G.R. No.

156167 May 16, 2005

GULF RESORTS, INC., petitioner,

vs.

PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

DECISION

PUNO, J.:

Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by
petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE
1
CORPORATION. Petitioner assails the appellate court decision which dismissed its two
appeals and affirmed the judgment of the trial court.

For review are the warring interpretations of petitioner and respondent on the scope of the
insurance company’s liability for earthquake damage to petitioner’s properties. Petitioner avers
that, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944 covers
all damages to the properties within its resort caused by earthquake. Respondent contends
that the rider limits its liability for loss to the two swimming pools of petitioner.

The facts as established by the court a quo, and affirmed by the appellate court are as follows:

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

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

@ .392%;

- 1,500,000.00 - on the furniture, etc. contained in the building

above-mentioned@ .490%;

- 393,000.00 - on the two swimming pools, only (against the peril

of earthquake shock only) @ 0.100%
 - 116,600.00 other buildings include as follows:

a) Tilter House - P19,800.00 - 0.551%

b) Power House - P41,000.00 - 0.551%

c) House Shed - P55,000.00 - 0.540%

P100,000.00 - for furniture, fixtures, lines air-con and operating

equipment

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

Rate-Various

Premium – P37,420.60 F/L

– 2,061.52 – Typhoon

– 1,030.76 – EC

– 393.00 – ES

Doc. Stamps 3,068.10

F.S.T. 776.89

Prem. Tax 409.05

 TOTAL 45,159.92;

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

In consideration of the payment by the insured to the company of the sum included additional
premium the Company agrees, notwithstanding what is stated in the printed conditions of this
policy due to the contrary, that this insurance covers loss or damage to shock to any of the
property insured by this Policy occasioned by or through or in consequence of earthquake
(Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C");

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

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

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

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

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

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

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5.) Costs.

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

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

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

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

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

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

13
No pronouncement as to costs.

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

A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY

RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY
NO. 31944, CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES SURROUNDING
THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS OF THE PARTIES
SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.

B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT’S RIGHT TO

RECOVER UNDER DEFENDANT-APPELLEE’S POLICY (NO. 31944; EXH "I") BY LIMITING
ITSELF TO A CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE
CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE
PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990.

C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS

ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER
ANNUM ON CLAIMS ON PROCEEDS OF POLICY.
On the other hand, respondent filed a partial appeal, assailing the lower court’s failure to award
it attorney’s fees and damages on its compulsory counterclaim.

After review, the appellate court affirmed the decision of the trial court and ruled, thus:

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

xxx

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

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

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

16
Petitioner filed the present petition raising the following issues:

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER

RESPONDENT’S INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING
POOLS, RATHER THAN ALL THE PROPERTIES COVERED THEREUNDER, ARE
INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONER’S PRAYER

FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED, ATTORNEY’S
FEES AND EXPENSES OF LITIGATION.

Petitioner contends:

First, that the policy’s earthquake shock endorsement clearly covers all of the properties
insured and not only the swimming pools. It used the words "any property insured by this
policy," and it should be interpreted as all inclusive.

Second, the unqualified and unrestricted nature of the earthquake shock endorsement is
confirmed in the body of the insurance policy itself, which states that it is "[s]ubject to: Other
Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage
17
Endt., FEA Warranty & Annual Payment Agreement On Long Term Policies."

Third, that the qualification referring to the two swimming pools had already been deleted in
the earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission
when it deleted the said qualification.

Fifth, that the earthquake shock endorsement rider should be given precedence over the
wording of the insurance policy, because the rider is the more deliberate expression of the
agreement of the contracting parties.

Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.

Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of
petitioner and against respondent. It was respondent which caused the ambiguity when it
made the policy in issue.

Eighth, the qualification of the endorsement limiting the earthquake shock endorsement
should be interpreted as a caveat on the standard fire insurance policy, such as to remove the
two swimming pools from the coverage for the risk of fire. It should not be used to limit the
respondent’s liability for earthquake shock to the two swimming pools only.

Ninth, there is no basis for the appellate court to hold that the additional premium was not paid
under the extended coverage. The premium for the earthquake shock coverage was already
included in the premium paid for the policy.

Tenth, the parties’ contemporaneous and subsequent acts show that they intended to extend
earthquake shock coverage to all insured properties. When it secured an insurance policy from
respondent, petitioner told respondent that it wanted an exact replica of its latest insurance
policy from American Home Assurance Company (AHAC-AIU), which covered all the resort’s
properties for earthquake shock damage and respondent agreed. After the July 16, 1990
earthquake, respondent assured petitioner that it was covered for earthquake shock.
Respondent’s insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise requested
petitioner to submit the necessary documents for its building claims and other repair costs.
Thus, under the doctrine of equitable estoppel, it cannot deny that the insurance policy it issued
to petitioner covered all of the properties within the resort.

Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of
the Revised Rules of Court as its remedy, and there is no need for calibration of the evidence
in order to establish the facts upon which this petition is based.

18
On the other hand, respondent made the following counter arguments:

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended
coverage against earthquake shock to petitioner’s insured properties other than on the two
swimming pools. Petitioner admitted that from 1984 to 1988, only the two swimming pools
were insured against earthquake shock. From 1988 until 1990, the provisions in its policy were
practically identical to its earlier policies, and there was no increase in the premium paid.
19
AHAC-AIU, in a letter by its representative Manuel C. Quijano, categorically stated that its
previous policy, from which respondent’s policy was copied, covered only earthquake shock
for the two swimming pools.

Second, petitioner’s payment of additional premium in the amount of P393.00 shows that the
policy only covered earthquake shock damage on the two swimming pools. The amount was
the same amount paid by petitioner for earthquake shock coverage on the two swimming pools
from 1990-1991. No additional premium was paid to warrant coverage of the other properties
in the resort.

Third, the deletion of the phrase pertaining to the limitation of the earthquake shock
endorsement to the two swimming pools in the policy schedule did not expand the earthquake
shock coverage to all of petitioner’s properties. As per its agreement with petitioner,
respondent copied its policy from the AHAC-AIU policy provided by petitioner. Although the
first five policies contained the said qualification in their rider’s title, in the last two policies, this
qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such
deletion was a mere inadvertence. This inadvertence did not make the policy incomplete, nor
did it broaden the scope of the endorsement whose descriptive title was merely enumerated.
Any ambiguity in the policy can be easily resolved by looking at the other provisions, specially
the enumeration of the items insured, where only the two swimming pools were noted as
covered for earthquake shock damage.

Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the
phrase "Item 5 – P393,000.00 – on the two swimming pools only (against the peril of
earthquake shock only)" meant that only the swimming pools were insured for earthquake
damage. The same phrase is used in toto in the policies from 1989 to 1990, the only difference
being the designation of the two swimming pools as "Item 3."

Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid
for all the properties covered. In all of its seven insurance policies, petitioner only paid P393.00
as premium for coverage of the swimming pools against earthquake shock. No other premium
was paid for earthquake shock coverage on the other properties. In addition, the use of the
qualifier "ANY" instead of "ALL" to describe the property covered was done deliberately to
enable the parties to specify the properties included for earthquake coverage.

Sixth, petitioner did not inform respondent of its requirement that all of its properties must be
included in the earthquake shock coverage. Petitioner’s own evidence shows that it only
required respondent to follow the exact provisions of its previous policy from AHAC-AIU.
Respondent complied with this requirement. Respondent’s only deviation from the agreement
was when it modified the provisions regarding the replacement cost endorsement. With regard
to the issue under litigation, the riders of the old policy and the policy in issue are identical.

Seventh, respondent did not do any act or give any assurance to petitioner as would estop it
from maintaining that only the two swimming pools were covered for earthquake shock. The
adjuster’s letter notifying petitioner to present certain documents for its building claims and
repair costs was given to petitioner before the adjuster knew the full coverage of its policy.

Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of the phrase "Item 5 Only"
after the descriptive name or title of the Earthquake Shock Endorsement. However, the words
of the policy reflect the parties’ clear intention to limit earthquake shock coverage to the two
swimming pools.

Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not
object to any deficiency nor did it institute any action to reform the policy. The policy binds the
petitioner.

Eighth, there is no basis for petitioner to claim damages, attorney’s fees and litigation
expenses. Since respondent was willing and able to pay for the damage caused on the two
swimming pools, it cannot be considered to be in default, and therefore, it is not liable for
interest.

We hold that the petition is devoid of merit.

In Insurance Policy No. 31944, four key items are important in the resolution of the case at
bar.

First, in the designation of location of risk, only the two swimming pools were specified as
included, viz:
ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against the peril of earthquake
20
shock only)

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

PREMIUM RECAPITULATION

ITEM NOS. AMOUNT RATES PREMIUM

xxx

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

393.00

Third, Policy Condition No. 6 stated:

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

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

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

ANNUAL PAYMENT AGREEMENT ON

LONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS

INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT
OF 5% OR 7 ½ % OF THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO
CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE
PREMIUM.

Earthquake Endorsement

In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . .

. . . . . additional premium the Company agrees, notwithstanding what is stated in the printed
conditions of this Policy to the contrary, that this insurance covers loss or damage (including
loss or damage by fire) to any of the property insured by this Policy occasioned by or through
or in consequence of Earthquake.

Provided always that all the conditions of this Policy shall apply (except in so far as they may
be hereby expressly varied) and that any reference therein to loss or damage by fire should
be deemed to apply also to loss or damage occasioned by or through or in consequence of
24
Earthquake.

Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of
the earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all
of the insured properties.
It is basic that all the provisions of the insurance policy should be examined and interpreted in
25
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.
Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other
provisions. All the provisions and riders, taken and interpreted together, indubitably show the
intention of the parties to extend earthquake shock coverage to the two swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent of the
parties to extend earthquake shock coverage only to the two swimming pools. Section 2(1) of
the Insurance Code defines a contract of insurance as an agreement whereby one undertakes
for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. Thus, an insurance contract exists where the following elements
concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk; and

26
5. In consideration of the insurer's promise, the insured pays a premium. (Emphasis
ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify the
27
insured against a specified peril. In fire, casualty, and marine insurance, the premium
28
payable becomes a debt as soon as the risk attaches. In the subject policy, no premium
payments were made with regard to earthquake shock coverage, except on the two swimming
pools. There is no mention of any premium payable for the other resort properties with regard
to earthquake shock. This is consistent with the history of petitioner’s previous insurance
policies from AHAC-AIU. As borne out by petitioner’s witnesses:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 12-13

Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during
the period from March 4, 1984 to March 4, 1985 the coverage on earthquake shock was limited
to the two swimming pools only?

A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is
a provision here that it was only for item 5.

Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two
swimming pools only?

A. Yes, sir.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 23-26

Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for
the procurement of this policy?
A. Yes, sir.

Q. Did you also do this through your insurance agency?

A. If you are referring to Forte Insurance Agency, yes.

Q. Is Forte Insurance Agency a department or division of your company?

A. No, sir. They are our insurance agency.

Q. And they are independent of your company insofar as operations are concerned?

A. Yes, sir, they are separate entity.

Q. But insofar as the procurement of the insurance policy is concerned they are of course
subject to your instruction, is that not correct?

A. Yes, sir. The final action is still with us although they can recommend what insurance to
take.

Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989,
did you give written instruction to Forte Insurance Agency advising it that the earthquake shock
coverage must extend to all properties of Agoo Playa Resort in La Union?

A. No, sir. We did not make any written instruction, although we made an oral instruction to
that effect of extending the coverage on (sic) the other properties of the company.

Q. And that instruction, according to you, was very important because in April 1987 there was
an earthquake tremor in La Union?

A. Yes, sir.

Q. And you wanted to protect all your properties against similar tremors in the [future], is that
correct?

A. Yes, sir.

Q. Now, after this policy was delivered to you did you bother to check the provisions with
respect to your instructions that all properties must be covered again by earthquake shock
endorsement?

A. Are you referring to the insurance policy issued by American Home Assurance Company
marked Exhibit "G"?

Atty. Mejia: Yes.

Witness:

A. I examined the policy and seeing that the warranty on the earthquake shock endorsement
has no more limitation referring to the two swimming pools only, I was contented already that
the previous limitation pertaining to the two swimming pools was already removed.

Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance
Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage
29
Endorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies"
to the insurance policy as proof of the intent of the parties to extend the coverage for
earthquake shock. However, this phrase is merely an enumeration of the descriptive titles of
the riders, clauses, warranties or endorsements to which the policy is subject, as required
under Section 50, paragraph 2 of the Insurance Code.
We also hold that no significance can be placed on the deletion of the qualification limiting the
coverage to the two swimming pools. The earthquake shock endorsement cannot stand alone.
As explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU:

30
DIRECT EXAMINATION OF JUAN BARANDA III

TSN, August 11, 1992

pp. 9-12

Atty. Mejia:

We respectfully manifest that the same exhibits C to H inclusive have been previously marked
by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to review of (sic)
these six (6) policies issued by your company [in favor] of Agoo Playa Resort?

WITNESS:

Yes[,] I remember having gone over these policies at one point of time, sir.

Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively
carries an earthquake shock endorsement[?] My question to you is, on the basis on (sic) the
wordings indicated in Exhibits C to H respectively what was the extent of the coverage [against]
the peril of earthquake shock as provided for in each of the six (6) policies?

xxx

WITNESS:

The extent of the coverage is only up to the two (2) swimming pools, sir.

Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?

A. Yes, sir.

ATTY. MEJIA:

What is your basis for stating that the coverage against earthquake shock as provided for in
each of the six (6) policies extend to the two (2) swimming pools only?

WITNESS:

Because it says here in the policies, in the enumeration "Earthquake Shock Endorsement, in
the Clauses and Warranties: Item 5 only (Earthquake Shock Endorsement)," sir.

ATTY. MEJIA:

Witness referring to Exhibit C-1, your Honor.

WITNESS:

We do not normally cover earthquake shock endorsement on stand alone basis. For swimming
pools we do cover earthquake shock. For building we covered it for full earthquake coverage
which includes earthquake shock…

COURT:

As far as earthquake shock endorsement you do not have a specific coverage for other things
other than swimming pool? You are covering building? They are covered by a general
insurance?
WITNESS:

Earthquake shock coverage could not stand alone. If we are covering building or another we
can issue earthquake shock solely but that the moment I see this, the thing that comes to my
mind is either insuring a swimming pool, foundations, they are normally affected by earthquake
but not by fire, sir.

DIRECT EXAMINATION OF JUAN BARANDA III

TSN, August 11, 1992

pp. 23-25

Q. Plaintiff’s witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F
inclusive [remained] its coverage against earthquake shock to two (2) swimming pools only
but that Exhibits G and H respectively entend the coverage against earthquake shock to all
the properties indicated in the respective schedules attached to said policies, what can you
say about that testimony of plaintiff’s witness?

WITNESS:

As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it.
I assure you that this one covers the two swimming pools with respect to earthquake shock
endorsement. Based on it, if we are going to look at the premium there has been no change
with respect to the rates. Everytime (sic) there is a renewal if the intention of the insurer was
to include the earthquake shock, I think there is a substantial increase in the premium. We are
not only going to consider the two (2) swimming pools of the other as stated in the policy. As I
see, there is no increase in the amount of the premium. I must say that the coverage was not
broaden (sic) to include the other items.

COURT:

They are the same, the premium rates?

WITNESS:

They are the same in the sence (sic), in the amount of the coverage. If you are going to do
some computation based on the rates you will arrive at the same premiums, your Honor.

CROSS-EXAMINATION OF JUAN BARANDA III

TSN, September 7, 1992

pp. 4-6

ATTY. ANDRES:

Would you as a matter of practice [insure] swimming pools for fire insurance?

WITNESS:

No, we don’t, sir.

Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" was placed,
is it not?

A. Yes, sir.

ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed
to during your direct-examination, the phrase "Item no. 5 only" meaning to (sic) the two (2)
swimming pools was deleted from the policies issued by AIU, is it not?

xxx

ATTY. ANDRES:

As an insurance executive will you not attach any significance to the deletion of the qualifying
phrase for the policies?

WITNESS:

My answer to that would be, the deletion of that particular phrase is inadvertent. Being a
company underwriter, we do not cover. . it was inadvertent because of the previous policies
that we have issued with no specific attachments, premium rates and so on. It was inadvertent,
sir.

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

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992

pp. 4-5

Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell
Atty. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the policy from Philippine
Charter Insurance Corporation?

A. I told him that the insurance that they will have to get will have the same provisions as this
American Home Insurance Policy No. 206-4568061-9.

Q. You are referring to Exhibit "H" of course?

A. Yes, sir, to Exhibit "H".

Q. So, all the provisions here will be the same except that of the premium rates?

A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be
charging will be limited to this one. I (sic) can even be lesser.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992

pp. 12-14

Atty. Mejia:

Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and
scope of coverage of Exhibits "I" and "H" sometime in the third week of March, 1990 or
thereabout?

A. Yes, sir, about that time.

Q. And at that time did you notice any discrepancy or difference between the policy wordings
as well as scope of coverage of Exhibits "I" and "H" respectively?

A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the
policy wordings and rates were copied from the insurance policy I sent them but it was only
when this case erupted that we discovered some discrepancies.

Q. With respect to the items declared for insurance coverage did you notice any discrepancy
at any time between those indicated in Exhibit "I" and those indicated in Exhibit "H"
respectively?

A. With regard to the wordings I did not notice any difference because it was exactly the same
P393,000.00 on the two (2) swimming pools only against the peril of earthquake shock which
I understood before that this provision will have to be placed here because this particular
provision under the peril of earthquake shock only is requested because this is an insurance
policy and therefore cannot be insured against fire, so this has to be placed.

The verbal assurances allegedly given by respondent’s representative Atty. Umlas were not
proved. Atty. Umlas categorically denied having given such assurances.

Finally, petitioner puts much stress on the letter of respondent’s independent claims adjuster,
Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne
Adjusters and Surveyors, Inc., respondent never meant to lead petitioner to believe that the
endorsement for earthquake shock covered properties other than the two swimming pools, viz:

DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.)

TSN, January 26, 1993

pp. 22-26

Q. Do you recall the circumstances that led to your discussion regarding the extent of coverage
of the policy issued by Philippine Charter Insurance Corporation?

A. I remember that when I returned to the office after the inspection, I got a photocopy of the
insurance coverage policy and it was indicated under Item 3 specifically that the coverage is
only for earthquake shock. Then, I remember I had a talk with Atty. Umlas (sic), and I relayed
to him what I had found out in the policy and he confirmed to me indeed only Item 3 which
were the two swimming pools have coverage for earthquake shock.

xxx

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

xxx

A. I based my statement on my findings, because upon my examination of the policy I found

out that under Item 3 it was specific on the wordings that on the two swimming pools only, then
enclosed in parenthesis (against the peril[s] of earthquake shock only), and secondly, when I
examined the summary of premium payment only Item 3 which refers to the swimming pools
have a computation for premium payment for earthquake shock and all the other items have
no computation for payment of premiums.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely
on the general rule that insurance contracts are contracts of adhesion which should be liberally
construed in favor of the insured and strictly against the insurer company which usually
31
prepares it. A contract of adhesion is one wherein a party, usually a corporation, prepares
the stipulations in the contract, while the other party merely affixes his signature or his
"adhesion" thereto. Through the years, the courts have held that in these type of contracts, the
parties do not bargain on equal footing, the weaker party's participation being reduced to the
alternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker party
32
whom the courts of justice must protect. Consequently, any ambiguity therein is resolved
33
against the insurer, or construed liberally in favor of the insured.

The case law will show that this Court will only rule out blind adherence to terms where facts
34
and circumstances will show that they are basically one-sided. Thus, we have called on
lower courts to remain careful in scrutinizing the factual circumstances behind each case to
determine the efficacy of the claims of contending parties. In Development Bank of the
35
Philippines v. National Merchandising Corporation, et al., the parties, who were acute
businessmen of experience, were presumed to have assented to the assailed documents with
full knowledge.

We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot
claim it did not know the provisions of the policy. From the inception of the policy, petitioner
had required the respondent to copy verbatim the provisions and terms of its latest insurance
policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in
securing the insurance policy of petitioner, is reflective of petitioner’s knowledge, viz:

36
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC

TSN, September 23, 1991

pp. 20-21

Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities
in Agoo Playa?

A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter
Insurance Corporation as long as it will follow the same or exact provisions of the previous
insurance policy we had with American Home Assurance Corporation.

Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the
American Home Insurance policy are to be incorporated in the PCIC policy?

A. Yes, sir.

Q. What steps did you take?

A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically
told him that the policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.

Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-
4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in some
terms, specifically in the replacement cost endorsement, but the principal provisions of the
policy remained essentially similar to AHAC-AIU’s policy. Consequently, we cannot apply the
"fine print" or "contract of adhesion" rule in this case as the parties’ intent to limit the coverage
37
of the policy to the two swimming pools only is not ambiguous.

IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for
certiorari is dismissed. No costs.

SO ORDERED.
================================================================

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 184300 July 11, 2012

MALAYAN INSURANCE CO., INC., Petitioner,

vs.

PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE FORWARDER

SERVICES, INC., Respondents.

DECISION

REYES, J.:

Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan Insurance Co.,
1 2
lnc. (Malayan) assailing the Decision dated February 29, 2008 and Resolution dated
August 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 71204 which affirmed with
modification the decision of the Regional Trial Court (RTC), Branch 38 of Manila.

Antecedent Facts

Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services,
Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter
undertook to transport and deliver the former’s products to its customers, dealers or
3
salesmen.

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from
respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over
its own products. Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and
other products usual or incidental to the insured’s business while the same were being
transported or shipped in the Philippines. The policy covers all risks of direct physical loss or
damage from any external cause, if by land, and provides a limit of P6,000,000.00 per any one
land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned
4
out, however, that the contract was not signed by Wyeth’s representative/s. Nevertheless, it
was admittedly signed by Reputable’s representatives, the terms thereof faithfully observed
by the parties and, as previously stated, the same contract of carriage had been annually
5
executed by the parties every year since 1989.

Under the contract, Reputable undertook to answer for "all risks with respect to the goods and
shall be liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the
goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm,
earthquakes, lightning, and other force majeure while the goods/products are in transit and
6
until actual delivery to the customers, salesmen, and dealers of the COMPANY".
 7
The contract also required Reputable to secure an insurance policy on Wyeth’s goods. Thus,
on February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR Policy) with
petitioner Malayan for the amount of P1,000,000.00.

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable
received from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be delivered
by Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same
date, the truck carrying Wyeth’s products was hijacked by about 10 armed men. They
threatened to kill the truck driver and two of his helpers should they refuse to turn over the
truck and its contents to the said highway robbers. The hijacked truck was recovered two
weeks later without its cargo.

On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to
the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines First then demanded
reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of the
payment. The latter, however, ignored the demand.

Consequently, Philippines First instituted an action for sum of money against Reputable on
8
August 12, 1996. In its complaint, Philippines First stated that Reputable is a "private
9
corporation engaged in the business of a common carrier." In its answer, Reputable claimed
that it is a private carrier. It also claimed that it cannot be made liable under the contract of
carriage with Wyeth since the contract was not signed by Wyeth’s representative and that the
cause of the loss was force majeure, i.e., the hijacking incident.

Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect

the amount covered in the SR Policy. According to Reputable, "it was validly insured with
Malayan for P1,000,000.00 with respect to the lost products under the latter’s Insurance Policy
No. SR-0001-02577 effective February 1, 1994 to February 1, 1995" and that the SR Policy
10
covered the risk of robbery or hijacking.

Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy,
the insurance does not cover any loss or damage to property which at the time of the
happening of such loss or damage is insured by any marine policy and that the SR Policy
expressly excluded third-party liability.

11
After trial, the RTC rendered its Decision finding Reputable liable to Philippines First for the
amount of indemnity it paid to Wyeth, among others. In turn, Malayan was found by the RTC
to be liable to Reputable to the extent of the policy coverage. The dispositive portion of the
RTC decision provides:

WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable] liable
for the loss of the Wyeth products and orders it to pay Philippines First the following:

1. the amount of P2,133,257.00 representing the amount paid by Philippines First to Wyeth
for the loss of the products in question;

2. the amount of P15,650.00 representing the adjustment fees paid by Philippines First to
hired adjusters/surveyors;

3. the amount of P50,000.00 as attorney’s fees; and

4. the costs of suit.

On the third-party Complaint, judgment is hereby rendered finding

Malayan liable to indemnify [Reputable] the following:

1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;

2. the amount of P50,000.00 as attorney’s fees; and

3. the costs of suit.

12
SO ORDERED.

Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC decision.

Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was
binding despite Wyeth’s failure to sign the same. Reputable further contended that the
provisions of the contract are unreasonable, unjust, and contrary to law and public policy.

For its part, Malayan invoked Section 5 of its SR Policy, which provides:

Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss
or damage to property which at the time of the happening of such loss or damage is insured
by or would but for the existence of this policy, be insured by any Fire or Marine policy or
policies except in respect of any excess beyond the amount which would have been payable
under the Fire or Marine policy or policies had this insurance not been effected.

Malayan argued that inasmuch as there was already a marine policy issued by Philippines
First securing the same subject matter against loss and that since the monetary
coverage/value of the Marine Policy is more than enough to indemnify the hijacked cargo,
Philippines First alone must bear the loss.

Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed
that it be held liable for no more than P468,766.70, its alleged pro-rata share of the loss based
on the amount covered by the policy, subject to the provision of Section 12 of the SR Policy,
which states:

12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any
property hereby insured, there be any other subsisting insurance or insurances, whether
effected by the insured or by any other person or persons, covering the same property, the
company shall not be liable to pay or contribute more than its ratable proportion of such loss
or damage.

On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the RTC,
the decretal portion of which reads:

WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September 2000, as
modified in the Order dated 21 July 2001, is AFFIRMED with MODIFICATION in that the award
of attorney’s fees in favor of Reputable is DELETED.

13
SO ORDERED.

The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of the
contract of carriage on the ground of lack of signature of Wyeth’s representative/s; (2)
Reputable is liable under the contract for the value of the goods even if the same was lost due
to fortuitous event; and (3) Section 12 of the SR Policy prevails over Section 5, it being the
latter provision; however, since the ratable proportion provision of Section 12 applies only in
case of double insurance, which is not present, then it should not be applied and Malayan
14
should be held liable for the full amount of the policy coverage, that is, P1,000,000.00.

On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was
15
denied by the CA in its Resolution dated August 28, 2008.

Hence, this petition.

Malayan insists that the CA failed to properly resolve the issue on the "statutory limitations on
the liability of common carriers" and the "difference between an ‘other insurance clause’ and
an ‘over insurance clause’."

Malayan also contends that the CA erred when it held that Reputable is a private carrier and
should be bound by the contractual stipulations in the contract of carriage. This argument is
based on its assertion that Philippines First judicially admitted in its complaint that Reputable
is a common carrier and as such, Reputable should not be held liable pursuant to Article
16
1745(6) of the Civil Code. Necessarily, if Reputable is not liable for the loss, then there is
no reason to hold Malayan liable to Reputable.

Further, Malayan posits that there resulted in an impairment of contract when the CA failed to
apply the express provisions of Section 5 (referred to by Malayan as over insurance clause)
and Section 12 (referred to by Malayan as other insurance clause) of its SR Policy as these
provisions could have been read together there being no actual conflict between them.

Reputable, meanwhile, contends that it is exempt from liability for acts committed by
thieves/robbers who act with grave or irresistible threat whether it is a common carrier or a
private/special carrier. It, however, maintains the correctness of the CA ruling that Malayan is
liable to Philippines First for the full amount of its policy coverage and not merely a ratable
portion thereof under Section 12 of the SR Policy.

Finally, Philippines First contends that the factual finding that Reputable is a private carrier
should be accorded the highest degree of respect and must be considered conclusive between
the parties, and that a review of such finding by the Court is not warranted under the
circumstances. As to its alleged judicial admission that Reputable is a common carrier,
Philippines First proffered the declaration made by Reputable that it is a private carrier. Said
declaration was allegedly reiterated by Reputable in its third party complaint, which in turn was
duly admitted by Malayan in its answer to the said third-party complaint. In addition, Reputable
even presented evidence to prove that it is a private carrier.

As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated the
ruling of the CA. Philippines First, however, prayed for a slight modification of the assailed
decision, praying that Reputable and Malayan be rendered solidarily liable to it in the amount
of P998,000.00, which represents the balance from the P1,000.000.00 coverage of the SR
17
Policy after deducting P2,000.00 under Section 10 of the said SR Policy.

Issues

The liability of Malayan under the SR Policy hinges on the following issues for resolution:

1) Whether Reputable is a private carrier;

2) Whether Reputable is strictly bound by the stipulations in its contract of carriage with Wyeth,
such that it should be liable for any risk of loss or damage, for any cause whatsoever, including
that due to theft or robbery and other force majeure;
3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the
SR Policy; and

4) Whether Reputable should be held solidarily liable with Malayan for the amount of
P998,000.00 due to Philippines First.

The Court’s Ruling

On the first issue – Reputable is a private carrier.

The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched in
jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respect and considered conclusive
between the parties, save for certain exceptional and meritorious circumstances, none of
18
which are present in this case.

Malayan relies on the alleged judicial admission of Philippines First in its complaint that
19
Reputable is a common carrier. Invoking Section 4, Rule 129 of the Rules on Evidence that
"an admission verbal or written, made by a party in the course of the proceeding in the same
case, does not require proof," it is Malayan’s position that the RTC and CA should have ruled
that

Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code,
the liability of Reputable for the loss of Wyeth’s goods should be dispensed with, or at least
diminished.

It is true that judicial admissions, such as matters alleged in the pleadings do not require proof,
and need not be offered to be considered by the court. "The court, for the proper decision of
the case, may and should consider, without the introduction of evidence, the facts admitted by
20
the parties." The rule on judicial admission, however, also states that such allegation,
21
statement, or admission is conclusive as against the pleader, and that the facts alleged in
22
the complaint are deemed admissions of the plaintiff and binding upon him. In this case,
the pleader or the plaintiff who alleged that Reputable is a common carrier was Philippines
First. It cannot, by any stretch of imagination, be made conclusive as against Reputable whose
nature of business is in question.

It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and
Reputable; rather, it is a mere subrogee to the right of Wyeth to collect from Reputable under
the terms of the contract of carriage. Philippines First is not in any position to make any
admission, much more a definitive pronouncement, as to the nature of Reputable’s business
and there appears no other connection between Philippines First and Reputable which
suggests mutual familiarity between them.

Moreover, records show that the alleged judicial admission of Philippines First was essentially
disputed by Reputable when it stated in paragraphs 2, 4, and 11 of its answer that it is actually
23
a private or special carrier. In addition, Reputable stated in paragraph 2 of its third-party
24
complaint that it is "a private carrier engaged in the carriage of goods." Such allegation
25
was, in turn, admitted by Malayan in paragraph 2 of its answer to the third-party complaint.
There is also nothing in the records which show that Philippines First persistently maintained
its stance that Reputable is a common carrier or that it even contested or proved otherwise
Reputable’s position that it is a private or special carrier.

Hence, in the face of Reputable’s contrary admission as to the nature of its own business,
what was stated by Philippines First in its complaint is reduced to nothing more than mere
allegation, which must be proved for it to be given any weight or value. The settled rule is that
26
mere allegation is not proof.

More importantly, the finding of the RTC and CA that Reputable is a special or private carrier
is warranted by the evidence on record, primarily, the unrebutted testimony of Reputable’s
Vice President and General Manager, Mr. William Ang Lian Suan, who expressly stated in
27
open court that Reputable serves only one customer, Wyeth.

Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or
associations engaged in the business of carrying or transporting passenger or goods, or both
by land, water or air for compensation, offering their services to the public. On the other hand,
a private carrier is one wherein the carriage is generally undertaken by special agreement and
28
it does not hold itself out to carry goods for the general public. A common carrier becomes
a private carrier when it undertakes to carry a special cargo or chartered to a special person
29
only. For all intents and purposes, therefore, Reputable operated as a private/special
carrier with regard to its contract of carriage with Wyeth.

On the second issue – Reputable is bound by the terms of the contract of carriage.

The extent of a private carrier’s obligation is dictated by the stipulations of a contract it entered
into, provided its stipulations, clauses, terms and conditions are not contrary to law, morals,
good customs, public order, or public policy. "The Civil Code provisions on common carriers
should not be applied where the carrier is not acting as such but as a private carrier. Public
30
policy governing common carriers has no force where the public at large is not involved."

Thus, being a private carrier, the extent of Reputable’s liability is fully governed by the
stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for the
loss of the goods/products due to any and all causes whatsoever, including theft, robbery and
other force majeure while the goods/products are in transit and until actual delivery to Wyeth’s
31
customers, salesmen and dealers.

On the third issue – other insurance vis-à-vis over insurance.

Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12
32
as a "modified ‘other insurance’ clause". In rendering inapplicable said provisions in the SR
Policy, the CA ruled in this wise:

Since Sec. 5 calls for Malayan’s complete absolution in case the other insurance would be
sufficient to cover the entire amount of the loss, it is in direct conflict with Sec. 12 which
provides only for a pro-rated contribution between the two insurers. Being the later provision,
and pursuant to the rules on interpretation of contracts, Sec. 12 should therefore prevail.

xxxx

x x x The intention of both Reputable and Malayan should be given effect as against the
wordings of Sec. 12 of their contract, as it was intended by the parties to operate only in case
of double insurance, or where the benefits of the policies of both plaintiff-appellee and Malayan
should pertain to Reputable alone. But since the court a quo correctly ruled that there is no
double insurance in this case inasmuch as Reputable was not privy thereto, and therefore did
not stand to benefit from the policy issued by plaintiff-appellee in favor of Wyeth, then
Malayan’s stand should be rejected.

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to
Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would
not be entitled to recover said amount for the simple reason that the same property is covered
by another insurance policy, a policy to which it was not a party to and much less, from which
it did not stand to benefit. Plainly, this unfair situation could not have been the intention of both
33
Reputable and Malayan in signing the insurance contract in question.

In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions
applicable under distinct circumstances. Malayan argues that "it will not be completely
absolved under Section 5 of its policy if it were the assured itself who obtained additional
insurance coverage on the same property and the loss incurred by Wyeth’s cargo was more
than that insured by Philippines First’s marine policy. On the other hand, Section 12 will not
completely absolve Malayan if additional insurance coverage on the same cargo were
obtained by someone besides Reputable, in which case Malayan’s SR policy will contribute or
34
share ratable proportion of a covered cargo loss."

Malayan’s position cannot be countenanced.

Section 5 is actually the other insurance clause (also called "additional insurance" and "double
35
insurance"), one akin to Condition No. 3 in issue in Geagonia v. CA, which validity was
upheld by the Court as a warranty that no other insurance exists. The Court ruled that
36
Condition No. 3 is a condition which is not proscribed by law as its incorporation in the
policy is allowed by Section 75 of the Insurance Code. It was also the Court’s finding that unlike
the other insurance clauses, Condition No. 3 does not absolutely declare void any violation
thereof but expressly provides that the condition "shall not apply when the total insurance or
insurances in force at the time of the loss or damage is not more than P200,000.00."

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity
of the SR Policy but simply limits the liability of Malayan only up to the excess of the amount
that was not covered by the other insurance policy. In interpreting the "other insurance clause"
in Geagonia, the Court ruled that the prohibition applies only in case of double insurance. The
Court ruled that in order to constitute a violation of the clause, the other insurance must be
upon same subject matter, the same interest therein, and the same risk. Thus, even though
the multiple insurance policies involved were all issued in the name of the same assured, over
the same subject matter and covering the same risk, it was ruled that there was no violation of
the "other insurance clause" since there was no double insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly,
it covers the situation where there is over insurance due to double insurance. In such case,
Section 15 provides that Malayan shall "not be liable to pay or contribute more than its ratable
proportion of such loss or damage." This is in accord with the principle of contribution provided
37
under Section 94(e) of the Insurance Code, which states that "where the insured is over
insured by double insurance, each insurer is bound, as between himself and the other insurers,
to contribute ratably to the loss in proportion to the amount for which he is liable under his
contract."
Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal
question that now arises is whether there is double insurance in this case such that either
Section 5 or Section 12 of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance exists where
the same person is insured by several insurers separately in respect to the same subject and
38
interest. The requisites in order for double insurance to arise are as follows:

1. The person insured is the same;

2. Two or more insurers insuring separately;

3. There is identity of subject matter;

4. There is identity of interest insured; and

5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued
over the same subject matter, i.e. goods belonging to Wyeth, and both covered the same peril
insured against, it is, however, beyond cavil that the said policies were issued to two different
persons or entities. It is undisputed that Wyeth is the recognized insured of Philippines First
under its Marine Policy, while Reputable is the recognized insured of Malayan under the SR
Policy. The fact that Reputable procured Malayan’s SR Policy over the goods of Wyeth
pursuant merely to the stipulated requirement under its contract of carriage with the latter does
not make Reputable a mere agent of Wyeth in obtaining the said SR Policy.

The interest of Wyeth over the property subject matter of both insurance contracts is also
different and distinct from that of Reputable’s. The policy issued by Philippines First was in
consideration of the legal and/or equitable interest of Wyeth over its own goods. On the other
hand, what was issued by Malayan to Reputable was over the latter’s insurable interest over
the safety of the goods, which may become the basis of the latter’s liability in case of loss or
damage to the property and falls within the contemplation of Section 15 of the Insurance
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Code.

Therefore, even though the two concerned insurance policies were issued over the same
goods and cover the same risk, there arises no double insurance since they were issued to
two different persons/entities having distinct insurable interests. Necessarily, over insurance
by double insurance cannot likewise exist. Hence, as correctly ruled by the RTC and CA,
neither Section 5 nor Section 12 of the SR Policy can be applied.

Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions
of the SR Policy against Malayan. This is in keeping with the rule that:
1âwphi1

"Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared
by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer
40
from noncompliance with its obligations."

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to
Reputable which, despite paying premiums for a P1,000,000.00 insurance coverage, would
not be entitled to recover said amount for the simple reason that the same property is covered
by another insurance policy, a policy to which it was not a party to and much less, from which
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it did not stand to benefit. x x x

On the fourth issue – Reputable is not solidarily liable with Malayan.

There is solidary liability only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires.

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In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc., the Court ruled that:

Where the insurance contract provides for indemnity against liability to third persons, the
liability of the insurer is direct and such third persons can directly sue the insurer. The direct
liability of the insurer under indemnity contracts against third party[- ]liability does not mean,
however, that the insurer can be held solidarily liable with the insured and/or the other parties
found at fault, since they are being held liable under different obligations. The liability of the
insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil
43
Code; while that of the insurer arises from contract, particularly, the insurance policy:
(Citation omitted and emphasis supplied)

Suffice it to say that Malayan's and Reputable's respective liabilities arose from different
obligations- Malayan's is based on the SR Policy while Reputable's is based on the contract
of carriage.

All told, the Court finds no reversible error in the judgment sought to be reviewed.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated February
29, 2008 and Resolution dated August 28, 2008 of the Court of Appeals in CA-G.R. CV No.
71204 are hereby AFFIRMED.

Cost against petitioner Malayan Insurance Co., Inc.

SO ORDERED.