WEEK 2
INSURANCE
E. Essential Elements
GULF RESORTS INC vs PHILIPPINE CHARTER INSURANCE CORPORATION (2005)
FACTS: Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance Company
which includes loss or damage to shock to any of the property insured by this Policy occasioned by or
through or in consequence of earthquake
July 16, 1990: an earthquake struck Central Luzon and Northern Luzon so the properties and 2 swimming
pools in its Agoo Playa Resort were damaged
August 23, 1990: Gulf's claim was denied on the ground that its insurance policy only afforded earthquake
shock coverage to the two swimming pools of the resort
Petitioner insists that the parties have intended to extend the coverage through the attachment of the phrase
"Subject to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended
Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies" to the
insurance policy.
ISSUE: Whether or not the insurance policy earthquake shock coverage extends to other property aside
from the two swimming pools.
HELD: NO. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other
provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention of
the parties to extend earthquake shock coverage to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the clear intent of the parties to
extend earthquake shock coverage only to the two swimming pools.
In the subject policy, no premium payments were made with regard to earthquake shock coverage, except
on the two swimming pools. There is no mention of any premium payable for the other resort properties
with regard to earthquake shock. This is consistent with the history of petitioner’s previous insurance
policies from AHAC-AIU.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general
rule that insurance contracts are contracts of adhesion which should be liberally construed in favor of the
insured and strictly against the insurer company which usually prepares it. A contract of adhesion is xxx
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did
not know the provisions of the policy. From the inception of the policy, petitioner had required the
respondent to copy verbatim the provisions and terms of its latest insurance policy from AHAC-AIU.
Page 1 of 39
DOCTRINE:
It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance
with each other. All its parts are reflective of the true intent of the parties. The policy cannot be construed
piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words
or phrases necessarily determine its character.
Section 2(1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes
for a consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event. Thus, an insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium.
An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against
a specified peril. In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as
the risk attaches.
A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the
contract, while the other party merely affixes his signature or his "adhesion" thereto. Consequently, any
ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured.
PHILAMCARE HEALTH SYSTEMS, INC., vs. COURT OF APPEALS and JULITA TRINOS
G.R. No. 125678 March 18, 2002
YNARES-SANTIAGO, J.:
Facts:ErnaniTrinos, deceased husband of JulitaTrinos, applied for a health care coverage withPhilamcare
Health Systems, Inc. In the standard application form, he answered “NO” to the following question:
Have you or any of your family members ever consulted or been treated for high blood pressure, heart
trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).
Coverage of the health care agreement (HCA):
approved for a period of one year, Renewed 3 times yearly: March 1, 1988 - March 1, 1990; March 1, 1990
– June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability.
Ernani’s entitlement under HCA:
hospitalization benefits, whether ordinary or emergency, listed therein
out-patient benefits" such as annual physical examinations, preventive health care and other out-patient
services.
Ernaniwas subsequently confined. HISTORY (everything happened within the period of coverage):
Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990.
Julita tried to claim the benefits under the health care agreement.
Philamdenied her claim saying that the Health Care Agreement was void. there was a concealment
regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s
confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application
form.
Julita paid the hospitalization expenses herself, amounting to about P76,000.00
Ernani was discharged at MMC
He was attended by a physical therapist at home.
Again he was admitted at the Chinese General Hospital.
Julita brought her husband home again due to financial difficulties.
In the morning of April 13, 1990, Ernani had fever and was feeling very weak.
Julita was constrained to bring him back to the Chinese General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for
damages against Philam and its president, Dr. Benito Reverente, She asked for reimbursement of her
expenses plus moral damages and attorney’s fees. After trial, the lower court ruled against Philam, ordered:
1. Defendants to pay and reimburse the medical and hospital coverage of the late ErnaniTrinos in the
amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount ofP10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
CA: affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner
Reverente.Denied MR.
Issues:
Whether health care agreements are considered insurance contracts.
Whether there was concealment of material facts on the part of Ernani that rendered the HCA void by
virtue of the "Invalidation of agreement" contained in the contract.
Suppose there was concealment, what are the steps Philam should have done?
Ruling:
YES, it is an insurance contract.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:
(1) The insured has an insurable interest;
(2) The insured is subject to a risk of loss by the happening of the designated peril;
(3) The insurer assumes the risk;
(4) Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk; and
(5) In consideration of the insurer’s promise, the insured pays a premium.
Page 2 of 39
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which
may damnify a person having an insurable interest against him, may be insured against. Every person has
an insurable interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or service,
of which death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was
his own health. The health care agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.
NONE, there was no concealment of material facts.
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material information by the member in the application or
medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement
from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid.
An undisclosed or misrepresented information is deemed material if its revelation would have resulted in
the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the
benefit or benefits applied for.
The answer assailed by petitioner was in response to the question relating to the medical history of the
applicant. This largely depends on opinion rather than fact, especially coming from respondent’s husband
who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good
faith and without intent to deceive will not avoid a policy even though they are untrue. Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured
will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such case the insurer is not justified in relying
upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a
case and one in which the insured is fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is
shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud. (Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims
made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once
the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.
Philamshloud have followed Section 27 of the Insurance Code:
"a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be
exercised previous to the commencement of an action on the contract.In this case, no rescission was made.
Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the
following conditions:
Prior notice of cancellation to insured;
Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;
Must be in writing, mailed or delivered to the insured at the address shown in the policy;
Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.
None of the above pre-conditions was fulfilled in this case.
Anent the incontestability of the membership of respondent’s husband, we quote with approval the
following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve
months from the date of issuance of the Agreement within which to contest the membership of the patient if
he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was
sick of diabetes or hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.
F. Applicability of Civil Code
Art. 2011. The contract of insurance is governed by special laws. Matters not expressly provided for in
such special laws shall be regulated by this Code. (n)
Art. 2012. Any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy by the person who cannot make any donation to him, according to
said article. (n)
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the
same action. (n)
Page 3 of 39
INSULAR V EBRADO G.R. NO. L-44059 OCTOBER 28, 1977
Facts:
J. Martin:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a rider
for Accidental Death. He designated Carponia T. Ebrado as the revocable beneficiary in his policy. He
referred to her as his wife.
Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made liable to pay
the coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of
P5,882.00 plus the additional benefits for accidental death.
Carponia T. Ebrado filed with the insurer a claim for the proceeds as the designated beneficiary therein,
although she admited that she and the insured were merely living as husband and wife without the benefit
of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is
the one entitled to the insurance proceeds.
Insular commenced an action for Interpleader before the trial court as to who should be given the proceeds.
The court declared Carponia as disqualified.
Issue: WON a common-law wife named as beneficiary in the life insurance policy of a legally married man
can claim the proceeds in case of death of the latter?
Held: No. Petition
Ratio:
Section 50 of the Insurance Act which provides that "the insurance shall be applied exclusively to the
proper interest of the person in whose name it is made"
The word "interest" highly suggests that the provision refers only to the "insured" and not to
the beneficiary, since a contract of insurance is personal in character. Otherwise, the prohibitory laws
against illicit relationships especially on property and descent will be rendered nugatory, as the same could
easily be circumvented by modes of insurance.
When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regulating contracts. And under Article 2012 of the same
Code, any person who is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a fife insurance policy by the person who cannot make a donation to him. Common-
law spouses are barred from receiving donations from each other.
Article 739 provides that void donations are those made between persons who were guilty of adultery or
concubinage at the time of donation.
There is every reason to hold that the bar in donations between legitimate spouses and those between
illegitimate ones should be enforced in life insurance policies since the same are based on similar
consideration. So long as marriage remains the threshold of family laws, reason and morality dictate that
the impediments imposed upon married couple should likewise be imposed upon extra-marital relationship.
A conviction for adultery or concubinage isn’t required exacted before the disabilities mentioned in Article
739 may effectuate. The article says that in the case referred to in No. 1, the action for declaration of nullity
may be brought by the spouse of the donor or donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent.
The law plainly states that the guilt of the party may be proved “in the same acting for declaration of nullity
of donation.” And, it would be sufficient if evidence preponderates.
The insured was married to Pascuala Ebrado with whom she has six legitimate children. He was also living
in with his common-law wife with whom he has two children.
ZENITH INSURANCE CORPORATION V. THE INSURANCE COMMISSION- INSURABLE
INTEREST
Facts:
> Zenith entered into an insurance contract, denominated as Equipment Floater Policy covering a Kato
Bachoe including its accessories and appurtenances thereof, from loss of damage. Complainant paid the
stipulated premiums therefore.
> Within the period of effectivity of the policy, the two pieces of hydraulic wheel gear pumps, which are
considered appurtenances and/or parts attached to and/or installed in the Kato BAchoe were lost, stolen
and/or illegally detached by unknown thieves or malefactors
> Despite repeated assurances by Zenith’s soliciting agent, it refused and failed to settle and pay
complainant’s insurance claim.
> Complainant seeks not only the payment of said insurance claim of 70T plus legal interest, atty’s fees,
and litigation expenses, but also the revocation or cancellation of the license of Zenith to do insurance
business.
> Zenith on the other hand contends that:
o Complainant is not the real party in interest since the policy carries with it a designated loss payee, the
BA Finance Corp
o The policy insures against loss or damage caused by fire and lightning, etc, while theft or robbery is
NOT insured against in the policy, it not having been expressly mentioned
o Loss nevertheless is excluded under the exception of “infidelity exclusion” by the operator who left it
unguarded, unattended and deserted while entrusted to him, and for failure to give timely notice of loss
o Complainant and/or BA Finance is guilty of concealment and misrepresentation at the time they secured
the policy, because at the time it became operative, the complainant was NOT yet the owner of the property
insured, the property still hot having been delivered to him, and BA finance had no insurable interest yet,
henceforth, the contract of insurance was VOID AB INITIO for lack of insurable interest at the time the
insurance took effect.
Issues and Resolutions:
(1) Whether or not the loss through theft or robbery claimed is within the coverage of the policy.
The Insurance Commissioner, as reiterated by the SC, found for the complainant in this wise: While the
policy enumerated the risks covered, it does NOT, however, in its express terms, limit compensability to
that stated in the enumeration. The enumerated risks excluded did not include theft or robbery committed
or perpetrated by an unidentified culprit, hence the complainant’s claim for damages is compensable.
The foregoing policy is supported by the long time honored doctrine of “contra proferentem: which
provides that: “any ambiguity in the policy shall be resolved in favor of the insured and against the
insurer”. This is true because insurance contracts are essentially contracts of adhesion and applicants for
insurance have no choice but to accept the terms and conditions in the policy even if they are not in full
accord therewith.
Page 4 of 39
(2) Whether or not the complainant was with insurable interest therein when the said policy contract was
procured.
The complainant has insurable interest in the insured property at the time of the procurement of the
insurance policy. As the CC provides, “the contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price,” and Sec. 15 of the IC allows
the insurance of a mere contingent or expectant interest in anything if the same is founded on an actual
right to the thing, or upon any valid contract.
As this is the case, mere possession of an equitable title, like that pertaining to the buyer, gives rise to
insurable interest in the property in which such title inheres. Furthermore, considering that Zenith’s agent
had been fully apprised of the circumstances prior to the actual issuance of the policy and the endorsement,
it cannot now allege that complainant has no insurable interest on the property insured. Zenith is now
precluded by the equitable principle of estoppel from impugning and dishonoring the very insurance policy
contract it issued and the endorsement and increase in the coverage made through its duly authorized agent.
G. Subrogation
Art. 2027. No annuity shall be claimed without first proving the existence of the person upon whose life the
annuity is constituted.
FIREMAN’S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER COMPANY
OF THE PHILIPPINES vs. JAMILA & COMPANY, INC. and FIRST QUEZON CITY
INSURANCE CO., INC
SUMMARY: Jamila supplies security guards to Firestone and assumes their responsibility. When some
properties of Firestone were lost due to connivance of some security guards, Fireman’s Fund as insurer paid
Firestone the value of such and is now subrogated to Firestone’s right to reimbursement. They filed
complaint to recover money when Jamila failed to pay. CFI dismissed complaint as to Jamila citing that
there is no cause of action as the latter did not consent to subrogation and there are no allegations in the
complaint that Firestone investigated the loss. Subsequent MRs, F&F argue that their cause of action is on
the basis of legal subrogation.
SC: There was cause of action on the part of Fireman’s Fund pursuant to Art. 2207. Payment by the assurer
to the assured operates as an equitable assignment to the assurer of all the remedies which the assured may
have against the third party whose negligence or wrongful act caused the loss.
DOCTRINE: Loss or injury for risk must be covered by the policy – Under Article 2207, the cause of the
loss or injury must be a risk covered by the policy to entitle the insurer to the subrogation. Thus, where the
insurer pays the insured for a loss which is not a risk covered by the policy, thereby effecting “voluntary
payment,” the insurer has no right of subrogation against the third party liable for the loss. Nevertheless,
the insurer may recover from the third party responsible for the damage to the insured property under
Article 1236 of the Civil Code.
FACTS:
Jamila or the Veterans Philippine Scouts Security Agency contracted to supply security guards to Firestone.
Jamila assumed responsibility for the acts of its security guards
First Quezon City Insurance Co., Inc. executed a bond in the sum of P20k to guarantee Jamila’s obligations
under that contract
May 18, 1963: Properties of Firestone valued at Php 11,925 were lost allegedly due to the acts of its
employees who connived with Jamila’s security guard
Fireman’s Fund, as insurer, paid to Firestone the amount of the loss and is
now subrogated to Firestone’s right to get reimbursement from Jamila
Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay the amount of the loss in spite of
repeated demands.
Fireman’s Fund and Firestone Tire and Rubber Co instituted this complaint against Jamila for the recovery
of the sum of Php 11,925.00 plus interest, damages and attorney’s fees
Jamila moved to dismiss the complaint on the ground of lack of cause of action
(1) complaint did not allege that Firestone, pursuant to the contractual stipulation quoted in the
complaint, had investigated the loss and that Jamila was represented in the investigation and
(2) Jamila did not consent to the subrogation of Fireman’s Fund to Firestone’s right to get reimbursement
from Jamilaand its surety.
CFI: Dismissed the complaint as to Jamila on the second ground that there wasno allegation that it
had consented to the subrogation and, therefore, Fireman’s Fund had no cause of action against it.
Also dismissed the complaint as to First Quezon City Insurance Co., Inc. on the ground of res judicata as
the same action was previously filed in a civil case which was dismissed because of the failure of the same
plaintiffs and their counsel to appear at the pre-trial.
Firestone and Fireman’s Fund filed MR
CFI on F&F’s MR: Set aside its order of dismissal.
No res judicata as to First Quezon City Insurance Co., because civil case was dismissed without
prejudice
However, due to inadvertence, the lower court did not state in its order of September 3, 1966 why it set
aside its prior order dismissing the complaint with respect to Jamila.
First Quezon City Insurance Co., Inc. filed its answer to the complaint.
Jamila, upon noticing that the order had obliterated its victory without any reason therefor, filed MR
reconsideration
Invoked the first ground in its original motion to dismiss which had never been passed upon by the lower
court that complaint did not allege that Firestone, pursuant to the contractual stipulation quoted in
the complaint, had investigated the loss and that Jamila was represented in the investigation
CFI on Jamila’s MR: Granted Jamila’s MR. However, it completely ignored the 1st ground but reverted to
the second ground (no consent to subrogation thus no cause of action).
It did not mention Firestone, the co-plaintiff of Fireman’s Fund.
Firestone and Fireman’s Fund filed MR on the ground that Fireman’s Fund Insurance Company was suing
on the basis of legal subrogation whereas CFI erroneously predicated its dismissal order on the theory
that there was no conventional subrogation because the debtor’s consent was lacking.
Cited NCC 2207 which provides that “if the plaintiff’s property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract”.
CFI on F&F MR: Denied motion
F&F filed 2nd MR and called CFI’s attention to the fact that the issue of subrogation was of no moment
because Firestone, the subrogor (??), is a party-plaintiff and could sue directly Jamila in its own right.
CFI on F&F’S 2nd MR:Denied 2nd MR without resolving contention
Appeal to SC
F&F: CFI’s dismissal of their complaint is contrary to Article 2207 which provides for legal subrogation.
Page 5 of 39
JAMILA: Legal subrogation under Art. 2207 requires the debtor’s consent
o Legal subrogation takes place in the cases mentioned in NCC 1302 and the instant case is not among the
3 cases enumerated in that article
o There could be no subrogation in this case because according to F&F, the contract between Jamila and
Firestone was entered into on June 1, 1965 but the loss complained of occurred on May 18, 1963.
ISSUES:
1) Whether the complaint of Firestone as subrogor (???) states a cause of action against Jamila? (Not really)
2) Whether the complaint of Fireman’s Fund as subrogee states a cause of action against Jamila? (YES)
3) Whether Jamila should reimburse Fireman’s Fund? (Not decided here)
HELD:
CFI Decision’s order of dismissal is legally untenable so SET ASIDE with costs against Jamila & Co., Inc.
RATIO:
[F&F’s counsel gratuitously alleged in their brief that Firestone and Jamila entered into a “contract of guard
services” on June 1, ‘65.That allegation was uncalled for because it is not found in the complaint and so
created confusion which did not exist. No copy of the contract was annexed to the complaint.
That confusing statement was an obvious error since it was expressly alleged in the complaint that the loss
occurred on May 18, ‘63. The fact that such an error was committed is another instance substantiating the
observation that F&F’s counsel had not exercised due care in the presentation of his case.]
1) Firestone is really a nominal party in this case as it had already been indemnified for the loss which it
had sustained. It joined as a party-plaintiff in order to help Fireman’s Fund to recover the amount of the loss
from Jamila and First Quezon City Insurance Co., Inc. Firestone had tacitly assigned to Fireman’s Fund its
cause of action against Jamila for breach of contract. Sufficient ultimate facts are alleged in the complaint
to sustain that cause of action.
2) Fireman’s Fund’s action against Jamila is squarely sanctioned by article 2207. As the insurer, Fireman’s
Fund is entitled to go after the person or entity that violated its contractual commitment to answer for the
loss insured against (PAL vs. Heald Lumber Co).
CFI erred in applying to this case the rules on novation. F&F in alleging in their complaint that Fireman’s
Fund “became a party ininterest in this case by virtue of a subrogation right given in its favor by” Firestone,
were not relying on the novation by changeof creditors as contemplated in NCC 1291 and 1300 to 1303
but rather on NCC 2207.
Article 2207 is a restatement of a settled principle of American jurisprudence. Subrogation has been
referred to as the doctrine of substitution. It “is an arm of EQUITY that may guide or even force one to
pay a debt for which an obligation was incurred but whichwas in whole or in part paid by another” (83
C.J.S. 576).
“Subrogation is founded on principles of JUSTICE AND EQUITY, and its operation is governed by
principles of equity. It rests onthe principle that substantial justice should be attained regardless of form,
that is, its basis is the doing of complete, essential, andperfect justice between all the parties without regard
to form”(83 C.J.S. 579- 80)
Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs Moses). Upon payment of
the loss, the insurer is entitled to be subrogate pro tanto to any right of action which the insured may
have against the third person whosenegligence or wrongful act caused the loss (44 Am. Jur. 2nd 745).
The right of subrogation is of the highest EQUITY. The LOSS IN THE FIRST INSTANCE is that of the
INSURED but AFTERreimbursement or compensation, it becomes the LOSS OF THE INSURER (44 Am.
Jur. 2d 746).
“Although many policies including policies in the standard form, now provide for subrogation, and thus
determine the rights of theinsurer in this respect, the equitable right of subrogation as the legal effect of
payment inures to the insurer without any formalassignment or any express stipulation to that effect
in the policy” (44 Am. Jur. 2nd 746).
Stated otherwise, when the insurance company pays for the loss, such payment operates as an equitable
assignment to the insurer of the property and all remedies which the insured may have for the
recovery thereof. That right is not dependent upon, nor does it grow out of, any privity of contract, or upon
written assignment of claim, and payment to the insured makes the insurer an assignee in equity (Shambley
v. Jobe-Blackley Plumbing and Heating Co).3) Whether the plaintiffs would be able to prove their cause of
action against Jamila is another question.
PAN MALAYAN INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, ERLINDA
FABIE AND HER UNKNOWN DRIVER,
FACTS:
1. Petitioner Panmalay was an insurer of the car of CANLUBANG AUTOMOTIVE RESOURCE CORP.
which was bumpt and damaged by the private respondent through its negligent driver.
2. Petitioner PANMALAy paid the amount of insurance to the insured.
3. Subrogated on the rights of the insured, petitioner demand payment from the private respondent who
refused to pay the claim of the petitioner.
4. Petitioner filed a complaint against private respondent before the RTC.
5. Private respondent filed a motion to dismiss arguing that payment under the “own damage” clause of the
insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification
thereunder was made on the assumption that there was no wrongdoer or no third party at fault.
6. The RTC dismissed the complaint aswell as the motion for reconsideration and this was affirmed by the
CA.
ISSUE:
WHETHER OR NOT, THE PETITIONER IS ALLOWED TO RECOVERED THE AMOUNT OF
INSURANCE IT HAD PAID TO THE INSURED FROM PRIVATE RESPONDENT.
RULING:
According to the Supreme Court, Art. 2207 of the Civil Code states that, “If the plaintiffs property has been
insured, and he has received indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract.”
This was founded on the well-settled principle of subrogation. If the insured property is destroyed or
damaged through the fault or negligence of a party other than the assured, the insurer, upon payment to the
assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the
insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment
to the former of all remedies which the latter may have against the third party whose negligence or
wrongful act caused the loss.
Page 6 of 39
WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner’s complaint for
damages against private respondents is reinstated. So the case was remanded to the Trial Court for the trial
of the merit.
In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, supra.,the Court ruled
that the insurer who may have no rights of subrogation due to “voluntary” payment may nevertheless
recover from the third party responsible for the damage to the insured property under Article 1236 of the
Civil Code.
In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, supra., the Court
ruled that the insurer who may have no rights of subrogation due to “voluntary” payment may
nevertheless recover from the third party responsible for the damage to the insured property under
Article 1236 of the Civil Code.
SVERIGES ANFARTYGS ASSURANCE VS QUA CHEE GAN (full case)
On August 23 and 24, 1947, defendant Qua Chee Gan, a sole proprietorship, shipped on board the S.S.
NAGARA as per bills of lading Exhs. A and B 2,032,000 kilos of bulk copra at Siain, Quezon, consigned to
DAL International Trading Co., in Gdynia, Poland. The vessel first called at the port of Karlshamn,
Sweden, where it unloaded 696,419 kilos of bulk copra. Then, it proceeded to Gdynia where it unloaded
the remaining copra shipment. The actual outturn weights in the latter port showed that only 1,569,429
kilos were discharged.
Because of the alleged confirmed cargo shortage, the Polish cargo insurers had to indemnify the consignee
for the value thereof. Thereafter, the former sued the ship-owner, the Swedish East Asia
Company, in Gothenburg, Sweden. The latter, in turn, sued defendant and had it summoned to
Gothenburg. Defendant However refused to submit to that court's jurisdiction and its objection was
sustained.
In March, 1951, a settlement was effected between the Polish cargo insurers and the ship
owner. Plaintiff, as the indemnity insurer for the latter, paid approximately $60,733.53 to the Polish
insurers. On August 16, 1954, claiming to have been subrogated to the rights of the carrier, plaintiff sued
defendant before the Court of First Instance of Manila to recover U.S. $60,733.53 plus 17% exchange tax,
with legal interest, as the value of the alleged cargo short shipment and P10,000 as attorney's
fees. Defendant answered in due time and countered with a P15,000 counterclaim for attorney's fees.
On August 1, 1955, defendant filed a motion to dismiss on the ground of prescription under the
Carriage of Goods by Sea Act. The lowercourt sustained the motion and plaintiff appealed here. We
reversed the order of dismissals and remanded the case for further proceedings. [1]
After trial the lower court September 28, 1963, rendered its decisions dismissing the complaint and
awarding P10,000 as attorney's fees to defendant. It ruled (a) that there was no shortshipment on
defendant's part (b) that plaintiff's insurance policy did not cover the shortshipment and (c)
defendant was merely acting as an agent of Louis Dreyfus & Co., who was the real shipper.
Taking issue with all the foregoing, plaintiff has interposed the present appeal to Us on questions of
fact and law, the amount involved exceeding P200,000.00.
Issue:
Was the non-presentation of the insurance policy fatal to plaintiff's case? The lower court ruled so,
reasoning that unless the same as the best evidence were presented, it could not be conclusively determined
if "liability for short shipment" was a covered risk. And the rule is that an insurer who pays the insured for
loss or liability not covered by the policy is not subrogated to the latter.[2] However, even assuming that
there was unwarranted - or "volunteer" - payment, plaintiff could still recover what it paid - in effect - to the
carrier from defendants shipper under Art. 1236 of the Civil Code which allows a third person who pays on
behalf of another to recover from the latter, although there is no subrogation. But since the payment here
was without the knowledge and consent of defendant, plaintiff's right of recovery is defeasible by
the former's defenses since the Code is clear that the recovery only up to the amount by which the
defendant was benefited.
This brings Us to the crux of them case: Was there a shortshipment? To support its case, plaintiff theorizes
that defendant had two shipments at Siain, Quezon province: (1) 812,800 kilos for Karlshamn and (2)
2,032,000 kilos for Gdynia. The Karlshamn shipment was asserted to have been covered by a separate bill
of lading which however was allegedly lost subsequently. Thus, the 696,419 kilos of copra unloaded
in Karlshamn was not part of the Gdynia shipment and cannot explain the confirmed shortage at the latter
port.
Plaintiff's cause of action suffers from several fatal defects and inconsistencies. The alleged shipment of
812,800 kilos for Karlshamn is contradicted by plaintiff's admission in paragraphs 2 and 3 of its complaint
that defendant shipped only 2,032,000 kilos copra at Siain, purportedly for both Gdynia and Karlshamn.
[3] Needless to state, plaintiff is bound by such judicial admission. [4] Moreover, the alleged existence of
the Karlshamn bills of lading is negative by the fact that Exhibits A and B - the bills of lading presented by
plaintiff - show that the 2,032,000 kilos of copra loaded in Siain were for Gdynia only. Further destroying
its case is the testimony of plaintiff's own witness, Mr. Claro Pasicolan, who on direct examination
affirmed[5] that these two exhibits constituted the complete set of documents which them shipping agent in
charge of the vessel S.S. NAGARA issued covering the copra cargo loaded at Slain. In view of
this admission and for want of evidentiary support, plaintiff's belated claim that there is another complete
set of documents can not be seriously taken.
Lastly, if there really was a separate bill of lading for the Karlshamn shipment, plaintiff could not have
failed to present a copy thereof. Mr. Pasicolan testified[6] that the shipping agent makes 20 copies of the
documents of which three signed ones are given to the shipper and the rest, marked as non-negotiable bills
of lading - like Exhibits A and B - are kept on its file. For the three signed copies to be lost,We may
believe, but not for all the remaining 17 other copies. Under the circumstances, it his more reasonable to
hold that there was no separate shipment intended for Karlshamn, Sweden.
As a corollary to the foregoing conclusion, it stands to reason that the copra unloaded in Karlshamn formed
part of the same - and only - shipment of defendant intended for Gdynia. Now the fact that the sum total of
the cargo unloaded at Karlshamn and Gdynia would exceed what appears to have been loaded at Sian by as
much as 233,848 kilos can only show that defendant really overshipped, not shortshipped. And while this
would not tally with defendant's claim of having weighed the copra cargo 100% at Siain, thus exposing a
flaw in defendant's case, yet it is elementary that plaintiff must rely on the strength of it own case to
Page 7 of 39
recover, and not bank on the weakness of the defense. Plaintiff here failed to establish its case by
preponderance on evidence.
On the question whether defendant is the real shipped or merely an agent of Louis Dreyfus & Co., suffice it
to say that although on Exhibit A and B his name appears as the shipper, yet the very loading certificate,
Exhibit 3 [5-Deposition of Horle], issued and signed by the Chief Mate, and Master of the S.S. NAGARA
shows that defendant was acting merely for account of Louis Dreyfus & Co. The other documentary
exhibits[7] confirm this. Anyway, in whatever capacity defendant is considered, it cannot be liable since
no shortshipment was shown.
Plaintiff's action against defendant cannot, however, be considered as clearly unfounded as to warrant an
award of attorney's fees as damages to defendant under par. 4, Art. 2208 of the Civil Code. The facts do not
show that plaintiff's cause of action was so frivolous or untenably as to amount to gross and evident bad
faith.[8]
WHEREFORE, but for the award of attorney's fees to defendant which is eliminated, the decision
appealed from is, in all other respects, hereby affirmed. Costs against plaintiff-appellant.
RIZAL SURETY AND INSURANCE CO. vs. MANILA RAILROAD CO. AND MANILA PORT
SERVICE
Facts:
On Nov 29, 1960, a vessel named SS Flying Trader, loaded on board a cargo which is an offset press
machine, from Italy to Manila. Upon reaching the port of destination and upon unloading it, it was dropped
b the crane which resulted to damages of the machine. The plaintiff as the insurer had paid the consignee,
Suter, Inc. the amount of P16.5k for the machine and P180.70 for the International Adjustment Bureau as
adjuster’s fee. However, the arrastre charges in this particular shipment was paid on the weight or
measurement basis whichever is higher, and not on the value thereof.
Issue:
Can the insurance get an amount greater than what was declared?
Held:
Plaintiff Insurance Company cannot recover from defendants an amount greater than that to which the
consignee could lawfully lay claim. The management contract is clear, the amount is limited to P500.
If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall
be subrogated to the right of the insured against the wrong-doer or the person who has violated the contract.
If the amount paid by the insurance company doer not fully cover the injury or loss, the aggrieved party
shall be entitled to recover the deficiency from the person causing the loss or injury.
The insurance have no greater right than the party in interest thereof.
PAUL FIRE & MARINE INSURANCE v MACONDRAY & CO
Facts:
-Winthrop Products, Inc., of New York shipped aboard the SS “Tai Ping”, owned and operated by Wilhelm
Wilhelmsen218 cartons and drums of drugs and medicine with Winthrop-Stearns Inc., Manila, Philippines
as consingee. BarberSteamship Lines, Inc., agent of Wilhelm Wilhelmsen issued Bill of Lading No. 34, in
the name of Winthrop Products.
-The shipment was insured by the shipper against loss and/or damage with the St. Paul Fire & Marine
InsuranceCompany.
-“Tai Ping” arrived at the Port of Manila.
-The said shipment was discharged complete and in good order with the exception of one (1) drum and
several cartonswhich were in bad condition.
-Because consignee failed to receive the whole shipment and as several cartons of medicine were received
in badorder condition, Winthrop-Sterns Philippines filed the corresponding claim in the amount of
Pl,109.67 representingthe C.I.F. value of the damaged drum and cartons of medicine with the carrier
and the arrestre.
-However, both refused to pay.
-Winthrop-Sterns Philippines filed its claim with the insurer, St. Paul Fire & Marine insurance.
-The insurance company, on the basis of such claim, paid to the consignee the insured value of the lost and
damagedgoods, including other expenses in connection therewith, in the total amount of $1,134.46.
-As subrogee of the rights of the shipper and/or consignee, the insurer, St. Paul Fire & Marine Insurance
Co., instituted with the Court of First Instance the present action against the defendants for the recovery of
said amount of $1,134.46, plus costs.
-The Lower court rendered judgment ordering defendants Macondray & Co., Inc., Barber Steamship Lines,
Inc. andWilhelm Wilhelmsen to pay to the plaintiff P300.00. It also held defendants Manila Railroad
Company and Manila PortService to pay to plaintiff, jointly and severally, the sum of P809.67.
-The Insurer, , contending that it should recover the amount of $1,134.46 or its equivalent in pesos (the rate
of P3.90,instead of P2.00, for every US$1.00), filed a motion for reconsideration, but this was denied.
-The Insurer argues that, as subrogee of the consignee, it should be entitled to recover from the defendants-
appelleesthe amount of $1,134.46 which it actually paid to the consignee and which represents the value of
the lost anddamaged shipment as well as other legitimate expenses such as the duties and cost of survey of
said shipment, andthat the exchange rate on the date of the judgment, which was P3.90 for every US$1.00.
-Defendants-appellees countered that:
o Their liability is limited to the C.I.F. value of the goods, pursuant to contract of sea carriage embodied in
the bill of lading that the consignee’s (Winthrop-Stearns Inc.) claim against the carrier (Macondray & Co.,
Inc.,Barber Steamship Lines, Inc., Wilhelm Wilhelmsen and the arrastre operators (Manila Port Service and
Manila Railroad Company) was only for the sum of Pl,109.67
ISSUE(S):
1.Whether or not, in case of loss or damage, the liability of the carrier to the consignee is limited to the
C.I.F value of the goods which were lost or damaged
2.Whether the insurer who has paid the claim in dollars to the consignee should be reimbursed in its peso
equivalent on the date of discharge of the cargo or on the date of the decision.
HELD:
The appeal is without merit and the judgement of the lower court is affirmed.
-The purpose of the bill of lading is to provide for the rights and liabilities of the parties in reference to the
contract tocarry.
Page 8 of 39
-The stipulation in the bill of lading limiting the common carrier’s liability to the value of the goods
appearing in thebill, unless the shipper or owner declares a greater value, is valid and binding.
-This limitation of the carrier’s liability is sanctioned by the freedom of the contracting parties to establish
suchstipulations, clauses, terms, or conditions as they may deem convenient, provided they are not contrary
to law,morals, good customs and public policy.
-A stipulation fixing or limiting the sum that may be recovered from the carrier on the loss or deterioration
of the goods is valid, provided it is:
(a) reasonable and just under the circumstances, and
(b) has been fairly and freely agreed upon.
-In the case at bar, the liabilities of the defendants- appellees with respect to the lost or damaged shipments
areexpressly limited to the C.I.F. value of the goods as per contract of sea carriage embodied in the bill of
lading, whichreads:
o Whenever the value of the goods is less than $500 per package or other freight unit, their value in the
calculation and adjustment of claims for which the Carrier may be liable shall for the purpose of avoiding
uncertainties and difficulties in fixing value be deemed to be the invoice value, plus freight and insurance
if paid, irrespective of whether any other value is greater or less.
NATIONAL UNION FIRE INSURANCE VS. STOLT NIELSEN
EMERGENCY RECIT: United Coconut Chemicals (SHIPPER) shipped distilled fatty acid on board MT
“StoltSceptre” (CARRIER). The shipment was insured under a marine cargo policy with National Union
Fire Insurance Co (INSURER). Upon receipt of the cargo by the consignee in Netherlands, it was totally
contaminated. Hence, claim was made on the INSURER of the cargo. The INSURER as subrogee filed a
claim for damages against the CARRIER with RTC Manila. The CARRIER invoked that arbitration must
be done pursuant to the Charter. The INSURER opposed, arguing that the provision on arbitration was not
included in the Bill of Lading. SC: The INSURER cannot avoid the binding effect of the arbitration
clause. By subrogation, it became privy to the Charter Party as fully as the SHIPPER before the latter was
indemnified, because as subrogee it stepped into the shoes of the SHIPPER and is subrogated merely to the
latter's rights.
FACTS:
 On 9 January 1985, United Coconut Chemicals, Inc. shipped 404.774 metric tons of distilled C6-
C18 fatty acid on board MT "Stolt Sceptre," a tanker owned by Stolt-Nielsen Philippines Inc.,
from Bauan, Batangas, Philippines, consigned to "Nieuwe Matex" at Rotterdam, Netherlands,
covered by Tanker Bill of Lading BL No. BAT-1.
 The shipment was insured under a marine cargo policy with Petitioner National Union Fire
Insurance Company of Pittsburg (hereinafter referred to as INSURER), a non-life American
insurance corporation, through its settling agent in the Philippines, the American International
Underwriters (Philippines), Inc., the other petitioner herein.
 Upon receipt of the cargo by the consignee in the Netherlands, it was found to be discoloured and
totally contaminated. Hence, a claim was made on the Insurer of the cargo. The insurer as
subrogee filed a claim for damages against the carrier with the RTC of Manila.
  The carrier filed a motion to dismiss on the ground that the case was arbritrable and pursuant to
the charter party as embodied in the bill of lading, arbitration must be done. The insurer opposed
the motion by arguing that the provision on arbitration was not included in the bill of lading and
even if it was included, it was nevertheless unjust and unreasonable.
 The RTC denied the motion but upon reconsideration, the resolution on the motion to dismiss was
suspended or deferred.
 The carrier then filed a petition for review on certiorari with preliminary injunction/TRO which
was granted by the CA.
ISSUE: Are the terms of the Charter Party, particularly the provision on arbitration, binding on the
INSURER?
HELD: Yes. The pertinent portion of the Bill of Lading in issue provides in part:
xxx [A]ll the terms whatsoever of the said Charter except the rate and payment of freight specified
therein apply to and govern the rights of the parties concerned in this shipment.xxx
The provision on arbitration in the Charter Party reads:
4. Arbitration. Any dispute arising from the making, performance or termination of this Charter
Party shall be settled in New York, Owner and Charterer each appointing an arbitrator, who shall
be a merchant, broker or individual experienced in the shipping business; the two thus chosen, if
they cannot agree, shall nominate a third arbitrator who shall be an admiralty lawyer. Such
arbitration shall be conducted in conformity with the provisions and procedure of the United States
arbitration act, and a judgment of the court shall be entered upon any award made by said
arbitrator. Nothing in this clause shall be deemed to waive Owner's right to lien on the cargo for
freight, deed of freight, or demurrage.
Clearly, the Bill of Lading incorporates by reference the terms of the Charter Party. It is settled law that the
charter may be made part of the contract under which the goods are carried by an appropriate reference in
the Bill of Lading. As the respondent Appellate Court found, the INSURER "cannot feign ignorance of the
arbitration clause since it was already charged with notice of the existence of the charter party due to an
appropriate reference thereof in the bill of lading and, by the exercise of ordinary diligence, it could have
easily obtained a copy thereof either from the shipper or the charterer.
We hold, therefore, that the INSURER cannot avoid the binding effect of the arbitration clause. By
subrogation, it became privy to the Charter Party as fully as the SHIPPER before the latter was
indemnified, because as subrogee it stepped into the shoes of the SHIPPER-ASSURED and is subrogated
merely to the latter's rights. It can recover only the amount that is recoverable by the assured. And since the
right of action of the SHIPPER-ASSURED is governed by the provisions of the Bill of Lading, which
includes by reference the terms of the Charter Party, necessarily, a suit by the INSURER is subject to the
same agreements. It has not been shown that the arbitral clause in question is null and void, inoperative, or
incapable of being performed. Nor has any conflict been pointed out between the Charter Party and the Bill
of Lading.
Page 9 of 39
CEBU SHIPYARD V WILLIAM LINES
Nature of Case: Petition for Review on Certiorari
Digest maker: Erika Potian
SUMMARY: William Lines insured its M/V Manila City under Prudential
Guarantee for hull and machinery. Policy contained clause providing that
loss/damage caused by negligence of charterers or repairers are excluded from
coverage. William Lines brought the vessel to Cebu Shipyard for annual dry-
docking and repair. The two executed contracts stipulating the liabilities of both
parties, including that the insurance on the vessel should be maintained by the
owner during period of the contract. After the vessel was transferred to the
docking quay, it caught fire and sank, resulting to its eventual total loss. Cebu
Shipyard claims that it is a co-assured under the Marine Hull Insurance Policy
by virtue of Clause 20, and therefore no subrogation can be made by
Prudential. SC held that it is not and the petition was denied.
DOCTRINE: Intention of parties to make each other co-assured is to be
gleaned from the insurance policy itself and not from any other contract
because the policy denominates the assured and the beneficiaries.
FACTS:
 Cebu Shipyard and Engineering Works, Inc. (CSEW) is engaged in the business of dry-docking
and repairing of marine vessels while the Prudential Guarantee and Assurance, Inc. (Prudential) is
in the non-life insurance business.
 William Lines, Inc. is in the shipping business. It was the owner of M/V Manila City, a luxury
passenger-cargo vessel, which caught fire and sank.
 At the time of the unfortunate occurrence sued upon, subject vessel was insured with Prudential
for P45M for hull and machinery. The Hull Policy included an “Additional Perils
(INCHMAREE)” Clause covering loss of or damage to the vessel through the negligence of,
among others, ship repairmen
 Petitioner CSEW was also insured by Prudential for third party liability under a Shiprepairer’s
Legal Liability Insurance Policy. The policy was for P10 million only, under the limited liability
clause
 On Feb. 5, 1991, William Lines, Inc. brought its vessel, M/V Manila City, to the Cebu Shipyard in
Lapulapu City for annual dry-docking and repair.
 On Feb. 6, 1991, an arrival conference was held between representatives of William Lines, Inc.
and CSEW to discuss the work to be undertaken on the M/V Manila City. The contracts,
denominated as Work Orders, were signed thereafter., with the following stipulations:
o 10. The Contractor shall replace at its own work and at its own cost any work or material
which can be shown to be defective and which is communicated in writing
o 20. The insurance on the vessel should be maintained by the customer and/or owner of
the vessel during the period the contract is in effect.
 o The total liability of the Contractor to the Customer or of any sub-contractor shall be
limited in respect of any defect or event to the sum of 1M.
 While the M/V Manila City was undergoing dry-docking and repairs within the premises of
CSEW, the master, officers and crew of M/V Manila City stayed in the vessel, using their cabins as
living quarters. Other employees hired by William Lines to do repairs and maintenance work on
the vessel were also present during the dry-docking.
 On February 16, 1991, after subject vessel was transferred to the docking quay, it caught fire and
sank, resulting to its eventual total loss
 On February 21, 1991, William Lines, Inc. filed a complaint for damages against CSEW, alleging
that the fire which broke out in M/V Manila City was caused by CSEWs negligence and lack of
care.
 Prudential was impleaded as co-plaintiff, after it paid William Lines, Inc. the value of the hull and
machinery insurance on the M/V Manila City. As a result of such payment Prudential was
subrogated to the claim of P45 million, representing the value of the said insurance it paid.
 Trial Court: CSEW to pay William Lines and Prudential (45M)
 CA: Affirmed TC. Ordered the partial dismissal of the case insofar as CSEW and William Lines
were concerned.
 CSEW claims that the insurance policy does not cover loss resulting from the fault of negligent
charterers that are assured in the same policy and by virtue of clause 20, it is deemed a co-assured.
ISSUE/S & RATIO:
1. WON CSEW is co-assured, thus losses caused by it are not covered by the policy- NO
a. The fact that clause 20 benefited petitioner, does not automatically make it a co-assured
of William Lines.
b. Intention of parties to make each other co-assured is to be gleaned from the insurance
policy itself and not from any other contract because the policy denominates the assured
and the beneficiaries.
c. Prudential named only William Lines, Inc. as the assured. There was no manifestation of
any intention of William Lines Inc to make CSEW a co-assured. When the terms of a
contract are clear, its stipulations control.
d. If CSEW were deemed co-assured, it would nullify any claim of William Lines Inc. No
shipowner would agree to make shiprepairer a co-assured because any claim it has under
the policy would be invalidated. Such result could not have been intended by William
Lines Inc.
2. WON CSEW had “management and supervisory control“ of the ship at the time the fire broke out-
YES
a. The factual findings by the CA are conclusive on the parties and are not reviewable by
this Court.
Page 10 of 39
3. WON the doctrine of res ipsa loquitur applies against the crew- YES
a. For the doctrine of res ipsa loquitur to apply to a given situation, the following conditions
must concur: (1) the accident was of a kind which does not ordinarily occur unless
someone is negligent; and (2) that the instrumentality or agency which caused the injury
was under the exclusive control of the person charged with negligence.
b. The facts and evidence reveal the presence of these conditions. First, the fire would not
have happened in the ordinary course of things if reasonable care and diligence had been
exercised.
4. WON the provisions limiting CSEW’s liability for negligence to a maximum of Php 1 million are
valid- NO
a. Although contracts of adhesion have been consistently upheld as valid, reliance on such
contracts cannot be favored especially where the facts and circumstances warrant that
subject stipulations be disregarded. Tthe facts and circumstances vis-a-vis the nature of
the provision sought to be enforced should be considered, bearing in mind the principles
of equity and fair play.
RULING: Petition denied.
MANILA MAHOGANY V CA
FACTS:
Petitioner insured its Mercedes Benz 4-door sedan with respondent insurance company . The insured
vehicle was bumped and damaged by a truck owned by San Miguel Corporation (SMC). For the damage
caused, respondent company paid petitioner ₱ 5,000.00 in amicable settlement. Petitioner’s general
manager executed a Release of Claim, subrogating respondent company to all its right to action against San
Miguel Corp. Respondent company wrote the Insurer Adjusters, Inc. to demand reimbursements from San
Miguel Corporation of the amount it had paid petitioner. Insurer Adjusters, Inc. refused reimbursement
alleging that SMC had already paid petitioner ₱ 4,500.00 for the damages to petitioner’s motor vehicle, as
evidenced by a cash voucher and Release of Claim executed by the General Manager of petitioner
discharging SMC from “ all actions, claims, demands the right of action that now exist or hereafter develop
arising out of or as a consequence of the accident.
Respondent demanded the ₱ 4,500.00 amount from petitioner. Petitioner refused. Suit was filed for
recovery. City Court ordered petitioner to pay respondent. CFI affirmed. CA affirmed with modification
that petitioner was to pay respondent the total amount of ₱ 5,000.00 it had received from respondent.
Petitioner’s argument: Since the total damages were valued at P9,486.43 and only ₱ 5,000.00 was received
by petitioner from respondent, petitioner argues that it was entitled to go after SMC to claim the additional
which was eventually paid to it.
Respondent’s argument: No qualification to its right of subrogation.
ISSUE:
Whether or not the insured should pay the insurer despite that the subrogation in the Release of Claim was
conditioned on recovery of the total amount of damages that the insured has sustained.
RULING:
NO. Supreme Court said there being no other evidence to support its allegation that a gentleman’s
agreement existed between the parties, not embodied in the Release of Claim, such Release of Claim must
be taken as the best evidence of the intent and purpose of the parties. CA was correct in holding petitioner
should reimburse respondent ₱ 5,000.00.
When Manila Mahogany executed another release claim discharging SMC from all rights of action after the
insurer had paid the proceeds of the policy – the compromise agreement of ₱ 5,000.00– the insurer is
entitled to recover from the insured the amount of insurance money paid. Petitioner by its own acts released
SMC, thereby defeating respondent’s right of subrogation, the right of action against the insurer was also
nullified.
Since the insurer can be subrogated to only such rights as the insured may have, should the insured, after
receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer losses his rights
against the latter. But in such a case, the insurer will be entitled to recover from the insured whatever it has
paid to the latter, unless the release was made with the consent of the insurer.
FF CRUZ AND CO vs. CA
Facts:
A fire broke up from the furniture shop of the petitioner in Caloocan city early September 6, 1974. Prior to
that, neighbor of the said shop requested that the petitioner should build a firewall but failed to do so. The
cause of the fire was never discovered. Private respondent got P35k from the insurance on their house and
contents thereof.
Issue:
Whether or not the 35k be deducted from the damages thereof
Ruling:
Since P35k had already been claimed by the respondents, the court held that such amount should be
deducted from the award of damages in accordance with Art 2207 NCC
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
Having been indemnified by their insurer, private respondents are entitled only to recover the deficiency
from the petitioner.
Page 11 of 39
Whether or not the insurer should exercise the rights of the insured to which it had been subrogated lies
solely within the former’s sound discretion. Since the insurer is not a party to the case, its identity is not of
record and no claim is made on its behalf, the private respondent’s insurer has to claim his right to
reimbursement of the P35,000.00 paid to the insured.
WEEK 3
Dela Cruz vs. Capital Insurance & Surety Co.
FACTS: 1.
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.
2. On January 1, 1957, the Itogon-Suyoc Mines, Inc. sponsored a boxing contest for general entertainment.
3. Insured Eduardo de la Cruz, a non-professional boxer participated.
4.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.
5. He was brought to the Baguio General Hospital the following day. The cause of death was reported as
hemorrhage, intracranial, left.
6. Simon de la Cruz, the father of the insured and who was named beneficiary under the policy, filed a
claim with the insurance company for payment of the indemnity under the insurance policy.
7. As the claim was denied, De la Cruz instituted the action in the Court of First Instance of Pangasinan for
specific performance.
8. 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.
9. After due hearing the court rendered the decision in favor of the plaintiff which is the subject of the
present appeal.
10. Eduardo was insured "against death or disability caused by accidental means".
11. 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.
12. It is claimed that the participation in the boxing contest was the "means" that produced the injury
which, in turn, caused the 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".
ISSUE: 1. WON the death of Eduardo de la Cruz is covered by accident insurance policy.
HELD: 1.Yes. 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.
RATIO: 1. 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.
2. 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. 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.
DOCTRINE
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.
Sun v CA G.R. No. 92383 July 17, 1992
J. Cruz
Facts:
Lim accidentally killed himself with his gun after removing the magazine, showing off, pointing the gun at
his secretary, and pointing the gun at his temple. The widow, the beneficiary, sued the petitioner and won
200,000 as indemnity with additional amounts for other damages and attorney’s fees. This was sustained in
the Court of Appeals then sent to the Supreme court by the insurance company.
Issue:
1. Was Lim’s widow eligible to receive the benefits?
2. Were the other damages valid?
Held:
1. Yes 2. No
Ratio: 1. There was an accident.
De la Cruz v. Capital Insurance says that "there is no accident when a deliberate act is performed unless
some additional, unexpected, independent and unforeseen happening occurs which produces or brings
about their injury or death." This was true when he fired the gun.
Under the insurance contract, the company wasn’t liable for bodily injury caused by attempted suicide or
by one needlessly exposing himself to danger except to save another’s life.
Lim wasn’t thought to needlessly expose himself to danger due to the witness testimony that he took steps
to ensure that the gun wasn’t loaded. He even assured his secretary that the gun was loaded.
There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed
upon if the insured is shown to have contributed to his own accident.
2. “In order that a person may be made liable to the payment of moral damages, the law requires that his act
be wrongful. The adverse result of an action does not per se make the act wrongful and subject the act or to
the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate;
such right is so precious that moral damages may not be charged on those who may exercise it erroneously.
For these the law taxes costs.”
If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is not the fact of
winning alone that entitles him to recover such damages of the exceptional circumstances enumerated in
Art. 2208. Otherwise, every time a defendant wins, automatically the plaintiff must pay attorney's fees
thereby putting a premium on the right to litigate which should not be so. For those expenses, the law
deems the award of costs as sufficient.”
Page 12 of 39
Ty v. Filipinas Compañia de Seguros - Insurance Policy
17 SCRA 364
Facts:
> Ty was employed as a mechanic operator by Braodway Cotton Factory at Grace Park, Caloocan.
> In 1953, he took personal accident policies from 7 insurance companies (6 defendants), on different
dates, effective for 12 mos.
> On Dec. 24. 1953, a fire broke out in the factory were Ty was working. A hevy object fell on his hand
when he was trying to put out the fire.
> From Dec. 1953 to Feb. 6, 1954 Ty received treatment at the Nat’l Orthopedic Hospital for six listed
injuries. The attending surgeon certified that these injuries would cause the temporary total disability of
Ty’s left hand.
> Insurance companies refused to pay Ty’s claim for compensation under the policies by reason of said
disability of his left hand. Ty filed a complaint in the municipal court who decided in his favor.
> CFI reversed on the ground that under the uniform terms of the policies, partial disability due to loss of
either hand of the insured, to be compensable must be the result of amputation.
Issue:
Whether or not Ty should be indemnified under his accident policies.
Held.
NO.
SC already ruled in the case of Ty v. FNSI that were the insurance policies define partial disability as loss
of either hand by amputation through the bones of the wrist, the insured cannot recover under said policies
for temporary disability of his left hand caused by the fractures of some fingers. The provision is clear
enough to inform the party entering into that contract that the loss to be considered a disability entitled to
indemnity, must be severance or amputation of the affected member of the body of the insured.
Calanoc v. CAG.R. No. L-8151 December 16, 1955J.
Bautista Angelo
Doctrine: In case of ambiguity in an insurance contract covering accidental death, the Supreme Court held
that such terms shall be construed strictly against the insurer and liberally in favor of the insured in order to
effect the purpose of indemnity.
Facts: Melencio Basilio, a watchman of the Manila Auto Supply, secured a life insurance policy from the
Philippine American Insurance Company in the amount of P2,000 to which was attached a supplemental
contract covering death by accident. He later died from a gunshot wound on the occasion of a robbery
committed; subsequently, his widow was paid P2,000 representing the face value of the policy. The widow
demanded the payment of the additional sum of P2,000 representing the value of the supplemental policy
which the company refused because the deceased died by murder during the robbery and while making an
arrest as an officer of the law which were expressly excluded in the contract. The company’s contention
which was upheld by the Court of Appeals provides that
The circumstances surrounding Basilio’s death was caused by one of the risks excluded by the
supplementary contract which exempts the company from liability.
Issue: Is the Philippine American Life Insurance Co. liable to the petitioner for the amount covered by the
supplemental contract?
Held: Yes.
The circumstances of Basilio’s death cannot be taken as purely intentional on the part of Basilio to expose
himself to the danger. There is no proof that his death was the result of intentional killing because there is
the possibility that the malefactor had fired the shot merely to scare away the
people around. In this case, the company’s defense points out that Basilio’s is included among the risks
excluded in the supplementary contract; however, the terms and phraseology of the exception clause should
be clearly expressed within the understanding of the insured. Art. 1377 of the New Civil Code provides that
in case ambiguity, uncertainty or obscurity in the interpretation of the terms of the contract, it shall be
construed against the party who caused such obscurity. Applying this to the situation, the ambiguous or
obscure terms in the insurance policy are to be construed strictly against the insurer and liberally in favor of
the insured party. The reason is to ensure the protection of the insured since these insurance contracts are
usually arranged and employed by experts and legal advisers acting exclusively in the interest of the
insurance company. As long as insurance companies insist upon the use of ambiguous, intricate and
technical provisions, which conceal their own intentions, the courts must, in fairness to those who purchase
insurance, construe every ambiguity in favor of the insured.
Biagtan vs. The Insular Life Assurance Company, Ltd. (winner) 44 SCRA 58
Facts:
Juan S. Biagtan was insured with defendant Insular Life Assurance Company under Policy No. 398075 for
the sum of P5,000.00 and, under a supplementary contract denominated "Accidental Death Benefit Clause,
for an additional sum of P5,000.00 if "the death of the Insured resulted directly from bodily injury effected
solely through external and violent means sustained in an accident . . . and independently of all other
causes." The clause, however, expressly provided that it would not apply where death resulted from an
injury "intentionally inflicted by a third party."library
On the night of May 20, 1964 or during the first hours of the following day a band of robbers entered the
house of the insured Juan S. Biagtan.
Issue:
Whether the wounds received by the insured at the hands of the robbers were inflicted intentionally.
Held:
Yes. But where a gang of robbers enter a house and coming face to face with the owner, even if
unexpectedly, stab him repeatedly, it is contrary to all reason and logic to say that his injuries are not
intentionally inflicted, regardless of whether they prove fatal or not. As it was, in the present case they did
prove fatal, and the robbers have been accused and convicted of the crime of robbery with homicide. Under
the circumstance, the insurance company was correct in refusing to pay the additional sum of P2,000.00
under the accidental death benefit clause which expressly provided that it would not apply where death
resulted from an injury "intentionally" inflicted by a third party.
FINMAN GENERAL ASSURANCE CORPORATION v. CA, GR No. 100970, 1992-09-02
Facts:
October 22, 1986, deceased Carlie Surposa was insured with petitioner Finman General Assurance
Corporation under Finman General Teachers Protection Plan Master Policy No. 2005 and Individual Policy
No. 08924 with his parents, spouses
Julia and Carlos Surposa and brothers Christopher, Charles, Chester and Clifton, all surnamed Surposa, as
beneficiaries.
Page 13 of 39
While said insurance policy was in full force and effect, the insured Carlie Surposa, died on October 18,
1988 as a result of a stab wound inflicted by one of the three (3) unidentified men without provocation and
warning on the part of the former as... he and his cousin, Winston Surposa, were waiting for a ride on their
way home along Rizal-Locsin Streets, Bacolod City after attending the celebration of the "Maskarra Annual
Festival."... private respondent and the other beneficiaries of said insurance policy filed a written notice of
claim with the petitioner insurance company which denied said claim contending that murder and assault
are not within the scope of the coverage of the insurance... policy.
Insurance Commission ruled in favor of insured/beneficiaries
On February 24, 1989, private respondent filed a complaint with the Insurance Commission
"In the light of the foregoing, we find respondent liable to pay complainant the sum of P15,000.00
representing the proceeds of the policy with interest. As no evidence was submitted to prove the claim for
mortuary aid in the sum of P1,000.00, the same... cannot be entertained.
On July 11, 1991, the appellate court affirmed said decision.
petitioner filed this petition alleging grave abuse of discretion on the part of the appellate court in applying
the principle of "expresso unius exclusion alterius" in a personal accident insurance policy... since death
resulting from murder and/or assault are impliedly excluded in said insurance policy considering that the
cause of death of the insured was not accidental but rather a deliberate and intentional act of the assailant in
killing the former as indicated by the location... of the lone stab wound on the insured.
Therefore, said death was committed with deliberate intent which, by the very nature of a personal accident
insurance policy, cannot be indemnified.
Issues:
WON the death of the insured was committed...... with deliberate intent which, by the very nature of a
personal accident insurance policy, cannot be indemnified
Ruling:
We do not agree.
In the case at bar, it cannot, be pretended that Carlie Surposa died in the course of an assault or murder as a
result of his voluntary act considering the very nature of these crimes.
the personal accident insurance policy, involved herein specifically enumerated only ten (10) circumstances
wherein no liability attaches to petitioner insurance company for any injury, disability or loss suffered by
the insured as a result of any of the... stipulated causes. The principle of "expresso unius exclusio alterius"
-- the mention of one thing implies the exclusion of another thing -- is therefore applicable in the instant
case since murder and assault, not having been expressly included in the enumeration of the...
circumstances that would negate liability in said insurance policy cannot be considered by implication to
discharge the petitioner insurance company from liability for any injury, disability Or loss suffered by the
insured.
Thus, the failure of the petitioner insurance company... to include death resulting from murder or assault
among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself
from liability for such death.
Principles:
The terms 'accident' and 'accidental', as used in insurance contracts have not acquired any technical
meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have
been taken to mean that which happen by chance or... fortuitously, without intention and design, and which
is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or
expectation -- an event that proceeds from an unknown cause, or is an unusual effect of a known cause and,
therefore,... not expected."
The generally accepted rule is that, death or injury does not result from accident or accidental means within
the terms of an accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by
anything unforeseen except the death or... injury.
Qua Chee Gan v. Law Union Rock - Breach of Warranty
98 PHIL 85
Facts:
> Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for the storage or copra and
hemp in which the appelle deals with exclusively.
> The warehouses together with the contents were insured with Law Union since 1937 and the loss made
payable to PNB as mortgagee of the hemp and copra.
> A fire of undetermined cause broke out in July 21, 1940 and lasted for almost 1 whole week.
> Bodegas 1, 3, and 4 including the merchandise stored were destroyed completely.
> Insured then informed insurer of the unfortunate event and submitted the corresponding fire claims,
which were later reduced to P370T.
> Insurer refused to pay claiming violations of the warranties and conditions, filing of fraudulent claims
and that the fire had been deliberately caused by the insured.
> Insured filed an action before CFI which rendered a decision in favor of the insured.
Issues and Resolutions:
(1) Whether or not the policies should be avoided for the reason that there was a breach of warranty.
Under the Memorandum of Warranty, there should be no less than 1 hydrant for each 150 feet of external
wall measurements of the compound, and since bodegas insured had an external wall per meter of 1640
feet, the insured should have 11 hydrants in the compound. But he only had 2.
Even so, the insurer is barred by estoppel to claim violation of the fire hydrants warranty, because knowing
that the number of hydrants it demanded never existed from the very beginning, appellant nevertheless
issued the policies subject to such warranty and received the corresponding premiums. The insurance
company was aware, even before the policies were issued, that in the premises there were only 2 hydrants
and 2 others were owned by the Municipality, contrary to the requirements of the warranties in question.
It should be close to conniving at fraud upon the insured to allow the insurer to claim now as void the
policies it issued to the insured, without warning him of the fatal defect, of which the insurer was informed,
and after it had misled the insured into believing that the policies were effective.
Accdg to American Jurisprudence: It is a well-settled rule that the insurer at the time of the issuance of a
policy has the 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 known facts,
and the insurer is stopped thereafter from asserting the breach of such conditions. The reason for the rule
is: To allow a company to accept one’s money for a policy of insurance which it knows to be void and of no
effect, though it knows as it must that the insured believes it to be valid and binding is so contrary to the
dictates of honesty and fair dealing, as so closely related to positive fraud, as to be abhorrent to fair-minded
men. It would be to allow the company to treat the policy as valid long enough to get the premium on it,
and leave it at liberty to repudiate it the next moment.
Page 14 of 39
Moreover, taking into account the well-known rule that ambiguities or obscurities must strictly be
interpreted against the party that cause them, the memorandum of warranty invoked by the insurer bars the
latter from questioning the existence of the appliances called for, since its initial expression “the undernoted
appliances for the extinction of fire being kept on the premises insured hereby..” admits of the interpretation
as an admission of the existence of such appliances which insurer cannot now contradict, should the parole
evidence apply.
(2) Whether or not the insured violated the hemp warranty provision against the storage of gasoline since
insured admitted there were 36 cans of gasoline in Bodega 2 which was a separate structure and 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 clause relied upon by the insurer speaks of “oils”. Ordinarily, oils mean
lubricants and not gasoline or kerosene. Here again, by reason of the exclusive control of the insurance
company over the terms of the contract, the ambiguity must be held strictly against the insurer and liberally
in favor of the insured, specially to avoid a forfeiture.
Furthermore, the gasoline kept was only incidental to the insured’s business. It is a well settled rule that
keeping of inflammable oils in the premises though prohibited by the policy does NOT void it if such
keeping is incidental to the business. Also, the hemp warranty forbade the storage only in the building to
which the insurance applies, and/or in any building communicating therewith; and it is undisputed that no
gasoline was stored in the burnt bodegas and that Bodega No. 2 which was where the gasoline was found
stood isolated from the other bodegas.
Del Rosario v. Equitable Insurance - Life Insurance Policy
118 PHIL 349
Facts:
> Equitable Insurance issued a life Insurance policy to del Rosario binding itself to pay P1,000 to P3,000
as indemnity.
> Del Rosario died in a boating accident. The heirs filed a claim and Equitable paid them P1,000.
> The heir filed a complaint for recovery of the balance of P2,000, claiming that the insurere should pay
him P3,000 as stated in the policy.
Issue:
Whether or not the heir is entitled to recover P3,000.
Held:
YES.
Generally accepted principles or ruling on insurance, enunciate that where there is an ambiguity with
respect to the terms and conditions of the policy, the same shall be resolved against the one responsible
thereof. The insured has little, if any, participation in the preparation of the policy. The interpretation of
obscure stipulations in a contract should not favor the party who cause the obscurity.
Insurance Case Digest: Del Rosario v. Equitable Ins. and Casualty Co., Inc. (1963)
G.R. No. L-16215 June 29, 1963
Lessons Applicable: Ambiguous Provisions Interpreted Against Insurer (Insurance)
FACTS:
April 13, 1957: Simeon del Rosario, father of the insured who died from drowning filed a claim for
payment with Equitable Ins. and Casualty Co., Inc. but it refused to pay more than P1,000 php so a case
was filed with the RTC for the P2,000 balance stating that under the policy they are entitled to P1,000 to
P3,000 as indemnity
RTC: entitled to recover P3,000 - policy does not positively state any definite amount, there is an ambiguity
in this respect in the policy, which ambiguity must be interpreted in favor of the insured and strictly against
the insurer so as to allow greater indemnity
ISSUE: W/N Simeon is entitled to recover P3,000
HELD: YES.
terms in an insurance policy, which are ambiguous, equivocal or uncertain are to be construed strictly
against, the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity
or payment to the insured, especially where a forfeiture is involved
reason for this rule is that the "insured usually has no voice in the selection or arrangement of the words
employed and that the language of the contract is selected with great care and deliberation by expert and
legal advisers employed by, and acting exclusively in the interest of, the insurance company
Verendia v. CA - Insurance Policy
217 SCRA 1993
Facts:
> Fidelity and Surety Insurance Company (Fidelity) issued Fire Insurance Policy No. F-18876 effective
between June 23, 1980 and June 23, 1981 covering Rafael (Rex) Verendia's residential in the amount of
P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank.
> Verendia also insured the same building with two other companies, namely, The Country Bankers
Insurance for P56,000.00 and The Development Insurance for P400,000.00.
> While the three fire insurance policies were in force, the insured property was completely destroyed by
fire.
> Fidelity appraised the damage amounting to 385,000 when it was accordingly informed of the loss.
Despite demands, Fidelity refused payment under its policy, thus prompting Verendia to file a complaint for
the recovery of 385,000
> Fidelity, averred that the policy was avoided by reason of over-insurance, that Verendia maliciously
represented that the building at the time of the fire was leased under a contract executed on June 25, 1980
to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.
Issue:
Whether or not Verendia can claim on the insurance despite the misrepresentation as to the lessee and the
overinsurance.
Held:
NOPE.
The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered
into between him and one Robert Garcia, a couple of days after the effectivity of the insurance policy.
When the rented residential building was razed to the ground, it appears that Robert Garcia was still within
the premises. However, according to the investigation by the police, the building appeared to have "no
occupants" and that Mr. Roberto Garcia was "renting on the otherside of said compound" These pieces of
evidence belie Verendia's uncorroborated testimony that Marcelo Garcia whom he considered as the real
lessee, was occupying the building when it was burned.
Page 15 of 39
Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract
but it was Marcelo Garcia cousin of Robert, who had also been paying the rentals all the while. Verendia,
however, failed to explain why Marcelo had to sign his cousin's name when he in fact he was paying for the
rent and why he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven
facts appear, therefore, to have sufficient bases: Verendia concocted the lease contract to deflect
responsibility for the fire towards an alleged "lessee", inflated the value of the property by the alleged
monthly rental of P6,500) when in fact, the Provincial Assessor of Rizal had assessed the property's fair
market value to be only P40,300.00, insured the same property with two other insurance companies for a
total coverage of around P900,000, and created a dead-end for the adjuster by the disappearance of Robert
Garcia.
Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and
conditions constitute the measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right to recovery from the. As it is also a contract of adhesion, an insurance
contract should be liberally construed in favor of the insured and strictly against the insurer company which
usually prepares it.
Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract
to support his claim under Fire Insurance Policy, the terms of the policy should be strictly construed against
the insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is
expressed in terms that are clear and unambiguous, that all benefits under the policy shall be forfeited "if
the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if
any fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit
under the policy". Verendia, having presented a false declaration to support his claim for benefits in the
form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in
the absence of proof that Fidelity waived such provision
There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity
bound itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of
P142,685.77. While the said receipt appears to have been a filled-up form of Fidelity, no representative of
Fidelity had signed it. It is even incomplete as the blank spaces for a witness and his address are not filled
up. More significantly, the same receipt states that Verendia had received the aforesaid amount. However,
that Verendia had not received the amount stated therein, is proven by the fact that Verendia himself filed
the complaint for the full amount of P385,000.00 stated in the policy. It might be that there had been efforts
to settle Verendia's claims, but surely, the subrogation receipt by itself does not prove that a settlement had
been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation receipt in evidence
as indicative of its accession to its "terms" is not only wanting in rational basis but would be substituting
the will of the Court for that of the parties
Fortune Insurance And Surety Co., Inc. V. CA
Lessons Applicable: Stipulations Cannot Be Segregated (Insurance)
FACTS:
  Producers Bank of the Philippines insured with Fortune Insurance and Surety Co. P725,000 which
Misamis Lumber Corp. V. Capital Ins. And Surety Co.,
was lost during a robbery of Producer's armored vehicle while it was in transit from Pasay City City to
its Makati head office.
Lessons Applicable: Judicial Construction Cannot Alter Terms (Insurance)
 The armored car was driven by Benjamin Magalong Y de Vera, escorted by Security Guard
Saturnino Atiga Y Rosete.
FACTS:
 After an investigation conducted by the Pasay police authorities, the driver Magalong and guard
 Misamis Lumber Corporation (Misamis), formerly Lanao Timber Mills, Inc., insured its Ford
Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with
Falcon motor car with Capital Insurance & Surety Company (Capital)
violation of P.D. 532 (Anti-Highway Robbery Law)
 November 25, 1961 11 pm: The car broke when it hit a hollow block lying alongside the water
 Upon claiming, Fortune refused stating that it is not liable since under the general exceptions of
hole which the driver did not see because the on-coming car did not dim its light
the policy:
 The car was towed and repaired by Morosi Motors costing P302.27
 any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer,
 November 29, 1961: After the repairs were made, Misamis made a report to Capital who only
employee, partner, director, trustee or authorized representative of the Insured whether acting alone or
admits liability of P150
in conjunction with others. . . .
 CFI: paragraph 4 of the policy is clear and specific and leaves no room for interpretation that the
 RTC: favored Producers Bank since Driver and Security Guard were merely assigned
repair liability is limited to P150
 CA: Affirmed RTC
ISSUE: W/N Misamis is entitled to an amount exceeding P150
ISSUE: W/N the driver and security guard are employees under the general exception

HELD: NO.
HELD: YES. Petition is granted.
 insurance contract may be rather onerous (one-sided) but that in itself does not justify the
 It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt
abrogation of its express terms, terms which the insured accepted or adhered to and which is the law
from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons
between the contracting parties
granted or having unrestricted access to Producers' money or payroll. When it used then the term
Misamis Lumber vs. Capital Insurance, G.R. L-21380, May 20, 1966
"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
Facts:
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
The vehicle owned by the petitioner was covered by an insurance policy issued by the respondent. In such
employees of the party employing them and not of the party who supplied them to the employer
policy it contained instructions and details on how to proceed with the claim for repairs.
 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
When the time came for the vehicle to be repaired, the petitioner took it upon himself to have the vehicle
would carry the money; and Atiga to provide the needed security for the money, the vehicle, and his
repaired without the authority from the insurer, in the policy if such an event is to occur, and a repair was
two other companions.
done without the authority of the insurer, its liability is limited only to 150 pesos. The repair bill exceeded
 A "representative" is defined as one who represents or stands in the place of another; one who
such amount.
represents others or another in a special capacity, as an agent, and is interchangeable with "agent."
Page 16 of 39
 Hence this petition by White Gold.

Upon filing of claim the insurer refused payment in excess of 150 pesos. Issues:

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

Held: Yes. Petition granted.

1.) Can the respondent be made to reimburse the petitioner for the actual cost of repairs which exceed the
repair limit amount? Ratio:

Ruling:
The lower court’s recourse to legal hermeneutics is not called for because paragraph 4 of the policy is clear
and specific and leaves no room for interpretation. The interpretation is even unjustified because it opposes
what was specifically stipulated. Thus it will be observed that the policy drew out not only the limits of the
insurer’s liability but also the mechanics that the insured had to follow to be entitled to full indemnity for
repairs. The option to undertake repairs is accorded to the insurance company per paragraph 2. The said
company was deprived of the option because the insured took it upon itself to have the repairs made, and
only notified the insurer when the repairs are done. As a consequence, paragraph 4, which limits the
company’s liability to P150.00 appliesWEEK 4
White Gold v Pioneer G.R. No. 154514. July 28, 2005
Facts:
White Gold procured a protection and indemnity coverage for its vessels from The Steamship Mutual
through Pioneer Insurance and Surety Corporation. White Gold was issued a Certificate of Entry
and Acceptance. Pioneer also issued receipts. When White Gold failed to fully pay its accounts, Steamship
Mutual refused to renew the coverage.
White Gold insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress
its assertion, it cites the definition as “an association composed of shipowners in general who band together
for the specific purpose of providing insurance cover on a mutual basis against liabilities incidental to
shipowning that the members incur in favor of third parties.”
They argued that Steamship Mutual’s primary purpose is to solicit and provide protection and indemnity
coverage and for this purpose, it has engaged the services of Pioneer to act as its agent.
Respondents contended that although Steamship Mutual is a P & I Club, it is not engaged in the insurance
business in the Philippines. It is merely an association of vessel owners who have come together to provide
mutual protection against liabilities incidental to shipowning.
Is Steamship Mutual engaged in the insurance business?
A P & I Club is “a form of insurance against third party liability, where the third party is anyone other than
the P & I Club and the members.” By definition then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate
of authority mandated by Section 187 of the Insurance Code. It maintains a resident agent in the
Philippines to solicit insurance and to collect payments in its behalf. Steamship Mutual even renewed its P
& I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue doing business
here, Steamship Mutual or through its agent Pioneer, must secure a license from the Insurance Commission.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer
unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission or insurance company is allowed to engage in the insurance business without a license or a certificate of
claiming that Steamship Mutual and Pioneer violated provisions of the Insurance Code. authority from the Insurance Commission.

The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual 2. Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration issued by
to secure a license because it was not engaged in the insurance business and that it was a P & I club. the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the
Pioneer was not required to obtain another license as insurance agent because Steamship Mutual was not certificate of authority issued by the same agency. However, a Certification from the Commission states
engaged in the insurance business. that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual.

The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
the appellate court distinguished between P & I Clubs vis-à-vis conventional insurance. The appellate court insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
also held that Pioneer merely acted as a collection agent of Steamship Mutual.
Page 17 of 39
SEC. 299 No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any commission
or other compensation from any insurance company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the Commissioner…
Philam v Arnaldo G.R. No. 76452 July 26, 1994
Facts:
One Ramon Paterno complained about the unfair practices committed by the company against its agents,
employees and consumers. The Commissioner called for a hearing where Paterno was required to specify
which acts were illegal. Paterno then specified that the fees and charges stated in the Contract of Agency
between Philam and its agents be declared void. Philam, on the other hand, averred that there Paterno must
submit a verified formal complaint and that his letter didn’t contain information Philam was seeking from
him. Philam then questioned the Insurance Commission’s jurisdiction over the matter and submitted a
motion to quash. The commissioner denied this. Hence this petition.
Issue: Whether or not the resolution of the legality of the Contract of Agency falls within the jurisdiction of
the Insurance Commissioner.
Held: No. Petition granted.
Ratio:
According to the Insurance code, the Insurance Commissioner was authorized to suspend, directors,
officers, and agents of insurance companies. In general, he was tasked to regulate the insurance business,
which includes:
(2) The term "doing an insurance business" or "transacting an insurance business," within the
meaning of this Code, shall include
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business,
including a reinsurance business, specifically recognized as constituting the doing of an insurance business
within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any
of the foregoing in a manner designed to evade the provisions of this Code. (Insurance Code, Sec. 2[2])
The contract of agency between Philamlife and its agents wasn’t included with the Commissoner’s power
to regulate the business. Hence, the Insurance commissioner wasn’t vested with jurisidiction under the rule
“expresio unius est exclusionalterius”.
The respondent contended that the commissioner had the quasi-judicial power to adjudicate under Section
416 of the Code. It stated:
The Commissioner shall have the power to adjudicate claims and complaints involving any loss, damage or
liability for which an insurer may be answerable under any kind of policy or contract of insurance, or for
Page 18 of 39
which such insurer may be liable under a contract of suretyship, or for which a reinsurer may be used under
any contract or reinsurance it may have entered into, or for which a mutual benefit association may be held
liable under the membership certificates it has issued to its members, where the amount of any such loss,
damage or liability, excluding interest, costs and attorney's fees, being claimed or sued upon any kind of
insurance, bond, reinsurance contract, or membership certificate does not exceed in any single claim
one hundred thousand pesos.
This was, however, regarding complaints filed by the insured against the Insurance company.
Also, the insurance code only discusses the licensing requirements for agents and brokers. The Insurance
Code does not have provisions governing the relations between insurance companies and their agents.
Investment Planning Corporation of the Philippines v. Social Security Commission- “that an insurance
company may have two classes of agents who sell its insurance policies: (1) salaried employees who keep
definite hours and work under the control and supervision of the company; and (2) registered
representatives, who work on commission basis.”
The agents under the 2nd sentence are governed by the Civil Code laws on agency. This means that the
regular courts have jurisdiction over this category.
FILIPINAS COMPANIA DE SEGUROS vs. CHRISTERN HUENEFELD and CO., INC. 89 Phil 54
FACTS:
On October 1, 1941, the respondent corporation, Christern Huenefeld and Co., Inc., after payment of
corresponding premium, obtained from the petitioner, Filipinas Cia de Seguros fire policy covering
merchandise contained in a building located at Binondo, Manila. On February 27, 1942 or during the
Japanese military occupation, the building and insured merchandise were burned. In due time, the
respondent submitted to the petitioner its claim under the policy. The petitioner refused to pay the claim on
the ground that the policy in favor of the respondent that ceased to be a force on the date the United States
declared war against Germany, the respondent corporation (through organized under and by virtue of the
laws of Philippines) being controlled by German subjects and the petitioner being a company under
American jurisdiction when said policy was issued on October 1, 1941. The theory of the petitioner is that
the insured merchandise was burned after the policy issued in 1941 had ceased to be effective because the
outbreak of the war between United States and Germany on December 10, 1941, and that the payment
made by the petitioner to the respondent corporation during the Japanese military occupation was under
pressure.
ISSUE:
Whether or not the respondent corporation is a corporation of public enemy.
RULING:
Since the majority of stockholders of the respondent corporation were German subjects, the respondent
became an enemy of the state upon the outbreak of the war between US and Germany. The English and
American cases relied upon by the Court of Appeals lost in force upon the latest decision of the Supreme
Court of US in which the control test has adopted.
Since World War I, the determination of enemy nationality of corporations has been discussed in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled by
enemies, namely managed under the influence of individuals or corporations themselves considered as
enemies…
The Philippine Insurance Law (Act No 2427, as amended), in Section 8, provides that “anyone except a
public enemy may be insured”. It stands to reason that an insurance policy ceases to be allowable as soon
as an insured becomes a public enemy.
The respondent having an enemy corporation on December 10, 1941, the insurance policy issued in its
favor on October 1, 1941, by the petitioner had ceased to be valid and enforceable, and since the insured
good were burned during the war, the respondent was not entitled to any indemnity under said policy from
the petitioner. However, elementary rule of justice (in the absence of specific provisions in the Insurance
Law) require that the premium paid by the respondent for the period covered by its policy from December
11, 1941, should be returned by the petitioner.
Sales De Gonzaga V. Crown Life Insurance Co.
FACTS:
 September 26, 1939: Crown Life Insurance Co. whose home office is based in Toronto, Canada
issued to Ramon Gonzaga through its branch office in Manila a 20-year endowment policy for P15,000
which had an annual premium of P591.
 Payment was only until September 6, 1941 because of the outbreak of the war since Crown is an
enemy corp. order to be closed during the Japanese occupation. However, despite that it offered
a privilege to accept premium payments in the place of its employee in Ermita but of which Gonzaga
did not avail.
 Through the automatic premium loan clause, it continued until June 12, 1943
 May 1, 1945: It reopened but still Gonzaga did not pay although there was a reinstatement clause
providing certain conditions within three years from the date of lapse on application of the insured
 June 27, 1945: Gonzaga died from an accident
 Crown refused to pay because of the lapse of premium payment
 RTC: against Gonzaga
Page 19 of 39
ISSUE: W/N Gonzaga's widow can claim despite the absence of premium payment during the outbreak of
the war
HELD: NO. Affirmed
 Non-payment at the day involves absolute forfeiture is such be the terms of the contract
 failure to notify the postal address during the war is not an excuse
 There is no duty when the law forbids and there is no obligation without corresponding
right enjoyed by another
 opening of an interim office partook of the nature of the privilege to the policy holders to keep
their policies operative rather than a duty to them under the contract
WEEK 5
Palileo V. Cosio (1955)
FACTS:
 Cherie Palileo (debtor-mortgagor) filed a complaint against Beatriz Cosio (creditor-mortgagee)
praying that their transaction be one of a loan with an equitable mortgage to secure the payment of the
loan. The original counsel of Cosio Atty. Guerrero being appointed Undersecretary of Foreign Affairs
so she forgot the date of the trial and she was substituted.
 it is a loan of P12,000 secured by a "Conditional Sale of Residential Building" with right to
repurchase. After the execution of the contract, Cosio insured in her name the building
with Associated Insurance & Surety Co. against fire.
 The building was partly destroyed by fire so she claimed an indemnity of P13,107
 Palileo demanded that the amount of insurance proceeds be credited to her loan
 RTC: it is a loan with equitable mortgage so the insurance proceeds should be credited to the loan
and refund the overpayment.
ISSUE: W/N Cosio as mortgagee is entitled to the insurance proceeds for her own benefit
HELD: YES. Modify. collection of insurance proceeds shall not be deemed to have compensated the
obligation of the Palileo to Cosio, but bars the Cosio from claiming its payment from the Palileo; and Cosio
shall pay to Palileo P810 representing the overpayment made by Palileo by way of interest on the loan.
 When the the mortgagee may insure his interest in the property independently of the mortgagor ,
upon the destruction of the property the insurance money paid to the mortgagee will not inure to the
benefit of the mortgagor, and the amount due under the mortgage debt remains unchanged. The
mortgagee, however, is not allowed to retain his claim against the mortgagor, but it passes by
subrogation to the insurer, to the extent of the insurance money paid
 It is true that there are authorities which hold that "If a mortgagee procures insurance on his
separate interest at his own expense and for his own benefit, without any agreement with the
mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not entitled to have
the insurance proceeds applied in reduction of the mortgage debt" But these authorities merely
represent the minority view
San Miguel Brewery V. Law Union And Rock Insurance
Lessons Applicable:
 Mortgagor (Insurance)
 Measure of Insurable Interest (Insurance)
 Effect of Change of Interest in Thing Insured (Insurance)
 Effect of transfer of thing insured (Insurance)
Laws Applicable: sec. 16,sec. 19 (now sec. 20),sec. 50,sec.55 (now sec. 58) of the Insurance Code (all old
law)
FACTS:
 In the contract of mortgage, the owner P.D. Dunn had agreed, at his own expense, to insure the
mortgaged property for its full value and to indorse the policies in such manner as to authorize the
Brewery Company to receive the proceeds in case of loss and to retain such part thereof as might be
necessary to satisfy the remainder then due upon the mortgage debt. Instead, however, of effecting the
insurance himself Dunn authorized and requested the Brewery Company to procure insurance on the
property in the amount of P15,000 at Dunn's expense.
Page 20 of 39
 San Miguel insured the property only as mortgagee.
 Dunn sold the propert to Henry Harding. The insurance was not assigned by Dunn to Harding.
 When it was destroyed by fire, the two companies settled with San Miguelto the extent of the
mortgage credit.
 RTC: Absolved the 2 companies from the difference. Henry Harding is not entitled to the
difference between the mortgage credit and the face value of the policies.
 Henry Harding appealed.
ISSUE:
1. W/N San Miguel has insurable interest as mortgagor only to the extent of the mortgage credit - YES
2. W/N Harding has insurable interest as owner - NO
HELD: affirmed
 section 19 of the Insurance Act:
 a change of interest in any part of a thing insured unaccompanied by a corresponding
change of interest in the insurance, suspends the insurance to an equivalent extent, until the interest in
the thing and the interest in the insurance are vested in the same person
 section 55:
 the mere transfer of a thing insured does not transfer the policy, but suspends it until the
same person becomes the owner of both the policy and the thing insured
 Undoubtedly these policies of insurance might have been so framed as to have been "payable to
the San Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever, during the
continuance of the risk, may become the owner of the interest insured." (Sec 54, Act No. 2427.) Such a
clause would have proved an intention to insure the entire interest in the property, not merely the
insurable interest of the San Miguel Brewery, and would have shown exactly to whom the money, in
case of loss, should be paid. But the policies are not so written.
 The blame for the situation thus created rests, however, with the Brewery rather than with the
insurance companies, and there is nothing in the record to indicate that the insurance companies were
requested to write insurance upon the insurable interest of the owner or intended to make themselves
liable to that extent
 If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the
policy, the parties are entitled to have it reformed. But to justify the reformation of a contract, the
 proof must be of the most satisfactory character, and it must clearly appear that the contract failed to
express the real agreement between the parties
 In the case now before us the proof is entirely insufficient to authorize reformation.
Gonzalez Lao v. Yek Tong Lin Fire & Marine Insurance - Insurance Premiums
Facts:
> Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf tobacco prducts.
> They were stored in Gonzales’ building on Soler St., which on Jan. 11, 1928, burned down.
> Art. 3 of the Insurance policies provided that: “Any insurance in force upon all or part of the things
unsured must be declared in writing by the insured and he (insured) should cause the company to insert or
mention it in the policy. Without such requisite, such policy will be regarded as null and void and the
insured will be deprived of all rights of indemnity in case of loss.”
> Notwithstanding said provision, Gonzales entered into other insurance contracts. When he sought to
claim from Yek after the fire, the latter denied any liability on the ground of violation of Art. 3 of the said
policies.
> Gonzales however proved that the insurer knew of the other insurance policies obtained by him long
efore the fire, and the insurer did NOT rescind the insurance polices in question but demanded and
collected from the insured the premiums.
Issue:
Whether or not Yek is still entitled to annul the contract.
Held:
NO.
Page 21 of 39
The action by the insurance company of taking the premiums of the insured notwithstanding knowledge of
violations of the provisions of the policies amounted to waiver of the right to annul the contract of
insurance.
Geagonia vs. Court of Appeals, 241 SCRA 152
Facts: Geagonia, owner of a store, obtained from Country Bankers 1year fire insurance covering the
stock trading of dry goods. The policy noted the requirement that"
3. The insured shall give notice to the Company of any insurance or insurances already effected, or which
may subsequently be effected, covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured, xxx
The petitioners’ stocks were destroyed by fire. He then filed a claim which was subsequently denied
because the petitioner’s stocks were covered by two other
fire insurance policies issued by PFIC. The basis of the private respondent's denial was the petitioner's
alleged violation of Condition 3 of the policy. The Insurance Commission found that the petitioner did not
violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained
from the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies w/o informing him or
securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.
Issue: Whether or not Geagonia is prohibited from recovering from the Country Bankers ?
Held: A policy may declare that a violation of specified provisions thereof shall avoid it,otherwise, the
breach of an immaterial provision does not avoid the policy. To constitute a violation of the “other
insurance” clause, the other insurance must be upon the same subject matter, the same interest therein, and
the same risk
Saura Import & Export Co., Inc. V. Philippine International Surety Co., Inc. (1963)
Lessons Applicable: Mortgagor (Insurance)
Laws Applicable:
FACTS:
 Saura Import & Export Co Inc., mortgaged to the Phil. National Bank, a parcel of land.
 The mortgage was amended to guarantee an increased amount, bringing the total mortgaged debt
to P37,000

 On the land mortgage is a building owned by Saura Import & Export Co Inc. which was insured
with Philippine International Surety (Insurer) even before the mortgage contract so it was required to
endorse to mortgagee PNB
 October 15, 1954: Barely 13 days after the issuance of the fire insurance policy, the insurer
cancelled it. Notice of the cancellation was given to PNB (mortgagee). But Saura (insured) was not
informed.
 April 6, 1955: The building and all its contents worth P40,685.69 were burned so Saura filed a
claim with the Insurer and mortgagee Bank
 RTC: dismissed
ISSUE: W/N Philippine International Surety should be held liable for the claim because notice to only the
mortgagee is not substantial
HELD:YES. Appealed from is hereby reversed. Philippine International Surety Co., Inc., to pay Saura
Import & Export Co., Inc., P29,000
 It was the primary duty of Philippine International Surety to notify the insured, but it did not
 If a mortgage or lien exists against the property insured, and the policy contains a clause stating
that loss, if any, shall be payable to such mortgagee or the holder of such lien as interest may appear,
notice of cancellation to the mortgagee or lienholder alone is ineffective as a cancellation of the policy
to the owner of the property.
 liability attached principally the insurance company, for its failure to give notice of the
cancellation of the policy to Saura
 it is unnecessary to discuss the errors assigned against appellee bank
PNB V CA
Violeta Lalican
vs The Insular Life Insurance Company
Ponente: Chico-Nazario
Facts:
Violeta is the widow of the Eulogio Lalican. During his lifetime, Eulogio applied for an insurance policy
with Insular Life on April 24, 1997 which contained a 20-year endowment variable income package flexi
plan worth P500k with two riders worth P500k each. Violeta was named the primary beneficiary.
Page 22 of 39
Under the terms, Eulogio was to pay premiums on a quarterly basin in the amount of P8,062 with a grace
period of 31 days for the payment of each premium subsequent to the first. If any premium was not paid on
or before the due date, the policy would be in default, and if the premium remained unpaid until the end of
the grace period, the policy would automatically lapse and become void.
Eulogio paid the premiums, however he failed to pay the premium due on January 24, 1998, even after the
lapse of the grace period of 31 days. Therefore, lapsed and become void. Eulogio submitted to the
Cabanatuan District Office of Insular Life an application for reinstatement together with the payment of the
premium due on January 24. Insular Life notified Eulogio that his application for reinstatement could not
be fully processed because of the unpaid interest thereon. Eulogio was likewise advised by Malaluan
(insurance agent) to pay the premiums that subsequently became due April 1998 and July 1998, plus
interest.
September 17, 1998. Eulogio went to Malaluan's house and paid for the interest which was received by
Malaluan's husband. Later that day, Eulogio died. Without the knowledge of Eulogio's death, Malaluan
forwarded to the Insular Life the application for reinstatement and the payment made by Eulogio. However,
Insular Life did not act upon such reinstatement for they knew already of Eulogio's death.
September 28, 1998, Violeta filed for the insurance claim. Insular Life then informed Violeta in a letter that
her claim could not be processed because the insurance policy had lapsed already and that Eulogio failed to
reinstate the same and the payment made done thru Malaluan's husband was, under the insurance policy,
was considered a deposit only until approval of the said application. Enclosed to this letter was a check
representing the full refund of the past payments made by Eulogio, amounting to P25,417.
Violeta requested for a reconsideration of her claim and returned the check to Insular Life. Insular Life
agreed to conduct a re-evaluation of Violeta's claim. Without waiting for the result of the re-evaluation,
Violeta filed with the RTC a complaint for death claim benefit alleging the Insular Life was engaged in
unfair claim settlement practice and deliberately failed to act with reasonable promptness on her insurance
claim. Violeta claims for the P1.5M insurance, plus interest, attorney's fees and cost of suit.
Insular Life filed with the RTC an answer with counterclaim saying that the insurance claim was rendered
void due to non-payment of the premium and countered that Violeta should be ordered to pay attorney's
fees and expenses of litigation incurred by Insular Life.
RTC declared that Violeta failed to establish by preponderance of evidence her cause of action against the
defendant. Violeta failed to establish that the receipt of payment by Malaluan amounted to the reinstatement
of the insurance policy. Violeta filed for motion for reconsideration but was denied as well; hence she
elevated her case for review on Certiorari.
Issues: (a) Whether the decision of the court can still be reviewed despite having allegedly attained finality
and despite the mode of appeal of Violeta erroneous. (b) Whether the RTC has decided the case on a
question of law not in accord with law and applicable decisions of the Supreme Court.
Ruling:
Petition lacks merit.
RTC's decision has long acquired finality for Violeta failed to file a notice of appeal more than five months
after the decision was rendered.
As to the substantial claim of whether there is insurable interest, the Court says that the matter of insurable
interest is entirely irrelevant and the real point of contention herein is whether Eulogio was able to reinstate
the lapsed insurance policy on his life before his death.
The Court rules in the negative, for the insurance policy is clear on the procedure of the reinstatement of
the insurance contract, of which Eulogio has failed to accomplish before his death. As provided by the
policy, insurance shall be deemed reinstated upon the approval of the insurance policy of the application for
reinstatement. The approval should be made during the lifetime of the insured, in the case at bar, it wasn’t.
El Oriente Fabrica de Tabacos, Inc. vs. Juan Posadas, Collector of Internal Revenue,G.R. No. 34774,
September 21, 1931
Topic:
Insurable Interest in life and health (Section 10)
Facts:
Insurer: Manufacturers Life Insurance Co., of Toronto, Canada, thru its
local agent E.E.ElserInsured: A. Velhagen (manager of El Oriente)Beneficiary: El Oriente Fabrica
de Tabacos, Inc.El Oriente, in order to protect itself against the loss that it might suffer by reason of the
death of its manager, whose death would be a serious loss to El Oriente procured fromthe Insurer an
insurance policy on the life of the said manager for the sum of 50,000 USD w i t h E l O r i e n t e a s
t h e d e s i g n a t e d s o l e b e n e f i c i a r y . T h e i n s u r e d h a s n o i n t e r e s t o r participati
on in the proceeds of said life insurance policy.El Oriente charged as expenses of its business all the said
premiums and deducted the same from its gross incomes as reported in its
a n n u a l i n c o m e t a x r e t u r n s , w h i c h deductions were allowed by Posadas (Collector of
Internal Revenue) upon showing by El Oriente that such premiums were legitimate expenses of the
business.U p o n t h e d e a t h o f t h e m a n a g e r , E l O r i e n t e r e c e i v e d a l l t h e p r o c e e d s o f
t h e l i f e insurance policy together with the interest and the dividends accruing thereon,
aggregatingP104,957.88. Posadas assessed and levied the sum of P3,148.74 as income tax on
theproceeds of the insurance policy, which was paid by El Oriente under protest. El
Orienteclaiming exemption under Section 4 of the Income Tax Law.
Issue:
Whether or not the proceeds of insurance taken by a corporation on the life of animportant
official to indemnify it against loss in case of his death, are taxable as income under the
Philippine Income Tax Law?
Ruling:
The Income Tax Law for the Philippines is Act No. 2833, as amended. In chapter IOn Individuals, is to be
found section 4
which provides that, "The following incomes shallbe exempt from the provisions of this law:
Page 23 of 39
(a) The proceeds of life insurance policies paid tobeneficiaries upon the death of the insured ... ." The
Chapter on Corporations does notprovide as above. It is certain that the proceeds of life insurance policies
are exempt. It isnot so certain that the proceeds of life insurance policies paid to corporate
beneficiaries upon the death of the insured are likewise exempt.T h e s i t u a t i o n w i l l b e b e t t e r
elucidated by a brief reference to laws on the samesubject in the
United States. The Income Ta x L a w
of 1916 extended to the PhilippineL e g i s l a t u r e , w h e n i t c a m e t o e n a c t
A c t N o . 2 8 3 3 , t o c o p y t h e A m e r i c a n s t a t u t e . Subsequently, the
Congress of the United States enacted its Income Tax Law of 1919, in which certain doubtful
subjects were clarified. Thus, as to the point before us, it was madeclear, when not only in the part of the
law concerning individuals were exemptions providedfor beneficiaries, but also in the part concerning
corporations, specific reference was
madet o t h e e x e m p t i o n s i n f a v o r o f i n d i v i d u a l s , t h e r e b y m a k i n g t h e s a m
e a p p l i c a b l e t o corporations.
T h i s w a s a u t h o r i t a t i v e l y p o i n t e d o u t a n d d e c i d e d b y t h e U n i t e d S t a t e s Supreme
Court in the case of United States
vs
. Supplee-Biddle Hardware Co. ( [1924], 265U.S., 189), which involved facts quite similar to those before
us.To quote the exact words in the cited case of Chief Justice Taft delivering the opinionof the court: It
is earnestly pressed upon us that proceeds of life insurance paid on the death of the insured
are in fact capital, and cannot be taxed as income … that proceeds of al i f e i n s u r a n c e p o l i c y p a i d
on the death of the insured are not usually
c l a s s e d a s income.C o n s i d e r i n g , t h e r e f o r e , t h e p u r p o r t o f t h e s t i p u l a t e d f a c
t s , c o n s i d e r i n g t h e uncertainty of Philippine law, and considering the lack of express legislative
intention to taxthe proceeds of life insurance policies paid to corporate beneficiaries, particularly when
inthe exemption in favor of individual beneficiaries in the chapter on this subject, the clause
isi n s e r t e d " e x e m p t f r o m t h e
p r o v i s i o n s o f t h i s l a w, " w e d e e m i t r e a s o n a b l e t o h o l d t h e p r o c e e d s o f t h e l i f e i
n s u r a n c e p o l i c y i n q u e s t i o n a s r e p r e s e n t i n g a n i n d e m n i t y a n d n o t taxable
income.T h e f o r e g o i n g p r o n o u n c e m e n t w i l l r e s u l t i n t h e j u d g m e n t b e i n g r e v e r s e d
a n d i n another judgment being rendered in favor of El Oriente.
El Oriente v. Posadas - Taxability of Insurance Proceeds
56 PHIL 147 (1931)
Facts:
> El Oriente in order to protect itself against the loss that it might suffer by reason of the death of its
manager, A. Velhagen, who had had more than thirty-five (35) years of experience in the manufacture of
cigars in the Philippines, procured from the Manufacturers Life Insurance Co., of Toronto, Canada, thru its
local agent E. E. Elser, an insurance policy on the life of the said A. Velhagen for the sum of $50,000,
United States currency designating itself as the beneficiary.
> El Oriente paid for the premiums due thereon and charged as expenses of its business all the said
premiums and deducted the same from its gross incomes as reported in its annual income tax returns, which
deductions were allowed upon a showing that such premiums were legitimate expenses of its business.
> Upon the death of A. Velhagen in 1929, the El Oriente received all the proceeds of the said life insurance
policy, together with the interests and the dividends accruing thereon, aggregating P104,957.88
> CIR assessed El Oriente for deficiency taxes because El Oriente did not include as income the proceeds
received from the insurance.
Issue:
Whether or not the proceeds of insurance taken by a corporation on the life of an important official to
indemnify it against loss in case of his death, are taxable as income under the Philippine Income Tax Law
Held:
NOT TAXABLE.
In Chapter I of the Tax Code, is to be found section 4 which provides that, "The following incomes shall be
exempt from the provisions of this law: (a) The proceeds of life insurance policies paid to beneficiaries
upon the death of the insured . . ." Section 10, as amended, in Chapter II On Corporations, provides that,
"There shall be levied, assessed, collected, and paid annually upon the total net income received in the
preceding calendar year from all sources by every corporation . . .a tax of three per centum upon such
income . . ." Section 11 in the same chapter, provides the exemptions under the law, but neither here nor in
any other section is reference made to the provisions of section 4 in Chapter I.
Under the view we take of the case, it is sufficient for our purposes to direct attention to the anomalous and
vague condition of the law. It is certain that the proceeds of life insurance policies paid to individual
beneficiaries upon the death of the insured are exempt. It is not so certain that the proceeds of life insurance
policies paid to corporate beneficiaries upon the death of the insured are likewise exempt. But at least, it
may be said that the law is indefinite in phraseology and does not permit us unequivocally to hold that the
proceeds of life insurance policies received by corporations constitute income which is taxable
It will be recalled that El Oriente, took out the insurance on the life of its manager, who had had more than
thirty-five years' experience in the manufacture of cigars in the Philippines, to protect itself against the loss
it might suffer by reason of the death of its manager. We do not believe that this fact signifies that when the
plaintiff received P104,957.88 from the insurance on the life of its manager, it thereby realized a net profit
in this amount. It is true that the Income Tax Law, in exempting individual beneficiaries, speaks of the
proceeds of life insurance policies as income, but this is a very slight indication of legislative intention. In
reality, what the plaintiff received was in the nature of an indemnity for the loss which it actually suffered
because of the death of its manager.
Insular Life vs. Ebrado
80 SCRA 181
Facts:
> Buenaventura Ebrado was issued al life plan by Insular Company. He designated Capriona as his
beneficiary, referring to her as his wife.
> The insured then died and Carponia tried to claim the proceeds of the said plan.
Page 24 of 39
> She admitted to being only the common law wife of the insured.
> Pascuala, the legal wife, also filed a claim asserting her right as the legal wife. The company then filed
an action for interpleader.
Issue:
Whether or not the common law wife named as beneficiary can collect the proceeds.
Held:
NO.
The civil code prohibitions on donations made between persons guilty of adulterous concubinage applies to
insurance contracts. On matters not specifically provided for by the Insurance Law, the general rules on
Civil law shall apply. A life insurance policy is no different from a civil donation as far as the beneficiary is
concerned, since both are founded on liberality.
DOCTRINE:General rules of civil law should be applied to resolve any void in the Insurance Law,
aspronounced in Article 2011 of the NCC.A contract of insurance is personal in
character.FACTS:Buenaventura Cristor Ebrado was married to Pascuala Ebrado. During his lifetime, he was
livingwith his common-law wife, Carponia Ebrado, although he was not legally separated from his
legalwife. Buenaventura was issued by The Insular Life Assurance Co., Ltd., Policy No. 009929 on a
whole-life plan for PhP 5,8882.00 with a rider for Accidental Death Benefits for the same
amount.Buenaventura designated Carponia Ebrado as the revocable beneficiary in his policy. Buenaventura
died as a result of an accident when he was hit by a falling branch of a tree. As the insurance policy was
still in force, The Insular Life Assurance Co., Ltd stands liable to pay the coverage. Carponia Ebrado, his
common-law wife, filed with the insurer a claim for the proceeds of the policy as the designated beneficiary
therein. Pascuala Vda. de Ebrado also filed her claim as the widowof the deceased insured. She asserts that
she is the one entitled to the insurance proceeds, not the common-law wife. In doubt as to whom the
insurance proceeds shall be paid, the insurer, The Insular Life AssuranceCo., Ltd, commenced an action for
Interpleader before the CFI of Rizal.
ISSUE: Can a common-law wife of a man who was not legally separated from his legal wife be a
beneficiary of his life insurance plan?
HELD/RULING
No.The Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, asamended)
does not contain any specific provision grossly resolutory to the question at hand.Section 50 of the
Insurance Act, which provides that “(t)he insurance shall be applied exclusively tothe proper interest of the
person in whose name it is made,” cannot be interpreted that it includesthe beneficiary because a contract of
insurance is personal in character. The general rules of civillaw should be applied to resolve this void in the
Insurance Law.Article 2011 of the New Civil Code states: “The contract of insurance is governed by special
laws.Matters not expressly provided for in such special laws shall be regulated by this Code.”Article 2012
of the same Code states that, “any person who is forbidden from receiving any donation under Article 739
cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to him.”
Therefore, common-law spouses are barred from receivingdonations from each other.Article 739
provides:“The following donations shall be void:Those made between persons who were guilty of adultery
or concubinage at the time of thedonation;Those made between persons found guilty of the same criminal
offense, in consideration thereof;Those made to a public officer or his wife, descendants or ascendants by
reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by thespouse of the
donor or donee; and the guilt of the donee may be proved by preponderance ofevidence in the same
action.”In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary
isconcerned. Both are founded upon the same consideration: liberality. As a consequence, theproscription in
Art. 739 of the New Civil Code should equally operate in life insurance contracts.In the case at bar, the
requisite proof of common-law relationship between the insured and thebeneficiary has been supplied by
the stipulations between the parties in the pre-trial conference. Itwas agreed an stipulated that the deceased
insured Buenaventura Ebrado was married toPascuala Ebrado and that, during the lifetime of the deceased
insured, he was living with hiscommon-law wife, Carponia Ebrado. Based on the foregoing, Carponia
Ebrado is hereby declareddisqualified to be the beneficiary of the late Buenaventura Ebrado in his life
insurance policy. Theproceeds of the policy are hereby held payable to the estate of the deceased insured.
Vda. de Consuegra vs. GSIS, DPWH, Rosario Diaz 37 SCRA 315 [1971]MAIN POINT:
FACTS:
The late Jose Consuegra, at the time of his death, was employed as a shop foreman of DPWH in the province ofSurigao del Norte.
In his lifetime, he contracted 2 marriages, the first with respondent Rosario Diaz, solemnized in the parish church of San Nicolas de
Tolentino, Surigao, on July 15, 1937 bearing 2 children, Jose Consuegra, Jr. and Pedro Consuegra, but both predeceased their
father; and the second with herein petitioner Basilia Berdin, which was contracted in good faith while the first marriage was
subsisting, on May 1, 1957 in the same parish and municipality, out of which marriage
were born seven children, namely, Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz *(Luis) all
surnamedConsuegra.When Consuegra died the proceeds of his life insurance were paid by the GSIS to petitioner Basilia Berdin
and her children who were the beneficiaries named in the policy. Having been in the service of the government for 22.5028 years,
Consuegra was entitled to retirement insurance benefits in the sum of P6, 304.47, however, he did not designate any beneficiary
who would receive the retirement insurance benefits due to him. Respondent Diaz, the widow (1st), filed a claim with the GSIS
asking that the retirement insurance benefits be paid to her as the only legal heir. Petitioner Berdin and her children, likewise, filed a
similar claim with the GSIS, asserting that being the beneficiaries named in the life insurance policy,they are the only ones
entitled
to receive the retirement insurance benefits due the deceased. GSIS: Diaz is entitled to one-half, or 8/16, of the retirement
insurance benefits while Berdin and their 7 children are entitled to the remaining one-half, or 8/16, each of them to receive an equal
share of 1/16.Dissatisfied, Berdin and her children filed a petition for mandamus with preliminary injunction in the CFI of Surigao,
against the respondents praying that they be declared the legal heirs and exclusive beneficiaries of the retirement insurance. CFI
confirmed the action of GSIS. Hence the present appeal by herein petitioners-appellants, Basilia Berdin and her children contending
that because the deceased failed to designate the beneficiaries in his retirement insurance, they being beneficiaries named in the life
insurance should automatically be considered the beneficiaries to receive the retirement insurance benefits, to the exclusion of Diaz.
ISSUES:
(a) Is the contention tenable?(b) To whom should this retirement insurance benefits be paid?
RULING:
A.NO. The contention of appellants is untenable.When Consuegra designated his beneficiaries in his life insurance he could not
have intended those beneficiaries of his lifeinsurance as also the beneficiaries of his retirement insurance because the provisions on
retirement insurance under theGSIS came about only when Com. Act 186 was amended by Rep. Act 660 on June 16, 1951.
Hence, it cannot be said that
Page 25 of 39
because appellants were designated beneficiaries in Consuegra’s life insurance they automatically became
the beneficiaries
also of his retirement insurance.
The provisions clearly indicate that there is need for the employee to file an applicationfor retirement
insurance benefits when he becomes a member of the GSIS, and he should state in his application
thebeneficiary of his retirement insurance. Hence, the beneficiary named in the life insurance does not
automaticallybecome the beneficiary in the retirement insurance unless the same beneficiary in the life
insurance is so designatedin the application for retirement insurance.
The GSIS offers two separate and distinct systems of benefits to its members
paid out from two distinct and separate funds:
(1) Life insurance- proceeds are paid to whoever is named the beneficiary in the life insurance policy as
provided forin the Insurance Act (Act 2427, as amended), the beneficiary in a life insurance under the GSIS may not
necessarily be an heir of the insured. The insured in a life insurance may designate any person as beneficiary
unless disqualified to be so under the provisions of the Civil Code. And in the absence of any beneficiary named in the life
insurance policy, the proceeds of the insurance will go to the estate of the insured.
(2) Retirement insurance- primarily intended for the benefit of the employee to provide for his old age, or
incapacity, after rendering service in the government for a required number of years. If the employee reaches the age of
retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries named in his application for
retirement insurance. The beneficiary of the retirement insurance can only claim the proceeds of the retirement insurance if the
employee dies before retirement.
If the employee failed or overlooked to state the beneficiary of his retirement insurance, the retirement
benefits will accrue to his estate and will be given to his legal heirs in accordance with law, as in the case of
a life insurance if no beneficiary is named in the insurance policy.
B.BOTH.
The proceeds of the retirement insurance of the late Jose Consuegra should be divided equally between Rosario Diaz and his
second wife Basilia Berdin and his children by her. The fact that the second marriage was contracted in good faith, the only
just and equitable solution in this case would be to recognize the right of the second wife to her share of
one-half in the property acquired by her and her husband, and consider the other half as pertaining to the
conjugal partnership of the first marriage.
The decision appealed from is affirmed
Southert Luzon Employee’s Association v. Golpeo - Insurance Beneficiaries
96 PHIL 83
Facts:
> SLEA is composed of laborers and employees of the LTBC and BTC (now BLTB Co.), and one of its
purposes is mutual aid of its members and their dependents in case of death.
> Roman Concepcion was a member until his death in 1950.
> In 1949, SLEA adopted a resolution providing that: A member may, if he chooses, put down his common
law wife and/or children he had with her as his beneficiaries; and such person so named by the member
will be the sole persons to be recognized by SLEA regarding claims for condolence contributions.
> Roman listed as his beneficiaries Aquilina Maloles and their 4 children. After his death, SLEA was able
to collect voluntary contribution from its members amounting to P2,205.
> Three sets of claimants to the amount presented themselves to the association namely:
o Juanita Golpeo, legal wife, and her children
o Aquilina Maloles, the common law wife, and her children
o Elsie Hicban, another common law wife of Roman, and her child.
> SLEA then filed an action for interpleader against the 3 conflicting claimants.
> Trial court rendered a decision declaring Maloles and her children the sole beneficiaries of the amount
citing Del Val v. Del Val.
> Only Golpeo appealed. She argues that:
> The insurance code does not apply since the association is not an insurance company but a mutual
benefit association.
> The stipulation between SLEA and Roman was void for being contrary to law, public morals and public
policy, pursuant to Art. 739 of the CC ( donations between persons guilty of concubinage at the time of
donation are void)
Issue:
Whether or not Golpeo, the legal wife is entitled to the amount.
Held:
NO.
First of all, the lower court did not consider the association as a regular insurance company, but merely
ruled that the death benefit in question is analogous to insurance. Besides, even the Administrative Code
describes a mutual benefit company as one which provides any method of life insurance among its
members out of dues or assessments collected from its membership.
Secondly, without considering the intimation in the brief for Maloles that Golpeo, by her silence and
actions had acquiesced in the illicit relations between her husband and Maloles, Golpeo’s argument would
certainly NOT apply to the children of Maloles likewise named beneficiaries by the deceased. As a matter
of fact, the NCC recognizes certain successional rights of illegitimate children.
Heirs of Maramag v. Maramag
G.R. No. 181132 , June 5, 2009
FACTS:
The case stems from a petition filed against respondents with the RTC for revocation and/or reduction of
insurance proceeds for being void and/or inofficious. The petition alleged that: (1) petitioners were the
legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loreto’s illegitimate
family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of
the latter, thus, she is disqualified to receive any proceeds from his insurance policies from Insular Life
Assurance Company, Ltd. (Insular) and Great Pacific Life Assurance Corporation (Grepalife) (3) the
illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of
the legitime of the legitimate children, thus, the proceeds released to Odessa and those to be released to
Karl Brian and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not
be deprived of their legitimes, which should be satisfied first. Insular admitted that Loreto misrepresented
Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that
they filed their claims for the insurance proceeds of the insurance policies; that when it ascertained that Eva
was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the proceeds among
Page 26 of 39
Odessa, Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries; and that it released
Odessa’s share as she was of age, but withheld the release of the shares of minors Karl Brian and Trisha
Angelie pending submission of letters of guardianship. Insular alleged that the complaint or petition failed
to state a cause of action insofar as it sought to declare as void the designation of Eva as beneficiary,
because Loreto revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy
No. A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and
Trisha Angelie, considering that no settlement of Loreto’s estate had been filed nor had the respective
shares of the heirs been determined. Insular further claimed that it was bound to honor the insurance
policies designating the children of Loreto with Eva as beneficiaries pursuant to Section 53 of the
Insurance Code. Grepalife alleged that Eva was not designated as an insurance policy beneficiary; that the
claims filed by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for
insurance due to a misrepresentation in his application form that he was born on December 10, 1936 and,
thus, not more than 65 years old when he signed it in September 2001; that the case was premature, there
being no claim filed by the legitimate family of Loreto; and that the law on succession does
not apply where the designation of insurance beneficiaries is clear.
ISSUE:
Whether or not illegitimate children can be beneficiaries in an insurance contract.
RULING:
Yes. Section 53 of the Insurance Code states that the insurance proceeds shall be applied exclusively to the
proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in
the policy. Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are
either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation
of the policy.The exception to this rule is a situation where the insurance contract was intended to benefit
third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a
case, third parties may directly sue and claim from the insurer.
Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled
to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation to turn
over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary in one policy and
her disqualification as such in another are of no moment considering that the designation of the illegitimate
children as beneficiaries in Loreto’s insurance policies remains valid. Because no legal
proscription exists in naming as beneficiaries the children of illicit relationships by the insured, the shares
of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition
on donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to
the exclusion of petitioners. It is only in cases where the insured has not designated any beneficiary, or
when the designated beneficiary is disqualified by law to receive the proceeds, that the insurance policy
proceeds shall redound to the benefit of the estate of the insured.
Philamcare v. CA- Health Care Agreement
379 SCRA 356 (2002)
Facts:
> Ernani Trinos, applied for a health care coverage with Philamcare. In the standard application form, he
answered NO to the following question: “Have you or any of your family members ever consulted or been
treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If
Yes, give details)”
> The application was approved for a period of one year from March 1, 1988 to March 1, 1989. He was a
issued Health Care Agreement, and under such, he was entitled to avail of hospitalization benefits, whether
ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual
physical examinations, preventive health care and other out-patient services.
> Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to
March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.
> During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning March 9, 1990.
> While her husband was in the hospital, Julita tried to claim the benefits under the health care agreement.
However, Philamcare denied her claim saying that the Health Care Agreement was void.
> According to Philamcare, there was concealment regarding Ernani's medical history.
Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive,
diabetic and asthmatic, contrary to his answer in the application form.
> Julita had no choice but to pay the hospitalization expenses herself, amounting to about P76,000.00
> After her husband was discharged from the MMC, he was attended by a physical therapist at home.
Later, he was admitted at the Chinese General Hospital (CGH). Due to financial difficulties, Julita brought
her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak.
Julita was constrained to bring him back to the CGH where he died on the same day.
> Julita instituted, an action for damages against Philamcare. She asked for reimbursement of her expenses
plus moral damages and attorney's fees. RTC decided in favor of Julita. CA affirmed.
Issues and Resolutions:
Philamcare brought the instant petition for review, raising the primary argument that a health care
agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code Title
6, Sec. 48 does not apply.
SC held that in the case at bar, the insurable interest of respondent's husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising
from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.
Under the title Claim procedures of expenses, Philamcare. had 12 mos from the date of issuance of the
Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and
six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The
periods having expired, the defense of concealment or misrepresentation no longer lie.
Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in
the application for health coverage, petitioners required respondent's husband to sign an express
authorization for any person, organization or entity that has any record or knowledge of his health to
furnish any and all information relative to any hospitalization, consultation, treatment or any other medical
advice or examination.
Philamcare cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Page 27 of 39
Failure to disclose or misrepresentation of any material information by the member in the application or
medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement
from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid.
An undisclosed or misrepresented information is deemed material if its revelation would have resulted in
the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the
benefit or benefits applied for.
The answer assailed by petitioner was in response to the question relating to the medical history of the
applicant. This largely depends on opinion rather than fact, especially coming from respondent's husband
who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good
faith and without intent to deceive will not avoid a policy even though they are untrue. Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured
will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance
at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such case the insurer is not justified in relying
upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a
case and one in which the insured is fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is
shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud.
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims
made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once
the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the
covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
insurance." The right to rescind should be exercised previous to the commencement of an action on the
contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following conditions:
Prior notice of cancellation to insured;
Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;
Must be in writing, mailed or delivered to the insured at the address shown in the policy;
Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.
None of the above pre-conditions was fulfilled in this case. 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.
This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or
reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be strictly construed against the provider.
Nario V. Philippine American Life Insurance Co. Of Canada (1967)
G.R. No. L-22796 June 26, 1967
Lessons Applicable: Irrevocable Designation (Insurance)
FACTS:
June 12, 1959: Philippine American Life Insurance Co. issued a life insurance to Mrs. Alejandra Santos-
Mario a life insurance policy under a 20-year endowment plan, with a face value of P5,000 designating her
husband Delfin Nario and their unemancipation son Ernesto Nario, as her irrevocable beneficiaries
June, 1963: She submitted her loan application to the life insurance co. with signature of her husband in
two capacities:
irrevocable beneficiaries
father-guardian of minor irrevocable beneficiary Ernesto
Insurance Co. denied asking that the legal guardian must be authorized by the court in a competent
guardianship proceeding
Upon denial, she opted to surrender her insurance policy in exchange of its cash surrender value of P520
but it was also denied on the same ground
September 10, 1963: Mrs. Alejandra Santos-Nario and her husband, Delfin Nario, brought suit against the
Philippine American Life Insurance Co
RTC: favored the insurance company
CA: vested interest or right of the beneficiaries in the policy should be measured on its full face value and
not on its cash surrender value, for in case of death of the insured, said beneficiaries are paid on the basis of
its face value and in case the insured should discontinue paying premiums, the beneficiaries may continue
paying it and are entitled to automatic extended term or paid-up insurance options, etc. and that said vested
right under the policy cannot be divisible at any given time. policy loan and surrender of policy constitute
acts of disposition or alienation of property rights and not merely of management or administration because
they involve the incurring or termination of contractual obligations
ISSUE: W/N parents as guardians can enter into transactions for the benefit of minor irrevocable
beneficiaries.
HELD: NO. Affirmed.
SEC. 7. Parents as guardians. — When the property of the child under parental authority is worth two
thousand pesos or less, the father or the mother, without the necessity of court appointment, shall be his
legal guardian. When the property of the child is worth more than two thousand pesos, the father or the
mother shall be considered guardian of the child's property, with the duties and obligations of guardians
under these rules, and shall file the petition required by Section 2 hereof. For good reasons the court may,
however, appoint another suitable person.
even if worth less than P2,000 parent's authority over the estate of the ward as a legal-guardian would not
extend to acts of encumbrance or disposition, as distinguished from acts of management or administration.
Villanueva V. Oro (1948)
G.R. No. L-2227 August 31, 1948
Page 28 of 39
Lessons Applicable: Insured Outlives Policy (Insurance)
Laws Applicable:
FACTS:
West Coast Life Insurance Company issued 2 policies of insurance on the life of Esperanza J. Villanueva:
2,000 php - maturing on April 1, 1943
if living, on the 1st day of April 1943 - to insured
upon death during the continuance of this policy - to the beneficiary Bartolome Villanueva, father of the
insured, with right on the part of the insured to change the beneficiary
1940: Bartolome Villanueva died, Mariano J. Villanueva duly substituted as beneficiary, a brother of the
insured
3,000 php - maturing on March 31, 1943
Esperanza J. Villanueva survived the insurance period, for she died only on October 15, 1944, without,
however, collecting the insurance proceeds.
CFI: estate of the insured Esperanza is entitled to the insurance proceeds
ISSUE: W/N the estate of insured Esperanza should be entitled to the insurance proceeds since she outlived
the insurance policy
HELD: YES. appealed order is, therefore, hereby affirmed
To sustain the beneficiary's claim would be altogether eliminate from the policies the condition that the
insurer "agrees to pay . . . to the insured hereunder, if living
Upon the insured's death, within the period, the beneficiary will take, as against the personal representative
or the assignee of the insured. Upon the other hand, if the insured survives the endowment period, the
benefits are payable to him or to his assignee, notwithstanding a beneficiary is designated in the policy
Villanueva v. Oro - Insurance Proceeds
81 PHIL 464
Facts:
> West Coast Life Insurance Company issued two policies of insurance on the life of Esperanza
Villanueva, one for 2T, maturing April 1, 1943; and other for 3T maturing Mar. 31, 1943.
> In both policies, West agreed to pay 2T either to Esperanza if still living on Apr 1, 1943; or to
beneficiary Bartolome Villanueva, or the father of the insured immediately upon receipt of the proof of
death of Esperanza.
> The policy also gave her the right to change the beneficiary.
> In 1940, Bartolome died, and he was substituted as beneficiary under the policies by Mariano,
Esparanza’s brother.
> Esperanza died in 1944 without having collected the insurance proceeds. Adverse claims for the
proceeds were presented by the estate of Esperanza on one hand and by Mariano on the other.
> CFI held that the estate of Esperanza was entitled to the proceeds to the exclusion of the beneficiary.
Issue:
Whether or not the beneficiary is entitled to the proceeds.
Held:
NO.
Under the policies, the insurer obligated itself to pay the insurance proceeds to: (1) the insured if the latter
lived on the dates of maturity; or (2) the beneficiary if the insured died during the continuance of the
policies. The first contingency excludes the second, and vice versa. In other words, as the insured
Esperanza was living on April 1 and March 31, 1943, the proceeds are payable exclusively to her or to her
estate unless she had before her death otherwise assigned the matured policies.
The beneficiary could be entitled to said proceeds only in default of the first contingency. To sustain the
beneficiary’s claim would be to altogether eliminate from the policies the condition that the insurer “agrees
to pay to the insured if living.”
This conclusion tallies with American Authorities who say that: The interest of the insured in the proceeds
of the insurance depends upon his survival of the expiration of the endowment period. Upon the insured’s
death, within the period, the beneficiary will take, as against the personal representatives the endowment
period, the benefits are payable to him or to his assignee, notwithstanding a beneficiary is designated in the
policy. (AmJur and Couch Cyclopedia of Insurance Law)
WEEK 6
Harvardian Colleges v. Country Bankers Insurance Corp.
1 CARA 2
Facts:
> Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap and
their children.
> Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school building.
Although at first reluctant, Harvardian agreed.
> Country Banks sent an inspector to inspect the school building and agreed to insure the same for
P500,000 for which Harvardian paid an annual premium of P2,500.
> On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980, (39
days before I was born… hehehehe )during the effectivity of said insurance policy, the insured property was
totally burned rendering it a total loss.
> A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no
insurable interest over the building constructed on the piece of land in the name of the late Ildefonso Yap as
owner.
> It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the
Harvardian Colleges.
Issue:
Whether or not Harvardian colleges has a right to the proceeds.
Held:
Harvardian has a right to the proceeds.
Regardless of the nature of the title of the insured or even if he did not have title to the property insured, the
contract of fire insurance should still be upheld if his interest in or his relation to the property is such that
Page 29 of 39
he will be benefited in its continued existence or suffer a direct pecuniary loss from its destruction or
injury. The test in determining insurable interest in property is whether one will derive pecuniary benefit or
advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination or
injury by the happening of the event insured against.
Here Harvardian was not only in possession of the building but was in fact using the same for several years
with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building not
been burned, Harvardian would have been allowed the continued use of the same as the site of its operation
as an educational institution. Harvardian therefore would have been directly benefited by the preservation
of the property, and certainly suffered a pecuniary loss by its being burned.
Gaisano Cagayan, Inc. V. Insurance Company Of North America (2006)
G.R. No. 147839 June 8, 2006
Lessons Applicable: Existing Interest (Insurance)
Laws Applicable: Article 1504,Article 1263, Article 2207 of the Civil Code, Section 13 of Insurance Code
FACTS:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. while Levi Strauss (Phils.)
Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co
IMC and LSPI separately obtained from Insurance Company of North America fire insurance policies for
their book debt endorsements related to their ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the Philippines which are unpaid 45
days after the time of the loss
February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano Cagayan,
Inc., containing the ready-made clothing materials sold and delivered by IMC and LSPI was consumed by
fire.
February 4, 1992: Insurance Company of North America filed a complaint for damages against Gaisano
Cagayan, Inc. alleges that IMC and LSPI filed their claims under their respective fire insurance policies
which it paid thus it was subrogated to their rights
Gaisano Cagayan, Inc: not be held liable because it was destroyed due to fortuities event or force majeure
RTC: IMC and LSPI retained ownership of the delivered goods until fully paid, it must bear the loss (res
perit domino)
CA: Reversed - sales invoices is an exception under Article 1504 (1) of the Civil Code to res perit domino
ISSUE: W/N Insurance Company of North America can claim against Gaisano Cagayan for the debt that
was isnured
HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED
insurance policy is clear that the subject of the insurance is the book debts and NOT goods sold and
delivered to the customers and dealers of the insured
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been retained by the seller merely to secure performance by the
buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery;
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest is
not determined by concept of title, but whether insured has substantial economic interest in the property
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.
Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss
from its destruction.
it is sufficient that the insured is so situated with reference to the property that he would be liable to loss
should it be injured or destroyed by the peril against which it is insured
an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or
possession of, the subject
matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an
interest
insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that
remained unpaid 45 days after the fire - obligation is pecuniary in nature
obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true
when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him
liable even in case of fortuitous event
Article 1263 of the Civil Code in an obligation to deliver a generic thing, the loss or destruction of anything
of the same kind does not extinguish the obligation (Genus nunquan perit)
The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer
and IMC as the insured, but also the amount paid to settle the insurance claim
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract.
As to LSPI, no subrogation receipt was offered in evidence.
Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of
P535,613
Gaisano v Insurance G.R. No. 147839 June 8, 2006
J. Martinez
Facts:
Page 30 of 39
IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent fire insurance policies with
book debt endorsements. The insurance policies provide for coverage on "book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and dealers of the
Insured anywhere in the Philippines."
The policies defined book debts as the "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this Policy." The policies also provide for the
following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold
and delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6)
months from the date of the covering invoice or actual delivery of the merchandise whichever shall first
occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of
every calendar month all amount shown in their books of accounts as unpaid and thus become receivable
item from their customers and dealers.
Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano
Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the
items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC
and LSPI.
Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC and LSPI were
paid for their claims and that the unpaid accounts of petitioner on the sale and delivery of ready-made
clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00.
The RTC rendered its decision dismissing Insurance's complaint. It held that the fire was purely accidental;
that the cause of the fire was not attributable to the negligence of the petitioner. Also, it said that IMC and
LSPI retained ownership of the delivered goods and must bear the loss.
The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to pay Insurance the
P 2 million and the P 500,000 the latter paid to IMC and Levi Strauss.
Hence this petition.
Issues:
1. WON the CA erred in construing a fire insurance policy on book debts as one covering the unpaid
accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold
and delivered to petitioner
2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in
the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the
purchase price the above described merchandise remains the property of the vendor until the purchase price
thereof is fully paid."
3. WON petitioner is liable for the unpaid accounts
4. WON it has been established that petitioner has outstanding accounts with IMC and LSPI.
Held: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly granted.
Ratio:
1. Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods
sold and delivered to the customers and dealers of the insured.
Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained
unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered.
2. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been retained by the seller merely to secure performance by the
buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is
borne by the buyer. Petitioner bears the risk of loss of the goods delivered.
IMC and LSPI had an insurable interest until full payment of the value of the delivered goods. Unlike the
civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk
of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has
substantial economic interest in the property.
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.
Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss
from its destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long as
he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a
vendor's lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing
in their Books of Account 45 days after the time of the loss covered by the policies.
3. Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the
Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly,
petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor to make the payment even by reason of a
fortuitous event shall not relieve him of his liability. The rationale for this is that the rule that an obligor
should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the
obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even
in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction
of anything of the same kind does not extinguish the obligation." This rule is based on the principle that the
genus of a thing can never perish. An obligation to pay money is generic; therefore, it is not excused by
fortuitous loss of any specific property of the debtor.
4. With respect to IMC, the respondent has adequately established its claim. The P 3 m claim has been
proven. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent
as insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right of
subrogation accrues simply upon payment by the insurance company of the insurance claim Respondent's
action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract.
Page 31 of 39
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. There was no
evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure
to substantiate the claim of subrogation is fatal to petitioner's case for recovery of P535,613.00.
Harding v Commerical Union August 10, 1918 G.R. No. L-12707
J. Fisher
Facts:
Smith Bell insured Mrs. Hardings’ Studebaker car for a premium of Php 150. It was insured for Php 3,000,
the value of the car. The car was destroyed by fire. Mrs. Harding furnished the defendant the proofs of her
loss, but the company didn’t pay. Evidence showed that Hermanos sold the automobile to Canson for
P3,200. Canson then sold the car to Harding for Php 1,500. The car was then sold for P2,000. It was then
resold to Harding. He gave the car to his wife; Mrs. Henry E. Harding as a present. The automobile was
repaired and repainted at the Luneta Garage at P900.
The company averred that they gave false information, particularly that on the price of the vehicle and the
ownership of the car. Hence, they aimed to declare the policy void.
The trial court found that there was no fraud.
This was an action by plaintiffs to recover from defendant the sum of P3,000 and interest, alleged to be due
under the terms of a policy of insurance. The trial court gave plaintiffs judgment for the amount demanded,
with interest and costs, and from that decision the defendant appealed.
Issue: Was the valuation of the car for P3000 done fraudulently, thereby making the policy void?
Held: No.
Ratio:
The policy stated that
“That during the period above set forth and during any period for which the company may agree to renew
this policy the company will subject to the exception and conditions contained herein or endorsed hereon
indemnify the insured against loss of or damage to any motor car described in the schedule by whatever
cause such loss or damage may be occasioned and will further indemnify the insured up to the value of the
car or P3,000 whichever is the greater against any claim at common law made by any person for loss of life
or for accidental bodily injury or damage to property caused by the said motor car including law costs
payable in connection with such claim when incurred with the consent of the company.”
Defendant contends that the statement regarding the cost of the automobile was a warranty, that the
statement was false, and that, therefore, the policy never attached to the risk.
The automobile had in fact cost more than the amount mentioned. The court below found, and the evidence
shows, that the automobile was bought by plaintiff’s husband a few weeks before the issuance of the policy
in question for the sum of P2,800, and that between that time and the issuance of the policy some P900 was
spent upon it in repairs and repainting. The mechanic who testified told that the automobile was practically
as good as new at the time the insurance was effected.
The amount stated was less than the actual outlay which the automobile represented to Mr. Harding,
including repairs, when the insurance policy was issued. It would be unfair to hold the policy void simply
because the outlay represented by the automobile was made by the plaintiff’s husband and not by his wife,
to whom he had given the automobile.
The trial court found that Mrs. Harding, in fixing the value of the automobile at P3,000, acted upon
information given her by her husband and by Mr. Server, the manager of the Luneta Garage. She merely
repeated the information which had been given her by her husband, and at the same time disclosed to
defendant’s agent the source of her information. There is no evidence to sustain the contention that this
communication was made in bad faith.
Under these circumstances, we do not think that the facts stated in the proposal can be held as a warranty of
the insured, even if it should have been shown that they were incorrect in the absence of proof of willful
misstatement. Under such circumstance, the proposal is to be regarded as the act of the insurer and not of
the insured.
The defendant, upon the information given by plaintiff, and after an inspection of the automobile by its
examiner, having agreed that it was worth P3,000, is bound by this valuation in the absence of fraud on the
part of the insured. All statements of value are, of necessity, to a large extent matters of opinion, and it
would be outrageous to hold that the validity of all valued policies must depend upon the absolute
correctness of such estimated value.
Supreme Court v First National- The ordinary test of the value of property is the price it will commend in
the market if offered for sale. But that test cannot, in the very nature of the case, be applied at the time
application is made for insurance. Men may honestly differ about the value of property, or as to what it will
bring in the market; and such differences are often very marked among those whose special business it is to
buy and sell property of all kinds.
The assured could do no more than estimate such value; and that, it seems, was all that he was required to
do in this case. His duty was to deal fairly with the Company in making such estimate.
Section 163 of the Insurance Law (Act No. 2427) provides that “the effect of a valuation in a policy of fire
insurance is the same as in a policy of marine insurance.”
By the terms of section 149 of the Act cited, the valuation in a policy of marine insurance is conclusive if
the insured had an insurable interest and was not guilty of fraud.
The valuation of the automobile, for the purposes of the insurance, is binding upon the defendant
corporation.
Insurance Case Digest: Lampano V. Jose (1915)
G.R. No. L-9401 March 30, 1915
Lessons Applicable: Existing Interest (Insurance)
Laws Applicable:
FACTS:
 Mariano R. Barretto, constructed a house for Placida A. Jose sold the house to Antonina Lampano
for P6,000
 The house was destroyed by fire during which Lampano still owed Jose P2,000 as evidenced by a
promissory note. Jose also owed Barretto P2,000 for the construction.
 After the completion of the house and before it was destroyed, Mariano R. Barretto took out an
insurance policy upon it in his own name, with the consent of Placida A. Jose, for the sum of P4,000.
Page 32 of 39
After its destruction, he collected P3,600 from the insurance company, having paid in premiums the
sum of P301.50
 Lampano filed a complaint against Barreto and Jose alleging that Jose in a verbal agreement told
her that the policy will be delivered to her so she should collected P3,600 from each of them
 RTC: favored Jose ordering Barreto to pay him P1,298.50 and offsetting the P2,000
 Barreto alone appealed
ISSUE: W/N Barreto had insurable interest in the house and could insure it for his it for his own protection
HELD: YES. reversed and Barretto is absolved
 Where different persons have different interests in the same property, the insurance taken by one
in his own right and in his own interest does not in any way insure to the benefit of another
 A contract of insurance made for the insurer's (insured) indemnity only, as where there is no
agreement, express or implied, that it shall be for the benefit of a third person, does not attach to or run
with the title to the insured property on a transfer thereof personal as between the insurer and the
insured.
 Barretto had an insurable interest in the house. He construed the building, furnishing all the
materials and supplies, and insured it after it had been completed
Insurance Case Digest: Ong Lim Sing V. FEB Leasing And Finance Corp. (2007)
G.R. No. 168115 June 8, 2007
Lessons Applicable: Existing Interest (Insurance)
Laws Applicable:
FACTS:
 FEB Leasing and Finance Corporation (FEB) leased equipment and motor vehicles to JVL Food
Products with a monthly rental of P170,494
 At the same date, Vicente Ong Lim Sing, Jr. (Lim) an executed an Individual Guaranty Agreement
with FEB to guarantee the prompt and faithful performance of the terms and conditions of the lease
agreement
 JVL defaulted in the payment of the monthly rentals resulting to arrears of P3,414,468.75 and
refused to pay despite demands
 FEB filed a complaint for damages and replevin against JVL, Lim and John Doe
 JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality
a sale of equipment on installment basis, with FEB acting as the financier
  RTC: Sale on installment and the FEB elected full payment of the obligation so for the unreturned
units and machineries the JVL and Lim are jointly and severally liable to pay
 CA: granted FEB appeal that it is a financial lease agreement under Republic Act (R.A.) No. 8556
and ordered JVL and Lim jointly and severally to pay P3,414,468.75
ISSUE: W/N JVL and Lim should jointly and severally be liable for the insured financial lease
HELD: YES. CA affirmed.
 contract of adhesion is as binding as any ordinary contract
 The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance
Certificates is, in point of fact, a financial lease within the purview of R.A. No. 8556
 FEB leased the subject equipment and motor vehicles to JVL in consideration of a
monthly periodic payment of P170,494.00. The periodic payment by petitioner is sufficient to
amortize at least 70% of the purchase price or acquisition cost of the said movables in accordance with
the Lease Schedules with Delivery and Acceptance Certificates.
 JVL entered into the lease contract with full knowledge of its terms and conditions.
 Lim, as a lessee, has an insurable interest in the equipment and motor vehicles leased.
 In the financial lease agreement, FEB did not assume responsibility as to the quality,
merchantability, or capacity of the equipment. This stipulation provides that, in case of defect of any
kind that will be found by the lessee in any of the equipment, recourse should be made to the
manufacturer. “The financial lessor, being a financing company, i.e., an extender of credit rather than
an ordinary equipment rental company, does not extend a warranty of the fitness of the equipment for
any particular use. Thus, the financial lessee was precisely in a position to enforce such warranty
directly against the supplier of the equipment and not against the financial lessor. We find nothing
contra legem or contrary to public policy in such a contractual arrangement
Insurance Case Digest: Traders Insurance & Surety Co. V. Golangco, Et Al (1954)
G.R. No. L-6442 Sep 21, 1954
Lessons Applicable: Existing Interest (Insurance)
Laws Applicable: Sec. 13 of the Insurance Code
FACTS:
 Tomas Lianco and the Archbishop entered into a contract of lease on a parcel of landowned by
church
 As lessee, Lianco erected a building on the leased portion of the church’s land.
 Lianco transferred ownership of this building to Kaw Eng
Si,who later transferred the same to Golangco.
 Transfers were made without the consent of the Archbishop
 The Archbishop filed an ejectment case against Lianco, who appears to be occupants of the
premises building with others paying rent to Golangco.
 The right of Golangco to receive rent on the building was judicially recognized in a case
decided between Lianco and others occupying the premises pursuant to a compromise agreement.
 The Archbishop did not exercise his option to question Golangco’s rights as lessee
 April 7,1949: Golangco applied for fire insurance with Trader’s Insurance and Surety Co.
Page 33 of 39
 fire insurance policy states: "that all insurancecovered under said policy, includes the 'rent
or othersubject matter of insurance in respect of or inconnection with any building or any property
contained in any building"
 June 5, 1949: the building premises was burned so Golangco requested
Trader’s Insurance to pay the insurance amount of 10,000 including the amount of rent P1,100
monthly.
 Trader’s insurance refused to pay the insurance for the rent averring that Golangco has no
insurable interest
ISSUE: W/N Golangco has insurable interest on the rent of the building premises which may
lawfully/validly be subject of insurance?
HELD: YES.
 Sec. 13 of the Insurance Code: Every interest in the property, whether real or personal, or any
relation thereto, or liability in respect thereof of such nature that a contemplated peril might directly
damnify the insured, is an insurable interest.
 Both at the time of the issuance of the policy and at the time of the fire,
Golangco was in legal possession of the premises, collecting rentals from its occupant.
 The argument of Trader’s Insurance that a policy of insurance must specify the interest of the
insured in the property insured, if he is not the absolute owner thereof, is not meritorious because it
was the Trader’s, not Golangco, who prepared that policy, and it cannot take advantage of its own acts
to plaintiff's detriment; and, in any case, this provisionwas substantially complied with by Golangco
when he made a full and clear statement of his interests to Trader's manager.
 The contract between Lianco and the Archbishop only forbade Lianco from transferring
'his rights as LESSEE but the contracts Lianco made in favor of Kaw Eng Siand plaintiff Golangco did
not transfer such rights; hence no written consent thereto was necessary. At worst, the contract would
be voidable, but not a void contract, at the option of the Archbishop and it does not appear that it was
ever exercised
Insurance Case Digest: Lopez V. Del Rosario And Quiogue (1922)
G.R. No. L-19189 November 27, 1922
Lessons Applicable: Carrier or Depositary (Insurance)
Laws Applicable:
FACTS:
 Benita Quiogue de V. del Rosario (Mrs. del Rosario), owner of a bonded warehouse where Froilan
Lopez, holder or 14 waehouse receipts and Elias Zamora had their copra deposited

 The warehouse recipts states an insurance of 1% their declared value which can be increase or
decrease by giving 1 month's notice in writing
 Lopez paid the insurance to May 18, 1920, but not thereafter
 June 6, 1920: the warehouse was destroyed by fire. Only copra worth P49,985 was salvaged. At
that time Lopez was still liable for the storage and insurance of P315.90
 Mrs. Del Rosario submitted the insurance with the arbitrators and seems to have satisfied all of the
persons who had copra stored in her warehouse, including the stockholders in the Compañia Coprera
de Tayabas (whose stock she took over), with the exception of Froilan Lopez
 Ineffectual attempts by Mrs. Del Rosario to effect a compromise with Lopez first for P71,994,
later raised to P72,724, and finally reduced to P17,000, were made. But Lopez stubbornly contended,
or, at least, his attorney contended for him, that he should receive not a centavo less than P88,595.43
(from originally P107,990.40)
Issue:
Whether or not Del Rosario acted as the agent of Lopez in taking out the insurance on the contents of the
warehouse or whether she acted as the reinsurer of the copra.
Held:
She acted as the agent of Lopez.
The agency can be deduced from the warehouse receipts, the insurance policies and the circumstances
surrounding the transaction. Under any aspect, Del Rosario is liable. The law is that a policy effected by a
bailee and covering by its terms in his own property and property held in trust, inures, in the event of loss,
equally and proportionately to the benefit of all owners of the property insured. Even if one secured
insurance covering his own goods and goods stored with him, and even if the owner of the stored goods did
not request or know the insurance, and did not ratify it before the payment of the loss, it has been held by a
reputable court that the warehouseman is liable to the owner of such stored goods for his share.
In a case of contributing policies, adjustments of loss made by an expert or by a board of arbitrators may be
submitted to the court NOT as evidence of the facts stated therein, or as obligatory, but for the purpose of
assisting the court in calculating the amount of liability.
Insurance Case Digest: San Miguel Brewery V. Law Union And Rock Insurance Co. (1920)
G.R. No. L-14300 January 19, 1920
Lessons Applicable:
 Mortgagor (Insurance)
 Measure of Insurable Interest (Insurance)
 Effect of Change of Interest in Thing Insured (Insurance)
Page 34 of 39
 Effect of transfer of thing insured (Insurance)
Laws Applicable: sec. 16,sec. 19 (now sec. 20),sec. 50,sec.55 (now sec. 58) of the Insurance Code (all old
law)
FACTS:
 In the contract of mortgage, the owner P.D. Dunn had agreed, at his own expense, to insure the
mortgaged property for its full value and to indorse the policies in such manner as to authorize the
Brewery Company to receive the proceeds in case of loss and to retain such part thereof as might be
necessary to satisfy the remainder then due upon the mortgage debt. Instead, however, of effecting the
insurance himself Dunn authorized and requested the Brewery Company to procure insurance on the
property in the amount of P15,000 at Dunn's expense.
 San Miguel insured the property only as mortgagee.
 Dunn sold the propert to Henry Harding. The insurance was not assigned by Dunn to Harding.
 When it was destroyed by fire, the two companies settled with San Miguelto the extent of the
mortgage credit.
 RTC: Absolved the 2 companies from the difference. Henry Harding is not entitled to the
difference between the mortgage credit and the face value of the policies.
 Henry Harding appealed.
ISSUE:
1. W/N San Miguel has insurable interest as mortgagor only to the extent of the mortgage credit - YES
2. W/N Harding has insurable interest as owner - NO
HELD: affirmed
 section 19 of the Insurance Act:
 a change of interest in any part of a thing insured unaccompanied by a corresponding
change of interest in the insurance, suspends the insurance to an equivalent extent, until the interest in
the thing and the interest in the insurance are vested in the same person
 section 55:
 the mere transfer of a thing insured does not transfer the policy, but suspends it until the
same person becomes the owner of both the policy and the thing insured
 Undoubtedly these policies of insurance might have been so framed as to have been "payable to
the San Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever, during the
continuance of the risk, may become the owner of the interest insured." (Sec 54, Act No. 2427.) Such a
clause would have proved an intention to insure the entire interest in the property, not merely the
insurable interest of the San Miguel Brewery, and would have shown exactly to whom the money, in
case of loss, should be paid. But the policies are not so written.
 The blame for the situation thus created rests, however, with the Brewery rather than with the
insurance companies, and there is nothing in the record to indicate that the insurance companies were
requested to write insurance upon the insurable interest of the owner or intended to make themselves
liable to that extent
 If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the
policy, the parties are entitled to have it reformed. But to justify the reformation of a contract, the
proof must be of the most satisfactory character, and it must clearly appear that the contract failed to
express the real agreement between the parties
  In the case now before us the proof is entirely insufficient to authorize reformation.
Insurance Case Digest: Cha V. CA (1997)
G.R. No. 124520 August 18, 1997
Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)
Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code
FACTS:
 Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation entered a 1 year lease
contract with a stipulation not to insure against fire the chattels, merchandise, textiles, goods and
effects placed at any stall or store or space in the leased premises without first obtaining the written
consent and approval of the lessor. But it insured against loss by fire their merchandise inside the
leased premises for P500,000 with the United Insurance Co., Inc. without the written consent of CKS
 On the day the lease contract was to expire, fire broke out inside the leased premises and CKS
learning that the spouses procured an insurance wrote to United to have the proceeds be paid directly
to them. But United refused so CKS filed against Spouses Cha and United.
 RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay P50,000 as
exemplary damages, P20,000 as attorney’s fees and costs of suit
 CA: deleted exemplary damages and attorney’s fees
ISSUE: W/N the CKS has insurable interest because the spouses Cha violated the stipulation
HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.
 Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit
of some person having an insurable interest in the property insured
 A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist
a t the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent a person from taking
out an insurance policy on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a
mere wager which is void under Section 25 of the Insurance Code.
 SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the
person insured has or has not any interest in the property insured, or that the policy shall be received as
proof of such interest, and every policy executed by way of gaming or wagering, is void
 Section 17. The measure of an insurable interest in property is the extent to which the insured
might be damnified by loss of injury thereof
Page 35 of 39
 The automatic assignment of the policy to CKS under the provision of the lease contract
previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire
insurance policy thus rightfully belong to the spouses. The liability of the Cha spouses to CKS for
violating their lease contract in that Cha spouses obtained a fire insurance policy over their own
merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in
this case.
Insurance Case Digest: Tai Tong Chuache & Co. V. Insurance Commission (1988)
G.R. No. L-55397 February 29, 1988
Lessons Applicable: When Insurable Interest Must Exist (Insurance)
Laws Applicable:
FACTS:
 Azucena Palomo bought a parcel of land and building from Rolando Gonzales and assumed a
mortgage of the building in favor of S.S.S. which was insured with S.S.S. Accredited Group of
Insurers
 April 19, 1975: Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the amount of
P100,000 and to secure it, the land and building was mortgaged
 June 11, 1975: Pedro Palomo secured a Fire Insurance Policy covering the building for P50,000
with Zenith Insurance Corporation
 July 16, 1975: another Fire Insurance policy was procured from Philippine British Assurance
Company, covering the same building for P50,000 and the contents thereof for P70,000
 Before the occurrence of the peril insured against the Palomos had already paid their credit due the
 July 31, 1975: building and the contents were totally razed by fire
 Palomo was able to claim P41,546.79 from Philippine British Assurance Co., P11,877.14 from
Zenith Insurance Corporation and P5,936.57 from S.S.S. Group of Accredited Insurers but Travellers
Multi-Indemnity refused so it demanded the balance from the other three but they refused so they filed
against them
 Insurance Commission, CFI: absolved Travellers on the basis that Arsenio Cua was claiming and
NOT Tai Tong Chuache
 Palomo Appealed
 Travellers reasoned that the policy is endorsed to Arsenio Chua, mortgage creditor
 Tai Tong Chuache & Co. filed a complaint in intervention claiming the proceeds of the
fire Insurance Policy issued by travellers
 affirmative defense of lack of insurable interest that before the occurrence of the peril
insured against the Palomos had already paid their credit due the petitioner
ISSUE: W/N Tai Tong Chuache & Co. has insurable interest
HELD: YES. Travellers Multi-Indemnity Corporation to pay Tai Tong Chuache & Co.
  when the creditor is in possession of the document of credit, he need not prove non-payment for it
is presumed
 The validity of the insurance policy taken b petitioner was not assailed by private
respondent. Moreover, petitioner's claim that the loan extended to the Palomos has not yet been paid
was corroborated by Azucena Palomo who testified that they are still indebted to herein petitioner
 Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of the partnership.
Being an agent, it is understood that he acted for and in behalf of the firm
 Upon its failure to prove the allegation of lack of insurable interest on the part of the petitioner,
Travellers must be held liable
San Miguel Brewery V. Law Union And Rock Insurance Co. (1920)
G.R. No. L-14300 January 19, 1920
Lessons Applicable:
 Mortgagor (Insurance)
 Measure of Insurable Interest (Insurance)
 Effect of Change of Interest in Thing Insured (Insurance)
 Effect of transfer of thing insured (Insurance)
Laws Applicable: sec. 16,sec. 19 (now sec. 20),sec. 50,sec.55 (now sec. 58) of the Insurance Code (all old
law)
FACTS:
 In the contract of mortgage, the owner P.D. Dunn had agreed, at his own expense, to insure the
mortgaged property for its full value and to indorse the policies in such manner as to authorize the
Brewery Company to receive the proceeds in case of loss and to retain such part thereof as might be
necessary to satisfy the remainder then due upon the mortgage debt. Instead, however, of effecting the
insurance himself Dunn authorized and requested the Brewery Company to procure insurance on the
property in the amount of P15,000 at Dunn's expense.
 San Miguel insured the property only as mortgagee.
 Dunn sold the propert to Henry Harding. The insurance was not assigned by Dunn to Harding.
 When it was destroyed by fire, the two companies settled with San Miguelto the extent of the
mortgage credit.
 RTC: Absolved the 2 companies from the difference. Henry Harding is not entitled to the
difference between the mortgage credit and the face value of the policies.
 Henry Harding appealed.
ISSUE:
1. W/N San Miguel has insurable interest as mortgagor only to the extent of the mortgage credit - YES
2. W/N Harding has insurable interest as owner - NO
HELD: affirmed
 section 19 of the Insurance Act:
 a change of interest in any part of a thing insured unaccompanied by a corresponding
change of interest in the insurance, suspends the insurance to an equivalent extent, until the interest in
the thing and the interest in the insurance are vested in the same person
Page 36 of 39
 section 55:
 the mere transfer of a thing insured does not transfer the policy, but suspends it until the
same person becomes the owner of both the policy and the thing insured
 Undoubtedly these policies of insurance might have been so framed as to have been "payable to
the San Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever, during the
continuance of the risk, may become the owner of the interest insured." (Sec 54, Act No. 2427.) Such a
clause would have proved an intention to insure the entire interest in the property, not merely the
insurable interest of the San Miguel Brewery, and would have shown exactly to whom the money, in
case of loss, should be paid. But the policies are not so written.
 The blame for the situation thus created rests, however, with the Brewery rather than with the
insurance companies, and there is nothing in the record to indicate that the insurance companies were
requested to write insurance upon the insurable interest of the owner or intended to make themselves
liable to that extent
 If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in the
policy, the parties are entitled to have it reformed. But to justify the reformation of a contract, the
proof must be of the most satisfactory character, and it must clearly appear that the contract failed to
express the real agreement between the parties
 In the case now before us the proof is entirely insufficient to authorize reformation.
Insurance Case Digest: Bachrach V. British American Assurance Co. (1910)
G.R. No. L-5715 December 20, 1910
Lessons Applicable: Effect of Change of Interest in Thing Insured (Insurance)
Laws Applicable:
FACTS:
 E. M. Bachrach insured goods belonging to a general furniture store, such as iron and brass
bedsteads, toilet tables, chairs, ice boxes, bureaus, washstands, mirrors, and sea-grass furniture stored
in the ground floor and first story of house and dwelling with an authorized agent of the British
American Assurance Company
 British American Assurance Company denied alleging that:
 property covered by the policy to H. W. Peabody & Co. to secure certain indebtedness
due and owing to said company
 interest in certain of the goods covered by the said policy is trasnferred to Macke to
secure certain obligations assumed by Macke and on behalf of Bachrach
 willfully placed a gasoline can containing 10 gallons of gasoline close to the insured
goods
 made no proof of the loss with the time required by the condition
 RTC: British American Assurance Company liable to bACHRACH
ISSUE: W/N Bachrach can claim

HELD: YES. lower court affirmed
 keeping of inflammable oils on the premises, though prohibited by the policy, does not void it if
such keeping is incidental to the business
 It may be added that there was no provision in the policy prohibiting the keeping of paints and
varnishes upon the premises where the insured property was stored. If the company intended to rely
upon a condition of that character, it ought to have been plainly expressed in the policy.
 alienation clause - forfeiture if the interest in the property pass from the insured
 there is no alienation within the meaning of the insurance law until the mortgage acquires a right
to take possession by default under the terms of the mortgage. No such right is claimed to have
accrued in the case at bar, and the alienation clause is therefore inapplicable.
 we can not find that there is a preponderance of evidence showing that the plaintiff did actually set
fire or cause fire to be set to the goods in question
 It does not positively appear of record that the automobile in question was not included in the
other policies. It does appear that the automobile was saved and was considered as a part of the
salvaged. It is alleged that the salvage amounted to P4,000, including the automobile. This amount
(P4,000) was distributed among the different insurers and the amount of their responsibility was
proportionately reduced. The defendant and appellant in the present case made no objection at any
time in the lower court to that distribution of the salvage. The claim is now made for the first time.
Argente v West Coast G.R. No. L-24899 March 19, 1928
J. Malcolm
Facts:
Bernardo Argente signed an application for joint insurance with his wife in the sum of P2,000. The wife,
Vicenta de Ocampo, signed for the same. All the information contained in the applications was furnished
the agent by Bernardo Argente.
Argente was examined by Dr. Sta. Ana, a medical examiner for the West Coast. The result was recorded in
the Medical Examiner's Report, and with the exception of the signature of Bernardo Argente, was in the
hand-writing of Doctor Sta. Ana. But the information or answers to the questions contained on the face of
the Medical Examiner's Report were furnished the doctor by Argente.
Vicenta de Ocampo, wife of the plaintiff, was examined at her residence by the same doctor.
The spouses submitted to West Coast Life an amended application, increasing the amount to P15,000, and
asked that the policy be dated May 15, 1925. The amended application was accompanied by the documents
entitled "Short Form Medical Report." In both of these documents appear certain questions and answers.
A temporary policy for P15,000 was issued to Bernardo Argente and his wife as of May 15, but it was not
delivered until the first quarterly premium on the policy was paid. More than thirty days had elapsed since
the applicants were examined. Each of them was required to file a certificate of health before the policy
was delivered.
Vicenta de Ocampo died of cerebral apoplexy. Argente presented a claim in due form to the West Coast
Life Insurance Co. for the payment of the sum of P15,000. It was apparently disclosed that the answers
given by the insured in their medical examinations with regard to their health were untrue. West
Coastrefused to pay the claim and wrote Argente to the effect that the claim was rejected due to fraud.
Page 37 of 39
The trial court held the policy null and void, hence this appeal.
Issue: WON Argente and Ocampo were guilty of concealment and thereby misled the insurer into accepting
the risk?
Held: Yes. Petition dismissed.
Ratio:
Vicenta de Ocampo, in response to the question asked by the medical examiner, answered no to "Have you
ever consulted a physician for or have you ever suffered from any ailment or disease of the brain or nervous
system?" She also answered “none” as to the question whether she consumed alcohol of not.
To the question, "What physician or physicians, if any, not named above, have you consulted or been
treated by, within the last five years and for what illness or ailment?" she answered "None."
But the facts show that she was taken to San Lazaro Hospital, her case was diagnosed by the admitting
physician as "alcoholism”, moreover, she was diagnosed with "phycho-neurosis."
Section 25 of the Insurance Code defined concealment as "a neglect to communicate that which a party
knows and ought to communicate."
The court held that the alleged concealment was not immaterial and insufficient to avoid the policy. In an
action on a life insurance policy where the evidence conclusively shows that the answers to questions
concerning diseases were untrue, the truth of falsity of the answers become the determining factor. If the
true facts been disclosed by the assured, the insurance would never have been granted.
Concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must have
been intentionally withheld. If no inquiries are made and no fraud or design to conceal enters into the
concealment the contract is not avoided.
The assurer is entitled to know every material fact of which the assured has exclusive or peculiar
knowledge, as well as all material facts which directly tend to increase the hazard or risk which are known
by the assured, or which ought to be or are presumed to be known by him. And a concealment of such facts
vitiates the policy.
If the assured has exclusive knowledge of material facts, he should fully and fairly disclose the same,
whether he believes them material or not. The determination of the point whether there has or has not been
a material concealment must rest largely in all cases upon the exact terms of the contract.
Great Pacific v CA G.R. No. L-31845 April 30, 1979
J. De Castro
Facts:
Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy in the amount of
P50,000.00 on the life of his one-year old daughter Helen. He supplied the essential data which petitioner
Mondragon, the Branch Manager, wrote on the form. The latter paid the annual premium the sum of
P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as his commission for
being a duly authorized agent of Pacific Life.
Upon the payment of the insurance premium, the binding deposit receipt was issued Ngo Hing. Likewise,
petitioner Mondragon handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. Then Mondragon received a letter from
Pacific Life disapproving the insurance application. The letter stated that the said life insurance application
for 20-year endowment plan is not available for minors below seven years old, but Pacific Life can
consider the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the
Juvenile Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life
again strongly recommending the approval of the 20-year endowment insurance plan to children, pointing
out that since the customers were asking for such coverage.
Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the insurance, but having
failed in his effort, he filed the action for the recovery before the Court of First Instance of Cebu, which
ruled against him.
Issues:
1. Whether the binding deposit receipt constituted a temporary contract of the life insurance in question
2. Whether Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered
void the policy
Held: No. Yes. Petition dismissed.
Ratio:
The receipt was intended to be merely a provisional insurance contract. Its perfection was subject to
compliance of the following conditions: (1) that the company shall be satisfied that the applicant was
insurable on standard rates; (2) that if the company does not accept the application and offers to issue a
policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy
offered; otherwise, the deposit shall be refunded; and (3) that if the company disapproves the application,
the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the
applicant.
The receipt is merely an acknowledgment that the latter's branch office had received from the applicant the
insurance premium and had accepted the application subject for processing by the insurance company.
There was still approval or rejection the same on the basis of whether or not the applicant is "insurable on
standard rates." Since Pacific Life disapproved the insurance application of respondent Ngo Hing, the
binding deposit receipt in question had never become in force at any time. The binding deposit receipt is
conditional and does not insure outright. This was held in Lim v Sun.
Page 38 of 39
The deposit paid by private respondent shall have to be refunded by Pacific Life.
2. Ngo Hing had deliberately concealed the state of health of his daughter Helen Go. When he supplied
data, he was fully aware that his one-year old daughter is typically a mongoloid child. He withheld the fact
material to the risk insured.
“The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and
perfect candor or openness and honesty; the absence of any concealment or demotion, however slight.”
The concealment entitles the insurer to rescind the contract of insurance.
WEEK 7
Saturnino v. Philamlife - False Representation
Facts:
> 2 months prior to the insurance of the policy, Saturnino was operated on for cancer, involving complete
removal of the right breast, including the pectoral muscles and the glands, found in the right armpit.
> Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her application
for insurance.
> She stated therein that she did not have, nor had she ever had, among others listed in the application,
cancer or other tumors; that she had not consulted any physician, undergone any operation or suffered any
injury within the preceding 5 years.
> She also stated that she had never been treated for, nor did she ever have any illness or disease peculiar
to her sex, particularly of the breast, ovaries, uterus and menstrual disorders.
> The application also recited that the declarations of Saturnino constituted a further basis for the issuance
of the policy.
Issue:
Whether or not the insured made such false representation of material facts as to avoid the policy.
Held:
YES.
There can be no dispute that the information given by her in the application for insurance was false,
namely, that she never had cancer or tumors or consulted any physician or undergone any operation within
the preceding period of 5 years.
The question to determine is: Are the facts then falsely represented material? The Insurance Law provides
that “materiality is to be determined not by the event, but solely by the probable and reasonable influence
of the facts upon the party to whom the communication is due, in forming his estimate of the proposed
contract, or making his inquiries.
The contention of appellants is that the facts subject of the representation were not material in view of the
non-medical nature of the insurance applied for, which does away with the usual requirement of medical
examination before the policy is issued. The contention is without merit. If anything, the waiver of
medical examination renders even more material the information required of the applicant concerning
previous condition of health and diseases suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration in deciding whether to issue the policy or not.
Appellants also contend that there was no fraudulent concealment of the truth inasmuch as the insured
herself did not know, since her doctor never told her, that the disease for which she had been operated on
was cancer. In the first place, concealment of the fact of the operation itself was fraudulent, as there could
not have been any mistake about it, no matter what the ailment.
Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the part of the insured. In
this jurisdiction, concealment, whether intentional or unintentional entitled the insurer to rescind the
contract of insurance, concealment being defined as “negligence to communicate that which a party knows
and ought to communicate.” The basis of the rule vitiating the contract in cases of concealment is that it
misleads or deceives the insurer into accepting the risk, or accepting it at a rate of premium agreed upon.
The insurer, relying upon the belief that the insured will disclose every material fact within his actual or
presumed knowledge, is misled into a belief that the circumstances withheld does not exist, and he is
thereby induced to estimate the risk upon a false basis that it does not exist.

Page 39 of 39