss or damage for
which an insurer may be liable, under any policy other than
life insurance policy, within thirty days after proof of loss is
received by the insurer and ascertainment of the loss or
damage is made either by agreement between the insured
and the insurer or by arbitration. It is clear that under
Section 243, the insurer has until the 30th day after proof of
loss and ascertainment of the loss or damage to pay its
liability under the insurance, and only after such time can the
insurer be held to be in delay, thereby necessitating the
imposition of double interest.
In the case at bar, it was not disputed that the survey report
on the ascertainment of the loss was completed by the
adjuster, Richard Hoggs International (Phils.), Inc. on 13
August 1996. PRUDENTIAL had thirty days from 13 August
1996 within which to pay its liability to TRANS-ASIA under
the insurance policy, or until 13 September 1996. Therefore,
the double interest can begin to run from 13 September
1996 only.
IV.
A. An interest of 12% per annum is similarly imposed on the
TOTAL amount of liability adjudged in section III herein,
computed from the time of finality of judgment until the full
satisfaction thereof in conformity with this Court’s ruling in
Eastern Shipping Lines, Inc. v. Court of Appeals.
This Court in Eastern Shipping Lines, Inc. v. Court of
Appeals,47 inscribed the rule of thumb48 in the application of
interest to be imposed on obligations, regardless of their
source. Eastern emphasized beyond cavil that when the
judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, regardless of
whether the obligation involves a loan or forbearance of
money, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance49 of credit.
We find application of the rule in the case at bar proper, thus,
a rate of 12% per annum from the finality of judgment until
the full satisfaction thereof must be imposed on the total
amount of liability adjudged to PRUDENTIAL. It is clear that
the interim period from the finality of judgment until the
satisfaction of the same is deemed equivalent to a
forbearance of credit, hence, the imposition of the aforesaid
interest.

Fallo

WHEREFORE, the Petition in G.R. No. 151890 is DENIED.

However, the Petition in G.R. No. 151991 is GRANTED, thus,
we award the grant of attorney’s fees and make a
clarification that the term "double interest" as used in the 6
November 2001 Decision of the Court of Appeals in CA GR CV
No. 68278 should be construed to mean interest at the rate
of 24% per annum, with a further clarification, that the same
should be computed from 13 September 1996 until fully
paid. The Decision and Resolution of the Court of Appeals, in
CA-G.R. CV No. 68278, dated 6 November 2001 and 29
January 2002, respectively, are, thus, MODIFIED in the
following manner, to wit:

1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the

amount of P8,395,072.26, representing the balance of the
loss suffered by TRANS-ASIA and covered by Marine Policy
No. MH93/1363;

2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA

damages in the form of attorney’s fees equivalent to 10% of
the amount of P8,395,072.26;

3. The aggregate amount (P8,395,072.26 plus 10% thereof as

attorney’s fees) shall be imposed double interest at the rate
of 24% per annum to be computed from 13 September 1996
until fully paid; and

4. An interest of 12% per annum is similarly imposed on the

TOTAL amount of liability adjudged as abovestated in
paragraphs (1), (2), and (3) herein, computed from the time
of finality of judgment until the full satisfaction thereof.

No costs.

SO ORDERED.