Gulf Resorts vs.

PCIC

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). In Policy No. 31944 issued by defendant, the shock endorsement
provided that “In consideration of the payment by the insured to the company of the sum included additional premium the
Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this
insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or through or in
consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-C" the word "included"
above the underlined portion was deleted. 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 therein

Ruling:
A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend earthquake
shock coverage only to the two swimming pools. 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. Thus, 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.

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 payable 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. This is
consistent with the history of petitioner’s previous insurance policies from AHAC-AIU.

The Court also rejects petitioner’s contention that respondent’s contemporaneous and subsequent acts to the issuance of
the insurance policy falsely gave the petitioner assurance that the coverage of the earthquake shock endorsement included
all its properties in the resort. Respondent only insured the properties as intended by the petitioner.