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

July 28, 2005

J. Quisimbing

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

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

Held: Yes. Petition granted.

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

Philamcare Health Systems Inc. vs. CA (379 SCRA 356

379 SCRA 356 – Mercantile Law – Insurance Law – Representation – Concealment –

Rescission of an Insurance Contract – Health Care Agreement is an Insurance
Contract
In 1988, Ernani Trinos applied for a health care insurance under the Philamcare
Health Systems, Inc. He was asked if he was ever treated for high blood, heart
trouble, diabetes, cancer, liver disease, asthma, or peptic ulcer; he answered no. His
application was approved and it was effective for one year. His coverage was
subsequently renewed twice for one year each. While the coverage was still in force
in 1990, Ernani suffered a heart attack for which he was hospitalized. The cost of the
hospitalization amounted to P76,000.00. Julita Trinos, wife of Ernani, filed a claim
before Philamcare for the latter to pay the hospitalization cost. Philamcare refused to
pay as it alleged that Ernani failed to disclose the fact that he was diabetic,
hypertensive, and asthmatic. Julita ended up paying the hospital expenses. Ernani
eventually died. In July 1990, Julita sued Philamcare for damages. Philamcare alleged
that the health coverage is not an insurance contract; that the concealment made by
Ernani voided the agreement.
ISSUE: Whether or not Philamcare can avoid the health coverage agreement.
HELD: No. The health coverage agreement (health care agreement) entered upon by
Ernani with Philamcare is a non-life insurance contract and is covered by the
Insurance Law. It is primarily a contract of indemnity. Once the member incurs
hospital, medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to the extent
agreed upon under the contract. There is no concealment on the part of Ernani. He
answered the question with good faith. He was not a medical doctor hence his
statement in answering the question asked of him when he was applying is an
opinion rather than a fact. Answers made in good faith will not void the policy.
Further, Philamcare, in believing there was concealment, should have taken the
necessary steps to void the health coverage agreement prior to the filing of the suit
by Julita. Philamcare never gave notice to Julita of the fact that they are voiding the
agreement. Therefore, Philamcare should pay the expenses paid by Julita.

Gulf Resorts Inc. vs. Philippine Charter Insurance Corp. GR No. 155167, 16 May 2005
G.R. No. 156167 May 16, 2005
Lessons Applicable: Stipulations Cannot Be Segregated (Insurance)
FACTS:
 Gulf Resorts, Inc at Agoo, La Union was insured with American Home
Assurance Company which includes loss or damage to shock to any of the
property insured by this Policy occasioned by or through or in consequence of
earthquake
 July 16, 1990: an earthquake struck Central Luzon and Northern Luzon so the
properties and 2 swimming pools in its Agoo Playa Resort were damaged
 August 23, 1990: Gulf's claim was denied on the ground that its insurance
policy only afforded earthquake shock coverage to the two swimming pools of the
resort
 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.
 RTC: Favored American Home - endorsement rider means that only the two
swimming pools were insured against earthquake shock
 CA: affirmed RTC
ISSUE: W/N Gulf can claim for its properties aside from the 2 swimming pools

HELD: YES. Affirmed.

 It is basic that all the provisions of the insurance policy should be examined
and interpreted in consonance with each other.
 All its parts are reflective of the true intent of the parties.
Insurance Code
Section 2(1)
contract of insurance as an agreement whereby one undertakes for a consideration
to indemnify another against loss, damage or liability arising from an unknown or
contingent event
 An insurance premium is the consideration paid an insurer for undertaking to
indemnify the insured against a specified peril.
 In the subject policy, no premium payments were made with regard to
earthquake shock coverage, except on the two swimming pools.

Eternal Gardens Memorial Park Corporation vs. Phil. American Life Insurance Co., GR No. 166245, 09 April
2008
G.R. No. 166245 April 9, 2008
Lessons Applicable: Exception to Perfection (Insurance)

FACTS:
 December 10, 1980: Philippine American Life Insurance Company (Philamlife)
entered into an agreement denominated as Creditor Group Life Policy No. P-
19202 with Eternal Gardens Memorial Park Corporation (Eternal)
 Under the policy (renewable annually), the clients of Eternal who
purchased burial lots from it on installment basis would be insured by Philamlife
 amount of insurance coverage depended upon the existing
balance
 Eternal complied by submitting a letter dated December 29, 1982, a list of
insurable balances of its lot buyers for October 1982 which includes John Chuang
which was stamped as received by Philam Life
 August 2, 1984, Chuang died with a balance of 100,000 php
 April 25, 1986: Philamlife had not furnished Eternal with any reply on its
insurance claim so its demanded its claim
 According to Philam Life, since the application was submitted only on
November 15, 1984, after his death, Mr. John Uy Chuang was not covered under
the Policy since his application was not approved. Moreover, the acceptance of
the premiums are only in trust for and not a sign of approval.
 RTC: favored Eternal
 CA: Reversed RTC
ISSUE: W/N Philam's inaction or non-approval meant the perfection of the insurance
contract.

HELD: YES. CA reversed

 construed in favor of the insured and in favor of the effectivity of the
insurance contract
 Upon a party’s purchase of a memorial lot on installment from Eternal, an
insurance contract covering the lot purchaser is created and the same is
effective, valid, and binding until terminated by Philamlife by disapproving the
insurance application
 Moreover, the mere inaction of the insurer on the insurance application must
not work to prejudice the insured
 The termination of the insurance contract by the insurer must be explicit and
unambiguous

RAFAEL ENRIQUEZ vs. SUN LIFE ASSURANCE COMPANY OF CANADA G.R. No. L-15895
November 29, 1920
FACTS:
On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life annuity. Two days later he
paid the sum of P6,000 to the manager of the company's Manila office and was given
a provisional receipt.

The application was forwarded to the head office of the company at Montreal, Canada
and on November 26, 1917 a notice of acceptance was sent by cable to
Manila. (There is no evidence however, whether on the same day the cable was
received notice was sent by the Manila office of Herrer that the application had been
accepted)

On December 4, 1917, the policy was issued. On December 18, 1917, Herrer
communicated his desire to withdraw his application through his lawyer.

The local office replied to Mr. Torres, stating that the policy had been issued, and
called attention to the notification of November 26, 1917. The reply was received by
Herrer's council a day after the latter died.
Plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from
the defendant life insurance company the sum of pesos 6,000 paid by the deceased
for a life annuity. The trial court gave judgment for the defendant.

ISSUE:
Whether or not the insurance contract between Sun Life and Herrer has been
perfected

RULING:
No, the contract for a life annuity in the case at bar was not perfected because it has
not been proved satisfactorily that the acceptance of the application ever came to
the knowledge of the applicant.

An acceptance of an offer of insurance not actually or constructively communicated

to the proposer does not make a contract. Only the mailing of acceptance, it has
been said, completes the contract of insurance, as the locus poenitentiae is ended
when the acceptance has passed beyond the control of the party.

An acceptance made by letter shall not bind the person making the offer except from
the time it came to his knowledge (Civil Code Art. 1262). When a letter or other mail
matter is addressed and mailed with postage prepaid there is a rebuttable
presumptionof fact that it was received by the addressee as soon as it could have
been transmitted to him in the ordinary course of the mails. But if any one of these
elemental facts fails to appear, it is fatal to the presumption. A letter will not be
presumed to have been received by the addressee unless it is shown that it was
deposited in the post-office, properly addressed and stamped.

Great Pacific v CA G.R. No. L-31845 April 30, 1979

J. De Castro

Facts:
Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen. He supplied the essential
data which petitioner Mondragon, the Branch Manager, wrote on the form. The latter paid the
annual premium the sum of P1,077.75 going over to the Company, but he retained the amount of
P1,317.00 as his commission for being a duly authorized agent of Pacific Life.
Upon the payment of the insurance premium, the binding deposit receipt was issued Ngo Hing.
Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application
form his strong recommendation for the approval of the insurance application. Then Mondragon
received a letter from Pacific Life disapproving the insurance application. The letter stated that the
said life insurance application for 20-year endowment plan is not available for minors below
seven years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and
advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the
company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific Life again strongly recommending the approval of the 20-year endowment insurance
plan to children, pointing out that since the customers were asking for such coverage.
Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the recovery before the Court of First Instance of
Cebu, which ruled against him.
Issues:
1. Whether the binding deposit receipt constituted a temporary contract of the life insurance in
question
2. Whether Ngo Hing concealed the state of health and physical condition of Helen Go, which
rendered void the policy

Held: No. Yes. Petition dismissed.

Ratio:
The receipt was intended to be merely a provisional insurance contract. Its perfection was subject
to compliance of the following conditions: (1) that the company shall be satisfied that
the applicant was insurable on standard rates; (2) that if the company does not accept
the application and offers to issue a policy for a different plan, the insurance contract shall not be
binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded;
and (3) that if the company disapproves the application, the insurance applied for shall not be in
force at any time, and the premium paid shall be returned to the applicant.
The receipt is merely an acknowledgment that the latter's branch office had received from
the applicant the insurance premium and had accepted the application subject for processing by
the insurance company. There was still approval or rejection the same on the basis of whether or
not the applicant is "insurable on standard rates." Since Pacific Life disapproved the
insurance application of respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time. The binding deposit receipt is conditional and does not insure
outright. This was held in Lim v Sun.
The deposit paid by private respondent shall have to be refunded by Pacific Life.
2. Ngo Hing had deliberately concealed the state of health of his daughter Helen Go. When he
supplied data, he was fully aware that his one-year old daughter is typically a mongoloid child. He
withheld the fact material to the risk insured.
“The contract of insurance is one of perfect good faith uberrima fides meaning good faith,
absolute and perfect candor or openness and honesty; the absence of any concealment or
demotion, however slight.”
The concealment entitles the insurer to rescind the contract of insurance.

Spouses Cha vs. CA, (August 18, 1997

G.R. No. 124520 August 18, 1997

Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)

Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code

FACTS:

 Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation
entered a 1 year lease contract with a stipulation not to insure against fire the
chattels, merchandise, textiles, goods and effects placed at any stall or store or
space in the leased premises without first obtaining the written consent and
approval of the lessor. But it insured against loss by fire their merchandise inside
the leased premises for P500,000 with the United Insurance Co., Inc. without the
written consent of CKS
 On the day the lease contract was to expire, fire broke out inside the leased
premises and CKS learning that the spouses procured an insurance wrote to
United to have the proceeds be paid directly to them. But United refused so CKS
filed against Spouses Cha and United.
 RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay
P50,000 as exemplary damages, P20,000 as attorney’s fees and costs of suit
 CA: deleted exemplary damages and attorney’s fees
ISSUE: W/N the CKS has insurable interest because the spouses Cha violated the
stipulation

HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.

 Sec. 18. No contract or policy of insurance on property shall be enforceable

except for the benefit of some person having an insurable interest in the property
insured
 A non-life insurance policy such as the fire insurance policy taken by
petitioner-spouses over their merchandise is primarily a contract of indemnity.
Insurable interest in the property insured must exist a t the time the insurance
takes effect and at the time the loss occurs. The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent
a person from taking out an insurance policy on property upon which he has no
insurable interest and collecting the proceeds of said policy in case of loss of the
property. In such a case, the contract of insurance is a mere wager which is void
under Section 25 of the Insurance Code.
 SECTION 25. Every stipulation in a policy of Insurance for the payment of
loss, whether the person insured has or has not any interest in the property
insured, or that the policy shall be received as proof of such interest, and every
policy executed by way of gaming or wagering, is void
 Section 17. The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss of injury thereof
 The automatic assignment of the policy to CKS under the provision of the
lease contract previously quoted is void for being contrary to law and/or public
policy. The proceeds of the fire insurance policy thus rightfully belong to the
spouses. The liability of the Cha spouses to CKS for violating their lease contract
in that Cha spouses obtained a fire insurance policy over their own merchandise,
without the consent of CKS, is a separate and distinct issue which we do not
resolve in this case.

Geagonia v CA G.R. No. 114427 February 6, 1995

Facts:
Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for
P100,000.00. The 1 year policy and covered thestock trading of dry goods.
The policy noted the requirement that
"3. The insured shall give notice to the Company of any insurance or insurances already
effected, or which may subsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless
notice be given and the particulars of such insurance or insurances be stated therein or endorsed
in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the total insurance or
insurances in force at the time of the loss or damage is not more than P200,000.00."
The petitioners’ stocks were destroyed by fire. He then filed a claim which was subsequently
denied because the petitioner’s stocks were covered by two other fire insurance policies for Php
200,000 issued by PFIC. The basis of the private respondent's denial was the
petitioner's alleged violation of Condition 3 of the policy.
Geagonia then filed a complaint against the private respondent in the Insurance Commission for
the recovery of P100,000.00 under fire insurance policy and damages. He claimed that he knew
the existence of the other two policies. But, he said that he had no knowledge of the provision in
the private respondent's policy requiring him to inform it of the prior policies and this requirement
was not mentioned to him by the private respondent's agent.
The Insurance Commission found that the petitioner did not violate Condition 3 as he had no
knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was
Cebu Tesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent;
and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.
The Insurance Commission then ordered the respondent company to pay complainant the sum of
P100,000.00 with interest and attorney’s fees.
CA reversed the decision of the Insurance Commission because it found that the petitioner knew
of the existence of the two other policies issued by the PFIC.

Issues:
1. WON the petitioner had not disclosed the two insurance policies when he obtained the fire
insurance and thereby violated Condition 3 of the policy.
2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted

Ratio:
1. The court agreed with the CA that the petitioner knew of the prior policies issued by the PFIC.
His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His
testimony to the contrary before the Insurance Commissioner and which the latter relied upon
cannot prevail over a written admission made ante litem motam. It was, indeed, incredible that he
did not know about the prior policies since these policies were not new or original.
2. Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture
of insurance policiesshould be construed most strictly against those for whose benefits they are
inserted, and most favorably toward those against whom they are intended to operate.
With these principles in mind, Condition 3 of the subject policy is not totally free from ambiguity
and must be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition
applies only to double insurance, and (b) the nullity of the policy shall only be to the extent
exceeding P200,000.00 of the total policies obtained.
Furthermore

G.R. No. 147839 June 8, 2006

Lessons Applicable: Existing Interest (Insurance)

Laws Applicable: Article 1504,Article 1263, Article 2207 of the Civil Code, Section 13
of Insurance Code

FACTS:
 Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans.
while Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing
trademarks owned by Levi Strauss & Co
 IMC and LSPI separately obtained from Insurance Company of North
America fire insurance policies for their book debt endorsements related to their
ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines which are
unpaid 45 days after the time of the loss
 February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City,
owned by Gaisano Cagayan, Inc., containing the ready-made clothing materials
sold and delivered by IMC and LSPI was consumed by fire.
 February 4, 1992: Insurance Company of North America filed a complaint for
damages against Gaisano Cagayan, Inc. alleges that IMC and LSPI filed their
claims under their respective fire insurance policies which it paid thus it was
subrogated to their rights
 Gaisano Cagayan, Inc: not be held liable because it was destroyed due
to fortuities event or force majeure
 RTC: IMC and LSPI retained ownership of the delivered goods until fully paid,
it must bear the loss (res perit domino)
 CA: Reversed - sales invoices is an exception under Article 1504 (1) of the
Civil Code to res perit domino
ISSUE: W/N Insurance Company of North America can claim against Gaisano
Cagayan for the debt that was isnured

HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED

 insurance policy is clear that the subject of the insurance is the book debts
and NOT goods sold and delivered to the customers and dealers of the insured
 ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until
the ownership therein is transferred to the buyer, but when the ownership therein
is transferred to the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the time of
such delivery;
 IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment of the value of the delivered goods. Unlike
the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is
not determined by concept of title, but whether insured has substantial economic
interest in the property
 Section 13 of our Insurance Code defines insurable interest as "every interest
in property, whether real or personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might directly damnify the
insured." Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an inchoate
interest founded on existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
 Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.
 it is sufficient that the insured is so situated with reference to the
property that he would be liable to loss should it be injured or destroyed by the
peril against which it is insured
 an insurable interest in property does not necessarily imply a property
interest in, or a lien upon, or possession of, the subject
 matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest
 insurance in this case is not for loss of goods by fire but for petitioner's
accounts with IMC and LSPI that remained unpaid 45 days after the fire
- obligation is pecuniary in nature
 obligor should be held exempt from liability when the loss occurs thru a
fortuitous event only holds true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding him liable even in case of
fortuitous event
 Article 1263 of the Civil Code in an obligation to deliver a generic thing, the
loss or destruction of anything of the same kind does not extinguish the
obligation (Genus nunquan perit)
 The subrogation receipt, by itself, is sufficient to establish not only the
relationship of respondent as insurer and IMC as the insured, but also the amount
paid to settle the insurance claim
 Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract.
 As to LSPI, no subrogation receipt was offered in evidence.
 Failure to substantiate the claim of subrogation is fatal to petitioner's
case for recovery of the amount of P535,613

Great Pacific Life Assurance vs. CA (316 SCRA 678)

113899 October 13, 1999
Lessons Applicable:

 Credit in Life and Health Insurance (Insurance)

 Mortgagor (Insurance)
Laws Applicable: Sec. 8 of Insurance Code

FACTS:

 A contract of group life insurance was executed between Great Pacific Life
Assurance Corporation Grepalife) and Development Bank of the Philippines (DBP)
 Grepalife agreed to insure the lives of eligible housing loan mortgagors
of DBP
 November 11, 1983: Dr. Wilfredo Leuterio, a physician and a housing debtor
of DBP applied for membership in the group life insurance plan
 Dr. Leuterio answered questions concerning his health condition as
follows:
 “7. Have you ever had, or consulted, a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical
impairment?

Answer: No. If so give details ___________.

8. Are you now, to the best of your knowledge, in good health?

Answer: [ x ] Yes [ ] No.”[4]

 November 15, 1983: Grepalife issued Certificate No. B-18558, as insurance

coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness
amounting to P86,200
 August 6, 1984: Dr. Leuterio died due to “massive cerebral hemorrhage.”
 DBP submitted a death claim to Grepalife
 Grepalife denied the claim alleging that Dr. Leuterio was not
physically healthy when he applied
 RTC: Favored Medarda V. Leuterio (widow) and held Grepalife (insurer) liable
to pay DBP (creditor of the insured Dr. Wilfredo Leuterio)
 CA sustained
ISSUE:
1. W/N DBP has insurable interest as creditor - YES
2. W/N Grepalife should be held liable - YES

HELD:

1. YES
 In this type of policy insurance, the mortgagee is simply an appointee of the
insurance fund, such loss-payable clause does not make the mortgagee a party
to the contract
 Section 8 of the Insurance Code provides:

“Unless the policy provides, where a mortgagor of property effects insurance in his
own name providing that the loss shall be payable to the mortgagee, or assigns a
policy of insurance to a mortgagee, the insurance is deemed to be upon the interest
of the mortgagor, who does not cease to be a party to the original contract, and any
act of his, prior to the loss, which would otherwise avoid the insurance, will have the
same effect, although the property is in the hands of the mortgagee, but any act
which, under the contract of insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same effect as if it had been
performed by the mortgagor.”
 The insured Dr. Wilfredo Leuterio did not cede to the mortgagee all his rights
or interests in the insurance. When Grepalife denied payment, DBP collected the
debt from the mortgagor and took the necessary action of foreclosure on the
residential lot of Dr. Wilfredo Leuterio
 Insured may be regarded as the real party in interest, although he has
assigned the policy for the purpose of collection, or has assigned as collateral
security any judgment he may obtain
2. YES
 medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy
 widow who was not even sure if the medicines taken by Dr. Leuterio were for
hypertension
 Grepalife failed to establish that there was concealment made by the insured,
hence, it cannot refuse payment of the claim
 fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract. Misrepresentation as a defense of the insurer to
avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer
 The policy states that upon receipt of due proof of the Debtor’s death during
the terms of this insurance, a death benefit in the amount of P86,200.00 shall be
paid. In the event of the debtor’s death before his indebtedness with the creditor
shall have been fully paid, an amount to pay the outstanding indebtedness shall
first be paid to the Creditor and the balance of the Sum Assured, if there is any
shall then be paid to the beneficiary/ies designated by the debtor.
 DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor’s
outstanding loan
 insurance proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries
 Equity dictates that DBP should not unjustly enrich itself at the
expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot
collect the insurance proceeds, after it already foreclosed on the mortgage
 Sunlife v CA G.R. No. 105135 June 22, 1995
 J. Quiason

 Facts:
 Robert John B. Bacani procured a life insurance contract for himself from Sunlife. He was
issued a policy for P100,000.00, with double indemnity in case of accidental death. The
designated beneficiary was his mother, Bernarda Bacani.
 The insured died in a plane crash. Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner
conducted an investigation and its findings prompted it to reject the claim.
 Sunlife informed Bacani that the insured did not disclose material facts relevant to the
issuance of the policy, thus rendering the contract of insurance voidable.
A check representing the total premiums paid in the amount of P10,172.00 was attached
to said letter.
 Petitioner claimed that the insured gave false statements in his application. The
deceased answered claimed that he consulted a Dr. Raymundo of the Chinese General
Hospital for cough and flu complications. The other questions were answered in the
negative.
 Petitioner discovered that two weeks prior to his application for insurance, the insured
was examined and confined at the Lung Center of the Philippines, where he was
diagnosed for renal failure. During his confinement, the deceased was subjected to
urinalysis tests.
 Bernarda Bacani and her husband filed an action for specific performance against
petitioner with the RTC. The court ruled in favor of the spouses and ordered Sunlife to
pay P100,000.00.
 In ruling for private respondents, the trial court concluded that the facts concealed by the
insured were made in good faith and under a belief that they need not be disclosed. The
court also held that the medial history was irrelevant because it wasn’t medical insurance.
 The Court of Appeals affirmed the decision of the trial court. The appellate court ruled that
petitioner cannot avoid its obligation by claiming concealment because the cause of
death was unrelated to the facts concealed by the insured. Petitioner's motion for
reconsideration was denied. Hence, this petition.

 Issue: WON the insured was guilty of misrepresentation which made the contract void.
 
 Held: Yes. Petition dismissed.

 Ratio:
 Section 26 of The Insurance Code required a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material
to the contract and as to which he makes no warranty, and which the other has no means
of ascertaining.
 “A neglect to communicate that which a party knows and ought to communicate, is called
concealment.”
 “Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom communication is due, in
forming his estimate of the disadvantages of the proposed contract or in making
his inquiries.”
 The terms of the contract are clear. The insured is specifically required to disclose to the
insurer matters relating to his health.
 The information which the insured failed to disclose were material and relevant to the
approval and issuance of the insurance policy. The matters concealed would have
definitely affected petitioner's action on his application, either by approving it with the
corresponding adjustment for a higher premium or rejecting the same. Moreover, a
disclosure may have warranted a medical examination of the insured by petitioner in
order for it to reasonably assess the risk involved in accepting the application.
 Vda. de Canilang v. Court of Appeals- materiality of the information withheld does not
depend on the state of mind of the insured. Neither does it depend on the actual or
physical events which ensue.
 “Good faith" is no defense in concealment. The insured's failure to disclose the fact that
he was hospitalized raises grave doubts about his eligibility. Such concealment was
deliberate on his part.
 The argument, that petitioner's waiver of the medical examination of the insured debunks
the materiality of the facts concealed, is untenable.
 Saturnino v. Philippine American Life Insurance " . . . the waiver of a medical examination
[in a non-medical insurance contract] renders even more material the information
required of the applicant concerning previous condition of health and diseases suffered,
for such information necessarily constitutes an important factor which the insurer takes
into consideration in deciding whether to issue the policy or not . . . "
 Anent the finding that the facts concealed had no bearing to the cause of death of the
insured, it is well settled that the insured need not die of the disease he had failed to
disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming
his estimates of the risks of the proposed insurance policy or in making inquiries as held
in Henson.

Philamcare v CA G.R. No. 125678. March 18, 2002

J. Ynares-Santiago

Facts:
Ernani Trinos applied for a health care coverage with Philam. He answered no to a question
asking if he or his family members were treated to heart trouble, asthma, diabetes, etc.
The application was approved for 1 year. He was also given hospitalization benefits and out-
patient benefits. After the period expired, he was given an expanded coverage for Php 75,000.
During the period, he suffered from heart attack and was confined at MMC. The wife tried to claim
the benefits but the petitioner denied it saying that he concealed his medical history by answering
no to the aforementioned question. She had to pay for the hospital bills amounting to 76,000. Her
husband subsequently passed away. She filed a case in the trial court for the collection of the
amount plus damages. She was awarded 76,000 for the bills and 40,000 for damages. The CA
affirmed but deleted awards for damages. Hence, this appeal.

Issue: WON a health care agreement is not an insurance contract; hence the “incontestability
clause” under the Insurance Code does not apply.

Held: No. Petition dismissed.

Ratio:
Petitioner claimed that it granted benefits only when the insured is alive during the one-year
duration. It contended that there was no indemnification unlike in insurance contracts. It
supported this claim by saying that it is a health maintenance organization covered by the DOH
and not the Insurance Commission. Lastly, it claimed that the Incontestability clause didn’t apply
because two-year and not one-year effectivity periods were required.
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.”

Section 3 states: every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children.
In this case, the husband’s health was the insurable interest. The health care agreement was in
the nature of non-life insurance, which is primarily a contract of indemnity. The provider must pay
for the medical expenses resulting from sickness or injury.
While petitioner contended that the husband concealed materialfact of his sickness,
the contract stated that:
“that any physician is, by these presents, expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed Members.”

This meant that the petitioners required him to sign authorization to furnish reports about his
medical condition. The contractalso authorized Philam to inquire directly to his medical history.

Hence, the contention of concealment isn’t valid.

They can’t also invoke the “Invalidation of agreement” clause where failure of the insured to
disclose information was a grounds for revocation simply because the answer assailed by the
company was the heart condition question based on the insured’s opinion. He wasn’t a medical
doctor, so he can’t accurately gauge his condition.

Henrick v Fire- “in such case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry.”

Fraudulent intent must be proven to rescind the contract. This was incumbent upon the provider.

“Having assumed a responsibility under the agreement, petitioner is bound to answer the same to
the extent agreed upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or whenever he avails
of the covered benefits which he has prepaid.”

Section 27 of the Insurance Code- “a concealment entitles the injured party to rescind
a contract of insurance.”
As to cancellation procedure- Cancellation requires certain conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of
the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based
None were fulfilled by the provider.

As to incontestability- The trial court said that “under the title Claim procedures of expenses,
the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of
the Agreement within which to contest the membershipof the patient if he had previous ailment of
asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or
hypertension. The periods having expired, the defense of concealment or misrepresentation no
longer lie.”

Vda Canilang v CA G.R. No. 92492 June 17, 1993

J. Feliciano

Facts:
Canilang was found to have suffered from sinus tachycardia then bronchitis after a check-up from
his doctor. The next day, he applied for a "non-medical" insurance policy with respondent
Grepalife naming his wife, Thelma Canilang, as his beneficiary. This was to the value of P19,700.
He died of "congestive heart failure," "anemia," and "chronic anemia." The widow filed a claim
with Great Pacific which the insurer denied on the ground that the insured had concealed material
information from it.
Petitioner then filed a complaint against Great Pacific for recovery of the insurance proceeds.
Petitioner testified that she was not aware of any serious illness suffered by her late husband and
her husband had died because of a kidney disorder. The doctor who gave the check up stated
that he treated the deceased for “sinus tachycardia” and "acute bronchitis."
Great Pacific presented a physician who testified that the deceased's insurance application had
been approved on the basis of his medical declaration. She explained that as a rule, medical
examinations are required only in cases where the applicanthas indicated in his application for
insurance coverage that he has previously undergone medical consultation and hospitalization.
The Insurance Commissioner ordered Great Pacific to pay P19,700 plus legal interest and
P2,000.00 as attorney's fees. On appeal by Great Pacific, the Court of Appeals reversed. It found
that the failure of Jaime Canilang to disclose previous medical consultation and treatment
constituted material information which should have been communicated to Great Pacific to enable
the latter to make proper inquiries.
Hence this petition by the widow.

Issue: Won Canilang was guilty of misrepresentation

Held: Yes. Petition denied.

Ratio:
There was a right of the insurance company to rescind the contract if it was proven that the
insured committed fraud in not affirming that he was treated for heart condition and other ailments
stipulated.
Apart from certifying that he didn’t suffer from such a condition, Canilang also failed to disclose in
the that he had twice consulted a doctor who had found him to be suffering from "sinus
tachycardia" and "acute bronchitis."
Under the Insurance Code:
Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is called
a concealment.
Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all
factors within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining.
The information concealed must be information which the concealing party knew and should have
communicated. The test of materiality of such information is contained in Section 31:
Sec. 31. Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming
his estimate of the disadvantages of the proposed contract, or in making his inquiries.
The information which Jaime Canilang failed to disclose was material to the ability of Great
Pacific to estimate the probable risk he presented as a subject of life insurance. Had he disclosed
his visits to his doctor, the diagnosis made and medicines prescribed by such doctor, in the
insurance application, it may be reasonably assumed that Great Pacific would have made
further inquiries and would have probably refused to issue a non-medical insurance policy.
Materiality relates rather to the "probable and reasonable influence of the facts" upon the party to
whom the communication should have been made, in assessing the risk involved in making or
omitting to make further inquiries and in accepting the application for insurance; that "probable
and reasonable influence of the facts" concealed must, of course, be determined objectively, by
the judge ultimately.
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Canilang believed
that he was suffering from minor ailment like a common cold. Section 27 stated that:
Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a
contract of insurance.
The failure to communicate must have been intentional rather than inadvertent. Canilang could
not have been unaware that his heart beat would at times rise to high and alarming levels and
that he had consulted a doctor twice in the two (2) months before applying for non-medical
insurance. Indeed, the last medical consultation took place just the day before the
insurance application was filed. In all probability, Jaime Canilang went to visit his doctor precisely
because of the ailment.
Canilang's failure to set out answers to some of the questions in the
insurance application constituted concealment.

EMILIO TAN vs. COURT OF APPEALS G.R. No. 48049, 29 June 1989

FACTS: Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of
P80,000.00 with respondent company Philippine American Life Insurance Company. Said
application was approved and a corresponding policy was issued effective November 5, 1973,
with petitioners as the beneficiaries. On April 26, 1975, Tan Lee Siong died of hepatoma. Hence,
petitioners filed with respondent company their claim for the proceeds of the life insurance policy.
However, the insurance company denied the said claim and rescinded the policy by reason of the
alleged misrepresentation and concealment of material facts made by the deceased Tan Lee
Siong in his application for insurance. The premiums paid on the policy were thereupon refunded.
The petitioners contend that the respondent company no longer had the right to rescind the
contract of insurance as rescission must allegedly be done during the lifetime of the insured
within two years and prior to the commencement of action.

ISSUE: Whether or not the insurance company has the right to rescind the contract of insurance
despite the presence of an incontestability clause
HELD:

YES. The so-called “incontestability clause” precludes the insurer from raising the defenses of
false representations or concealment of material facts insofar as health and previous diseases
are concerned if the insurance has been in force for at least two years during the insured’s
lifetime. The phrase “during the lifetime” found in Section 48 of the Insurance Law simply means
that the policy is no longer considered in force after the insured has died. The key phrase in the
second paragraph of Section 48 is “for a period of two years”. The policy was issued on
November 6, 1973 and the insured died on April 26, 1975. The policy was thus in force for a
period of only one year and five months. Considering that the insured died before the two-year
period has lapsed, respondent company is not, therefore, barred from proving that the policy is
void ab initio by reason of the insured’s fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance and refunded the premiums paid on
November 11, 1975, previous to the commencement of this action on November 27, 1975.
WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the
Court of Appeals is AFFIRMED

G.R. No. 151890 June 20, 2006

PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner,

vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent.

x- - - - - - - - - - - - - - - - - - - - - - - - - x

G.R. No. 151991 June 20, 2006

TRANS-ASIA SHIPPING LINES, INC., petitioner,

vs.
PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.

DECISION

CHICO-NAZARIO, J:

This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner
Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia
Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision 1 dated 6
November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the
Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil
Case No. CEB-20709. The 29 January 2002 Resolution3 of the Court of Appeals, denying
PRUDENTIAL’s Motion for Reconsideration and TRANS-ASIA’s Partial Motion for
Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set
aside.

The Facts

The material antecedents as found by the court a quo and adopted by the appellate court are as
follows:
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of
premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and
machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning
[from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by Marine Policy No.
MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire
broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26,
1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage sustained by the vessel. This is
evidenced by a letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved its
right to subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon final
survey and determination by average adjuster Richard Hogg International (Phil.) of the damage
sustained by reason of fire. An adjuster’s report on the fire in question was submitted by Richard
Hogg International together with the U-Marine Surveyor Report (Exhibits "4" to "4-115").

On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust
receipt", a portion of which read (sic):

"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION
ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic], repayable
only in the event and to the extent that any net recovery is made by Trans-Asia Shipping
Corporation, from any person or persons, corporation or corporations, or other parties, on
account of loss by any casualty for which they may be liable occasioned by the 25 October 1993:
Fire on Board." (Exhibit "4")

In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiff’s claim (Exhibit "5"). The
letter reads:

"After a careful review and evaluation of your claim arising from the above-captioned incident, it
has been ascertained that you are in breach of policy conditions, among them "WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your claim
is not compensable and hereby DENIED."

This was followed by defendant’s letter dated 21 July 1997 requesting the return or payment of
the P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6"). 4

Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint 5 for Sum of
Money against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB-20709,
wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the
same represents the balance of the indemnity due upon the insurance policy in the total amount
of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section
2436 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended.

In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the
defense that TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as
facts and law require and incurred no liability to TRANS-ASIA; that TRANS-ASIA has no cause of
action; and, that its claim has been effectively waived and/or abandoned, or it is estopped from
pursuing the same. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00,
which it allegedly advanced to TRANS-ASIA by way of a loan without interest and without
prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey
fees and P200,000.00, representing attorney’s fees.

The Ruling of the Trial Court

On 6 June 2000, the court a quo rendered Judgment 8 finding for (therein defendant)
PRUDENTIAL. It ruled that a determination of the parties’ liabilities hinged on whether TRANS-
ASIA violated and breached the policy conditions on WARRANTED VESSEL CLASSED AND
CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to
maintain the vessel at a certain class at all times pertinent during the life of the policy. According
to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the
violation thereof entitled PRUDENTIAL, the insured party, to rescind the contract. 9

Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the
concealment made by TRANS-ASIA that the vessel was not adequately maintained to preserve
its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured
party to rescind the contract. The court a quo found merit in PRUDENTIAL’s contention that there
was nothing in the adjustment of the particular average submitted by the adjuster that would show
that TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan and trust
receipt, the court a quo said that in substance and in form, the same is a receipt for a loan. It held
that if TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance payment, it
should have so clearly stated as such.

The court a quo did not award PRUDENTIAL’s claim for P500,000.00, representing expert survey
fees on the ground of lack of sufficient basis in support thereof. Neither did it award attorney’s
fees on the rationalization that the instant case does not fall under the exceptions stated in Article
220811 of the Civil Code. However, the court a quo granted PRUDENTIAL’s counterclaim stating
that there is factual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by
way of loan without interest.

The decretal portion of the Judgment of the RTC reads:

WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a
cause of action.

On defendant’s counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing

the loan extended to it by the defendant, within a period of ten (10) days from and after this
judgment shall have become final and executory.12

The Ruling of the Court of Appeals

On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001,
reversed the 6 June 2000 Judgment of the RTC.

On the issue of TRANS-ASIA’s alleged breach of warranty of the policy condition CLASSED AND
CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party asserting the
non-compensability of the loss had the burden of proof to show that TRANS-ASIA breached the
warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification
to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for
reaching the conclusion that the warranty was breached. The Court of Appeals opined that the
lack of a certification does not necessarily mean that the warranty was breached by TRANS-
ASIA. Instead, the Court of Appeals considered PRUDENTIAL’s admission that at the time the
insurance contract was entered into between the parties, the vessel was properly classed by
Bureau Veritas, a classification society recognized by the industry. The Court of Appeals similarly
gave weight to the fact that it was the responsibility of Richards Hogg International (Phils.) Inc.,
the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its
conclusion that mere absence of a certification does not warrant denial of TRANS-ASIA’s claim
under the insurance policy.
In the same token, the Court of Appeals found the subject warranty allegedly breached by
TRANS-ASIA to be a rider which, while contained in the policy, was inserted by PRUDENTIAL
without the intervention of TRANS-ASIA. As such, it partakes of a nature of a contract d’adhesion
which should be construed against PRUDENTIAL, the party which drafted the contract. Likewise,
according to the Court of Appeals, PRUDENTIAL’s renewal of the insurance policy from noon of 1
July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a
waiver by PRUDENTIAL of any breach of warranty committed by TRANS-ASIA.

Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction
between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court of
Appeals concluded that TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00
to PRUDENTIAL based on its finding that the aforesaid amount was PRUDENTIAL’s partial
payment to TRANS-ASIA’s claim under the policy. Finally, the Court of Appeals denied TRANS-
ASIA’s prayer for attorney’s fees, but held TRANS-ASIA entitled to double interest on the policy
for the duration of the delay of payment of the unpaid balance, citing Section 244 13 of the
Insurance Code.

Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:

WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is
ALLOWED and the Judgment appealed from REVERSED. The P3,000,000.00 initially paid by
appellee Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and covered by a
"Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss
suffered by appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further,
appellee is hereby ORDERED to pay appellant the additional amount of P8,395,072.26
representing the balance of the loss suffered by the latter as recommended by the average
adjuster Richard Hogg International (Philippines) in its Report, with double interest starting from
the time Richard Hogg’s Survey Report was completed, or on 13 August 1996, until the same is
fully paid.

All other claims and counterclaims are hereby DISMISSED.

All costs against appellee.14

Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for
Reconsideration and Partial Motion for Reconsideration thereon, respectively, which motions
were denied by the Court of Appeals in the Resolution dated 29 January 2002.

The Issues

Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No.
151890, relying on the following grounds, viz:

I.

THE AWARD IS GROSSLY UNCONSCIONABLE.

II.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY

TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE
INSURANCE POLICY.
 III.

THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE
BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL
WARRANTY.

IV.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED
IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER.

V.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE
POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF
THE WARRANTY BY TRANS-ASIA.

VI.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT"
EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING
PARTIAL PAYMENT THEREOF.

VII.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL

OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF
PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY.

VIII.

THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING
THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING
PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13
AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15

Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for
Review docketed as G.R. No. 151991, raising the following grounds for the allowance of the
petition, to wit:

I.

THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEY’S FEES TO

PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE
CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD
FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER
TRANS-ASIA’S INSURANCE CLAIM.

II.
THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001
SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST
OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM. 16

In our Resolution of 2 December 2002, we granted TRANS-ASIA’s Motion for Consolidation 17 of

G.R. Nos. 151890 and 151991;18 hence, the instant consolidated petitions.

In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA
arising from the subject insurance contract; (2) the liability, if any, of TRANS-ASIA to
PRUDENTIAL arising from the transaction between the parties as evidenced by a document
denominated as "Loan and Trust Receipt," dated 29 May 1995; and (3) the amount of interest to
be imposed on the liability, if any, of either or both parties.

Ruling of the Court

Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not
questions of fact, may be raised.19 This rule may be disregarded only when the findings of fact of
the Court of Appeals are contrary to the findings and conclusions of the trial court, or are not
supported by the evidence on record.20 In the case at bar, we find an incongruence between the
findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the
issues, we are constrained to assess the evidence adduced by the parties to make appropriate
findings of facts as are necessary.

I.

A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy
condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as
contained in the subject insurance contract.

In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an

express and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No.
MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel,
"M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to
PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA
KOREA" was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED.
PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of
TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the
contract under Sec. 7421 of the Insurance Code.

The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL’s
Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The pertinent portions of
his testimony on direct examination is reproduced hereunder, viz:

ATTY. LIM

Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action
was taken?

A It was eventually determined that there was a breach of the policy condition, and basically there
is a breach of policy warranty condition and on that basis the claim was denied.
Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as
Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was breached
or violated by the plaintiff which constituted your basis for denying the claim as you testified.

A Warranted Vessel Classed and Class Maintained.

ATTY. LIM

Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the
policy below the printed words: "Clauses, Endorsements, Special Conditions and Warranties,"
below this are several typewritten clauses and the witness pointed out in particular the clause
reading: "Warranted Vessel Classed and Class Maintained."

COURT

Q Will you explain that particular phrase?

A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class
warranty, it must be entered in the classification society.

COURT

Slowly.

WITNESS

(continued)

A A classification society is an organization which sets certain standards for a vessel to maintain
in order to maintain their membership in the classification society. So, if they failed to meet that
standard, they are considered not members of that class, and thus breaching the warranty, that
requires them to maintain membership or to maintain their class on that classification society. And
it is not sufficient that the member of this classification society at the time of a loss, their
membership must be continuous for the whole length of the policy such that during the effectivity
of the policy, their classification is suspended, and then thereafter, they get reinstated, that again
still a breach of the warranty that they maintained their class (sic). Our maintaining team
membership in the classification society thereby maintaining the standards of the vessel (sic).

ATTY. LIM

Q Can you mention some classification societies that you know?

A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification
Society, The Philippine Registration of Ships Society, China Classification, NKK and Company
Classification Society, and many others, we have among others, there are over 20 worldwide. 22

At the outset, it must be emphasized that the party which alleges a fact as a matter of defense
has the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANS-
ASIA breached the warranty in the policy, has the burden of evidence to establish the same.
Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense;
otherwise, failing to establish the same, it remains self-serving. Clearly, if no evidence on the
alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would
be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence
to establish the fact of breach.

In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof
to show proof of loss, and the coverage thereof, in the subject insurance policy. However, in the
course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or
the burden of evidence shifts to defendant to controvert plaintiff’s prima facie case, otherwise, a
verdict must be returned in favor of plaintiff.23 TRANS-ASIA was able to establish proof of loss
and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of
evidence shifted to PRUDENTIAL to counter TRANS-ASIA’s case, and to prove its special and
affirmative defense that TRANS-ASIA was in violation of the particular condition on CLASSED
AND CLASS MAINTAINED.

We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in
discharging the burden of evidence that TRANS-ASIA breached the subject policy condition on
CLASSED AND CLASS MAINTAINED.

Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio
Fernandez, made a categorical admission that at the time of the procurement of the insurance
contract in July 1993, TRANS-ASIA’s vessel, "M/V Asia Korea" was properly classed by Bureau
Veritas, thus:

Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia
Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured that
Exhibit "1" on 1st July 1993 (sic).

WITNESS

A I recall that they were classed.

ATTY. LIM

Q With what classification society?

A I believe with Bureau Veritas.24

As found by the Court of Appeals and as supported by the records, Bureau Veritas is a
classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA was
properly classed at the time the contract of insurance was entered into, thus, it becomes
incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being
properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately,
PRUDENTIAL failed to support the allegation.

We are in accord with the ruling of the Court of Appeals that the lack of a certification in
PRUDENTIAL’s records to the effect that TRANS-ASIA’s "M/V Asia Korea" was CLASSED AND
CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the
conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With more
reason must we sustain the findings of the Court of Appeals on the ground that as admitted by
PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg
International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of
TRANS-ASIA cannot be gleaned from the average adjuster’s survey report, or adjustment of
particular average per "M/V Asia Korea" of the 25 October 1993 fire on board.
We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that,
"the violation of a material warranty, or other material provision of a policy on the part of either
party thereto, entitles the other to rescind." It is generally accepted that "[a] warranty is a
statement or promise set forth in the policy, or by reference incorporated therein, the untruth or
non-fulfillment of which in any respect, and without reference to whether the insurer was in fact
prejudiced by such untruth or non-fulfillment, renders the policy voidable by the
insurer."25However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the
same must be duly shown by the party alleging the same. We cannot sustain an allegation that is
unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the
warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be
allowed to recover its rightful claims on the policy.

B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same.

The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA
breached the warranty provision on CLASSED AND CLASS MAINTAINED, underscored that
PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIA’s breach of warranty
as alleged, ratiocinating, thus:

Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2)
consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon
of 01 July 1996. This renewal is deemed a waiver of any breach of warranty. 26

PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal
policies are deemed a waiver of TRANS-ASIA’s alleged breach, averring herein that the
subsequent policies, designated as MH94/1595 and MH95/1788 show that they were issued only
on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANS-ASIA
that it be furnished a copy of the certification specifying that the insured vessel "M/V Asia Korea"
was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the
breach by TRANS-ASIA of the subject warranty clause only on 21 April 1997. On even date,
PRUDENTIAL sent TRANS-ASIA a letter of denial, advising the latter that their claim is not
compensable. In fine, PRUDENTIAL would have this Court believe that the issuance of the
renewal policies cannot be a waiver because they were issued without knowledge of the alleged
breach of warranty committed by TRANS-ASIA.27

We are not impressed. We do not find that the Court of Appeals was in error when it held that
PRUDENTIAL, in renewing TRANS-ASIA’s insurance policy for two consecutive years after the
loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIA’s breach of
the subject warranty, if any. Breach of a warranty or of a condition renders the contract defeasible
at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by
the mere expression of an intention so to do. In that event his liability under the policy continues
as before.28 There can be no clearer intention of the waiver of the alleged breach than the
renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and
MH95/1788, issued in the years 1994 and 1995, respectively.

To our mind, the argument is made even more credulous by PRUDENTIAL’s lack of proof to
support its allegation that the renewals of the policies were taken only after a request was made
to TRANS-ASIA to furnish them a copy of the certificate attesting that "M/V Asia Korea" was
CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIAL’s claim that no certification
was issued to that effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-
ASIA’s alleged breach. Clearly, by granting the renewal policies twice and successively after the
loss, the intent was to benefit the insured, TRANS-ASIA, as well as to waive compliance of the
warranty.
The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as
raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively
alter the result for the reasons that: (1) PRUDENTIAL was not able to discharge the burden of
evidence to show that TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the
commission of a breach by TRANS-ASIA, the same was shown to have been waived by
PRUDENTIAL.

II.

A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction

between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated
29 May 1995 constituted partial payment on the policy.

It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00.

The same was evidenced by a transaction receipt denominated as a "Loan and Trust Receipt,"
dated 29 May 1995, reproduced hereunder:

LOAN AND TRUST RECEIPT

Claim File No. MH-93-025 May 29, 1995

P3,000,000.00
Check No. PCIB066755

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS
THREE MILLION ONLY (P3,000,000.00) as a loan without interest, under Policy No. MH93/1353,
repayable only in the event and to the extent that any net recovery is made by TRANS ASIA
SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on
account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993:
Fire on Board.

As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND

ASSURANCE INC. whatever recovery we may make and deliver to it all documents necessary to
prove our interest in said property. We also hereby agree to promptly prosecute suit against such
persons, corporation or corporations through whose negligence the aforesaid loss was caused or
who may otherwise be responsible therefore, with all due diligence, in our own name, but at the
expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND
ASSURANCE INC.

TRANS-ASIA SHIPPING CORPORATION29

PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties
evidenced a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance
payment on the policy or a partial payment for the loss. It further submits that it is a customary
practice for insurance companies in this country to extend loans gratuitously as part of good
business dealing with their assured, in order to afford their assured the chance to continue
business without embarrassment while awaiting outcome of the settlement of their
claims.30 According to PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it
whatever rights and/or actions TRANS-ASIA may have against third persons, and it cannot by no
means be taken that by virtue thereof, PRUDENTIAL was granted irrevocable power of attorney
by TRANS-ASIA, as the sole power to prosecute lies solely with the latter.

The Court of Appeals held that the real character of the transaction between the parties as
evidenced by the "Loan and Trust Receipt" is that of an advance payment by PRUDENTIAL of
TRANS-ASIA’s claim on the insurance, thus:
The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law
Act No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was
lifted verbatim from the law of California, except Chapter V thereof, which was taken largely from
the insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us persuasive
in interpreting provisions of our own Insurance Code. In addition, the application of the adopted
statute should correspond in fundamental points with the application in its country of origin x x x.

xxxx

Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt
that the money was intended as a loan does not detract from its real character as payment of
claim, thus:

"The receipt of money by the insured employers from a surety company for losses on account of
forgery of drafts by an employee where no provision or repayment of the money was made
except upon condition that it be recovered from other parties and neither interest nor security for
the asserted debts was provided for, the money constituted the payment of a liability and not a
mere loan, notwithstanding recitals in the written receipt that the money was intended as a mere
loan."

What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that
appellant is obligated to hand over to appellee "whatever recovery (Trans Asia) may make and
deliver to (Prudential) all documents necessary to prove its interest in the said property." For all
intents and purposes therefore, the money receipted is payment under the policy, with Prudential
having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties
resulting from the fire. In the law on insurance, subrogation is an equitable assignment to the
insurer of all remedies which the insured may have against third person whose negligence or
wrongful act caused the loss covered by the insurance policy, which is created as the legal effect
of payment by the insurer as an assignee in equity. The loss in the first instance is that of the
insured but after reimbursement or compensation, it becomes the loss of the insurer. It has been
referred to as the doctrine of substitution and rests on the principle that substantial justice should
be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect
justice between all the parties without regard to form. 31

We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences
that the real nature of the transaction between the parties was that the amount of P3,000,000.00
was not intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather,
the same was a partial payment or an advance on the policy of the claims due to TRANS-ASIA.

First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by

PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS ASIA
SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on
account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993:
Fire on Board."32

Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly
prosecute suit against such persons, corporation or corporations through whose negligence the
aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence"
in its name, the prosecution of the claims against such third persons are to be carried on "at the
expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND
ASSURANCE INC."33 The clear import of the phrase "at the expense of and under the exclusive
direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the
power to prosecute, even as the same is carried in the name of TRANS-ASIA, thereby making
TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit
against parties who may have occasioned the loss.

Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay
PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that
any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by the
fire of 25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such that,
if no recovery from third parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we
do not think that this is constitutive of a loan. 34 The liberality in the tenor of the "Loan and Trust
Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a
form of an advance payment on TRANS-ASIA’s claim on MH93/1353.

III.

A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the

balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363.

Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid
claims covered by Marine Policy No. MH93/1363, or a total amount of P8,395,072.26.

B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorney’s

fees equivalent to 10% of P8,395,072.26.

The Court of Appeals denied the grant of attorney’s fees. It held that attorney’s fees cannot be
awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIA’s
claim, notwithstanding that the rejection was erroneous. According to the Court of Appeals,
attorney’s fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code
which finds no application in the instant case.

We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and
other expenses incurred by the insured after a finding by the Insurance Commissioner or the
Court, as the case may be, of an unreasonable denial or withholding of the payment of the claims
due. Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary Board
on the amount of the claim due the insured from the date following the time prescribed in Section
24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section 244
considers the failure to pay the claims within the time prescribed in Sections 242 or 243, when
applicable, as prima facie evidence of unreasonable delay in payment.

To the mind of this Court, Section 244 does not require a showing of bad faith in order that
attorney’s fees be granted. As earlier stated, under Section 244, a prima facie evidence of
unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim
within the time fixed in both Sections 242 and 243 of the Insurance Code. As established in
Section 244, by reason of the delay and the consequent filing of the suit by the insured, the
insurers shall be adjudged to pay damages which shall consist of attorney’s fees and other
expenses incurred by the insured.37

Section 244 reads:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the
duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to pay damages which shall consist of
attorney’s fees and other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may
be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time
prescribed in said sections shall be considered prima facie evidence of unreasonable delay in
payment.

Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay
or refusal in the payment of the insurance claims.

In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show
that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of
P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in
"M/V Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster,
Richards Hogg International (Phils.), Inc., completed its survey report recommending the amount
of P11,395,072.26 as the total indemnity due to TRANS-ASIA. 38 On 21 April 1997, PRUDENTIAL,
in a letter39 addressed to TRANS-ASIA denied the latter’s claim for the amount of P8,395,072.26
representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second
letter40 to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997,
TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL
praying, inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the
insurance claim.

As can be gleaned from the foregoing, there was an unreasonable delay on the part of
PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latter’s right to the insurance claims,
from the time proof of loss was shown and the ascertainment of the loss was made by the
insurance adjuster. Evidently, PRUDENTIAL’s unreasonable delay in satisfying TRANS-ASIA’s
unpaid claims compelled the latter to file a suit for collection.

Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as
attorney’s fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten
percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of
Appeals,41 where a finding of an unreasonable delay under Section 244 of the Insurance Code
was made by this Court, we grant an award of attorney’s fees equivalent to ten percent (10%) of
the total proceeds. We find no reason to deviate from this judicial precedent in the case at bar.

C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be
imposed double interest in accordance with Section 244 of the Insurance Code.

Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling
prescribed by the Monetary Board due the insured, from the date following the time prescribed in
Section 242 or in Section 243, as the case may be, until the claim is fully satisfied. In the case at
bar, we find Section 243 to be applicable as what is involved herein is a marine insurance, clearly,
a policy other than life insurance.

Section 243 is hereunder reproduced:

SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of loss is received
by the insurer and ascertainment of the loss or damage is made either by agreement between the
insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty
days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid
within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time
prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the
duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless
such failure or refusal to pay is based on the ground that the claim is fraudulent.

As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the
rate of twice the ceiling prescribed by the Monetary Board except when the failure or refusal of
the insurer to pay was founded on the ground that the claim is fraudulent.

D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted
to mean 24% per annum.

PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-
ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIAL’s stance that the award is
extortionate and grossly unsconscionable. In support thereto, PRUDENTIAL makes a reference
to TRANS-ASIA’s prayer in the Complaint filed with the court a quo wherein the latter sought,
"interest double the prevailing rate of interest of 21% per annum now obtaining in the banking
business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x x." 42

The contention fails to persuade. It is settled that an award of double interest is lawful and
justified under Sections 243 and 244 of the Insurance Code. 43 In Finman General Assurance
Corporation v. Court of Appeals,44 this Court held that the payment of 24% interest per annum is
authorized by the Insurance Code.45 There is no gainsaying that the term "double interest" as
used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per
annum interest, thus:

The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per
centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant
to P.D. No. 116, amending the Usury Law; so that when Sections 242, 243 and 244 of the
Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling prescribed
by the Monetary Board", it means twice 12% per annum or 24% per annum interest on the
proceeds of the insurance.46

E. The payment of double interest should be counted from 13 September 1996.

The Court of Appeals, in imposing double interest for the duration of the delay of the payment of
the unpaid balance due TRANS-ASIA, computed the same from 13 August 1996 until such time
when the amount is fully paid. Although not raised by the parties, we find the computation of the
duration of the delay made by the appellate court to be patently erroneous.

To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section 243
mandates the payment of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, within thirty days after proof of loss is received by the
insurer and ascertainment of the loss or damage is made either by agreement between the
insured and the insurer or by arbitration. It is clear that under Section 243, the insurer has until
the 30th day after proof of loss and ascertainment of the loss or damage to pay its liability under
the insurance, and only after such time can the insurer be held to be in delay, thereby
necessitating the imposition of double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was
completed by the adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996.
PRUDENTIAL had thirty days from 13 August 1996 within which to pay its liability to TRANS-ASIA
under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin
to run from 13 September 1996 only.
 IV.

A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in
section III herein, computed from the time of finality of judgment until the full satisfaction thereof in
conformity with this Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.

This Court in Eastern Shipping Lines, Inc. v. Court of Appeals, 47 inscribed the rule of thumb48 in
the application of interest to be imposed on obligations, regardless of their source. Eastern
emphasized beyond cavil that when the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, regardless of whether the obligation
involves a loan or forbearance of money, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance 49 of
credit.

We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the
finality of judgment until the full satisfaction thereof must be imposed on the total amount of
liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of judgment
until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the
imposition of the aforesaid interest.

Fallo

WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No.
151991 is GRANTED, thus, we award the grant of attorney’s fees and make a clarification that
the term "double interest" as used in the 6 November 2001 Decision of the Court of Appeals in CA
GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a
further clarification, that the same should be computed from 13 September 1996 until fully paid.
The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6
November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in the following
manner, to wit:

1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26,

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

2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of

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

3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be
imposed double interest at the rate of 24% per annum to be computed from 13
September 1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability
adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed from the time
of finality of judgment until the full satisfaction thereof.

No costs.

SO ORDERED.
MA. LOURDES S. FLORENDO, G.R. No. 186983
Petitioner,
Present:
VELASCO, JR., J., Chairperson,
- versus - PERALTA,
ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.
PHILAM PLANS, INC.,
PERLA ABCEDE and Promulgated:
MA. CELESTE ABCEDE,
Respondents. February 22, 2012

The Facts and the Case

On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede. The plan
had a pre-need price of P997,050.00, payable in 10 years, and had a maturity value of P2,890,000.00 after
20 years.[1] Manuel signed the application and left to Perla the task of supplying the information needed in
the application.[2] Respondent Ma. Celeste Abcede, Perlas daughter, signed the application as sales
counselor.[3]

Aside from pension benefits, the comprehensive pension plan also provided life insurance
coverage to Florendo.[4] This was covered by a Group Master Policy that Philippine American Life
Insurance Company (Philam Life) issued to Philam Plans. [5] Under the master policy, Philam Life was to
automatically provide life insurance coverage, including accidental death, to all who signed up for Philam
Plans comprehensive pension plan.[6] If the plan holder died before the maturity of the plan, his beneficiary
was to instead receive the proceeds of the life insurance, equivalent to the pre-need price. Further, the life
insurance was to take care of any unpaid premium until the pension plan matured, entitling the beneficiary
to the maturity value of the pension plan.[7]

On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584 [8] to Manuel, with
petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums.[9]
Eleven months later or on September 15, 1998, Manuel died of blood
poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment of the benefits under her
husbands plan.[10] Because Manuel died before his pension plan matured and his wife was to get only the
benefits of his life insurance, Philam Plans forwarded her claim to Philam Life. [11]

On May 3, 1999 Philam Plans wrote Lourdes a letter,[12] declining her claim. Philam Life found
that Manuel was on maintenance medicine for his heart and had an implanted pacemaker. Further, he
suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for payment under the
plan[13] but Philam Plans rejected it,[14] prompting her to file the present action against the pension plan
company before the Regional Trial Court (RTC) of Quezon City.[15]

On March 30, 2006 the RTC rendered judgment, [16] ordering Philam Plans, Perla and Ma. Celeste,
solidarily, to pay Lourdes all the benefits from her husbands pension plan, namely: P997,050.00, the
proceeds of his term insurance, and P2,890,000.00 lump sum pension benefit upon maturity of his
plan; P100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that Manuel was not
guilty of concealing the state of his health from his pension plan application.

On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision, [17] holding that
insurance policies are traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it
required Manuel to disclose to Philam Plans conditions affecting the risk of which he was aware or material
facts that he knew or ought to know.[18]

But Lourdes is shifting to Philam Plans the burden of putting on the pension plan
application the true state of Manuel’s health. She forgets that since Philam Plans
waived medical examination for Manuel, it had to rely largely on his stating the truth
regarding his health in his application. For, after all, he knew more than anyone that
he had been under treatment for heart condition and diabetes for more than five
years preceding his submission of that application. But he kept those crucial facts
from Philam Plans.

Besides, when Manuel signed the pension plan application, he adopted as his own the
written representations and declarations embodied in it. It is clear from these
representations that he concealed his chronic heart ailment and diabetes from Philam
Plans. Ma. Lourdes S. Florendo vs. Philam Plans, Inc., Perla Abcede, et al., G.R. No.
186983, February 22, 2012.
Insurance policy; misrepresentation. Lourdes insists that Manuel had concealed
nothing since Perla, the soliciting agent, knew that Manuel had a pacemaker
implanted on his chest in the 70s or about 20 years before he signed up for the
pension plan. But by its tenor, the responsibility for preparing the application
belonged to Manuel. Nothing in it implies that someone else may provide the
information that Philam Plans needed. Manuel cannot sign the application and
disown the responsibility for having it filled up. If he furnished Perla the needed
information and delegated to her the filling up of the application, then she acted on
his instruction, not on Philam Plans’ instruction. Ma. Lourdes S. Florendo vs. Philam
Plans, Inc., Perla Abcede, et al., G.R. No. 186983, February 22, 2012.

Insurance policy; incontestability clause. In a final attempt to defend her claim for
benefits under Manuel’s pension plan, Lourdes points out that any defect or
insufficiency in the information provided by his pension plan application should be
deemed waived after the same has been approved, the policy has been issued, and
the premiums have been collected.
The Court cannot agree. The comprehensive pension plan that Philam Plans issued
contains a one-year incontestability period. It states:

VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we can no longer contest
for health reasons any claim for insurance under this Agreement, except for the
reason that installment has not been paid (lapsed), or that you are not insurable at
the time you bought this pension program by reason of age. If this Agreement lapses
but is reinstated afterwards, the one (1) year contestability period shall start again on
the date of approval of your request for reinstatement.

The above incontestability clause precludes the insurer from disowning liability under
the policy it issued on the ground of concealment or misrepresentation regarding the
health of the insured after a year of its issuance.

Since Manuel died on the eleventh month following the issuance of his plan, the one
year incontestability period has not yet set in. Consequently, Philam Plans was not
barred from questioning Lourdes’ entitlement to the benefits of her husband’s
pension plan. Ma. Lourdes S. Florendo vs. Philam Plans, Inc., Perla Abcede, et al., G.R.
No. 186983, February 22, 2012.

Pacific Timber v. CA

112 SCRA 199

Facts:
> On March 13, 1963, Pacific secured temporary insurance from the Workemen’s
Insurance Co. for its exportation of logs to Japan. Workmen issued on said date Cover
Note 1010 insuring said cargo.
> The regular marine policies were issued by the company in favor of Pacific on Apr
2, 1963. The 2 marine policies bore the number 53H01032 and 53H01033.
> After the issuance of the cover note but BEFORE the issuance of the 2 policies,
some of the logs intended to be exported were lost due to a typhoon.
> Pacific filed its claim with the company, but the latter refused, contending that
said loss may not be considered as covered under the cover note because such
became null and void by virtue of the issuance of the marine policies.

Issue:
Whether or not the cover not was without consideration, thus null and void.

Held:
It was with consideration.
SC upheld Pacific’s contention that said cover not was with consideration. The fact
that no separate premium was paid on the cover note before the loss was insured
against occurred does not militate against the validity of Pacific’s contention, for no
such premium could have been paid, since by the nature of the cover note, it did not
contain, as all cover notes do not contain, particulars of the shipment that would
serve as basis for the computation of the premiums. As a logical consequence, no
separate premiums are required to be paid on a cover note.

If the note is to be treated as a separate policy instead of integrating it to the regular

policies subsequently issued, its purpose would be meaningless for it is in a real
sense a contract, not a mere application.
Pacific timber vs CA
112 SCRA 199 – Mercantile Law – Insurance Law – The Policy – Separate Premiums
Not Required for Cover Notes
In 1963, Pacific Timber Export Corporation (PTEC) applied for a temporary marine
insurance from Workmen’s Insurance Company (WIC) in order for the latter to insure
1,250,000 board feet of logs to be exported to Japan. In March 1963, WIC issued a
cover note to PTEC for the said logs. On April 2, 1963, WIC issued two policies for the
logs. However, the total board feet covered this time is only 1,195,498. On April 4,
1963, while the logs were in transit to Japan, bad weather prevailed and this caused
the loss of 32 pieces of logs.
WIC then asked an adjuster to investigate the loss. The adjuster submitted that the
logs lost were not covered by the two policies issued on April 2, 1963 but said logs
were included in the cover note earlier issued.
WIC however denied the insurance claim of PTEC as it averred that the cover note
became null and void when the two policies were subsequently issued. The Court of
Appeals ruled that the cover note is void for lack of valuable consideration as it
appeared that no premium payment therefor was made by PTEC.
ISSUE: Whether or not a separate premium is needed for cover notes.
HELD: No. The Cover Note was not without consideration for which the Court of
Appeals held the Cover Note as null and void, and denied recovery therefrom. The
fact that no separate premium was paid on the Cover Note before the loss insured
against occurred, does not militate against the validity of PTEC’s contention, for no
such premium could have been paid, since by the nature of the Cover Note, it did not
contain, as all Cover Notes do not contain particulars of the shipment that would
serve as basis for the computation of the premiums. As a logical consequence, no
separate premiums are intended or required to be paid on a Cover Note.
At any rate, it is not disputed that PTEC paid in full all the premiums as called for by
the statement issued by WIC after the issuance of the two regular marine insurance
policies, thereby leaving no account unpaid by PTEC due on the insurance coverage,
which must be deemed to include the Cover Note. If the Note is to be treated as a
separate policy instead of integrating it to the regular policies subsequently issued,
the purpose and function of the Cover Note would be set at naught or rendered
meaningless, for it is in a real sense a contract, not a mere application for insurance
which is a mere offer.

ASIAN TERMINALS, INC., vs. FIRST LEPANTO-TAISHO INSURANCE

CORPORATION G.R. No. 185964, 16 June 2014

FACTS: A shipment of 3,000 bags of sodium tripolyphosphate arrived in Manila through COSCO
and was discharged into the possession and custody of ATI, a domestic corporation engaged in arr
astre business. The shipment remained for quite some time at ATI’s storage area until it was with
drawn by broker, PROVEN, on for delivery to the consignee. Upon receipt of the shipment, it was
found out that the delivered goods incurred shortages and spillage for a loss/damage valued at P1
66,772.41. GASI sought recompense from COSCO, thru its Philippine agent SMITH BELL, ATI an
d PROVEN but was denied. Hence, it pursued indemnification from the shipment’s insurer, FIRS
T LEPANTO. As subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the P
hilippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it paid to GASI. ATI a
nd PROVEN denied liability for the lost/damaged shipment and claimed that it exercised due dili
gence and care in handling the same.

MeTC dismissed the case. On appeal, the Regional Trial Court (RTC) reversed the MeTC’s finding
s. ATI sought recourse with the CA challenging the RTC’s finding that FIRST LEPANTO was validl
y subrogated to the rights of GASI with respect to the lost/damaged shipment. ATI argued that th
ere was no valid subrogation because FIRSTLEPANTO failed to present a valid, existing and enfor
ceable Marine Open Policy or insurance contract. ATI reasoned that the Certificate of Insurance o
r Marine Cover Note submitted by FIRST LEPANTO as evidence is not the same as an actual insur
ance contract.

ISSUE:

Whether or not the non-presentation of an insurance contract will bar a subrogee from collecting
reimbursement.

HELD:

No, Non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s cause of action f
or reimbursement as subrogee. Subrogation is the substitution of one person in the place of anoth
er with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of t
he other in relation to a debt or claim, including its remedies or securities.

In the case at bar, the Supreme Court observed that it is conspicuous from the records that ATI pu
t in issue the submission of the insurance contract for the first time before the CA. Despite opport
unity to study FIRST LEPANTO’s complaint before the MeTC, ATI failed to allege in its answer th
e necessity of the insurance contract. Neither was the same considered during pretrial as one of th
e decisive matters in the case. Further, ATI never challenged the relevancy or materiality of the Ce
rtificate of Insurance presented by FIRST LEPANTO as evidence during trial as proof of its right t
o be subrogated in the consignee’s stead. Since it was not agreed during the pretrial proceedings t
hat FIRST LEPANTO will have to prove its subrogation rights by presenting a copy of the insuran
ce contract, ATI is barred from pleading the absence of such contract in its appeal. It is imperative
for the parties to disclose during pretrial all issues they intend to raise during the trial because, th
ey are bound by the delimitation of such issues. The determination of issues during the pretrial co
nference bars the consideration of other questions, whether during trial or on appeal

G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner, vs. THE COURT OF APPEALS,
AMERICAN HOME ASSURANCE CO., represented by American International Underwriters
(Phils.), Inc., respondent.

FACTS:
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.
Successive renewals of the policies were made in the same manner. On 1984, the policy was again
renewed and 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.

Private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy.
Petitioner explained that it discontinued the payment of premiums because the policy did not contain
a credit clause in its favor. 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.

DECISION OF LOWER COURTS:

(1) Trial Court: dismissed the complaint and counterclaim
(2) CA: ordering herein petitioner to pay the balance of the premiums due

ISSUE:
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.

RULING:
No, the contract remains valid even if the premiums were paid on installments. 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.
At the very least, both parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted.
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. The obligation to pay premiums when
due is ordinarily as indivisible obligation to pay the entire premium.

UCPB General Insurance Co. Inc vs Masagana Telamart Inc
G.R. No. 137172 June 15, 1999

Facts: On   April   15,   1991,   petitioner   issued   five   (5)   insurance   policies   covering   respondent’s   various
property described therein against fire, for the period from May 22, 1991 to May 22, 1992. In March 1992,
petitioner evaluated the policies and decided not to renew them upon expiration of their terms on May 22,
1992. Petitioner advised respondent’s broker, Zuellig Insurance Brokers, Inc. of its intention not to renew
the policies. On April  6, 1992, petitioner gave written notice to respondent  of the non­renewal  of the
policies at the address stated in the policies. On June 13, 1992, fire razed respondent’s property covered by
three of the insurance policies petitioner issued. On July 13, 1992, respondent presented to petitioner’s
cashier   at   its   head   office   five   (5)   manager’s   checks   in   the   total   amount   of   P225,753.95,  representing
premium for the renewal of the policies from May 22, 1992 to May 22, 1993. No notice of loss was filed by
respondent under the policies prior to July 14, 1992. On July 14, 1992, respondent filed with petitioner its
formal claim for indemnification of the insured property razed by fire. On the same day, July 14, 1992,
petitioner returned to respondent the five (5) manager’s checks that  it tendered, and at  the same time
rejected respondent’s claim for the reasons (a) that the policies had expired and were not renewed, and (b)
that the fire occurred on June 13, 1992, before respondent’s tender of premium payment.

Issue: Whether or not respondent is entitled to compensation despite the renewal of the insurance policy
after the occurrence of the event insured.

Held: No. An insurance policy, other than life, issued originally or on renewal, is not valid and binding
until actual payment of the premium. Any agreement to the contrary is void. 11 The parties may not agree
expressly or impliedly on the extension of creditor time to pay the premium and consider the policy binding
before actual payment.

Here, the payment of the premium for renewal of the policies was tendered on July 13, 1992, a month after
the fire occurred on June 13, 1992. The assured did not even give the insurer a notice of loss within a
reasonable time after occurrence of the fire.
 UCPB General Insurance v. Masagana Telamart (2001)

UCPB GENERAL INSURANCE [UCPB] v. MASAGANA TELAMART [Masagana]

2001 / Davide, Jr.
FACTS [SEE 1999 CASE DIGEST FOR THE OTHER FACTS]
CA disagreed with UCPB’s stand that Masagana’s 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:
Renewal Clause. — Unless the company at least 45 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.
The following facts have been established:
1. For years, UCPB had been issuing fire policies to th Masagana, and these policies
were annually renewed.
2. UCPB had been granting Masagana a 60-90-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, as there is no proof that the
notice sent by ordinary mail was received by Masagana, and the copy allegedly sent
to Zuellig was ever transmitted to Masagana.
4. The premiums for the policies were paid by Masagana within the 60- 90-day credit
term and were duly accepted and received by UCPB’s cashier.

ISSUE & HOLDING

WON IC 77 must be strictly applied to UCPB’s advantage despite its practice of
granting a 60- to 90-day credit term for the payment of premiums. NO. MASAGANA
WINS THIS TIME. 1999 DECISION SET ASIDE; CA DECISION AFFIRMED

RATIO
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 was formerly Act 2427, Section 72:
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)
IC 77 does not restate the portion of IC 72 expressly permitting an agreement to
extend the periodto pay the premium. However, there are exceptions to IC 77.
1. In case of a life or industrial life policywhenever the grace period provision
applies [Sec. 77]
2. Any acknowledgment of the receipt of premiumis conclusive evidence of
payment [Sec. 78]
3. If the parties have agreed to the payment ininstallments of the premium
and partial payment has been made at the time of loss [Makati Tuscany
Condominium v. CA]
4. The insurer may grant credit extensionfor the payment of the premium
[Makati Tuscany Condominium]
5. Estoppel
IC 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. [Makati Tuscany Condominium v. CA]
ON EXCEPTION #4. 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.
It would be unjust and inequitable if recovery on the policy would not be
permitted against UCPB, which had consistently granted a 60-90-day credit term for
the payment of premiums despite its full awareness of IC 77. Estoppel bars it from
taking refuge under said section, since Masagana relied in good faith on such
practice

Bonifacio Bros. v. Mora

20 SCRA 262

Facts:
> Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the
condition that Mora would insure the car with HS Reyes as beneficiary.
> The car was then insured with State Insurance Company and the policy delivered
to Mora.
> During the effectivity of the insurance contract, the car figured in an accident.
The company then assigned the accident to an insurance appraiser for investigation
and appraisal of the damage.
> Mora without the knowledge and consent of HS Reyes, authorized Bonifacio Bros
to fix the car, using materials supplied by the Ayala Auto Parts Company.
> For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent
to the insurer’s appraiser. The insurance company drew a check in the amount of the
insurance proceeds and entrusted the check to its appraiser for delivery to the proper
party.
> The car was delivered to Mora without the consent of HS Reyes, and without
payment to Bonifacio Bros and Ayala.
> Upon the theory that the insurance proceeds should be directly paid to them,
Bonifacio and Ayala filed a complaint against Mora and the insurer with the municipal
court for the collection of P2,102.73.
> The insurance company filed its answer with a counterclaim for interpleader,
requiring Bonifacio and HS Reyes to interplead in order to determine who has a better
right to the proceeds.

Issue:
Whether or not there is privity of contract between Bonficacio and Ayala on one hand
and State Insurance on the other.

Held:
NONE.
It is fundamental that contracts take effect only between the parties thereto, except
in some specific instance provided by law where the contract contains some
stipulation in favor of a third person. Such stipulation is known as a stipulation pour
autrui; or a provision in favor of a third person not a party to the contract.

Under this doctrine, a third person is ed to avail himself of a benefit granted to him
by the terms of the contract, provided that the contracting parties have clearly and
deliberately conferred a favor upon such person. Consequently, a third person NOT a
party to the contract has NO action against the aprties thereto, and cannot generally
demand the enforcement of the same.

The question of whether a third person has an enforceable interest in a contract must
be settled by determining whether the contracting parties intended to tender him
such an interest by deliberately inserting terms in their agreement with the avowed
purpose of conferring favor upon such third person. IN this connection, this court has
laid down the rule that the fairest test to determine whether the interest of a
3rd person in a contract is a stipulation pour autrui or merely an incidental interest, is
to rely upon the intention of the parties as disclosed by their contract.

In the instant case the insurance contract does not contain any words or clauses to
disclose an intent to give any benefit to any repairmen or material men in case of
repair of the car in question. The parties to the insurance contract omitted such
stipulation, which is a circumstance that supports the said conclusion. On the other
hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is
payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they
intended to benefit.

A policy of insurance is a distinct and independent contract between the insured and
insurer, and third persons have no right either in a court of equity, or in a court of
law, to the proceeds of it, unless there be some contract of trust, expressed or
implied, by the insured and third person. In this case, no contract of trust, express or
implied. In this case, no contract of trust, expressed or implied exists. We, therefore,
agree with the trial court that no cause of action exists in favor of the appellants in so
far as the proceeds of insurance are concerned. The appellant's claim, if at all, is
merely equitable in nature and must be made effective through Enrique Mora who
entered into a contract with the Bonifacio Bros Inc. This conclusion is deducible not
only from the principle governing the operation and effect of insurance contracts in
general, but is clearly covered by the express provisions of section 50 of the
Insurance Act (now Sec. 53).
The policy in question has been so framed that "Loss, if any, is payable to H. S.
Reyes, Inc." which unmistakably shows the intention of the parties.

Insular Life vs. Ebrado

80 SCRA 181

Facts:
> Buenaventura Ebrado was issued al life plan by Insular Company. He designated
Capriona as his beneficiary, referring to her as his wife.
> The insured then died and Carponia tried to claim the proceeds of the said plan.
> She admitted to being only the common law wife of the insured.
> Pascuala, the legal wife, also filed a claim asserting her right as the legal wife.
The company then filed an action for interpleader.

Issue:

Whether or not the common law wife named as beneficiary can collect the proceeds.

Held:
NO.
The civil code prohibitions on donations made between persons guilty of adulterous
concubinage applies to insurance contracts. On matters not specifically provided for
by the Insurance Law, the general rules on Civil law shall apply. A life insurance
policy is no different from a civil donation as far as the beneficiary is concerned, since
both are founded on liberality.

Why was the common law wife not ed to collect the proceeds despite the
fact that she was the beneficiary? Isn’t this against Sec. 53?
It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only provision
that the SC had to consider. Art. 739 and 2012 of CC prohibit persons who are guilty
of adultery or concubinage from being beneficiaries of the life insurance policies of
the persons with whom they committed adultery or concubinage. If the SC used
only Sec. 53, it would have gone against Art. 739 and 2012.
Insular v Ebrado G.R. No. L-44059 October 28, 1977
Facts:
J. Martin:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a rider
for Accidental Death. He designated Carponia T. Ebrado as the revocable beneficiary in his
policy. He referred to her as his wife.
Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made liable to
pay the coverage in the total amount of P11,745.73, representing the face value of the policy in
the amount of P5,882.00 plus the additional benefits for accidental death.
Carponia T. Ebrado filed with the insurer a claim for the proceeds as the
designated beneficiary therein, although she admited that she and the insured were merely living
as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts
that she is the one entitled to the insurance proceeds.
Insular commenced an action for Interpleader before the trial court as to who should be given the
proceeds. The court declared Carponia as disqualified.

Issue: WON a common-law wife named as beneficiary in the life insurance policy of a legally
married man can claim the proceeds in case of death of the latter?

Held: No. Petition

Ratio:
Section 50 of the Insurance Act which provides that "the insurance shall be applied exclusively to
the proper interest of the person in whose name it is made"
The word "interest" highly suggests that the provision refers only to the "insured" and not to
the beneficiary, since a contract of insurance is personal in character. Otherwise, the prohibitory
laws against illicit relationships especially on property and descent will be rendered nugatory, as
the same could easily be circumvented by modes of insurance.
When not otherwise specifically provided for by the Insurance Law, the contract of life insurance
is governed by the general rules of the civil law regulating contracts. And under Article 2012 of the
same Code, any person who is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a fife insurance policy by the person who cannot make a donation to him.
Common-law spouses are barred from receiving donations from each other.
Article 739 provides that void donations are those made between persons who were guilty of
adultery or concubinage at the time of donation.
There is every reason to hold that the bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life insurance policies since the same are based
on similar consideration. So long as marriage remains the threshold of family laws, reason and
morality dictate that the impediments imposed upon married couple should likewise be imposed
upon extra-marital relationship.
A conviction for adultery or concubinage isn’t required exacted before the disabilities mentioned in
Article 739 may effectuate. The article says that in the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse of the donor or donee; and the guilty of the
donee may be proved by preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition
precedent. The law plainly states that the guilt of the party may be proved “in the same acting for
declaration of nullity of donation.” And, it would be sufficient if evidence preponderates.
The insured was married to Pascuala Ebrado with whom she has six legitimate children. He was
also living in with his common-law wife with whom he has two children.
Vda. De Consuegra v. GSIS - Retirement Insurance Benefits

37 SCRA 315

Facts:
> Jose Consuegra was employed as a shop foreman of the Office of the District
Engineer in Surigao Del Norte.
> When he was still alive, he contracted two marriages:
o First – Rosario Diaz; 2 children = Jose Consuegra Jr. and Pedro but both
predeceased him
o 2nd – Basilia Berdin; 7 children. (this was contracted in GF while the first marriage
subsisted)
> Being a GSIS member when he died, the proceeds of his life insurance were paid
by the GSIS to Berdin and her children who were the beneficiaries named in the
policy.
> Since he was in the gov’t service for 22.5028 years, he was entitled to retirement
insurance benefits, for which no beneficiary was designated.
> Both families filed their claims with the GSIS, which ruled that the legal heirs were
Diaz who is entitled to one-half or 8/16 of the retirement benefits and Berdin and her
children were entitled to the remaining half, each to receive an equal share of 1/16.
> Berdin went to CFI on appeal. CFI affirmed GSIS decision.

Issue:
To whom should the retirement insurance benefits be paid?

Held:
Both families are entitled to half of the retirement benefits.
The beneficiary named in the life insurance does NOT automatically become the
beneficiary in the retirement insurance. When Consuegra, during the early part of
1943, or before 1943, designated his beneficiaries in his life insurance, he could NOT
have intended those beneficiaries of his life insurance as also the beneficiaries of his
retirement insurance because the provisions on retirement insurance under the GSIS
came about only when CA 186 was amended by RA 660 on June 18, 1951.

Sec. 11(b) clearly indicates that there is need for the employee to file an application
for retirement insurance benefits when he becomes a GSIS member and to state his
beneficiary. The life insurance and the retirement insurance are two separate and
distinct systems of benefits paid out from 2 separate and distinct funds.
In case of failure to name a beneficiary in an insurance policy, the proceeds will
accrue to the estate of the insured. And when there exists two marriages, each
family will be entitled to one-half of the estate.

Consuegra v GSIS G.R. No. L-28093 January 30, 1971

J. Zaldivar

Facts:
Appeal on purely questions of law from the decision of the Court of First Instance of Surigao del
Norte, dated March 7, 1967, in its Special Proceeding No. 1720.
The late Jose Consuegra was employed as a shop foreman in the province of Surigao del Norte.
He contracted two marriages, the first with Rosario Diaz and the second, which was contracted in
good faith while the first marriage was subsisting, with Basilia Berdin.
Consuegra died, while the proceeds of his GSIS life insurance were paid to petitioner Basilia
Berdin and her children who were the beneficiaries named in the policy. They received Php 6,000.
Consuegra did not designate any beneficiary who would receive the retirement insurance benefits
due to him. Respondent Rosario Diaz, the widow by the first marriage, filed a claim with the GSIS
asking that the retirement insurance benefits be paid to her as the only legal heir of Consuegra,
considering that the deceased did not designate any beneficiary with respect to his retirement
insurance benefits.
Petitioner Berdin and her children, likewise, filed a similar claim with the GSIS, asserting that
being the beneficiaries named in the life insurance policy of Consuegra, they are the only ones
entitled to receive the retirement insurance benefits due the deceased Consuegra.
The GSIS ruled that the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow by
his first marriage who is entitled to one-half, or 8/16, of the retirement insurance benefits, on the
one hand; and Basilia Berdin, his widow by the second marriage and their seven children, on the
other hand, who are entitled to the remaining one-half, or 8/16.
Basilia Berdin didn’t agree. She filed a petition declaring her and her children to be the legal heirs
and exclusive beneficiaries of the retirement insurance.
The trial court affirmed stating that: "when two women innocently and in good faith are legally
united in holy matrimony to the same man, they and their children, born of said wedlock, will be
regarded as legitimate children and each family be entitled to one half of the estate.”
Hence the present appeal by Basilia Berdin and her children.

Issue: To whom should this retirement insurance benefits of Jose Consuegra be paid, because he
did not designate the beneficiary of his retirement insurance?

Held: No. Petition denied.

Ratio:
Berdin averred that because the deceased Jose Consuegra failed to designate the beneficiaries
in his retirement insurance, the appellants who were the beneficiaries named in the life insurance
should automatically be considered the beneficiaries to receive the retirement insurance benefits.
The GSIS offers two separate and distinct systems of benefits to its members — one is the life
insurance and the other is the retirement insurance. These two distinct systems of benefits are
paid out from two distinct and separate funds that are maintained by the GSIS.
In the case of the proceeds of a life insurance, the same are paid to whoever is named
the beneficiary in the life insurance policy. As in the case of a life insurance provided for in
the Insurance Act, the beneficiary in a life insurance under the GSIS may not necessarily be a
heir of the insured. The insured in a life insurance may designate any person
as beneficiary unless disqualified to be so under the provisions of the Civil Code. And in the
absence of any beneficiary named in the life insurance policy, the proceeds of the insurance will
go to the estate of the insured.
Retirement insurance is primarily intended for the benefit of the employee, to provide for his old
age, or incapacity, after rendering service in the government for a required number of years. If the
employee reaches the age of retirement, he gets the retirement benefits even to the exclusion of
the beneficiary or beneficiaries named in his application for retirement insurance.
The beneficiary of the retirement insurance can only claim the proceeds of the retirement
insurance if the employee dies before retirement. If the employee failed or overlooked to state
the beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and
will be given to his legal heirs in accordance with law, as in the case of a life insurance if
no beneficiary is named in the insurance policy.
GSIS had correctly acted when it ruled that the proceeds should be divided equally between his
first living wife and his second. The lower court has correctly applied the ruling of this Court in the
case of Lao v Dee.
Gomez vs. Lipana- in construing the rights of two women who were married to the same man,
held "that since the defendant's first marriage has not been dissolved or declared void
the conjugal partnership established by that marriage has not ceased. Nor has the first wife lost
or relinquished her status as putative heir of her husband under the new Civil Code, entitled to
share in his estate upon his death should she survive him. Consequently, whether
as conjugal partner in a still subsisting marriage or as such putative heir she has an interest in
the husband's share in the property here in dispute....
With respect to the right of the second wife, although the second marriage can be presumed to be
void ab initio as it was celebrated while the first marriage was still subsisting, still there is need for
judicial declaration of such nullity. And inasmuch as the conjugal partnership formed by the
second marriage was dissolved before judicial declaration of its nullity, "the only lust and
equitable solution in this case would be to recognize the right of the second wife to her share of
one-half in the property acquired by her and her husband and consider the other half as
pertaining to the conjugal partnership of the first marriage."

Roque v. Intermediate Appellate Court

G.R. No. L-66935 Nov. 11, 1985Justice Gutierrez, Jr.
Facts:
Isabela Roque (Roque of Isabela Roque Timber Enterprises) hired the Manila Bay Lighterage
Corp. (ManilaBay) to load and carry its logs from Palawan to North Harbor, Manila. The logs
were insured with Pioneer Insuranceand Surety Corp. (Pioneer). The logs never reached
Manila due to certain circumstances (as alleged by Roque andfound by the appellate court),
such as the fact that the barge was not seaworthy that it developed a leak, that oneof the
hatches were left open causing water to enter, and the absence of the necessary cover of
tarpaulin causingmore water to enter the barge. When Roque demanded payment from
Pioneer, but the latter refused on the ground that its liability depended upon the “Total
Loss by Total Loss of Vessel Only.” The trial court ruled in favor of Roque in the civil
complaint filed by the latter against Pioneer, but the decision was reversed by the
appellatecourt.

Issue:
WON in cases of marine insurance, there is a warranty of seaworthiness by the cargo
owner; WON theloss of the cargo was due to perils of the sea, not perils of the ship.

Held:
Yes, there is. The liability of the insurance company is governed by law. Section 113 of the
Insurance Code provides that “In every marine insurance upon a ship or freight,
or freightage, or upon anything which is thesubject of marine insurance, a warranty is
implied that the ship is seaworthy.” Hence, there can be no mistakingthe fact that the term
"cargo" can be the subject of marine insurance and that once it is so made, the
impliedwarranty of seaworthiness immediately attaches to whoever is insuring the
cargo whether he be the shipowner ornot. Moreover, the fact that the unseaworthiness of
the ship was unknown to the insured is immaterial in ordinarymarine insurance and may not
be used by him as a defense in order to recover on the marine insurance policy.As to the
second issue, by applying Sec. 113 of the Insurance Code, there is no doubt that the term
'perilsof the sea' extends only to losses caused by sea damage, or by the violence of
the elements, and does not embraceall losses happening at sea; it is said to include only such
losses as are of extraordinary nature, or
arise from someoverwhelming power, which cannot be guarded against by the ordinary
exertion of human skill and prudence. t isalso the general rule that everything which
happens thru the inherent vice of the thing, or by the act of theowners, master or shipper,
shall not be reputed a peril, if not otherwise borne in the policy. It must be consideredto be
settled, furthermore, that a loss which, in the ordinary course of events, results from the
natural andinevitable action of the sea, from the ordinary wear and tear of the ship, or
from the negligent failure of the ship'sowner to provide the vessel with proper equipment
to convey the cargo under ordinary conditions, is not a peril ofthe sea. Such a loss is rather
due to what has been aptly called the "peril of the ship." The insurer undertakes toinsure
against perils of the sea and similar perils, not against perils of the ship. Neither barratry
can be used as aground by Roque. Barratry as defined in American Insurance Law is "any
willful misconduct on the part of masteror crew in pursuance of some unlawful or fraudulent
purpose without the consent of the owners, and to theprejudice of the owner's interest."
Barratry necessarily requires a willful and intentional act in its commission. Nohonest error
of judgment or mere negligence, unless criminally gross, can be barratry. In the case at
bar, there isno finding that the loss was occasioned by the willful or fraudulent acts of the
vessel's crew. There was only simplenegligence or lack of skill

Oriental v CA G.R. No. 94052 August 9, 1991

J. Melencio-Herrera

Facts:
Panama Sawmill shipped 1208 pieces of apitog logs to Manila and insured the logs with Oriental
for the value of Php 1 million. Two barges were loaded with 610 and 598 logs. At sea, typhoons
ravaged one of the barges, resulting in the loss of 497 of 598 of the logs.
The Insurance contract provided for indemnity under the following conditions:
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following clauses:
— Civil Code Article 1250 Waiver clause
— Typhoon warranty clause
— Omnibus clause.
Oriental didn’t give an indemnity because there wasn’t total loss of the shipment.
The sawmill filed a civil case against Oriental and the court ordered it to pay 410,000 as value for
the missing logs. The CA affirmed the lower court judgment but reduced the legal interest. Hence
this appeal by Oriental.

Issue:
Whether or not Oriental Assurance can be held liable under its marine insurance policy based on
the theory of a divisible contract of insurance and, consequently, a constructive total loss.

Held: No. Petition granted.

Ratio:
Perla v CA- The terms of the contract constitute the measure of the insurer liability and
compliance therewith is a condition precedent to the insured's right to recovery from the insurer.
“Whether a contract is entire or severable is a question of intention to be determined by the
language employed by the parties. The policy in question shows that the subject
matter insured was the entire shipment of 2,000 cubic meters of apitong logs. The fact that the
logs were loaded on two different barges did not make the contract several and divisible as to
the items insured. The logs on the two barges were not separately valued or separately insured.
Only one premium was paid for the entire shipment, making for only one cause or consideration.
The insurance contract must, therefore, be considered indivisible.”
Also, the insurer's liability was for "total loss only" as stipulated. A total loss may be either actual
or constructive. An actual total loss under Sec 130 of the Insurance Code is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he
held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured.
A constructive total loss, gives to a person insured a right to abandon and it means:
SECTION 139. A person insured by a contract of marine insurance may abandon the
thing insured, or any particular portion thereof separately valued by the policy, or otherwise
separately insured, and recover for a total loss thereof, when the cause of the loss is a peril
injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to
recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths
The appellate court considered the cargo in one barge as separate from the other and ruled that
497 of 598 was more than ¾ of the amount lost, showing a constructive total loss.
The SC, however, said that although the logs were placed in two barges, they were not
separately valued by the policy, nor separately

Oriental Assurance Corporation vs. CA (200 SCRA 459)

Facts: Panama bought, in Palawan, 1,208 pieces of apitong logs, with a total volume of
2,000 cubic meters. It hired Transpacific Towage, Inc., to transport said logs by sea to Manila
and insured it against loss for P1-M with Oriental Assurance.

The policy was issued. It is stipulated there, among others, that the subject matter insured is
2,000 cubic meters of apitong logs and that the vessels to be utilized are the following: MT.
'Seminole', Barge PCT-7000 for the 1,000 cubic meter of apitong logs and Barge Transpac-1000
for the other 1,000 cubic meter of apitong logs. It is also stipulated in the policy that the insurance
is against TOTAL LOSS only, and it is subject to the following clauses, to wit: Civil Code Article
1250 Waiver clause, Typhoon warranty clause, andOmnibus clause.

The logs were loaded on the 2 barges: (1) on barge PCT-7000, 610 pieces of logs with a volume
of 1,000 cubicmeters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of
1,000 cubicmeters. On 28 January 1986, the 2 barges were towed by MT 'Seminole'(tugboat),
during the voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting
in the loss of 497 pieces of logs out of the 598 pieces loaded thereon.

Panama demanded payment for the loss but Oriental Assurance refused on the ground that its
contracted liability was for "TOTAL LOSS ONLY." Consequently, Panama filed a Complaint for
Damages against Ever Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and
Oriental Assurance, before the RTC-Kalookan.

RTC rendered a decision ordering Oriental Assurance to payPanama P415,000.00 as

insurance indemnity. Both parties appealed. The appellate court affirmed the RTC decision. Both
RTC and CA shared the view that the insurance contract should be liberally construed in order to
avoid a denial of substantial justice; that the logs loaded in the two barges should be treated
separately such that the loss sustained by the shipment in one of them may be considered as
"constructive total loss" and correspondingly compensable.

Oriental Assurance filed a petition for review on certiorari challenging the aforesaid dispositions.

Issue: Is Oriental Assurance liable?

Held: No. The SC held that the terms of the contract constitute the measure of the insurer’s
liability and compliance therewith is a condition precedent to the insured's right to recovery from
the insurer. That whether a contract is entire or severable is a question of intention to be
determined by the language employed by the parties. The policy in question shows that the
subject matter insured was the entire shipment of 2,000 cubic meters of apitong logs. The fact
that the logs were loaded on two different barges did not make the contract several and divisible
as to the items insured. The logs on the two barges were not separately valued or
separately insured. Only one premium was paid for the entire shipment, making for only one
cause or consideration. The insurance contract must, therefore, be considered indivisible.

The law provides that a “constructive total loss”, is one which gives to a person insured by a
contract of marine insurance a right to abandon thing insured, or any particular portion thereof
separately valued by the policy, or otherwise separately insured, and recover for a total loss
thereof, when the cause of the loss is a peril injured against: (a) If more than three-fourths thereof
in value is actually lost, or would have to be expended to recover it from the peril; (b) If it is injured
to such an extent as to reduce its value more than three-fourths. The logs involved, although
placed in two barges, were not separately valued by the policy, nor separately insured.
Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of logs loaded on the
same barge cannot be made the basis for determining constructive total loss. The logs having
been insured as one inseparable unit, the correct basis for determining the existence of
constructive total loss is the totality of the shipment of logs. Of the entirety of 1,208, pieces of
logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those
497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment cannot be
said to have sustained a constructive total loss. Hence, no recovery can be had against Oriental
Assurance. The latter has no liability under the policy.
FINMAN GENERAL ASSURANCE CORPORATION vs. CA and
SURPOSA G.R. No. 100970 September 2, 1992
FACTS:
On October 22, 1986, deceased, Carlie Surposa was insured with under Finman
General Teachers Protection Plan (an accident insurance) and Individual Policy
with his parents, spouses Julia and Carlos Surposa, and brothers Christopher,
Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries.

The insured died on October 18, 1988 as a result of a stab wound inflicted by one
of the 3 unidentified men as he and his cousin, Winston Surposa, were waiting for
a ride on their way home along Rizal-Locsin Streets, Bacolod City.

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

The Insurance Commission rendered a decision holding the insurer is liable to

pay the proceeds of the policy which was affirmed by the CA.

ISSUE:
Whether the death of the insured was committed with deliberate intent which, by
the very nature of a personal accident insurance policy, cannot be indemnified

RULING:

No, the death of the insured was no commited with deliberate intent.

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. The happening, on the part of the insured is a pure
accident. 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.

Furthermore, the personal accident insurance policy involved herein specifically

enumerated only ten (10) circumstances wherein no liability attaches to
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" 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.

The interpretation of obscure words or stipulations in a contract shall not favor

the party who caused the obscurity (NCC 1377). 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.

Sun v CA G.R. No. 92383 July 17, 1992

J. Cruz

Facts:
Lim accidentally killed himself with his gun after removing the magazine, showing off,
pointing the gun at his secretary, and pointing the gun at his temple. The widow,
the beneficiary, sued the petitioner and won 200,000 as indemnity with
additional amounts for other damages and attorney’s fees. This was sustained in the Court of
Appeals then sent to the Supreme court by the insurance company.

Issue:
1. Was Lim’s widow eligible to receive the benefits?
2. Were the other damages valid?

Held:
1. Yes 2. No
Ratio: 1. There was an accident.
De la Cruz v. Capital Insurance says that "there is no accident when a deliberate act is
performed unless some additional, unexpected, independent and unforeseen happening
occurs which produces or brings about their injury or death." This was true when he fired the
gun.
Under the insurance contract, the company wasn’t liable for bodily injury caused by
attempted suicide or by one needlessly exposing himself to danger except to save another’s
life.
Lim wasn’t thought to needlessly expose himself to danger due to the witness testimony that
he took steps to ensure that the gun wasn’t loaded. He even assured his secretary that the
gun was loaded.
There is nothing in the policy that relieves the insurer of the responsibility to pay
the indemnity agreed upon if the insured is shown to have contributed to his own accident.
2. “In order that a person may be made liable to the payment of moral damages, the law
requires that his act be wrongful. The adverse result of an action does not per se make the
act wrongful and subject the act or to the payment of moral damages. The law could not
have meant to impose a penalty on the right to litigate; such right is so precious that moral
damages may not be charged on those who may exercise it erroneously. For these the law
taxes costs.”
If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it
is not the fact of winning alone that entitles him to recover such damages of the exceptional
circumstances enumerated in Art. 2208. Otherwise, every time a defendant wins,
automatically the plaintiff must pay attorney's fees thereby putting a premium on the right to
litigate which should not be so. For those expenses, the law deems the award of costs as
sufficient.”
G.R. No. L-25579 March 29, 1972

EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN and
GRACIA T. BIAGTAN, plaintiffs-appellees,
vs.
THE INSULAR LIFE ASSURANCE COMPANY, LTD., defendant-appellant.

Tanopo, Millora, Serafica, and Sañez for plaintiff-appellees.

Araneta, Mendoza and Papa for defendant-appellant.

MAKALINTAL, J.:p

This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case No. D-1700.

The facts are stipulated. Juan S. Biagtan was insured with defendant InsularLife Assurance
Company under Policy No. 398075 for the sum of P5,000.00 and, under a supplementary
contract denominated "Accidental Death Benefit Clause, for an additional sum of P5,000.00
if "the death of the Insured resulted directly from bodily injury effected solely through external
and violent means sustained in an accident ... and independently of all other causes." The
clause, however,expressly provided that it would not apply where death resulted from an
injury"intentionally inflicted by another party."

On the night of May 20, 1964, or during the first hours of the following day a band of robbers
entered the house of the insured Juan S. Biagtan. What happened then is related in the
decision of the trial court as follows:

...; that on the night of May 20, 1964 or the first hours of May 21, 1964, while
the said life policy and supplementary contract were in full force and effect,
the house of insured Juan S. Biagtan was robbed by a band of robbers who
were charged in and convicted by the Court of First Instance of Pangasinan
for robbery with homicide; that in committing the robbery, the robbers, on
reaching the staircase landing on the second floor, rushed towards the door
of the second floor room, where they suddenly met a person near the door of
oneof the rooms who turned out to be the insured Juan S. Biagtan who
received thrusts from their sharp-pointed instruments, causing wounds on the
body of said Juan S. Biagtan resulting in his death at about 7 a.m. on the
same day, May 21, 1964;

Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance
company paid the basic amount of P5,000.00 but refused to pay the additional sum of
P5,000.00 under the accidental death benefit clause, on the ground that the insured's death
resulted from injuries intentionally inflicted by third parties and therefore was not covered.
Plaintiffs filed suit to recover, and after due hearing the court a quo rendered judgment in
their favor. Hence the present appeal by the insurer.
The only issue here is whether under the facts are stipulated and found by the trial court the
wounds received by the insured at the hands of the robbers — nine in all, five of them mortal
and four non-mortal — were inflicted intentionally. The court, in ruling negatively on the
issue, stated that since the parties presented no evidence and submitted the case upon
stipulation, there was no "proof that the act of receiving thrust (sic) from the sharp-pointed
instrument of the robbers was intended to inflict injuries upon the person of the insured or
any other person or merely to scare away any person so as to ward off any resistance or
obstacle that might be offered in the pursuit of their main objective which was robbery."

The trial court committed a plain error in drawing the conclusion it did from the admitted
facts. Nine wounds were inflicted upon the deceased, all by means of thrusts with sharp-
pointed instruments wielded by the robbers. This is a physical fact as to which there is no
dispute. So is the fact that five of those wounds caused the death of the insured. Whether
the robbers had the intent to kill or merely to scare the victim or to ward off any defense he
might offer, it cannot be denied that the act itself of inflicting the injuries was intentional. It
should be noted that the exception in the accidental benefit clause invoked by the appellant
does not speak of the purpose — whether homicidal or not — of a third party in causing the
injuries, but only of the fact that such injuries have been "intentionally" inflicted — this
obviously to distinguish them from injuries which, although received at the hands of a third
party, are purely accidental. This construction is the basic idea expressed in the coverage of
the clause itself, namely, that "the death of the insured resulted directly from bodily injury
effected solely through external and violent means sustained in an accident ... and
independently of all other causes." A gun which discharges while being cleaned and kills a
bystander; a hunter who shoots at his prey and hits a person instead; an athlete in a
competitive game involving physical effort who collides with an opponent and fatally injures
him as a result: these are instances where the infliction of the injury is unintentional and
therefore would be within the coverage of an accidental death benefit clause such as thatin
question in this case. But where a gang of robbers enter a house and coming face to face
with the owner, even if unexpectedly, stab him repeatedly, it is contrary to all reason and
logic to say that his injuries are not intentionally inflicted, regardless of whether they prove
fatal or not. As it was, in the present case they did prove fatal, and the robbers have been
accused and convicted of the crime of robbery with homicide.

The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in
support of its decision. The facts in that case, however, are different from those obtaining
here. The insured there was a watchman in a certain company, who happened to be invited
by a policeman to come along as the latter was on his way to investigate a reported robbery
going on in a private house. As the two of them, together with the owner of the house,
approached and stood in front of the main gate, a shot was fired and it turned out afterwards
that the watchman was hit in the abdomen, the wound causing his death. Under those
circumstances this Court held that it could not be said that the killing was intentional for there
was the possibility that the malefactor had fired the shot to scare people around for his own
protection and not necessarrily to kill or hit the victim. A similar possibility is clearly ruled out
by the facts in the case now before Us. For while a single shot fired from a distance, and by
a person who was not even seen aiming at the victim, could indeed have been fired without
intent to kill or injure, nine wounds inflicted with bladed weapons at close range cannot
conceivably be considered as innocent insofar as such intent is concerned. The manner of
execution of the crime permits no other conclusion.

Court decisions in the American jurisdiction, where similar provisions in accidental death
benefit clauses in insurance policies have been construed, may shed light on the issue
before Us. Thus, it has been held that "intentional" as used in an accident policy excepting
intentional injuries inflicted by the insured or any other person, etc., implies the exercise of
the reasoning faculties, consciousness and volition. Where a provision of the policy excludes
1

intentional injury, it is the intention of the person inflicting the injury that is controlling. If the
2

injuries suffered by the insured clearly resulted from the intentional act of a third person the
insurer is relieved from liability as stipulated.3

In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep.
484, the insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses
were interposed to the action to recover indemnity, namely: (1) that the insured having been
killed by intentional means, his death was not accidental, and (2) that the proviso in the
policy expressly exempted the insurer from liability in case the insured died from injuries
intentionally inflicted by another person. In rendering judgment for the insurance company
the Court held that while the assassination of the insured was as to him an unforeseen event
and therefore accidental, "the clause of the proviso that excludes the (insurer's) liability, in
case death or injury is intentionally inflicted by another person, applies to this case."

In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the
insured was shot three times by a person unknown late on a dark and stormy night, while
working in the coal shed of a railroad company. The policy did not cover death resulting from
"intentional injuries inflicted by the insured or any other person." The inquiry was as to the
question whether the shooting that caused the insured's death was accidental or intentional;
and the Court found that under the facts, showing that the murderer knew his victim and that
he fired with intent to kill, there could be no recovery under the policy which excepted death
from intentional injuries inflicted by any person.

WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without
pronouncement as to costs.

G.R. No. 60506 August 6, 1992

FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR,

LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and
ELVIRA, all surnamed MAGLANA, herein represented by their mother, FIGURACION
VDA. DE MAGLANA, petitioners,
vs.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch
II, and AFISCO INSURANCE CORPORATION, respondents.

Jose B. Guyo for petitioners.

Angel E. Fernandez for private respondent.

ROMERO, J.:
The nature of the liability of an insurer sued together with the insured/operator-owner of a
common carrier which figured in an accident causing the death of a third person is sought to
be defined in this petition for certiorari.

The facts as found by the trial court are as follows:

. . . Lope Maglana was an employee of the Bureau of Customs whose work

station was at Lasa, here in Davao City. On December 20, 1978, early
morning, Lope Maglana was on his way to his work station, driving a
motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an
accident that resulted in his death. He died on the spot. The PUJ jeep that
bumped the deceased was driven by Pepito Into, operated and owned by
defendant Destrajo. From the investigation conducted by the traffic
investigator, the PUJ jeep was overtaking another passenger jeep that was
going towards the city poblacion. While overtaking, the PUJ jeep of
defendant Destrajo running abreast with the overtaken jeep, bumped the
motorcycle driven by the deceased who was going towards the direction of
Lasa, Davao City. The point of impact was on the lane of the motorcycle and
the deceased was thrown from the road and met his untimely death. 1

Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages
and attorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation
(AFISCO for brevity) before the then Court of First Instance of Davao, Branch II. An
information for homicide thru reckless imprudence was also filed against Pepito Into.

During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty
of one (1) year, eight (8) months and one (1) day of prision correccional, as minimum, to four
(4) years, nine (9) months and eleven (11) days of prision correccional, as maximum, with all
the accessory penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in
the amount of twelve thousand pesos (P12,000.00) with subsidiary imprisonment in case of
insolvency, plus five thousand pesos (P5,000.00) in the concept of moral and exemplary
damages with costs. No appeal was interposed by accused who later applied for probation. 2

On December 14, 1981, the lower court rendered a decision finding that Destrajo had not
exercised sufficient diligence as the operator of the jeepney. The dispositive portion of the
decision reads:

WHEREFORE, the Court finds judgment in favor of the plaintiffs against

defendant Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for
loss of income; to pay plaintiffs the sum of P12,000.00 which amount shall be
deducted in the event judgment in Criminal Case No. 3527-D against the
driver, accused Into, shall have been enforced; to pay plaintiffs the sum of
P5,901.70 representing funeral and burial expenses of the deceased; to pay
plaintiffs the sum of P5,000.00 as moral damages which shall be deducted in
the event judgment (sic) in Criminal Case No. 3527-D against the driver,
accused Into; to pay plaintiffs the sum of P3,000.00 as attorney's fees and to
pay the costs of suit.

The defendant insurance company is ordered to reimburse defendant

Destrajo whatever amounts the latter shall have paid only up to the extent of
its insurance coverage.
 SO ORDERED. 3

Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive
portion of the decision contending that AFISCO should not merely be held secondarily liable
because the Insurance Code provides that the insurer's liability is "direct and primary and/or
jointly and severally with the operator of the vehicle, although only up to the extent of the
insurance coverage." Hence, they argued that the P20,000.00 coverage of the insurance
4

policy issued by AFISCO, should have been awarded in their favor.

In its comment on the motion for reconsideration, AFISCO argued that since the Insurance
Code does not expressly provide for a solidary obligation, the presumption is that the
obligation is joint.

In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling
that since the insurance contract "is in the nature of suretyship, then the liability of the insurer
is secondary only up to the extent of the insurance coverage." 5

Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer
is direct, primary and solidary with the jeepney operator because the petitioners became
direct beneficiaries under the provision of the policy which, in effect, is a stipulation pour
autrui. This motion was likewise denied for lack of merit.
6

Hence, petitioners filed the instant petition for certiorari which, although it does not seek the
reversal of the lower court's decision in its entirety, prays for the setting aside or modification
of the second paragraph of the dispositive portion of said decision. Petitioners reassert their
position that the insurance company is directly and solidarily liable with the negligent
operator up to the extent of its insurance coverage.

We grant the petition.

The particular provision of the insurance policy on which petitioners base their claim is as
follows:

Sec. 1 — LIABILITY TO THE PUBLIC

1. The 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 any THIRD PARTY

(b) . . . .

2. . . . .

3. In the event of the death of any person entitled to indemnity under this
Policy, the Company will, in respect of the liability incurred to such person
indemnify his personal representatives in terms of, and subject to the terms
and conditions hereof. 7
The above-quoted provision leads to no other conclusion but that AFISCO can be held
directly liable by petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City,
Br. 75, "[w]here an insurance policy insures directly against liability, the insurer's liability
accrues immediately upon the occurrence of the injury or even upon which the liability
depends, and does not depend on the recovery of judgment by the injured party against the
insured." 8 The underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is
"to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain
beneficial interest in the proceeds of the policy . . ." 9 Since petitioners had received from AFISCO the sum of P5,000.00 under the
no-fault clause, AFISCO's liability is now limited to P15,000.00.

However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan
Insurance Co., Inc. v. Court of Appeals, this Court had the opportunity to resolve the issue
10

as to the nature of the liability of the insurer and the insured vis-a-vis the third party injured in
an accident. We categorically ruled thus:

While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity contracts
against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The
liability of the insurer is based on contract; that of the insured is based on
tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent

Vallejos (the injured third party), but it cannot, as incorrectly held by the trial
court, be made "solidarily" liable with the two principal tortfeasors, namely
respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer
were solidarily liable with said, two (2) respondents by reason of the
indemnity contract against third party liability — under which an insurer can
be directly sued by a third party — this will result in a violation of the
principles underlying solidary obligation and insurance contracts. (emphasis
supplied)

The Court then proceeded to distinguish the extent of the liability and manner of enforcing
the same in ordinary contracts from that of insurance contracts. While in solidary obligations,
the creditor may enforce the entire obligation against one of the solidary debtors, in an
insurance contract, the insurer undertakes for a consideration to indemnify the insured
against loss, damage or liability arising from an unknown or contingent event. Thus, 11

petitioner therein, which, under the insurance contract is liable only up to P20,000.00, can
not be made solidarily liable with the insured for the entire obligation of P29,013.00
otherwise there would result "an evident breach of the concept of solidary obligation."

Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the
insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for the total
amount of P53,901.70 in accordance with the decision of the lower court. Since under both
the law and the insurance policy, AFISCO's liability is only up to P20,000.00, the second
paragraph of the dispositive portion of the decision in question may have unwittingly sown
confusion among the petitioners and their counsel. What should have been clearly stressed
as to leave no room for doubt was the liability of AFISCO under the explicit terms of the
insurance contract.

In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but
not solidary with that of Destrajo which is based on Article 2180 of the Civil Code. As such, 12
petitioners have the option either to claim the P15,000 from AFISCO and the balance from
Destrajo or enforce the entire judgment from Destrajo subject to reimbursement from
AFISCO to the extent of the insurance coverage.

While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed
that the lower court erred in the computation of the probable loss of income. Using the
formula: 2/3 of (80-56) x P12,000.00, it awarded P28,800.00. Upon recomputation, the
13

correct amount is P192,000.00. Being a "plain error," we opt to correct the

same. Furthermore, in accordance with prevailing jurisprudence, the death indemnity is
14

hereby increased to P50,000.00. 15

WHEREFORE, premises considered, the present petition is hereby GRANTED. The award
of P28,800.00 representing loss of income is INCREASED to P192,000.00 and the death
indemnity of P12,000.00 to P50,000.00.

SO ORDERED.

William Tiu vs Arriesgado

(GR No 130060, Sept 1, 2004, Callejo)

Issues:
In third-party liability insurance, would it be possible for a third party to sue
the insurer directly?
Would it be possible for an insurance company to be held jointly and
severally liable with the insured?

Held:
Yes. This is an exception to the rule on mutuality of contract. Whenever a
contract contains stipulation for the benefit of a third person and the moment
the third person communicates his assent thereto, the contract becomes
binding upon him. The fact that a third person demands fulfillment of the
insurance policy may be reasonably construed as an assent on his part to the
benefit provided in the policy. This provision arms him with the requisite
legal personality to bring an action on the insurance policy. (stipulation pour
artrui)
No. The basis of cause of action is different. The cause of action against the
insurer is based on contract while the cause of action against the insured is
based on torts. Considering that there are two different causes of action, it
will be legally impossible for them to be made as jointly and severally liable
to the injured third party.
 [G.R. No. 138060. September 1, 2004]

WILLIAM TIU, doing business under the name and style of D

Rough Riders, and VIRGILIO TE LAS PIAS petitioners,
vs. PEDRO A. ARRIESGADO, BENJAMIN CONDOR,
SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY
AND INSURANCE, INC., respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules

of Court from the Decision of the Court of Appeals in CA-G.R. CV No.
[1]

54354 affirming with modification the Decision of the Regional Trial

[2]

Court, 7th Judicial Region, Cebu City, Branch 20, in Civil Case No. CEB-
5963 for breach of contract of carriage, damages and attorneys fees,
and the Resolution dated February 26, 1999 denying the motion for
reconsideration thereof.
The following facts are undisputed:
At about 10:00 p.m. of March 15, 1987, the cargo truck marked
Condor Hollow Blocks and General Merchandise bearing plate number
GBP-675 was loaded with firewood in Bogo, Cebu and left
for Cebu City. Upon reaching Sitio Aggies, Poblacion,
Compostela, Cebu, just as the truck passed over a bridge, one of its
rear tires exploded. The driver, Sergio Pedrano, then parked along the
right side of the national highway and removed the damaged tire to
have it vulcanized at a nearby shop, about 700 meters away. Pedrano
[3]

left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle,
and instructed the latter to place a spare tire six fathoms away behind
[4]

the stalled truck to serve as a warning for oncoming vehicles. The trucks
tail lights were also left on. It was about 12:00 a.m., March 16, 1987.
At about 4:45 a.m., D Rough Riders passenger bus with plate
number PBP-724 driven by Virgilio Te Laspias was cruising along the
national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The
passenger bus was also bound for Cebu City, and had come from Maya,
Daanbantayan, Cebu. Among its passengers were the Spouses Pedro
A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the
right side of the bus, about three (3) or four (4) places from the front
seat.
As the bus was approaching the bridge, Laspias saw the stalled
truck, which was then about 25 meters away. He applied the breaks
[5]

and tried to swerve to the left to avoid hitting the truck. But it was too
late; the bus rammed into the trucks left rear. The impact damaged the
right side of the bus and left several passengers injured. Pedro
Arriesgado lost consciousness and suffered a fracture in his right colles.
His wife, Felisa, was brought to the Danao City Hospital. She was later
[6]

transferred to the Southern Island Medical Center where she died

shortly thereafter. [7]

Respondent Pedro A. Arriesgado then filed a complaint for breach of

contract of carriage, damages and attorneys fees before the Regional
Trial Court of Cebu City, Branch 20, against the petitioners, D Rough
Riders bus operator William Tiu and his driver, Virgilio Te Laspias on
May 27, 1987. The respondent alleged that the passenger bus in
question was cruising at a fast and high speed along the national road,
and that petitioner Laspias did not take precautionary measures to avoid
the accident. Thus:
[8]

6. That the accident resulted to the death of the plaintiffs wife, Felisa Pepito 
Arriesgado, as evidenced by a Certificate of Death, a xerox copy of which is 
hereto attached as integral part hereof and marked as ANNEX A, and physical 
injuries to several of its passengers, including plaintiff himself who suffered a 
COLLES FRACTURE RIGHT, per Medical Certificate, a xerox copy of which
is hereto attached as integral part hereof and marked as ANNEX B hereof.

7. That due to the reckless and imprudent driving by defendant Virgilio Te 
Laspias of the said Rough Riders passenger bus, plaintiff and his wife, Felisa 
Pepito Arriesgado, failed to safely reach their destination which was Cebu City,
the proximate cause of which was defendant­drivers failure to observe utmost 
diligence required of a very cautious person under all circumstances.

8. That defendant William Tiu, being the owner and operator of the said Rough 
Riders passenger bus which figured in the said accident, wherein plaintiff and 
his wife were riding at the time of the accident, is therefore directly liable for 
the breach of contract of carriage for his failure to transport plaintiff and his 
wife safely to their place of destination which was Cebu City, and which failure
in his obligation to transport safely his passengers was due to and in 
consequence of his failure to exercise the diligence of a good father of the 
family in the selection and supervision ofhis employees, particularly defendant­
driver Virgilio Te Laspias.[9]

The respondent prayed that judgment be rendered in his favor and

that the petitioners be condemned to pay the following damages:

1). To pay to plaintiff, jointly and severally, the amount of P30,000.00 for the 
death and untimely demise of plaintiffs wife, Felisa Pepito Arriesgado;

2). To pay to plaintiff, jointly and severally, the amount of P38,441.50, 
representing actual expenses incurred by the plaintiff in connection with the 
death/burial of plaintiffs wife;

3). To pay to plaintiff, jointly and severally, the amount of P1,113.80, 
representing medical/hospitalization expenses incurred by plaintiff for the 
injuries sustained by him;

4). To pay to plaintiff, jointly and severally, the amount of P50,000.00 for 
moral damages;

5). To pay to plaintiff, jointly and severally, the amount of P50,000.00 by way 
of exemplary damages;

6). To pay to plaintiff, jointly and severally, the amount of P20,000.00 for 
attorneys fees;

7). To pay to plaintiff, jointly and severally, the amount of P5,000.00 for 
litigation expenses.

PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND 
REMEDIES IN LAW AND EQUITY. [10]

The petitioners, for their part, filed a Third-Party Complaint on [11]

August 21, 1987 against the following: respondent Philippine Phoenix

Surety and Insurance, Inc. (PPSII), petitioner Tius insurer; respondent
Benjamin Condor, the registered owner of the cargo truck; and
respondent Sergio Pedrano, the driver of the truck. They alleged that
petitioner Laspias was negotiating the uphill climb along the national
highway of Sitio Aggies, Poblacion, Compostela, in a moderate and
normal speed. It was further alleged that the truck was parked in a
slanted manner, its rear portion almost in the middle of the highway, and
that no early warning device was displayed. Petitioner Laspias promptly
applied the brakes and swerved to the left to avoid hitting the truck
head-on, but despite his efforts to avoid damage to property and
physical injuries on the passengers, the right side portion of the bus hit
the cargo trucks left rear. The petitioners further alleged, thus:

5. That the cargo truck mentioned in the aforequoted paragraph is owned and 
registered in the name of the third­party defendant Benjamin Condor and was 
left unattended by its driver Sergio Pedrano, one of the third­party defendants, 
at the time of the incident;

6. That third­party defendant Sergio Pedrano, as driver of the cargo truck with 
marked (sic) Condor Hollow Blocks & General Merchandise, with Plate No. 
GBP­675 which was recklessly and imprudently parked along the national 
highway of Compostela, Cebu during the vehicular accident in question, and 
third­party defendant Benjamin Condor, as the registered owner of the cargo 
truck who failed to exercise due diligence in the selection and supervision of 
third­party defendant Sergio Pedrano, are jointly and severally liable to the 
third­party plaintiffs for whatever liability that may be adjudged against said 
third­party plaintiffs or are directly liable of (sic) the alleged death of plaintiffs 
wife;

7. That in addition to all that are stated above and in the answer which are 
intended to show reckless imprudence on the part of the third­party defendants, 
the third­party plaintiffs hereby declare that during the vehicular accident in 
question, third­party defendant was clearly violating Section 34, par. (g) of the 
Land Transportation and Traffic Code

10. That the aforesaid passenger bus, owned and operated by third­party 
plaintiff William Tiu, is covered by a common carrier liability insurance with 
Certificate of Cover No. 054940 issued by Philippine Phoenix Surety and 
Insurance, Inc., Cebu City Branch, in favor of third­party plaintiff William Tiu 
which covers the period from July 22, 1986 to July 22, 1987 and that the said 
insurance coverage was valid, binding and subsisting during the time of the 
aforementioned incident (Annex A as part hereof);

11. That after the aforesaid alleged incident, third­party plaintiff notified third­
party defendant Philippine Phoenix Surety and Insurance, Inc., of the alleged 
incident hereto mentioned, but to no avail;

12. That granting, et arguendo et arguendi, if herein third­party plaintiffs will 
be adversely adjudged, they stand to pay damages sought by the plaintiff and 
therefore could also look up to the Philippine Phoenix Surety and Insurance, 
Inc., for contribution, indemnification and/or reimbursement of any liability or 
obligation that they might [be] adjudged per insurance coverage duly entered 
into by and between third­party plaintiff William Tiu and third­party defendant 
Philippine Phoenix Surety and Insurance, Inc.; [12]

The respondent PPSII, for its part, admitted that it had an existing
contract with petitioner Tiu, but averred that it had already attended to
and settled the claims of those who were injured during the incident. It [13]

could not accede to the claim of respondent Arriesgado, as such claim

was way beyond the scheduled indemnity as contained in the contract
of insurance. [14]

After the parties presented their respective evidence, the trial court
ruled in favor of respondent Arriesgado. The dispositive portion of the
decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor 
of plaintiff as against defendant William Tiu ordering the latter to pay the 
plaintiff the following amounts:

1 ­ The sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

2 ­ The sum of FIFTY THOUSAND PESOS (P50,000.00) as exemplary 
damages;
3 ­ The sum of THIRTY­EIGHT THOUSAND FOUR HUNDRED FORTY­
ONE PESOS (P38,441.00) as actual damages;

4 ­ The sum of TWENTY THOUSAND PESOS (P20,000.00) as attorneys fees;

5 ­ The sum of FIVE THOUSAND PESOS (P5,000.00) as costs of suit;

SO ORDERED. [15]

According to the trial court, there was no dispute that petitioner

William Tiu was engaged in business as a common carrier, in view of his
admission that D Rough Rider passenger bus which figured in the
accident was owned by him; that he had been engaged in the
transportation business for 25 years with a sole proprietorship; and that
he owned 34 buses. The trial court ruled that if petitioner Laspias had
not been driving at a fast pace, he could have easily swerved to the left
to avoid hitting the truck, thus, averting the unfortunate incident. It then
concluded that petitioner Laspias was negligent.
The trial court also ruled that the absence of an early warning device
near the place where the truck was parked was not sufficient to impute
negligence on the part of respondent Pedrano, since the tail lights of the
truck were fully on, and the vicinity was well lighted by street lamps. It
[16]

also found that the testimony of petitioner Tiu, that he based the
selection of his driver Laspias on efficiency and in-service training, and
that the latter had been so far an efficient and good driver for the past
six years of his employment, was insufficient to prove that he observed
the diligence of a good father of a family in the selection and supervision
of his employees.
After the petitioners motion for reconsideration of the said decision
was denied, the petitioners elevated the case to the Court of Appeals on
the following issues:
I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS
RECKLESS AND IMPRUDENT WHEN HE PARKED THE CARGO TRUCK
IN AN OBLIQUE MANNER;
II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND
SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-APPELLEE OR TO
DEFENDANTS-APPELLANTS FOR WHATEVER LIABILITY THAT MAY BE
ADJUDGED TO THE SAID DEFENDANTS-APPELLANTS;
III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIAS WAS
GUILTY OF GROSS NEGLIGENCE;
 IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD EXERCISED
THE DUE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE
SELECTION AND SUPERVISION OF HIS DRIVERS;
V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-
APPELLANT WILLIAM TIU IS LIABLE TO PLAINTIFF-APPELLEE,
WHETHER THERE IS LEGAL AND FACTUAL BASIS IN AWARDING
EXCESSIVE MORAL DAMAGES, EX[E]MPLARY DAMAGES, ATTORNEYS
FEES AND LITIGATION EXPENSES TO PLAINTIFF-APPELLEE;
VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX SURETY
AND INSURANCE, INC. IS LIABLE TO DEFENDANT- APPELLANT
WILLIAM TIU.[17]

The appellate court rendered judgment affirming the trial courts

decision with the modification that the awards for moral and exemplary
damages were reduced to P25,000. The dispositive portion reads:

WHEREFORE, the appealed Decision dated November 6, 1995 is 
hereby MODIFIED such that the awards for moral and exemplary damages are
each reduced to P25,000.00 or a total of P50,000.00 for both. The judgment 
is AFFIRMED in all other respects.

SO ORDERED. [18]

According to the appellate court, the action of respondent

Arriesgado was based not on quasi-delict but on breach of contract of
carriage. As a common carrier, it was incumbent upon petitioner Tiu to
prove that extraordinary diligence was observed in ensuring the safety
of passengers during transportation. Since the latter failed to do so, he
should be held liable for respondent Arriesgados claim. The CA also
ruled that no evidence was presented against the respondent PPSII,
and as such, it could not be held liable for respondent Arriesgados
claim, nor for contribution, indemnification and/or reimbursement in case
the petitioners were adjudged liable.
The petitioners now come to this Court and ascribe the following
errors committed by the appellate court:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING
RESPONDENTS BENJAMIN CONDOR AND SERGIO PEDRANO GUILTY
OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A.
ARRIESGADO OR TO PETITIONERS FOR WHATEVER LIABILITY THAT
MAY BE ADJUDGED AGAINST THEM.
 II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING
PETITIONERS GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO
RESPONDENT PEDRO A. ARRIESGADO.
III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING
PETITIONER WILLIAM TIU LIABLE FOR EXEMPLARY DAMAGES,
ATTORNEYS FEES AND LITIGATION EXPENSES.
IV.THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING
RESPONDENT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC.
LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONER
WILLIAM TIU.[19]

According to the petitioners, the appellate court erred in failing to

appreciate the absence of an early warning device and/or built-in
reflectors at the front and back of the cargo truck, in clear violation of
Section 34, par. (g) of the Land Transportation and Traffic Code. They
aver that such violation is only a proof of respondent Pedranos
negligence, as provided under Article 2185 of the New Civil Code. They
also question the appellate courts failure to take into account that the
truck was parked in an oblique manner, its rear portion almost at the
center of the road. As such, the proximate cause of the incident was the
gross recklessness and imprudence of respondent Pedrano, creating
the presumption of negligence on the part of respondent Condor in
supervising his employees, which presumption was not rebutted. The
petitioners then contend that respondents Condor and Pedrano should
be held jointly and severally liable to respondent Arriesgado for the
payment of the latters claim.
The petitioners, likewise, aver that expert evidence should have
been presented to prove that petitioner Laspias was driving at a very
fast speed, and that the CA could not reach such conclusion by merely
considering the damages on the cargo truck. It was also pointed out that
petitioner Tiu presented evidence that he had exercised the diligence of
a good father of a family in the selection and supervision of his drivers.
The petitioners further allege that there is no legal and factual basis
to require petitioner Tiu to pay exemplary damages as no evidence was
presented to show that the latter acted in a fraudulent, reckless and
oppressive manner, or that he had an active participation in the
negligent act of petitioner Laspias.
Finally, the petitioners contend that respondent PPSII admitted in its
answer that while it had attended to and settled the claims of the other
injured passengers, respondent Arriesgados claim remained unsettled
as it was beyond the scheduled indemnity under the insurance contract.
The petitioners argue that said respondent PPSII should have settled
the said claim in accordance with the scheduled indemnity instead of
just denying the same.
On the other hand, respondent Arriesgado argues that two of the
issues raised by the petitioners involved questions of fact, not
reviewable by the Supreme Court: the finding of negligence on the part
of the petitioners and their liability to him; and the award of exemplary
damages, attorneys fees and litigation expenses in his favor. Invoking
the principle of equity and justice, respondent Arriesgado pointed out
that if there was an error to be reviewed in the CA decision, it should be
geared towards the restoration of the moral and exemplary damages
to P50,000 each, or a total of P100,000 which was reduced by the Court
of Appeals to P25,000 each, or a total of only P50,000.
Respondent Arriesgado also alleged that respondents Condor and
Pedrano, and respondent Phoenix Surety, are parties with whom he had
no contract of carriage, and had no cause of action against. It was
pointed out that only the petitioners needed to be sued, as driver and
operator of the ill-fated bus, on account of their failure to bring the
Arriesgado Spouses to their place of destination as agreed upon in the
contract of carriage, using the utmost diligence of very cautious persons
with due regard for all circumstances.
Respondents Condor and Pedrano point out that, as correctly ruled
by the Court of Appeals, the proximate cause of the unfortunate incident
was the fast speed at which petitioner Laspias was driving the bus
owned by petitioner Tiu. According to the respondents, the allegation
that the truck was not equipped with an early warning device could not
in any way have prevented the incident from happening. It was also
pointed out that respondent Condor had always exercised the due
diligence required in the selection and supervision of his employees,
and that he was not a party to the contract of carriage between the
petitioners and respondent Arriesgado.
Respondent PPSII, for its part, alleges that contrary to the allegation
of petitioner Tiu, it settled all the claims of those injured in accordance
with the insurance contract. It further avers that it did not deny
respondent Arriesgados claim, and emphasizes that its liability should
be within the scheduled limits of indemnity under the said contract. The
respondent concludes that while it is true that insurance contracts are
contracts of indemnity, the measure of the insurers liability is determined
by the insureds compliance with the terms thereof.
 The Courts Ruling

At the outset, it must be stressed that this Court is not a trier of facts.
Factual findings of the Court of Appeals are final and may not be
[20]

reviewed on appeal by this Court, except when the lower court and the
CA arrived at diverse factual findings. The petitioners in this case
[21]

assail the finding of both the trial and the appellate courts that petitioner
Laspias was driving at a very fast speed before the bus owned by
petitioner Tiu collided with respondent Condors stalled truck. This is
clearly one of fact, not reviewable by the Court in a petition for review
under Rule 45. [22]

On this ground alone, the petition is destined to fail.

However, considering that novel questions of law are likewise
involved, the Court resolves to examine and rule on the merits of the
case.
Petitioner Laspias
Was negligent in driving
The Ill-fated bus

In his testimony before the trial court, petitioner Laspias claimed that
he was traversing the two-lane road at Compostela, Cebu at a speed of
only forty (40) to fifty (50) kilometers per hour before the incident
occurred. He also admitted that he saw the truck which was parked in
[23]

an oblique position at about 25 meters before impact, and tried to[24]

avoid hitting it by swerving to the left. However, even in the absence of

expert evidence, the damage sustained by the truck itself supports the
[25]

finding of both the trial court and the appellate court, that the D Rough
Rider bus driven by petitioner Laspias was traveling at a fast pace.
Since he saw the stalled truck at a distance of 25 meters, petitioner
Laspias had more than enough time to swerve to his left to avoid hitting
it; that is, if the speed of the bus was only 40 to 50 kilometers per hour
as he claimed. As found by the Court of Appeals, it is easier to believe
that petitioner Laspias was driving at a very fast speed, since at 4:45
a.m., the hour of the accident, there were no oncoming vehicles at the
opposite direction. Petitioner Laspias could have swerved to the left
lane with proper clearance, and, thus, could have avoided the truck.
Instinct, at the very least, would have prompted him to apply the
[26]

breaks to avert the impending disaster which he must have foreseen

when he caught sight of the stalled truck. As we had occasion to
reiterate:
A man must use common sense, and exercise due reflection in all his acts; it is 
his duty to be cautious, careful and prudent, if not from instinct, then through 
fear of recurring punishment. He is responsible for such results as anyone 
might foresee and for acts which no one would have performed except through 
culpable abandon. Otherwise, his own person, rights and property, and those of 
his fellow beings, would ever be exposed to all manner of danger and injury. [27]

We agree with the following findings of the trial court, which were
affirmed by the CA on appeal:

A close study and evaluation of the testimonies and the documentary proofs 
submitted by the parties which have direct bearing on the issue of negligence, 
this Court as shown by preponderance of evidence that defendant Virgilio Te 
Laspias failed to observe extraordinary diligence as a driver of the common 
carrier in this case. It is quite hard to accept his version of the incident that he 
did not see at a reasonable distance ahead the cargo truck that was parked when
the Rough Rider [Bus] just came out of the bridge which is on an (sic) [more] 
elevated position than the place where the cargo truck was parked. With its 
headlights fully on, defendant driver of the Rough Rider was in a vantage 
position to see the cargo truck ahead which was parked and he could just easily 
have avoided hitting and bumping the same by maneuvering to the left without 
hitting the said cargo truck. Besides, it is (sic) shown that there was still much 
room or space for the Rough Rider to pass at the left lane of the said national 
highway even if the cargo truck had occupied the entire right lane thereof. It is 
not true that if the Rough Rider would proceed to pass through the left lane it 
would fall into a canal considering that there was much space for it to pass 
without hitting and bumping the cargo truck at the left lane of said national 
highway. The records, further, showed that there was no incoming vehicle at 
the opposite lane of the national highway which would have prevented the 
Rough Rider from not swerving to its left in order to avoid hitting and bumping
the parked cargo truck. But the evidence showed that the Rough Rider instead 
of swerving to the still spacious left lane of the national highway plowed 
directly into the parked cargo truck hitting the latter at its rear portion; and thus,
the (sic) causing damages not only to herein plaintiff but to the cargo truck as 
well.[28]
 Indeed, petitioner Laspias negligence in driving the bus is apparent
in the records. By his own admission, he had just passed a bridge and
was traversing the highway of Compostela, Cebu at a speed of 40 to 50
kilometers per hour before the collision occurred. The maximum speed
allowed by law on a bridge is only 30 kilometers per hour. And, as [29]

correctly pointed out by the trial court, petitioner Laspias also violated
Section 35 of the Land Transportation and Traffic Code, Republic Act
No. 4136, as amended:

Sec. 35. Restriction as to speed. (a) Any person driving a motor vehicle on a 
highway shall drive the same at a careful and prudent speed, not greater nor 
less than is reasonable and proper, having due regard for the traffic, the width 
of the highway, and or any other condition then and there existing; and no 
person shall drive any motor vehicle upon a highway at such speed as to 
endanger the life, limb and property of any person, nor at a speed greater than 
will permit him to bring the vehicle to a stop within the assured clear distance 
ahead. [30]

Under Article 2185 of the Civil Code, a person driving a vehicle is

presumed negligent if at the time of the mishap, he was violating any
traffic regulation.
[31]

Petitioner Tiu failed to

Overcome the presumption
Of negligence against him as
One engaged in the business
Of common carriage

The rules which common carriers should observe as to the safety of

their passengers are set forth in the Civil Code, Articles 1733,
1755 and 1756. In this case, respondent Arriesgado and his
[32] [33] [34]

deceased wife contracted with petitioner Tiu, as owner and operator of

D Rough Riders bus service, for transportation from Maya,
Daanbantayan, Cebu, to Cebu City for the price of P18.00. It is [35]

undisputed that the respondent and his wife were not safely transported
to the destination agreed upon. In actions for breach of contract, only
the existence of such contract, and the fact that the obligor, in this case
the common carrier, failed to transport his passenger safely to his
destination are the matters that need to be proved. This is because
[36]

under the said contract of carriage, the petitioners assumed the express
obligation to transport the respondent and his wife to their destination
safely and to observe extraordinary diligence with due regard for all
circumstances. Any injury suffered by the passengers in the course
[37]

thereof is immediately attributable to the negligence of the carrier.

Upon the happening of the accident, the presumption of negligence at
[38]

once arises, and it becomes the duty of a common carrier to prove that
he observed extraordinary diligence in the care of his passengers. It [39]

must be stressed that in requiring the highest possible degree of

diligence from common carriers and in creating a presumption of
negligence against them, the law compels them to curb the
recklessness of their drivers.
[40]

While evidence may be submitted to overcome such presumption of

negligence, it must be shown that the carrier observed the required
extraordinary diligence, which means that the carrier must show the
utmost diligence of very cautious persons as far as human care and
foresight can provide, or that the accident was caused by fortuitous
event. As correctly found by the trial court, petitioner Tiu failed to
[41]

conclusively rebut such presumption. The negligence of petitioner

Laspias as driver of the passenger bus is, thus, binding against
petitioner Tiu, as the owner of the passenger bus engaged as a
common carrier. [42]

The Doctrine of
Last Clear Chance
Is Inapplicable in the
Case at Bar

Contrary to the petitioners contention, the principle of last clear

chance is inapplicable in the instant case, as it only applies in a suit
between the owners and drivers of two colliding vehicles. It does not
arise where a passenger demands responsibility from the carrier to
enforce its contractual obligations, for it would be inequitable to exempt
the negligent driver and its owner on the ground that the other driver
was likewise guilty of negligence. The common law notion of last clear
[43]

chance permitted courts to grant recovery to a plaintiff who has also

been negligent provided that the defendant had the last clear chance to
avoid the casualty and failed to do so. Accordingly, it is difficult to see
what role, if any, the common law of last clear chance doctrine has to
play in a jurisdiction where the common law concept of contributory
negligence as an absolute bar to recovery by the plaintiff, has itself
been rejected, as it has been in Article 2179 of the Civil Code.[44]
 Thus, petitioner Tiu cannot escape liability for the death of
respondent Arriesgados wife due to the negligence of petitioner Laspias,
his employee, on this score.
Respondents Pedrano and
Condor were likewise
Negligent

In Phoenix Construction, Inc. v. Intermediate Appellate Court,

where therein respondent Dionisio sustained injuries when his vehicle
[45]

rammed against a dump truck parked askew, the Court ruled that the
improper parking of a dump truck without any warning lights or reflector
devices created an unreasonable risk for anyone driving within the
vicinity, and for having created such risk, the truck driver must be held
responsible. In ruling against the petitioner therein, the Court elucidated,
thus:

In our view, Dionisios negligence, although later in point of time than the truck 
drivers negligence, and therefore closer to the accident, was not an efficient 
intervening or independent cause. What the petitioners describe as an 
intervening cause was no more than a foreseeable consequence of the risk 
created by the negligent manner in which the truck driver had parked the dump 
truck. In other words, the petitioner truck driver owed a duty to private 
respondent Dionisio and others similarly situated not to impose upon them the 
very risk the truck driver had created. Dionisios negligence was not that of an 
independent and overpowering nature as to cut, as it were, the chain of 
causation in fact between the improper parking of the dump truck and the 
accident, nor to sever the juris vinculum of liability.

We hold that private respondent Dionisios negligence was only contributory, 
that the immediate and proximate cause of the injury remained the truck drivers
lack of due care.
[46]

In this case, both the trial and the appellate courts failed to consider
that respondent Pedrano was also negligent in leaving the truck parked
askew without any warning lights or reflector devices to alert oncoming
vehicles, and that such failure created the presumption of negligence on
the part of his employer, respondent Condor, in supervising his
employees properly and adequately. As we ruled in Poblete v. Fabros: [47]
It is such a firmly established principle, as to have virtually formed part of the 
law itself, that the negligence of the employee gives rise to the presumption of 
negligence on the part of the employer. This is the presumed negligence in the 
selection and supervision of employee. The theory of presumed negligence, in 
contrast with the American doctrine of respondeat superior, where the 
negligence of the employee is conclusively presumed to be the negligence of 
the employer, is clearly deducible from the last paragraph of Article 2180 of the
Civil Code which provides that the responsibility therein mentioned shall cease 
if the employers prove that they observed all the diligence of a good father of a 
family to prevent damages. [48]

The petitioners were correct in invoking respondent Pedranos failure

to observe Article IV, Section 34(g) of the Rep. Act No. 4136, which
provides:

(g) Lights when parked or disabled. Appropriate parking lights or flares visible 
one hundred meters away shall be displayed at a corner of the vehicle 
whenever such vehicle is parked on highways or in places that are not well­
lighted or is placed in such manner as to endanger passing traffic.

The manner in which the truck was parked clearly endangered

oncoming traffic on both sides, considering that the tire blowout which
stalled the truck in the first place occurred in the wee hours of the
morning. The Court can only now surmise that the unfortunate incident
could have been averted had respondent Condor, the owner of the
truck, equipped the said vehicle with lights, flares, or, at the very least,
an early warning device. Hence, we cannot subscribe to respondents
[49]

Condor and Pedranos claim that they should be absolved from liability
because, as found by the trial and appellate courts, the proximate cause
of the collision was the fast speed at which petitioner Laspias drove the
bus. To accept this proposition would be to come too close to wiping out
the fundamental principle of law that a man must respond for the
foreseeable consequences of his own negligent act or omission. Indeed,
our law on quasi-delicts seeks to reduce the risks and burdens of living
in society and to allocate them among its members. To accept this
proposition would be to weaken the very bonds of society. [50]

The Liability of
Respondent PPSII
as Insurer

The trial court in this case did not rule on the liability of respondent
PPSII, while the appellate court ruled that, as no evidence was
presented against it, the insurance company is not liable.
A perusal of the records will show that when the petitioners filed the
Third-Party Complaint against respondent PPSII, they failed to attach a
copy of the terms of the insurance contract itself. Only Certificate of
Cover No. 054940 issued in favor of Mr. William Tiu,
[51]

Lahug, Cebu City signed by Cosme H. Boniel was appended to the

third-party complaint. The date of issuance, July 22, 1986, the period of
insurance, from July 22, 1986 to July 22, 1987, as well as the following
items, were also indicated therein:

SCHEDULED VEHICLE

MODEL MAKE TYPE OF COLOR BLT FILE

BODY NO.

Isuzu Forward Bus blue mixed

PLATE SERIAL/CHASSIS MOTOR NO. AUTHORIZED UNLADEN

NO. PBP- NO. SER450- 677836 CAPACITY 50 WEIGHT
724 1584124 6Cyls. Kgs.

SECTION 1/11 *LIMITS OF LIABILITY PREMIUMS

P50,000.00 PAID
A. THIRD PARTY LIABILITY

B. PASSENGER LIABILITY Per Person Per Accident P540.00 52

P12,000.00 P50,000

In its Answer to the Third-Party Complaint, the respondent PPSII

53

admitted the existence of the contract of insurance, in view of its failure

to specifically deny the same as required under then Section 8(a), Rule
8 of the Rules of Court, which reads:
54

Sec. 8. How to contest genuineness of such documents. When an action or 
defense is founded upon a written instrument copied in or attached to the 
corresponding pleading as provided in the preceding section, the genuineness 
and due execution of the instrument shall be deemed admitted unless the 
adverse party, under oath, specifically denies them, and sets forth what he 
claims to be the facts; but the requirement of an oath does not apply when the 
adverse party does not appear to be a party to the instrument or when 
compliance with an order for inspection of the original instrument is refused.

In fact, respondent PPSII did not dispute the existence of such

contract, and admitted that it was liable thereon. It claimed, however,
that it had attended to and settled the claims of those injured during the
incident, and set up the following as special affirmative defenses:

Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby 
reiterates and incorporates by way of reference the preceding paragraphs and 
further states THAT:­

8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and 
Neptali Palces who sustained injuries during the incident in question. In fact, it 
settled financially their claims per vouchers duly signed by them and they duly 
executed Affidavit[s] of Desistance to that effect, xerox copies of which are 
hereto attached as Annexes 1, 2, 3, 4, 5, and 6 respectively;

9. With respect to the claim of plaintiff, herein answering third party defendant 
through its authorized insurance adjuster attended to said claim. In fact, there 
were negotiations to that effect. Only that it cannot accede to the demand of 
said claimant considering that the claim was way beyond the scheduled 
indemnity as per contract entered into with third party plaintiff William Tiu and
third party defendant (Philippine Phoenix Surety and Insurance, Inc.). Third 
party Plaintiff William Tiu knew all along the limitation as earlier stated, he 
being an old hand in the transportation business; 55

Considering the admissions made by respondent PPSII, the

existence of the insurance contract and the salient terms thereof cannot
be dispatched. It must be noted that after filing its answer, respondent
PPSII no longer objected to the presentation of evidence by respondent
Arriesgado and the insured petitioner Tiu. Even in its
Memorandum before the Court, respondent PPSII admitted the
56

existence of the contract, but averred as follows:

Petitioner Tiu is insisting that PPSII is liable to him for contribution, 
indemnification and/or reimbursement. This has no basis under the contract. 
Under the contract, PPSII will pay all sums necessary to discharge liability of 
the insured subject to the limits of liability but not to exceed the limits of 
liability as so stated in the contract. Also, it is stated in the contract that in the 
event of accident involving indemnity to more than one person, the limits of 
liability shall not exceed the aggregate amount so specified by law to all 
persons to be indemnified. 57

As can be gleaned from the Certificate of Cover, such insurance

contract was issued pursuant to the Compulsory Motor Vehicle Liability
Insurance Law. It was expressly provided therein that the limit of the
insurers liability for each person was P12,000, while the limit per
accident was pegged at P50,000. An insurer in an indemnity contract for
third party liability is directly liable to the injured party up to the extent
specified in the agreement but it cannot be held solidarily liable beyond
that amount. The respondent PPSII could not then just deny petitioner
58

Tius claim; it should have paid P12,000 for the death of Felisa
Arriesgado, and respondent Arriesgados hospitalization expenses
59

of P1,113.80, which the trial court found to have been duly supported by
receipts. The total amount of the claims, even when added to that of the
other injured passengers which the respondent PPSII claimed to have
settled, would not exceed the P50,000 limit under the insurance
60

agreement.
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance
is such that it is primarily intended to provide compensation for the
death or bodily injuries suffered by innocent third parties or passengers
as a result of the negligent operation and use of motor vehicles. The
victims and/or their dependents are assured of immediate financial
assistance, regardless of the financial capacity of motor vehicle
owners. As the Court, speaking through Associate Justice Leonardo A.
61

Quisumbing, explained in Government Service Insurance System v.

Court of Appeals: 62

However, although the victim may proceed directly against the insurer for 
indemnity, the third party liability is only up to the extent of the insurance 
policy and those required by law. While it is true that where the insurance 
contract provides for indemnity against liability to third persons, and such 
persons can directly sue the insurer, the direct liability of the insurer under 
indemnity contracts against third party liability does not mean that the insurer 
can be held liable in solidum with the insured and/or the other parties found at 
fault. For the liability of the insurer is based on contract; that of the insured 
carrier or vehicle owner is based on tort.

Obviously, the insurer could be held liable only up to the extent of what was 
provided for by the contract of insurance, in accordance with the CMVLI law. 
At the time of the incident, the schedule of indemnities for death and bodily 
injuries, professional fees and other charges payable under a CMVLI coverage 
was provided for under the Insurance Memorandum Circular (IMC) No. 5­78 
which was approved on November 10, 1978. As therein provided, the 
maximum indemnity for death was twelve thousand (P12,000.00) pesos per 
victim. The schedules for medical expenses were also provided by said IMC, 
specifically in paragraphs (C) to (G).63

Damages to be
Awarded

The trial court correctly awarded moral damages in the amount

of P50,000 in favor of respondent Arriesgado. The award of exemplary
damages by way of example or correction of the public good, is 64

likewise in order. As the Court ratiocinated in Kapalaran Bus Line v.

Coronado: 65

While the immediate beneficiaries of the standard of extraordinary diligence 
are, of course, the passengers and owners of cargo carried by a common carrier,
they are not the only persons that the law seeks to benefit. For if common 
carriers carefully observed the statutory standard of extraordinary diligence in 
respect of their own passengers, they cannot help but simultaneously benefit 
pedestrians and the passengers of other vehicles who are equally entitled to the 
safe and convenient use of our roads and highways. The law seeks to stop and 
prevent the slaughter and maiming of people (whether passengers or not) on 
our highways and buses, the very size and power of which seem to inflame the 
minds of their drivers. Article 2231 of the Civil Code explicitly authorizes the 
imposition of exemplary damages in cases of quasi­delicts if the defendant 
acted with gross negligence. 66

The respondent Pedro A. Arriesgado, as the surviving spouse and

heir of Felisa Arriesgado, is entitled to indemnity in the amount
of P50,000.00. 67

The petitioners, as well as the respondents Benjamin Condor and

Sergio Pedrano are jointly and severally liable for said amount,
conformably with the following pronouncement of the Court in Fabre, Jr.
vs. Court of Appeals: 68

The same rule of liability was applied in situations where the negligence of the 
driver of the bus on which plaintiff was riding concurred with the negligence of
a third party who was the driver of another vehicle, thus causing an accident. 
In Anuran v. Buo, Batangas Laguna Tayabas Bus Co. v. Intermediate 
Appellate Court, and Metro Manila Transit Corporation v. Court of 
Appeals, the bus company, its driver, the operator of the other vehicle and the 
driver of the vehicle were jointly and severally held liable to the 
injured passenger or the latters heirs. The basis of this allocation of liability was
explained in Viluan v. Court of Appeals, thus:

Nor should it make difference that the liability of petitioner [bus owner] springs
from contract while that of respondents [owner and driver of other vehicle] 
arises from quasi­delict. As early as 1913, we already ruled in Gutierrez vs. 
Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the 
negligence of the driver of the bus on which he was riding and of the driver of 
another vehicle, the drivers as well as the owners of the two vehicles are jointly
and severally liable for damages. Some members of the Court, though, are of 
the view that under the circumstances they are liable on quasi­delict. 69

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY

GRANTED. The Decision of the Court of Appeals is AFFIRMED with
MODIFICATIONS:
(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and
petitioner William Tiu are ORDERED to pay, jointly and severally,
respondent Pedro A. Arriesgado the total amount of P13,113.80;
 (2) The petitioners and the respondents Benjamin Condor and
Sergio Pedrano are ORDERED to pay, jointly and severally, respondent
Pedro A. Arriesgado P50,000.00 as indemnity; P26,441.50 as actual
damages; P50,000.00 as moral damages; P50,000.00 as exemplary
damages; and P20,000.00 as attorneys fees.
SO ORDERED

G.R. No. 76101-02 September 30, 1991

TIO KHE CHIO, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE AND SURETY
CORPORATION,respondents.

Rodolfo M. Morelos for petitioner.

Ferrer, Mariano, Sangalang & Gatdula for private respondent.

FERNAN, C.J.:

The issue in this petition for certiorari and prohibition is the legal rate of interest to be
imposed in actions for damages arising from unpaid insurance claims. Petitioner Tio Khe
Chio claims that it should be twelve (12%) per cent pursuant to Articles 243 and 244 of the
Insurance Code while private respondent Eastern Assurance and Surety Corporation
(EASCO) claims that it should be six (6%) per cent under Article 2209 of the Civil Code.

The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio imported one
thousand (1,000) bags of fishmeal valued at $36,000.30 from Agro Impex, U.S.A. Dallas,
Texas, U.S.A. The goods were insured with respondent EASCO and shipped on board the
M/V Peskov, a vessel owned by Far Eastern Shipping Company. When the goods reached
Manila on January 28, 1979, they were found to have been damaged by sea water which
rendered the fishmeal useless. Petitioner filed a claim with EASCO and Far Eastern
Shipping. Both refused to pay. Whereupon, petitioner sued them before the then Court of
First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a counterclaim
against the petitioner for the recovery of P18,387.86 representing the unpaid insurance
premiums.

On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern
Shipping to pay petitioner solidarily the sum of P105,986.68 less the amount of P18,387.86
for unpaid premiums with interest at the legal rate from the filing of the complaint, the sum of
P15,000.00 as attorney's fees and the costs. 1

The judgment became final as to EASCO but the shipping company appealed to the Court of
Appeals and was absolved from liability by the said court in AC-G.R. No. 00161, entitled "Tio
Khe Chio vs. Eastern Assurance and Surety Corporation."

The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The
sheriff enforcing the writ reportedly fixed the legal rate of interest at twelve (12%).
Respondent EASCO moved to quash the writ alleging that the legal interest to be computed
should be six (6%) per cent per annum in accordance with Article 2209 of the Civil Code and
not twelve (12%) per cent as insisted upon by petitioner's counsel. In its order of July 30,
1986, the trial court denied EASCO's motion. EASCO then filed a petition for certiorari and
prohibition before the Court of Appeals.

On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of
which states:

WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the
interest at 12% on the principal amount of P87,598.82 from the date of filing of the complaint
until the full payment of the amount, and the interest that the private respondent is entitled to
collect from the petitioner is hereby reduced to 6% per annum.

No pronouncement as to costs. 2

In disputing the aforesaid decision of the Court of Appeals, petitioner maintains that not only
is it unjust and unfair but it is also contrary to the correct interpretation of the fixing of interest
rates under Sections 243 and 244 of the Insurance Code. And since petitioner's claims is
based on an insurance contract, then it is the Insurance Code which must govern and not
the Civil Code.

We rule for respondent EASCO. The legal rate of interest in the case at bar is six (6%) per
annum as correctly held by the Appellate Court.

Section 243 of the Insurance Code provides:

The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of
loss is received by the insurer and ascertainment of the loss or damage is made
either by agreement between the insured and the insurer or by arbitration; but if such
ascertainment is not had or made within sixty days after such receipt by the insurer
of the proof of loss, then the loss or damage shall be paid within ninety days after
such receipt. Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for the
duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.

Section 244 of the aforementioned Code also provides:

 In case of any litigation for the enforcement of any policy or contract of insurance, it
shall be the duty of the Commissioner or the Court, as the case may be, to make a
finding as to whether the payment of the claim of the insured has been unreasonably
denied or withheld; and in the affirmative case, the insurance company shall be
adjudged to pay damages which shall consist of attorney's fees and other expenses
incurred by the insured person by reason of such undeniable denial or withholding of
payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following the time prescribed in
section two hundred forty-two or in section two hundred forty-three, as the case may
be, until the claim is fully satisfied; Provided, That the failure to pay any such claim
within the time prescribed in said sections shall be considered prima facie evidence
of unreasonable delay in payment.

In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal
or withholding of payment on petitioner's claim. In fact, respondent court had this to say on
EASCO's refusal to settle the claim of petitioner:

... EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground
which, while not sufficient to free it from liability under its policy, nevertheless is
sufficient to negate any assertion that in refusing to pay, it acted unjustifiably.

xxx xxx xxx

The case posed some genuine issues of interpretation of the terms of the policy as to
which persons may honestly differ. This is the reason the trial court did not say
EASCO's refusal was unjustified. 3

Simply put, the aforecited sections of the Insurance Code are not pertinent to the instant
case. They apply only when the court finds an unreasonable delay or refusal in the payment
of the claims.

Neither does Circular No. 416 of the Central Bank which took effect on July 29, 1974
pursuant to Presidential Decree No. 116 (Usury Law) which raised the legal rate of interest
from six (6%) to twelve (12%) per cent apply to the case at bar as by the petitioner. The
adjusted rate mentioned in the circular refers only to loans or forbearances of money, goods
or credits and court judgments thereon but not to court judgments for damages arising from
injury to persons and loss of property which does not involve a loan. 4

In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143
SCRA 158, the Court declared that the legal rate of interest is six (6%) per cent per annum,
and not twelve (12%) per cent, where a judgment award is based on an action for damages
for personal injury, not use or forbearance of money, goods or credit. In the same vein, the
Court held in GSIS vs. Court of Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311,
that the rates under the Usury Law (amended by P.D. 116) are applicable only to interest by
way of compensation for the use or forbearance of money, interest by way of damages is
governed by Article 2209 of the Civil Code.

Clearly, the applicable law is Article 2209 of the Civil Code which reads:

If the obligation consists in the payment of a sum of money and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be
 the payment of interest agreed upon, and in the absence of stipulation, the legal
interest which is six per cent per annum.

And in the light of the fact that the contending parties did not allege the rate of interest
stipulated in the insurance contract, the legal interest was properly pegged by the Appellate
Court at six (6%) per cent.

WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit.

SO ORDERED.