PREMIUM

1. UCPB General Insurance Co. Inc v. Masagana Telemart, Inc.

356 SCRA 307

DAVIDE, JR., C.J.:

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision [1] of the Court of
Appeals, which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum
of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Respondents properties;
(b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c)
ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-
replacement policies.The modification consisted in the (1) deletion of the trial courts declaration that three of the policies
were in force from August 1991 to August 1992; and (2) reduction of the award of the attorneys fees from 25% to 10% of
the total amount due the Respondent.
The material operative facts upon which the appealed judgment was based are summarized by the Court of Appeals
in its assailed decision as follows:

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies (Exhibits "A" to "E",
Record, pp. 158-175) on its properties [in Pasay City and Manila].

All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992."
On June 13, 1992, plaintiff's properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by
fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's Checks in the total
amount of P225,753.45 as renewal premium payments for which Official Receipt Direct Premium No. 62926 (Exhibit "Q",
Record, p. 191) was issued by defendant. On July 14, 1992, Masagana made its formal demand for indemnification for
the burned insured properties. On the same day, defendant returned the five (5) manager's checks stating in its letter
(Exhibit "R"/"8", Record, p. 192) that it was rejecting Masagana's claim on the following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and
c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or before
tender of premium payment."
(Record, p. 5)

Hence Masagana filed this case.

The Court of Appeals disagreed with Petitioners stand that Respondents tender of payment of the premiums on 13
July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided
under Policy Condition No. 26, which states:

26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period mails or
delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to condition its
renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the policy upon
payment of the premium due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent, which had procured
insurance coverage from Petitioner for a number of years, had been granted a 60 to 90-day credit term for the renewal of
the policies. Such a practice had existed up to the time the claims were filed. Thus:

Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was
paid more than 90 days later on August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No.
34660 for Insurance Risk Coverage from May 22, 1990 to May 22, 1991 was issued by UCPB on May 4, 1990 but
premium was collected by UCPB only on July 13, 1990 or more than 60 days later under O.R. No. 46487 (Exhs. "V" and
"V-1"). And so were as other policies: Fire Insurance Policy No. 34657 covering risks from May 22, 1990 to May 22, 1991
was issued on May 7, 1990 but premium therefor was paid only on July 19, 1990 under O.R. No. 46583 (Exhs. "W" and
"W-1"). Fire Insurance Policy No. 34661 covering risks from May 22, 1990 to May 22, 1991 was issued on May 3, 1990
but premium was paid only on July 19, 1990 under O.R. No. 46582 (Exhs. "X' and "X-1"). Fire Insurance Policy No. 34688
for insurance coverage from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid only on
July 19, 1990 under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No. 29126 to cover insurance risks from
May 22, 1989 to May 22, 1990 was issued on May 22, 1989 but premium therefor was collected only on July 25, 1990[sic]
under O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance Policy No. HO/F-26408 covering risks from January 12,
1989 to January 12, 1990 was issued to Intratrade Phils. (Masagana's sister company) dated December 10, 1988 but
premium therefor was paid only on February 15, 1989 under O.R. No. 38075 (Exhs. "BB" and "BB-1"). Fire Insurance
Policy No. 29128 was issued on May 22, 1989 but premium was paid only on July 25, 1989 under O.R. No. 40800 for
insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was
issued on May 22, 1989 but premium was paid only on July 17, 1989 under O.R. No. 40682 for insurance risk coverage
from May 22, 1989 to May 22, 1990 (Exhs. "DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June
15, 1989 but premium was paid only on February 13, 1990 under O.R. No. 39233 for insurance coverage from May 22,
1989 to May 22, 1990 (Exhs. "EE" and "EE-1"). Fire Insurance Policy No. 26303 was issued on November 22, 1988 but
premium therefor was collected only on March 15, 1989 under O.R. NO. 38573 for insurance risks coverage from
December 15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1").

Moreover, according to the Court of Appeals the following circumstances constitute preponderant proof that no timely
notice of non-renewal was made by Petitioner:

(1) Defendant-appellant received the confirmation (Exhibit 11, Record, p. 350) from Ultramar Reinsurance Brokers
that plaintiffs reinsurance facility had been confirmed up to 67.5% only on April 15, 1992 as indicated on Exhibit
11. Apparently, the notice of non-renewal (Exhibit 7, Record, p. 320) was sent not earlier than said date, or within 45
days from the expiry dates of the policies as provided under Policy Condition No. 26; (2) Defendant insurer
unconditionally accepted, and issued an official receipt for, the premium payment on July 1[3], 1992 which indicates
defendant's willingness to assume the risk despite only a 67.5% reinsurance cover[age]; and (3) Defendant insurer
appointed Esteban Adjusters and Valuers to investigate plaintiffs claim as shown by the letter dated July 17, 1992
(Exhibit 11, Record, p. 254).

In our decision of 15 June 1999, we defined the main issue to be whether the fire insurance policies issued by
petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or renewed by an
implied credit arrangement though actual payment of premium was tendered on a later date and after the occurrence of
the (fire) risk insured against. We resolved this issue in the negative in view of Section 77 of the Insurance Code and our
decisions in Valenzuela v. Court of Appeals[2]; South Sea Surety and Insurance Co., Inc. v. Court of Appeals [3]; and Tibay
v. Court of Appeals.[4] Accordingly, we reversed and set aside the decision of the Court of Appeals.
Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the motion that we
had made in the decision our own findings of facts, which are not in accord with those of the trial court and the Court of
Appeals. The courts below correctly found that no notice of non-renewal was made within 45 days before 22 May 1992, or
before the expiration date of the fire insurance policies. Thus, the policies in question were renewed by operation of law
and were effective and valid on 30 June 1992 when the fire occurred, since the premiums were paid within the 60- to 90-
day credit term.
Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly on the extension
of credit or time to pay the premium nor consider a policy binding before actual payment. It urges the Court to take judicial
notice of the fact that despite the express provision of Section 77 of the Insurance Code, extension of credit terms in
premium payment has been the prevalent practice in the insurance industry. Most insurance companies, including
Petitioner, extend credit terms because Section 77 of the Insurance Code is not a prohibitive injunction but is merely
designed for the protection of the parties to an insurance contract. The Code itself, in Section 78, authorizes the validity of
a policy notwithstanding non-payment of premiums.
Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77
Petitioner persuaded and induced Respondent to believe that payment of premium on the 60- to 90-day credit term was
perfectly alright; in fact it accepted payments within 60 to 90 days after the due dates. By extending credit and habitually
accepting payments 60 to 90 days from the effective dates of the policies, it has implicitly agreed to modify the tenor of the
insurance policy and in effect waived the provision therein that it would pay only for the loss or damage in case the same
occurred after payment of the premium.
Petitioner filed an opposition to the Respondents motion for reconsideration. It argues that both the trial court and the
Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-
renewal and sent by personal delivery a copy thereof to Respondents broker, Zuellig. Both courts likewise ignored the fact
that Respondent was fully aware of the notice of non-renewal. A reading of Section 66 of the Insurance Code readily
shows that in order for an insured to be entitled to a renewal of a non-life policy, payment of the premium due on the
effective date of renewal should first be made. Respondents argument that Section 77 is not a prohibitive provision finds
no authoritative support.
Upon a meticulous review of the records and reevaluation of the issues raised in the motion for reconsideration and
the pleadings filed thereafter by the parties, we resolved to grant the motion for reconsideration. The following facts, as
found by the trial court and the Court of Appeals, are indeed duly established:
1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually
renewed.
2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on the
renewed policies.
3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice
sent by ordinary mail was received by Respondent, and the copy thereof allegedly sent to Zuellig was ever
transmitted to Respondent.
4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by Respondent
within the 60- to 90-day credit term and were duly accepted and received by Petitioners cashier.
The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance Code of 1978 (P.D. No.
1460) must be strictly applied to Petitioners advantage despite its practice of granting a 60- to 90-day credit term for the
payment of premiums.
Section 77 of the Insurance Code of 1978 provides:

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies.

This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18 December
1974. In turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act as amended
by R.A. No. 3540, approved on 21 June 1963, which read:

SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril insured
against, unless there is clear agreement to grant the insured credit extension of the premium due. No policy issued by an
insurance company is valid and binding unless and until the premium thereof has been paid. (Underscoring supplied)

It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement
to extend the period to pay the premium. But are there exceptions to Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the
grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:

SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until
premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,[5] wherein we
ruled that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial
payment has been made at the time of loss. We said therein, thus:

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that
the petitioners and private respondent intended subject insurance policies to be binding and effective notwithstanding the
staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in
1984. In those three years, the insurer accepted all the installment payments. Such acceptance of payments speaks
loudly of the insurers intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness
would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later
deny liability on the lame excuse that the premiums were not prepaid in full.
 Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of Appeals in its
Resolution denying the motion for reconsideration of its decision:

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the
contract, We are not prepared to rule that the request to make installment payments duly approved by the insurer would
prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or
first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by
making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to
make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon,
The Insurance Code, p. 175). So is an understanding to allow insured to pay premiums in installments not so
prescribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily
accepted.

By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a fourth
exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply
means that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the
expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within
the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term
within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public
policy. The agreement binds the parties. Article 1306 of the Civil Code provides:

ART. 1306. The contracting parties may establish such stipulations clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be permitted against
Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full
awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Respondent relied in good faith on
such practice. Estoppel then is the fifth exception to Section 77.
WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a new one is
hereby entered DENYING the instant petition for failure of Petitioner to sufficiently show that a reversible error was
committed by the Court of Appeals in its challenged decision, which is hereby AFFIRMED in toto.
No pronouncement as to cost.
SO ORDERED.

2. Tibay v. Court of Appeals

257 SCRA 126

BELLOSILLO, J.:

May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?
On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE) issued
Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential
building located at 5855 Zobel Street, Makati City, together with all their personal effects therein. The insurance was for
P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the total premium of
P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a considerable balance unpaid.
On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March 1987 Violeta
Tibay paid the balance of the premium. On the same day, she filed with FORTUNE a claim on the fire insurance
policy. Her claim was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately
wrote Violeta requesting her to furnish it with the necessary documents for the investigation and processing of her
claim. Petitioner forthwith complied. On 28 March 1987 she signed a non-waiver agreement with GASI to the effect
that any action taken by the companies or their representatives in investigating the claim made by the claimant for his loss
which occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of the amount of
actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies held by said
claimant, nor the rights of either or any of the parties to this agreement, and such action shall not be, or be claimed to be,
an admission of liability on the part of said companies or any of them. [1]
In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of
Sec. 77 of the Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March
1988 Violeta and the other petitioners sued FORTUNE for damages in the amount of P600,000.00 representing the total
coverage of the fire insurance policy plus 12% interest per annum, P 100,000.00 moral damages, and attorneys fees
equivalent to 20% of the total claim.
On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value of the insured
building and personal properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the
filing of the complaint until full payment, and attorneys fees equivalent to 20% of the total amount claimed plus costs of
suit.[2]
On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable to plaintiff-
appellees therein but ordering defendant-appellant to return to the former the premium of P2,983.50 plus 12% interest
from 10 March 1987 until full payment.[3]
Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the appellate court,
FORTUNE remains liable under the subject fire insurance policy inspite of the failure of petitioners to pay their premium in
full.
We find no merit in the petition; hence, we affirm the Court of Appeals.

Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event.[4] The consideration is the premium, which must be paid at the time and in
the way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms.[5]

The pertinent provisions in the Policy on premium read

THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company in accordance with Policy
Condition No. 2 of the total premiums by the insured as stipulated above for the period aforementioned for insuring
against Loss or Damage by Fire or Lightning as herein appears, the Property herein described x x x

2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has been
fully paid to and duly receipted by the Company in the manner provided herein.

Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company official, shall be
deemed invalid and of no effect.

xxx xxx xxx

Except only in those specific cases where corresponding rules and regulations which are or may hereafter be in force
provide for the payment of the stipulated premiums in periodic installments at fixed percentage, it is hereby declared,
agreed and warranted that this policy shall be deemed effective, valid and binding upon the Company only when the
premiums therefor have actually been paid in full and duly acknowledged in a receipt signed by any authorized official or
representative/agent of the Company in such manner as provided herein, (Italics supplied). [6]

Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only been partially
paid and the balance paid only after the peril insured against has occurred, the insurance contract did not take effect and
the insured cannot collect at all on the policy. This is fully supported by Sec. 77 of the Insurance Code which provides

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies (Italics supplied).

Apparently the crux of the controversy lies in the phrase unless and until the premium thereof has been paid. This
leads us to the manner of payment envisioned by the law to make the insurance policy operative and binding. For
whatever judicial construction may be accorded the disputed phrase must ultimately yield to the clear mandate of the
law. The principle that where the law does not distinguish the court should neither distinguish assumes that the legislature
made no qualification on the use of a general word or expression. In Escosura v. San Miguel Brewery, inc.,[7] the Court
through Mr. Justice Jesus G. Barrera, interpreting the phrase with pay used in connection with leaves of absence with pay
granted to employees, ruled -

x x x the legislative practice seems to be that when the intention is to distinguish between full and partial payment, the
modifying term is used x x x

Citing C. A. No. 647 governing maternity leaves of married women in government, R. A. No. 679 regulating employment
of women and children, R.A. No. 843 granting vacation and sick leaves to judges of municipal courts and justices of the
peace, and finally, Art. 1695 of the New Civil Code providing that every househelp shall be allowed four (4) days vacation
each month, which laws simply stated with pay, the Court concluded that it was undisputed that in all these laws the
phrase with pay used without any qualifying adjective meant that the employee was entitled to full compensation during
his leave of absence.
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of the premium
due and the express stipulation thereof to the contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and
Insurance Co., Inc. v. Woodworks, Inc.[8] where the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the
trial court that partial payment of the premium made the policy effective during the whole period of the policy. In that case,
the insurance company commenced action against the insured for the unpaid balance on a fire insurance policy. In its
defense the insured claimed that nonpayment of premium produced the cancellation of the insurance contract. Ruling
otherwise the Court held

It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and delivered to appellant,
and that on September 22 of the same year, the latter paid to the former the sum of P3,000.00 on account of the total
premium of P6,051.95 due thereon. There is, consequently, no doubt at all that, as between the insurer and the insured,
there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed
premium was concerned. Thereafter the obligation of the insurer to pay the insured the amount, for which the policy was
issued in case the conditions therefor had been complied with, arose and became binding upon it, while the obligation of
the insured to pay the remainder of the total amount of the premium due became demandable.

The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is
different. In Phoenix it was the insurance company that sued for the balance of the premium, i.e., it recognized and
admitted the existence of an insurance contract with the insured. In the case before us, there is, quite unlike in Phoenix, a
specific stipulation that (t)his policy xxx is not in force until the premium has been fully paid and duly receipted by the
Company x x x. Resultantly, it is correct to say that in Phoenix a contract was perfected upon partial payment of the
premium since the parties had not otherwise stipulated that prepayment of the premium in full was a condition precedent
to the existence of a contract.

In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without
any other precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue
with the existing contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific performance
from the insured. This is not so here. By express agreement of the parties, no vinculum juris or bond of law was to be
established until full payment was effected prior to the occurrence of the risk insured against.

In Makati Tuscany Condominium Corp. v. Court of Appeals [9] the parties mutually agreed that the premiums could be
paid in installments, which in fact they did for three (3) years, hence, this Court refused to invalidate the insurance polic y.
In giving effect to the policy, the Court quoted with approval the Court of Appeals

The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire premium. Here, the
parties x x x agreed to make the premiums payable in installments, and there is no pretense that the parties never
envisioned to make the insurance contract binding between them. It was renewed for two succeeding years, the second
and third policies being a renewal/replacement for the previous one. And the insured never informed the insurer that it
was terminating the policy because the terms were unacceptable.

While it maybe true that under Section 77 of the Insurance Code, the parties may not agree to make the insurance
contract valid and binding without payment of premiums, there is nothing in said section which suggests that the parties
may not agree to allow payment of the premiums in installment, or to consider the contract as valid and binding upon
payment of the first premium. Otherwise we would allow the insurer to renege on its liability under the contract, had a loss
incurred (sic) before completion of payment of the entire premium, despite its voluntary acceptance of partial payments, a
result eschewed by basic considerations of fairness and equity x x x.
 These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or implied, of
prepayment in full by the insurer: impliedly, by suing for the balance of the premium as inPhoenix, and expressly, by
agreeing to make premiums payable in installments as in Tuscany. But contrary to the stance taken by petitioners, there is
no waiver express or implied in the case at bench. Precisely, the insurer and the insured expressly stipulated that (t)his
policy including any renewal thereof and/or any indorsement thereon is not in force until the premium has been fully paid
to and duly receipted by the Company x x x and that this policy shall be deemed effective, valid and binding upon the
Company only when the premiums therefor have actually been paid in full and duly acknowledged.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance
Code the payment of partial premium by the assured in this particular instance should not be considered the payment
required by the law and the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust
by the insurer until such time that the full amount has been tendered and duly receipted for. In other words, as expressly
agreed upon in the contract, full payment must be made before the risk occurs for the policy to be considered effective
and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from
the fractional payment of premium. The insurance contract itself expressly provided that the policy would be effective only
when the premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had
absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted
to adhere thereto.
Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of
the parties as expressed in the policy.[10] Courts have no other function but to enforce the same. The rule that contracts of
insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have
the effect of making a plain agreement ambiguous and then construe it in favor of the insured. [11] Verily, it is elemental law
that the payment of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner
prescribed in the policy as intended by the parties the policy is ineffective. Partial payment even when accepted as a
partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the
whole payment.[12]
Applying further the rules of statutory construction, the position maintained by petitioners becomes even more
untenable. The case of South Sea Surety and Insurance Company, Inc. v. Court of Appeals, [13] speaks only of two (2)
statutory exceptions to the requirement of payment of the entire premium as a prerequisite to the validity of the insurance
contract. These exceptions are: (a) in case the insurance coverage relates to life or industrial life (health) insurance when
a grace period applies, and (b) when the insurer makes a written acknowledgment of the receipt of premium, this
acknowledgment being declared by law to, be then conclusive evidence of the premium payment. [14]
A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others. Exceptio
firm at regulim in casibus non exceptis. The express mention of exceptions operates to exclude other exceptions;
conversely, those which are not within the enumerated exceptions are deemed included in the general rule. Thus, under
Sec. 77, as well as Sec. 78, until the premium is paid, and the law has not expressly excepted partial payments, there is
no valid and binding contract. Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured
cannot collect on the proceeds of the policy.
In the desire to safeguard the interest of the assured, itmust not be ignored that the contract of insurance is primarily
a risk-distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums
to an insurer. From these contributory funds are paid whatever losses occur due to exposure to the peril insured
against. Each party therefore takes a risk: the insurer, that of being compelled upon the happening of the contingency to
pay the entire sum agreed upon, and the insured, that of parting with the amount required as premium, without receiving
anything therefor in case the contingency does not happen. To ensure payment for these losses, the law mandates all
insurance companies to maintain a legal reserve fund in favor of those claiming under their policies. [15] It should be
understood that the integrity of this fund cannot be secured and maintained if by judicial fiat partial offerings of premiums
were to be construed as a legal nexus between the applicant and the insurer despite an express agreement to the
contrary. For what could prevent the insurance applicant from deliberately or wilfully holding back full premium payment
and wait for the risk insured against to transpire and then conveniently pass on the balance of the premium to be
deducted from the proceeds of the insurance? Worse, what if the insured makes an initial payment of only 10%, or even
1%, of the required premium, and when the risk occurs simply points to the proceeds from where to source the
balance? Can an insurance company then exist and survive upon the payment of 1%, or even 10%, of the premium
stipulated in the policy on the basis that, after all, the insurer can deduct from the proceeds of the insurance should the
risk insured against occur?
Interpreting the contract of insurance stringently against the insurer but liberally in favor of the insured despite clearly
defined obligations of the parties to the policy can be carried out to extremes that there is the danger that we may, so to
speak, kill the goose that lays the golden egg. We are well aware of insurance companies falling into the despicable habit
of collecting premiums promptly yet resorting to all kinds of excuses to deny or delay payment of just insurance
claims. But, in this case, the law is manifestly on the side of the insurer. For as long as the current Insurance
Code remains unchanged and partial payment of premiums is not mentioned at all as among the exceptions provided in
Secs. 77 and 78, no policy of insurance can ever pretend to be efficacious or effective until premium has been fully paid.
And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law
the insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need
for its prompt payment and full satisfaction.[16] It must be emphasized here that all actuarial calculations and various
tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt
payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at
favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate
the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to
be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle that the
strength of the vinculumjuris is not measured by any specific amount of premium payment, we will surely wreak havoc on
the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution
of risks and benefits between the insurer and the insured.
The terms of the insurance policy constitute the measure of the insurers liability. In the absence of statutory
prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose
whatever conditions they deem best upon their obligations not inconsistent with public policy. [17] The validity of these
limitations is by law passed upon by the Insurance Commissioner who is empowered to approve all forms of policies,
certificates or contracts of insurance which insurers intend to issue or deliver. That the policy contract in the case at bench
was approved and allowed issuance simply reaffirms the validity of such policy, particularly the provision in question.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24 March 1995 is
AFFIRMED.
SO ORDERED.

3. Makati Tuscany Condominium Corp v. Court of Appeals

215 SCRA 462

BELLOSILLO, J.:

This case involves a purely legal question: whether payment by installment of the premiums due on an insurance policy
invalidates the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance Code, as
amended, which provides:

Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or
an industrial life policy whenever the grace period provision applies.

Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by American
International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building and premises, for a period beginning 1 March
1982 and ending 1 March 1983, with a total premium of P466,103.05. The premium was paid on installments on 12 March
1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted by private respondent.

On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP-9210596, which replaced and
renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984. The premium in the amount of
P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21
November 1983. All payments were likewise accepted by private respondent.

On 20 January 1984, the policy was again renewed and private respondent issued to petitioner Insurance Policy No. AH-
CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this renewed policy, petitioner made two installment
payments, both accepted by private respondent, the first on 6 February 1984 for P52,000.00 and the second, on 6 June
1984 for P100,000.00. Thereafter, petitioner refused to pay the balance of the premium.

Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy No.
AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP-9210651. It explained
that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor and the
receipts for the installment payments covering the policy for 1984-85, as well as the two (2) previous policies, stated the
following reservations:

2. Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under the
policy arising before such payments or after the expiration of the credit clause of the policy; and

3. Subject to no loss prior to premium payment. If there be any loss such is not covered.

Petitioner further claimed that the policy was never binding and valid, and no risk attached to the policy. It then pleaded a
counterclaim for P152,000.00 for the premiums already paid for 1984-85, and in its answer with amended counterclaim,
sought the refund of P924,206.10 representing the premium payments for 1982-85.

After some incidents, petitioner and private respondent moved for summary judgment.

On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the following findings:

While it is true that the receipts issued to the defendant contained the aforementioned reservations, it is equally
true that payment of the premiums of the three aforementioned policies (being sought to be refunded) were made
during the lifetime or term of said policies, hence, it could not be said, inspite of the reservations, that no risk
attached under the policies. Consequently, defendant's counterclaim for refund is not justified.

As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of the reservation in the
receipts ordinarily issued by the plaintiff on premium payments the only plausible conclusion is that plaintiff has no
right to demand their payment after the lapse of the term of said policy on March 1, 1985. Therefore, the
defendant was justified in refusing to pay the same. 1

Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a
decision 2modifying that of the trial court by ordering herein petitioner to pay the balance of the premiums due on Policy
No. AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and affirming the denial of the counterclaim. The
appellate court thus explained —

The obligation to pay premiums when due is ordinarily as indivisible obligation to pay the entire premium. Here,
the parties herein agreed to make the premiums payable in installments, and there is no pretense that the parties
never envisioned to make the insurance contract binding between them. It was renewed for two succeeding
years, the second and third policies being a renewal/replacement for the previous one. And the insured never
informed the insurer that it was terminating the policy because the terms were unacceptable.

While it may be true that under Section 77 of the Insurance Code, the parties may not agree to make the
insurance contract valid and binding without payment of premiums, there is nothing in said section which
suggests that the parties may not agree to allow payment of the premiums in installment, or to consider the
contract as valid and binding upon payment of the first premium. Otherwise, we would allow the insurer to renege
on its liability under the contract, had a loss incurred (sic) before completion of payment of the entire premium,
despite its voluntary acceptance of partial payments, a result eschewed by a basic considerations of fairness and
equity.

To our mind, the insurance contract became valid and binding upon payment of the first premium, and the plaintiff
could not have denied liability on the ground that payment was not made in full, for the reason that it agreed to
accept installment payment. . . . 3

Petitioner now asserts that its payment by installment of the premiums for the insurance policies for 1982, 1983 and 1984
invalidated said policies because of the provisions of Sec. 77 of the Insurance Code, as amended, and by the conditions
stipulated by the insurer in its receipts, disclaiming liability for loss for occurring before payment of premiums.

It argues that where the premiums is not actually paid in full, the policy would only be effective if there is an
acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the Insurance Code. The absence of an
express acknowledgment in the policies of such receipt of the corresponding premium payments, and petitioner's failure to
pay said premiums on or before the effective dates of said policies rendered them invalid. Petitioner thus concludes that
there cannot be a perfected contract of insurance upon mere partial payment of the premiums because under Sec. 77 of
the Insurance Code, no contract of insurance is valid and binding unless the premium thereof has been paid,
notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a refund of all premium payments
made on the alleged invalid insurance policies.

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that
petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding the
staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in
1984. In those three (3) years, the insurer accepted all the installment payments. Such acceptance of payments speaks
loudly of the insurer's intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness
would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later
deny liability on the lame excuse that the premiums were not prepared in full.

We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and conclusion of the
appellate court contained in its Resolution denying the motion to reconsider its Decision —

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of
the contract, We are not prepared to rule that the request to make installment payments duly approved by the
insurer, would prevent the entire contract of insurance from going into effect despite payment and acceptance of
the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of
the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually
unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not
paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy (De Leon, the Insurance Code, at p. 175). So is an
understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have voluntarily accepted. 4

The reliance by petitioner on Arce vs. Capital Surety and Insurance

Co. 5 is unavailing because the facts therein are substantially different from those in the case at bar. In Arce, no payment
was made by the insured at all despite the grace period given. In the case before Us, petitioner paid the initial installment
and thereafter made staggered payments resulting in full payment of the 1982 and 1983 insurance policies. For the 1984
policy, petitioner paid two (2) installments although it refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid,
effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the
expiration of the whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by
the appellate court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the
premiums paid if the insurer was exposed to the risk insured for any period, however brief or momentary.

WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED. Costs against
petitioner.

SO ORDERED.

4. American Home Assurance Company v. Chua

209 SCRA 250

SYNOPSIS
On April 6, 1990, Moonlight Enterprises, respondents business establishment, was razed by fire. Respondent then
filed an insurance claim with petitioner and four other co-insurers. Petitioner refused to honor the claim, thus prompting
respondent to file an action. In its defense, petitioner claimed that there was no existing insurance contract when the fire
occurred since respondent did not pay the premium. It alleged that even assuming there was a contract, respondent
violated several conditions of the policy. The trial court ruled in favor of respondent. This was affirmed in toto by the
Court of Appeals. Its motion for reconsideration having been denied, petitioner filed this petition.
Petitioner accepted the check and issued an official receipt for the payment. Its agent acknowledged receipt of
payment. An acknowledgement of the receipt of premium is conclusive evidence of its payment, so far as to make the
policy binding.
 It cannot be said that petitioner was deceived by respondent by the latters non-disclosure of the other insurance
contracts when petitioner actually had prior knowledge thereof.
However, loss of profit cannot be shouldered by petitioner whose obligation is limited to the object of insurance,
which was the stock-in-trade and not the expected loss in income or profit. The awards of moral and exemplary damages
were also deleted. Moral damages may be awarded in breaches of contracts where the defendant acted in bad faith. The
Court found no such fraud or bad faith. Exemplary damages may be awarded if the defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner. Nothing thereof can be attributed to petitioner. The award of
attorneys fees was reduced to a reasonable level.

SYLLABUS
1. MERCANTILE LAW; INSURANCE; POLICY NOT VALID AND BINDING UNLESS PREMIUM IS PAID. - The
general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding.
The only exceptions are life and industrial life insurance. Whether payment was indeed made is a question of
fact which is best determined by the trial court.
2. MERCANTILE LAW; INSURANCE; OTHER INSURANCE CLAUSE; COMPANY ESTOPPED FROM
ASSAILING VIOLATION THEREOF WHERE ITS AGENT KNEW OF OTHER INSURANCE SECURED; CASE
AT BAR. - Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers,
non-disclosure thereof is a violation that entitles the insurer to avoid the policy. This condition is common in fire
insurance policies and is known as the other insurance clause. The purpose for the inclusion of this clause is to
prevent an increase in the moral hazard. We have ruled on its validity and the case of Geagonia v. Court of
Appeals clearly illustrates such principle. However, we see an exception in the instant case. To constitute a
violation the other existing insurance contracts must be upon the same subject matter and with the same interest
and risk. Indeed, respondent acquired several co-insurers and he failed to disclose this information to petitioner.
Nonetheless, petitioner is estopped from invoking this argument. The trial court cited the testimony of petitioner's
loss adjuster who admitted previous knowledge of the co-insurers. Indubitably, it cannot be said that petitioner
was deceived by respondent by the latter's non-disclosure of the other insurance contracts when petitioner
actually had prior knowledge thereof. Petitioner's loss adjuster had known all along of the other existing
insurance contracts, yet, he did not use that as basis for his recommendation of denial. The loss adjuster, being
an employee of petitioner, is deemed a representative of the latter whose awareness of the other insurance
contracts binds petitioner. We, therefore, hold that there was no violation of the other insurance clause by
respondent.

DAVIDE, JR. C.J.:

In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner seeks the
reversal of the decision[1] of the Court of Appeals in CA-G.R. CV No. 40751, which affirmed in toto the decision of the
Regional Trial Court, Makati City, Branch 150 (hereafter trial court), in Civil Case No. 91-1009.
Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990, respondent obtained
from petitioner a fire insurance covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia,
Bukidnon. The insurance was due to expire on 25 March 1990.
On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to petitioners agent,
James Uy, as payment for the renewal of the policy. In turn, the latter delivered Renewal Certificate No. 00099047 to
respondent. The check was drawn against a Manila bank and deposited in petitioners bank account in Cagayan de Oro
City. The corresponding official receipt was issued on 10 April. Subsequently, a new insurance policy, Policy No. 206-
4234498-7, was issued, whereby petitioner undertook to indemnify respondent for any damage or loss arising from fire up
to P200,000 for the period 25 March 1990 to 25 March 1991.
On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was estimated between P4,000,000
and P5,000,000. Respondent filed an insurance claim with petitioner and four other co-insurers, namely, Pioneer
Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and
Domestic Insurance Company of the Philippines. Petitioner refused to honor the claim notwithstanding several demands
by respondent, thus, the latter filed an action against petitioner before the trial court.
In its defense, petitioner claimed there was no existing insurance contract when the fire occurred since respondent
did not pay the premium. It also alleged that even assuming there was a contract, respondent violated several conditions
of the policy, particularly: (1) his submission of fraudulent income tax return and financial statements; (2) his failure to
establish the actual loss, which petitioner assessed at P70,000; and (3) his failure to notify to petitioner of any insurance
already effected to cover the insured goods. These violations, petitioner insisted, justified the denial of the claim.
The trial court ruled in favor of respondent. It found that respondent paid by way of check a day before the fire
occurred. The check, which was deposited in petitioners bank account, was even acknowledged in the renewal certificate
issued by petitioners agent. It declared that the alleged fraudulent documents were limited to the disparity between the
official receipts issued by the Bureau of Internal Revenue (BIR) and the income tax returns for the years 1987 to 1989. All
the other documents were found to be genuine. Nonetheless, it gave credence to the BIR certification that respondent
paid the corresponding taxes due for the questioned years.
As to respondents failure to notify petitioner of the other insurance contracts covering the same goods, the trial court
held that petitioner failed to show that such omission was intentional and fraudulent.Finally, it noted that petitioners
investigation of respondent's claim was done in collaboration with the representatives of other insurance companies who
found no irregularity therein. In fact, Pioneer Insurance and Surety Corporation and Prudential Guarantee and Assurance,
Inc. promptly paid the claims filed by respondent.
The trial court decreed as follows:

WHEREFORE, judgment is hereby rendered in favor of [respondent] and against the [petitioner] ordering the latter to pay
the former the following:

1. P200,000.00, representing the amount of the insurance, plus legal interest from the date of filing of this case;
2. P200,000.00 as moral damages;
3. P200,000.00 as loss of profit;
4. P100,000.00 as exemplary damages;
5. P50,000.00 as attorneys fees; and
6. Cost of suit.
On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The Court of Appeals found that
respondents claim was substantially proved and petitioners unjustified refusal to pay the claim entitled respondent to the
award of damages.
Its motion for reconsideration of the judgment having been denied, petitioner filed the petition in this case. Petitioner
reiterates its stand that there was no existing insurance contract between the parties. It invokes Section 77 of the
Insurance Code, which provides:

An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been paid, except in the case of life or an industrial
life policy whenever the grace period provision applies.

and cites the case of Arce v. Capital Insurance & Surety Co., Inc.,[2] where we ruled that unless and until the premium is
paid there is no insurance.
Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract was not yet subsisting
pursuant to Article 1249[3] of the Civil Code, which recognizes that a check can only effect payment once it has been
cashed. Although respondent testified that he gave the check on 5 April to a certain James Uy, the check, drawn against a
Manila bank and deposited in a Cagayan de Oro City bank, could not have been cleared by 6 April, the date of the fire. In
fact, the official receipt issued for respondents check payment was dated 10 April 1990, four days after the fire occurred.
Citing jurisprudence,[4] petitioner also contends that respondents non-disclosure of the other insurance contracts
rendered the policy void. It underscores the trial courts neglect in considering the Commission on Audits certification that
the BIR receipts submitted by respondent were, in effect, fake since they were issued to other persons. Finally, petitioner
argues that the award of damages was excessive and unreasonable considering that it did not act in bad faith in denying
respondents claim.
Respondent counters that the issue of non-payment of premium is a question of fact which can no longer be
assailed. The trial courts finding on the matter, which was affirmed by the Court of Appeals, is conclusive.
Respondent refutes the reason for petitioners denial of his claim. As found by the trial court, petitioners loss adjuster
admitted prior knowledge of respondents existing insurance contracts with the other insurance companies. Nonetheless,
the loss adjuster recommended the denial of the claim, not because of the said contracts, but because he was suspicious
of the authenticity of certain documents which respondent submitted in filing his claim.
To bolster his argument, respondent cites Section 66 of the Insurance Code, [5] which requires the insurer to give a
notice to the insured of its intention to terminate the policy forty-five days before the policy period ends. In the instant
case, petitioner opted not to terminate the policy. Instead, it renewed the policy by sending its agent to respondent, who
was issued a renewal certificate upon delivery of his check payment for the renewal of premium. At this precise moment
the contract of insurance was executed and already in effect. Respondent also claims that it is standard operating
procedure in the provinces to pay insurance premiums by check when collected by insurance agents.
On the issue of damages, respondent maintains that the amounts awarded were reasonable. He cites numerous trips
he had to make from Cagayan de Oro City to Manila to follow up his rightful claim. He imputes bad faith on petitioner who
made enforcement of his claim difficult in the hope that he would eventually abandon it. He further emphasizes that the
adjusters of the other insurance companies recommended payment of his claim, and they complied therewith.
In its reply, petitioner alleges that the petition questions the conclusions of law made by the trial court and the Court
of Appeals.
Petitioner invokes respondents admission that his check for the renewal of the policy was received only on 10 April
1990, taking into account that the policy period was 25 March 1990 to 25 March 1991.The official receipt was dated 10
April 1990. Anent respondents testimony that the check was given to petitioners agent, a certain James Uy, the latter
points out that even respondent was not sure if Uy was indeed its agent. It faults respondent for not producing Uy as his
witness and not taking any receipt from him upon presentment of the check. Even assuming that the check was received
a day before the occurrence of the fire, there still could not have been any payment until the check was cleared.
Moreover, petitioner denies respondents allegation that it intended a renewal of the contract for the renewal
certificate clearly specified the following conditions:

Subject to the payment by the assured of the amount due prior to renewal date, the policy shall be renewed for the period
stated.

Any payment tendered other than in cash is received subject to actual cash collection.

Subject to no loss prior to premium payment. If there be any loss, and is not covered [sic].

Petitioner asserts that an insurance contract can only be enforced upon the payment of the premium, which should have
been made before the renewal period.
Finally, in assailing the excessive damages awarded to respondent petitioner stresses that the policy in issue was
limited to a liability of P200,000; but the trial court granted the following monetary awards: P200,000 as actual
damages; P200,000 as moral damages; P100,000 as exemplary damages; and P50,000 as attorneys fees.
The following issues must be resolved: first, whether there was a valid payment of premium, considering that
respondents check was cashed after the occurrence of the fire; second, whether respondent violated the policy by his
submission of fraudulent documents and non-disclosure of the other existing insurance contracts; and finally, whether
respondent is entitled to the award of damages.
The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and
binding. The only exceptions are life and industrial life insurance.[6] Whether payment was indeed made is a question of
fact which is best determined by the trial court. The trial court found, as affirmed by the Court of Appeals, that there was a
valid check payment by respondent to petitioner. Well-settled is the rule that the factual findings and conclusions of the
trial court and the Court of Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the
absence of any clear showing that the trial court overlooked certain facts or circumstances which would substantially
affect the disposition of the case.[7] We see no reason to depart from this ruling.
According to the trial court the renewal certificate issued to respondent contained the acknowledgment that premium
had been paid. It is not disputed that the check drawn by respondent in favor of petitioner and delivered to its agent was
honored when presented and petitioner forthwith issued its official receipt to respondent on 10 April 1990. Section 306 of
the Insurance Code provides that any insurance company which delivers a policy or contract of insurance to an insurance
agent or insurance broker shall be deemed to have authorized such agent or broker to receive on its behalf payment of
any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes
due thereon.[8] In the instant case, the best evidence of such authority is the fact that petitioner accepted the check and
issued the official receipt for the payment. It is, as well, bound by its agents acknowledgment of receipt of payment.
Section 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment,
so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is
actually paid.

This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77.[9]
Is respondent guilty of the policy violations imputed against him? We are not convinced by petitioners
arguments. The submission of the alleged fraudulent documents pertained to respondents income tax returns for 1987 to
1989. Respondent, however, presented a BIR certification that he had paid the proper taxes for the said years. The trial
court and the Court of Appeals gave credence to the certification and it being a question of fact, we hold that said finding
is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure
thereof is a violation that entitles the insurer to avoid the policy. This condition is common in fire insurance policies and is
known as the other insurance clause. The purpose for the inclusion of this clause is to prevent an increase in the moral
hazard. We have ruled on its validity and the case of Geagonia v. Court of Appeals[10] clearly illustrates such
principle. However, we see an exception in the instant case.
Citing Section 29[11] of the Insurance Code, the trial court reasoned that respondents failure to disclose was not
intentional and fraudulent. The application of Section 29 is misplaced. Section 29 concerns concealment which is
intentional. The relevant provision is Section 75, which provides that:

A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial
provision does not avoid the policy.

To constitute a violation the other existing insurance contracts must be upon the same subject matter and with the
same interest and risk.[12] Indeed, respondent acquired several co-insurers and he failed to disclose this information to
petitioner. Nonetheless, petitioner is estopped from invoking this argument. The trial court cited the testimony of
petitioners loss adjuster who admitted previous knowledge of the co-insurers. Thus,

COURT:

Q The matter of additional insurance of other companies, was that ever discussed in your investigation?

A Yes, sir.

Q In other words, from the start, you were aware the insured was insured with other companies like Pioneer and so on?

A Yes, Your Honor.

Q But in your report you never recommended the denial of the claim simply because of the non-disclosure of other
insurance? [sic]

A Yes, Your Honor.

Q In other words, to be emphatic about this, the only reason you recommended the denial of the claim, you found three
documents to be spurious. That is your only basis?

A Yes, Your Honor.[13] [Emphasis supplied]

Indubitably, it cannot be said that petitioner was deceived by respondent by the latters non-disclosure of the other
insurance contracts when petitioner actually had prior knowledge thereof. Petitioners loss adjuster had known all along of
the other existing insurance contracts, yet, he did not use that as basis for his recommendation of denial. The loss
adjuster, being an employee of petitioner, is deemed a representative of the latter whose awareness of the other
insurance contracts binds petitioner. We, therefore, hold that there was no violation of the other insurance clause by
respondent.
Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals were correct in awarding
P200,000 for this. There is, however, merit in petitioners grievance against the damages and attorneys fees awarded.
 There is no legal and factual basis for the award of P200,000 for loss of profit. It cannot be denied that the fire totally
gutted respondents business; thus, respondent no longer had any business to operate.His loss of profit cannot be
shouldered by petitioner whose obligation is limited to the object of insurance, which was the stock-in-trade, and not the
expected loss in income or profit.
Neither can we approve the award of moral and exemplary damages. At the core of this case is petitioners alleged
breach of its obligation under a contract of insurance. Under Article 2220 of the Civil Code, moral damages may be
awarded in breaches of contracts where the defendant acted fraudulently or in bad faith. We find no such fraud or bad
faith. It must again be stressed that moral damages are emphatically not intended to enrich a plaintiff at the expense of
the defendant. Such damages are awarded only to enable the injured party to obtain means, diversion or amusements
that will serve to obviate the moral suffering he has undergone, by reason of the defendants culpable action. Its award is
aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and it must be proportional to the
suffering inflicted.[14] When awarded, moral damages must not be palpably and scandalously excessive as to indicate that
it was the result of passion, prejudice or corruption on the part of the trial court judge.[15]
The law[16] is likewise clear that in contracts and quasi-contracts the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.Nothing thereof can be attributed to
petitioner which merely tried to resist what it claimed to be an unfounded claim for enforcement of the fire insurance
policy.
As to attorneys fees, the general rule is that attorneys fees cannot be recovered as part of damages because of the
policy that no premium should be placed on the right to litigate.[17] In short, the grant of attorneys fees as part of damages
is the exception rather than the rule; counsels fees are not awarded every time a party prevails in a suit. It can be
awarded only in the cases enumerated in Article 2208 of the Civil Code, and in all cases it must be
reasonable.[18] Thereunder, the trial court may award attorneys fees where it deems just and equitable that it be so
granted. While we respect the trial courts exercise of its discretion in this case, the award of P50,000 is unreasonable and
excessive. It should be reduced to P10,000.
WHEREFORE, the instant petition is partly GRANTED. The challenged decision of the Court of Appeals in CA-G.R.
No. 40751 is hereby MODIFIED by a) deleting the awards of P200,000 for loss of profit, P200,000 as moral damages
and P100,000 as exemplary damages, and b) reducing the award of attorneys fees from P50,000 to P10,000.
No pronouncement as to costs.
SO ORDERED.

POLICY

1. Gulf Resort, Inc. v. Philippines Charter Insurance Corporation

458 SCRA 550

PUNO, J.:

Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by petitioner GULF
RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner assails the
appellate court decision[1] which dismissed its two appeals and affirmed the judgment of the trial court.
For review are the warring interpretations of petitioner and respondent on the scope of the insurance companys
liability for earthquake damage to petitioners properties. Petitioner avers that, pursuant to its earthquake shock
endorsement rider, Insurance Policy No. 31944 covers all damages to the properties within its resort caused by
earthquake. Respondent contends that the rider limits its liability for loss to the two swimming pools of petitioner.
The facts as established by the court a quo, and affirmed by the appellate court are as follows:

[P]laintiff 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-AIU). In the first four insurance policies issued by AHAC-
AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. C, D, E and F; also Exhs. 1, 2, 3 and 4 respectively), the risk
of loss from earthquake shock was extended only to plaintiffs two swimming pools, thus, earthquake shock endt. (Item 5
only) (Exhs. C-1; D-1, and E and two (2) swimming pools only (Exhs. C-1; D-1, E and F-1). Item 5 in those policies
referred to the two (2) swimming pools only (Exhs. 1-B, 2-B, 3-B and F-2); that subsequently AHAC(AIU) issued in
plaintiffs favor Policy No. 206-4182383-0 covering the period March 14, 1988 to March 14, 1989 (Exhs. G also G-1) and in
said policy the earthquake endorsement clause as indicated in Exhibits C-1, D-1, Exhibits E and F-1 was deleted and the
entry under Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with AHAC (AIU) for the
period of March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. H) which carried the entry under
Endorsement/Warranties at Time of Issue, which read Endorsement to Include Earthquake Shock (Exh. 6-B-1) in the
amount of P10,700.00 and paid P42,658.14 (Exhs. 6-A and 6-B) as premium thereof, computed as follows:

Item -P7,691,000.00 - on the Clubhouse only

@ .392%;
1,500,000.00 - on the furniture, etc.
contained in the building
above-mentioned@ .490%;
393,000.00- on the two swimming
pools, only (against the
peril of earthquake
shock only) @ 0.100%
116,600.00- other buildings include
as follows:

a) Tilter House- P19,800.00- 0.551%

b) Power House- P41,000.00- 0.551%
c) House Shed- P55,000.00 -0.540%
P100,000.00 for furniture, fixtures,
lines air-con and
operating equipment

that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No. 206-4568061-9 (Exh. H)
provided that the policy wording and rates in said policy be copied in the policy to be issued by defendant; that defendant
issued Policy No. 31944 to plaintiff covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total
premium of P45,159.92 (Exh. I); that in the computation of the premium, defendants Policy No. 31944 (Exh. I), which is
the policy in question, contained on the right-hand upper portion of page 7 thereof, the following:

Rate-Various

Premium - P37,420.60 F/L

2,061.52 Typhoon
1,030.76 EC
393.00 ES
Doc. Stamps 3,068.10
F.S.T. 776.89
Prem. Tax 409.05
TOTAL 45,159.92;

that the above break-down of premiums shows that plaintiff paid only P393.00 as premium against earthquake shock
(ES); that in all the six insurance policies (Exhs. C, D, E, F, G and H), the premium against the peril of earthquake shock
is the same, that is P393.00 (Exhs. C and 1-B; 2-B and 3-B-1 and 3-B-2; F-02 and 4-A-1; G-2 and 5-C-1; 6-C-1; issued by
AHAC (Exhs. C, D, E, F, G and H) and in Policy No. 31944 issued by defendant, the shock endorsement provide(sic):

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);

that in Exhibit 7-C the word included above the underlined portion was deleted; that on July 16, 1990 an earthquake
struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy No. 31944 issued by defendant,
including the two swimming pools in its Agoo Playa Resort were damaged. [2]

After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No.
31944 for damages on its properties. Respondent instructed petitioner to file a formal claim, then assigned the
investigation of the claim to an independent claims adjuster, Bayne Adjusters and Surveyors, Inc.[3] On July 30, 1990,
respondent, through its adjuster, requested petitioner to submit various documents in support of its claim. On August 7,
1990, Bayne Adjusters and Surveyors, Inc., through its Vice-President A.R. de Leon,[4]rendered a preliminary
report[5] finding extensive damage caused by the earthquake to the clubhouse and to the two swimming pools. Mr. de
Leon stated that except for the swimming pools, all affected items have no coverage for earthquake shocks.[6] On August
11, 1990, petitioner filed its formal demand[7] for settlement of the damage to all its properties in the Agoo Playa Resort.
On August 23, 1990, respondent denied petitioners claim on the ground that its insurance policy only afforded earthquake
shock coverage to the two swimming pools of the resort.[8] Petitioner and respondent failed to arrive at a
settlement.[9] Thus, on January 24, 1991, petitioner filed a complaint [10] with the regional trial court of Pasig praying for the
payment of the following:

1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with interest thereon, as
computed under par. 29 of the policy (Annex B) until fully paid;

2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff on account of
defendants refusal to pay the claims;

3.) The sum of P500,000.00, by way of exemplary damages;

4.) The sum of P500,000.00 by way of attorneys fees and expenses of litigation;

5.) Costs.[11]

Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims. [12]
On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:

The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the peril of earthquake shock, the
same premium it paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC(AIU)
(Exhibits C, D, E, F and G). From this fact the Court must consequently agree with the position of defendant that the
endorsement rider (Exhibit 7-C) means that only the two swimming pools were insured against earthquake shock.

Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the language used in an
insurance contract or application is such as to create ambiguity the same should be resolved against the party responsible
therefor, i.e., the insurance company which prepared the contract. To the mind of [the] Court, the language used in the
policy in litigation is clear and unambiguous hence there is no need for interpretation or construction but only application
of the provisions therein.

From the above observations the Court finds that only the two (2) swimming pools had earthquake shock coverage and
were heavily damaged by the earthquake which struck on July 16, 1990. Defendant having admitted that the damage to
the swimming pools was appraised by defendants adjuster at P386,000.00, defendant must, by virtue of the contract of
insurance, pay plaintiff said amount.

Because it is the finding of the Court as stated in the immediately preceding paragraph that defendant is liable only for the
damage caused to the two (2) swimming pools and that defendant has made known to plaintiff its willingness and
readiness to settle said liability, there is no basis for the grant of the other damages prayed for by plaintiff. As to the
counterclaims of defendant, the Court does not agree that the action filed by plaintiff is baseless and highly speculative
since such action is a lawful exercise of the plaintiffs right to come to Court in the honest belief that their Complaint is
meritorious. The prayer, therefore, of defendant for damages is likewise denied.

WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE HUNDRED EIGHTY SIX
THOUSAND PESOS (P386,000.00) representing damage to the two (2) swimming pools, with interest at 6% per annum
from the date of the filing of the Complaint until defendants obligation to plaintiff is fully paid.

No pronouncement as to costs.[13]

Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of Appeals based
on the following assigned errors:[14]

A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR THE DAMAGE
TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE
CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS OF THE PARTIES
SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHT TO RECOVER UNDER
DEFENDANT-APPELLEES POLICY (NO. 31944; EXH I) BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID
POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE
PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990.

C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO THE DAMAGES
CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.

On the other hand, respondent filed a partial appeal, assailing the lower courts failure to award it attorneys fees and
damages on its compulsory counterclaim.
After review, the appellate court affirmed the decision of the trial court and ruled, thus:

However, after carefully perusing the documentary evidence of both parties, We are not convinced that the last two (2)
insurance contracts (Exhs. G and H), which the plaintiff-appellant had with AHAC (AIU) and upon which the subject
insurance contract with Philippine Charter Insurance Corporation is said to have been based and copied (Exh. I), covered
an extended earthquake shock insurance on all the insured properties.

xxx

We also find that the Court a quo was correct in not granting the plaintiff-appellants prayer for the imposition of interest
24% on the insurance claim and 6% on loss of income allegedly amounting to P4,280,000.00. Since the defendant-
appellant has expressed its willingness to pay the damage caused on the two (2) swimming pools, as the Court a quo and
this Court correctly found it to be liable only, it then cannot be said that it was in default and therefore liable for interest.

Coming to the defendant-appellants prayer for an attorneys fees, long-standing is the rule that the award thereof is subject
to the sound discretion of the court. Thus, if such discretion is well-exercised, it will not be disturbed on appeal (Castro et
al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being the award thereof an exception rather than a rule, it is
necessary for the court to make findings of facts and law that would bring the case within the exception and justify the
grant of such award (Country Bankers Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No.
136914, January 25, 2002). Therefore, holding that the plaintiff-appellants action is not baseless and highly speculative,
We find that the Court a quo did not err in granting the same.

WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the Trial Court hereby
AFFIRMED in toto. No costs.[15]

Petitioner filed the present petition raising the following issues: [16]

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENTS INSURANCE
POLICY NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES
COVERED THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS PRAYER FOR DAMAGES WITH
INTEREST THEREON AT THE RATE CLAIMED, ATTORNEYS FEES AND EXPENSES OF LITIGATION.

Petitioner contends:
First, that the policys earthquake shock endorsement clearly covers all of the properties insured and not only the
swimming pools. It used the words any property insured by this policy, and it should be interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed in the body of
the insurance policy itself, which states that it is [s]ubject to: Other Insurance Clause, Typhoon Endorsement, Earthquake
Shock Endt., Extended Coverage Endt., FEA Warranty & Annual Payment Agreement On Long Term Policies.[17]
Third, that the qualification referring to the two swimming pools had already been deleted in the earthquake shock
endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission when it deleted the said
qualification.
Fifth, that the earthquake shock endorsement rider should be given precedence over the wording of the insurance
policy, because the rider is the more deliberate expression of the agreement of the contracting parties.
 Sixth, that in their previous insurance policies, limits were placed on the endorsements/warranties enumerated at the
time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of petitioner and against
respondent. It was respondent which caused the ambiguity when it made the policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should be interpreted as a
caveat on the standard fire insurance policy, such as to remove the two swimming pools from the coverage for the risk of
fire. It should not be used to limit the respondents liability for earthquake shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the additional premium was not paid under the extended
coverage. The premium for the earthquake shock coverage was already included in the premium paid for the policy.
Tenth, the parties contemporaneous and subsequent acts show that they intended to extend earthquake shock
coverage to all insured properties. When it secured an insurance policy from respondent, petitioner told respondent that it
wanted an exact replica of its latest insurance policy from American Home Assurance Company (AHAC-AIU), which
covered all the resorts properties for earthquake shock damage and respondent agreed. After the July 16, 1990
earthquake, respondent assured petitioner that it was covered for earthquake shock. Respondents insurance adjuster,
Bayne Adjusters and Surveyors, Inc., likewise requested petitioner to submit the necessary documents for its building
claims and other repair costs. Thus, under the doctrine of equitable estoppel, it cannot deny that the insurance policy it
issued to petitioner covered all of the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the Revised Rules of
Court as its remedy, and there is no need for calibration of the evidence in order to establish the facts upon which this
petition is based.
On the other hand, respondent made the following counter arguments: [18]
First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage against
earthquake shock to petitioners insured properties other than on the two swimming pools. Petitioner admitted that from
1984 to 1988, only the two swimming pools were insured against earthquake shock. From 1988 until 1990, the provisions
in its policy were practically identical to its earlier policies, and there was no increase in the premium paid. AHAC-AIU, in a
letter[19] by its representative Manuel C. Quijano, categorically stated that its previous policy, from which respondents
policy was copied, covered only earthquake shock for the two swimming pools.
Second, petitioners payment of additional premium in the amount of P393.00 shows that the policy only covered
earthquake shock damage on the two swimming pools. The amount was the same amount paid by petitioner for
earthquake shock coverage on the two swimming pools from 1990-1991. No additional premium was paid to warrant
coverage of the other properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to the two
swimming pools in the policy schedule did not expand the earthquake shock coverage to all of petitioners properties. As
per its agreement with petitioner, respondent copied its policy from the AHAC-AIU policy provided by petitioner. Although
the first five policies contained the said qualification in their riders title, in the last two policies, this qualification in the title
was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such deletion was a mere inadvertence. This inadvertence
did not make the policy incomplete, nor did it broaden the scope of the endorsement whose descriptive title was merely
enumerated. Any ambiguity in the policy can be easily resolved by looking at the other provisions, specially the
enumeration of the items insured, where only the two swimming pools were noted as covered for earthquake shock
damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the phrase Item
5 P393,000.00 on the two swimming pools only (against the peril of earthquake shock only) meant that only the swimming
pools were insured for earthquake damage. The same phrase is used in toto in the policies from 1989 to 1990, the only
difference being the designation of the two swimming pools as Item 3.
Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for all the properties
covered. In all of its seven insurance policies, petitioner only paid P393.00 as premium for coverage of the swimming
pools against earthquake shock. No other premium was paid for earthquake shock coverage on the other properties. In
addition, the use of the qualifier ANY instead of ALL to describe the property covered was done deliberately to enable the
parties to specify the properties included for earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of its properties must be included in the
earthquake shock coverage. Petitioners own evidence shows that it only required respondent to follow the exact
provisions of its previous policy from AHAC-AIU. Respondent complied with this requirement. Respondents only deviation
from the agreement was when it modified the provisions regarding the replacement cost endorsement. With regard to the
issue under litigation, the riders of the old policy and the policy in issue are identical.
 Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from maintaining that
only the two swimming pools were covered for earthquake shock. The adjusters letter notifying petitioner to present
certain documents for its building claims and repair costs was given to petitioner before the adjuster knew the full
coverage of its policy.
Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase Item 5 Only after the descriptive name
or title of the Earthquake Shock Endorsement. However, the words of the policy reflect the parties clear intention to limit
earthquake shock coverage to the two swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not object to any deficiency
nor did it institute any action to reform the policy. The policy binds the petitioner.
Eighth, there is no basis for petitioner to claim damages, attorneys fees and litigation expenses. Since respondent
was willing and able to pay for the damage caused on the two swimming pools, it cannot be considered to be in default,
and therefore, it is not liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.
First, in the designation of location of risk, only the two swimming pools were specified as included, viz:

ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of earthquake shock only) [20]

Second, under the breakdown for premium payments,[21] it was stated that:

PREMIUM RECAPITULATION

ITEM NOS. AMOUNT RATES PREMIUM

xxx

3 393,000.00 0.100%-E/S 393.00[22]

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly of
any of the following occurrences, namely:--

(a) Earthquake, volcanic eruption or other convulsion of nature. [23]

Fourth, the rider attached to the policy, titled Extended Coverage Endorsement (To Include the Perils of Explosion,
Aircraft, Vehicle and Smoke), stated, viz:

ANNUAL PAYMENT AGREEMENT ON

LONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN EXCESS OF FIVE
MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 % OF THE NET PREMIUM x x x POLICY
HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE
PREMIUM.

Earthquake Endorsement

In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . . . . . . additional premium
the Company agrees, notwithstanding what is stated in the printed conditions of this Policy to the contrary, that this
insurance covers loss or damage (including loss or damage by fire) to any of the property insured by this Policy
occasioned by or through or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall apply (except in so far as they may be hereby expressly varied)
and that any reference therein to loss or damage by fire should be deemed to apply also to loss or damage occasioned by
or through or in consequence of Earthquake.[24]

Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake shock
coverage. Thus, the policy extended earthquake shock coverage to all of the insured properties.
It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each
other.[25] All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain
stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine
its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. 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.
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.[26] (Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a
specified peril.[27] In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk
attaches.[28] 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 petitioners previous insurance policies from AHAC-AIU. As borne
out by petitioners witnesses:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during the period from
March 4, 1984 to March 4, 1985 the coverage on earthquake shock was limited to the two swimming pools
only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is a provision here
that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two swimming pools only?
A. Yes, sir.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for the procurement of
this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
 Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they are of course subject to your
instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what insurance to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989, did you give written
instruction to Forte Insurance Agency advising it that the earthquake shock coverage must extend to all
properties of Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made an oral instruction to that effect of
extending the coverage on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important because in April 1987 there was an earthquake
tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors in the [future], is that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the provisions with respect to your
instructions that all properties must be covered again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance Company marked Exhibit G?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock endorsement has no more
limitation referring to the two swimming pools only, I was contented already that the previous limitation
pertaining to the two swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase Subject to: Other Insurance Clause, Typhoon
Endorsement, Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual
Payment Agreement on Long Term Policies[29] to the insurance policy as proof of the intent of the parties to extend the
coverage for earthquake shock. However, this phrase is merely an enumeration of the descriptive titles of the riders,
clauses, warranties or endorsements to which the policy is subject, as required under Section 50, paragraph 2 of the
Insurance Code.
We also hold that no significance can be placed on the deletion of the qualification limiting the coverage to the two
swimming pools. The earthquake shock endorsement cannot stand alone. As explained by the testimony of Juan Baranda
III, underwriter for AHAC-AIU:

DIRECT EXAMINATION OF JUAN BARANDA III[30]

TSN, August 11, 1992
pp. 9-12

Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been previously marked by counsel for
defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to review of (sic) these six (6) policies issued
by your company [in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively carries an
earthquake shock endorsement[?] My question to you is, on the basis on (sic) the wordings indicated in
 Exhibits C to H respectively what was the extent of the coverage [against] the peril of earthquake shock as
provided for in each of the six (6) policies?

xxx

WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as provided for in each of the six
(6) policies extend to the two (2) swimming pools only?
WITNESS:
Because it says here in the policies, in the enumeration Earthquake Shock Endorsement, in the Clauses
and Warranties: Item 5 only (Earthquake Shock Endorsement), sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand alone basis. For swimming pools we do
cover earthquake shock. For building we covered it for full earthquake coverage which includes earthquake
shock
COURT:
As far as earthquake shock endorsement you do not have a specific coverage for other things other than
swimming pool? You are covering building? They are covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering building or another we can issue
earthquake shock solely but that the moment I see this, the thing that comes to my mind is either insuring a
swimming pool, foundations, they are normally affected by earthquake but not by fire, sir.

DIRECT EXAMINATION OF JUAN BARANDA III

TSN, August 11, 1992
pp. 23-25

Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F inclusive [remained]
its coverage against earthquake shock to two (2) swimming pools only but that Exhibits G and H
respectively entend the coverage against earthquake shock to all the properties indicated in the respective
schedules attached to said policies, what can you say about that testimony of plaintiffs witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. I assure you
that this one covers the two swimming pools with respect to earthquake shock endorsement. Based on it, if
we are going to look at the premium there has been no change with respect to the rates. Everytime (sic)
there is a renewal if the intention of the insurer was to include the earthquake shock, I think there is a
substantial increase in the premium. We are not only going to consider the two (2) swimming pools of the
other as stated in the policy. As I see, there is no increase in the amount of the premium. I must say that
the coverage was not broaden (sic) to include the other items.
COURT:
They are the same, the premium rates?
WITNESS:
 They are the same in the sence (sic), in the amount of the coverage. If you are going to do some
computation based on the rates you will arrive at the same premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6

ATTY. ANDRES:
Would you as a matter of practice [insure] swimming pools for fire insurance?
WITNESS:
No, we dont, sir.
Q. That is why the phrase earthquake shock to the two (2) swimming pools only was placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed to during your
direct-examination, the phrase Item no. 5 only meaning to (sic) the two (2) swimming pools was deleted
from the policies issued by AIU, is it not?

xxx

ATTY. ANDRES:
As an insurance executive will you not attach any significance to the deletion of the qualifying phrase for
the policies?
WITNESS:
My answer to that would be, the deletion of that particular phrase is inadvertent. Being a company
underwriter, we do not cover. . it was inadvertent because of the previous policies that we have issued with
no specific attachments, premium rates and so on. It was inadvertent, sir.
The Court also rejects petitioners contention that respondents 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.
Petitioners own witness testified to this agreement, viz:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992
pp. 4-5

Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell Atty. Omlas (sic)
to copy from Exhibit H for purposes of procuring the policy from Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have the same provisions as this American Home
Insurance Policy No. 206-4568061-9.
Q. You are referring to Exhibit H of course?
A. Yes, sir, to Exhibit H.
Q. So, all the provisions here will be the same except that of the premium rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be charging will be
limited to this one. I (sic) can even be lesser.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992
pp. 12-14

Atty. Mejia:
 Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and scope of coverage
of Exhibits I and H sometime in the third week of March, 1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference between the policy wordings as well as scope
of coverage of Exhibits I and H respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the policy wordings and
rates were copied from the insurance policy I sent them but it was only when this case erupted that we
discovered some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice any discrepancy at any time
between those indicated in Exhibit I and those indicated in Exhibit H respectively?
A. With regard to the wordings I did not notice any difference because it was exactly the same P393,000.00 on
the two (2) swimming pools only against the peril of earthquake shock which I understood before that this
provision will have to be placed here because this particular provision under the peril of earthquake shock
only is requested because this is an insurance policy and therefore cannot be insured against fire, so this
has to be placed.
The verbal assurances allegedly given by respondents representative Atty. Umlas were not proved. Atty. Umlas
categorically denied having given such assurances.
Finally, petitioner puts much stress on the letter of respondents independent claims adjuster, Bayne Adjusters and
Surveyors, Inc. But as testified to by the representative of Bayne Adjusters and Surveyors, Inc., respondent never meant
to lead petitioner to believe that the endorsement for earthquake shock covered properties other than the two swimming
pools, viz:

DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne

Adjusters and Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26

Q. Do you recall the circumstances that led to your discussion regarding the extent of coverage of the policy
issued by Philippine Charter Insurance Corporation?
A. I remember that when I returned to the office after the inspection, I got a photocopy of the insurance
coverage policy and it was indicated under Item 3 specifically that the coverage is only for earthquake
shock. Then, I remember I had a talk with Atty. Umlas (sic), and I relayed to him what I had found out in the
policy and he confirmed to me indeed only Item 3 which were the two swimming pools have coverage for
earthquake shock.

xxx

Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for the swimming pools
all affected items have no coverage for earthquake shock?

xxx

A. I based my statement on my findings, because upon my examination of the policy I found out that under Item
3 it was specific on the wordings that on the two swimming pools only, then enclosed in parenthesis
(against the peril[s] of earthquake shock only), and secondly, when I examined the summary of premium
payment only Item 3 which refers to the swimming pools have a computation for premium payment for
earthquake shock and all the other items have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general rule that
insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly
against the insurer company which usually prepares it.[31] A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion"
thereto. Through the years, the courts have held that in these type of contracts, the parties do not bargain on equal
footing, the weaker party's participation being reduced to the alternative to take it or leave it. Thus, these contracts are
viewed as traps for the weaker party whom the courts of justice must protect. [32] Consequently, any ambiguity therein is
resolved against the insurer, or construed liberally in favor of the insured. [33]
 The case law will show that this Court will only rule out blind adherence to terms where facts and circumstances will
show that they are basically one-sided.[34] Thus, we have called on lower courts to remain careful in scrutinizing the
factual circumstances behind each case to determine the efficacy of the claims of contending parties. In Development
Bank of the Philippines v. National Merchandising Corporation, et al.,[35] the parties, who were acute businessmen of
experience, were presumed to have assented to the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did not know
the provisions of the policy. 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. The testimony of Mr. Leopoldo Mantohac, a direct
participant in securing the insurance policy of petitioner, is reflective of petitioners knowledge, viz:

DIRECT EXAMINATION OF LEOPOLDO MANTOHAC[36]

TSN, September 23, 1991
pp. 20-21

Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter Insurance
Corporation as long as it will follow the same or exact provisions of the previous insurance policy we had
with American Home Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the American Home
Insurance policy are to be incorporated in the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically told him that the
policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-9 in drafting
its Insurance Policy No. 31944. It is true that there was variance in some terms, specifically in the replacement cost
endorsement, but the principal provisions of the policy remained essentially similar to AHAC-AIUs policy. Consequently,
we cannot apply the "fine print" or "contract of adhesion" rule in this case as the parties intent to limit the coverage of the
policy to the two swimming pools only is not ambiguous.[37]
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for certiorari is dismissed. No
costs.
SO ORDERED.

2. Western Guaranty Corp. v. Court of Appeals

187 SCRA 652

FELICIANO, J.:

At around 4:30 in the afternoon of 27 March 1982, while crossing Airport Road on a pedestrian lane on her way to work,
respondent Priscilla E. Rodriguez was struck by a De Dios passenger bus owned by respondent De Dios Transportation
Co., Inc., then driven by one Walter Saga y Aspero The bus driver disregarded the stop signal given by a traffic policeman
to allow pedestrians to cross the road. Priscilla was thrown to the ground, hitting her forehead. She was treated at the
Protacio Emergency Hospital and later on hospitalized at the San Juan De Dios Hospital. Her face was permanently
disfigured, causing her serious anxiety and moral distress. Respondent bus company was insured with petitioner Western
Guaranty Corporation ("Western") under its Master Policy which provided, among other things, for protection against third
party liability, the relevant section reading as follows:

Section 1. Liability to the Public — Company will, subject to the Limits of Liability, pay all sums necessary
to discharge liability of the insured in respect of —

(a) death of or bodily injury to or damage to property of any passenger as defined herein.

(b) death of or bodily injury or damage to property of any THIRD PARTY as defined herein in any
accident caused by or arising out of the use of the Schedule Vehicle, provided that the liability shall have
 first been determined. In no case, however, shall the Company's total payment under both Section I and
Section 11 combined exceed the Limits of Liability set forth herein. With respect to death of or bodily
injury to any third party or passenger, the company's payment per victim in any one accident shall not
exceed the limits indicated in the Schedule of indemnities provided for in this policy excluding the cost of
additional medicines, and such other burial and funeral expenses that might have been incurred.
(Emphasis supplied)

Respondent Priscilla Rodriguez filed a complaint for damages before the Regional Trial Court of Makati against De Dios
Transportation Co. and Walter A. Saga Respondent De Dios Transportation Co., in turn, filed a third-party complaint
against its insurance carrier, petitioner Western. On 6 August 1985, the trial court rendered a decision in favor of
respondent Priscilla E. Rodriguez, the dispositive portion of which read:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants, ordering the
latter to pay the former, jointly and severally, and for the third-party defendant to pay to the plaintiff, by
way of contribution, indemnity or subrogation whatever amount may be left unpaid by the defendant De
Dios Transportation Company, Inc. to the extent of not more than P50,000.00, as follows:

a) The sum of P2,776.00 as actual damages representing doctor's fees, hospitalization and medicines;

b) the sum of P1,500.00 by way of compensation for loss of earning during plaintiffs incapacity to work;

c) the sum of P10,000.00 as and by way of moral damages ;

d) the sum of P10,000.00 as and by way of attorney's fees ;and

e) the cost of suit.

On appeal, the Court of Appeals affirmed in toto the decision of the trial court. Petitioner moved for the reconsideration of
the appellate court's decision. In a Resolution dated 10 January 1990, the Court of Appeals denied the motion for
reconsideration petition for lack of merit.

Petitioner Western is now before us on a Petition for Review alleging that the Court of Appeals erred in holding petitioner
liable to pay beyond the limits set forth in the Schedule of Indemnities and in finding Western liable for loss of earnings,
moral damages and attorney's fees. Succinctly stated, it is petitioner Western's position that it cannot be held liable for
loss of earnings, moral damages and attorney's fees because these items are not among those included in the Schedule
of Indemnities set forth in the insurance policy.

Deliberating on the instant Petition for Review, we consider that petitioner Western has failed to show any reversible error
on the part of the Court of Appeals in rendering its Decision dated 26 April 1989 and its Resolution dated 10 January
1990.

An examination of Section 1 entitled "Liability to the Public", quoted above, of the Master Policy issued by petitioner
Western shows that that Section defines the scope of the liability of insurer Western as well as the events which generate
such liability. The scope of liability of Western is marked out in comprehensive terms: "all sums necessary to discharge
liability of the insured in respect of [the precipitating events]—" The precipitating events which generate liability on the part
of the insurer, either in favor of a passenger or a third party, are specified in the following terms: (1) death of, or (2) bodily
injury to, or (3) damage to property of, the passenger or the third party. Where no death, no bodily injury and no damage
to property resulted from the casualty ("any accident caused by or arising out of the use of the Schedule Vehicle"), no
liability is created so far as concerns the insurer, petitioner Western.

The "Schedule of Indemnities for Death and/or Bodily Injury" attached to the Master Policy, which petitioner Western
invokes, needs to be quoted in full:

Schedule of Indemnities for Death and/or Bodily Injury:

The following schedule of indemnities should be observed in the settlement of claims for death, bodily injuries of,
professional fees and hospital charges, for services rendered to traffic accident victims under CMVLI coverage:
DEATH P12,000.00
INDEMNITY

PERMANENT
DISABLEMENT
—

DESCRIPTION Amount
OF
DISABLEMENT

Loss of two P6,000.00

limbs

Loss of both
hands, or all
fingers and

both thumbs 6,000.00

Loss of both feet 6,000.00

Loss of one 6,000.00

hand and one
foot

Loss of sight of 6,000.00

both eyes

Injuries resulting
in being
permanently

bedridden 6,000.00

Any other injury

causing
permanent

total 6,000.00
disablement

Loss of arm or 4,200.00

above elbow

Loss of arm 3,000.00

between elbow
and wrist

Loss of hand P2,550.00

Loss of four 2,550.00

fingers and
thumb of one
hand

Loss of four 2,100.00

fingers

Loss of leg at or 3,600.00

above knee

Loss of leg 2,400.00

 below knee

Loss of one foot 2,400.00

Loss of toes-all 900.00

of one foot

Loss of thumb 900.00

Loss of index 600.00

finger

Loss of sight of 1,800.00

one eye

Loss of hearing 3,000.00

both ears

Loss of hearing- 450.00

one ear

Total of Accommodation of Professional Attendance

Extended Services Fees or

Rendered Charges

HOSPITAL ROOM Maximum P

of 45 36.00/day
days/year-

Laboratory
fees, drugs

x-rays, etc.
300.0 0

SURGICAL Major 1,000.00

Operation

EXPENSES Medium 500.00

Operation

Minor 100.00
Operation

ANAESTHESIOLOGIST Major
Operation
300.00

LOGISTS' FEES Medium

Operation
150.00

Minor
Operation
50.00

OPERATING Major 150.00

Operation

ROOM Medium 100.00

 Operation

Minor 40.00
Operation

MEDICAL For daily

visits of

EXPENSES Practitioner 20.00

or

Specialist /day

Total
amount of
medical

expenses
must not
exceed

(for single
period of

confinement) 400.00 1

It will be seen that the above quoted Schedule of Indemnities establishes monetary limits which Western may invoke in
case of occurrence of the particular kinds of physical injury there listed, e.g.:

loss of P6,000.00;
both
feet

loss of P2,400.00;
one
foot

loss of P1,800.00;
sight of
one
eye

It must be stressed, however, that the Schedule of Indemnities does not purport to limit, or to enumerate exhaustively, the
species of bodily injury occurrence of which generate liability for petitioner Western. A car accident may, for instance,
result in injury to internal organs of a passenger or third party, without any accompanying amputation or loss of an
external member (e.g., a foot or an arm or an eye). But such internal injuries are surely covered by Section I of the Master
Policy, since they certainly constitute bodily injuries.

Petitioner Western in effect contends before this Court, as it did before the Court of Appeals, that because the Schedule
of Indemnities limits the amount payable for certain kinds of expenses —"hospital room", "surgical expenses",
"anaesthesiologists' fee", "operating room" and "medical expenses" that Schedule should be read as excluding liability for
any other type of expense or damage or loss even though actually sustained or incurred by the third party victim. We are
not persuaded by Western's contention.

Firstly, the Schedule of Indemnities does not purport to restrict the kinds of damages that may be awarded against
Western once liability has arisen. Section 1, quoted above, does refer to certain "Limits of Liability" which in the case of
the third party liability section of the Master Policy, is apparently P50,000.00 per person per accident. Within this over-all
quantitative limit, all kinds of damages allowable by law" — actual or compensatory damages"; "moral damages'; "nominal
damages"; "temperate or moderate damages"; "liquidated damages"; and "exemplary damages" 2 — may be awarded by
a competent court against the insurer once liability is shown to have arisen, and the essential requisites or conditions for
grant of each species of damages are present. It appears to us self-evident that the Schedule of Indemnities was not
intended to be an enumeration, much less a closed enumeration, of the specific kinds of damages which may be awarded
under the Master Policy Western has issued. Accordingly, we agree with the Court of Appeals that:

... we cannot agree with the movant that the schedule was meant to be an exclusive enumeration of the
nature of the damages for which it would be liable under its policy. As we see it, the schedule was merely
meant to set limits to the amounts the movant would be liable for in cases of claims for death, bodily
injuries of, professional services and hospital charges, for services rendered to traffic accident victims,'
and not necessarily exclude claims against the insurance policy for other kinds of damages, such as
those in question.

Secondly, the reading urged by Western of the Schedule of Indemnities comes too close to working fraud upon both the
insured and the third party beneficiary of Section 1, quoted above. For Western's reading would drastically and without
warning limit the otherwise unlimited (save for the over-all quantitative limit of liability of P50,000.00 per person per
accident) and comprehensive scope of liability assumed by the insurer Western under Section 1: "all sums necessary to
discharge liability of the insured in respect of [bodily injury to a third party]". This result- which is not essentially different
from taking away with the left hand what had been given with the right hand we must avoid as obviously repugnant to
public policy. If what Western now urges is what Western intended to achieve by its Schedule of Indemnities, it was
incumbent upon Western to use language far more specific and precise than that used in fact by Western, so that the
insured, and potential purchasers of its Master Policy, and the Office of the Insurance Commissioner, may be properly
informed and act accordingly.

Petitioner Western would have us construe the Schedule of Indemnities as comprising contractual limitations of liability
which, as already noted, is comprehensively defined in Section 1 — Liability to the Public" — of the Master Policy. It is
wellsettled, however, that contractual limitations of liability found in insurance contracts should be regarded by courts with
a jaundiced eye and extreme care and should be so construed as to preclude the insurer from evading compliance with its
just obligations. 3

Finally, an insurance contract is a contract of adhesion. The rule is well entrenched in our jurisprudence that the terms of
such contract are to be construed strictly against the party which prepared the contract, which in this case happens to be
petitioner Western. 4

ACCORDINGLY, the Court Resolved to DENY the Petition for Review for lack of merit Costs against petitioner

3. Finman General Assurance Corporation v. Court of Appeals

213 SCRA 493

SYLLABUS

1. COMMERCIAL LAW; INSURANCE; ‘ACCIDENT’ AND ‘ACCIDENTAL’; DEFINED. — "The terms ‘accident’ and
‘accidental’, as used in insurance contracts have not acquired any technical meaning, and are construed by the courts in
their ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or
fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event that
takes place without one’s foresight or expectation — an event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected." ". . . The generally accepted rule is that, death or injury does not
result from accident or accidental means within the terms of an accident-policy if it is, the natural result of the insured’s
voluntary act, unaccompanied by anything unforeseen except the death or injury. There is no accident when a deliberate
act is performed unless some additional, unexpected, independent, and unforeseen happening occurs which produces or
brings about the result of injury or death. In other words, where the death or injury is not the natural or probable result of
the insured’s voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the
resulting death is within the protection of the policies insuring against death or injury from accident." [De la Cruz v. Capital
Insurance & Surety Co., Inc., 17 SCRA 559 (1966)].

2. ID.; ID.; PRINCIPLE OF EXPRESSO UNIUS EXCLUSIO ALTERIUS; APPLICATION IN CASE AT BAR. — The
personal accident insurance policy involved herein specifically enumerated only ten (10) circumstances wherein no liability
attaches to petitioner insurance company for any injury, disability or loss suffered by the insured as a result of any of the
stipulated causes. The principle of "expresso unius exclusio alterius" — the mention of one thing implies the exclusion of
another thing — is therefore applicable in the instant case since murder and assault, not having been expressly included
in the enumeration of the circumstances that would negate liability in said insurance policy cannot be considered by
implication to discharge the petitioner insurance company from liability for any injury, disability or loss suffered by the
insured. Thus, the failure of the petitioner insurance company to include death resulting from murder or assault among the
prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.

NOCON, J.:

This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary mandatory injunction to
annul and set aside the decision of the Court of Appeals dated July 11, 1991, 1 affirming the decision dated March 20,
1990 of the Insurance Commission 2 in ordering petitioner Finman General Assurance Corporation to pay private
respondent Julia Surposa the proceeds of the personal accident Insurance policy with interest.

It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman General
Assurance Corporation under Finman General Teachers Protection Plan Master Policy No. 2005 and Individual Policy No.
08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton, all
surnamed, Surposa, as beneficiaries. 3

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October 18, 1988 as a result
of a stab wound inflicted by one of the three (3) unidentified men without provocation and warning on the part of the
former as he and his cousin, Winston Surposa, were waiting for a ride on their way home along Rizal-Locsin Streets,
Bacolod City after attending the celebration of the "Maskarra Annual Festival."

Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written notice of claim with the
petitioner insurance company which denied said claim contending that murder and assault are not within the scope of the
coverage of the insurance policy.

On February 24, 1989, private respondent filed a complaint with the Insurance Commission which subsequently rendered
a decision, the pertinent portion of which reads:

In the light of the foregoing. we find respondent liable to pay complainant the sum of P15,000.00 representing the
proceeds of the policy with interest. As no evidence was submitted to prove the claim for mortuary aid in the sum
of P1,000.00, the same cannot be entertained.

WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant the sum of P15,000.00 with
legal interest from the date of the filing of the complaint until fully satisfied. With costs. 4

On July 11, 1991, the appellate court affirmed said decision.

Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate court in applying the
principle of "expresso unius exclusio alterius" in a personal accident insurance policy since death resulting from murder
and/or assault are impliedly excluded in said insurance policy considering that the cause of death of the insured was not
accidental but rather a deliberate and intentional act of the assailant in killing the former as indicated by the location of the
lone stab wound on the insured. Therefore, said death was committed with deliberate intent which, by the very nature of a
personal accident insurance policy, cannot be indemnified.

We do not agree.

The terms "accident" and "accidental" as used in insurance contracts have not acquired any technical meaning,
and are construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to
mean that which happen by chance or fortuitously, without intention and design, and which is unexpected,
unusual, and unforeseen. An accident is an event that takes place without one's foresight or expectation — an
event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not
expected.

. . . The generally accepted rule is that, death or injury does not result from accident or accidental means within
the terms of an accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything
unforeseen except the death or injury. There is no accident when a deliberate act is performed unless some
additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result
 of injury or death. In other words, where the death or injury is not the natural or probable result of the insured's
voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting
death is within the protection of the policies insuring against death or injury from accident. 5

As correctly pointed out by the respondent appellate court in its decision:

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an assault or murder as a
result of his voluntary act considering the very nature of these crimes. In the first place, the insured and his
companion were on their way home from attending a festival. They were confronted by unidentified persons. The
record is barren of any circumstance showing how the stab wound was inflicted. Nor can it be pretended that the
malefactor aimed at the insured precisely because the killer wanted to take his life. In any event, while the act
may not exempt the unknown perpetrator from criminal liability, the fact remains that the happening was a pure
accident on the part of the victim. The insured died from an event that took place without his foresight or
expectation, an event that proceeded from an unusual effect of a known cause and, therefore, not expected.
Neither can it be said that where was a capricious desire on the part of the accused to expose his life to danger
considering that he was just going home after attending a festival. 6

Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten (10) circumstances
wherein no liability attaches to petitioner insurance company for any injury, disability or loss suffered by the insured as a
result of any of the stimulated causes. The principle of " expresso unius exclusio alterius" — the mention of one thing
implies the exclusion of another thing — is therefore applicable in the instant case since murder and assault, not having
been expressly included in the enumeration of the circumstances that would negate liability in said insurance policy
cannot be considered by implication to discharge the petitioner insurance company from liability for, any injury, disability
or loss suffered by the insured. Thus, the failure of the petitioner insurance company to include death resulting from
murder or assault among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself
from liability for such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity.

Moreover,

it is well settled that contracts of insurance are to be construed liberally in favor of the insured and strictly against
the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of its beneficiary. 7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the petition
for certiorari with restraining order and preliminary injunction is hereby DENIED for lack of merit.

SO ORDERED.

4. Fortune Insurance & Surety Co., Inc. v. Court of Appeals

244 SCRA 308

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is liable under the
Money, Security, and Payroll Robbery policy it issued to the private respondent or whether recovery thereunder is
precluded under the general exceptions clause thereof. Both the trial court and the Court of Appeals held that there
should be recovery. The petitioner contends otherwise.

This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private respondent
Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance and Surety Co., Inc.
(hereinafter Fortune) of a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum
was allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer the money from its
Pasay City Branch to its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch
146 thereof.

After joinder of issues, the parties asked the trial court to render judgment based on the following stipulation of facts:

1. The plaintiff was insured by the defendants and an insurance policy was issued, the duplicate original of which
is hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring cash in the sum of P725,000.00 under the
custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati,
Metro Manila on June 29, 1987, was robbed of the said cash. The robbery took place while the armored car was
traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted by Security Guard Saturnino
Atiga Y Rosete. Driver Magalong was assigned by PRC Management Systems with the plaintiff by virtue of an
Agreement executed on August 7, 1983, a duplicate original copy of which is hereto attached as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the plaintiff by virtue of a
contract of Security Service executed on October 25, 1982, a duplicate original copy of which is hereto attached
as Exhibit "C";

5. 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) before the Fiscal of Pasay City. A copy of the complaint is hereto attached as Exhibit
"D";

6. The Fiscal of Pasay City then filed an information charging the aforesaid persons with the said crime before
Branch 112 of the Regional Trial Court of Pasay City. A copy of the said information is hereto attached as Exhibit
"E." The case is still being tried as of this date;

7. Demands were made by the plaintiff upon the defendant to pay the amount of the loss of P725,000.00, but the
latter refused to pay as the loss is excluded from the coverage of the insurance policy, attached hereto as Exhibit
"A," specifically under page 1 thereof, "General Exceptions" Section (b), which is marked as Exhibit "A-1," and
which reads as follows:

GENERAL EXCEPTIONS

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

xxx xxx xxx

(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. . . .

8. The plaintiff opposes the contention of the defendant and contends that Atiga and
Magalong are not its "officer, employee, . . . trustee or authorized representative . . . at
the time of the robbery.1

On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion thereof reads as
follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against defendant, and

(a) orders defendant to pay plaintiff the net amount of P540,000.00 as liability under Policy No. 0207 (as mitigated
by the P40,000.00 special clause deduction and by the recovered sum of P145,000.00), with interest thereon at
the legal rate, until fully paid;
 (b) orders defendant to pay plaintiff the sum of P30,000.00 as and for attorney's fees; and

(c) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It Said:

The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga, their
services as armored car driver and as security guard having been merely offered by PRC Management and by
Unicorn Security and which latter firms assigned them to plaintiff. The wages and salaries of both Magalong and
Atiga are presumably paid by their respective firms, which alone wields the power to dismiss them. Magalong and
Atiga are assigned to plaintiff in fulfillment of agreements to provide driving services and property protection as
such — in a context which does not impress the Court as translating into plaintiff's power to control the conduct of
any assigned driver or security guard, beyond perhaps entitling plaintiff to request are replacement for such driver
guard. The finding is accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in
avoidance of defendant's liability under the policy, particularly the general exceptions therein embodied.

Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the "authorized
representatives" of plaintiff. They were merely an assigned armored car driver and security guard, respectively,
for the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly — it
was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being transferred along a specified
money route, and hence plaintiff's then designated "messenger" adverted to in the policy. 3

Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No. 32946. In its
decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision.

The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither employees nor
authorized representatives of Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the
insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs.
Court of Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to be construed according to
the sense and meaning of the terms which the parties themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in their plain, ordinary and popular sense (New Life
Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and simple. No other
interpretation is necessary. The word "employee" must be taken to mean in the ordinary sense.

The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and therefore
its definition as to employer-employee relationships insofar as the application/enforcement of said Code is
concerned must necessarily be inapplicable to an insurance contract which defendant-appellant itself had
formulated. Had it intended to apply the Labor Code in defining what the word "employee" refers to, it must/should
have so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiff-appellee bank because it has no
power to hire or to dismiss said driver and security guard under the contracts (Exhs. 8 and C) except only to ask
for their replacements from the contractors.5

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the Court of Appeals
erred in holding it liable under the insurance policy because the loss falls within the general exceptions clause considering
that driver Magalong and security guard Atiga were Producers' authorized representatives or employees in the transfer of
the money and payroll from its branch office in Pasay City to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one branch to
another, they effectively and necessarily became its authorized representatives in the care and custody of the money.
Assuming that they could not be considered authorized representatives, they were, nevertheless, employees of
Producers. It asserts that the existence of an employer-employee relationship "is determined by law and being such, it
cannot be the subject of agreement." Thus, if there was in reality an employer-employee relationship between Producers,
on the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers with PRC
Management System for Magalong and with Unicorn Security Services for Atiga which state that Producers is not their
employer and that it is absolved from any liability as an employer, would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner of selection and
engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a power to
dismiss; and (4) the presence and absence of a power to control the putative employee's conduct. Of the four, the right-of-
control test has been held to be the decisive factor. 6 It asserts that the power of control over Magalong and Atiga was
vested in and exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security
Services are but "labor-only" contractors under Article 106 of the Labor Code which provides:

Art. 106. 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.

Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling in International Timber
Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is equivalent to a finding that there is an
employer-employee relationship between the owner of the project and the employees of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga 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. Producers
argued that the rule in International Timber Corp. is not applicable to all cases but only when it becomes necessary to
prevent any violation or circumvention of the Labor Code, a social legislation whose provisions may set aside contracts
entered into by parties in order to give protection to the working man.

Producers further asseverates that what should be applied is the rule in American President Lines vs. Clave, 8 to wit:

In determining the existence of employer-employee relationship, the following elements are generally considered,
namely: (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.

Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong as the driver of
Producers' armored car and was responsible for his faithful discharge of his duties and responsibilities, and since
Producers paid the monthly compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong, it
is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the provision of its contract with
Unicorn Security Services which provides that the guards of the latter "are in no sense employees of the CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy which is a
form of casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding
certain types of loss which by law or custom are considered as falling exclusively within the scope of insurance
such as fire or marine. It includes, but is not limited to, employer's liability insurance, public liability insurance,
motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health
insurance as written by non-life insurance companies, and other substantially similar kinds of insurance.
(emphases supplied)

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions
applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the
general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its purpose and always in accordance with the general
principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer — the
moral hazard — is so great that insurers have found it necessary to fill up their policies with countless restrictions, many
designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured
against." 10 Persons frequently excluded under such provisions are those in the insured's service and employment. 11 The
purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to
the property. 12 In such cases, the terms specifying the excluded classes are to be given their meaning as understood in
common speech. 13 The terms "service" and "employment" are generally associated with the idea of selection, control,
and compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, 15 or it
should be construed liberally in favor of the insured and strictly against the insurer. 16 Limitations of liability should be
regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying then that if the
terms of the contract are clear and unambiguous, there is no room for construction and such terms cannot be enlarged or
diminished by judicial construction. 18

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It is settled that the
terms of the policy constitute the measure of the insurer's liability. 20 In the absence of statutory prohibition to the contrary,
insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they
deem best upon their obligations not inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as employees or
authorized representatives of Producers under paragraph (b) of the general exceptions clause of the policy which, for
easy reference, is again quoted:

GENERAL EXCEPTIONS

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

xxx xxx xxx

(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. . . . (emphases supplied)

There is marked disagreement between the parties on the correct meaning of the terms "employee" and "authorized
representatives."

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. 22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services are "labor-only"
contracts.

Producers, however, insists that by the express terms thereof, it is not the employer of Magalong. Notwithstanding
such express assumption of PRC Management Systems and Unicorn Security Services that the drivers and the
security guards each shall supply to Producers are not the latter's employees, it may, in fact, be that it is because
the contracts are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for in
Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the case for judgment on the
basis of their stipulation of facts which are strictly limited to the insurance policy, the contracts with PRC
Management Systems and Unicorn Security Services, the complaint for violation of P.D. No. 532, and the
information therefor filed by the City Fiscal of Pasay City, there is a paucity of evidence as to whether the
contracts between Producers and PRC Management Systems and Unicorn Security Services are "labor-only"
contracts.
But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC Management
Systems and Unicorn Security Services were truly independent contractors, we are satisfied that Magalong and Atiga
were, in respect of the transfer of Producer's money from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed, 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. In short, for these particular tasks, the three acted as agents of
Producers. 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." 23

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 32946
dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817 are
REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.