[4] G.R. No.
G.R. No. 112329 January 28, 2000 appellee attaches undue significance and makes capital of, it is clear that the use of
VIRGINIA A. PEREZ, petitioner, vs. COURT OF APPEALS and BF
LIFEMAN INSURANCE CORPORATION, respondents.
Actions; Contracts; Obligations; A potestative condition depends upon the exclusive
will of one of the parties. For that reason, it is considered void.—A potestative
condition depends upon the exclusive will of one of the parties. For this reason, it is
considered void. Article 1182 of the New Civil Code states: When the fulfillment of
the condition depends upon the sole will of the debtor, the conditional obligation
shall be void. In the case at bar, the following conditions were imposed by the
respondent company for the perfection of the contract of insurance: (a) a policy must
have been issued; (b) the premiums paid; and (c) the policy must have been delivered
to and accepted by the applicant while he is in good health.
Same; Same; Same; The condition is a suspensive one whereby the acquisition of
rights depends upon the happening of an event which constitutes the condition.—The
condition imposed by the corporation that the policy must have been delivered to and
accepted by the applicant while he is in good health can hardly be considered as a
potestative or facultative condition. On the contrary, the health of the applicant at the
time of the delivery of the policy is beyond the control or will of the insurance
company. Rather, the condition is a suspensive one whereby the acquisition of rights
depends upon the happening of an event which constitutes the condition. In this case,
the suspensive condition was the policy must have been delivered and accepted by
the applicant while he is in good health. There was non-fulfillment of the condition,
however, inasmuch as the applicant was already dead at the time the policy was
issued. Hence, the nonfulfillment of the condition resulted in the non-perfection of
the contract.
Same; Same; Same; A contract of insurance must be assented to by both parties
either in person or by their agents.—A contract of insurance, like other contracts,
must be assented to by both parties either in person or by their agents. So long as an
application for insurance has not been either accepted or rejected, it is merely an
offer or proposal to make a contract. The contract, to be binding from the date of
application, must have been a completed contract, one that leaves nothing to be done,
nothing to be completed, nothing to be passed upon, or determined, before it shall
take effect. There can be no contract of insurance unless the minds of the parties have
met in agreement.
Same; Same; Same; A contract which is null and void is no contract at all and hence
could not be the subject of rescission.—A final note. It has not escaped our notice
that the Court of Appeals declared Insurance Policy 056300 for P50,000.00 null and
void and rescinded. The Court of Appeals corrected this in its Resolution of the
motion for reconsideration filed by petitioner, thus: “Anent the appearance of the
word ‘rescinded’ in the dispositive portion of the decision, to which defendant-
Insurance Law- Assignment No. 2
the words ‘and rescinded’ is, as it is hereby declared, a superfluity. It is apparent
from the context of the decision that the insurance policy in question was found null
and void, and did not have to be ‘rescinded.’ ” True, rescission presupposes the
existence of a valid contract. A contract which is null and void is no contract at all
and hence could not be the subject of rescission.
YNARES-SANTIAGO, J.:
A contract of insurance, like all other contracts, must be assented to by both
parties, either in person or through their agents and so long as an application
for insurance has not been either accepted or rejected, it is merely a
proposal or an offer to make a contract.
Petitioner Virginia A. Perez assails the decision of respondent Court of
Appeals dated July 9, 1993 in CA-G.R. CV 35529 entitled, "BF Lifeman
Insurance Corporations; Plaintiff-Appellant versus Virginia A. Perez.
Defendant-Appellee," which declared Insurance Policy 056300 for
P50,000.00 issued by private respondent corporation in favor of the
deceased Primitivo B. Perez, null and void and rescinded, thereby reversing
the decision rendered by the Regional Trial Court of Manila, Branch XVI.
The facts of the case as summarized by respondent Court of Appeals are not
in dispute.
Primitivo B. Perez had been insured with the BF Lifeman Insurance
Corporation since 1980 for P20,000.00. Sometime in October 1987, an agent
of the insurance corporation, Rodolfo Lalog, visited Perez in Guinayangan,
Quezon and convinced him to apply for additional insurance coverage of
P50,000.00, to avail of the ongoing promotional discount of P400.00 if the
premium were paid annually.1âwphi1.nêt
On October 20, 1987, Primitivo B. Perez accomplished an application form
for the additional insurance coverage of P50,000.00. On the same day,
petitioner Virginia A. Perez, Primitivo's wife, paid P2,075.00 to Lalog. The
receipt issued by Lalog indicated the amount received was a "deposit."1
Unfortunately, Lalog lost the application form accomplished by Perez and so
on October 28, 1987, he asked the latter to fill up another application form.2
On November 1, 1987, Perez was made to undergo the required medical
examination, which he passed.3
Pursuant to the established procedure of the company, Lalog forwarded the
application for additional insurance of Perez, together with all its supporting
papers, to the office of BF Lifeman Insurance Corporation at Gumaca,
Quezon which office was supposed to forward the papers to the Manila
Page 1 of 37
office.
On November 25, 1987, Perez died in an accident. He was riding in a banca
which capsized during a storm. At the time of his death, his application
papers for the additional insurance of P50,000.00 were still with the Gumaca
office. Lalog testified that when he went to follow up the papers, he found
them still in the Gumaca office and so he personally brought the papers to
the Manila office of BF Lifeman Insurance Corporation. It was only on
November 27, 1987 that said papers were received in Manila.
Without knowing that Perez died on November 25, 1987, BF Lifeman
Insurance Corporation approved the application and issued the
corresponding policy for the P50,000.00 on December 2, 1987.4
Petitioner Virginia Perez went to Manila to claim the benefits under the
insurance policies of the deceased. She was paid P40,000.00 under the first
insurance policy for P20,000.00 (double indemnity in case of accident) but
the insurance company refused to pay the claim under the additional policy
coverage of P50,000.00, the proceeds of which amount to P150,000.00 in
view of a triple indemnity rider on the insurance policy. In its letter' of January
29, 1988 to Virginia A. Perez, the insurance company maintained that the
insurance for P50,000.00 had not been perfected at the time of the death of
Primitivo Perez. Consequently, the insurance company refunded the amount
of P2,075.00 which Virginia Perez had paid.
On September 21, 1990, private respondent BF Lifeman Insurance
Corporation filed a complaint against Virginia A. Perez seeking the rescission
and declaration of nullity of the insurance contract in question.
Petitioner Virginia A. Perez, on the other hand, averred that the deceased
had fulfilled all his prestations under the contract and all the elements of a
valid contract are present. She then filed a counterclaim against private
respondent for the collection of P150,000.00 as actual damages,
P100,000.00 as exemplary damages, P30,000.00 as attorney's fees and
P10,000.00 as expenses for litigation.
On October 25, 1991, the trial court rendered a decision in favor of petitioner,
the dispositive portion of which reads as follows:
WHEREFORE PREMISES CONSIDERED, judgment is hereby
rendered in favor of defendant Virginia A. Perez, ordering the plaintiff BF
Lifeman Insurance Corporation to pay to her the face value of BF
Lifeman Insurance Policy No. 056300, plus double indemnity under the
SARDI or in the total amount of P150,000.00 (any refund made and/or
premium deficiency to be deducted therefrom).
Insurance Law- Assignment No. 2
SO ORDERED.5
The trial court, in ruling for petitioner, held that the premium for the additional
insurance of P50,000.00 had been fully paid and even if the sum of
P2,075.00 were to be considered merely as partial payment, the same does
not affect the validity of the policy. The trial court further stated that the
deceased had fully complied with the requirements of the insurance
company. He paid, signed the application form and passed the medical
examination. He should not be made to suffer the subsequent delay in the
transmittal of his application form to private respondent's head office since
these were no longer within his control.
The Court of Appeals, however, reversed the decision of the trial court saying
that the insurance contract for P50,000.00 could not have been perfected
since at the time that the policy was issued, Primitivo was already
dead.6Citing the provision in the application form signed by Primitivo which
states that:
. . . there shall be no contract of insurance unless and until a policy is
issued on this application and that the policy shall not take effect until
the first premium has been paid and the policy has been delivered to
and accepted by me/us in person while I/we, am/are in good health
the Court of Appeals held that the contract of insurance had to be assented
to by both parties and so long as the application for insurance has not been
either accepted or rejected, it is merely an offer or proposal to make a
contract.
Petitioner's motion for reconsideration having been denied by respondent
court, the instant petition for certiorari was filed on the ground that there was
a consummated contract of insurance between the deceased and BF
Lifeman Insurance Corporation and that the condition that the policy issued
by the corporation be delivered and received by the applicant in good health,
is potestative, being dependent upon the will of the insurance company, and
is therefore null and void.
The petition is bereft of merit.
Insurance is a contract whereby, for a stipulated consideration, one party
undertakes to compensate the other for loss on a specified subject by
specified perils.7 A contract, on the other hand, is a meeting of the minds
between two persons whereby one binds himself, with respect to the other to
give something or to render some service.8 Under Article 1318 of the Civil
Code, there is no contract unless the following requisites concur:
Page 2 of 37
 (1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Consent must be manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. The offer
must be certain and the acceptance absolute.
When Primitivo filed an application for insurance, paid P2,075.00 and
submitted the results of his medical examination, his application was subject
to the acceptance of private respondent BF Lifeman Insurance Corporation.
The perfection of the contract of insurance between the deceased and
respondent corporation was further conditioned upon compliance with the
following requisites stated in the application form:
there shall be no contract of insurance unless and until a policy is issued
on this application and that the said policy shall not take effect until the
premium has been paid and the policy delivered to and accepted by
me/us in person while I/We, am/are in good health.9
The assent of private respondent BF Lifeman Insurance Corporation
therefore was not given when it merely received the application form and all
the requisite supporting papers of the applicant. Its assent was given when it
issues a corresponding policy to the applicant. Under the abovementioned
provision, it is only when the applicant pays the premium and receives and
accepts the policy while he is in good health that the contract of insurance is
deemed to have been perfected.
It is not disputed, however, that when Primitivo died on November 25, 1987,
his application papers for additional insurance coverage were still with the
branch office of respondent corporation in Gumaca and it was only two days
later, or on November 27, 1987, when Lalog personally delivered the
application papers to the head office in Manila. Consequently, there was
absolutely no way the acceptance of the application could have been
communicated to the applicant for the latter to accept inasmuch as the
applicant at the time was already dead. In the case of Enriquez vs.Sun Life
Assurance Co. of Canada,10 recovery on the life insurance of the deceased
was disallowed on the ground that the contract for annuity was not perfected
since it had not been proved satisfactorily that the acceptance of the
application ever reached the knowledge of the applicant.
Petitioner insists that the condition imposed by respondent corporation that a
policy must have been delivered to and accepted by the proposed insured in
Insurance Law- Assignment No. 2
good health is potestative being dependent upon the will of the corporation
and is therefore null and void.
We do not agree.
A potestative condition depends upon the exclusive will of one of the parties.
For this reason, it is considered void. Article 1182 of the New Civil Code
states: When the fulfillment of the condition depends upon the sole will the
debtor, the conditional obligation shall be void.
In the case at bar, the following conditions were imposed by the respondent
company for the perfection of the contract of insurance:
(a) a policy must have been issued;
(b) the premiums paid; and
(c) the policy must have been delivered to and accepted by the applicant
while he is in good health.
The condition imposed by the corporation that the policy must have been
delivered to and accepted by the applicant while he is in good health can
hardly be considered as a potestative or facultative condition. On the
contrary, the health of the applicant at the time of the delivery of the policy is
beyond the control or will of the insurance company. Rather, the condition is
a suspensive one whereby the acquisition of rights depends upon the
happening of an event which constitutes the condition. In this case, the
suspensive condition was the policy must have been delivered and accepted
by the applicant while he is in good health. There was non-fulfillment of the
condition, however, inasmuch as the applicant was already dead at the time
the policy was issued. Hence, the non-fulfillment of the condition resulted in
the non-perfection of the contract.
As stated above, a contract of insurance, like other contracts, must be
assented to by both parties either in person or by their agents. So long as an
application for insurance has not been either accepted or rejected, it is
merely an offer or proposal to make a contract. The contract, to be binding
from the date of application, must have been a completed contract, one that
leaves nothing to be done, nothing to be completed, nothing to be passed
upon, or determined, before it shall take effect. There can be no contract of
insurance unless the minds of the parties have met in agreement.11
Prescinding from the foregoing, respondent corporation cannot be held liable
for gross negligence. It should be noted that an application is a mere offer
which requires the overt act of the insurer for it to ripen into a contract. Delay
Page 3 of 37
in acting on the application does not constitute acceptance even though the
insured has forwarded his first premium with his application. The corporation
may not be penalized for the delay in the processing of the application
papers. Moreover, while it may have taken some time for the application
papers to reach the main office, in the case at bar, the same was acted upon
less than a week after it was received. The processing of applications by
respondent corporation normally takes two to three weeks, the longest being
a month.12 In this case, however, the requisite medical examination was
undergone by the deceased on November 1, 1987; the application papers
were forwarded to the head office on November 27, 1987; and the policy was
issued on December 2, 1987. Under these circumstances, we hold that the
delay could not be deemed unreasonable so as to constitute gross
negligence.

A final note. It has not escaped our notice that the Court of Appeals declared
Insurance Policy 056300 for P50,000.00 null and void and rescinded. The
Court of Appeals corrected this in its Resolution of the motion for
reconsideration filed by petitioner, thus:

Anent the appearance of the word "rescinded" in the dispositive portion

of the decision, to which defendant-appellee attaches undue
significance and makes capital of, it is clear that the use of the words
"and rescinded" is, as it is hereby declared, a superfluity. It is apparent
from the context of the decision that the insurance policy in question was
found null and void, and did not have to be "rescinded". 13

True, rescission presupposes the existence of a valid contract. A contract

which is null and void is no contract at all and hence could not be the subject
of rescission.

WHEREFORE, the decision rendered by the Court of Appeals in CA-G.R. CV

No. 35529 is AFFIRMED insofar as it declared Insurance Policy No. 056300
for P50,000.00 issued by BF Lifeman Insurance Corporation of no force and
effect and hence null and void. No costs.

SO ORDERED.

Insurance Law- Assignment No. 2 Page 4 of 37

[5] G.R. No. 195176
THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner, vs. PAZ Y.
KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU, Respondents.
Insurance Law; Insurance Policy; It is settled that the reinstatement of an insurance
policy should be reckoned from the date when the same was approved by the
insurer.—In Lalican v. The Insular Life Assurance Company, Limited, 597 SCRA
159 (2009), which coincidentally also involves the herein petitioner, it was there held
that the reinstatement of the insured’s policy is to be reckoned from the date when
the application was processed and approved by the insurer. There, we stressed that:
To reinstate a policy means to restore the same to premium-paying status after it has
been permitted to lapse. x x x x x x x In the instant case, Eulogio’s death rendered
impossible full compliance with the conditions for reinstatement of Policy No.
9011992. True, Eulogio, before his death, managed to file his Application for
Reinstatement and deposit the amount for payment of his overdue premiums and
interests thereon with Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been processed and approved
by Insular Life during Eulogio’s lifetime and good health. Thus, it is settled that the
reinstatement of an insurance policy should be reckoned from the date when the
same was approved by the insurer.
DECISION
DEL CASTILLO, J.:
The date of last reinstatement mentioned in Section 48 of the Insurance
Code pertains to the date that the insurer approved· the application for
reinstatement. However, in light of the ambiguity in the insurance documents
to this case, this Court adopts the interpretation favorable to the insured in
determining the date when the reinstatement was approved.
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010
Decision2 of the Court of Appeals (CA), which dismissed the Petition in CA-
GR. CV No. 81730, and its December 13, 2010 Resolution3 which denied
the petitioner Insular Life Assurance Company Ltd. 's (Insular Life) motion for
partial reconsideration.4
Factual Antecedents
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance
policy with Insular Life under the latter’s Diamond Jubilee Insurance Plan.
Felipe accomplished the required medical questionnaire wherein he did not
declare any illness or adverse medical condition. Insular Life thereafter
issued him Policy Number A000015683 with a face value of P1 million. This
Insurance Law- Assignment No. 2
took effect on June 22, 1997.5
On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium
covering the period from June 22, 1999 to June 23, 2000.6
On September 7, 1999, Felipe applied for the reinstatement of his policy and
paid P25,020.00 as premium. Except for the change in his occupation of
being self-employed to being the Municipal Mayor of Binuangan, Misamis
Oriental, all the other information submitted by Felipe in his application for
reinstatement was virtually identical to those mentioned in his original policy. 7
On October 12, 1999, Insular Life advised Felipe that his application for
reinstatement may only be considered if he agreed to certain conditions such
as payment of additional premium and the cancellation of the riders
pertaining to
premium waiver and accidental death benefits. Felipe agreed to these
conditions8 and on December 27, 1999 paid the agreed additional premium
of P3,054.50.9
On January 7, 2000, Insular Life issued Endorsement No. PNA000015683,
which reads:
This certifies that as agreed by the Insured, the reinstatement of this policy
has been approved by the Company on the understanding that the following
changes are made on the policy effective June 22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF
PREMIUM DISABILITY (WPD) rider originally attached to and forming
parts of this policy [are] deleted.
In consequence thereof, the premium rates on this policy are adjusted to
P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly,
Philippine currency.10
On June 23, 2000, Felipe paid the annual premium in the amount of
P28,000.00 covering the period from June 22, 2000 to June 22, 2001. And on
July 2, 2001, he also paid the same amount as annual premium covering the
period from June 22, 2001 to June 21, 2002.11
On September 22, 2001, Felipe died. His Certificate of Death enumerated
the following as causes of death:
Page 5 of 37
 Immediate cause: a. End stage renal failure, Hepatic failure
Antecedent cause: b. Congestive heart failure, Diffuse myocardial
ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and
Pneumonia.12
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu
(collectively, Felipe’s beneficiaries or respondents) filed with Insular Life a
claim for benefit under the reinstated policy. This claim was denied. Instead,
Insular Life advised Felipe’s beneficiaries that it had decided to rescind the
reinstated policy on the grounds of concealment and misrepresentation by
Felipe.
Hence, respondents instituted a complaint for specific performance with
damages. Respondents prayed that the reinstated life insurance policy be
declared valid, enforceable and binding on Insular Life; and that the latter be
ordered to pay unto Felipe’s beneficiaries the proceeds of this policy, among
others.13
In its Answer, Insular Life countered that Felipe did not disclose the ailments
(viz., Type 2 Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver
Cirrhosis with Ascites) that he already had prior to his application for
reinstatement of his insurance policy; and that it would not have reinstated
the insurance policy had Felipe disclosed the material information on his
adverse health condition. It contended that when Felipe died, the policy was
still
contestable.14
Ruling of the Regional Trial Court (RTC)
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found 15
for Felipe’s beneficiaries, thus:
WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their]
claim by preponderance of evidence, judgment is hereby rendered in their
favor and against defendants, ordering the latter to pay jointly and severally
the
sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the
date of demand until it is fully paid representing the face value of Plan
Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N.
Insurance Law- Assignment No. 2
Khu[,] Sr; the sum of P20,000.00 as moral damages; P30,000.00 as
attorney’s fees; P10,000.00 as litigation expenses.
SO ORDERED.16
In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the
latter’s claim that the insurance policy was reinstated on June 22, 1999. The
RTC cited the ruling in Malayan Insurance Corporation v. Court of
Appeals17 that any ambiguity in a contract of insurance should be resolved
strictly against the insurer upon the principle that an insurance contract is a
contract of adhesion.18 The RTC also held that the reinstated insurance
policy had already become incontestable by the time of Felipe’s death on
September 22, 2001 since more than two years had already lapsed from the
date of the policy’s reinstatement on June 22, 1999. The RTC noted that
since it was Insular Life itself that supplied all the pertinent forms relative to
the reinstated policy, then it is barred from taking advantage of any
ambiguity/obscurity perceived therein particularly as regards the date when
the reinstated insurance policy became effective.
Ruling of the Court of Appeals
On June 24, 2010, the CA issued the assailed Decision19 which contained
the following decretal portion:
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the
lower court is AFFIRMED with the MODIFICATION that the award of moral
damages, attorney’s fees and litigation expenses [is] DELETED.
SO ORDERED.20
The CA upheld the RTC’s ruling on the non-contestability of the reinstated
insurance policy on the date the insured died. It declared that contrary to
Insular Life’s contention, there in fact exists a genuine ambiguity or obscurity
in the language of the two documents prepared by Insular Life itself, viz.,
Felipe’s Letter of Acceptance and Insular Life’s Endorsement; that given the
obscurity/ambiguity in the language of these two documents, the
construction/interpretation that favors the insured’s right to recover should be
adopted; and that in keeping with this principle, the insurance policy in
dispute must be deemed reinstated as of June 22, 1999.21
Insular Life moved for partial reconsideration22 but this was denied by the CA
in its Resolution of December 13, 2010.23 Hence, the present Petition.
Page 6 of 37
 Issue
The fundamental issue to be resolved in this case is whether Felipe’s
reinstated life insurance policy is already incontestable at the time of his
death.
Petitioner’s Arguments
In praying for the reversal of the CA Decision, Insular Life basically argues
that respondents should not be allowed to recover on the reinstated
insurance policy because the two-year contestability period had not yet
lapsed inasmuch as the insurance policy was reinstated only on December
27, 1999, whereas Felipe died on September 22, 2001;24 that the CA
overlooked the fact that Felipe paid the additional extra premium only on
December 27, 1999, hence, it is only upon this date that the reinstated policy
had become effective; that the CA erred in declaring that resort to the
principles of statutory construction is still necessary to resolve that question
given that the Application for Reinstatement, the Letter of Acceptance and
the Endorsement in and by themselves already embodied unequivocal
provisions stipulating that the two-year contestability clause should be
reckoned from the date of approval of the reinstatement;25 and that Felipe’s
misrepresentation and concealment of material facts in regard to his health
or adverse medical condition gave it (Insular Life) the right to rescind the
contract of insurance and consequently, the right to deny the claim of Felipe’s
beneficiaries for death benefits under the disputed policy.26
Respondents’ Arguments
Respondents maintain that the phrase "effective June 22, 1999" found in
both the Letter of Acceptance and in the Endorsement is unclear whether it
refers to the subject of the sentence, i.e., the "reinstatement of this policy" or
to the subsequent phrase "changes are made on the policy;" that granting
that there was any obscurity or ambiguity in the insurance policy, the same
should be laid at the door of Insular Life as it was this insurance company
that prepared the necessary documents that make up the same;27 and that
given the CA’s finding which effectively affirmed the RTC’s finding on this
particular issue, it stands to reason that the insurance policy had indeed
become incontestable upon the date of Felipe’s death.28
Our Ruling
We deny the Petition.
The Insurance Code pertinently provides that:
Insurance Law- Assignment No. 2
Sec. 48. Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this chapter, such right must be exercised
previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall
have been in force during the lifetime of the insured for a period of two years
from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
The rationale for this provision was discussed by the Court in Manila Bankers
Life Insurance Corporation v. Aban,29
Section 48 regulates both the actions of the insurers and prospective takers
of life insurance. It gives insurers enough time to inquire whether the policy
was obtained by fraud, concealment, or misrepresentation; on the other
hand, it forewarns scheming individuals that their attempts at insurance fraud
would be timely uncovered – thus deterring them from venturing into such
nefarious enterprise. At the same time, legitimate policy holders are
absolutely protected from unwarranted denial of their claims or delay in the
collection of insurance proceeds occasioned by allegations of fraud,
concealment, or misrepresentation by insurers, claims which may no longer
be set up after the two-year period expires as ordained under the law.
The Court therefore agrees fully with the appellate court’s pronouncement
that-
‘The insurer is deemed to have the necessary facilities to discover such
fraudulent concealment or misrepresentation within a period of two (2) years.
It is not fair for the insurer to collect the premiums as long as the insured is
still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the
beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement,
the beneficiary is given the stability to recover under the policy when the
insured dies. The provision also makes clear when the two-year period
should commence in case the policy should lapse and is reinstated, that is,
from the date of the last reinstatement’.
In Lalican v. The Insular Life Assurance Company, Limited,30 which
coincidentally also involves the herein petitioner, it was there held that the
reinstatement of the insured’s policy is to be reckoned from the date when
the
Page 7 of 37
application was processed and approved by the insurer. There, we stressed
that:
To reinstate a policy means to restore the same to premium-paying status
after it has been permitted to lapse. x x x
In the instant case, Eulogio’s death rendered impossible full compliance with
the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before
his death, managed to file his Application for Reinstatement and deposit
the amount for payment of his overdue premiums and interests thereon with
Malaluan; but Policy No. 9011992 could only be considered reinstated after
the Application for Reinstatement had been processed and approved by
Insular Life during Eulogio’s lifetime and good health.31
Thus, it is settled that the reinstatement of an insurance policy should be
reckoned from the date when the same was approved by the insurer.
In this case, the parties differ as to when the reinstatement was actually
approved. Insular Life claims that it approved the reinstatement only on
December 27, 1999. On the other hand, respondents contend that it was on
June
22, 1999 that the reinstatement took effect.
The resolution of this issue hinges on the following documents: 1) Letter of
Acceptance; and 2) the Endorsement.
The Letter of Acceptance32 wherein Felipe affixed his signature was actually
drafted and prepared by Insular Life. This pro-forma document reads as
follows:
LETTER OF ACCEPTANCE
Place: Cag. De [O]ro City
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA
Policy No. A000015683
Gentlemen:
Insurance Law- Assignment No. 2
Thru your Reinstatement Section, I/WE learned that this policy may be
reinstated provided I/we agree to the following condition/s indicated with a
check mark:
[xx] Accept the imposition of an extra/additional extra premium of [P]5.00
a year per thousand of insurance; effective June 22, 1999
[ ] Accept the rating on the WPD at ____ at standard rates; the ABD at
_____ the standard rates; the SAR at P____ annually per thousand of
Insurance;
[xx] Accept the cancellation of the Premium waiver & Accidental death
benefit.
[]
I am/we are agreeable to the above condition/s. Please proceed with the
reinstatement of the policy.
Very truly yours,
Felipe N. Khu, Sr.
After Felipe accomplished this form, Insular Life, through its Regional
Administrative Manager, Jesse James R. Toyhorada, issued an
Endorsement33 dated January 7, 2000. For emphasis, the Endorsement is
again quoted as follows:
ENDORSEMENT
PN-A000015683
This certifies that as agreed to by the Insured, the reinstatement of this policy
has been approved by the Company on the understanding that the following
changes are made on the policy effective June 22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF
PREMIUM DISABILITY (WPD) rider originally attached to and forming
parts of this policy is deleted.
In consequence thereof, the PREMIUM RATES on this policy are adjusted to
Page 8 of 37
[P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00 quarterly,
Philippine Currency.
Cagayan de Oro City, 07 January 2000.
RCV/
(Signed) Authorized Signature
Based on the foregoing, we find that the CA did not commit any error in
holding that the subject insurance policy be considered as reinstated on June
22, 1999. This finding must be upheld not only because it accords with the
evidence, but also because this is favorable to the insured who was not
responsible for causing the ambiguity or obscurity in the insurance contract. 34
The CA expounded on this point thus –
The Court discerns a genuine ambiguity or obscurity in the language of the
two documents.
In the Letter of Acceptance, Khu declared that he was accepting "the
imposition of an extra/additional x x x premium of P5.00 a year per thousand
of insurance; effective June 22, 1999". It is true that the phrase as used in
this
particular paragraph does not refer explicitly to the effectivity of the
reinstatement. But the Court notes that the reinstatement was conditioned
upon the payment of additional premium not only prospectively, that is, to
cover the
remainder of the annual period of coverage, but also retroactively, that is for
the period starting June 22, 1999. Hence, by paying the amount of P3,054.50
on December 27, 1999 in addition to the P25,020.00 he had earlier paid on
September 7, 1999, Khu had paid for the insurance coverage starting June
22, 1999. At the very least, this circumstance has engendered a true lacuna.
In the Endorsement, the obscurity is patent. In the first sentence of the
Endorsement, it is not entirely clear whether the phrase "effective June 22,
1999" refers to the subject of the sentence, namely "the reinstatement of this
policy," or to the subsequent phrase "changes are made on the policy."
The court below is correct. Given the obscurity of the language, the
construction favorable to the insured will be adopted by the courts.
Accordingly, the subject policy is deemed reinstated as of June 22, 1999.
Insurance Law- Assignment No. 2
Thus, the period of contestability has lapsed. 35
In Eternal Gardens Memorial Park Corporation v. The Philippine American
Life Insurance Company,36 we ruled in favor of the insured and in favor of the
effectivity of the insurance contract in the midst of ambiguity in the insurance
contract provisions. We held that:
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest. Thus, in
MalayanInsurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with
the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should
be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from noncompliance with
its obligations.
As a final note, to characterize the insurer and the insured as contracting
parties on equal footing is inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts
are contracts of adhesion containing technical terms and conditions of the
industry, confusing if at all understandable to laypersons, that are imposed on
those who wish to avail of insurance. As such, insurance contracts are
imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in
order to protect the interest of insurance applicants, insurance companies
must be obligated to act with haste upon insurance applications, to either
deny or approve the same, or otherwise be bound to honor the application as
a valid, binding, and effective insurance contract.37
Indeed, more than two years had lapsed from the time the subject insurance
policy was reinstated on June 22, 1999 vis-a-vis Felipe’s death on
September 22, 2001.1âwphi1 As such, the subject insurance policy has
already become incontestable at the time of Felipe’s death.
Finally, we agree with the CA that there is neither basis nor justification for
the RTC’s award of moral damages, attorney’s fees and litigation expenses;
hence this award must be deleted.
Page 9 of 37
WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010
Decision and December 13, 2010 Resolution of the Court of Appeals in CA-
GR. CV No. 81730 are AFFIRMED.

SO ORDERED.

Insurance Law- Assignment No. 2 Page 10 of 37

[6] G.R. No. 198174 September 2, 2013
ALPHA INSURANCE AND SURETY CO., PETITIONER,
vs. ARSENIA SONIA CASTOR, RESPONDENT.
Insurance Law; In interpreting the exclusions in an insurance contract, the terms
used specifying the excluded classes therein are to be given their meaning as
understood in common speech.— Contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular sense. Accordingly, in
interpreting the exclusions in an insurance contract, the terms used specifying the
excluded classes therein are to be given their meaning as understood in common
speech.
Same; Contract of Adhesion; A contract of insurance is a contract of adhesion. So,
when the terms of the insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from non-compliance
with his obligation.—A contract of insurance is a contract of adhesion. So, when the
terms of the insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from non-compliance with his
obligation. Thus, in Eternal Gardens Memorial Park Corporation v. Philippine
American Life Insurance Company, 551 SCRA 1 (2008), this Court ruled — It must
be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latter’s interest.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court assailing the Decision1 dated May 31, 2011 and Resolution2 dated
August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance,
Motor Car Policy No. MAND/CV-00186, with petitioner, involving her motor
vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the
petitioner to pay the respondent the amount of Six Hundred Thirty Thousand
Pesos (₱630,000.00) in case of loss or damage to said vehicle during the
period covered, which is from February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose
Insurance Law- Assignment No. 2
Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle to a
nearby auto-shop for a tune-up. However, Lanuza no longer returned the
motor vehicle to respondent and despite diligent efforts to locate the same,
said efforts proved futile. Resultantly, respondent promptly reported the
incident to the police and concomitantly notified petitioner of the said loss
and demanded payment of the insurance proceeds in the total sum of
₱630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of
respondent, stating among others, thus:
Upon verification of the documents submitted, particularly the Police Report
and your Affidavit, which states that the culprit, who stole the Insure[d] unit, is
employed with you. We would like to invite you on the provision of the Policy
under Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:
(4) Any malicious damage caused by the Insured, any member of his family
or by "A PERSON IN THE INSURED’S SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your
claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her
claim and argued that the exception refers to damage of the motor vehicle
and not to its loss. However, petitioner’s denial of respondent’s insured claim
remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages
against petitioner before the Regional Trial Court (RTC) of Quezon City on
September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in
favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff and against the defendant ordering the latter as follows:
To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per
annum from the time of demand up to the time the amount is fully settled;
To pay attorney’s fees in the sum of ₱65,000.00; and
Page 11 of 37
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual
basis.3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of
Quezon City’s decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED.
Accordingly, the Decision, dated December 19, 2008, of Branch 215 of the
Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby
AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the
same was denied in a Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds
for the allowance of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT
ERRED AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN
IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST
THE PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER
LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE
POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT
THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF
PARTICULAR PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE
COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY
AGAINST THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT
ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT
[AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of respondent’s
vehicle is excluded under the insurance policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:
Insurance Law- Assignment No. 2
SECTION III – LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured
against loss of or damage to the Schedule Vehicle and its accessories and
spare parts whilst thereon:
(a)
by accidental collision or overturning, or collision or overturning consequent
upon mechanical breakdown or consequent upon wear and tear;
(b)
by fire, external explosion, self-ignition or lightning or burglary, housebreaking
or theft;
(c)
by malicious act;
(d)
whilst in transit (including the processes of loading and unloading) incidental
to such transit by road, rail, inland waterway, lift or elevator.
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one
event, the first amount of each and every loss for each and every vehicle
insured by this Policy, such amount being equal to one percent (1.00%) of
the Insured’s estimate of Fair Market Value as shown in the Policy Schedule
with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical
breakdowns, failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or
by a person in the Insured’s service.6
Page 12 of 37
In denying respondent’s claim, petitioner takes exception by arguing that the
word "damage," under paragraph 4 of "Exceptions to Section III," means loss
due to injury or harm to person, property or reputation, and should be
construed to cover malicious "loss" as in "theft." Thus, it asserts that the loss
of respondent’s vehicle as a result of it being stolen by the latter’s driver is
excluded from the policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously
elaborated that theft perpetrated by the driver of the insured is not an
exception to the coverage from the insurance policy, since Section III thereof
did not qualify as to who would commit the theft. Thus:
Theft perpetrated by a driver of the insured is not an exception to the
coverage from the insurance policy subject of this case. This is evident from
the very provision of Section III – "Loss or Damage." The insurance
company, subject to the limits of liability, is obligated to indemnify the insured
against theft. Said provision does not qualify as to who would commit the
theft. Thus, even if the same is committed by the driver of the insured, there
being no categorical declaration of exception, the same must be covered. As
correctly pointed out by the plaintiff, "(A)n insurance contract should be
interpreted as to carry out the purpose for which the parties entered into the
contract which is to insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable meaning of
language in the policy. Where restrictive provisions are open to two
interpretations, that which is most favorable to the insured is adopted." The
defendant would argue that if the person employed by the insured would
commit the theft and the insurer would be held liable, then this would result to
an absurd situation where the insurer would also be held liable if the insured
would commit the theft. This argument is certainly flawed. Of course, if the
theft would be committed by the insured himself, the same would be an
exception to the coverage since in that case there would be fraud on the part
of the insured or breach of material warranty under Section 69 of the
Insurance Code.7
Moreover, contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must
be taken and understood in their plain, ordinary and popular sense. 8
Accordingly, in interpreting the exclusions in an insurance contract, the terms
used specifying the excluded classes therein are to be given their meaning
as understood in common speech.9
Adverse to petitioner’s claim, the words "loss" and "damage" mean different
Insurance Law- Assignment No. 2
things in common ordinary usage. The word "loss" refers to the act or fact of
losing, or failure to keep possession, while the word "damage" means
deterioration or injury to property.1âwphi1
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under
the insurance policy under paragraph 4 of "Exceptions to Section III," since
the same refers only to "malicious damage," or more specifically, "injury" to
the motor vehicle caused by a person under the insured’s service. Paragraph
4 clearly does not contemplate "loss of property," as what happened in the
instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the
subject policy as one of the exceptions from coverage, is the damage that is
the direct result from the deliberate or willful act of the insured, members of
his family, and any person in the insured’s service, whose clear plan or
purpose was to cause damage to the insured vehicle for purposes of
defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the
subject policy appears to clearly delineate between the terms "loss" and
"damage" by using both terms throughout the said policy. x x x
If the intention of the defendant-appellant was to include the term "loss"
within the term "damage" then logic dictates that it should have used the term
"damage" alone in the entire policy or otherwise included a clear definition of
the said term as part of the provisions of the said insurance contract. Which
is why the Court finds it puzzling that in the said policy’s provision detailing
the exceptions to the policy’s coverage in Section III thereof, which is one of
the crucial parts in the insurance contract, the insurer, after liberally using the
words "loss" and "damage" in the entire policy, suddenly went specific by
using the word "damage" only in the policy’s exception regarding "malicious
damage." Now, the defendant-appellant would like this Court to believe that it
really intended the word "damage" in the term "malicious damage" to include
the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a
contract are to be construed according to the sense and meaning of the
terms which the parties thereto have used. In the case of property insurance
policies, the evident intention of the contracting parties, i.e., the insurer and
the assured, determine the import of the various terms and provisions
embodied in the policy. However, when the terms of the insurance policy are
ambiguous, equivocal or uncertain, such that the parties themselves
disagree about the meaning of particular provisions, the policy will be
Page 13 of 37
construed by the courts liberally in favor of the assured and strictly against
the insurer.10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms

of the insurance contract contain limitations on liability, courts should
construe them in such a way as to preclude the insurer from non-compliance
with his obligation. Thus, in Eternal Gardens Memorial Park Corporation v.
Philippine American Life Insurance Company,11 this Court ruled –

It must be remembered that an insurance contract is a contract of adhesion

which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with

the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be
construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from non-compliance with
its obligations.

In the more recent case of Philamcare Health Systems, Inc. v. Court of

Appeals, we reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts

should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which
prepared the contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture.12

WHEREFORE, premises considered, the instant Petition for Review on

Certiorari is DENIED. Accordingly, the Decision dated May 31, 2011 and
Resolution dated August 10, 2011 of the Court of Appeals are hereby
AFFIRMED.

SO ORDERED.

Insurance Law- Assignment No. 2 Page 14 of 37

[7] G.R. No. L-21574 June 30, 1966
SIMON DE LA CRUZ, plaintiff and appellee, vs. THE CAPITAL
INSURANCE and SURETY CO., INC., defendant and appellant.
Insurance; Meaning of “accident” and “accidental".—The terms “accident” and
“accidental”, as used in insurance contracts, have not acquired any technical
meaning. They are construed by the courts in their ordinary and common
acceptation. Thus, the terms have been taken to mean that which happens by chance
or fortuitously, without intention and design, and which is unexpected, unusual and
unforeseen. An accident is an event that takes place without one’s foresight or
expectation—an event that proceeds from an unknown cause, or is an unusual effect
of a known cause and, therefore, not expected. (29A Am. Jur., pp. 308– 309.)
Same; Tendency to eliminate distinction between the terms “accidental” and
“accidental means."—The tendency of court decisions in the United States in recent
years is to eliminate the fine distinction between the terms “accidental” and
“accidental means” and to consider them as legally synonymous. (Travelers’
Protective Association vs. Stephens, 185 Ark. 660. 49 S.W. [3d] 364; Equitable Life
Assurance Company vs. Hemenover, 100 Colo. 231, 67 P. [2d] 80, 110 ALR 1270).
Same; Rule as to death or injury resulting from accident or accidental means.—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. (Landress vs. Phoenix Mutual Life Insurance Co., 291 U.S. 291, 78 L. ed.
934, 54 S. Ct 461, 90 ALR 1382; Davis vs. Jefferson Standard Life Ins. Co:, 73 F.
[2d] 330, 96 ALR 599.) There is no accident when a deliberate act is performed
unless some additional, unexpected, independent and unforeseen happening occurs
which produces or brings about the result of injury or death. (Evans vs, Metropolitan
Life Insurance Co., 26 Wash. [2d] 594, 174 P. [2d] 1961.) In other words, where the
death or injury is not the natural or probable result of the insured’s voluntary act, or
if something unforeseen occurs in the doing of the act which produces the injury, the
resulting death is within the protection of policies insuring against death or injury
from accident.
Same; Application of the rule.—Where the participation. of the insured in the boxing
contest was voluntary, but the injury was sustained when he slid, giving occasion to
the infliction by his opponent of the blow that threw him to the ropes of the ring and
without this unfortunate incident, perhaps he could not have received that blow in the
head and would not have died, and his death may be regarded as accidental, although
boxing is attended with some risks of external injuries.
Same; Liability for risks not enumerated in the contract.—The failure of the
defendant insurance company to include death resulting from a boxing match or
Insurance Law- Assignment No. 2
other sports among the prohibitive risks leads to the conclusion that it did not intend
to limit or exempt itself from liability for such death. (Brams vs. New York Life Ins.
Co., 299 Pa. 11, 148 Atl. 855; Jolley vs. Jefferson Standard Life Ins. Co., 95 Wash.
683, 294 Pac. 585.)
BARRERA, J.:
This is an appeal by the Capital Insurance & Surety Company, Inc., from the
decision of the Court of First Instance of Pangasinan (in Civ Case No. U-
265), ordering it to indemnify therein plaintiff Simon de la Cruz for the death
of the latter's son, to pay the burial expenses, and attorney's fees.
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc.
in Baguio, was the holder of an accident insurance policy (No. ITO-BFE-170)
underwritten by the Capital Insurance & Surety Co., Inc., for the period
beginning November 13, 1956 to November 12, 1957. On January 1, 1957,
in connection with the celebration of the New Year, the Itogon-Suyoc Mines,
Inc. sponsored a boxing contest for general entertainment wherein the
insured Eduardo de la Cruz, a non-professional boxer participated. In the
course of his bout with another person, likewise a non-professional, of the
same height, weight, and size, Eduardo slipped and was hit by his opponent
on the left part of the back of the head, causing Eduardo to fall, with his head
hitting the rope of the ring. He was brought to the Baguio General Hospital
the following day. The cause of death was reported as hemorrhage,
intracranial, left.
Simon de la Cruz, the father of the insured and who was named beneficiary
under the policy, thereupon filed a claim with the insurance company for
payment of the indemnity under the insurance policy. As the claim was
denied, De la Cruz instituted the action in the Court of First Instance of
Pangasinan for specific performance. Defendant insurer set up the defense
that the death of the insured, caused by his participation in a boxing contest,
was not accidental and, therefore, not covered by insurance. After due
hearing the court rendered the decision in favor of the plaintiff which is the
subject of the present appeal.
It is not disputed that during the ring fight with another non-professional
boxer, Eduardo slipped, which was unintentional. At this opportunity, his
opponent landed on Eduardo's head a blow, which sent the latter to the
ropes. That must have caused the cranial injury that led to his death.
Eduardo was insured "against death or disability caused by accidental
means". Appellant insurer now contends that while the death of the insured
was due to head injury, said injury was sustained because of his voluntary
participation in the contest. It is claimed that the participation in the boxing
contest was the "means" that produced the injury which, in turn, caused the
Page 15 of 37
death of the insured. And, since his inclusion in the boxing card was
voluntary on the part of the insured, he cannot be considered to have met his
death by "accidental means".1äwphï1.ñët
The terms "accident" and "accidental", as used in insurance contracts, have
not acquired any technical meaning, and are construed by the courts in their
ordinary and common acceptation. Thus, the terms have been taken to mean
that which happen by chance or fortuitously, without intention and design,
and which is unexpected, unusual, and unforeseen. An accident is an event
that takes place without one's foresight or expectation — an event that
proceeds from an unknown cause, or is an unusual effect of a known cause
and, therefore, not expected.1
Furthermore, the policy involved herein specifically excluded from its
coverage —
(e) Death or disablement consequent upon the Insured engaging in
football, hunting, pigsticking, steeplechasing, polo-playing, racing of any
kind, mountaineering, or motorcycling.
Death or disablement resulting from engagement in boxing contests was not
declared outside of the protection of the insurance contract. Failure of the
defendant insurance company to include death resulting from a boxing match
or other sports among the prohibitive risks leads inevitably to the conclusion
that it did not intend to limit or exempt itself from liability for such death.5

Appellant however, would like to make a distinction between "accident or Wherefore, in view of the foregoing considerations, the decision appealed
accidental" and "accidental means", which is the term used in the insurance from is hereby affirmed, with costs against appellant. so ordered.
policy involved here. It is argued that to be considered within the protection of
the policy, what is required to be accidental is the means that caused or
brought the death and not the death itself. It may be mentioned in this
connection, that the tendency of court decisions in the United States in
recent years is to eliminate the fine distinction between the terms "accidental"
and "accidental means" and to consider them as legally synonymous. 2 But,
even if we take appellant's theory, the death of the insured in the case at bar
would still be entitled to indemnification under the policy. 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. 3 There is
no accident when a deliberate act is performed unless some additional,
unexpected, independent, and unforeseen happening occurs which produces
or brings about the result of injury or death.4 In other words, where the death
or injury is not the natural or probable result of the insured's voluntary act, or
if something unforeseen occurs in the doing of the act which produces the
injury, the resulting death is within the protection of policies insuring against
death or injury from accident.

In the present case, while the participation of the insured in the boxing
contest is voluntary, the injury was sustained when he slid, giving occasion to
the infliction by his opponent of the blow that threw him to the ropes of the
ring. Without this unfortunate incident, that is, the unintentional slipping of the
deceased, perhaps he could not have received that blow in the head and
would not have died. The fact that boxing is attended with some risks of
external injuries does not make any injuries received in the course of the
game not accidental. In boxing as in other equally physically rigorous sports,
such as basketball or baseball, death is not ordinarily anticipated to result. If,
therefore, it ever does, the injury or death can only be accidental or produced
by some unforeseen happening or event as what occurred in this case.

Insurance Law- Assignment No. 2 Page 16 of 37

[8] G.R. No. L-16138 April 29, 1961
DIOSDADO C. TY, plaintiff-appellant, vs. FIRST NATIONAL SURETY &
ASSURANCE CO., INC., defendant-appellee.
Insurance; Partial disability.—Where the insured, an operator mechanic of a factory,
suffered injuries which caused the temporary total disability of his left hand, due to
the fractures of the index, middle and fourth fingers thereof, he cannot recover on the
insurance policies which provide that partial disability of either hand means
amputation through the bones of the wrist.
Same.—The insurance contract is the law between the parties. As the terms of the
policies are clear, express and specific, that only amputation of the left hand should
be considered as a loss thereof, an interpretation that would include the mere fracture
or other temporary disability, not covered by the policies, would be unwarranted.
LABRADOR, J.:
Appeal from a judgment of the Court of First Instance of Manila, Hon.
Gregorio S. Narvasa, presiding, dismissing the actions filed in the above-
entitled cases.
The facts found by the trial court, which are not disputed in this appeal, are
as follows:
At different times within a period of two months prior to December 24,
1953, the plaintiff herein Diosdado C. Ty, employed as operator
mechanic foreman in the Broadway Cotton Factory, in Grace Park,
Caloocan, Rizal, at a monthly salary of P185.00, insured himself in 18
local insurance companies, among which being the eight above named
defendants, which issued to him personal accident policies, upon
payment of the premium of P8.12 for each policy. Plaintiff's beneficiary
was his employer, Broadway Cotton Factory, which paid the insurance
premiums.
On December 24, 1953, a fire broke out which totally destroyed the
Broadway Cotton Factory. Fighting his way out of the factory, plaintiff
was injured on the left hand by a heavy object. He was brought to the
Manila Central University hospital, and after receiving first aid there, he
went to the National Orthopedic Hospital for treatment of his injuries
which were as follows:
1. Fracture, simple, proximal phalanx index finger, left;
Insurance Law- Assignment No. 2
2. Fracture, compound, comminuted, proximal phalanx, middle finger,
left and 2nd phalanx, simple;
3. Fracture, compound, comminute phalanx, 4th finger, left;
4. Fracture, simple, middle phalanx, middle finger, left;
5. Lacerated wound, sutured, volar aspect, small finger, left;
6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He underwent
medical treatment in the Orthopedic Hospital from December 26, 1953
to February 8, 1954. The above-described physical injuries have caused
temporary total disability of plaintiff's left hand. Plaintiff filed the
corresponding notice of accident and notice of claim with all of the
abovenamed defendants to recover indemnity under Part II of the policy,
which is similarly worded in all of the policies, and which reads
pertinently as follows:
INDEMNITY FOR TOTAL OR PARTIAL DISABILITY
If the Insured sustains any Bodily Injury which is effected solely through
violent, external, visible and accidental means, and which shall not
prove fatal but shall result, independently of all other causes and within
sixty (60) days from the occurrence thereof, in Total or Partial Disability
of the Insured, the Company shall pay, subject to the exceptions as
provided for hereinafter, the amount set opposite such injury:
PARTIAL DISABILITY
LOSS OF:
xxx xxx xxx
Either hand ............................................................................ P650.00
xxx xxx xxx
... The loss of a hand shall mean the loss by amputation through the
bones of the wrist....
Defendants rejected plaintiff's claim for indemnity for the reason that
there being no severance of amputation of the left hand, the disability
suffered by him was not covered by his policy. Hence, plaintiff sued the
defendants in the Municipal Court of this City, and from the decision of
Page 17 of 37
 said Court dismissing his complaints, plaintiff appealed to this Court.
(Decision of the Court of First Instance of Manila, pp. 223-226,
Records).

In view of its finding, the court absolved the defendants from the complaints.
Hence this appeal.

The main contention of appellant in these cases is that in order that he may
recover on the insurance policies issued him for the loss of his left hand, it is
not necessary that there should be an amputation thereof, but that it is
sufficient if the injuries prevent him from performing his work or labor
necessary in the pursuance of his occupation or business. Authorities are
cited to the effect that "total disability" in relation to one's occupation means
that the condition of the insurance is such that common prudence requires
him to desist from transacting his business or renders him incapable of
working. (46 C.J.S., 970). It is also argued that obscure words or stipulations
should be interpreted against the person who caused the obscurity, and the
ones which caused the obscurity in the cases at bar are the defendant
insurance companies.

While we sympathize with the plaintiff or his employer, for whose benefit the
policies were issued, we can not go beyond the clear and express conditions
of the insurance policies, all of which define partial disability as loss of either
hand by amputation through the bones of the wrist." There was no such
amputation in the case at bar. All that was found by the trial court, which is
not disputed on appeal, was that the physical injuries "caused temporary total
disability of plaintiff's left hand." Note that the disability of plaintiff's hand was
merely temporary, having been caused by fracture of the index, the middle
and the fourth fingers of the left hand.

We might add that the agreement contained in the insurance policies is the
law between the parties. As the terms of the policies are clear, express and
specific that only amputation of the left hand should be considered as a loss
thereof, an interpretation that would include the mere fracture or other
temporary disability not covered by the policies would certainly be
unwarranted.

WHEREFORE, the decision appealed from is hereby affirmed, with costs

against the plaintiff-appellant.

Insurance Law- Assignment No. 2 Page 18 of 37

[9]

panaton vs malayan ins 2 court of appeals report 78

Insurance Law- Assignment No. 2 Page 19 of 37

[10] G.R. No. L-4611 December 17, 1955
QUA CHEE GAN, Plaintiff-Appellee, vs. LAW UNION AND ROCK
INSURANCE CO., LTD., represented by its agent, WARNER, BARNES
AND CO., LTD.,Defendant-Appellant.
INSURANCE; BREACH OF WARRANTY; WHEN INSURER BARRED FROM
CLAIMING POLICIES VOID “AB INITIO."—The insurer is barred by estoppel to
claim violation of the so-called fire hydrant warranty where, knowing fully well that
the number of hydrants demanded in the warranty never existed from the very
beginning, it nevertheless issued the policies subject to such warranty, and received
the corresponding premiums.
ID.; ID.; EVIDENCE; PAROL EVIDENCE RULE NOT APPLICABLE.—The parol
evidence rule is not applicable to the present case. It is not a question here whether or
not the parties may vary a written contract by oral evidence; but whether testimony is
receivable so that a party may be, by reason of inequitable contract shown, estopped
from enforcing forfeitures in its favor, in order to forestall fraud or imposition on the
insured.
ID.; AMBIGUITIES IN THE TERMS OF THE CONTRACT, How
CONSTRUED.—The contract of insurance is one of perfect good faith (uberrimae
fidei) not for the insured alone, but equally so for the insurer; in fact, it is more so for
the latter, since its dominant bargaining position carries with it stricter responsibility.
By reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, the ambiguity must be strictly interpreted
against the insurer and liberally in favor of the insured, specially to avoid a forfeiture
(44 C.J. S., pp. 1166–1175; 29 Am. Jur. 180).
ID.; ID.; WARRANTY AGAINST STORAGE OF GASOLINE.—In the present
case, gasoline is not specifically mentioned among the prohibited articles listed in the
so-called “hemp warranty.” The clause relied upon by the insurer speaks of “oils”
and is decidedly ambiguous and uncertain; for in ordinary parlance, “oils” mean
“lubricants” and not gasoline or kerosene. Besides, the gasoline kept by the insured
was only incidental to his business, being no more than a customary 2 days supply
for the five or six motor vehicles used for transporting of the stored merchandise, and
it is well settled rule that the keeping of inflammable oils on the premises, though
prohibited by the policy, does not void it if such keeping is incidental to the business.
(Bachrach vs. British American Ass. Co., 17 Phil. 555, 660.)
ID. ; FALSE CLAIMS THAT AVOIDS THE POLICY.— The rule is that to avoid a
policy, the claim filed by the insured must contain false and fraudulent statements
with intent to defraud the insurer.
CRIMINAL PROCEDURE; ACQUITTAL OF INSURED IN ARSON CASE;
Insurance Law- Assignment No. 2
EFFECT ON CIVIL ACTION.—While the acquittal of the insured in the arson case
is not res judicata on the present civil action, the insurer’s evidence, to judge from
the decision in the criminal case, is practically identical in both cases and must lead
to the same result, since the proof to establish the defense of connivance at the fire in
order to defraud the insurer “cannot be materially less convincing than that required
in order to convict the insured of the crime of arson” (Bachrach vs. British American
Assurance Co., 17 Phil. 536).
REYES, J. B. L., J.:
Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the
Court of First Instance of said province, seeking to recover the proceeds of
certain fire insurance policies totalling P370,000, issued by the Law Union &
Rock Insurance Co., Ltd., upon certain bodegas and merchandise of the
insured that were burned on June 21, 1940. The records of the original case
were destroyed during the liberation of the region, and were reconstituted in
1946. After a trial that lasted several years, the Court of First Instance
rendered a decision in favor of the plaintiff, the dispositive part whereof reads
as follows:
Wherefore, judgment is rendered for the plaintiff and against the defendant
condemning the latter to pay the former - chanrobles virtual law library
(a) Under the first cause of action, the sum of P146,394.48;chanrobles virtual
law library
(b) Under the second cause of action, the sum of P150,000;chanrobles
virtual law library
(c) Under the third cause of action, the sum of P5,000;chanrobles virtual law
library
(d) Under the fourth cause of action, the sum of P15,000; and (e) Under the
fifth cause of action, the sum of P40,000;
all of which shall bear interest at the rate of 8% per annum in accordance
with Section 91 (b) of the Insurance Act from September 26, 1940, until each
is paid, with costs against the defendant.
The complaint in intervention of the Philippine National Bank is dismissed
without costs. (Record on Appeal, 166-167.)
From the decision, the defendant Insurance Company appealed directly to
this Court.
Page 20 of 37
The record shows that before the last war, plaintiff-appellee owned four
warehouses or bodegas (designated as Bodegas Nos. 1 to 4) in the
municipality of Tabaco, Albay, used for the storage of stocks of copra and of
hemp, baled and loose, in which the appellee dealth extensively. They had
been, with their contents, insured with the defendant Company since 1937,
and the lose made payable to the Philippine National Bank as mortgage of
the hemp and crops, to the extent of its interest. On June, 1940, the
insurance stood as follows:
Policy No. Property Insured
With counsel for the insurance company acting as private prosecutor, Que
Chee Gan, with his brother, Qua Chee Pao, and some employees of his,
were indicted and tried in 1940 for the crime of arson, it being claimed that
they had set fire to the destroyed warehouses to collect the insurance. They
were, however, acquitted by the trial court in a final decision dated July 9,
1941 (Exhibit WW). Thereafter, the civil suit to collect the insurance money
proceeded to its trial and termination in the Court below, with the result noted
at the start of this opinion. The Philippine National Bank's complaint in
intervention was dismissed because the appellee had managed to pay his
indebtedness to the Bank during the pendecy of the suit, and despite the fire
losses. Amount

2637164 (Exhibit
Bodega No. 1 (Building) In its first assignment of error, the insurance company alleges P15,000.00
that the trial
"LL")
Court should have held that the policies were avoided for breach of warranty,
Bodega No. 2 (Building) specifically the one appearing on a rider pasted (with other similar riders) on
10,000.00
the face of the policies (Exhibits X, Y, JJ and LL). These riders were attached
2637165 (Exhibit Bodega No. 3 (Building) 25,000.00
for the first time in 1939, and the pertinent portions read as follows:
"JJ") Bodega No. 4 (Building) 10,000.00
Memo. of Warranty. - The undernoted Appliances for the extinction of fire
Hemp Press - moved by steam engine being kept on the premises insured hereby, and it being 5,000.00 declared and
understood that there is an ample and constant water supply with sufficient
2637345 (Exhibit Merchandise contents (copra and pressure available at all seasons for the same, it is hereby warranted that the
150,000.00
"X") empty sacks of Bodega No. 1) said appliances shall be maintained in efficient working order during the
currency of this policy, by reason whereof a discount of 2 1/2 per cent is
2637346 (Exhibit allowed on the premium chargeable under this policy.
Merchandise contents (hemp) of Bodega No. 3 150,000.00
"Y")

2637067 (Exhibit
Merchandise contents (loose hemp) of Bodega No. 4
"GG")
Total
Fire of undetermined origin that broke out in the early morning of July 21,
1940, and lasted almost one week, gutted and completely destroyed
Bodegas Nos. 1, 2 and 4, with the merchandise stored theren. Plaintiff-
appellee informed the insurer by telegram on the same date; and on the next
day, the fire adjusters engaged by appellant insurance company arrived and
proceeded to examine and photograph the premises, pored over the books
of the insured and conducted an extensive investigation. The plaintiff having
submitted the corresponding fire claims, totalling P398,562.81 (but reduced
to the full amount of the insurance, P370,000), the Insurance Company
resisted payment, claiming violation of warranties and conditions, filing of
fraudulent claims, and that the fire had been deliberately caused by the
insured or by other persons in connivance with him.
Hydrants in the compound, not less in number than one for each 150 feet of
external wall measurement of building, protected, with not less 5,000.00
than 100 feet
of hose piping and nozzles for every two hydrants kept under cover in
convenient places, the hydrants being supplied with water pressure by a
pumping engine, or from some other source, capable of discharging at the
rate of not less than 200 gallons of water per minute into the upper story of
P370,000.00
the highest building protected, and a trained brigade of not less than 20 men
to work the same.'
It is argued that since the bodegas insured had an external wall perimeter of
500 meters or 1,640 feet, the appellee should have eleven (11) fire hydrants
in the compound, and that he actually had only two (2), with a further pair
nearby, belonging to the municipality of Tabaco.
We are in agreement with the trial Court that the appellant is barred by
waiver (or rather estoppel) to claim violation of the so-called fire hydrants
warranty, for the reason that knowing fully all that the number of hydrants
demanded therein never existed from the very beginning, the appellant
neverthless issued the policies in question subject to such warranty, and

Insurance Law- Assignment No. 2 Page 21 of 37

received the corresponding premiums. It would be perilously close to
conniving at fraud upon the insured to allow appellant to claims now as void
ab initio the policies that it had issued to the plaintiff without warning of their
fatal defect, of which it was informed, and after it had misled the defendant
into believing that the policies were effective.
The insurance company was aware, even before the policies were issued,
that in the premises insured there were only two fire hydrants installed by
Qua Chee Gan and two others nearby, owned by the municipality of TAbaco,
contrary to the requirements of the warranty in question. Such fact appears
from positive testimony for the insured that appellant's agents inspected the
premises; and the simple denials of appellant's representative (Jamiczon)
can not overcome that proof. That such inspection was made is moreover
rendered probable by its being a prerequisite for the fixing of the discount on
the premium to which the insured was entitled, since the discount depended
on the number of hydrants, and the fire fighting equipment available (See
"Scale of Allowances" to which the policies were expressly made subject).
The law, supported by a long line of cases, is expressed by American
Jurisprudence (Vol. 29, pp. 611-612) to be as follows:
It is usually held that where the insurer, at the time of the issuance of a policy
of insurance, has knowledge of existing facts which, if insisted on, would
invalidate the contract from its very inception, such knowledge constitutes a
waiver of conditions in the contract inconsistent with the facts, and the
insurer is stopped thereafter from asserting the breach of such conditions.
The law is charitable enough to assume, in the absence of any showing to
the contrary, that an insurance company intends to executed a valid contract
in return for the premium received; and when the policy contains a condition
which renders it voidable at its inception, and this result is known to the
insurer, it will be presumed to have intended to waive the conditions and to
execute a binding contract, rather than to have deceived the insured into
thinking he is insured when in fact he is not, and to have taken his money
without consideration. (29 Am. Jur., Insurance, section 807, at pp. 611-612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly apparent. To allow a
company to accept one's money for a policy of insurance which it then knows
to be void and of no effect, though it knows as it must, that the assured
believes it to be valid and binding, is so contrary to the dictates of honesty
and fair dealing, and so closely related to positive fraud, as to the abhorent to
fairminded men. It would be to allow the company to treat the policy as valid
long enough to get the preium on it, and leave it at liberty to repudiate it the
next moment. This cannot be deemed to be the real intention of the parties.
To hold that a literal construction of the policy expressed the true intention of
the company would be to indict it, for fraudulent purposes and designs which
Insurance Law- Assignment No. 2
we cannot believe it to be guilty of (Wilson vs. Commercial Union Assurance
Co., 96 Atl. 540, 543-544).
The inequitableness of the conduct observed by the insurance company in
this case is heightened by the fact that after the insured had incurred the
expense of installing the two hydrants, the company collected the premiums
and issued him a policy so worded that it gave the insured a discount much
smaller than that he was normaly entitledto. According to the "Scale of
Allowances," a policy subject to a warranty of the existence of one fire
hydrant for every 150 feet of external wall entitled the insured to a discount of
7 1/2 per cent of the premium; while the existence of "hydrants, in compund"
(regardless of number) reduced the allowance on the premium to a mere 2
1/2 per cent. This schedule was logical, since a greater number of hydrants
and fire fighting appliances reduced the risk of loss. But the appellant
company, in the particular case now before us, so worded the policies that
while exacting the greater number of fire hydrants and appliances, it kept the
premium discount at the minimum of 2 1/2 per cent, thereby giving the
insurance company a double benefit. No reason is shown why appellant's
premises, that had been insured with appellant for several years past,
suddenly should be regarded in 1939 as so hazardous as to be accorded a
treatment beyond the limits of appellant's own scale of allowances. Such
abnormal treatment of the insured strongly points at an abuse of the
insurance company's selection of the words and terms of the contract, over
which it had absolute control.
These considerations lead us to regard the parol evidence rule, invoked by
the appellant as not applicable to the present case. It is not a question here
whether or not the parties may vary a written contract by oral evidence; but
whether testimony is receivable so that a party may be, by reason of
inequitable conduct shown, estopped from enforcing forfeitures in its favor, in
order to forestall fraud or imposition on the insured.
Receipt of Premiums or Assessments afte Cause for Forfeiture Other than
Nonpayment. - It is a well settled rule of law that an insurer which with
knowledge of facts entitling it to treat a policy as no longer in force, receives
and accepts a preium on the policy, estopped to take advantage of the
forfeiture. It cannot treat the policy as void for the purpose of defense to an
action to recover for a loss thereafter occurring and at the same time treat it
as valid for the purpose of earning and collecting further premiums." (29 Am.
Jur., 653, p. 657.)
It would be unconscionable to permit a company to issue a policy under
circumstances which it knew rendered the policy void and then to accept and
retain premiums under such a void policy. Neither law nor good morals would
justify such conduct and the doctrine of equitable estoppel is peculiarly
applicable to the situation.
Page 22 of 37
Moreover, taking into account the well known rule that ambiguities or
obscurities must be strictly interpreted aganst the prty that caused them, 1 the
"memo of warranty" invoked by appellant bars the latter from questioning the
existence of the appliances called for in the insured premises, since its initial
expression, "the undernoted appliances for the extinction of fire being kept on
the premises insured hereby, . . . it is hereby warranted . . .", admists of
interpretation as an admission of the existence of such appliances which
appellant cannot now contradict, should the parol evidence rule apply.
The alleged violation of the warranty of 100 feet of fire hose for every two
hydrants, must be equally rejected, since the appellant's argument thereon is
based on the assumption that the insured was bound to maintain no less
than eleven hydrants (one per 150 feet of wall), which requirement appellant
is estopped from enforcing. The supposed breach of the wter pressure
condition is made to rest on the testimony of witness Serra, that the water
supply could fill a 5-gallon can in 3 seconds; appellant thereupon inferring
that the maximum quantity obtainable from the hydrants was 100 gallons a
minute, when the warranty called for 200 gallons a minute. The transcript
shows, however, that Serra repeatedly refused and professed inability to
estimate the rate of discharge of the water, and only gave the "5-gallon per 3-
second" rate because the insistence of appellant's counsel forced the
witness to hazard a guess. Obviously, the testimony is worthless and
insufficient to establish the violation claimed, specially since the burden of its
proof lay on appellant.
As to maintenance of a trained fire brigade of 20 men, the record is
preponderant that the same was organized, and drilled, from time to give,
altho not maintained as a permanently separate unit, which the warranty did
not require. Anyway, it would be unreasonable to expect the insured to
maintain for his compound alone a fire fighting force that many municipalities
in the Islands do not even possess. There is no merit in appellant's claim that
subordinate membership of the business manager (Co Cuan) in the fire
brigade, while its direction was entrusted to a minor employee unders the
testimony improbable. A business manager is not necessarily adept at fire
fighting, the qualities required being different for both activities.
Under the second assignment of error, appellant insurance company avers,
that the insured violated the "Hemp Warranty" provisions of Policy No.
2637165 (Exhibit JJ), against the storage of gasoline, since appellee
admitted that there were 36 cans (latas) of gasoline in the building designed
as "Bodega No. 2" that was a separate structure not affected by the fire. It is
well to note that gasoline is not specifically mentioned among the prohibited
articles listed in the so-called "hemp warranty." The cause relied upon by the
insurer speaks of "oils (animal and/or vegetable and/or mineral and/or their
liquid products having a flash point below 300o Fahrenheit", and is decidedly
ambiguous and uncertain; for in ordinary parlance, "Oils" mean "lubricants"
Insurance Law- Assignment No. 2
and not gasoline or kerosene. And how many insured, it may well be
wondered, are in a position to understand or determine "flash point below
003o Fahrenheit. Here, again, by reason of the exclusive control of the
insurance company over the terms and phraseology of the contract, the
ambiguity must be held strictly against the insurer and liberraly in favor of the
insured, specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175; 29 Am. Jur.
180).
Insurance is, in its nature, complex and difficult for the layman to understand.
Policies are prepared by experts who know and can anticipate the hearing
and possible complications of every contingency. So long as insurance
companies insist upon the use of ambiguous, intricate and technical
provisions, which conceal rather than frankly disclose, their own intentions,
the courts must, in fairness to those who purchase insurance, construe every
ambiguity in favor of the insured.
An insurer should not be allowed, by the use of obscure phrases and
exceptions, to defeat the very purpose for which the policy was procured
(Moore vs. Aetna Life Insurance Co., LRA 1915D, 264).
We see no reason why the prohibition of keeping gasoline in the premises
could not be expressed clearly and unmistakably, in the language and terms
that the general public can readily understand, without resort to obscure
esoteric expression (now derisively termed "gobbledygook"). We reiterate the
rule stated in Bachrach vs. British American Assurance Co. (17 Phil. 555,
561):
If the company intended to rely upon a condition of that character, it ought to
have been plainly expressed in the policy.
This rigid application of the rule on ambiguities has become necessary in
view of current business practices. The courts cannot ignore that nowadays
monopolies, cartels and concentrations of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing with
them cunningly prepared "agreements" that the weaker party may not
change one whit, his participation in the "agreement" being reduced to the
alternative to take it or leave it" labelled since Raymond Baloilles" contracts
by adherence" (con tracts d'adhesion), in contrast to these entered into by
parties bargaining on an equal footing, such contracts (of which policies of
insurance and international bills of lading are prime examples) obviously call
for greater strictness and vigilance on the part of courts of justice with a view
to protecting the weaker party from abuses and imposition, and prevent their
becoming traps for the unwarry (New Civil Coee, Article 24; Sent. of
Supreme Court of Spain, 13 Dec. 1934, 27 February 1942).
Page 23 of 37
Si pudiera estimarse que la condicion 18 de la poliza de seguro envolvia
alguna oscuridad, habra de ser tenido en cuenta que al seguro es,
practicamente un contrato de los llamados de adhesion y por consiguiente
en caso de duda sobre la significacion de las clausulas generales de una
poliza - redactada por las compafijas sin la intervencion alguna de sus
clientes - se ha de adoptar de acuerdo con el articulo 1268 del Codigo Civil,
la interpretacion mas favorable al asegurado, ya que la obscuridad es
imputable a la empresa aseguradora, que debia haberse explicado mas
claramante. (Dec. Trib. Sup. of Spain 13 Dec. 1934)
The contract of insurance is one of perfect good faith (uferrimal fidei) not for
the insured alone, but equally so for the insurer; in fact, it is mere so for the
latter, since its dominant bargaining position carries with it stricter
responsibility.
Another point that is in favor of the insured is that the gasoline kept in
Bodega No. 2 was only incidental to his business, being no more than a
customary 2 day's supply for the five or six motor vehicles used for
transporting of the stored merchandise (t. s. n., pp. 1447-1448). "It is well
settled that the keeping of inflammable oils on the premises though
prohibited by the policy does not void it if such keeping is incidental to the
business." Bachrach vs. British American Ass. Co., 17 Phil. 555, 560); and
"according to the weight of authority, even though there are printed
prohibitions against keeping certain articles on the insured premises the
policy will not be avoided by a violation of these prohibitions, if the prohibited
articles are necessary or in customary use in carrying on the trade or
business conducted on the premises." (45 C. J. S., p. 311; also 4 Couch on
Insurance, section 966b). It should also be noted that the "Hemp Warranty"
forbade storage only "in the building to which this insurance applies and/or in
any building communicating therewith", and it is undisputed that no gasoline
was stored in the burned bodegas, and that "Bodega No. 2" which was not
burned and where the gasoline was found, stood isolated from the other
insured bodegas.
The charge that the insured failed or refused to submit to the examiners of
the insurer the books, vouchers, etc. demanded by them was found
unsubstantiated by the trial Court, and no reason has been shown to alter
this finding. The insured gave the insurance examiner all the date he asked
for (Exhibits AA, BB, CCC and Z), and the examiner even kept and
photographed some of the examined books in his possession. What does
appear to have been rejected by the insured was the demand that he should
submit "a list of all books, vouchers, receipts and other records" (Age 4,
Exhibit 9-c); but the refusal of the insured in this instance was well justified,
since the demand for a list of all the vouchers (which were not in use by the
insured) and receipts was positively unreasonable, considering that such
listing was superfluous because the insurer was not denied access to the
Insurance Law- Assignment No. 2
records, that the volume of Qua Chee Gan's business ran into millions, and
that the demand was made just after the fire when everything was in turmoil.
That the representatives of the insurance company were able to secure all
the date they needed is proved by the fact that the adjuster Alexander
Stewart was able to prepare his own balance sheet (Exhibit L of the criminal
case) that did not differ from that submitted by the insured (Exhibit J) except
for the valuation of the merchandise, as expressly found by the Court in the
criminal case for arson.
How valuations may differ honestly, without fraud being involved, was
strikingly illustrated in the decision of the arson case (Exhibit WW) acquiting
Qua Choc Gan, appellee in the present proceedings. The decision states
Alexander D. Stewart declaro que ha examinado los libros de Qua Choc Gan
en Tabaco asi como su existencia de copra y abaca en las bodega al tiempo
del incendio durante el periodo comprendido desde el 1.o de enero al 21 de
junio de 1940 y ha encontrado que Qua Choc Gan ha sufrico una perdida de
P1,750.76 en su negocio en Tabaco. Segun Steward al llegar a este
conclusion el ha tenidoen cuenta el balance de comprobacion Exhibit 'J' que
le ha entregado el mismo acusado Que Choc Gan en relacion con sus libros
y lo ha encontrado correcto a excepcion de los precios de abaca y copra que
alli aparecen que no estan de acuerdo con los precios en el mercado. Esta
comprobacion aparece en el balance mercado exhibit J que fue preparado
por el mismo testigo.
In view of the discrepancy in the valuations between the insured and the
adjuster Stewart for the insurer, the Court referred the controversy to a
government auditor, Apolonio Ramos; but the latter reached a different result
from the other two. Not only that, but Ramos reported two different valuations
that could be reached according to the methods employed (Exhibit WW, p.
35):
La ciencia de la contabilidad es buena, pues ha tenido sus muchos usos
buenos para promovar el comercio y la finanza, pero en el caso presente ha
resultado un tanto cumplicada y acomodaticia, como lo prueba el resultado
del examen hecho por los contadores Stewart y Ramos, pues el juzgado no
alcanza a ver como habiendo examinado las mismas partidas y los mismos
libros dichos contadores hayan de llegara dos conclusiones que difieron
sustancialmente entre si. En otras palabras, no solamente la comprobacion
hecha por Stewart difiere de la comprobacion hecha por Ramos sino que,
segun este ultimo, su comprobacion ha dado lugar a dos resultados
diferentes dependiendo del metodo que se emplea.
Clearly then, the charge of fraudulent overvaluation cannot be seriously
entertained. The insurer attempted to bolster its case with alleged
Page 24 of 37
photographs of certain pages of the insurance book (destroyed by the war) of
insured Qua Chee Gan (Exhibits 26-A and 26-B) and allegedly showing
abnormal purchases of hemp and copra from June 11 to June 20, 1940. The
Court below remained unconvinced of the authenticity of those photographs,
and rejected them, because they were not mentioned not introduced in the
criminal case; and considering the evident importance of said exhibits in
establishing the motive of the insured in committing the arson charged, and
the absence of adequate explanation for their omission in the criminal case,
we cannot say that their rejection in the civil case constituted reversible error.
The next two defenses pleaded by the insurer, - that the insured connived at
the loss and that the fraudulently inflated the quantity of the insured stock in
the burnt bodegas, - are closely related to each other. Both defenses are
predicted on the assumption that the insured was in financial difficulties and
set the fire to defraud the insurance company, presumably in order to pay off
the Philippine National Bank, to which most of the insured hemp and copra
was pledged. Both defenses are fatally undermined by the established fact
that, notwithstanding the insurer's refusal to pay the value of the policies the
extensive resources of the insured (Exhibit WW) enabled him to pay off the
National Bank in a short time; and if he was able to do so, no motive appears
for attempt to defraud the insurer. While the acquittal of the insured in the
arson case is not res judicata on the present civil action, the insurer's
evidence, to judge from the decision in the criminal case, is practically
identical in both cases and must lead to the same result, since the proof to
establish the defense of connivance at the fire in order to defraud the insurer
"cannot be materially less convincing than that required in order to convict
the insured of the crime of arson"(Bachrach vs. British American Assurance
Co., 17 Phil. 536).
As to the defense that the burned bodegas could not possibly have contained
the quantities of copra and hemp stated in the fire claims, the insurer's case
rests almost exclusively on the estimates, inferences and conclusionsAs to
the defense that the burned bodegas could not possibly have contained the
quantities of copra and hemp stated in the fire claims, the insurer's case rests
almost exclusively on the estimates, inferences and conclusions of its
adjuster investigator, Alexander D. Stewart, who examined the premises
during and after the fire. His testimony, however, was based on inferences
from the photographs and traces found after the fire, and must yield to the
contradictory testimony of engineer Andres Bolinas, and specially of the then
Chief of the Loan Department of the National Bank's Legaspi branch, Porfirio
Barrios, and of Bank Appraiser Loreto Samson, who actually saw the
contents of the bodegas shortly before the fire, while inspecting them for the
mortgagee Bank. The lower Court was satisfied of the veracity and accuracy
of these witnesses, and the appellant insurer has failed to substantiate its
charges aganst their character. In fact, the insurer's repeated accusations
that these witnesses were later "suspended for fraudulent transactions"
Insurance Law- Assignment No. 2
without giving any details, is a plain attempt to create prejudice against them,
without the least support in fact.
Stewart himself, in testifying that it is impossible to determine from the
remains the quantity of hemp burned (t. s. n., pp. 1468, 1470), rebutted
appellant's attacks on the refusal of the Court below to accept its inferences
from the remains shown in the photographs of the burned premises. It
appears, likewise, that the adjuster's calculations of the maximum contents of
the destroyed warehouses rested on the assumption that all the copra and
hemp were in sacks, and on the result of his experiments to determine the
space occupied by definite amounts of sacked copra. The error in the
estimates thus arrived at proceeds from the fact that a large amount of the
insured's stock were in loose form, occupying less space than when kept in
sacks; and from Stewart's obvious failure to give due allowance for the
compression of the material at the bottom of the piles (t. s. n., pp. 1964,
1967) due to the weight of the overlying stock, as shown by engineer
Bolinas. It is probable that the errors were due to inexperience (Stewart
himself admitted that this was the first copra fire he had investigated); but it is
clear that such errors render valueles Stewart's computations. These were in
fact twice passed upon and twice rejected by different judges (in the criminal
and civil cases) and their concordant opinion is practically conclusive.
The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by
the Court below, since the opinions stated therein were based on ex
parteinvestigations made at the back of the insured; and the appellant did not
present at the trial the original testimony and documents from which the
conclusions in the report were drawn.
Appellant insurance company also contends that the claims filed by the
insured contained false and fraudulent statements that avoided the insurance
policy. But the trial Court found that the discrepancies were a result of the
insured's erroneous interpretation of the provisions of the insurance policies
and claim forms, caused by his imperfect knowledge of English, and that the
misstatements were innocently made and without intent to defraud. Our
review of the lengthy record fails to disclose reasons for rejecting these
conclusions of the Court below. For example, the occurrence of previous fires
in the premises insured in 1939, altho omitted in the claims, Exhibits EE and
FF, were nevertheless revealed by the insured in his claims Exhibits Q (filed
simultaneously with them), KK and WW. Considering that all these claims
were submitted to the smae agent, and that this same agent had paid the
loss caused by the 1939 fire, we find no error in the trial Court's acceptance
of the insured's explanation that the omission in Exhibits EE and FF was due
to inadvertance, for the insured could hardly expect under such
circumstances, that the 1939 would pass unnoticed by the insurance agents.
Similarly, the 20 per cent overclaim on 70 per cent of the hemo stock, was
explained by the insured as caused by his belief that he was entitled to
Page 25 of 37
include in the claim his expected profit on the 70 per cent of the hemp,
because the same was already contracted for and sold to other parties
before the fire occurred. Compared with other cases of over-valuation
recorded in our judicial annals, the 20 per cent excess in the case of the
insured is not by itself sufficient to establish fraudulent intent. Thus, in Yu
Cua vs. South British Ins. Co., 41 Phil. 134, the claim was fourteen (14) times
(1,400 per cent) bigger than the actual loss; in Go Lu vs. Yorkshire Insurance
Co., 43 Phil., 633, eight (8) times (800 per cent); in Tuason vs. North China
Ins. Co., 47 Phil. 14, six (6) times (600 per cent); in Tan It vs. Sun Insurance,
51 Phil. 212, the claim totalled P31,860.85 while the goods insured were
inventoried at O13,113. Certainly, the insured's overclaim of 20 per cent in
the case at bar, duly explained by him to the Court a quo, appears puny by
comparison, and can not be regarded as "more than misstatement, more
than inadvertence of mistake, more than a mere error in opinion, more than a
slight exaggeration" (Tan It vs. Sun Insurance Office, ante) that would entitle
the insurer to avoid the policy. It is well to note that the overchange of 20 per
cent was claimed only on a part (70 per cent) of the hemp stock; had the
insured acted with fraudulent intent, nothing prevented him from increasing
the value of all of his copra, hemp and buildings in the same proportion. This
also applies to the alleged fraudulent claim for burned empty sacks, that was
likewise explained to our satisfaction and that of the trial Court. The rule is
that to avoid a policy, the false swearing must be wilful and with intent to
defraud (29 Am. Jur., pp. 849-851) which was not the cause. Of course, the
lack of fraudulent intent would not authorize the collection of the expected
profit under the terms of the polices, and the trial Court correctly deducte the
same from its award.

We find no reversible error in the judgment appealed from, wherefore the

smae is hereby affirmed. Costs against the appellant. So ordered.

Insurance Law- Assignment No. 2 Page 26 of 37

[11] G.R. No. 166245 April 9, 2008
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,
vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY,
respondent.
Evidence; Witnesses; We ruled in People v. Paredes, 368 SCRA 102 (2001), that
minor inconsistencies are too trivial to affect the credibility of witnesses, and these
may even serve to strengthen their credibility as these negate any suspicion that the
testimonies have been rehearsed.—As to the seeming inconsistencies between the
testimony of Manuel Cortez on whether one or two insurance application forms were
accomplished and the testimony of Mendoza on who actually filled out the
application form, these are minor inconsistencies that do not affect the credibility of
the witnesses. Thus, we ruled in People v. Paredes, 368 SCRA 102 (2001), that minor
inconsistencies are too trivial to affect the credibility of witnesses, and these may
even serve to strengthen their credibility as these negate any suspicion that the
testimonies have been rehearsed.
Contracts; Insurance Law; It must be remembered that an insurance contract is a
contract of adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter’s interest.—It must be
remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of
Appeals, 270 SCRA 242 (1997), this Court held that: Indemnity and liability
insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by
the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be
construed liberally in favor of the insured and strictly against the insurer. Limitations
of liability should be regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from noncompliance with its obligations. (Emphasis
supplied.)
Same; Same; The mere inaction of the insurer on the insurance application must not
work to prejudice the insured; it cannot be interpreted as a termination of the
insurance contract.— The seemingly conflicting provisions must be harmonized to
mean that 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. The second sentence of Creditor Group Life Policy No. P-1920 on the
Effective Date of Benefit is in the nature of a resolutory condition which would lead
to the cessation of the insurance contract. Moreover, the mere inaction of the insurer
on the insurance application must not work to prejudice the insured; it cannot be
interpreted as a termination of the insurance contract. The termination of the
insurance contract by the insurer must be explicit and unambiguous.
Insurance Law- Assignment No. 2
Same; Same; Insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the insured are to
be delineated.—To characterize the insurer and the insured as contracting parties on
equal footing is inaccurate at best. Insurance contracts are wholly prepared by the
insurer with vast amounts of experience in the industry purposefully used to its
advantage. More often than not, insurance contracts are contracts of adhesion
containing technical terms and conditions of the industry, confusing if at all
understandable to laypersons, that are imposed on those who wish to avail of
insurance. As such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the insured are to
be delineated. Hence, in order to protect the interest of insurance applicants,
insurance companies must be obligated to act with haste upon insurance applications,
to either deny or approve the same, or otherwise be bound to honor the application as
a valid, binding, and effective insurance contract.
DECISION
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to
reverse and set aside the November 26, 2004 Decision 1 of the Court of
Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the
insurer on the insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as Creditor
Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park
Corporation (Eternal). Under the policy, the clients of Eternal who purchased
burial lots from it on installment basis would be insured by Philamlife. The
amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year,
renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than
65 years of age, is indebted to the Assured for the unpaid balance of his
loan with the Assured, and is accepted for Life Insurance coverage by
Page 27 of 37
 the Company on its effective date is eligible for insurance under the
Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to
P50,000.00. However, a declaration of good health shall be required for
all Lot Purchasers as part of the application. The Company reserves the
right to require further evidence of insurability satisfactory to the
Company in respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be
the amount of the unpaid balance of his loan (including arrears up to but
not exceeding 2 months) as reported by the Assured to the Company or
the sum of P100,000.00, whichever is smaller. Such benefit shall be paid
to the Assured if the Lot Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the
Company.3
Eternal was required under the policy to submit to Philamlife a list of all new
lot purchasers, together with a copy of the application of each purchaser, and
the amounts of the respective unpaid balances of all insured lot purchasers.
In relation to the instant petition, Eternal complied by submitting a letter dated
December 29, 1982,4 containing a list of insurable balances of its lot buyers
for October 1982. One of those included in the list as "new business" was a
certain John Chuang. His balance of payments was PhP 100,000. On August
2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an
insurance claim for Chuang’s death. Attached to the claim were the following
documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate
stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of
Claimant; (4) Certificate of Attending Physician; and (5) Assured’s Certificate.
Insurance Law- Assignment No. 2
In reply, Philamlife wrote Eternal a letter on November 12, 1984,6 requiring
Eternal to submit the following documents relative to its insurance claim for
Chuang’s death: (1) Certificate of Claimant (with form attached); (2)
Assured’s Certificate (with form attached); (3) Application for Insurance
accomplished and signed by the insured, Chuang, while still living; and (4)
Statement of Account showing the unpaid balance of Chuang before his
death.
Eternal transmitted the required documents through a letter dated November
14, 1984,7 which was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to
the latter’s insurance claim. This prompted Eternal to demand from Philamlife
the payment of the claim for PhP 100,000 on April 25, 1986.8
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim
in a letter dated May 20, 1986,9 a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558
and 9529 with Eternal Gardens Memorial Park in October 1982 for the
total maximum insurable amount of P100,000.00 each. No application
for Group Insurance was submitted in our office prior to his death on
August 2, 1984.
In accordance with our Creditor’s Group Life Policy No. P-1920, under
Evidence of Insurability provision, "a declaration of good health shall be
required for all Lot Purchasers as party of the application." We cite
further the provision on Effective Date of Coverage under the policy
which states that "there shall be no insurance if the application is not
approved by the Company." Since no application had been submitted by
the Insured/Assured, prior to his death, for our approval but was
submitted instead on November 15, 1984, after his death, Mr. John Uy
Chuang was not covered under the Policy. We wish to point out that
Eternal Gardens being the Assured was a party to the Contract and was
therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote our
approval per se of the insurance coverage but are held by us in trust for
the payor until the prerequisites for insurance coverage shall have been
met. We will however, return all the premiums which have been paid in
behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court
(RTC) for a sum of money against Philamlife, docketed as Civil Case No.
14736. The trial court decided in favor of Eternal, the dispositive portion of
Page 28 of 37
which reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering
the Defendant PHILAMLIFE, to pay the sum of P100,000.00,
representing the proceeds of the Policy of John Uy Chuang, plus legal
rate of interest, until fully paid; and, to pay the sum of P10,000.00 as
attorney’s fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang’s application for insurance
which he accomplished before his death, as testified to by Eternal’s witness
and evidenced by the letter dated December 29, 1982, stating, among
others: "Encl: Phil-Am Life Insurance Application Forms & Cert."10 It further
ruled that due to Philamlife’s inaction from the submission of the
requirements of the group insurance on December 29, 1982 to Chuang’s
death on August 2, 1984, as well as Philamlife’s acceptance of the premiums
during the same period, Philamlife was deemed to have approved Chuang’s
application. The RTC said that since the contract is a group life insurance,
once proof of death is submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil
Case No. 57810 is REVERSED and SET ASIDE, and the complaint is
DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuang’s application
was not enclosed in Eternal’s letter dated December 29, 1982. It further ruled
that the non-accomplishment of the submitted application form violated
Section 26 of the Insurance Code. Thus, the CA concluded, there being no
application form, Chuang was not covered by Philamlife’s insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance,
not therefore determined by this Honorable Court, or has decided it in a
way not in accord with law or with the applicable jurisprudence, in
holding that:
I. The application for insurance was not duly submitted to
Insurance Law- Assignment No. 2
respondent PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial
Court dated May 29, 1996.
The Court’s Ruling
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such rule
is subject to exceptions, as enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings
of facts are conflicting; (6) when in making its findings the [CA] went
beyond the issues of the case, or its findings are contrary to the
admissions of both the appellant and the appellee; (7) when the
findings [of the CA] are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in
the petitioner’s main and reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) when the
Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a
different conclusion.12(Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA;
thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance application of
Chuang before his death. In Eternal’s letter dated December 29, 1982, a list
of insurable interests of buyers for October 1982 was attached, including
Chuang in the list of new businesses. Eternal added it was noted at the
bottom of said letter that the corresponding "Phil-Am Life Insurance
Application Forms & Cert." were enclosed in the letter that was apparently
received by Philamlife on January 15, 1983. Finally, Eternal alleged that it
provided a copy of the insurance application which was signed by Chuang
himself and executed before his death.
Page 29 of 37
On the other hand, Philamlife claims that the evidence presented by Eternal
is insufficient, arguing that Eternal must present evidence showing that
Philamlife received a copy of Chuang’s insurance application.
The evidence on record supports Eternal’s position.
The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp of
receipt has the effect of acknowledging receipt of the letter together with the
attachments. Such receipt is an admission by Philamlife against its own
interest.13 The burden of evidence has shifted to Philamlife, which must prove
that the letter did not contain Chuang’s insurance application. However,
Philamlife failed to do so; thus, Philamlife is deemed to have received
Chuang’s insurance application.
To reiterate, it was Philamlife’s bounden duty to make sure that before a
transmittal letter is stamped as received, the contents of the letter are correct
and accounted for.
Philamlife’s allegation that Eternal’s witnesses ran out of credibility and
reliability due to inconsistencies is groundless. The trial court is in the best
position to determine the reliability and credibility of the witnesses, because it
has the opportunity to observe firsthand the witnesses’ demeanor, conduct,
and attitude. Findings of the trial court on such matters are binding and
conclusive on the appellate court, unless some facts or circumstances of
weight and substance have been overlooked, misapprehended, or
misinterpreted,14 that, if considered, might affect the result of the case.15
An examination of the testimonies of the witnesses mentioned by Philamlife,
however, reveals no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original
insurance application of Chuang was, as shown by the testimony of Edilberto
Mendoza:
Atty. Arevalo: Q Where is the original of the application form which is
required in case of new coverage?
[Mendoza:] A It is [a] standard operating procedure for the new client to
fill up two copies of this form and the original of this is submitted to
Philamlife together with the monthly remittances and the second copy is
remained or retained with the marketing department of Eternal Gardens.
Atty. Miranda: We move to strike out the answer as it is not responsive
Insurance Law- Assignment No. 2
as counsel is merely asking for the location and does not [ask] for the
number of copy.
Atty. Arevalo: Q Where is the original?
[Mendoza:] A As far as I remember I do not know where the original but
when I submitted with that payment together with the new clients all the
originals I see to it before I sign the transmittal letter the originals are
attached therein.16
In other words, the witness admitted not knowing where the original
insurance application was, but believed that the application was transmitted
to Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez
on whether one or two insurance application forms were accomplished and
the testimony of Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the credibility of the
witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies
are too trivial to affect the credibility of witnesses, and these may even serve
to strengthen their credibility as these negate any suspicion that the
testimonies have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential
integrity of the prosecution’s evidence as a whole or reflect on the
witnesses’ honesty. The test is whether the testimonies agree on
essential facts and whether the respective versions corroborate and
substantially coincide with each other so as to make a consistent and
coherent whole.18
In the present case, the number of copies of the insurance application that
Chuang executed is not at issue, neither is whether the insurance application
presented by Eternal has been falsified. Thus, the inconsistencies pointed
out by Philamlife are minor and do not affect the credibility of Eternal’s
witnesses.
However, the question arises as to whether Philamlife assumed the risk of
loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement
Page 30 of 37
denominated as Creditor Group Life Policy No. P-1920 dated December 10,
1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the
Company.
An examination of the above provision would show ambiguity between its two
sentences. The first sentence appears to state that the insurance coverage of
the clients of Eternal already became effective upon contracting a loan with
Eternal while the second sentence appears to require Philamlife to approve
the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance
with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, par excellence,
any ambiguity therein should be resolved against the insurer; in
other words, it should be construed liberally in favor of the insured and
strictly against the insurer. Limitations of liability should be regarded with
extreme jealousy and must be construed in such a way as to preclude
the insurer from noncompliance with its obligations. 19 (Emphasis
supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on liability,
courts should construe them in such a way as to preclude the insurer
from non-compliance with his obligation. Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against
the party which prepared the contract, the insurer. By reason of the
exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured,
especially to avoid forfeiture.20
Insurance Law- Assignment No. 2
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-
1920 dated December 10, 1980, must be construed in favor of the insured
and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized
to mean that 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. The second sentence of Creditor
Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature
of a resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted as
a termination of the insurance contract. The termination of the insurance
contract by the insurer must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting
parties on equal footing is inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts
are contracts of adhesion containing technical terms and conditions of the
industry, confusing if at all understandable to laypersons, that are imposed on
those who wish to avail of insurance. As such, insurance contracts are
imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in
order to protect the interest of insurance applicants, insurance companies
must be obligated to act with haste upon insurance applications, to either
deny or approve the same, or otherwise be bound to honor the application as
a valid, binding, and effective insurance contract.21
WHEREFORE, we GRANT the petition. The November 26, 2004 CA
Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May
29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED.
Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the
proceeds of the Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per
annum of PhP 100,000 from the time of extra-judicial demand by Eternal
until Philamlife’s receipt of the May 29, 1996 RTC Decision on June 17,
1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per
annum of PhP 100,000 from June 17, 1996 until full payment of this
Page 31 of 37
 award; and

(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.

No costs.

SO ORDERED.

Insurance Law- Assignment No. 2 Page 32 of 37

[12] G.R. No. 115278
May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs. COURT OF APPEALS and PRODUCERS BANK OF THE
PHILIPPINES, respondents.
Insurance Law; Insurance Code; Aside from compulsory motor vehicle liability
insurance, the Insurance Code contains no other provisions applicable to casualty
insurance or to robbery insurance in particular.—Except with respect to compulsory
motor vehicle liability insurance, the Insurance Code contains no other provisions
applicable to casualty insurance or to robbery insurance in particular. These contracts
are, therefore, governed by the general provisions applicable to all types of
insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its purpose and
always in accordance with the general principles of insurance law.
Same; Same; In burglary, robbery, and theft insurance, “the opportunity to defraud
the insurer” is so great that insurers have found it necessary to fill up their policies
with countless restrictions.—It has been aptly observed that in burglary, robbery, and
theft insurance, “the opportunity to defraud the insurer—the moral hazard—is so
great that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer assume
the risk of all losses due to the hazards insured against.” Persons frequently excluded
under such provisions are those in the insured’s service and employment. The
purpose of the exception is to guard against liability should the theft be committed by
one having unrestricted access to the property. In such cases, the terms specifying the
excluded classes are to be given their meaning as understood in common speech. The
terms “service” and “employment” are generally associated with the idea of
selection, control, and compensation.
Same; Same; Contract of insurance is a contract of adhesion, thus any ambiguity
therein should be resolved against the insurer. —contract of insurance is a contract of
adhesion, thus any ambiguity therein should be resolved against the insurer, or it
should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from non-compliance with its
obligation. It goes without saying then that if the terms of the contract are clear and
unambiguous, there is no room for construction and such terms cannot be enlarged or
diminished by judicial construction.
Same; Same; It is settled that the terms of the policy constitute the measure of the
insurer’s liability.—An insurance contract is a contract of indemnity upon the terms
and conditions specified therein. It is settled that the terms of the policy constitute
the measure of the insurer’s liability. In the absence of statutory prohibition to the
Insurance Law- Assignment No. 2
contrary, insurance companies have the same rights as individuals to limit their
liability and to impose whatever conditions they deem best upon their obligations not
inconsistent with public policy.
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari is
whether the petitioner is liable under the Money, Security, and Payroll
Robbery policy it issued to the private respondent or whether recovery
thereunder is precluded under the general exceptions clause thereof. Both
the trial court and the Court of Appeals held that there should be recovery.
The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati,
Metro Manila, by private respondent Producers Bank of the Philippines
(hereinafter Producers) against petitioner Fortune Insurance and Surety Co.,
Inc. (hereinafter Fortune) of a complaint for recovery of the sum of
P725,000.00 under the policy issued by Fortune. The sum was allegedly lost
during a robbery of Producer's armored vehicle while it was in transit to
transfer the money from its Pasay City Branch to its head office in Makati.
The case was docketed as Civil Case No. 1817 and assigned to Branch 146
thereof.
After joinder of issues, the parties asked the trial court to render judgment
based on the following stipulation of facts:
1. The plaintiff was insured by the defendants and an insurance
policy was issued, the duplicate original of which is hereto attached
as Exhibit "A";
2. An armored car of the plaintiff, while in the process of transferring
cash in the sum of P725,000.00 under the custody of its teller,
Maribeth Alampay, from its Pasay Branch to its Head Office at 8737
Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was
robbed of the said cash. The robbery took place while the armored
car was traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y de
Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver
Magalong was assigned by PRC Management Systems with the
plaintiff by virtue of an Agreement executed on August 7, 1983, a
duplicate original copy of which is hereto attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn Security
Services, Inc. with the plaintiff by virtue of a contract of Security
Page 33 of 37
 Service executed on October 25, 1982, a duplicate original copy of
which is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay police authorities,
the driver Magalong and guard Atiga were charged, together with
Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of
Pasay City. A copy of the complaint is hereto attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging the
aforesaid persons with the said crime before Branch 112 of the
Regional Trial Court of Pasay City. A copy of the said information is
hereto attached as Exhibit "E." The case is still being tried as of this
date;
7. Demands were made by the plaintiff upon the defendant to pay the
amount of the loss of P725,000.00, but the latter refused to pay as
the loss is excluded from the coverage of the insurance policy,
The trial court ruled that Magalong and Atiga were not employees or
attached hereto as Exhibit "A," specifically under page 1 thereof,
representatives of Producers. It Said:
"General Exceptions" Section (b), which is marked as Exhibit "A-1,"
and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report
of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent
or criminal act of the insured or any officer,
employee, partner, director, trustee or authorized
representative of the Insured whether acting
alone or in conjunction with others. . . .
8. The plaintiff opposes the contention of the defendant and
contends that Atiga and Magalong are not its "officer, employee, . . .
trustee or authorized representative . . . at the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers.
The dispositive portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff
and against defendant, and
Insurance Law- Assignment No. 2
(a) orders defendant to pay plaintiff the net
amount of P540,000.00 as liability under Policy
No. 0207 (as mitigated by the P40,000.00
special clause deduction and by the recovered
sum of P145,000.00), with interest thereon at the
legal rate, until fully paid;
(b) orders defendant to pay plaintiff the sum of
P30,000.00 as and for attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed
forthwith.
SO ORDERED. 2
The Court is satisfied that plaintiff may not be said to have selected
and engaged Magalong and Atiga, their services as armored car
driver and as security guard having been merely offered by PRC
Management and by Unicorn Security and which latter firms
assigned them to plaintiff. The wages and salaries of both
Magalong and Atiga are presumably paid by their respective firms,
which alone wields the power to dismiss them. Magalong and Atiga
are assigned to plaintiff in fulfillment of agreements to provide
driving services and property protection as such — in a context
which does not impress the Court as translating into plaintiff's
power to control the conduct of any assigned driver or security
guard, beyond perhaps entitling plaintiff to request are replacement
for such driver guard. The finding is accordingly compelled that
neither Magalong nor Atiga were plaintiff's "employees" in
avoidance of defendant's liability under the policy, particularly the
general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver
Magalong and guard Atiga were the "authorized representatives" of
plaintiff. They were merely an assigned armored car driver and
security guard, respectively, for the June 29, 1987 money transfer
from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly
— it was teller Maribeth Alampay who had "custody" of the
P725,000.00 cash being transferred along a specified money route,
and hence plaintiff's then designated "messenger" adverted to in
Page 34 of 37
 the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the
case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May
1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that
Magalong and Atiga were neither employees nor authorized representatives
of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor
of the insured and strictly against the insurance company (New Life
Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance
Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of
insurance, like other contracts, are to be construed according to the
sense and meaning of the terms which the parties themselves have
used. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular sense (New Life
Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs.
Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted
stipulation is plain, ordinary and simple. No other interpretation is
necessary. The word "employee" must be taken to mean in the
ordinary sense.
The Labor Code is a special law specifically dealing with/and
specifically designed to protect labor and therefore its definition as
to employer-employee relationships insofar as the
application/enforcement of said Code is concerned must
necessarily be inapplicable to an insurance contract which
defendant-appellant itself had formulated. Had it intended to apply
the Labor Code in defining what the word "employee" refers to, it
must/should have so stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees
of plaintiff-appellee bank because it has no power to hire or to
dismiss said driver and security guard under the contracts (Exhs. 8
and C) except only to ask for their replacements from the
contractors.5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges
that the trial court and the Court of Appeals erred in holding it liable under the
insurance policy because the loss falls within the general exceptions clause
considering that driver Magalong and security guard Atiga were Producers'
Insurance Law- Assignment No. 2
authorized representatives or employees in the transfer of the money and
payroll from its branch office in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to
transfer its funds from one branch to another, they effectively and necessarily
became its authorized representatives in the care and custody of the money.
Assuming that they could not be considered authorized representatives, they
were, nevertheless, employees of Producers. It asserts that the existence of
an employer-employee relationship "is determined by law and being such, it
cannot be the subject of agreement." Thus, if there was in reality an
employer-employee relationship between Producers, on the one hand, and
Magalong and Atiga, on the other, the provisions in the contracts of
Producers with PRC Management System for Magalong and with Unicorn
Security Services for Atiga which state that Producers is not their employer
and that it is absolved from any liability as an employer, would not obliterate
the relationship.
Fortune points out that an employer-employee relationship depends upon
four standards: (1) the manner of selection and engagement of the putative
employee; (2) the mode of payment of wages; (3) the presence or absence
of a power to dismiss; and (4) the presence and absence of a power to
control the putative employee's conduct. Of the four, the right-of-control test
has been held to be the decisive factor. 6 It asserts that the power of control
over Magalong and Atiga was vested in and exercised by Producers. Fortune
further insists that PRC Management System and Unicorn Security Services
are but "labor-only" contractors under Article 106 of the Labor Code which
provides:
Art. 106. Contractor or subcontractor. — There is "labor-only"
contracting where the person supplying workers to an employer
does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the
workers recruited and placed by such persons are performing
activities which are directly related to the principal business of such
employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the
latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of
Producers, following the ruling in International Timber Corp. vs. NLRC 7 that
a finding that a contractor is a "labor-only" contractor is equivalent to a finding
that there is an employer-employee relationship between the owner of the
project and the employees of the "labor-only" contractor.
Page 35 of 37
On the other hand, Producers contends that Magalong and Atiga were not its
employees since it had nothing to do with their selection and engagement,
the payment of their wages, their dismissal, and the control of their conduct.
Producers argued that the rule in International Timber Corp. is not applicable
to all cases but only when it becomes necessary to prevent any violation or
circumvention of the Labor Code, a social legislation whose provisions may
set aside contracts entered into by parties in order to give protection to the
working man.
Producers further asseverates that what should be applied is the rule in
American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the
selection and engagement of the employee; (2) the payment of
wages; (3) the power of dismissal; and (4) the power to control the
employee's conduct.
Since under Producers' contract with PRC Management Systems it is the
latter which assigned Magalong as the driver of Producers' armored car and
was responsible for his faithful discharge of his duties and responsibilities,
and since Producers paid the monthly compensation of P1,400.00 per driver
to PRC Management Systems and not to Magalong, it is clear that Magalong
was not Producers' employee. As to Atiga, Producers relies on the provision
of its contract with Unicorn Security Services which provides that the guards
of the latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a
theft or robbery insurance policy which is a form of casualty insurance.
Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or liability
arising from accident or mishap, excluding certain types of loss
which by law or custom are considered as falling exclusively within
the scope of insurance such as fire or marine. It includes, but is not
limited to, employer's liability insurance, public liability insurance,
motor vehicle liability insurance, plate glass insurance, burglary and
theft insurance, personal accident and health insurance as written
by non-life insurance companies, and other substantially similar
kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty
Insurance Law- Assignment No. 2
insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of
insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its
purpose and always in accordance with the general principles of insurance
law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the
opportunity to defraud the insurer — the moral hazard — is so great that
insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10 Persons
frequently excluded under such provisions are those in the insured's service
and employment. 11 The purpose of the exception is to guard against liability
should the theft be committed by one having unrestricted access to the
property. 12 In such cases, the terms specifying the excluded classes are to
be given their meaning as understood in common speech. 13 The terms
"service" and "employment" are generally associated with the idea of
selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein
should be resolved against the insurer, 15 or it should be construed liberally in
favor of the insured and strictly against the insurer. 16 Limitations of liability
should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its
obligation. 17 It goes without saying then that if the terms of the contract are
clear and unambiguous, there is no room for construction and such terms
cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and
conditions specified therein. 19 It is settled that the terms of the policy
constitute the measure of the insurer's liability. 20 In the absence of statutory
prohibition to the contrary, insurance companies have the same rights as
individuals to limit their liability and to impose whatever conditions they deem
best upon their obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether
Magalong and Atiga qualify as employees or authorized representatives of
Producers under paragraph (b) of the general exceptions clause of the policy
which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
Page 36 of 37
 xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or
criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of
the Insured whether acting alone or in conjunction with
others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of
the terms "employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to
exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then the
term "employee," it must have had in mind any person who qualifies as such
as generally and universally understood, or jurisprudentially established in
the light of the four standards in the determination of the employer-employee
relationship, 21 or as statutorily declared even in a limited sense as in the
case of Article 106 of the Labor Code which considers the employees under
a "labor-only" contract as employees of the party employing them and not of
the party who supplied them to the employer. 22
and Atiga were, in respect of the transfer of Producer's money from its Pasay
City branch to its head office in Makati, its "authorized representatives" who
served as such with its teller Maribeth Alampay. Howsoever viewed,
Producers entrusted the three with the specific duty to safely transfer the
money to its head office, with Alampay to be responsible for its custody in
transit; Magalong to drive the armored vehicle which would carry the money;
and Atiga to provide the needed security for the money, the vehicle, and his
two other companions. In short, for these particular tasks, the three acted as
agents of Producers. A "representative" is defined as one who represents or
stands in the place of another; one who represents others or another in a
special capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the
Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that
of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817
are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is
DISMISSED.
No pronouncement as to costs.

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

Producers, however, insists that by the express terms thereof, it is not

the employer of Magalong. Notwithstanding such express assumption of
PRC Management Systems and Unicorn Security Services that the
drivers and the security guards each shall supply to Producers are not
the latter's employees, it may, in fact, be that it is because the contracts
are, indeed, "labor-only" contracts. Whether they are is, in the light of the
criteria provided for in Article 106 of the Labor Code, a question of fact.
Since the parties opted to submit the case for judgment on the basis of
their stipulation of facts which are strictly limited to the insurance policy,
the contracts with PRC Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No. 532, and the information
therefor filed by the City Fiscal of Pasay City, there is a paucity of
evidence as to whether the contracts between Producers and PRC
Management Systems and Unicorn Security Services are "labor-only"
contracts.

But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn Security
Services were truly independent contractors, we are satisfied that Magalong

Insurance Law- Assignment No. 2 Page 37 of 37