White Gold v Pioneer G.R. No. 154514.

July 28, 2005

J. Quisimbing

Facts:
White Gold procured a protection and indemnity coverage for its vessels from The Steamship
Mutual through Pioneer Insurance and Surety Corporation. White Gold was issued a Certificate
of Entry and Acceptance. Pioneer also issued receipts. When White Gold failed to fully pay its
accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to
recover the unpaid balance. White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual and Pioneer violated provisions of the
Insurance Code.
The Insurance Commission dismissed the complaint. It said that there was no need for
Steamship Mutual to secure a license because it was not engaged in the insurance business and
that it was a P & I club. Pioneer was not required to obtain another license as insurance agent
because Steamship Mutual was not engaged in the insurance business.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the
appellate court distinguished between P & I Clubs vis-à-vis conventional insurance. The
appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual.
Hence this petition by White Gold.

Issues:
1. Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines?
2. Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

Held: Yes. Petition granted.

Ratio:
White Gold insists that Steamship Mutual as a P & I Club is engaged in the insurance
business. To buttress its assertion, it cites the definition as “an association composed of
shipowners in general who band together for the specific purpose of providing insurance cover
on a mutual basis against liabilities incidental to shipowning that the members incur in favor of
third parties.”
They argued that Steamship Mutual’s primary purpose is to solicit and provide protection and
indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as its
agent.
Respondents contended that although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel owners who have
come together to provide mutual protection against liabilities incidental to shipowning.
Is Steamship Mutual engaged in the insurance business?
A P & I Club is “a form of insurance against third party liability, where the third party is anyone
other than the P & I Club and the members.” By definition then, Steamship Mutual as a P & I
Club is a mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 187 of the Insurance Code. It maintains a resident
agent in the Philippines to solicit insurance and to collect payments in its behalf. Steamship
Mutual even renewed its P & I Club cover until it was cancelled due to non-payment of the
calls. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer,
must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus,
no insurer or insurance company is allowed to engage in the insurance business without a license
or a certificate of authority from the Insurance Commission.
2. Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration issued by the Insurance Commission. It has been licensed to do or transact insurance
business by virtue of the certificate of authority issued by the same agency. However, a
Certification from the Commission states that Pioneer does not have a separate license to be an
agent/broker of Steamship Mutual.
Although Pioneer is already licensed as an insurance company, it needs a separate license to act
as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 No person shall act as an insurance agent or as an insurance broker in the solicitation
or procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner…

464 SCRA 448 – Insurance Code – Protection and Indemnity Club – Mutual Insurance Company
– Certificate of Authority

White Gold Marine Services, Inc. owns several shipping vessels. Steamship Mutual
Underwriting Association, Ltd. (based in Bermuda) is a protection and indemnity club which is
an association composed of shipowners in general who band together for the specific purpose of
providing insurance cover on a mutual basis against liabilities incidental to shipowning that the
members incur in favor of third parties. White Gold, through Pioneer Insurance (agent of
Steamship Mutual here), procured a protection and indemnity coverage from Steamship Mutual.
Steamship Mutual does not have authority from the Insurance Commission to conduct insurance
business in the Philippines but its collection agent here (Pioneer Insurance) has been licensed to
conduct insurance business.

Later, Steamship Mutual filed a case for collection of sum of money against White Gold due to
the latter’s failure to pay its balance with the former. White Gold averred that Steamship Mutual
has no license [hence it cannot collect]. Nor can it collect through Pioneer Insurance because,
though Pioneer Insurance is licensed as an insurance company, it is not licensed to be an
insurance broker/agent. Steamship Mutual insisted it is not conducting insurance business here
and is merely a protection and indemnity club. The Insurance Commission as well as the Court
of Appeals ruled against White Gold.

ISSUE: Whether or not Steamship Mutual needs a license to operate in the Philippines.

HELD: Yes. The test to determine if a contract is an insurance contract or not, depends on the
nature of the promise, the act required to be performed, and the exact nature of the agreement in
the light of the occurrence, contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called. If it is a contract of indemnity, it must be a contract of
insurance. In fact, a protection and indemnity club is a form of insurance where the members are
both the insurers and the insured. It is a mutual insurance company. The club indemnifies the
member for whatever risks it may incur against a third party where the third party is other than
the club and the members. Hence, Steamship Mutual needs to procure a license from the
Insurance Commission in order to continue operating here.

Pioneer Insurance also needs to secure another license as an insurance broker/agent of Steamship
Mutual pursuant to Section 299 of the Insurance Code.

Insurance Case Digest: White Gold Marine Services, Inc. v. Pioneer

Insurance Surety Corp. (2005)
G.R.No. 154514 July 28, 2005
Lessons Applicable: Mutual Insurance Companies (Insurance)

FACTS: (White Gold > Pioneer > Steamship Mutual)

 White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual Underwriting
Association (Bermuda) Limited (Steamship Mutual) through Pioneer
Insurance and Surety Corporation (Pioneer)
 When White Gold failed to fully pay its accounts, Steamship Mutual refused
to renew the coverage
 Steamship Mutual thereafter filed a case against White Gold for collection of
sum of money to recover the latter’s unpaid balance
o White Gold filed a complaint before the Insurance Commission
 Steamship Mutual violated Sections 186[4] and 187[5] of the
Insurance Code
 Pioneer violated Sections 299,[6] 300[7] and 301[8] in
relation to Sections 302 and 303, thereof
 Insurance Commission: dismissed the complaint
o no need for Steamship Mutual to secure a license because it was
a Protection and Indemnity Club (P & I Club) (NOT engaged in the
insurance business)
o Pioneer need not obtain another license as insurance agent and/or a
broker for Steamship Mutual because Steamship Mutual was not
engaged in the insurance business
 Moreover, Pioneer was already licensed
 CA: affirmed Insurance Commission

ISSUE:
1. W/N Steamship Mutual, a P & I Club, is engaged in the insurance business in the
Philippines - YES.
2. W/N Pioneer as resident agent of Steamship Mutual is required to obtain a
license as an insurance agent/broker - YES

HELD: petition is PARTIALLY GRANTED. CA affirmed. the revocation of Pioneer’s

Certificate of Authority and removal of its directors and officers, is DENIED

1. YES

Insurance Code
Sec. 2(2)
(2) The term "doing an insurance business" or "transacting an insurance
business", within the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;

(c) doing any kind of business, including a reinsurance business,

specifically recognized as constituting the doing of an insurance business
within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of

the foregoing in a manner designed to evade the provisions of this Code.

In the application of the provisions of this Code the fact that no profit is
derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received
therefor, shall not be deemed conclusive to show that the making thereof
does not constitute the doing or transacting of an insurance business.

 The test to determine if a contract is an insurance contract or not, depends

on the nature of the promise, the act required to be performed, and the
exact nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite
  a marine insurance undertakes to indemnify the assured against marine
losses, such as the losses incident to a marine adventure
 a mutual insurance company is a cooperative enterprise where the members
are both the insurer and insured
o the members all contribute, by a system of premiums or assessments,
to the creation of a fund from which all losses and liabilities are paid,
and where the profits are divided among themselves, in proportion to
their interest
o provide 3 types of coverage:
 protection and indemnity
 war risks
 defense costs
 P & I Club
o a form of insurance against third party liability, where the third party
is anyone other than the P & I Club and the members
 Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business
 Since a contract of insurance involves public interest, regulation by the State
is necessary. Thus, no insurer or insurance company is allowed to engage in
the insurance business without a license or a certificate of authority from the
Insurance Commission

2. YES.

 Although Pioneer is already licensed as an insurance company, it needs a

separate license to act as insurance agent for Steamship Mutual.

Insurance Code
Sec. 299

Sec. 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay
any commission or other compensation to any person for services in obtaining insurance, unless such
person shall have first procured from the Commissioner a license to act as an insurance agent of such
company or as an insurance broker as hereinafter provided.

No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement
of applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines, or any agent thereof,
without first procuring a license to act from the Commissioner, which must be renewed annually on
the first day of January, or within six months thereafter. Such license shall be issued by the
Commissioner only upon the written application of the person desiring it, such application if for a
license to act as insurance agent, being approved and countersigned by the company such person
desires to represent, and shall be upon a form prescribed by the Commissioner giving such
information as he may require, and upon payment of the corresponding fee hereinafter prescribed.
The Commissioner shall satisfy himself as to competence and trustworthiness of the applicant and
 shall have the right to refuse to issue or renew and to suspend or revoke any such license in his
discretion. No such license shall be valid after the thirtieth day of June of the year following its
issuance unless it is renewed.

nsurance Case Digest: Verendia v CA G.R. No. 75605 January 22, 1993
G.R. No. 75605 January 22, 1993

Lessons Applicable: Exception to Ambiguous Provisions Interpreted Against Insurer

(Insurance)

FACTS:

 Rafael (Rex) Verendia's residential building was insured with Fidelity and
Surety Insurance Company, Country Bankers Insurance and Development
Insurance with Monte de Piedad & Savings Bank as beneficiary
 December 28, 1980 early morning: the building was completely destroyed by
fire
 Fidelity refused the claim stating that there was a misrepresentation since
the lessee was not Roberto Garcia but Marcelo Garcia
 trial court: favored Fidelity
 CA: reversed

ISSUE: W/N there was false declaration which would forfeit his benefits under
Section 13 of the policy

HELD: YES.

 Section 13 thereof which is expressed in terms that are clear and

unambiguous, that all benefits under the policy shall be forfeited "If the claim
be in any respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devises are used by the
Insured or anyone acting in his behalf to obtain any benefit under the policy"
 Robert Garcia then executed an affidavit before the National Intelligence and
Security Authority (NISA) to the effect that he was not the lessee of
Verendia's house and that his signature on the contract of lease was a
complete forgery.
 Worse yet, by presenting a false lease contract, Verendia, reprehensibly
disregarded the principle that insurance contracts are uberrimae fidae and
demand the most abundant good faith
Rizal Surety v CA G.R. No. 112360. July 18, 2000

J. Purisima

Facts:

Rizal Surety issued a 1 million peso fire insurance policy with Transworld. This was increased to 1.5
million. A four span building was part of the policy. A fire broke out and gutted the building, together
with a two storey building behind it were gaming machines were stored. The company filed its claims
but to no avail. Hence, it brought a suit in court. It aimed to make Rizal pay for almost 3 million including
legal interest and damages. Rizal claimed that the policy only covered damage on the four span building
and not the two storey building. The trial court ruled in Transworld’s favor and ordered Rizal to pay
actual damages only. The court of appeals increased the damages. The insurance company filed a MFR.
The CA answered by modifying the imposition of interest. Not satisfied, the insurance company
petitioned to the Supreme Court.

Issue:

WON Rizal Surety is liable for loss of the two-storey building considering that the fire insurance policy
sued upon covered only the contents of the four-span building.

Held: Yes. Petition dismissed.

Ratio:

The policy had clauses on the building coverage that read:

"contained and/or stored during the currency of this Policy in the premises occupied by them forming
part of the buildings situated within own Compound"

"First, said properties must be contained and/or stored in the areas occupied by Transworld and second,
said areas must form part of the building described in the policy xxx"

This generally means that the policy didn’t limit its coverage to what was stored in the four-span
building.

As to questions of fact, both the trial court and the Court of Appeals found that the so called "annex "
was not an annex building but an integral part of the four-span building described in the policy and
consequently, the machines and spare parts stored were covered by the fire insurance.

A report said: "Two-storey building constructed of partly timber and partly concrete hollow blocks under
g.i. roof which is adjoining and intercommunicating with the repair of the first right span of the lofty
storey building and thence by property fence wall."
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity"

Landicho v GSIS- the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain are to
be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured’

The issue of whether or not Transworld has an insurable interest in the fun and amusement machines
and spare parts, which entitles it to be indemnified for the loss thereof, had been settled in another SC
case.

Insurance Case Digest: Fortune Insurance and Surety Co., Inc. v. CA

(1995)
G.R. No. 115278 May 23, 1995

Lessons Applicable: Stipulations Cannot Be Segregated (Insurance)

FACTS:

 Producers Bank of the Philippines insured with Fortune Insurance and Surety
Co. P725,000 which was lost during a robbery of Producer's armored
vehicle while it was in transit from Pasay City City to its Makati head office.
 The armored car was driven by Benjamin Magalong Y de Vera, escorted by
Security Guard Saturnino Atiga Y Rosete.
 After an investigation conducted by the Pasay police authorities, the driver
Magalong and guard Atiga were charged, together with Edelmer Bantigue Y
Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-
Highway Robbery Law)
 Upon claiming, Fortune refused stating that it is not liable since under the
general exceptions of the policy:
o any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or in
conjunction with others. . . .
 RTC: favored Producers Bank since Driver and Security Guard were merely
assigned
 CA: Affirmed RTC

ISSUE: W/N the driver and security guard are employees under the general
exception

HELD: YES. Petition is granted.

  It is clear to us that insofar as Fortune is concerned, it was its intention to
exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then the
term "employee," it must have had in mind any person who qualifies as such
as generally and universally understood, or jurisprudentially established in
the light of the four standards in the determination of the employer-
employee relationship, 21 or as statutorily declared even in a limited sense
as in the case of Article 106 of the Labor Code which considers the
employees under a "labor-only" contract as employees of the party
employing them and not of the party who supplied them to the employer
 Producers entrusted the three with the specific duty to safely transfer the
money to its head office, with Alampay to be responsible for its custody in
transit; Magalong to drive the armored vehicle which would carry the money;
and Atiga to provide the needed security for the money, the vehicle, and his
two other companions.
 A "representative" is defined as one who represents or stands in the place of
another; one who represents others or another in a special capacity, as an
agent, and is interchangeable with "agent."

Fortune v CA G.R. No. 115278 May 23, 1995

J. Davide Jr.

Facts:

Producers Bank’s money was stolen while it was being transported from Pasay to Makati. The people
guarding the money were charged with the theft. The bank filed a claim for the amount of Php 725,000,
and such was refused by the insurance corporation due to the stipulation:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in report of

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of the Insured whether acting alone or in
conjunction with others. . . .

In the trial court, the bank claimed that the suspects were not any of the above mentioned. They won
the case. The appellate court affirmed on the basis that the bank had no power to hire or dismiss the
guard and could only ask for replacements from the security agency.
Issue: Did the guards fall under the general exceptions clause of the insurance policy and thus absolved
the insurance company from liability?

Held: Yes to both. Petition granted.

Ratio:

The insurance agency contended that the guards automatically became the authorized representatives
of the bank when they cited International Timber Corp. vs. NLRC where a contractor is a "labor-only"
contractor in the sense that there is an employer-employee relationship between the owner of the
project and the employees of the "labor-only" contractor.

They cited Art. 106. Of the Labor Code which said:

Contractor or subcontractor. — There is "labor-only" contracting where the person supplying workers
to an employer does not have substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and placed by such persons are
performing activities which are directly related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were directly employed by
him.

The bank asserted that the guards were not its employees since it had nothing to do with their selection
and engagement, the payment of their wages, their dismissal, and the control of their conduct.

They cited a case where an employee-employer relationship was governed by (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power
to control the employee's conduct.

The case was governed by Article 174 of the Insurance Code where it stated that casualty insurance
awarded an amount to loss cause by accident or mishap.

“The term "employee," should be read as a person who qualifies as such as generally and universally
understood, or jurisprudentially established in the light of the four standards in the determination of the
employer-employee relationship, or as statutorily declared even in a limited sense as in the case of
Article 106 of the Labor Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied them to the employer.”

But even if the contracts were not labor-only, the bank entrusted the suspects with the duty to safely
transfer the money to its head office, thus, they were representatives. According to the court, “a
‘representative’ is defined as one who represents or stands in the place of another; one who represents
others or another in a special capacity, as an agent, and is interchangeable with ‘agent.’”
PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS and JULITA TRINOS
G.R. No. 125678 | March 18, 2002

Facts:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage
with petitioner Philamcare Health Systems, Inc.
The application was approved for a period of one year from March 1, 1988 to March 1, 1989 and
extended until June 1, 1990. The amount of coverage was increased to a maximum sum of
P75,000.00 per disability.
During the period of his coverage, Ernani suffered a heart attack and was confined for one month.
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. Thus, respondent paid the hospitalization expenses herself, amounting to about
P76,000.00.
After her husband was discharged from the MMC, he was later admitted at the Chinese General
Hospital. In the morning of April 13, 1990, Ernani had fever and was feeling very weak; he died
on the same day.
Respondent instituted with the Regional Trial Court (RTC) an action for damages against
petitioner. The RTC ruled against petitioner, which was affirmed by the Court of Appeals.
Petitioner filed a petition for review arguing 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.

Issue:
Whether or not a health care agreement is not an insurance contract.

Ruling:
A health care agreement is an insurance contract.
Under Section 2 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.
Further, Section 10 of the Insurance Code provides that every person has an insurable interest in
the life and health of himself.
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.
GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION,
respondent. 458 SCRA 550 (2005)

Facts:
Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its properties
in said resort insured originally with the American Home Assurance Company (AHAC). In the first
4 policies issued, the risks of loss from earthquake shock was extended only to petitioner’s two
swimming pools. Gulf Resorts agreed to insure with Phil Charter the properties covered by the
AHAC policy provided that the policy wording and rates in said policy be copied in the policy to
be issued by Phil Charter. Phil Charter issued Policy No. 31944 to Gulf Resorts covering the
period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92.
the break-down of premiums shows that Gulf Resorts paid only P393.00 as premium against
earthquake shock (ES). On July 16, 1990 an earthquake struck Central Luzon and Northern
Luzon and plaintiff’s properties covered by Policy No. 31944 issued by defendant, including the
two swimming pools in its Agoo Playa Resort were damaged.
Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944
for damages on its properties. Respondent denied petitioner’s claim on the ground that its
insurance policy only afforded earthquake shock coverage to the two swimming pools of the
resort. The trial court ruled in favor of respondent. In its ruling, the schedule clearly shows that
petitioner paid only a premium of P393.00 against the peril of earthquake shock, the same
premium it had paid against earthquake shock only on the two swimming pools in all the policies
issued by AHAC.

Issue:
Whether or not the policy covers only the two swimming pools owned by Gulf Resorts and does
not extend to all properties damaged.

RULLING:
YES, it only covers the 2 swimming pools. In sum, there is no ambiguity in the terms of the contract
and its riders. From the inception of the policy, petitioner had required the respondent to copy
verbatim the provisions and terms of its latest insurance policy from AHAC-AIU. All the provisions
and riders taken and interpreted together, indubitably show the intention of the parties to extend
earthquake shock coverage to the two swimming pools only. An insurance premium is the
consideration paid an insurer for undertaking to indemnify the insured against a specified peril. In
fire, casualty and marine insurance, the premium becomes a debt as soon as the risk attaches.
In the subject policy, no premium payments were made with regard to earthquake shock coverage
except on the two swimming pools. There is no mention of any premium payable for the other
resort properties with regard to earthquake shock.

MANILA MAHOGANY MFG CORP V CA & ZENITH INSURANCE

FACTS:
Manila Mahogany insured its Mercedes Benz with respondent insurance company. One day, the
vehicle was bumped and damaged by a truck owned by San Miguel Corp (SMC).

Zenith paid P5K to petitioner in amicable settlement. Petitioner’s general manager executed a
Release Claim, subrogating respondent company to all its right to action against SMC.
Later respondent wrote Insurance Adjusters Inc. to demand reimbursement from SMC. Insurance
Adjusters refused saying that SMC had already paid petitioner P4,500 for the damages to
petitioner’s vehicle, as evidenced by a cash voucher and Release of Claim executed by the GM
of petitioner discharging SMC from “all actions, claims, demands the rights of action that now exist
or hereafter develop arising out of or as a consequence of the accident.
Respondent demanded the P4.5K amount from petitioner. Petitioner refused. Suit filed for
recovery.
City Court ordered petitioner to pay respondent. CFI affirmed. CA affirmed with modification that
petitioner was to pay respondent the total amount of 5K it had received from respondent.
Petitioner’s argument: Since the total damages were valued at P9,486.43 and only 5K was
received by petitioner from respondent, petitioner argues that it was entitled to go after SMC to
claim the additional which was eventually paid to it.
Respondent’s argument: No qualification to its right of subrogation.

ISSUE:
1.WON petitioner should pay respondent despite the subrogation in the Release of Claim was
conditioned on recovery of the total amount of damages petitioner has sustained.

RULING:
1. NO. SC said no other evidence to support its allegation that a gentleman’s agreement existed
between the parties, not embodied in the Release of Claim, such Release of Claim must be taken
as the best evidence of the intent and purpose of the parties.
CA correct in holding petitioner should reimburse respondent 5K.

When Manila Mahogany executed another release claim discharging SMC from all rights of action
after the insurer had paid the proceeds of the policy – the compromise agreement of 5K- the
insurer is entitled to recover from the insured the amount of insurance money paid.
Petitioner by its own acts released SMC, thereby defeating respondent’s right of subrogation, the
right of action against the insurer was also nullified.
Since the insurer can be subrogated to only such rights as the insured may have, should the
insured, after receiving payment from the insurer, release the wrongdoer who caused the loss,
the insurer losses his rights against the latter. But in such a case, the insurer will be entitled to
recover from the insured whatever it has paid to the latter, unless the release was made w/ the
consent of the insurer.

Federal Express Corporation vs. American Home Assurance Company and PHILAM Insurance
Company

FACTS:
On January 26, 1994, SMITHKLINE Beecham of Nebraska, USA delivered to Burlington Air
Express (AGENT OF FEDREAL EXPRESS) a shipment of 109 cartons of veterinary biologicals
for delivery to consignee SMITHKLINE and French Overseas Company in Makati City, Metro
Manila.
The shipment was covered by Burlington Airway Bill No. 11263825 with the words,
‘REFRIGERATE WHEN NOT IN TRANSIT’ and ‘PERISHABLE’ stamp marked on its face. That
same day, Burlington insured the cargoes in the amount of $39,339.00 with AHAC.
The following day, Burlington turned over the custody of said cargoes to Federal Express which
transported the same to Manila. The first shipment, consisting of 92 cartons arrived in Manila on
January 29, 1994 and was immediately stored at Cargohaus Inc.’s warehouse.
While the second, consisting of 17 cartons, came in two (2) days later, or on January 31,
1994,which was likewise immediately stored at Cargohaus’ warehouse.
12 days later, the Customs Broker who was assigned by Smithkline of Makati to facilitate the
withdrawal of the Cargoes, did not proceed with such withdrawal for He found out that the Cartons
containing the vaccines were not properly stored as ordered. For this reason, the vaccines were
examined, only to find out that they were damaged and unusable. Consequently Smithkline of
Makati abandoned the shipment.
Smithkline of Makati filed a claim with PHILAM, the representative of AHAC in the Philippines. By
virtue of its right of subrogation, AHAC proceeded against FEDERAL EXPRESS.
Federal Express declined the claim of AHAC contending that the latter had no cause of action
against the former. Moreover, Federal Express contended that no notice of claim was filed, hence,
not complying with the condition precedent, AHAC was precluded from asserting its claim against
it.

ISSUES:
1.Whether or not AHAC has legal personality to sue, thus, no cause of action against Federal
Express?
2.Whether or not AHAC complied with the necessary condition precedent in order to file claims
against Federal Express?

RULING:
First Issue:
Federal Express argued that payment was erroneous for the proper payment should have been
made to Burlington as agent of Federal Express, and as payee of the bill.
Held, Smithkline of Makatin has the personality to claim for the damages because the Certificate
of Insurance is payable to the bearer thereof. Upon payment by AHAC to Smithkline, the latter
executed a subrogation receipt. Hence, AHAC and PHILAM have personality to file claims.

Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods,
the insurer’s entitlement to subrogation pro tanto — being of the highest equity — equips it with
a cause of action in case of a contractual breach or negligence. Further, the insurer’s subrogatory
right to sue for recovery under the bill of lading in case of loss of or damage to the cargo is
jurisprudentially upheld.”
Second Issue:
Under the Warsaw Convention, Notice of Claim is a condition precedent to the accrual of a Right
of Action against a carrier for loss or damage to the goods. Being a condition precedent, it must
precede a suit for enforcement. In the instant case, AHAC never complied such requirement.
Thus, it cannot file claims against Federal Express.