INSURANCE On January 7, 2000, Insular Life issued Endorsement No.
PNA000015683,
1. The Insular Life Assurance Company, Ltd., v. Khu, G.R. No.
195176, 18 April 2016
The date of last reinstatement mentioned in Section 48 of the Insurance
Code pertains to the date that the insurer approved· the application for
reinstatement. However, in light of the ambiguity in the insurance
documents to this case, this Court adopts the interpretation favorable to
the insured in determining the date when the reinstatement was approved.
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010
Decision2 of the Court of Appeals (CA), which dismissed the Petition in CA-
GR. CV No. 81730, and its December 13, 2010 Resolution3 which denied
the petitioner Insular Life Assurance Company Ltd. 's (Insular Life) motion
for partial reconsideration.4
Factual Antecedents
On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance
policy with Insular Life under the latter’s Diamond Jubilee Insurance Plan.
Felipe accomplished the required medical questionnaire wherein he did not
declare any illness or adverse medical condition. Insular Life thereafter
issued him Policy Number A000015683 with a face value of P1 million. This
took effect on June 22, 1997.5
On June 23, 1999, Felipe’s policy lapsed due to non-payment of the
premium covering the period from June 22, 1999 to June 23, 2000.6
On September 7, 1999, Felipe applied for the reinstatement of his policy
and paid P25,020.00 as premium. Except for the change in his occupation
of being self-employed to being the Municipal Mayor of Binuangan,
Misamis Oriental, all the other information submitted by Felipe in his
application for reinstatement was virtually identical to those mentioned in
his original policy.7
On October 12, 1999, Insular Life advised Felipe that his application for
reinstatement may only be considered if he agreed to certain conditions
such as payment of additional premium and the cancellation of the riders
pertaining to
premium waiver and accidental death benefits. Felipe agreed to these
conditions8 and on December 27, 1999 paid the agreed additional
premium of P3,054.50.9
which reads:
This certifies that as agreed by the Insured, the reinstatement of this
policy has been approved by the Company on the understanding that the
following changes are made on the policy effective June 22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF
PREMIUM DISABILITY (WPD) rider originally attached to and
forming parts of this policy [are] deleted.
In consequence thereof, the premium rates on this policy are adjusted to
P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly,
Philippine currency.10
On June 23, 2000, Felipe paid the annual premium in the amount of
P28,000.00 covering the period from June 22, 2000 to June 22, 2001. And
on July 2, 2001, he also paid the same amount as annual premium
covering the period from June 22, 2001 to June 21, 2002.11
On September 22, 2001, Felipe died. His Certificate of Death enumerated
the following as causes of death:
Immediate cause: a. End stage renal failure, Hepatic failure
Antecedent cause: b. Congestive heart failure, Diffuse myocardial
ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and
Pneumonia.12
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu
(collectively, Felipe’s beneficiaries or respondents) filed with Insular Life a
claim for benefit under the reinstated policy. This claim was denied.
Instead, Insular Life advised Felipe’s beneficiaries that it had decided to
rescind the reinstated policy on the grounds of concealment and
misrepresentation by Felipe.
Hence, respondents instituted a complaint for specific performance with
damages. Respondents prayed that the reinstated life insurance policy be
declared valid, enforceable and binding on Insular Life; and that the latter
be ordered to pay unto Felipe’s beneficiaries the proceeds of this policy,
among others.13
In its Answer, Insular Life countered that Felipe did not disclose the
ailments (viz., Type 2 Diabetes Mellitus, Diabetes Nephropathy and
Alcoholic Liver Cirrhosis with Ascites) that he already had prior to his
application for reinstatement of his insurance policy; and that it would not
have reinstated the insurance policy had Felipe disclosed the material
information on his adverse health condition. It contended that when Felipe
died, the policy was still
contestable.14
Ruling of the Regional Trial Court (RTC)
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City
found15 for Felipe’s beneficiaries, thus:
WHEREFORE, in view of the foregoing, plaintiffs having substantiated
[their] claim by preponderance of evidence, judgment is hereby rendered
in their favor and against defendants, ordering the latter to pay jointly and
severally the
sum of One Million (P1,000,000.00) Pesos with legal rate of interest from
the date of demand until it is fully paid representing the face value of Plan
Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N.
Khu[,] Sr; the sum of P20,000.00 as moral damages; P30,000.00 as
attorney’s fees; P10,000.00 as litigation expenses.
SO ORDERED.16
In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with
the latter’s claim that the insurance policy was reinstated on June 22,
1999. The RTC cited the ruling in Malayan Insurance Corporation v. Court
of
Appeals17 that any ambiguity in a contract of insurance should be resolved
strictly against the insurer upon the principle that an insurance contract is
a contract of adhesion.18 The RTC also held that the reinstated insurance
policy had already become incontestable by the time of Felipe’s death on
September 22, 2001 since more than two years had already lapsed from
the date of the policy’s reinstatement on June 22, 1999. The RTC noted
that since it was Insular Life itself that supplied all the pertinent forms
relative to the reinstated policy, then it is barred from taking advantage of
any ambiguity/obscurity perceived therein particularly as regards the date
when the reinstated insurance policy became effective.
Ruling of the Court of Appeals
On June 24, 2010, the CA issued the assailed Decision19 which contained
the following decretal portion:
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the
lower court is AFFIRMED with the MODIFICATION that the award of moral
damages, attorney’s fees and litigation expenses [is] DELETED.
SO ORDERED.20
The CA upheld the RTC’s ruling on the non-contestability of the reinstated
insurance policy on the date the insured died. It declared that contrary to
Insular Life’s contention, there in fact exists a genuine ambiguity or
obscurity in the language of the two documents prepared by Insular Life
itself, viz., Felipe’s Letter of Acceptance and Insular Life’s Endorsement;
that given the obscurity/ambiguity in the language of these two
documents, the construction/interpretation that favors the insured’s right
to recover should be adopted; and that in keeping with this principle, the
insurance policy in dispute must be deemed reinstated as of June 22,
1999.21
Insular Life moved for partial reconsideration22 but this was denied by the
CA in its Resolution of December 13, 2010.23 Hence, the present Petition.
Issue
The fundamental issue to be resolved in this case is whether Felipe’s
reinstated life insurance policy is already incontestable at the time of his
death.
Petitioner’s Arguments
In praying for the reversal of the CA Decision, Insular Life basically argues
that respondents should not be allowed to recover on the reinstated
insurance policy because the two-year contestability period had not yet
lapsed inasmuch as the insurance policy was reinstated only on December
27, 1999, whereas Felipe died on September 22, 2001;24 that the CA
overlooked the fact that Felipe paid the additional extra premium only on
December 27, 1999, hence, it is only upon this date that the reinstated
policy had become effective; that the CA erred in declaring that resort to
the principles of statutory construction is still necessary to resolve that
question given that the Application for Reinstatement, the Letter of
Acceptance and the Endorsement in and by themselves already embodied
unequivocal provisions stipulating that the two-year contestability clause
should be reckoned from the date of approval of the reinstatement;25 and
that Felipe’s misrepresentation and concealment of material facts in regard
to his health or adverse medical condition gave it (Insular Life) the right to
rescind the contract of insurance and consequently, the right to deny the
claim of Felipe’s beneficiaries for death benefits under the disputed
policy.26
Respondents’ Arguments
Respondents maintain that the phrase "effective June 22, 1999" found in
both the Letter of Acceptance and in the Endorsement is unclear whether it
refers to the subject of the sentence, i.e., the "reinstatement of this
policy" or to the subsequent phrase "changes are made on the policy;"
that granting that there was any obscurity or ambiguity in the insurance
policy, the same should be laid at the door of Insular Life as it was this
insurance company that prepared the necessary documents that make up
the same;27 and that given the CA’s finding which effectively affirmed the
RTC’s finding on this particular issue, it stands to reason that the
insurance policy had indeed become incontestable upon the date of
Felipe’s death.28
Our Ruling
We deny the Petition.
The Insurance Code pertinently provides that:
Sec. 48. Whenever a right to rescind a contract of insurance is given to the
insurer by any provision of this chapter, such right must be exercised
previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of
two years from the date of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his
agent.
The rationale for this provision was discussed by the Court in Manila
Bankers Life Insurance Corporation v. Aban,29
Section 48 regulates both the actions of the insurers and prospective
takers of life insurance. It gives insurers enough time to inquire whether
the policy was obtained by fraud, concealment, or misrepresentation; on
the other hand, it forewarns scheming individuals that their attempts at
insurance fraud would be timely uncovered – thus deterring them from
venturing into such nefarious enterprise. At the same time, legitimate
policy holders are absolutely protected from unwarranted denial of their
claims or delay in the collection of insurance proceeds occasioned by
allegations of fraud, concealment, or misrepresentation by insurers, claims
which may no longer be set up after the two-year period expires as
ordained under the law.
xxxx
The Court therefore agrees fully with the appellate court’s pronouncement
that-
xxxx
‘The insurer is deemed to have the necessary facilities to discover such
fraudulent concealment or misrepresentation within a period of two (2)
years. It is not fair for the insurer to collect the premiums as long as the
insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the
beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last
reinstatement, the beneficiary is given the stability to recover under the
policy when the insured dies. The provision also makes clear when the
two-year period should commence in case the policy should lapse and is
reinstated, that is, from the date of the last reinstatement’.
In Lalican v. The Insular Life Assurance Company, Limited,30 which
coincidentally also involves the herein petitioner, it was there held that the
reinstatement of the insured’s policy is to be reckoned from the date when
the
application was processed and approved by the insurer. There, we
stressed that:
To reinstate a policy means to restore the same to premium-paying status
after it has been permitted to lapse. x x x
xxxx
In the instant case, Eulogio’s death rendered impossible full compliance
with the conditions for reinstatement of Policy No. 9011992. True, Eulogio,
before his death, managed to file his Application for Reinstatement and
deposit
the amount for payment of his overdue premiums and interests thereon
with Malaluan; but Policy No. 9011992 could only be considered reinstated
after the Application for Reinstatement had been processed and approved
by Insular Life during Eulogio’s lifetime and good health.31
Thus, it is settled that the reinstatement of an insurance policy should be
reckoned from the date when the same was approved by the insurer.
In this case, the parties differ as to when the reinstatement was actually
approved. Insular Life claims that it approved the reinstatement only on
December 27, 1999. On the other hand, respondents contend that it was
on June
22, 1999 that the reinstatement took effect.
The resolution of this issue hinges on the following documents: 1) Letter of
Acceptance; and 2) the Endorsement.
The Letter of Acceptance32 wherein Felipe affixed his signature was
actually drafted and prepared by Insular Life. This pro-forma document
reads as follows:
LETTER OF ACCEPTANCE
Place: Cag. De [O]ro City
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA
Policy No. A000015683
Gentlemen:
Thru your Reinstatement Section, I/WE learned that this policy may be
reinstated provided I/we agree to the following condition/s indicated with a
check mark:
[xx] Accept the imposition of an extra/additional extra premium of
[P]5.00 a year per thousand of insurance; effective June 22, 1999
[ ] Accept the rating on the WPD at ____ at standard rates; the
ABD at _____ the standard rates; the SAR at P____ annually per
thousand of Insurance;
[xx] Accept the cancellation of the Premium waiver & Accidental
death benefit.
[]
I am/we are agreeable to the above condition/s. Please proceed with the
reinstatement of the policy.
Very truly yours,
Felipe N. Khu, Sr.
After Felipe accomplished this form, Insular Life, through its Regional
Administrative Manager, Jesse James R. Toyhorada, issued an
Endorsement33 dated January 7, 2000. For emphasis, the Endorsement is
again quoted as follows:
ENDORSEMENT
PN-A000015683
This certifies that as agreed to by the Insured, the reinstatement of this
policy has been approved by the Company on the understanding that the
following changes are made on the policy effective June 22, 1999:
1. The EXTRA PREMIUM is imposed; and
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF
PREMIUM DISABILITY (WPD) rider originally attached to and
forming parts of this policy is deleted.
In consequence thereof, the PREMIUM RATES on this policy are adjusted to
[P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00
quarterly, Philippine Currency.
Cagayan de Oro City, 07 January 2000.
RCV/
(Signed) Authorized Signature
Based on the foregoing, we find that the CA did not commit any error in
holding that the subject insurance policy be considered as reinstated on
June 22, 1999. This finding must be upheld not only because it accords
with the evidence, but also because this is favorable to the insured who
was not responsible for causing the ambiguity or obscurity in the insurance
contract.34
The CA expounded on this point thus –
The Court discerns a genuine ambiguity or obscurity in the language of the
two documents.
In the Letter of Acceptance, Khu declared that he was accepting "the
imposition of an extra/additional x x x premium of P5.00 a year per
thousand of insurance; effective June 22, 1999". It is true that the phrase
as used in this
particular paragraph does not refer explicitly to the effectivity of the
reinstatement. But the Court notes that the reinstatement was conditioned
upon the payment of additional premium not only prospectively, that is, to
cover the
remainder of the annual period of coverage, but also retroactively, that is
for the period starting June 22, 1999. Hence, by paying the amount of
P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had
earlier paid on September 7, 1999, Khu had paid for the insurance
coverage starting June 22, 1999. At the very least, this circumstance has
engendered a true lacuna.
In the Endorsement, the obscurity is patent. In the first sentence of the
Endorsement, it is not entirely clear whether the phrase "effective June 22,
1999" refers to the subject of the sentence, namely "the reinstatement of
this policy," or to the subsequent phrase "changes are made on the
policy."
The court below is correct. Given the obscurity of the language, the
construction favorable to the insured will be adopted by the courts.
Accordingly, the subject policy is deemed reinstated as of June 22, 1999.
Thus, the period of contestability has lapsed.35
In Eternal Gardens Memorial Park Corporation v. The Philippine American
Life Insurance Company,36 we ruled in favor of the insured and in favor of
the effectivity of the insurance contract in the midst of ambiguity in
the insurance contract provisions. We held that:
It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter’s interest. Thus,
in MalayanInsurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with
the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other
words, it should be construed liberally in favor of the insured and strictly
against the insurer. Limitations of liability should be regarded with
extreme jealousy and must be construed in such a way as to preclude the
insurer from noncompliance with its obligations.
xxxx
As a final note, to characterize the insurer and the insured as contracting
parties on equal footing is inaccurate at best. Insurance contracts are
wholly prepared by the insurer with vast amounts of experience in the
industry
purposefully used to its advantage. More often than not, insurance
contracts are contracts of adhesion containing technical terms and
conditions of the industry, confusing if at all understandable to laypersons,
that are imposed on those who wish to avail of insurance. As such,
insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the
insured are to be delineated. Hence, in order to protect the interest of
insurance applicants, insurance companies must be obligated to act with
haste upon insurance applications, to either deny or approve the same, or
otherwise be bound to honor the application as a valid, binding, and
effective insurance contract.37
Indeed, more than two years had lapsed from the time the subject
insurance policy was reinstated on June 22, 1999 vis-a-vis Felipe’s death
on September 22, 2001.1âwphi1 As such, the subject insurance policy has
already become incontestable at the time of Felipe’s death.
Finally, we agree with the CA that there is neither basis nor justification for
the RTC’s award of moral damages, attorney’s fees and litigation
expenses; hence this award must be deleted.
WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010
Decision and December 13, 2010 Resolution of the Court of Appeals in CA-
GR. CV No. 81730 are AFFIRMED.
SO ORDERED.
2. BPI and FGU Insurance Corp v. Laingo, G.R. No. 205206, 16
March 2016 (liability; agency)
The Case
This is a petition for review on certiorari[1] assailing the Decision dated 29
June 2012[2] and Resolution dated 11 December 2012[3] of the Court of
Appeals in CA-G.R. CV No. 01575.
On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda
Laingo (Laingo), opened a "Platinum 2-in-1 Savings and Insurance"
account with petitioner Bank of the Philippine Islands (BPI) in its Claveria,
Davao City branch. The Platinum 2-in-1 Savings and Insurance account is
a savings account where depositors are automatically covered by an
insurance policy against disability or death issued by petitioner FGU
Insurance Corporation (FGU Insurance), now known as BPI/MS Insurance
Corporation. BPI issued Passbook No. 50298 to Rheozel corresponding to
Savings Account No. 2233-0251-11. A Personal Accident Insurance
Coverage Certificate No. 043549 was also issued by FGU Insurance in the
name of Rheozel with Laingo as his named beneficiary.
On 25 September 2000, Rheozel died due to a vehicular accident as
evidenced by a Certificate of Death issued by the Office of the Civil
Registrar General of Tagum City, Davao del Norte. Since Rheozel came
from a reputable and affluent family, the Daily Mirror headlined the story
in its newspaper on 26 September 2000.
On 27 September 2000, Laingo instructed the family's personal secretary,
Alice Torbanos (Alice) to go to BPI, Claveria, Davao City branch and
inquire about the savings account of Rheozel. Laingo wanted to use the
money in the savings account for Rheozel's burial and funeral expenses.
Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager
regarding Laingo's request. Due to Laingo's credit standing and
relationship with BPI, BPI accommodated Laingo who was allowed to
withdraw P995,000 from the account of Rheozel. A certain Ms. Laura
Cabico, an employee of BPI, went to Rheozel's wake at the Cosmopolitan
Funeral Parlor to verify some information from Alice and brought with her
a number of documents for Laingo to sign for the withdrawal of the
P995,000.
More than two years later or on 21 January 2003, Rheozel's sister,
Rhealyn Laingo-Concepcion, while arranging Rheozel's personal things in
his room at their residence in Ecoland, Davao City, found the Personal
Accident Insurance Coverage Certificate No. 043549 issued by FGU
Insurance. Rhealyn immediately conveyed the information to Laingo.
Laingo sent two letters dated 11 September 2003 and 7 November 2003
to BPI and FGU Insurance requesting them to process her claim as
beneficiary of Rheozel's insurance policy. On 19 February 2004, FGU
Insurance sent a reply-letter to Laingo denying her claim. FGU Insurance
stated that Laingo should have filed the claim within three calendar
months from the death of Rheozel as required under Paragraph 15 of the
Personal Accident Certificate of Insurance which states:
15. Written notice of claim shall be given to and filed at FGU Insurance
Corporation within three calendar months of death or disability.
On 20 February 2004, Laingo filed a Complaint[4] for Specific Performance
with Damages and Attorney's Fees with the Regional Trial Court of Davao
City, Branch 16 (trial court) against BPI and FGU Insurance.
In a Decision[5] dated 21 April 2008, the trial court decided the case in
favor of respondents. The trial court ruled that the prescriptive period of
90 days shall commence from the time of death of the insured and not
from the knowledge of the beneficiary. Since the insurance claim was filed
more than 90 days from the death of the insured, the case must be
dismissed. The dispositive portion of the Decision states:
PREMISES CONSIDERED, judgment is hereby rendered dismissing both the
complaint and the counterclaims.
SO ORDERED.[6]
Laingo filed an appeal with the Court of Appeals.
The Ruling of the Court of Appeals
In a Decision dated 29 June 2012, the Court of Appeals reversed the ruling
of the trial court. The Court of Appeals ruled that Laingo could not be
expected to do an obligation which she did not know existed. The appellate
court added that Laingo was not a party to the insurance contract entered
into between Rheozel and petitioners. Thus, she could not be bound by the
90-day stipulation. The dispositive portion of the Decision states:
WHEREFORE, the Appeal is hereby GRANTED. The Decision dated April 21,
2008 of the Regional Trial Court, Branch 16, Davao City, is hereby
REVERSED and SET ASIDE.
Appellee Bank of the Philippine Islands and FGU Insurance Corporation are
DIRECTED to PAY jointly and severally appellant Yolanda Laingo Actual
Damages in the amount of P44,438.75 and Attorney's Fees in the amount
of P200,000.00.
Appellee FGU Insurance Corporation is also DIRECTED to PAY appellant the
insurance proceeds of the Personal Accident Insurance Coverage of
Rheozel Laingo with legal interest of six percent (6%) per annum reckoned
from February 20, 2004 until this Decision becomes final. Thereafter, an
interest of twelve percent (12%) per annum shall be imposed until fully
paid.
SO ORDERED.[7]
Petitioners filed a Motion for Reconsideration which was denied by the
appellate court in a Resolution dated 11 December 2012.
Hence, the instant petition.
The Issue
The main issue for our resolution is whether or not Laingo, as named
beneficiary who had no knowledge of the existence of the insurance
contract, is bound by the three calendar month deadline for filing a written
notice of claim upon the death of the insured.
The Court's Ruling
The petition lacks merit.
Petitioners contend that the words or language used in the insurance
contract, particularly under paragraph 15, is clear and plain or readily
understandable by any reader which leaves no room for construction.
Petitioners also maintain that ignorance about the insurance policy does
not exempt respondent from abiding by the deadline and petitioners
cannot be faulted for respondent's failure to comply.
Respondent, on the other hand, insists that the insurance contract is
ambiguous since there is no provision indicating how the beneficiary is to
be informed of the three calendar month claim period. Since petitioners
did not notify her of the insurance coverage of her son where she was
named as beneficiary in case of his death, then her lack of knowledge
made it impossible for her to fulfill the condition set forth in the insurance
contract.
In the present case, the source of controversy stems from the alleged non-
compliance with the written notice of insurance claim to FGU Insurance
within three calendar months from the death of the insured as specified in
the insurance contract. Laingo contends that as the named beneficiary
entitled to the benefits of the insurance claim she had no knowledge that
Rheozel was covered by an insurance policy against disability or death
issued by FGU Insurance that was attached to Rheozel's savings account
with BPI. Laingo argues that she dealt with BPI after her son's death,
when she was allowed to withdraw funds from his savings account in the
amount of P995,000. However, BPI did not notify her of the attached
insurance policy. Thus, Laingo attributes responsibility to BPI and FGU
Insurance for her failure to file the notice of insurance claim within three
months from her son's death.
We agree.
BPI offered a deposit savings account with life and disability insurance
coverage to its customers called the Platinum 2-in-1 Savings and
Insurance account. This was a marketing strategy promoted by BPI in
order to entice customers to invest their money with the added benefit of
an insurance policy. Rheozel was one of those who availed of this account,
which not only included banking convenience but also the promise of
compensation for loss or injury, to secure his family's future.
As the main proponent of the 2-in-1 deposit account, BPI tied up with its
affiliate, FGU Insurance, as its partner. Any customer interested to open a
deposit account under this 2-in-1 product, after submitting all the required
documents to BPI and obtaining BPI's approval, will automatically be given
insurance coverage. Thus, BPI acted as agent of FGU Insurance with
respect to the insurance feature of its own marketed product.
Under the law, an agent is one who binds himself to render some service
or to do something in representation of another.[8] In Doles v.
Angeles,[9] we held that the basis of an agency is representation. The
question of whether an agency has been created is ordinarily a question
which may be established in the same way as any other fact, either by
direct or circumstantial evidence. The question is ultimately one of
intention. Agency may even be implied from the words and conduct of the
parties and the circumstances of the particular case. For an agency to
arise, it is not necessary that the principal personally encounter the third
person with whom the agent interacts. The law in fact contemplates
impersonal dealings where the principal need not personally know or meet
the third person with whom the agent transacts: precisely, the purpose of
agency is to extend the personality of the principal through the facility of
the agent.
In this case, since the Platinum 2-in-1 Savings and Insurance account was
BPI's commercial product, offering the insurance coverage for free for
every deposit account opened, Rheozel directly communicated with BPI,
the agent of FGU Insurance. BPI not only facilitated the processing of the
deposit account and the collection of necessary documents but also the
necessary endorsement for the prompt approval of the insurance coverage
without any other action on Rheozel's part. Rheozel did not interact with
FGU Insurance directly and every transaction was coursed through BPI.
In Eurotech Industrial Technologies, Inc. v. Cuizon,[10] we held that when
an agency relationship is established, the agent acts for the principal
insofar as the world is concerned. Consequently, the acts of the agent on
behalf of the principal within the scope of the delegated authority have the
same legal effect and consequence as though the principal had been the
one so acting in the given situation.

BPI, as agent of FGU Insurance, had the primary responsibility to ensure
that the 2-in-1 account be reasonably carried out with full disclosure to the
parties concerned, particularly the beneficiaries. Thus, it was incumbent
upon BPI to give proper notice of the existence of the insurance coverage
and the stipulation in the insurance contract for filing a claim to Laingo, as
Rheozel's beneficiary, upon the latter's death.
Articles 1884 and 1887 of the Civil Code state:
Art. 1884. The agent is bound by his acceptance to carry out the agency
and is liable for the damages which, through his non-performance, the
principal may suffer.
He must also finish the business already begun on the death of the
principal, should delay entail any danger.
Art. 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal.
In default, thereof, he shall do all that a good father of a family would do,
as required by the nature of the business.
The provision is clear that an agent is bound to carry out the agency. The
relationship existing between principal and agent is a fiduciary one,
demanding conditions of trust and confidence. It is the duty of the agent
to act in good faith for the advancement of the interests of the principal.
In this case, BPI had the obligation to carry out the agency by informing
the beneficiary, who appeared before BPI to withdraw funds of the insured
who was BPI's depositor, not only of the existence of the insurance
contract but also the accompanying terms and conditions of the insurance
policy in order for the beneficiary to be able to properly and timely claim
the benefit.
Upon Rheozel's death, which was properly communicated to BPI by his
mother Laingo, BPI, in turn, should have fulfilled its duty, as agent of FGU
Insurance, of advising Laingo that there was an added benefit of insurance
coverage in Rheozel's savings account. An insurance company has the
duty to communicate with the beneficiary upon receipt of notice of the
death of the insured. This notification is how a good father of a family
should have acted within the scope of its business dealings with its clients.
BPI is expected not only to provide utmost customer satisfaction in terms
of its own products and services but also to give assurance that its
business concerns with its partner entities are implemented accordingly.
There is a rationale in the contract of agency, which flows from the
"doctrine of representation," that notice to the agent is notice to the
principal,[11] Here, BPI had been informed of Rheozel's death by the latter's
family. Since BPI is the agent of FGU Insurance, then such notice of death
to BPI is considered as notice to FGU Insurance as well. FGU Insurance
cannot now justify the denial of a beneficiary's insurance claim for being
filed out of time when notice of death had been communicated to its agent
within a few days after the death of the depositor-insured. In short, there
was timely notice of Rheozel's death given to FGU Insurance within three
months from Rheozel's death as required by the insurance company.
The records show that BPI had ample opportunity to inform Laingo,
whether verbally or in writing, regarding the existence of the insurance
policy attached to the deposit account. First, Rheozel's death was
headlined in a daily major newspaper a day after his death. Second, not
only was Laingo, through her representative, able to inquire about
Rheozel's deposit account with BPI two days after his death but she was
also allowed by BPI's Claveria, Davao City branch to withdraw from the
funds in order to help defray Rheozel's funeral and burial expenses. Lastly,
an employee of BPI visited Rheozel's wake and submitted documents for
Laingo to sign in order to process the withdrawal request. These
circumstances show that despite being given many opportunities to
communicate with Laingo regarding the existence of the insurance
contract, BPI neglected to carry out its duty.
Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the
existence of the insurance policy, Laingo had no means to ascertain that
she was entitled to the insurance claim. It would be unfair for Laingo to
shoulder the burden of loss when BPI was remiss in its duty to properly
notify her that she was a beneficiary.
Thus, as correctly decided by the appellate court, BPI and FGU Insurance
shall bear the loss and must compensate Laingo for the actual damages
suffered by her family plus attorney's fees. Likewise, FGU Insurance has
the obligation to pay the insurance proceeds of Rheozel's personal accident
insurance coverage to Laingo, as Rheozel's named beneficiary.
WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 29
June 2012 and Resolution dated 11 December 2012 of the Court of
Appeals in CA-G.R. CV No. 01575.
SO ORDERED.
3. HH Hollero Construction Inc v. GSIS and Pool of Machinery
Insurers, GR No. 152334, 24 September 2014 (prescription)
Assailed in this petition for review on certiorari1 are the Decision2 dated
March 13, 2001 and the Resolution3 dated February 21, 2002 of the Court
of Appeals (CA) in CA-G.R. CV No. 63175, which set aside and reversed
the Judgment4 dated February 3, 1999 of the Regional Trial Court of
Quezon City, Branch 220 (RTC) in Civil Case No. 91-10144, and dismissed
petitioner H.H. Hollero Construction, Inc.' s (petitioner) Complaint for Sum
of Money and Damages under the insurance policies issued by public
respondent, the Government Service Insurance System (GSIS), on the
ground of prescription.
The Facts
On April 26, 1988, the GSIS and petitioner entered into a Project
Agreement (Agreement) whereby the latter undertook the development of
a GSIS housing project known as Modesta Village Section B
(Project).5 Petitioner obligated itself to insurethe Project, including all the
improvements, upon the execution of the Agreement under a Contractors’
All Risks (CAR) Insurance with the GSIS General Insurance Department for
an amount equal to its cost or sound value, which shall not be subject to
any automatic annual reduction.6
Pursuant to its undertaking, petitioner secured CAR Policy No. 88/0857 in
the amount of ₱1,000,000.00 for land development, which was later
increased to ₱10,000,000.00,8 effective from May 2, 1988 to May 2,
1989.9 Petitioner likewise secured CAR Policy No. 88/08610 in the amount
of ₱1,000,000.00 for the construction of twenty (20) housing units, which
amount was later increased to ₱17,750,000.0011 to cover the construction
of another 355 new units, effective from May 2, 1988 toJune 1, 1989.12 In
turn, the GSIS reinsured CAR Policy No. 88/085 with respondent Pool of
Machinery Insurers (Pool).13
Under both policies, it was provided that: (a) there must be prior notice of
claim for loss, damage or liability within fourteen (14) days from the
occurrence of the loss or damage;14 (b) all benefits thereunder shall be
forfeited if no action is instituted within twelve(12) months after the
rejection of the claim for loss, damage or liability;15 and (c) if the sum
insured is found to be less than the amount required to be insured, the
amount recoverable shall be reduced tosuch proportion before taking into
account the deductibles stated in the schedule (average clause
provision).16
During the construction, three (3) typhoons hit the country, namely,
Typhoon Biring from June 1 to June 4, 1988, Typhoon Huaning on July 29,
1988, and Typhoon Saling on October 11, 1989, which caused
considerable damage to the Project.17 Accordingly, petitioner filed several
claims for indemnity with the GSIS on June 30, 1988,18 August 25,
1988,19 and October 18, 1989,20 respectively.
In a letter21 dated April 26, 1990, the GSIS rejected petitioner’s indemnity
claims for the damages wrought by Typhoons Biring and Huaning, finding
that no amount is recoverable pursuant to the average clause provision
under the policies.22 In a letter23 dated June 21, 1990, the GSIS similarly
rejected petitioner’s indemnity claim for damages wrought by Typhoon
Saling on a "no loss" basis, itappearing from its records that the policies
were not renewed before the onset of the said typhoon.24
In a letter25 dated April 18, 1991, petitioner impugned the rejection of its
claims for damages/loss on accountof Typhoon Saling, and reiterated its
demand for the settlement of its claims.
On September 27, 1991, petitioner filed a Complaint26 for Sum of Money
and Damages before the RTC, docketed as Civil Case No. 91-
10144,27 which was opposed by the GSIS through a Motion to
Dismiss28 dated October 25, 1991 on the ground that the causes of action
stated therein are barred by the twelve-month limitation provided under
the policies, i.e., the complaint was filed more than one(1) year from the
rejection of the indemnity claims. The RTC, in an Order29 dated May 13,
1993, denied the said motion; hence, the GSIS filed its answer30 with
counterclaims for litigation expenses, attorney’s fees, and exemplary
damages. Subsequently, the GSIS filed a Third Party Complaint31 for
indemnification against Pool, the reinsurer.
The RTC Ruling
In a Judgment32 dated February 3, 1999, the RTC granted petitioner’s
indemnity claims. It held that: (a) the average clauseprovision in the
policies which did not contain the assentor signature of the petitioner
cannot limit the GSIS’ liability, for being inefficacious and contrary to
public policy;33 (b) petitioner has established that the damages it
sustained were due to the peril insured against;34 and (c) CAR Policy No.
88/086 was deemed renewed when the GSIS withheld the amount of
35,855.00 corresponding to the premium payable,35 from the retentions it
released to petitioner.36 The RTC thereby declared the GSIS liable for
petitioner’s indemnity claims for the damages brought about by the said
typhoons, less the stipulated deductions under the policies,plus 6% legal
interest from the dates of extrajudicial demand, as well as for attorney’s
fees and costs of suit. It further dismissed for lack of merit GSIS’s
counterclaim and third party complaint.37
Dissatisfied, the GSIS elevated the matter to the CA. The CA Ruling In a
Decision38 dated March 13, 2001, the CAset aside and reversed the RTC
Judgment, thereby dismissing the complaint. It ruled that the complaint
filed on September 27, 1991 was barred by prescription, having been
commenced beyond the twelve-month limitation provided under the
policies, reckoned from the final rejection of the indemnity claims on April
26, 1990 and June 21, 1990. The Issue Before the Court
The essential issue for the Court’s resolution is whether or not the CA
committed reversible error in dismissing the complaint onthe ground of
prescription.
The Court’s Ruling
The petition lacks merit.
Contracts of insurance, like other contracts, are to be construed according
to the sense and meaning of the terms which the parties themselves have
used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary, and popular sense.39
Section 1040 of the General Conditions of the subject CAR Policies
commonly read:
10. If a claim is in any respect fraudulent, or if any false declaration is
made or used in support thereof, or if any fraudulent means or devices are
used by the Insured or anyone acting on his behalf to obtain any benefit
under this Policy, or if a claim is made and rejected and no action or suit is
commenced within twelve months after such rejectionor, in case of
arbitration taking place as provided herein, within twelve months after the
Arbitrator or Arbitrators or Umpire have made their award, all benefit
under this Policy shall be forfeited. (Emphases supplied)
In this relation, case law illumines that the prescriptive period for the
insured’s action for indemnity should bereckoned from the "final rejection"
of the claim.41
Here, petitioner insists that the GSIS’s letters dated April 26, 1990 and
June 21, 1990 did not amount to a "final rejection" ofits claims, arguing
that they were mere tentative resolutions pending further action on
petitioner’s part or submission of proof in refutation of the reasons for
rejection.42 Hence, its causes of action for indemnity did not accrue on
those dates.
The Court does not agree.
A perusal of the letter43 dated April 26, 1990 shows that the GSIS denied
petitioner’s indemnity claims wrought by Typhoons Biring and Huaning, it
appearing that no amount was recoverable under the policies. While the
GSIS gave petitioner the opportunity to dispute its findings, neither of the
parties pursued any further action on the matter; this logically shows that
they deemed the said letter as a rejection of the claims. Lest it cause any
confusion, the statement in that letter pertaining to any queries petitioner
may have on the denial should be construed, at best, as a form of notice
to the former that it had the opportunity to seek reconsideration of the
GSIS’s rejection. Surely, petitioner cannot construe the said letter to be a
mere "tentative resolution." In fact, despite its disavowals, petitioner
admitted in its pleadings44 that the GSIS indeed denied its claim through
the aforementioned letter, buttarried in commencing the necessary action
in court.
The same conclusion obtains for the letter45 dated June 21, 1990 denying
petitioner’s indemnity claim caused by Typhoon Saling on a "no loss" basis
due to the non-renewal of the policies therefor before the onset of the said
typhoon. The fact that petitioner filed a letter46 of reconsideration
therefrom dated April 18, 1991, considering too the inaction of the GSIS
on the same similarly shows that the June 21, 1990 letter was also a final
rejection of petitioner’s indemnity claim.
As correctly observed by the CA, "final rejection" simply means denial by
the insurer of the claims of the insured and not the rejection or denial by
the insurer of the insured’s motion or request for reconsideration.47 The
rejection referred to should be construed as the rejection in the first
instance,48 as in the two instances above-discussed.
Comparable to the foregoing is the Court’s action in the case of Sun
Insurance Office, Ltd. v. CA49 wherein it debunked "[t]he contention of the
respondents [therein] that the one-year prescriptive period does not start
to run until the petition for reconsideration had been resolved by the
insurer," holding that such view "runs counter to the declared purpose for
requiring that an action or suit be filed in the Insurance Commission or in
a court of competent jurisdiction from the denial of the claim."50 In this
regard, the Court rationalized that "uphold[ing]respondents' contention
would contradict and defeat the very principle which this Court had laid
down. Moreover, it can easily be used by insured persons as a scheme or
device to waste time until any evidence which may be considered against
them is destroyed."51 Expounding on the matter, the Court had this to say:
The crucial issue in this case is: When does the cause of action accrue?
In support of private respondent’s view, two rulings of this Court have
been cited, namely, the case of Eagle Star Insurance Co.vs.Chia Yu
([supra note 41]), where the Court held:
The right of the insured to the payment of his loss accrues from the
happening of the loss. However, the cause of action in an insurance
contract does not accrue until the insured’s claim is finally rejected by the
insurer. This is because before such final rejection there is no real
necessity for bringing suit.

and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA
151 [1968], holding that:

Since "cause of action" requires as essential elements not only a legal right
of the plaintiff and a correlated obligation of the defendant in violation of
the said legal right, the cause of action does not accrue until the party
obligated (surety) refuses, expressly or impliedly, to comply with its duty
(in this case to pay the amount of the bond)."

Indisputably, the above-cited pronouncements of this Court may be taken

to mean that the insured' s cause of action or his right to file a claim either
in the Insurance Commission or in a court of competent jurisdiction [as in
this case] commences from the time of the denial of his claim by the
Insurer, either expressly or impliedly.1âwphi1

But as pointed out by the petitioner insurance company, the rejection

referred to should be construed as the rejection, in the first instance, for if
what is being referred to is a reiterated rejection conveyed in a resolution
of a yetition for reconsideration, such should have been expressly
stipulated.52

In light of the foregoing, it is thus clear that petitioner's causes of action

for indemnity respectively accrued from its receipt of the letters dated
April 26, 1990 and June 21, 1990, or the date the GSIS rejected its claims
in the first instance. Consequently, given that it allowed more than twelve
(12) months to lapse before filing the necessary complaint before the R TC
on September 27, 1991, its causes of action had already prescribed.

WHEREFORE, the petition is DENIED. The Decision dated March 13, 2001
and the Resolution dated February 21, 2002 of the Court of Appeals (CA)
in CA-G.R. CV No. 63175 are hereby AFFIRMED.

SO ORDERED.
4.Fortune Medicare Inc v. Amorin, GR No. 195872, 12 March 2014
This is a petition for review on certiorari1 under Rule 45 of the Rules of
Court, which challenges the Decision2 dated September 27, 2010 and
Resolution3 dated February 24, 2011 of the Court of Appeals (CA) in CA-
G.R. CV No. 87255.
The Facts
David Robert U. Amorin (Amorin) was a cardholder/member of Fortune
Medicare, Inc. (Fortune Care), a corporation engaged in providing health
maintenance services to its members. The terms of Amorin's medical
coverage were provided in a Corporate Health Program Contract 4 (Health
Care Contract) which was executed on January 6, 2000 by Fortune Care
and the House of Representatives, where Amorin was a permanent
employee.
While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in
May 1999, Amorin underwent an emergency surgery, specifically
appendectomy, at the St. Francis Medical Center, causing him to incur
professional and hospitalization expenses of US$7,242.35 and
US$1,777.79, respectively. He attempted to recover from Fortune Care the
full amount thereof upon his return to Manila, but the company merely
approved a reimbursement of ₱12,151.36, an amount that was based on
the average cost of appendectomy, net of medicare deduction, if the
procedure were performed in an accredited hospital in Metro
Manila.5 Amorin received under protest the approved amount, but asked
for its adjustment to cover the total amount of professional fees which he
had paid, and eighty percent (80%) of the approved standard charges
based on "American standard", considering that the emergency procedure
occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article
V on Benefits and Coverages of the Health Care Contract, to wit:
A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an
in-patient or out-patient, the member shall be entitled to full
coverage under the benefits provisions of the Contract at any
FortuneCare accredited hospitals subject only to the pertinent
provision of Article VII (Exclusions/Limitations) hereof. For
emergency care attended by non affiliated physician (MSU), the
member shall be reimbursed 80% of the professional fee which
should have been paid, had the member been treated by an
affiliated physician. The availment of emergency care from an
unaffiliated physician shall not invalidate or diminish any claim if it
shall be shown to have been reasonably impossible to obtain such
emergency care from an affiliated physician.
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall reimburse
the total hospitalization cost including the professional fee (based on the
total approved charges) to a member who receives emergency care in a
non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency
confinement occurs in a foreign territory, Fortune Care will be obligated to
reimburse or pay eighty (80%) percent of the approved standard charges
which shall cover the hospitalization costs and professional fees. x x x6
Still, Fortune Care denied Amorin’s request, prompting the latter to file a
complaint7 for breach of contract with damages with the Regional Trial
Court (RTC) of Makati City.
For its part, Fortune Care argued that the Health Care Contract did not
cover hospitalization costs and professional fees incurred in foreign
countries, as the contract’s operation was confined to Philippine
territory.8 Further, it argued that its liability to Amorin was extinguished
upon the latter’s acceptance from the company of the amount of
₱12,151.36.
The RTC Ruling
On May 8, 2006, the RTC of Makati, Branch 66 rendered its
Decision9 dismissing Amorin’s complaint. Citing Section 3, Article V of the
Health Care Contract, the RTC explained:
Taking the contract as a whole, the Court is convinced that the parties
intended to use the Philippine standard as basis. Section 3 of the
Corporate Health Care Program Contract provides that:
xxxx
On the basis of the clause providing for reimbursement equivalent to 80%
of the professional fee which should have been paid, had the member
been treated by an affiliated physician, the Court concludes that the basis
for reimbursement shall be Philippine rates. That provision, taken with
Article V of the health program contract, which identifies affiliated
hospitals as only those accredited clinics, hospitals and medical centers
located "nationwide" only point to the Philippine standard as basis for
reimbursement.
The clause providing for reimbursement in case of emergency operation in
a foreign territory equivalent to 80% of the approved standard charges
which shall cover hospitalization costs and professional fees, can only be
reasonably construed in connection with the preceding clause on
professional fees to give meaning to a somewhat vague clause. A
particular clause should not be studied as a detached and isolated
expression, but the whole and every part of the contract must be
considered in fixing the meaning of its parts.10
In the absence of evidence to the contrary, the trial court considered the
amount of ₱12,151.36 already paid by Fortune Care to Amorin as
equivalent to 80% of the hospitalization and professional fees payable to
the latter had he been treated in an affiliated hospital.11
Dissatisfied, Amorin appealed the RTC decision to the CA.
The CA Ruling
On September 27, 2010, the CA rendered its Decision12 granting the
appeal. Thus, the dispositive portion of its decision reads:
WHEREFORE, all the foregoing premises considered, the instant appeal is
hereby GRANTED. The May 8, 2006 assailed Decision of the Regional Trial
Court (RTC) of Makati City, Branch 66 is hereby REVERSED and SET
ASIDE, and a new one entered ordering Fortune Medicare, Inc. to
reimburse [Amorin] 80% of the total amount of the actual hospitalization
expenses of $7,242.35 and professional fee of $1,777.79 paid by him to
St. Francis Medical Center pursuant to Section 3, Article V of the Corporate
Health Care Program Contract, or their peso equivalent at the time the
amounts became due, less the [P]12,151.36 already paid by Fortunecare.
SO ORDERED.13
In so ruling, the appellate court pointed out that, first, health care
agreements such as the subject Health Care Contract, being like insurance
contracts, must be liberally construed in favor of the subscriber. In case its
provisions are 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.14 Second, the CA explained that there was nothing under Article
V of the Health Care Contract which provided that the Philippine standard
should be used even in the event of an emergency confinement in a
foreign territory.15
Fortune Care’s motion for reconsideration was denied in a
Resolution16 dated February 24, 2011. Hence, the filing of the present
petition for review on certiorari.
The Present Petition
Fortune Care cites the following grounds to support its petition:
I. The CA gravely erred in concluding that the phrase "approved
standard charges" is subject to interpretation, and that it did not
automatically mean "Philippine Standard"; and
II. The CA gravely erred in denying Fortune Care’s motion for
reconsideration, which in effect affirmed its decision that the
American Standard Cost shall be applied in the payment of medical
and hospitalization expenses and professional fees incurred by the
respondent.17
The Court’s Ruling
The petition is bereft of merit.
The Court finds no cogent reason to disturb the CA’s finding that Fortune
Care’s liability to Amorin under the subject Health Care Contract should be
based on the expenses for hospital and professional fees which he actually
incurred, and should not be limited by the amount that he would have
incurred had his emergency treatment been performed in an accredited
hospital in the Philippines.
We emphasize that for purposes of determining the liability of a health
care provider to its members, jurisprudence holds that a health care
agreement is 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.18
To aid in the interpretation of health care agreements, the Court laid down
the following guidelines in Philamcare Health Systems v. CA19:
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.20 (Citations omitted and emphasis
ours)
Consistent with the foregoing, we reiterated in Blue Cross Health Care,
Inc. v. Spouses Olivares21:
In Philamcare Health Systems, Inc. v. CA, we ruled that a health care
agreement is in the nature of a non-life insurance. It is an established rule
in insurance contracts that when their terms contain limitations on liability,
they should be construed strictly against the insurer. These are contracts
of adhesion the terms of which must be interpreted and enforced
stringently against the insurer which prepared the contract. This doctrine
is equally applicable to health care agreements.
xxxx
x x x [L]imitations of liability on the part of the insurer or health care
provider must be construed in such a way as to preclude it from evading
its obligations. Accordingly, they should be scrutinized by the courts with
"extreme jealousy" and "care" and with a "jaundiced eye." x x
x.22 (Citations omitted and emphasis supplied)
In the instant case, the extent of Fortune Care’s liability to Amorin under
the attendant circumstances was governed by Section 3(B), Article V of
the subject Health Care Contract, considering that the appendectomy
which the member had to undergo qualified as an emergency care, but the
treatment was performed at St. Francis Medical Center in Honolulu,
Hawaii, U.S.A., a non-accredited hospital. We restate the pertinent
portions of Section 3(B):
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall reimburse
the total hospitalization cost including the professional fee (based on the
total approved charges) to a member who receives emergency care in a
non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency
confinement occurs in foreign territory, Fortune Care will be obligated to
reimburse or pay eighty (80%) percent of the approved standard charges
which shall cover the hospitalization costs and professional fees. x x
x23 (Emphasis supplied)
The point of dispute now concerns the proper interpretation of the phrase
"approved standard charges", which shall be the base for the allowable
80% benefit. The trial court ruled that the phrase should be interpreted in
light of the provisions of Section 3(A), i.e., to the extent that may be
allowed for treatments performed by accredited physicians in accredited
hospitals. As the appellate court however held, this must be interpreted in
its literal sense, guided by the rule that any ambiguity shall be strictly
construed against Fortune Care, and liberally in favor of Amorin.
The Court agrees with the CA. As may be gleaned from the Health Care
Contract, the parties thereto contemplated the possibility of emergency
care in a foreign country. As the contract recognized Fortune Care’s
liability for emergency treatments even in foreign territories, it expressly
limited its liability only insofar as the percentage of hospitalization and
professional fees that must be paid or reimbursed was concerned, pegged
at a mere 80% of the approved standard charges.
The word "standard" as used in the cited stipulation was vague and
ambiguous, as it could be susceptible of different meanings. Plainly, the
term "standard charges" could be read as referring to the "hospitalization
costs and professional fees" which were specifically cited as compensable
even when incurred in a foreign country. Contrary to Fortune Care’s
argument, from nowhere in the Health Care Contract could it be
reasonably deduced that these "standard charges" referred to the
"Philippine standard", or that cost which would have been incurred if the
medical services were performed in an accredited hospital situated in the
Philippines. The RTC ruling that the use of the "Philippine standard" could
be inferred from the provisions of Section 3(A), which covered emergency
care in an accredited hospital, was misplaced. Evidently, the parties to the
Health Care Contract made a clear distinction between emergency care in
an accredited hospital, and that obtained from a non-accredited
hospital.1âwphi1 The limitation on payment based on "Philippine standard"
for services of accredited physicians was expressly made applicable only in
the case of an emergency care in an accredited hospital.
The proper interpretation of the phrase "standard charges" could instead
be correlated with and reasonably inferred from the other provisions of
Section 3(B), considering that Amorin’s case fell under the second case,
i.e., emergency care in a non-accredited hospital. Rather than a
determination of Philippine or American standards, the first part of the
provision speaks of the full reimbursement of "the total hospitalization cost
including the professional fee (based on the total approved charges) to a
member who receives emergency care in a non-accredited hospital" within
the Philippines. Thus, for emergency care in non-accredited hospitals, this
cited clause declared the standard in the determination of the amount to
be paid, without any reference to and regardless of the amounts that
would have been payable if the treatment was done by an affiliated
physician or in an affiliated hospital. For treatments in foreign territories,
the only qualification was only as to the percentage, or 80% of that
payable for treatments performed in non-accredited hospital.
All told, in the absence of any qualifying word that clearly limited Fortune
Care's liability to costs that are applicable in the Philippines, the amount
payable by Fortune Care should not be limited to the cost of treatment in
the Philippines, as to do so would result in the clear disadvantage of its
member. If, as Fortune Care argued, the premium and other charges in
the Health Care Contract were merely computed on assumption and risk
under Philippine cost and, that the American cost standard or any foreign
country's cost was never considered, such limitations should have been
distinctly specified and clearly reflected in the extent of coverage which
the company voluntarily assumed. This was what Fortune Care found
appropriate when in its new health care agreement with the House of
Representatives, particularly in their 2006 agreement, the provision on
emergency care in non-accredited hospitals was modified to read as
follows:

However, if the emergency confinement occurs in a foreign territory,

Fortunecare will be obligated to reimburse or pay one hundred (100%)
percent under approved Philippine Standard covered charges for
hospitalization costs and professional fees but not to exceed maximum
allowable coverage, payable in pesos at prevailing currency exchange rate
at the time of availment in said territory where he/she is confined. x x x24

Settled is the rule that ambiguities in a contract are interpreted against

the party that caused the ambiguity. "Any ambiguity in a contract whose
terms are susceptible of different interpretations must be read against the
party who drafted it."25

WHEREFORE, the petition is DENIED. The Decision dated September 27,

2010 and Resolution dated February 24, 2011 of the Court of Appeals in
CA-G.R. CV No. 87255 are AFFIRMED.

SO ORDERED.
5.Eastern Shipping Lines v. BPI/MS Insurance Corp and Mitsui Sum
Tomo, GR No. 193986, 15 Jan 2014
Before this Court is a petition1 for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure, as amended, seeking the reversal of the
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 88361, which
affirmed with modification the Decision3 of the Regional Trial Court (RTC),
of Makati City, Branch 138 in Civil Case No. 04-1005.
The facts follow:
On August 29, 2003, Sumitomo Corporation (Sumitomo) shipped through
MV Eastern Challenger V-9-S, a vessel owned by petitioner Eastern
Shipping Lines, Inc. (petitioner), 31 various steel sheets in coil weighing
271,828 kilograms from Yokohama, Japan for delivery in favor of the
consignee Calamba Steel Center Inc. (Calamba Steel).4The cargo had a
declared value of US$125,417.26 and was insured against all risk by
Sumitomo with respondent Mitsui Sumitomo Insurance Co., Ltd. (Mitsui).
On or about September 6 2003, the shipment arrived at the port of Manila.
Upon unloading from the vessel, nine coils were observed to be in bad
condition as evidenced by the Turn Over Survey of Bad Order Cargo No.
67327. The cargo was then turned over to Asian Terminals, Inc. (ATI) for
stevedoring, storage and safekeeping pending Calamba Steel’s withdrawal
of the goods. When ATI delivered the cargo to Calamba Steel, the latter
rejected its damaged portion, valued at US$7,751.15, for being unfit for its
intended purpose.5
Subsequently, on September 13, 2003, a second shipment of 28 steel
sheets in coil, weighing 215,817 kilograms, was made by Sumitomo
through petitioner’s MV Eastern Challenger V-10-S for transport and
delivery again to Calamba Steel.6 Insured by Sumitomo against all risk
with Mitsui,7 the shipment had a declared value of US$121,362.59. This
second shipment arrived at the port of Manila on or about September 23,
2003. However, upon unloading of the cargo from the said vessel, 11 coils
were found damaged as evidenced by the Turn Over Survey of Bad Order
Cargo No. 67393. The possession of the said cargo was then transferred to
ATI for stevedoring, storage and safekeeping pending withdrawal thereof
by Calamba Steel. When ATI delivered the goods, Calamba Steel rejected
the damaged portion thereof, valued at US$7,677.12, the same being unfit
for its intended purpose.8
Lastly, on September 29, 2003, Sumitomo again shipped 117 various steel
sheets in coil weighing 930,718 kilograms through petitioner’s vessel, MV
Eastern Venus V-17-S, again in favor of Calamba Steel.9 This third
shipment had a declared value of US$476,416.90 and was also insured by
Sumitomo with Mitsui. The same arrived at the port of Manila on or about
October 11, 2003. Upon its discharge, six coils were observed to be in bad
condition. Thereafter, the possession of the cargo was turned over to ATI
for stevedoring, storage and safekeeping pending withdrawal thereof by
Calamba Steel. The damaged portion of the goods being unfit for its
intended purpose, Calamba Steel rejected the damaged portion, valued at
US$14,782.05, upon ATI’s delivery of the third shipment.10
Calamba Steel filed an insurance claim with Mitsui through the latter’s
settling agent, respondent BPI/MS Insurance Corporation (BPI/MS), and
the former was paid the sums of US$7,677.12, US$14,782.05 and
US$7,751.15 for the damage suffered by all three shipments or for the
total amount of US$30,210.32. Correlatively, on August 31, 2004, as
insurer and subrogee of Calamba Steel, Mitsui and BPI/MS filed a
Complaint for Damages against petitioner and ATI.11
As synthesized by the RTC in its decision, during the pre-trial conference
of the case, the following facts were established, viz:
1. The fact that there were shipments made on or about August
29, 2003, September 13, 2003 and September 29, 2003 by
Sumitomo to Calamba Steel through petitioner’s vessels;
2. The declared value of the said shipments and the fact that the
shipments were insured by respondents;
3. The shipments arrived at the port of Manila on or about
September 6, 2003, September 23, 2003 and October 11, 2003
respectively;
4. Respondents paid Calamba Steel’s total claim in the amount of
US$30,210.32.12
Trial on the merits ensued.
On September 17, 2006, the RTC rendered its Decision,13 the dispositive
portion of which provides:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against defendants Eastern Shipping Lines, Inc. and Asian Terminals, Inc.,
jointly and severally, ordering the latter to pay plaintiffs the following:
1. Actual damages amounting to US$30,210.32 plus 6% legal
interest thereon commencing from the filing of this complaint, until
the same is fully paid;
 2. Attorney’s fees in a sum equivalent to 25% of the amount
claimed;
3. Costs of suit. The defendants’ counterclaims and ATI’s
crossclaim are DISMISSED for lack of merit.
SO ORDERED.14
Aggrieved, petitioner and ATI appealed to the CA. On July 9, 2010, the CA
in its assailed Decision affirmed with modification the RTC’s findings and
ruling, holding, among others, that both petitioner and ATI were very
negligent in the handling of the subject cargoes. Pointing to the affidavit of
Mario Manuel, Cargo Surveyor, the CA found that "during the unloading
operations, the steel coils were lifted from the vessel but were not
carefully laid on the ground. Some were even ‘dropped’ while still several
inches from the ground while other coils bumped or hit one another at the
pier while being arranged by the stevedores and forklift operators of ATI
and [petitioner]." The CA added that such finding coincides with the factual
findings of the RTC that both petitioner and ATI were both negligent in
handling the goods. However, for failure of the RTC to state the
justification for the award of attorney’s fees in the body of its decision, the
CA accordingly deleted the same.15 Petitioner filed its Motion for
Reconsideration16 which the CA, however, denied in its Resolution17 dated
October 6, 2010.
Both petitioner and ATI filed their respective separate petitions for review
on certiorari before this Court.1âwphi1 However, ATI’s petition, docketed
as G.R. No. 192905, was denied by this Court in our Resolution18 dated
October 6, 2010 for failure of ATI to show any reversible error in the
assailed CA decision and for failure of ATI to submit proper verification.
Said resolution had become final and executory on March 22,
2011.19 Nevertheless, this Court in its Resolution20 dated September 3,
2012, gave due course to this petition and directed the parties to file their
respective memoranda.
In its Memorandum,21 petitioner essentially avers that the CA erred in
affirming the decision of the RTC because the survey reports submitted by
respondents themselves as their own evidence and the pieces of evidence
submitted by petitioner clearly show that the cause of the damage was the
rough handling of the goods by ATI during the discharging operations.
Petitioner attests that it had no participation whatsoever in the discharging
operations and that petitioner did not have a choice in selecting the
stevedore since ATI is the only arrastre operator mandated to conduct
discharging operations in the South Harbor. Thus, petitioner prays that it
be absolved from any liability relative to the damage incurred by the
goods.
On the other hand, respondents counter, among others, that as found by
both the RTC and the CA, the goods suffered damage while still in the
possession of petitioner as evidenced by various Turn Over Surveys of Bad
Order Cargoes which were unqualifiedly executed by petitioner’s own
surveyor, Rodrigo Victoria, together with the representative of ATI.
Respondents assert that petitioner would not have executed such
documents if the goods, as it claims, did not suffer any damage prior to
their turn-over to ATI. Lastly, respondents aver that petitioner, being a
common carrier is required by law to observe extraordinary diligence in
the vigilance over the goods it carries.22
Simply put, the core issue in this case is whether the CA committed any
reversible error in finding that petitioner is solidarily liable with ATI on
account of the damage incurred by the goods.
The Court resolves the issue in the negative.
Well entrenched in this jurisdiction is the rule that factual questions may
not be raised before this Court in a petition for review on certiorari as this
Court is not a trier of facts. This is clearly stated in Section 1, Rule 45 of
the 1997 Rules of Civil Procedure, as amended, which provides:
SECTION 1. Filing of petition with Supreme Court. — A party desiring to
appeal by certiorari from a judgment or final order or resolution of the
Court of Appeals, the Sandiganbayan, the Regional Trial Court or other
courts whenever authorized by law, may file with the Supreme Court a
verified petition for review on certiorari. The petition shall raise only
questions of law which must be distinctly set forth.
Thus, it is settled that in petitions for review on certiorari, only questions
of law may be put in issue. Questions of fact cannot be entertained.23
A question of law exists when the doubt or controversy concerns the
correct application of law or jurisprudence to a certain set of facts, or
when the issue does not call for an examination of the probative value of
the evidence presented, the truth or falsehood of facts being admitted. A
question of fact exists when the doubt or difference arises as to the truth
or falsehood of facts or when the query invites calibration of the whole
evidence considering mainly the credibility of the witnesses, the existence
and relevancy of specific surrounding circumstances as well as their
relation to each other and to the whole, and the probability of the
situation.24
In this petition, the resolution of the question as to who between petitioner
and ATI should be liable for the damage to the goods is indubitably
factual, and would clearly impose upon this Court the task of reviewing,
examining and evaluating or weighing all over again the probative value of
the evidence presented25 – something which is not, as a rule, within the
functions of this Court and within the office of a petition for review on
certiorari.
While it is true that the aforementioned rule admits of certain
exceptions,26 this Court finds that none are applicable in this case. This
Court finds no cogent reason to disturb the factual findings of the RTC
which were duly affirmed by the CA. Unanimous with the CA, this Court
gives credence and accords respect to the factual findings of the RTC – a
special commercial court27 which has expertise and specialized knowledge
on the subject matter28 of maritime and admiralty – highlighting the
solidary liability of both petitioner and ATI. The RTC judiciously found:
x x x The Turn Over Survey of Bad Order Cargoes (TOSBOC, for brevity)
No. 67393 and Request for Bad Order Survey No. 57692 show that prior to
the turn over of the first shipment to the custody of ATI, eleven (11) of
the twenty-eight (28) coils were already found in bad order condition.
Eight (8) of the said eleven coils were already "partly dented/crumpled "
and the remaining three (3) were found "partly dented, scratches on inner
hole, crumple (sic)". On the other hand, the TOSBOC No. 67457 and
Request for Bad Order Survey No. 57777 also show that prior to the turn
over of the second shipment to the custody of ATI, a total of six (6) coils
thereof were already "partly dented on one side, crumpled/cover detach
(sic)". These documents were issued by ATI. The said TOSBOC’s were
jointly executed by ATI, vessel’s representative and surveyor while the
Requests for Bad Order Survey were jointly executed by ATI, consignee’s
representative and the Shed Supervisor. The aforementioned documents
were corroborated by the Damage Report dated 23 September 2003 and
Turn Over Survey No. 15765 for the first shipment, Damage Report dated
13 October 2003 and Turn Over Survey No. 15772 for the second
shipment and, two Damage Reports dated 6 September 2003 and Turn
Over Survey No. 15753 for the third shipment.
It was shown to this Court that a Request for Bad Order Survey is a
document which is requested by an interested party that incorporates
therein the details of the damage, if any, suffered by a shipped
commodity. Also, a TOSBOC, usually issued by the arrastre contractor (ATI
in this case), is a form of certification that states therein the bad order
condition of a particular cargo, as found prior to its turn over to the
custody or possession of the said arrastre contractor.
The said Damage Reports, Turn Over Survey Reports and Requests for Bad
Order Survey led the Court to conclude that before the subject shipments
were turned over to ATI, the said cargo were already in bad order
condition due to damage sustained during the sea voyage. Nevertheless,
this Court cannot turn a blind eye to the fact that there was also
negligence on the part of the employees of ATI and [Eastern Shipping
Lines, Inc.] in the discharging of the cargo as observed by plaintiff’s
witness, Mario Manuel, and [Eastern Shipping Lines, Inc.’s] witness,
Rodrigo Victoria.
In ascertaining the cause of the damage to the subject shipments, Mario
Manuel stated that the "coils were roughly handled during their
discharging from the vessel to the pier of (sic) ASIAN TERMINALS, INC.
and even during the loading operations of these coils from the pier to the
trucks that will transport the coils to the consignee’s warehouse. During
the aforesaid operations, the employees and forklift operators of EASTERN
SHIPPING LINES and ASIAN TERMINALS, INC. were very negligent in the
handling of the subject cargoes. Specifically, "during unloading, the steel
coils were lifted from the vessel and not carefully laid on the ground,
sometimes were even ‘dropped’ while still several inches from the ground.
The tine (forklift blade) or the portion that carries the coils used for the
forklift is improper because it is pointed and sharp and the centering of the
tine to the coils were negligently done such that the pointed and sharp tine
touched and caused scratches, tears and dents to the coils. Some of the
coils were also dragged by the forklift instead of being carefully lifted from
one place to another. Some coils bump/hit one another at the pier while
being arranged by the stevedores/forklift operators of ASIAN TERMINALS,
INC. and EASTERN SHIPPING LINES.29 (Emphasis supplied.)
Verily, it is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier.30 As
hereinbefore found by the RTC and affirmed by the CA based on the
evidence presented, the goods were damaged even before they were
turned over to ATI. Such damage was even compounded by the negligent
acts of petitioner and ATI which both mishandled the goods during the
discharging operations. Thus, it bears stressing unto petitioner that
common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance
over the goods transported by them. Subject to certain exceptions
enumerated under Article 173431 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods. The
extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a
right to receive them.32 Owing to this high degree of diligence required of
them, common carriers, as a general rule, are presumed to have been at
fault or negligent if the goods they transported deteriorated or got lost or
destroyed. That is, unless they prove that they exercised extraordinary
diligence in transporting the goods. In order to avoid responsibility for any
loss or damage, therefore, they have the burden of proving that they
observed such high level of diligence.33 In this case, petitioner failed to
hurdle such burden.
In sum, petitioner failed to show any reversible error on the part of the CA
in affirming the ruling of the RTC as to warrant the modification, much less
the reversal of its assailed decision.

WHEREFORE, the petition is DENIED. The Decision dated July 9, 2010 of

the Court of Appeals in CA-G.R. CV No. 88361 is hereby AFFIRMED.

With costs against the petitioner.

SO ORDERED.

6. Alpha Insurance and Surety Co v. Castor, GR No. 198174, 2
September 2013
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court assailing the Decision1 dated May 31, 2011 and Resolution2 dated
August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance,
Motor Car Policy No. MAND/CV-00186, with petitioner, involving her motor
vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the
petitioner to pay the respondent the amount of Six Hundred Thirty
Thousand Pesos (₱630,000.00) in case of loss or damage to said vehicle
during the period covered, which is from February 26, 2007 to February
26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver,
Jose Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle to
a nearby auto-shop for a tune-up. However, Lanuza no longer returned the
motor vehicle to respondent and despite diligent efforts to locate the
same, said efforts proved futile. Resultantly, respondent promptly reported
the incident to the police and concomitantly notified petitioner of the said
loss and demanded payment of the insurance proceeds in the total sum of
₱630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of
respondent, stating among others, thus:
Upon verification of the documents submitted, particularly the Police
Report and your Affidavit, which states that the culprit, who stole the
Insure[d] unit, is employed with you. We would like to invite you on the
provision of the Policy under Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his
family or by "A PERSON IN THE INSURED’S SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your
claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated
her claim and argued that the exception refers to damage of the motor
vehicle and not to its loss. However, petitioner’s denial of respondent’s
insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages
against petitioner before the Regional Trial Court (RTC) of Quezon City on
September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in
favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff and against the defendant ordering the latter as follows:
To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per
annum from the time of demand up to the time the amount is fully settled;
To pay attorney’s fees in the sum of ₱65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual
basis.3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of
Quezon City’s decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED.
Accordingly, the Decision, dated December 19, 2008, of Branch 215 of the
Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is
hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the
same was denied in a Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds
for the allowance of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED
AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT
ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE xxxx
PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT
ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY ARE EXCEPTIONS TO SECTION III
[AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES
THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR
The Company shall not be liable to pay for:
PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE COURTS
LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST THE
INSURER. Loss or Damage in respect of any claim or series of claims arising out of
one event, the first amount of each and every loss for each and every
vehicle insured by this Policy, such amount being equal to one percent
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED
(1.00%) of the Insured’s estimate of Fair Market Value as shown in the
AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN
Policy Schedule with a minimum deductible amount of Php3,000.00;
TOTO THE JUDGMENT OF THE TRIAL COURT.5

Consequential loss, depreciation, wear and tear, mechanical or electrical

Simply, the core issue boils down to whether or not the loss of
breakdowns, failures or breakages;
respondent’s vehicle is excluded under the insurance policy.

Damage to tires, unless the Schedule Vehicle is damaged at the same

We rule in the negative.
time;

Significant portions of Section III of the Insurance Policy states:

Any malicious damage caused by the Insured, any member of his family or
by a person in the Insured’s service.6
SECTION III – LOSS OR DAMAGE
In denying respondent’s claim, petitioner takes exception by arguing that
The Company will, subject to the Limits of Liability, indemnify the Insured the word "damage," under paragraph 4 of "Exceptions to Section III,"
against loss of or damage to the Schedule Vehicle and its accessories and means loss due to injury or harm to person, property or reputation, and
spare parts whilst thereon: should be construed to cover malicious "loss" as in "theft." Thus, it asserts
that the loss of respondent’s vehicle as a result of it being stolen by the
(a) latter’s driver is excluded from the policy.

by accidental collision or overturning, or collision or overturning We do not agree.

consequent upon mechanical breakdown or consequent upon wear and
tear; Ruling in favor of respondent, the RTC of Quezon City scrupulously
elaborated that theft perpetrated by the driver of the insured is not an
(b) exception to the coverage from the insurance policy, since Section III
thereof did not qualify as to who would commit the theft. Thus:
by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft; Theft perpetrated by a driver of the insured is not an exception to the
coverage from the insurance policy subject of this case. This is evident
(c) from the very provision of Section III – "Loss or Damage." The insurance
company, subject to the limits of liability, is obligated to indemnify the
insured against theft. Said provision does not qualify as to who would
by malicious act;
commit the theft. Thus, even if the same is committed by the driver of the
insured, there being no categorical declaration of exception, the same
(d) must be covered. As correctly pointed out by the plaintiff, "(A)n insurance
contract should be interpreted as to carry out the purpose for which the
whilst in transit (including the processes of loading and unloading) parties entered into the contract which is to insure against risks of loss or
incidental to such transit by road, rail, inland waterway, lift or elevator. damage to the goods. Such interpretation should result from the natural
and reasonable meaning of language in the policy. Where restrictive
provisions are open to two interpretations, that which is most favorable to
the insured is adopted." The defendant would argue that if the person
employed by the insured would commit the theft and the insurer would be
held liable, then this would result to an absurd situation where the insurer
would also be held liable if the insured would commit the theft. This
argument is certainly flawed. Of course, if the theft would be committed by
the insured himself, the same would be an exception to the coverage since
in that case there would be fraud on the part of the insured or breach of
material warranty under Section 69 of the Insurance Code.7
Moreover, contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular
sense.8 Accordingly, in interpreting the exclusions in an insurance contract,
the terms used specifying the excluded classes therein are to be given
their meaning as understood in common speech.9
Adverse to petitioner’s claim, the words "loss" and "damage" mean
different things in common ordinary usage. The word "loss" refers to the
act or fact of losing, or failure to keep possession, while the word
"damage" means deterioration or injury to property.1âwphi1
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under
the insurance policy under paragraph 4 of "Exceptions to Section III,"
since the same refers only to "malicious damage," or more specifically,
"injury" to the motor vehicle caused by a person under the insured’s
service. Paragraph 4 clearly does not contemplate "loss of property," as
what happened in the instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the
subject policy as one of the exceptions from coverage, is the damage that
is the direct result from the deliberate or willful act of the insured,
members of his family, and any person in the insured’s service, whose
clear plan or purpose was to cause damage to the insured vehicle for
purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the
subject policy appears to clearly delineate between the terms "loss" and
"damage" by using both terms throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss"
within the term "damage" then logic dictates that it should have used the
term "damage" alone in the entire policy or otherwise included a clear
definition of the said term as part of the provisions of the said insurance
contract. Which is why the Court finds it puzzling that in the said policy’s
provision detailing the exceptions to the policy’s coverage in Section III
thereof, which is one of the crucial parts in the insurance contract, the
insurer, after liberally using the words "loss" and "damage" in the entire
policy, suddenly went specific by using the word "damage" only in the
policy’s exception regarding "malicious damage." Now, the defendant-
appellant would like this Court to believe that it really intended the word
"damage" in the term "malicious damage" to include the theft of the
insured vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a
contract are to be construed according to the sense and meaning of the
terms which the parties thereto have used. In the case of property
insurance policies, the evident intention of the contracting parties, i.e., the
insurer and the assured, determine the import of the various terms and
provisions embodied in the policy. However, when the terms of the
insurance policy are ambiguous, equivocal or uncertain, such that the
parties themselves disagree about the meaning of particular provisions,
the policy will be construed by the courts liberally in favor of the assured
and strictly against the insurer.10
Lastly, a contract of insurance is a contract of adhesion. So, when the
terms of the insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Thus, in Eternal Gardens Memorial Park
Corporation v. Philippine American Life Insurance Company,11 this Court
ruled –
It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter’s interest. Thus,
in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with
the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be
construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must
be construed in such a way as to preclude the insurer from non-
compliance with its obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:

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

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

WHEREFORE, premises considered, the instant Petition for Review on

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

SO ORDERED.

7. Malayan Insurance Co v. PAP Co (Phil Branch), GR No.
200784, 7 Aug 2013
Challenged in this petition for review on certiorari under Rule 45 of the
Rules of Court is the October 27, 2011 Decision1 of the Court of Appeals
(CA), which affirmed with modification the September 17, 2009
Decision2 of the Regional Trial Court, Branch 15, Manila (RTC), and its
February 24, 2012 Resolution3 denying the motion for reconsideration filed
by petitioner Malayan Insurance Company., Inc. (Malayan).
The Facts
The undisputed factual antecedents were succinctly summarized by the CA
as follows:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire
Insurance Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the
latter’s machineries and equipment located at Sanyo Precision Phils. Bldg.,
Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The
insurance, which was for Fifteen Million Pesos (?15,000,000.00) and
effective for a period of one (1) year, was procured by PAP Co. for Rizal
Commercial Banking Corporation (RCBC), the mortgagee of the insured
machineries and equipment.
After the passage of almost a year but prior to the expiration of the
insurance coverage, PAP Co. renewed the policy on an "as is" basis.
Pursuant thereto, a renewal policy, Fire Insurance Policy No. F-00227-
000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to
May 13, 1998.
On October 12, 1997 and during the subsistence of the renewal policy, the
insured machineries and equipment were totally lost by fire. Hence, PAP
Co. filed a fire insurance claim with Malayan in the amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the
ground that, at the time of the loss, the insured machineries and
equipment were transferred by PAP Co. to a location different from that
indicated in the policy. Specifically, that the insured machineries were
transferred in September 1996 from the Sanyo Building to the Pace Pacific
Bldg., Lot 14, Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific).
Contesting the denial, PAP Co. argued that Malayan cannot avoid liability
as it was informed of the transfer by RCBC, the party duty-bound to relay
such information. However, Malayan reiterated its denial of PAP Co.’s
claim. Distraught, PAP Co. filed the complaint below against Malayan.4
Ruling of the RTC
On September 17, 2009, the RTC handed down its decision, ordering
Malayan to pay PAP Company Ltd (PAP) an indemnity for the loss under
the fire insurance policy as well as for attorney’s fees. The dispositive
portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff. Defendant is hereby ordered:
a)
To pay plaintiff the sum of FIFTEEN MILLION PESOS (₱15,000,000.00) as
and for indemnity for the loss under the fire insurance policy, plus interest
thereon at the rate of 12% per annum from the time of loss on October
12, 1997 until fully paid;
b)
To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS
(Ph₱500,000.00) as and by way of attorney’s fees; [and,]
c)
To pay the costs of suit.
SO ORDERED.5
The RTC explained that Malayan is liable to indemnify PAP for the loss
under the subject fire insurance policy because, although there was a
change in the condition of the thing insured as a result of the transfer of
the subject machineries to another location, said insurance company failed
to show proof that such transfer resulted in the increase of the risk insured
against. In the absence of proof that the alteration of the thing insured
increased the risk, the contract of fire insurance is not affected per Article
169 of the Insurance Code.
The RTC further stated that PAP’s notice to Rizal Commercial Banking
Corporation (RCBC) sufficiently complied with the notice requirement
under the policy considering that it was RCBC which procured the
insurance. PAP acted in good faith in notifying RCBC about the transfer
and the latter even conducted an inspection of the machinery in its new
location.
Not contented, Malayan appealed the RTC decision to the CA basically
arguing that the trial court erred in ordering it to indemnify PAP for the
loss of the subject machineries since the latter, without notice and/or
consent, transferred the same to a location different from that indicated in
the fire insurance policy.
Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which
affirmed the RTC decision but deleted the attorney’s fees. The decretal
portion of the CA decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified,
Malayan Insurance Company must indemnify PAP Co. Ltd the amount of
Fifteen Million Pesos (Ph₱15,000,000.00) for the loss under the fire
insurance policy, plus interest thereon at the rate of 12% per annum from
the time of loss on October 12, 1997 until fully paid. However, the Five
Hundred Thousand Pesos (Ph₱500,000.00) awarded to PAP Co., Ltd. as
attorney’s fees is DELETED. With costs.
SO ORDERED.6
The CA wrote that Malayan failed to show proof that there was a
prohibition on the transfer of the insured properties during the efficacy of
the insurance policy. Malayan also failed to show that its contractual
consent was needed before carrying out a transfer of the insured
properties. Despite its bare claim that the original and the renewed
insurance policies contained provisions on transfer limitations of the
insured properties, Malayan never cited the specific provisions.
The CA further stated that even if there was such a provision on transfer
restrictions of the insured properties, still Malayan could not escape
liability because the transfer was made during the subsistence of the
original policy, not the renewal policy. PAP transferred the insured
properties from the Sanyo Factory to the Pace Pacific Building (Pace
Factory) sometime in September 1996. Therefore, Malayan was aware or
should have been aware of such transfer when it issued the renewal policy
on May 14, 1997. The CA opined that since an insurance policy was a
contract of adhesion, any ambiguity must be resolved against the party
that prepared the contract, which, in this case, was Malayan.
Finally, the CA added that Malayan failed to show that the transfer of the
insured properties increased the risk of the loss. It, thus, could not use
such transfer as an excuse for not paying the indemnity to PAP. Although
the insurance proceeds were payable to RCBC, PAP could still sue Malayan
to enforce its rights on the policy because it remained a party to the
insurance contract.
Not in conformity with the CA decision, Malayan filed this petition for
review anchored on the following
GROUNDS
I
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE
HONORABLE COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT AND THUS RULING IN THE QUESTIONED DECISION AND
RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER THE
INSURANCE CONTRACT BECAUSE:
CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS,
PETITIONER MALAYAN WAS ABLE TO PROVE AND IT IS NOT DENIED,
THAT ON THE FACE OF THE RENEWAL POLICY ISSUED TO RESPONDENT
PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR A REPRESENTATION
MADE BY THE INSURED THAT THE "LOCATION OF THE RISK" WAS AT THE
SANYO BUILDING. IT IS LIKEWISE UNDISPUTED THAT WHEN THE
RENEWAL POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED
PROPERTIES WERE NOT AT THE SANYO BUILDING BUT WERE AT A
DIFFERENT LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN
THIS DIFFERENT LOCATION WHEN THE LOSS INSURED AGAINST
OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF ALREADY
ENTITLES PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS
AVOIDED OR RESCINDED BY LAW, BECAUSE OF CONCEALMENT,
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY
UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31 OF THE
INSURANCE CODE, RESPECTIVELY.
RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT
COMMIT CONCEALMENT, MISREPRESENTATION OR BREACH OF AN
AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE THAT IT INFORMED
PETITIONER MALAYAN THAT THE INSURED PROPERTIES HAD BEEN
TRANSFERRED TO A LOCATION DIFFERENT FROM WHAT WAS INDICATED
IN THE INSURANCE POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE
CONDITIONS AND LIMITATIONS TO THE RENEWAL POLICY WHICH ARE
THE REASONS WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN
FACT, THE BEST PROOF THAT RESPONDENT PAP CO. RECOGNIZES THESE
CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE
FOCUSED ON ITS FACTUAL ASSERTION THAT IT SUPPOSEDLY NOTIFIED
PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY THE
INSURANCE POLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE
WAS AN INCREASE IN RISK BECAUSE OF THE UNILATERAL TRANSFER OF
THE INSURED PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS
UNREBUTTED BY RESPONDENT PAP CO.
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW
AND ESTABLISHED DECISIONS OF THE HONORABLE COURT WHEN IT
IMPOSED INTEREST AT THE RATE OF TWELVE PERCENT (12%) INTEREST
FROM THE TIME OF THE LOSS UNTIL FULLY PAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE
POLICY IS NOT A LOAN OR FORBEARANCE OF MONEY FROM WHICH A
BREACH ENTITLES A PLAINTIFF TO AN AWARD OF INTEREST AT THE RATE
OF TWELVE PERCENT (12%) PER ANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE
SHOULD NOT HAVE BEEN APPLIED BY THE COURT OF APPEALS BECAUSE
THERE WAS NEVER ANY FINDING THAT PETITIONER MALAYAN
UNJUSTIFIABLY REFUSED OR WITHHELD THE PROCEEDS OF THE
INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A
LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER
RESPONDENT PAP CO. COMMITTED CONCEALMENT, MISREPRESENTATION
AND BREACH OF AN AFFIRMATIVE WARRANTY WHICH ENTITLES
PETITIONER MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO
CONSIDER THE CLAIM AS VOIDED.
III
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE
HONORABLE COURT WHEN IT AGREED WITH THE TRIAL COURT AND HELD
IN THE QUESTIONED DECISION THAT THE PROCEEDS OF THE INSURANCE
CONTRACT IS PAYABLE TO RESPONDENT PAP CO. DESPITE THE
EXISTENCE OF A MORTGAGEE CLAUSE IN THE INSURANCE POLICY.
IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW
AND JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED DECISION
AND RESOLUTION THAT THE INTERPRETATION MOST FAVORABLE TO THE
INSURED SHALL BE ADOPTED.7
Malayan basically argues that it cannot be held liable under the insurance
contract because PAP committed concealment, misrepresentation and
breach of an affirmative warranty under the renewal policy when it
transferred the location of the insured properties without informing it.
Such transfer affected the correct estimation of the risk which should have
enabled Malayan to decide whether it was willing to assume such risk and,
if so, at what rate of premium. The transfer also affected Malayan’s ability
to control the risk by guarding against the increase of the risk brought
about by the change in conditions, specifically the change in the location of
the risk.
Malayan claims that PAP concealed a material fact in violation of Section
27 of the Insurance Code8 when it did not inform Malayan of the actual
and new location of the insured properties. In fact, before the issuance of
the renewal policy on May 14, 1997, PAP even informed it that there would
be no changes in the renewal policy. Malayan also argues that PAP is guilty
of breach of warranty under the renewal policy in violation of Section 74 of
the Insurance Code9 when, contrary to its affirmation in the renewal policy
that the insured properties were located at the Sanyo Factory, these were
already transferred to the Pace Factory. Malayan adds that PAP is guilty of
misrepresentation upon a material fact in violation of Section 45 of the
Insurance Code10 when it informed Malayan that there would be no
changes in the original policy, and that the original policy would be
renewed on an "as is" basis.
Malayan further argues that PAP failed to discharge the burden of proving
that the transfer of the insured properties under the insurance policy was
with its knowledge and consent. Granting that PAP informed RCBC of the
transfer or change of location of the insured properties, the same is
irrelevant and does not bind Malayan considering that RCBC is a
corporation vested with separate and distinct juridical personality. Malayan
did not consent to be the principal of RCBC. RCBC did not also act as
Malayan’s representative.
With regard to the alleged increase of risk, Malayan insists that there is
evidence of an increase in risk as a result of the unilateral transfer of the
insured properties. According to Malayan, the Sanyo Factory was occupied
as a factory of automotive/computer parts by the assured and factory of
zinc & aluminum die cast and plastic gear for copy machine by Sanyo
Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A, while Pace
Factory was occupied as factory that repacked silicone sealant to plastic
cylinders with a rate of 0.657% under 6.1.2 A.
PAP’s position
On the other hand, PAP counters that there is no evidence of any
misrepresentation, concealment or deception on its part and that its claim
is not fraudulent. It insists that it can still sue to protect its rights and
interest on the policy notwithstanding the fact that the proceeds of the
same was payable to RCBC, and that it can collect interest at the rate of
12% per annum on the proceeds of the policy because its claim for
indemnity was unduly delayed without legal justification.
The Court’s Ruling
The Court agrees with the position of Malayan that it cannot be held liable
for the loss of the insured properties under the fire insurance policy.
As can be gleaned from the pleadings, it is not disputed that on May 13,
1996, PAP obtained a ?15,000,000.00 fire insurance policy from Malayan
covering its machineries and equipment effective for one (1) year or until
May 13, 1997; that the policy expressly stated that the insured properties
were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6,
Block 15, EPZA, Rosario, Cavite"; that before its expiration, the policy was
renewed11 on an "as is" basis for another year or until May 13, 1998; that
the subject properties were later transferred to the Pace Factory also in
PEZA; and that on October 12, 1997, during the effectivity of the renewal
policy, a fire broke out at the Pace Factory which totally burned the
insured properties.
The policy forbade the removal of the insured properties unless sanctioned
by Malayan
Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to attach
as regards the property affected unless the insured, before the occurrence
of any loss or damage, obtains the sanction of the company signified by
endorsement upon the policy, by or on behalf of the Company:
xxx xxx xxx
(c) If property insured be removed to any building or place other than in
that which is herein stated to be insured.12
Evidently, by the clear and express condition in the renewal policy, the
removal of the insured property to any building or place required the
consent of Malayan. Any transfer effected by the insured, without the
insurer’s consent, would free the latter from any liability.
The respondent failed to notify, and to obtain the consent of, Malayan
regarding the removal
The records are bereft of any convincing and concrete evidence that
Malayan was notified of the transfer of the insured properties from the
Sanyo factory to the Pace factory. The Court has combed the records and
found nothing that would show that Malayan was duly notified of the
transfer of the insured properties.
What PAP did to prove that Malayan was notified was to show that it
relayed the fact of transfer to RCBC, the entity which made the referral
and the named beneficiary in the policy. Malayan and RCBC might have
been sister companies, but such fact did not make one an agent of the
other. The fact that RCBC referred PAP to Malayan did not clothe it with
authority to represent and bind the said insurance company. After the
referral, PAP dealt directly with Malayan.
The respondent overlooked the fact that during the November 9, 2006
hearing,13 its counsel stipulated in open court that it was Malayan’s
authorized insurance agent, Rodolfo Talusan, who procured the original
policy from Malayan, not RCBC. This was the reason why Talusan’s
testimony was dispensed with.
Moreover, in the previous hearing held on November 17, 2005,14 PAP’s
hostile witness, Alexander Barrera, Administrative Assistant of Malayan,
testified that he was the one who procured Malayan’s renewal policy, not
RCBC, and that RCBC merely referred fire insurance clients to Malayan. He
stressed, however, that no written referral agreement exists between
RCBC and Malayan. He also denied that PAP notified Malayan about the
transfer before the renewal policy was issued. He added that PAP, through
Maricar Jardiniano (Jardiniano), informed him that the fire insurance would
be renewed on an "as is basis."15
Granting that any notice to RCBC was binding on Malayan, PAP’s claim that
it notified RCBC and Malayan was not indubitably established. At best, PAP
could only come up with the hearsay testimony of its principal witness,
Branch Manager Katsumi Yoneda (Mr. Yoneda), who testified as follows:
Q
What did you do as Branch Manager of Pap Co. Ltd.?
A
What I did I instructed my Secretary, because these equipment was bank
loan and because of the insurance I told my secretary to notify.
Q
To notify whom?
A Q

I told my Secretary to inform the bank. Do you know a certain Maricar Jardiniano?

Q A

You are referring to RCBC? Yes, sir.

A Q

Yes, sir. Why do you know her?

xxxx A

Q Because she is my secretary.

After the RCBC was informed in the manner you stated, what did you do Q
regarding the new location of these properties at Pace Pacific Bldg. insofar
as Malayan Insurance Company is concerned? So how many secretaries did you have at that time?

A A

After that transfer, we informed the RCBC about the transfer of the Two, sir.
equipment and also Malayan Insurance but we were not able to contact
Malayan Insurance so I instructed again my secretary to inform Malayan
Q
about the transfer.

What happened with the instruction that you gave to your secretary Dory
Q
Ramos about the matter of informing the defendant Malayan Insurance Co
of the new location of the insured properties?
Who was the secretary you instructed to contact Malayan Insurance, the
defendant in this case?
A

A
She informed me that the notification was already given to Malayan
Insurance.
Dory Ramos.
Q
Q
Aside from what she told you how did you know that the information was
How many secretaries do you have at that time in your office? properly relayed by the said secretary, Dory Ramos, to Malayan
Insurance?
A
A
Only one, sir.
I asked her, Dory Ramos, did you inform Malayan Insurance and she said A
yes, sir.
Verbal.16 [Emphases supplied]
Q
The testimony of Mr. Yoneda consisted of hearsay matters. He obviously
Now after you were told by your secretary, Dory Ramos, that she was able had no personal knowledge of the notice to either Malayan or RCBC. PAP
to inform Malayan Insurance Company about the transfer of the properties should have presented his secretaries, Dory Ramos and Maricar Jardiniano,
insured to the new location, do you know what happened insofar this at the witness stand. His testimony alone was unreliable.
information was given to the defendant Malayan Insurance?
Moreover, the Court takes note of the fact that Mr. Yoneda admitted that
A the insured properties were transferred to a different location only after
the renewal of the fire insurance policy.
I heard that someone from Malayan Insurance came over to our company.
COURT
Q
Q
Did you come to know who was that person who came to your place at
Pace Pacific? When did you transfer the machineries and equipments before the renewal
or after the renewal of the insurance?
A
A
I do not know, sir.
After the renewal.
Q
COURT
How did you know that this person from Malayan Insurance came to your
place? Q

A You understand my question?

It is according to the report given to me. A

Q Yes, Your Honor.17 [Emphasis supplied]

Who gave that report to you? This enfeebles PAP’s position that the subject properties were already
transferred to the Pace factory before the policy was renewed.
A
The transfer from the Sanyo Factory to the PACE Factory increased the
Dory Ramos. risk.

Q The courts below held that even if Malayan was not notified thereof, the
transfer of the insured properties to the Pace Factory was insignificant as it
did not increase the risk.
Was that report in writing or verbally done?
Malayan argues that the change of location of the subject properties from
the Sanyo Factory to the Pace Factory increased the hazard to which the
insured properties were exposed. Malayan wrote:
With regards to the exposure of the risk under the old location, this was
occupied as factory of automotive/computer parts by the assured, and
factory of zinc & aluminum die cast, plastic gear for copy machine by
Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But
under Pace Pacific Mfg. Corporation this was occupied as factory that
repacks silicone sealant to plastic cylinders with a rate of 0.657% under
6.1.2 A. Hence, there was an increase in the hazard as indicated by the
increase in rate.18
The Court agrees with Malayan that the transfer to the Pace Factory
exposed the properties to a hazardous environment and negatively
affected the fire rating stated in the renewal policy. The increase in tariff
rate from 0.449% to 0.657% put the subject properties at a greater risk of
loss. Such increase in risk would necessarily entail an increase in the
premium payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very crucial
point. Despite the importance of the issue, PAP failed to refute Malayan’s
argument on the increased risk.
Malayan is entitled to rescind the insurance contract
Considering that the original policy was renewed on an "as is basis," it
follows that the renewal policy carried with it the same stipulations and
limitations. The terms and conditions in the renewal policy provided,
among others, that the location of the risk insured against is at the Sanyo
factory in PEZA. The subject insured properties, however, were totally
burned at the Pace Factory. Although it was also located in PEZA, Pace
Factory was not the location stipulated in the renewal policy. There being
an unconsented removal, the transfer was at PAP’s own risk.
Consequently, it must suffer the consequences of the fire. Thus, the Court
agrees with the report of Cunningham Toplis Philippines, Inc., an
international loss adjuster which investigated the fire incident at the Pace
Factory, which opined that "[g]iven that the location of risk covered under
the policy is not the location affected, the policy will, therefore, not
respond to this loss/claim."19
It can also be said that with the transfer of the location of the subject
properties, without notice and without Malayan’s consent, after the
renewal of the policy, PAP clearly committed concealment,
misrepresentation and a breach of a material warranty. Section 26 of the
Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought
to communicate, is called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the
injured party to rescind a contract of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled
to rescind the insurance contract in case of an alteration in the use or
condition of the thing insured. Section 168 of the Insurance Code provides,
as follows:
Section 68. An alteration in the use or condition of a thing insured from
that to which it is limited by the policy made without the consent of the
insurer, by means within the control of the insured, and increasing the
risks, entitles an insurer to rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance
contract when the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control;
and
5) the alteration increases the risk of loss.20
In the case at bench, all these circumstances are present. It was clearly
established that the renewal policy stipulated that the insured properties
were located at the Sanyo factory; that PAP removed the properties
without the consent of Malayan; and that the alteration of the location
increased the risk of loss.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is
hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance
Company, Inc. is hereby declared NOT liable for the loss of the insured
machineries and equipment suffered by PAP Co., Ltd.
SO ORDERED
 8. Manila Bankers Life Insurance Co v. Aban, GR No. 175666,
29 July 2013
The ultimate aim of Section 48 of the Insurance Code is to compel insurers
to solicit business from or provide insurance coverage only to legitimate
and bona fide clients, by requiring them to thoroughly investigate those
they insure within two years from effectivity of the policy and while the
insured is still alive. If they do not, they will be obligated to honor claims
on the policies they issue, regardless of fraud, concealment or
misrepresentation. The law assumes that they will do just that and not sit
on their laurels, indiscriminately soliciting and accepting insurance
business from any Tom, Dick and Harry.
Assailed in this Petition for Review on Certiorari1 are the September 28,
2005 Decision2 of the Court of Appeals' (CA) in CA-G.R. CV No. 62286 and
its November 9, 2006 Resolution3 denying the petitioner’s Motion for
Reconsideration.4
Factual Antecedents
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from
Manila Bankers Life Insurance Corporation (Bankers Life), designating
respondent Cresencia P. Aban (Aban), her niece,5 as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face
value of ₱100,000.00, in Sotero’s favor on August 30, 1993, after the
requisite medical examination and payment of the insurance premium.6
On April 10, 1996,7 when the insurance policy had been in force for more
than two years and seven months, Sotero died. Respondent filed a claim
for the insurance proceeds on July 9, 1996. Petitioner conducted an
investigation into the claim,8 and came out with the following findings:
1. Sotero did not personally apply for insurance coverage, as she
was illiterate;
2. Sotero was sickly since 1990;
3. Sotero did not have the financial capability to pay the insurance
premiums on Insurance Policy No. 747411;
4. Sotero did not sign the July 3, 1993 application for
insurance;9 and
5. Respondent was the one who filed the insurance application,
and x x x designated herself as the beneficiary.10
For the above reasons, petitioner denied respondent’s claim on April 16,
1997 and refunded the premiums paid on the policy.11
On April 24, 1997, petitioner filed a civil case for rescission and/or
annulment of the policy, which was docketed as Civil Case No. 97-867 and
assigned to Branch 134 of the Makati Regional Trial Court. The main thesis
of the Complaint was that the policy was obtained by fraud, concealment
and/or misrepresentation under the Insurance Code,12 which thus renders
it voidable under Article 139013 of the Civil Code.
Respondent filed a Motion to Dismiss14 claiming that petitioner’s cause of
action was barred by prescription pursuant to Section 48 of the Insurance
Code, which provides as follows:
Whenever a right to rescind a contract of insurance is given to the insurer
by any provision of this chapter, such right must be exercised previous to
the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of
two years from the date of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his
agent.
During the proceedings on the Motion to Dismiss, petitioner’s investigator
testified in court, stating among others that the insurance underwriter who
solicited the insurance is a cousin of respondent’s husband, Dindo
Aban,15 and that it was the respondent who paid the annual premiums on
the policy.16
Ruling of the Regional Trial Court
On December 9, 1997, the trial court issued an Order17 granting
respondent’s Motion to Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABAN’s Motion to Dismiss is hereby
granted. Civil Case No. 97-867 is hereby dismissed.
SO ORDERED.18
In dismissing the case, the trial court found that Sotero, and not
respondent, was the one who procured the insurance; thus, Sotero could
legally take out insurance on her own life and validly designate – as she
did – respondent as the beneficiary. It held further that under Section 48,
petitioner had only two years from the effectivity of the policy to question
the same; since the policy had been in force for more than two years,
petitioner is now barred from contesting the same or seeking a rescission
or annulment thereof.
Petitioner moved for reconsideration, but in another Order19 dated October
20, 1998, the trial court stood its ground.
Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No.
62286. Petitioner questioned the dismissal of Civil Case No. 97-867,
arguing that the trial court erred in applying Section 48 and declaring that
prescription has set in. It contended that since it was respondent – and
not Sotero – who obtained the insurance, the policy issued was rendered
void ab initio for want of insurable interest.
Ruling of the Court of Appeals
On September 28, 2005, the CA issued the assailed Decision, which
contained the following decretal portion:
WHEREFORE, in the light of all the foregoing, the instant appeal is
DISMISSED for lack of merit.
SO ORDERED.20
The CA thus sustained the trial court. Applying Section 48 to petitioner’s
case, the CA held that petitioner may no longer prove that the subject
policy was void ab initio or rescindible by reason of fraudulent concealment
or misrepresentation after the lapse of more than two years from its
issuance. It ratiocinated that petitioner was equipped with ample means to
determine, within the first two years of the policy, whether fraud,
concealment or misrepresentation was present when the insurance
coverage was obtained. If it failed to do so within the statutory two-year
period, then the insured must be protected and allowed to claim upon the
policy.
Petitioner moved for reconsideration,21 but the CA denied the same in its
November 9, 2006 Resolution.22 Hence, the present Petition.
Issues
Petitioner raises the following issues for resolution:
I
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF
THE TRIAL COURT DISMISSING THE COMPLAINT ON THE GROUND OF
PRESCRIPTION IN CONTRAVENTION (OF) PERTINENT LAWS AND
APPLICABLE JURISPRUDENCE.
II
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE
APPLICATION OF THE INCONTESTABILITY PROVISION IN THE INSURANCE
CODE BY THE TRIAL COURT.
III
WHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S
MOTION FOR RECONSIDERATION.23
Petitioner’s Arguments
In praying that the CA Decision be reversed and that the case be
remanded to the trial court for the conduct of further proceedings,
petitioner argues in its Petition and Reply24 that Section 48 cannot apply to
a case where the beneficiary under the insurance contract posed as the
insured and obtained the policy under fraudulent circumstances. It adds
that respondent, who was merely Sotero’s niece, had no insurable interest
in the life of her aunt.
Relying on the results of the investigation that it conducted after the claim
for the insurance proceeds was filed, petitioner insists that respondent’s
claim was spurious, as it appeared that Sotero did not actually apply for
insurance coverage, was unlettered, sickly, and had no visible source of
income to pay for the insurance premiums; and that respondent was an
impostor, posing as Sotero and fraudulently obtaining insurance in the
latter’s name without her knowledge and consent.
Petitioner adds that Insurance Policy No. 747411 was void ab initio and
could not have given rise to rights and obligations; as such, the action for
the declaration of its nullity or inexistence does not prescribe.25
Respondent’s Arguments
Respondent, on the other hand, essentially argues in her Comment26 that
the CA is correct in applying Section 48. She adds that petitioner’s new
allegation in its Petition that the policy is void ab initio merits no attention,
having failed to raise the same below, as it had claimed originally that the
policy was merely voidable.
On the issue of insurable interest, respondent echoes the CA’s
pronouncement that since it was Sotero who obtained the insurance,
insurable interest was present. Under Section 10 of the Insurance Code,
Sotero had insurable interest in her own life, and could validly designate
anyone as her beneficiary. Respondent submits that the CA’s findings of
fact leading to such conclusion should be respected.
Our Ruling
The Court denies the Petition.
The Court will not depart from the trial and appellate courts’ finding that it
was Sotero who obtained the insurance for herself, designating respondent
as her beneficiary. Both courts are in accord in this respect, and the Court
is loath to disturb this. While petitioner insists that its independent
investigation on the claim reveals that it was respondent, posing as
Sotero, who obtained the insurance, this claim is no longer feasible in the
wake of the courts’ finding that it was Sotero who obtained the insurance
for herself. This finding of fact binds the Court.
With the above crucial finding of fact – that it was Sotero who obtained the
insurance for herself – petitioner’s case is severely weakened, if not totally
disproved. Allegations of fraud, which are predicated on respondent’s
alleged posing as Sotero and forgery of her signature in the insurance
application, are at once belied by the trial and appellate courts’ finding
that Sotero herself took out the insurance for herself. "Fraudulent intent
on the part of the insured must be established to entitle the insurer to
rescind the contract."27 In the absence of proof of such fraudulent intent,
no right to rescind arises.
Moreover, the results and conclusions arrived at during the investigation
conducted unilaterally by petitioner after the claim was filed may simply be
dismissed as self-serving and may not form the basis of a cause of action
given the existence and application of Section 48, as will be discussed at
length below.
Section 48 serves a noble purpose, as it regulates the actions of both the
insurer and the insured. Under the provision, an insurer is given two years
– from the effectivity of a life insurance contract and while the insured is
alive – to discover or prove that the policy is void ab initio or is rescindible
by reason of the fraudulent concealment or misrepresentation of the
insured or his agent. After the two-year period lapses, or when the insured
dies within the period, the insurer must make good on the policy, even
though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be
rewarded, but that insurers who recklessly and indiscriminately solicit and
obtain business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fide takers of
insurance and the public in general.
Section 48 regulates both the actions of the insurers and prospective
takers of life insurance. It gives insurers enough time to inquire whether
the policy was obtained by fraud, concealment, or misrepresentation; on
the other hand, it forewarns scheming individuals that their attempts at
insurance fraud would be timely uncovered – thus deterring them from
venturing into such nefarious enterprise. At the same time, legitimate
policy holders are absolutely protected from unwarranted denial of their
claims or delay in the collection of insurance proceeds occasioned by
allegations of fraud, concealment, or misrepresentation by insurers, claims
which may no longer be set up after the two-year period expires as
ordained under the law.
Thus, the self-regulating feature of Section 48 lies in the fact that both the
insurer and the insured are given the assurance that any dishonest
scheme to obtain life insurance would be exposed, and attempts at unduly
denying a claim would be struck down. Life insurance policies that pass the
statutory two-year period are essentially treated as legitimate and beyond
question, and the individuals who wield them are made secure by the
thought that they will be paid promptly upon claim. In this manner,
Section 48 contributes to the stability of the insurance industry.
Section 48 prevents a situation where the insurer knowingly continues to
accept annual premium payments on life insurance, only to later on deny a
claim on the policy on specious claims of fraudulent concealment and
misrepresentation, such as what obtains in the instant case. Thus, instead
of conducting at the first instance an investigation into the circumstances
surrounding the issuance of Insurance Policy No. 747411 which would
have timely exposed the supposed flaws and irregularities attending it as it
now professes, petitioner appears to have turned a blind eye and opted
instead to continue collecting the premiums on the policy. For nearly three
years, petitioner collected the premiums and devoted the same to its own
profit. It cannot now deny the claim when it is called to account. Section
48 must be applied to it with full force and effect.
The Court therefore agrees fully with the appellate court’s pronouncement
that –
the "incontestability clause" is a provision in law that after a policy of life
insurance made payable on the death of the insured shall have been in
force during the lifetime of the insured for a period of two (2) years from
the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindible by reason of fraudulent
concealment or misrepresentation of the insured or his agent.
The purpose of the law is to give protection to the insured or his
beneficiary by limiting the rescinding of the contract of insurance on the
ground of fraudulent concealment or misrepresentation to a period of only
two (2) years from the issuance of the policy or its last reinstatement.
The insurer is deemed to have the necessary facilities to discover such
fraudulent concealment or misrepresentation within a period of two (2)
years. It is not fair for the insurer to collect the premiums as long as the
insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the
beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last
reinstatement, the beneficiary is given the stability to recover under the
policy when the insured dies. The provision also makes clear when the
two-year period should commence in case the policy should lapse and is
reinstated, that is, from the date of the last reinstatement.
After two years, the defenses of concealment or misrepresentation, no
matter how patent or well-founded, will no longer lie.
Congress felt this was a sufficient answer to the various tactics employed
by insurance companies to avoid liability.
The so-called "incontestability clause" precludes the insurer from raising
the defenses of false representations or concealment of material facts
insofar as health and previous diseases are concerned if the insurance has
been in force for at least two years during the insured’s lifetime. The
phrase "during the lifetime" found in Section 48 simply means that the
policy is no longer considered in force after the insured has died. The key
phrase in the second paragraph of Section 48 is "for a period of two
years."
As borne by the records, the policy was issued on August 30, 1993, the
insured died on April 10, 1996, and the claim was denied on April 16,
1997. The insurance policy was thus in force for a period of 3 years, 7
months, and 24 days. Considering that the insured died after the two-year
period, the plaintiff-appellant is, therefore, barred from proving that the
policy is void ab initio by reason of the insured’s fraudulent concealment or
misrepresentation or want of insurable interest on the part of the
beneficiary, herein defendant-appellee.
Well-settled is the rule that it is the plaintiff-appellant’s burden to show
that the factual findings of the trial court are not based on substantial
evidence or that its conclusions are contrary to applicable law and
jurisprudence. The plaintiff-appellant failed to discharge that burden.28
Petitioner claims that its insurance agent, who solicited the Sotero
account, happens to be the cousin of respondent’s husband, and thus
insinuates that both connived to commit insurance fraud. If this were truly
the case, then petitioner would have discovered the scheme earlier if it
had in earnest conducted an investigation into the circumstances
surrounding the Sotero policy. But because it did not and it investigated
the Sotero account only after a claim was filed thereon more than two
years later, naturally it was unable to detect the scheme. For its
negligence and inaction, the Court cannot sympathize with its plight.
Instead, its case precisely provides the strong argument for requiring
insurers to diligently conduct investigations on each policy they issue
within the two-year period mandated under Section 48, and not after
claims for insurance proceeds are filed with them.
Besides, if insurers cannot vouch for the integrity and honesty of their
insurance agents/salesmen and the insurance policies they issue, then
they should cease doing business. If they could not properly screen their
agents or salesmen before taking them in to market their products, or if
they do not thoroughly investigate the insurance contracts they enter into
with their clients, then they have only themselves to blame. Otherwise
said, insurers cannot be allowed to collect premiums on insurance policies,
use these amounts collected and invest the same through the years,
generating profits and returns therefrom for their own benefit, and
thereafter conveniently deny insurance claims by questioning the authority
or integrity of their own agents or the insurance policies they issued to
their premium-paying clients. This is exactly one of the schemes which
Section 48 aims to prevent.
Insurers may not be allowed to delay the payment of claims by filing
frivolous cases in court, hoping that the inevitable may be put off for years
– or even decades – by the pendency of these unnecessary court cases. In
the meantime, they benefit from collecting the interest and/or returns on
both the premiums previously paid by the insured and the insurance
proceeds which should otherwise go to their beneficiaries. The business of
insurance is a highly regulated commercial activity in the country,29 and is
imbued with public interest.30 "An insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the former’s interest."31
WHEREFORE, the Petition is DENIED. The assailed September 28, 2005
Decision and the November 9, 2006 Resolution of the Court of Appeals in
CA-G.R. CV No. 62286 are AFFIRMED.
SO ORDERED.
 9. Mitsubishi Motors Philippines Salaried Employees Union v.
Mitsubishi Motors Corp, GR No. 175773, 17 June 2013
The Collective Bargaining Agreement (CBA) of the parties in this case
provides that the company shoulder the hospitalization expenses of the
dependents of covered employees subject to certain limitations and
restrictions. Accordingly, covered employees pay part of the
hospitalization insurance premium through monthly salary deduction while
the company, upon hospitalization of the covered employees' dependents,
shall pay the hospitalization expenses incurred for the same. The conflict
arose when a portion of the hospitalization expenses of the covered
employees' dependents were paid/shouldered by the dependent's own
health insurance. While the company refused to pay the portion of the
hospital expenses already shouldered by the dependents' own health
insurance, the union insists that the covered employees are entitled to the
whole and undiminished amount of said hospital expenses.
By this Petition for Review on Certiorari,[1] petitioner Mitsubishi Motors
Philippines Salaried Employees Union (MMPSEU) assails the March 31,
2006 Decision[2] and December 5, 2006 Resolution[3] of the Court of
Appeals (CA) in CA-G.R. SP No. 75630, which reversed and set aside the
Voluntary Arbitrator's December 3, 2002 Decision[4] and declared
respondent Mitsubishi Motors Philippines Corporation (MMPC) to be under
no legal obligation to pay its covered employees' dependents'
hospitalization expenses which were already shouldered by other health
insurance companies.
Factual Antecedents
The parties' CBA[5] covering the period August 1, 1996 to July 31, 1999
provides for the hospitalization insurance benefits for the covered
dependents, thus:
SECTION 4. DEPENDENTS' GROUP HOSPITALIZATION
INSURANCE The COMPANY shall obtain group hospitalization insurance
coverage or assume under a self-insurance basis hospitalization for the
dependents of regular employees up to a maximum amount of forty
thousand pesos (P40,000.00) per confinement subject to the following:
a. The room and board must not exceed three hundred pesos
(P300.00) per day up to a maximum of thirty-one (31)
days. Similarly, Doctor's Call fees must not exceed three hundred
pesos (P300.00) per day for a maximum of thirty-one (31)
days. Any excess of this amount shall be borne by the employee.
b. Confinement must be in a hospital designated by the
COMPANY. For this purpose, the COMPANY shall designate
hospitals in different convenient places to be availed of by the
dependents of employees. In cases of emergency where the
dependent is confined without the recommendation of the
company doctor or in a hospital not designated by the COMPANY,
the COMPANY shall look into the circumstances of such
confinement and arrange for the payment of the amount to the
extent of the hospitalization benefit.
c. The limitations and restrictions listed in Annex "B" must be
observed.
d. Payment shall be direct to the hospital and doctor and must be
covered by actual billings.
Each employee shall pay one hundred pesos (P100.00) per month through
salary deduction as his share in the payment of the insurance premium for
the above coverage with the balance of the premium to be paid by the
COMPANY. If the COMPANY is self-insured the one hundred pesos
(P100.00) per employee monthly contribution shall be given to the
COMPANY which shall shoulder the expenses subject to the above level of
benefits and subject to the same limitations and restrictions provided for in
Annex "B" hereof.
The hospitalization expenses must be covered by actual hospital and
doctor's bills and any amount in excess of the above mentioned level of
benefits will be for the account of the employee.
For purposes of this provision, eligible dependents are the covered
employees' natural parents, legal spouse and legitimate or legally adopted
or step children who are unmarried, unemployed who have not attained
twenty-one (21) years of age and wholly dependent upon the employee
for support.
This provision applies only in cases of actual confinement in the hospital
for at least six (6) hours.
Maternity cases are not covered by this section but will be under the next
succeeding section on maternity benefits.[6]
When the CBA expired on July 31, 1999, the parties executed another
CBA[7] effective August 1, 1999 to July 31, 2002 incorporating the same
provisions on dependents' hospitalization insurance benefits but in the
increased amount of P50,000.00. The room and board expenses, as well
as the doctor's call fees, were also increased to P375.00.
On separate occasions, three members of MMPSEU, namely, Ernesto
Calida (Calida), Hermie Juan Oabel (Oabel) and Jocelyn Martin (Martin),
filed claims for reimbursement of hospitalization expenses of their
dependents.
MMPC paid only a portion of their hospitalization insurance claims, not the
full amount. In the case of Calida, his wife, Lanie, was confined at Sto.
Tomas University Hospital from September 4 to 9, 1998 due to
Thyroidectomy. The medical expenses incurred totalled P29,967.10. Of
this amount, P9,000.00 representing professional fees was paid by
MEDICard Philippines, Inc. (MEDICard) which provides health maintenance
to Lanie.[8] MMPC only paid P12,148.63.[9] It did not pay the P9,000.00
already paid by MEDICard and the P6,278.47 not covered by official
receipts. It refused to give to Calida the difference between the amount of
medical expenses of P27,427.10[10] which he claimed to be entitled to
under the CBA and the P12,148.63 which MMPC directly paid to the
hospital.
As regards Oabel's claim, his wife Jovita Nemia (Jovita) was confined at
The Medical City from March 8 to 11, 1999 due to Tonsillopharyngitis,
incurring medical expenses totalling P8,489.35.[11] Of this amount,
P7,811.00 was paid by Jovita's personal health insurance, Prosper
Insurance Company (Prosper).[12] MMPC paid the hospital the amount of
P630.87,[13] after deducting from the total medical expenses the amount
paid by Prosper and the P47.48 discount given by the hospital.
In the case of Martin, his father, Jose, was admitted at The Medical City
from March 26 to 27, 2000 due to Acid Peptic Disease and incurred
medical expenses amounting to P9,101.30.[14] MEDICard paid
P8,496.00.[15] Consequently, MMPC only paid P288.40,[16]after deducting
from the total medical expenses the amount paid by MEDICard and the
P316.90 discount given by the hospital.
Claiming that under the CBA, they are entitled to hospital benefits
amounting to P27,427.10, P6,769.35 and P8,123.80, respectively, which
should not be reduced by the amounts paid by MEDICard and by Prosper,
Calida, Oabel and Martin asked for reimbursement from MMPC. However,
MMPC denied the claims contending that double insurance would result if
the said employees would receive from the company the full amount of
hospitalization expenses despite having already received payment of
portions thereof from other health insurance providers.
This prompted the MMPSEU President to write the MMPC
President[17] demanding full payment of the hospitalization
benefits. Alleging discrimination against MMPSEU union members, she
pointed out that full reimbursement was given in a similar claim filed by
Luisito Cruz (Cruz), a member of the Hourly Union. In a letter-
reply,[18] MMPC, through its Vice-President for Industrial Relations Division,
clarified that the claims of the said MMPSEU members have already been
paid on the basis of official receipts submitted. It also denied the charge
of discrimination and explained that the case of Cruz involved an entirely
different matter since it concerned the admissibility of certified true copies
of documents for reimbursement purposes, which case had been settled
through voluntary arbitration.
On August 28, 2000, MMPSEU referred the dispute to the National
Conciliation and Mediation Board and requested for preventive
mediation.[19]
Proceedings before the Voluntary Arbitrator
On October 3, 2000, the case was referred to Voluntary Arbitrator Rolando
Capocyan for resolution of the issue involving the interpretation of the
subject CBA provision.[20]
MMPSEU alleged that there is nothing in the CBA which prohibits an
employee from obtaining other insurance or declares that medical
expenses can be reimbursed only upon presentation of original official
receipts. It stressed that the hospitalization benefits should be computed
based on the formula indicated in the CBA without deducting the benefits
derived from other insurance providers. Besides, if reduction is permitted,
MMPC would be unjustly benefitted from the monthly premium contributed
by the employees through salary deduction. MMPSEU added that its
members had legitimate claims under the CBA and that any doubt as to
any of its provisions should be resolved in favor of its
members. Moreover, any ambiguity should be resolved in favor of
labor.[21]
On the other hand, MMPC argued that the reimbursement of the entire
amounts being claimed by the covered employees, including those already
paid by other insurance companies, would constitute double indemnity or
double insurance, which is circumscribed under the Insurance
Code. Moreover, a contract of insurance is a contract of indemnity and the
employees cannot be allowed to profit from their dependents' loss.[22]
Meanwhile, the parties separately sought for a legal opinion from the
Insurance Commission relative to the issue at hand. In its letter[23]to the
Insurance Commission, MMPC requested for confirmation of its position
that the covered employees cannot claim insurance benefits for a loss that
had already been covered or paid by another insurance
company. However, the Office of the Insurance Commission opted not to
render an opinion on the matter as the same may become the subject of a
formal complaint before it.[24] On the other hand, when queried by
MMPSEU,[25] the Insurance Commission, through Atty. Richard David C.
Funk II (Atty. Funk) of the Claims Adjudication Division, rendered an
opinion contained in a letter,[26] viz:
January 8, 2002
 Temporary Restraining Order and/or Writ of Preliminary
Ms. Cecilia L. Paras Injunction[28] before the CA. It claimed that the Voluntary Arbitrator
President Mitsubishi Motors Phils. committed grave abuse of discretion in not finding that recovery under
[Salaried] Employees Union both insurance policies constitutes double insurance as both had the same
Ortigas Avenue Extension, subject matter, interest insured and risk or peril insured against; in relying
Cainta, Rizal solely on the unauthorized legal opinion of Atty. Funk; and in not finding
that the employees will be benefitted twice for the same loss. In its
Madam: Comment,[29] MMPSEU countered that MMPC will unjustly enrich itself and
profit from the monthly premiums paid if full reimbursement is not made.
We acknowledge receipt of your letter which, to our impression, basically
poses the question of whether or not recovery of medical expenses from a On March 31, 2006, the CA found merit in MMPC's Petition. It ruled that
Health Maintenance Organization bars recovery of the same reimbursable despite the lack of a provision which bars recovery in case of payment by
amount of medical expenses under a contract of health or medical other insurers, the wordings of the subject provision of the CBA showed
insurance. that the parties intended to make MMPC liable only for expenses actually
incurred by an employee's qualified dependent. In particular, the
We wish to opine that in cases of claims for reimbursement of medical provision stipulates that payment should be made directly to the hospital
expenses where there are two contracts providing benefits to that effect, and that the claim should be supported by actual hospital and doctor's
recovery may be had on both simultaneously. In the absence of an Other bills. These mean that the employees shall only be paid amounts not
Insurance provision in these coverages, the courts have uniformly held covered by other health insurance and is more in keeping with the
that an insured is entitled to receive the insurance benefits without regard principle of indemnity in insurance contracts. Besides, a contrary
to the amount of total benefits provided by other insurance. (INSURANCE interpretation would "allow unscrupulous employees to unduly profit from
LAW, A Guide to Fundamental Principles, Legal Doctrines, and Commercial the x x x benefits" and shall "open the floodgates to questionable claims x
Practices; Robert E. Keeton, Alau I. Widiss, p. 261). The result is x x."[30]
consistent with the public policy underlying the collateral source rule that
is, x x x the courts have usually concluded that the liability of a health or The dispositive portion of the CA Decision[31] reads:
accident insurer is not reduced by other possible sources of indemnification
or compensation. (ibid).
WHEREFORE, the instant petition is GRANTED. The decision of the
Very truly yours, voluntary arbitrator dated December 3, 2002 is REVERSED and SET
ASIDE and judgment is rendered declaring that under Art. XI, Sec. 4 of
(SGD.) the Collective Bargaining Agreement between petitioner and respondent
RICHARD DAVID C. FUNK II effective August 1, 1999 to July 31, 2002, the former's obligation to
Attorney IV reimburse the Union members for the hospitalization expenses incurred by
Officer-in-Charge their dependents is exclusive of those paid by the Union members to the
Claims Adjudication Division hospital.

On December 3, 2002, the Voluntary Arbitrator rendered a SO ORDERED.[32]

Decision[27] finding MMPC liable to pay or reimburse the amount of
hospitalization expenses already paid by other health insurance
companies. The Voluntary Arbitrator held that the employees may
demand simultaneous payment from both the CBA and their dependents'
separate health insurance without resulting to double insurance, since
separate premiums were paid for each contract. He also noted that the
CBA does not prohibit reimbursement in case there are other health
insurers.
Proceedings before the Court of Appeals
MMPC filed a Petition for Review with Prayer for the Issuance of a
In its Motion for Reconsideration,[33] MMPSEU pointed out that the alleged
oppression that may be committed by abusive employees is a mere
possibility whereas the resulting losses to the employees are
real. MMPSEU cited Samsel v. Allstate Insurance Co.,[34] wherein the
Arizona Supreme Court explicitly ruled that an insured may recover from
separate health insurance providers, regardless of whether one of them
has already paid the medical expenses incurred. On the other hand,
MMPC argued in its Comment[35] that the cited foreign case involves a
different set of facts. The CA, in its Resolution[36] dated December 5, 2006,
denied MMPSEU's motion.
Hence, this Petition.
Issues
MMPSEU presented the following grounds in support of its Petition:
A.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE
DECISION DATED 03 [DECEMBER] 2002 OF THE VOLUNTARY ARBITRATOR
BELOW WHEN THE SAME WAS SUPPORTED BY SUBSTANTIAL EVIDENCE,
INCLUDING THE OPINION OF THE INSURANCE COMMISSION THAT
RECOVERY FROM BOTH THE CBA AND SEPARATE HEALTH CARDS IS NOT
PROHIBITED IN THE ABSENCE OF ANY SPECIFIC PROVISION IN THE CBA.
B.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
OVERTURNING THE DECISION OF THE VOLUNTARY ARBITRATOR
WITHOUT EVEN GIVING ANY LEGAL OR JUSTIFIABLE BASIS FOR SUCH
REVERSAL.
C.
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN REFUSING TO
CONSIDER OR EVEN MENTION ANYTHING ABOUT THE AMERICAN
AUTHORITIES CITED IN THE RECORDS THAT DO NOT PROHIBIT, BUT IN
FACT ALLOW, RECOVERY FROM TWO SEPARATE HEALTH PLANS.
D.
THE COURT OF APPEALS GRAVELY ERRED IN GIVING MORE IMPORTANCE
TO A POSSIBLE, HENCE MERELY SPECULATIVE, ABUSE BY EMPLOYEES OF
THE BENEFITS IF DOUBLE RECOVERY WERE ALLOWED INSTEAD OF THE
REAL INJURY TO THE EMPLOYEES WHO ARE PAYING FOR THE CBA
HOSPITALIZATION BENEFITS THROUGH MONTHLY SALARY DEDUCTIONS
BUT WHO MAY NOT BE ABLE TO AVAIL OF THE SAME IF THEY OR THEIR
DEPENDENTS HAVE OTHER HEALTH INSURANCE.[37]
MMPSEU avers that the Decision of the Voluntary Arbitrator deserves
utmost respect and finality because it is supported by substantial evidence
and is in accordance with the opinion rendered by the Insurance
Commission, an agency equipped with vast knowledge concerning
insurance contracts. It maintains that under the CBA, member-employees
are entitled to full reimbursement of medical expenses incurred by their
dependents regardless of any amounts paid by the latter's health
insurance provider. Otherwise, non-recovery will constitute unjust
enrichment on the part of MMPC. It avers that recovery from both the
CBA and other insurance companies is allowed under their CBA and not
prohibited by law nor by jurisprudence.
Our Ruling
The Petition has no merit.
Atty. Funk erred in applying the
collateral source rule.
The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that
the employees may recover benefits from different insurance providers
without regard to the amount of benefits paid by each. According to him,
this view is consistent with the theory of the collateral source rule.
As part of American personal injury law, the collateral source rule was
originally applied to tort cases wherein the defendant is prevented from
benefitting from the plaintiff's receipt of money from other
sources.[38] Under this rule, if an injured person receives compensation for
his injuries from a source wholly independent of the tortfeasor, the
payment should not be deducted from the damages which he would
otherwise collect from the tortfeasor.[39] In a recent Decision[40] by the
Illinois Supreme Court, the rule has been described as "an established
exception to the general rule that damages in negligence actions must be
compensatory." The Court went on to explain that although the rule
appears to allow a double recovery, the collateral source will have a lien or
subrogation right to prevent such a double recovery.[41] In Mitchell v.
Haldar,[42] the collateral source rule was rationalized by the Supreme
Court of Delaware:
The collateral source rule is 'predicated on the theory that a tortfeasor has
no interest in, and therefore no right to benefit from monies received by
the injured person from sources unconnected with the
defendant'. According to the collateral source rule, 'a tortfeasor has no
right to any mitigation of damages because of payments or compensation
received by the injured person from an independent source.' The rationale
for the collateral source rule is based upon the quasi-punitive nature of
tort law liability. It has been explained as follows:
The collateral source rule is designed to strike a balance between two
competing principles of tort law: (1) a plaintiff is entitled to compensation
sufficient to make him whole, but no more; and (2) a defendant is liable
for all damages that proximately result from his wrong. A plaintiff who
receives a double recovery for a single tort enjoys a windfall; a defendant
who escapes, in whole or in part, liability for his wrong enjoys a
windfall. Because the law must sanction one windfall and deny the other,
it favors the victim of the wrong rather than the wrongdoer.
Thus, the tortfeasor is required to bear the cost for the full value of his or
her negligent conduct even if it results in a windfall for the innocent
plaintiff. (Citations omitted)
As seen, the collateral source rule applies in order to place the
responsibility for losses on the party causing them.[43] Its application is
justified so that "'the wrongdoer should not benefit from the expenditures
made by the injured party or take advantage of contracts or other
relations that may exist between the injured party and third
persons."[44] Thus, it finds no application to cases involving no-fault
insurances under which the insured is indemnified for losses by insurance
companies, regardless of who was at fault in the incident generating the
losses.[45] Here, it is clear that MMPC is a no-fault insurer. Hence, it
cannot be obliged to pay the hospitalization expenses of the dependents of
its employees which had already been paid by separate health insurance
providers of said dependents.
The Voluntary Arbitrator therefore erred in adopting Atty. Funk's view that
the covered employees are entitled to full payment of the hospital
expenses incurred by their dependents, including the amounts already
paid by other health insurance companies based on the theory of collateral
source rule.
The conditions set forth in the CBA provision
indicate an intention to limit MMPC's liability
only to actual expenses incurred by the employees'
dependents, that is, excluding the amounts paid
by dependents' other health insurance providers.
The Voluntary Arbitrator ruled that the CBA has no express provision
barring claims for hospitalization expenses already paid by other
insurers. Hence, the covered employees can recover from both. The CA
did not agree, saying that the conditions set forth in the CBA implied an
intention of the parties to limit MMPC's liability only to the extent of the
expenses actually incurred by their dependents which excludes the
amounts shouldered by other health insurance companies.
We agree with the CA. The condition that payment should be direct to the
hospital and doctor implies that MMPC is only liable to pay medical
expenses actually shouldered by the employees' dependents. It follows
that MMPC's liability is limited, that is, it does not include the amounts
paid by other health insurance providers. This condition is obviously
intended to thwart not only fraudulent claims but also double claims for
the same loss of the dependents of covered employees.
It is well to note at this point that the CBA constitutes a contract between
the parties and as such, it should be strictly construed for the purpose of
limiting the amount of the employer's liability.[46] The terms of the subject
provision are clear and provide no room for any other interpretation. As
there is no ambiguity, the terms must be taken in their plain, ordinary and
popular sense.[47] Consequently, MMPSEU cannot rely on the rule that a
contract of insurance is to be liberally construed in favor of the
insured. Neither can it rely on the theory that any doubt must be resolved
in favor of labor.
Samsel v. Allstate Insurance Co. is not
on all fours with the case at bar.
MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the
Supreme Court of Arizona allowed the insured to enjoy medical benefits
under an automobile policy insurance despite being able to also recover
from a separate health insurer. In that case, the Allstate automobile
policy does not contain any clause restricting medical payment coverage to
expenses actually paid by the insured nor does it specifically provide for
reduction of medical payments benefits by a coordination of
benefits.[48] However, in the case before us, the dependents' group
hospitalization insurance provision in the CBA specifically contains a
condition which limits MMPC's liability only up to the extent of the
expenses that should be paid by the covered employee's dependent to the
hospital and doctor. This is evident from the portion which states that
"payment [by MMPC] shall be direct to the hospital and doctor."[49] In
contrast, the Allstate automobile policy expressly gives Allstate the
authority to pay directly to the insured person or on the latter's behalf all
reasonable expenses actually incurred. Therefore, reliance on [Samsel] is
unavailing because the facts therein are different and not decisive of the
issues in the present case.
To allow reimbursement of amounts paid
under other insurance policies shall constitute
double recovery which is not sanctioned by law.
MMPSEU insists that MMPC is also liable for the amounts covered under
other insurance policies; otherwise, MMPC will unjustly profit from the
premiums the employees contribute through monthly salary deductions.

This contention is unmeritorious.

To constitute unjust enrichment, it must be shown that a party was

unjustly enriched in the sense that the term unjustly could mean illegally
or unlawfully.[50] A claim for unjust enrichment fails when the person who
will benefit has a valid claim to such benefit.[51]

The CBA has provided for MMPC's limited liability which extends only up to
the amount to be paid to the hospital and doctor by the employees'
dependents, excluding those paid by other insurers. Consequently, the
covered employees will not receive more than what is due them; neither is
MMPC under any obligation to give more than what is due under the CBA.

Moreover, since the subject CBA provision is an insurance contract, the

rights and obligations of the parties must be determined in accordance
with the general principles of insurance law.[52] Being in the nature of a
non-life insurance contract and essentially a contract of indemnity, the
CBA provision obligates MMPC to indemnify the covered employees'
medical expenses incurred by their dependents but only up to the extent
of the expenses actually incurred.[53] This is consistent with the principle
of indemnity which proscribes the insured from recovering greater than
the loss.[54] Indeed, to profit from a loss will lead to unjust enrichment
and therefore should not be countenanced. As aptly ruled by the CA, to
grant the claims of MMPSEU will permit possible abuse by employees.

WHEREFORE, the Petition is DENIED. The Decision dated March 31,

2006 and Resolution dated December 5, 2006 of the Court of Appeals in
CA-G.R. SP No. 75630, are AFFIRMED.

SO ORDERED.

10. Paramount Insurance Co v. Spouses Remondeulaz, GR No.
173773, 28 Nov 2012
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court seeking the reversal and setting aside of the Decision[1] dated
April 12, 2005 and Resolution[2] dated July 20, 2006 of the Court of
Appeals in CA-G.R. CV No. 61490.
The undisputed facts follow.
On May 26, 1994, respondents insured with petitioner their 1994 Toyota
Corolla sedan under a comprehensive motor vehicle insurance policy for
one year.
During the effectivity of said insurance, respondents' car was unlawfully
taken. Hence, they immediately reported the theft to the Traffic
Management Command of the PNP who made them accomplish a
complaint sheet. In said complaint sheet, respondents alleged that a
certain Ricardo Sales (Sales) took possession of the subject vehicle to add
accessories and improvements thereon, however, Sales failed to return the
subject vehicle within the agreed three-day period.
As a result, respondents notified petitioner to claim for the reimbursement
of their lost vehicle. However, petitioner refused to pay.
Accordingly, respondents lodged a complaint for a sum of money against
petitioner before the Regional Trial Court of Makati City (trial court)
praying for the payment of the insured value of their car plus damages on
April 21, 1995.
After presentation of respondents' evidence, petitioner filed a Demurrer to
Evidence.
Acting thereon, the trial court dismissed the complaint filed by
respondents. The full text of said Order[3] reads:
Before the Court is an action filed by the plaintiffs, spouses Yves and Maria
Teresa Remondeulaz against the defendant, Paramount Insurance
Corporation, to recover from the defendant the insured value of [the]
motor vehicle.
It appears that on 26 May 1994, plaintiffs insured their vehicle, a 1994
Toyota Corolla XL with chassis number EE-100-9524505, with defendant
under Private Car Policy No. PC-37396 for Own Damage, Theft, Third-Party
Property Damage and Third-Party Personal Injury, for the period
commencing 26 May 1994 to 26 May 1995. Then on 1 December 1994,
defendants received from plaintiff a demand letter asking for the payment
of the proceeds in the amount of PhP409,000.00 under their policy. They
alleged the loss of the vehicle and claimed the same to be covered by the
policy's provision on "Theft." Defendant disagreed and refused to pay.
It appears, however, that plaintiff had successfully prosecuted and had
been awarded the amount claimed in this action, in another action (Civil
Case No. 95-1524 entitled Sps. Yves and Maria Teresa Remondeulaz
versus Standard Insurance Company, Inc.), which involved the loss of the
same vehicle under the same circumstances although under a different
policy and insurance company. This, considered with the principle that an
insured may not recover more than its interest in any property subject of
an insurance, leads the court to dismiss this action.
SO ORDERED.[4]
Not in conformity with the trial court's Order, respondents interposed an
appeal to the Court of Appeals (appellate court).
In its Decision dated April 12, 2005, the appellate court reversed and set
aside the Order issued by the trial court, to wit:
Indeed, the trial court erred when it dismissed the action on the ground of
double recovery since it is clear that the subject car is different from the
one insured with another insurance company, the Standard Insurance
Company. In this case, defendant-appellee [herein petitioner] denied the
reimbursement for the lost vehicle on the ground that the said loss could
not fall within the concept of the "theft clause" under the insurance policy
x x x
x x x x
WHEREFORE, the October 7, 1998 Order of the Regional Trial Court of
Makati City, Branch 63, is hereby REVERSED and SET ASIDE
x x x.
SO ORDERED.[5]
Petitioner, thereafter, filed a motion for reconsideration against said
Decision, but the same was denied by the appellate court in a Resolution
dated July 20, 2006.
Consequently, petitioner filed a petition for review on certiorari before this
Court praying that the appellate court's Decision and Resolution be
reversed and set aside.
In its petition, petitioner raises this issue for our resolution:

Whether or not the Court of Appeals decided the case a quo in a way not
in accord with law and/or applicable jurisprudence when it promulgated in
favor of the respondents Remondeulaz, making Paramount liable for the
alleged "theft" of respondents' vehicle.[6]
Essentially, the issue is whether or not petitioner is liable under the
insurance policy for the loss of respondents' vehicle.
Petitioner argues that the loss of respondents' vehicle is not a peril
covered by the policy. It maintains that it is not liable for the loss, since
the car cannot be classified as stolen as respondents entrusted the
possession thereof to another person.
We do not agree.
Adverse to petitioner's claim, respondents' policy clearly undertook to
indemnify the insured against loss of or damage to the scheduled vehicle
when caused by theft, to wit:
SECTION III LOSS OR DAMAGE
1. The Company will, subject to the Limits of Liability, indemnify
the insured against loss of or damage to the Scheduled
Vehicle and its accessories and spare parts whilst thereon:
by accidental collision or overturning, or collision or overturning
(a) consequent upon mechanical breakdown or consequent upon wear and
tear;
by fire, external explosion, self-ignition or lightning or burglary,
(b)
housebreaking or theft;
(c) by malicious act;
whilst in transit (including the [process] of loading and unloading)
(d) incidental to such transit by road, rail, inland waterway, lift or
elevator.[7]
Apropos, we now resolve the issue of whether the loss of respondents'
vehicle falls within the concept of the "theft clause" under the insurance
policy.
In People v. Bustinera,[8] this Court had the occasion to interpret the "theft
clause" of an insurance policy. In this case, the Court explained that when
one takes the motor vehicle of another without the latter's consent even if
the motor vehicle is later returned, there is theft there being intent to gain
as the use of the thing unlawfully taken constitutes gain.
Also, in Malayan Insurance Co., Inc. v. Court of Appeals,[9] this Court held
that the taking of a vehicle by another person without the permission or
authority from the owner thereof is sufficient to place it within the ambit of
the word theft as contemplated in the policy, and is therefore,
compensable.
Moreover, the case of Santos v. People[10] is worthy of note. Similarly in
Santos, the owner of a car entrusted his vehicle to therein petitioner Lauro
Santos who owns a repair shop for carburetor repair and
repainting. However, when the owner tried to retrieve her car, she was
not able to do so since Santos had abandoned his shop. In the said case,
the crime that was actually committed was Qualified Theft. However, the
Court held that because of the fact that it was not alleged in the
information that the object of the crime was a car, which is a qualifying
circumstance, the Court found that Santos was only guilty of the crime of
Theft and merely considered the qualifying circumstance as an aggravating
circumstance in the imposition of the appropriate penalty. The Court
therein clarified the distinction between the crime of Estafa and Theft, to
wit:
x x x The principal distinction between the two crimes is that in theft the
thing is taken while in estafa the accused receives the property and
converts it to his own use or benefit. However, there may be theft even if
the accused has possession of the property. If he was entrusted only with
the material or physical (natural) or de facto possession of the thing, his
misappropriation of the same constitutes theft, but if he has the juridical
possession of the thing, his conversion of the same constitutes
embezzlement or estafa.[11]
In the instant case, Sales did not have juridical possession over the
vehicle. Here, it is apparent that the taking of respondents' vehicle by
Sales is without any consent or authority from the former.
Records would show that respondents entrusted possession of
their vehicle only to the extent that Sales will introduce repairs
and improvements thereon, and not to permanently deprive them
of possession thereof. Since, Theft can also be committed through
misappropriation, the fact that Sales failed to return the subject vehicle to
respondents constitutes Qualified Theft. Hence, since respondents' car is
undeniably covered by a Comprehensive Motor Vehicle Insurance Policy
that allows for recovery in cases of theft, petitioner is liable under the
policy for the loss of respondents' vehicle under the "theft clause."
All told, Sales' act of depriving respondents of their motor vehicle at, or
soon after the transfer of physical possession of the movable property,
constitutes theft under the insurance policy, which is compensable.[12]

WHEREFORE, the instant petition is DENIED. The Decision dated April

12, 2005 and Resolution dated July 20, 2006 of the Court of Appeals are
hereby AFFIRMED in toto.

SO ORDERED.
 11. United Merchants Corp v. Country Bankers Insurance Corp,
GR No. 198588, 11 July 2012
The Case
This Petition for Review on Certiorari1 seeks to reverse the Court of
Appeals’ Decision2 dated 16 June 2011 and its Resolution3 dated 8
September 2011 in CA-G.R. CV No. 85777. The Court of Appeals reversed
the Decision4 of the Regional Trial Court (RTC) of Manila, Branch 3, and
ruled that the claim on the Insurance Policy is void.
The Facts
The facts, as culled from the records, are as follows:
Petitioner United Merchants Corporation (UMC) is engaged in the business
of buying, selling, and manufacturing Christmas lights. UMC leased a
warehouse at 19-B Dagot Street, San Jose Subdivision, Barrio Manresa,
Quezon City, where UMC assembled and stored its products.
On 6 September 1995, UMC’s General Manager Alfredo Tan insured UMC’s
stocks in trade of Christmas lights against fire with defendant Country
Bankers Insurance Corporation (CBIC) for ₱15,000,000.00. The Fire
Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice No.
12959A, valid until 6 September 1996, states:
AMOUNT OF INSURANCE: FIFTEEN
MILLION PESOS
PHILIPPINE
CURRENCY
xxx
PROPERTY INSURED: On stocks in trade only, consisting of Christmas
Lights, the properties of the Assured or held by them in trust, on
commissions, or on joint account with others and/or for which they are
responsible in the event of loss and/or damage during the currency of this
policy, whilst contained in the building of one lofty storey in height,
constructed of concrete and/or hollow blocks with portion of galvanized
iron sheets, under galvanized iron rood, occupied as Christmas lights
storage.5
On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire
Invoice No. 16583A to form part of the Insurance Policy. Endorsement
F/96-154 provides that UMC’s stocks in trade were insured against
additional perils, to wit: "typhoon, flood, ext. cover, and full earthquake."
The sum insured was also increased to ₱50,000,000.00 effective 7 May
1996 to 10 January 1997. On 9 May 1996, CBIC issued Endorsement F/96-
157 where the name of the assured was changed from Alfredo Tan to
UMC.
On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC
designated CRM Adjustment Corporation (CRM) to investigate and
evaluate UMC’s loss by reason of the fire. CBIC’s reinsurer, Central Surety,
likewise requested the National Bureau of Investigation (NBI) to conduct a
parallel investigation. On 6 July 1996, UMC, through CRM, submitted to
CBIC its Sworn Statement of Formal Claim, with proofs of its loss.
On 20 November 1996, UMC demanded for at least fifty percent (50%)
payment of its claim from CBIC. On 25 February 1997, UMC received
CBIC’s letter, dated 10 January 1997, rejecting UMC’s claim due to breach
of Condition No. 15 of the Insurance Policy. Condition No. 15 states:
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 devices are
used by the Insured or anyone acting in his behalf to obtain any benefit
under this Policy; or if the loss or damage be occasioned by the willful act,
or with the connivance of the Insured, all the benefits under this Policy
shall be forfeited.6
On 19 February 1998, UMC filed a Complaint7 against CBIC with the RTC of
Manila. UMC anchored its insurance claim on the Insurance Policy, the
Sworn Statement of Formal Claim earlier submitted, and the Certification
dated 24 July 1996 made by Deputy Fire Chief/Senior Superintendent
Bonifacio J. Garcia of the Bureau of Fire Protection. The Certification dated
24 July 1996 provides that:
This is to certify that according to available records of this office, on or
about 6:10 P.M. of July 3, 1996, a fire broke out at United Merchants
Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City
incurring an estimated damage of Fifty-Five Million Pesos
(₱55,000,000.00) to the building and contents, while the reported
insurance coverage amounted to Fifty Million Pesos (₱50,000,000.00) with
Country Bankers Insurance Corporation.
The Bureau further certifies that no evidence was gathered to prove that
the establishment was willfully, feloniously and intentionally set on fire.
That the investigation of the fire incident is already closed being
ACCIDENTAL in nature.8
In its Answer with Compulsory Counterclaim9 dated 4 March 1998, CBIC
admitted the issuance of the Insurance Policy to UMC but raised the
following defenses: (1) that the Complaint states no cause of action; (2)
that UMC’s claim has already prescribed; and (3) that UMC’s fire claim is
tainted with fraud. CBIC alleged that UMC’s claim was fraudulent because
UMC’s Statement of Inventory showed that it had no stocks in trade as of
31 December 1995, and that UMC’s suspicious purchases for the year
1996 did not even amount to ₱25,000,000.00. UMC’s GIS and Financial
Reports further revealed that it had insufficient capital, which meant UMC
could not afford the alleged ₱50,000,000.00 worth of stocks in trade.
In its Reply10 dated 20 March 1998, UMC denied violation of Condition No.
15 of the Insurance Policy. UMC claimed that it did not make any false
declaration because the invoices were genuine and the Statement of
Inventory was for internal revenue purposes only, not for its insurance
claim.
During trial, UMC presented five witnesses. The first witness was Josie
Ebora (Ebora), UMC’s disbursing officer. Ebora testified that UMC’s stocks
in trade, at the time of the fire, consisted of: (1) raw materials for its
Christmas lights; (2) Christmas lights already assembled; and (3)
Christmas lights purchased from local suppliers. These stocks in trade
were delivered from August 1995 to May 1996. She stated that Straight
Cargo Commercial Forwarders delivered the imported materials to the
warehouse, evidenced by delivery receipts. However, for the year 1996,
UMC had no importations and only bought from its local suppliers. Ebora
identified the suppliers as Fiber Technology Corporation from which UMC
bought stocks worth ₱1,800,000.00 on 20 May 1996; Fuze Industries
Manufacturer Philippines from which UMC bought stocks worth
₱19,500,000.00 from 20 January 1996 to 23 February 1996; and Tomco
Commercial Press from which UMC bought several Christmas boxes. Ebora
testified that all these deliveries were not yet paid. Ebora also presented
UMC’s Balance Sheet, Income Statement and Statement of Cash Flow. Per
her testimony, UMC’s purchases amounted to ₱608,986.00 in 1994;
₱827,670.00 in 1995; and ₱20,000,000.00 in 1996. Ebora also claimed
that UMC had sales only from its fruits business but no sales from its
Christmas lights for the year 1995.
The next witness, Annie Pabustan (Pabustan), testified that her company
provided about 25 workers to assemble and pack Christmas lights for UMC
from 28 March 1996 to 3 July 1996. The third witness, Metropolitan Bank
and Trust Company (MBTC) Officer Cesar Martinez, stated that UMC
opened letters of credit with MBTC for the year 1995 only. The fourth
witness presented was Ernesto Luna (Luna), the delivery checker of
Straight Commercial Cargo Forwarders. Luna affirmed the delivery of
UMC’s goods to its warehouse on 13 August 1995, 6 September 1995, 8
September 1995, 24 October 1995, 27 October 1995, 9 November 1995,
and 19 December 1995. Lastly, CRM’s adjuster Dominador Victorio
testified that he inspected UMC’s warehouse and prepared preliminary
reports in this connection.
On the other hand, CBIC presented the claims manager Edgar
Caguindagan (Caguindagan), a Securities and Exchange Commission
(SEC) representative, Atty. Ernesto Cabrera (Cabrera), and NBI
Investigator Arnold Lazaro (Lazaro). Caguindagan testified that he
inspected the burned warehouse on 5 July 1996, took pictures of it and
referred the claim to an independent adjuster. The SEC representative’s
testimony was dispensed with, since the parties stipulated on the
existence of certain documents, to wit: (1) UMC’s GIS for 1994-1997; (2)
UMC’s Financial Report as of 31 December 1996; (3) SEC Certificate that
UMC did not file GIS or Financial Reports for certain years; and (4) UMC’s
Statement of Inventory as of 31 December 1995 filed with the BIR.
Cabrera and Lazaro testified that they were hired by Central Surety to
investigate UMC’s claim. On 19 November 1996, they concluded that arson
was committed based from their interview with barangay officials and the
pictures showing that blackened surfaces were present at different parts of
the warehouse. On cross-examination, Lazaro admitted that they did not
conduct a forensic investigation of the warehouse, nor did they file a case
for arson.
For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of
the documents of UCPB General Insurance, the insurer of Perfect
Investment Company, Inc., the warehouse owner. When asked to bring
documents related to the insurance of Perfect Investment Company, Inc.,
Batallones brought the papers of Perpetual Investment, Inc.
The Ruling of the Regional Trial Court
On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in
favor of UMC, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and
ordering defendant to pay plaintiff:
a) the sum of ₱43,930,230.00 as indemnity with interest thereon
at 6% per annum from November 2003 until fully paid;
b) the sum of ₱100,000.00 for exemplary damages;
c) the sum of ₱100,000.00 for attorney’s fees; and
d) the costs of suit.
Defendant’s counterclaim is denied for lack of merit.
SO ORDERED.11
The RTC found no dispute as to UMC’s fire insurance contract with CBIC.
Thus, the RTC ruled for UMC’s entitlement to the insurance proceeds, as
follows:
Fraud is never presumed but must be proved by clear and convincing
evidence. (see Alonso v. Cebu Country Club, 417 SCRA 115 [2003])
Defendant failed to establish by clear and convincing evidence that the
documents submitted to the SEC and BIR were true. It is common
business practice for corporations to have 2 sets of reports/statements for
tax purposes. The stipulated documents of plaintiff (Exhs. 2 – 8) may not
have been accurate.
The conflicting findings of defendant’s adjuster, CRM Adjustment [with
stress] and that made by Atty. Cabrera & Mr. Lazaro for Central Surety
shall be resolved in favor of the former. Definitely the former’s finding is
more credible as it was made soon after the fire while that of the latter
was done 4 months later. Certainly it would be a different situation as the
site was no longer the same after the clearing up operation which is
normal after a fire incident. The Christmas lights and parts could have
been swept away. Hence the finding of the latter appears to be speculative
to benefit the reinsurer and which defendant wants to adopt to avoid
liability.
The CRM Adjustment report found no arson and confirmed substantial
stocks in the burned warehouse (Exhs. QQQ) [underscoring supplied]. This
is bolstered by the BFP certification that there was no proof of arson and
the fire was accidental (Exhs. PPP). The certification by a government
agency like BFP is presumed to be a regular performance of official duty.
"Absent convincing evidence to the contrary, the presumption of regularity
in the performance of official functions has to be upheld." (People vs.
Lapira, 255 SCRA 85) The report of UCPB General Insurance’s adjuster
also found no arson so that the burned warehouse owner PIC was
indemnified.12
Hence, CBIC filed an appeal with the Court of Appeals (CA).
The Ruling of the Court of Appeals
On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The
dispositive portion of the Decision reads:
Exhs. "P"-"DD",
WHEREFORE, in view of the foregoing premises, the instant appeal is
GRANTED and the Decision of the Regional Trial Court, of the National
Judicial Capital Region, Branch 3 of the City of Manila dated June 16, 2005
in Civil Case No. 98-87370 is REVERSED and SET ASIDE. The plaintiff-
appellee’s claim upon its insurance policy is deemed avoided.
SO ORDERED.13
The CA ruled that UMC’s claim under the Insurance Policy is void. The CA
found that the fire was intentional in origin, considering the array of
evidence submitted by CBIC, particularly the pictures taken and the
reports of Cabrera and Lazaro, as opposed to UMC’s failure to explain the
details of the alleged fire accident. In addition, it found that UMC’s claim
was overvalued through fraudulent transactions. The CA ruled:
We have meticulously gone over the entirety of the evidence submitted by
the parties and have come up with a conclusion that the claim of the
plaintiff-appellee was indeed overvalued by transactions which were
fraudulently concocted so that the full coverage of the insurance policy will
have to be fully awarded to the plaintiff-appellee.
First, We turn to the backdrop of the plaintiff-appellee’s case, thus, [o]n
September 6, 1995 its stocks-in-trade were insured for Fifteen Million
Pesos and on May 7, 1996 the same was increased to 50 Million Pesos.
Two months thereafter, a fire gutted the plaintiff-appellee’s warehouse.
Second, We consider the reported purchases of the plaintiff-appellee as
shown in its financial report dated December 31, 1996 vis-à-vis the
testimony of Ms. Ebora thus:
1994 - ₱608,986.00
1995 - ₱827,670.00
1996 - ₱20,000,000.00 (more or less) which were purchased for a
period of one month.
Third, We shall also direct our attention to the alleged true and complete
purchases of the plaintiff-appellee as well as the value of all stock-in-trade
it had at the time that the fire occurred. Thus:
Amount Dates
Exhibit Source
(pesos) Covered
Fuze Industries 19,550,400.00 January 20,
inclusive Manufacturer Phils. 1996 "NNN", inclusive Credit for June 15, 1995
January 31, imported raw July 5, 1995
1996 materials September 4,
February 12, 1995
1996 October 2,
February 20, 1995
1996 October 27,
February 23, 1995
1996 January 8,
1996
Exhs. "EE"-"HH", Tomco Commercial 1,712,000.00 December 19, March 19,
inclusive Press 1995 1996
January 24,
1996 Exhs. "GGG-11" SCCFI statements 384,794.38 June 15, 1995
February 21, - "GGG-24", of account June 28, 1995
1996 "HHH-12", "HHH-22", August 1,
November 24, "III-11", "III-14", 1995
1995 "JJJ-13", "KKK-11", September 4,
"LLL-5" 1995
Exhs. "II"-"QQ", Precious Belen 2,720,400.00 January 13, September 8,
inclusive Trading 1996 1995
January 19, September 11,
1996 1995
January 26, October 30,
1996 199[5]
February 3, November 10,
1996 1995
February 13, December 21,
1996 1995
February 20,
1996 TOTAL 44,315,024.31
February 27,
1996
Fourth, We turn to the allegation of fraud by the defendant-appellant by
Exhs. "RR"- Wisdom Manpower 361,966.00 April 3, 1996 thoroughly looking through the pieces of evidence that it adduced during
"EEE", inclusive Services April 12, 1996 the trial. The latter alleged that fraud is present in the case at bar as
April 19, 1996 shown by the discrepancy of the alleged purchases from that of the
April 26, 1996 reported purchases made by plaintiff-appellee. It had also averred that
May 3, 1996 fraud is present when upon verification of the address of Fuze Industries,
May 10, 1996 its office is nowhere to be found. Also, the defendant-appellant expressed
May 17, 1996 grave doubts as to the purchases of the plaintiff-appellee sometime in
May 24, 1996 1996 when such purchases escalated to a high 19.5 Million Pesos without
June 7, 1996 any contract to back it up.14
June 14, 1996
June 21, 1996 On 7 July 2011, UMC filed a Motion for Reconsideration,15 which the CA
June 28, 1996 denied in its Resolution dated 8 September 2011. Hence, this petition.
July 5, 1996

Exhs. "GGG"- Costs of Letters of 15,159,144.71 May 29, 1995 The Issues
UMC seeks a reversal and raises the following issues for resolution:
I.
WHETHER THE COURT OF APPEALS MADE A RULING
INCO[N]SISTENT WITH LAW, APPLICABLE JURISPRUDENCE AND
EVIDENCE AS TO THE EXISTENCE OF ARSON AND FRAUD IN THE
ABSENCE OF "MATERIALLY CONVINCING EVIDENCE."
II.
WHETHER THE COURT OF APPEALS MADE A RULING
INCONSISTENT WITH LAW, APPLICABLE JURISPRUDENCE AND
EVIDENCE WHEN IT FOUND THAT PETITIONER BREACHED ITS
WARRANTY.16
The Ruling of the Court
At the outset, CBIC assails this petition as defective since what UMC
ultimately wants this Court to review are questions of fact. However, UMC
argues that where the findings of the CA are in conflict with those of the
trial court, a review of the facts may be made. On this procedural issue,
we find UMC’s claim meritorious.
A petition for review under Rule 45 of the Rules of Court specifically
provides that only questions of law may be raised. The findings of fact of
the CA are final and conclusive and this Court will not review them on
appeal,17 subject to exceptions as when the findings of the appellate court
conflict with the findings of the trial court.18 Clearly, the present case falls
under the exception. Since UMC properly raised the conflicting findings of
the lower courts, it is proper for this Court to resolve such contradiction.
Having settled the procedural issue, we proceed to the primordial issue
which boils down to whether UMC is entitled to claim from CBIC the full
coverage of its fire insurance policy.
UMC contends that because it had already established a prima facie case
against CBIC which failed to prove its defense, UMC is entitled to claim the
full coverage under the Insurance Policy. On the other hand, CBIC
contends that because arson and fraud attended the claim, UMC is not
entitled to recover under Condition No. 15 of the Insurance Policy.
Burden of proof is the duty of any party to present evidence to establish
his claim or defense by the amount of evidence required by law,19 which is
preponderance of evidence in civil cases.20 The party, whether plaintiff or
defendant, who asserts the affirmative of the issue has the burden of proof
to obtain a favorable judgment.21Particularly, in insurance cases, once an
insured makes out a prima facie case in its favor, the burden of evidence
shifts to the insurer to controvert the insured’s prima facie case.22 In the
present case, UMC established a prima facie case against CBIC. CBIC does
not dispute that UMC’s stocks in trade were insured against fire under the
Insurance Policy and that the warehouse, where UMC’s stocks in trade
were stored, was gutted by fire on 3 July 1996, within the duration of the
fire insurance. However, since CBIC alleged an excepted risk, then the
burden of evidence shifted to CBIC to prove such exception.1âwphi1
An insurer who seeks to defeat a claim because of an exception or
limitation in the policy has the burden of establishing that the loss comes
within the purview of the exception or limitation.23 If loss is proved
apparently within a contract of insurance, the burden is upon the insurer
to establish that the loss arose from a cause of loss which is excepted or
for which it is not liable, or from a cause which limits its liability.24 In the
present case, CBIC failed to discharge its primordial burden of establishing
that the damage or loss was caused by arson, a limitation in the policy.
In prosecutions for arson, proof of the crime charged is complete where
the evidence establishes: (1) the corpus delicti, that is, a fire caused by a
criminal act; and (2) the identity of the defendants as the one responsible
for the crime.25 Corpus delicti means the substance of the crime, the fact
that a crime has actually been committed.26 This is satisfied by proof of the
bare occurrence of the fire and of its having been intentionally caused.27
In the present case, CBIC’s evidence did not prove that the fire was
intentionally caused by the insured. First, the findings of CBIC’s witnesses,
Cabrera and Lazaro, were based on an investigation conducted more than
four months after the fire. The testimonies of Cabrera and Lazaro, as to
the boxes doused with kerosene as told to them by barangay officials, are
hearsay because the barangay officials were not presented in court.
Cabrera and Lazaro even admitted that they did not conduct a forensic
investigation of the warehouse nor did they file a case for
arson.28Second, the Sworn Statement of Formal Claim submitted by UMC,
through CRM, states that the cause of the fire was "faulty electrical
wiring/accidental in nature." CBIC is bound by this evidence because in its
Answer, it admitted that it designated CRM to evaluate UMC’s
loss. Third, the Certification by the Bureau of Fire Protection states that
the fire was accidental in origin. This Certification enjoys the presumption
of regularity, which CBIC failed to rebut.
Contrary to UMC’s allegation, CBIC’s failure to prove arson does not mean
that it also failed to prove fraud. Qua Chee Gan v. Law Union29 does not
apply in the present case. In Qua Chee Gan,30 the Court dismissed the
allegation of fraud based on the dismissal of the arson case against the
insured, because the evidence was identical in both cases, thus:
While the acquittal of the insured in the arson case is not res judicata on
the present civil action, the insurer’s evidence, to judge from the decision
in the criminal case, is practically identical in both cases and must lead to
the same result, since the proof to establish the defense of connivance at
the fire in order to defraud the insurer "cannot be materially less
convincing than that required in order to convict the insured of the crime
of arson" (Bachrach vs. British American Assurance Co., 17 Phil. 536). 31
In the present case, arson and fraud are two separate grounds based on
two different sets of evidence, either of which can void the insurance claim
of UMC. The absence of one does not necessarily result in the absence of
the
other. Thus, on the allegation of fraud, we affirm the findings of the Court
of Appeals.
Condition No. 15 of the Insurance Policy provides that all the 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,
to wit:
15. 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 devices are
used by the Insured or anyone acting in his behalf to obtain any benefit
under this Policy; or if the loss or damage be occasioned by the willful act,
or with the connivance of the Insured, all the benefits under this Policy
shall be forfeited.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32 the Court held that
where a fire insurance policy provides that "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 devices are used by the Insured or anyone
acting on his behalf to obtain any benefit under this Policy," and the
evidence is conclusive that the proof of claim which the insured submitted
was false and fraudulent both as to the kind, quality and amount of the
goods and their value destroyed by the fire, such a proof of claim is a bar
against the insured from recovering on the policy even for the amount of
his actual loss.
In the present case, as proof of its loss of stocks in trade amounting to
₱50,000,000.00, UMC submitted its Sworn Statement of Formal Claim
together with the following documents: (1) letters of credit and invoices
for raw materials, Christmas lights and cartons purchased; (2) charges for
assembling the Christmas lights; and (3) delivery receipts of the raw
materials. However, the charges for assembling the Christmas lights and
delivery receipts could not support its insurance claim. The Insurance
Policy provides that CBIC agreed to insure UMC’s stocks in trade. UMC
defined stock in trade as tangible personal property kept for sale or
traffic.33 Applying UMC’s definition, only the letters of credit and invoices
for raw materials, Christmas lights and cartons may be considered.
The invoices, however, cannot be taken as genuine. The invoices reveal
that the stocks in trade purchased for 1996 amounts to ₱20,000,000.00
which were purchased in one month. Thus, UMC needs to prove purchases
amounting to ₱30,000,000.00 worth of stocks in trade for 1995 and prior
years. However, in the Statement of Inventory it submitted to the BIR,
which is considered an entry in official records,34 UMC stated that it had no
stocks in trade as of 31 December 1995. In its defense, UMC alleged that
it did not include as stocks in trade the raw materials to be assembled as
Christmas lights, which it had on 31 December 1995. However, as proof of
its loss, UMC submitted invoices for raw materials, knowing that the
insurance covers only stocks in trade.
Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries
Manufacturer Phils. were suspicious. The purchases, based on the invoices
and without any supporting contract, amounted to ₱19,550,400.00 worth
of Christmas lights from 20 January 1996 to 23 February 1996. The
uncontroverted testimony of Cabrera revealed that there was no Fuze
Industries Manufacturer Phils. located at "55 Mahinhin St., Teacher’s
Village, Quezon City," the business address appearing in the invoices and
the records of the Department of Trade & Industry. Cabrera testified that:
A: Then we went personally to the address as I stated a while ago
appearing in the record furnished by the United Merchants Corporation to
the adjuster, and the adjuster in turn now, gave us our basis in conducting
investigation, so we went to this place which according to the records, the
address of this company but there was no office of this company.
Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City
and discover the address indicated by the United Merchants as the place of
business of Fuze Industries Manufacturer, Phils. was a residential place,
what then did you do after determining that it was a residential place?
A: We went to the owner of the alleged company as appearing in the
Department of Trade & Industry record, and as appearing a certain
Chinese name Mr. Huang, and the address as appearing there is
somewhere in Binondo. We went personally there together with the NBI
Agent and I am with them when the subpoena was served to them, but a
male person approached us and according to him, there was no Fuze
Industries Manufacturer, Phils., company in that building sir.35
In Yu Ban Chuan v. Fieldmen’s Insurance, Co., Inc.,36 the Court ruled that
the submission of false invoices to the adjusters establishes a clear case of
fraud and misrepresentation which voids the insurer’s liability as per
condition of the policy. Their falsity is the best evidence of the fraudulent
character of plaintiff’s claim.37 In Verendia v. Court of Appeals,38 where the
insured presented a fraudulent lease contract to support his claim for
insurance benefits, the Court held that by its false declaration, the insured
forfeited all benefits under the policy provision similar to Condition No. 15
of the Insurance Policy in this case.
Furthermore, UMC’s Income Statement indicated that the purchases or
costs of sales are ₱827,670.00 for 1995 and ₱1,109,190.00 for 1996 or a
total of ₱1,936,860.00.39 To corroborate this fact, Ebora testified that:
Q: Based on your 1995 purchases, how much were the purchases made in
1995?
A: The purchases made by United Merchants Corporation for the last year
1995 is ₱827,670.[00] sir
Q: And how about in 1994?
A: In 1994, it’s ₱608,986.00 sir.
Q: These purchases were made for the entire year of 1995 and 1994
respectively, am I correct?
A: Yes sir, for the year 1994 and 1995.40 (Emphasis supplied)
In its 1996 Financial Report, which UMC admitted as existing, authentic
and duly executed during the 4 December 2002 hearing, it had
₱1,050,862.71 as total assets and ₱167,058.47 as total liabilities.41
Thus, either amount in UMC’s Income Statement or Financial Reports
is twenty-five times the claim UMC seeks to enforce. The RTC itself
recognized that UMC padded its claim when it only allowed
₱43,930,230.00 as insurance claim. UMC supported its claim of
₱50,000,000.00 with the Certification from the Bureau of Fire Protection
stating that "x x x a fire broke out at United Merchants Corporation located
at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated
damage of Fifty- Five Million Pesos (₱55,000,000.00) to the building and
contents x x x." However, this Certification only proved that the estimated
damage of ₱55,000,000.00 is shared by both the building and the stocks
in trade.
It has long been settled that a false and material statement made with an
intent to deceive or defraud voids an insurance policy.42 In Yu Cua v. South
British Insurance Co.,43 the claim was fourteen times bigger than the real
loss; in Go Lu v. Yorkshire Insurance Co,44 eight times; and in Tuason v.
North China Insurance Co.,45 six times. In the present case, the claim
is twenty five times the actual claim proved.
The most liberal human judgment cannot attribute such difference to mere
innocent error in estimating or counting but to a deliberate intent to
demand from insurance companies payment for indemnity of goods not
existing at the time of the fire.46 This constitutes the so-called "fraudulent
claim" which, by express agreement between the insurers and the insured,
is a ground for the exemption of insurers from civil liability.47
In its Reply, UMC admitted the discrepancies when it stated that
"discrepancies in its statements were not covered by the warranty such
that any discrepancy in the declaration in other instruments or documents
as to matters that may have some relation to the insurance coverage voids
the policy."48
On UMC’s allegation that it did not breach any warranty, it may be argued
that the discrepancies do not, by themselves, amount to a breach of
warranty. However, the Insurance Code provides that "a policy may
declare that a violation of specified provisions thereof shall avoid
it."49 Thus, in fire insurance policies, which contain provisions such as
Condition No. 15 of the Insurance Policy, a fraudulent discrepancy
between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer.50
Considering that all the circumstances point to the inevitable conclusion
that UMC padded its claim and was guilty of fraud, UMC violated Condition
No. 15 of the Insurance Policy. Thus, UMC forfeited whatever benefits it
may be entitled under the Insurance Policy, including its insurance claim.
While it is a cardinal principle of insurance law that a contract of insurance
is to be construed liberally in favor of the insured and strictly against the
insurer company,51 contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms which the
parties themselves have used.52 If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular
sense. Courts are not permitted to make contracts for the parties; the
function and duty of the courts is simply to enforce and carry out the
contracts actually made.53
WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011
Decision and the 8 September 2011 Resolution of the Court of
Appeals in CA-G.R. CV No. 85777.
SO ORDERED.
12.Malayan Insurance Co v. Philippine First Insurance Co. GR No.
184300, 11 July 2012
Before the Court is a petitiOn for review on certiorari filed by petitioner
Malayan Insurance Co., lnc. (Malayan) assailing the Decision1 dated
February 29, 2008 and Resolution2 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 salesmen.3
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 out, however, that the contract was not signed by
Wyeth’s representative/s.4 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 executed by the parties every year since 1989.5
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 until actual delivery to the customers, salesmen, and dealers of the
COMPANY".6
The contract also required Reputable to secure an insurance policy on
Wyeth’s goods.7 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 August 12, 1996.8 In its complaint, Philippines First
stated that Reputable is a "private corporation engaged in the business of
a common carrier." In its answer,9 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 covered the risk of robbery or hijacking.10
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.
After trial, the RTC rendered its Decision11 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.
SO ORDERED.12
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.
SO ORDERED.13
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 should be held
liable for the full amount of the policy coverage, that is, P1,000,000.00.14
On March 14, 2008, Malayan moved for reconsideration of the assailed
decision but it was denied by the CA in its Resolution dated August 28,
2008.15
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 1745(6) of the Civil Code.16 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
Policy after deducting P2,000.00 under Section 10 of the said SR Policy.17
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 which are present in this case.18
Malayan relies on the alleged judicial admission of Philippines First in its
complaint that Reputable is a common carrier.19 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 the
parties."20 The rule on judicial admission, however, also states that such
allegation, statement, or admission is conclusive as against the
pleader,21 and that the facts alleged in the complaint are deemed
admissions of the plaintiff and binding upon him.22 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 a private or special carrier.23 In
addition, Reputable stated in paragraph 2 of its third-party complaint that
it is "a private carrier engaged in the carriage of goods."24 Such allegation
was, in turn, admitted by Malayan in paragraph 2 of its answer to the
third-party complaint.25 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.
Public policy governing common carriers has no force where the public at
large is not involved."30
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 customers, salesmen and dealers.31
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 as a "modified ‘other insurance’ clause".32 In rendering
inapplicable said provisions in the SR Policy, the CA ruled in this wise:

Hence, in the face of Reputable’s contrary admission as to the nature of its

Since Sec. 5 calls for Malayan’s complete absolution in case the other
own business, what was stated by Philippines First in its complaint is
insurance would be sufficient to cover the entire amount of the loss, it is in
reduced to nothing more than mere allegation, which must be proved for it
direct conflict with Sec. 12 which provides only for a pro-rated contribution
to be given any weight or value. The settled rule is that mere allegation is
between the two insurers. Being the later provision, and pursuant to the
not proof.26
rules on interpretation of contracts, Sec. 12 should therefore prevail.

More importantly, the finding of the RTC and CA that Reputable is a special
xxxx
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 open court that x x x The intention of both Reputable and Malayan should be given effect
Reputable serves only one customer, Wyeth.27 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
Under Article 1732 of the Civil Code, common carriers are persons,
pertain to Reputable alone. But since the court a quo correctly ruled that
corporations, firms, or associations engaged in the business of carrying or
there is no double insurance in this case inasmuch as Reputable was not
transporting passenger or goods, or both by land, water or air for
privy thereto, and therefore did not stand to benefit from the policy issued
compensation, offering their services to the public. On the other hand, a
by plaintiff-appellee in favor of Wyeth, then Malayan’s stand should be
private carrier is one wherein the carriage is generally undertaken by
rejected.
special agreement and it does not hold itself out to carry goods for the
general public.28 A common carrier becomes a private carrier when it
undertakes to carry a special cargo or chartered to a special person To rule that Sec. 12 operates even in the absence of double insurance
only.29 For all intents and purposes, therefore, Reputable operated as a would work injustice to Reputable which, despite paying premiums for a
private/special carrier with regard to its contract of carriage with Wyeth. 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
On the second issue – Reputable is bound by the terms of the contract of
less, from which it did not stand to benefit. Plainly, this unfair situation
carriage.
could not have been the intention of both Reputable and Malayan in
signing the insurance contract in question.33
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
In questioning said ruling, Malayan posits that Sections 5 and 12 are
conditions are not contrary to law, morals, good customs, public order, or
separate provisions applicable under distinct circumstances. Malayan
public policy. "The Civil Code provisions on common carriers should not be
argues that "it will not be completely absolved under Section 5 of its policy
applied where the carrier is not acting as such but as a private carrier.
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 share
ratable proportion of a covered cargo loss."34
Malayan’s position cannot be countenanced.
Section 5 is actually the other insurance clause (also called "additional
insurance" and "double insurance"), one akin to Condition No. 3 in issue in
Geagonia v. CA,35 which validity was upheld by the Court as a warranty
that no other insurance exists. The Court ruled that Condition No. 336 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 under Section 94(e) of the Insurance Code,37 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 interest. The requisites in
order for double insurance to arise are as follows:38
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 Code.39
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 All told, the Court finds no reversible error in the judgment sought to be
controversial provisions of the SR Policy against Malayan.1âwphi1 This is reviewed.
in keeping with the rule that:
WHEREFORE, premises considered, the petition is DENIED. The Decision
"Indemnity and liability insurance policies are construed in accordance with dated February 29, 2008 and Resolution dated August 28, 2008 of the
the general rule of resolving any ambiguity therein in favor of the insured, Court of Appeals in CA-G.R. CV No. 71204 are hereby AFFIRMED.
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity Cost against petitioner Malayan Insurance Co., Inc.
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.
SO ORDERED.
Limitations of liability should be regarded with extreme jealousy and must
be construed in such a way as to preclude the insurer from noncompliance
with its obligations."40

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 it did not stand to benefit. x x x41

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.

In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42 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 Code;
while that of the insurer arises from contract, particularly, the insurance
policy:43 (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.
13. Florendo v. Philam Plans, GR No. 186983, 22 February 2012
his case is about an insured’s alleged concealment in his pension plan
application of his true state of health and its effect on the life insurance
portion of that plan in case of death.
The Facts and the Case
On October 23, 1997 Manuel Florendo filed an application for
comprehensive pension plan with respondent Philam Plans, Inc. (Philam
Plans) after some convincing by respondent Perla Abcede. The plan had a
pre-need price of ₱997,050.00, payable in 10 years, and had a maturity
value of ₱2,890,000.00 after 20 years.1 Manuel signed the application and
left to Perla the task of supplying the information needed in the
application.2 Respondent Ma. Celeste Abcede, Perla’s daughter, signed the
application as sales counselor.3
On March 30, 2006 the RTC rendered judgment,16 ordering Philam Plans,
Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her
husband’s pension plan, namely: ₱997,050.00, the proceeds of his term
insurance, and ₱2,890,000.00 lump sum pension benefit upon maturity of
his plan; ₱100,000.00 as moral damages; and to pay the costs of the suit.
The RTC ruled that Manuel was not guilty of concealing the state of his
health from his pension plan application.
On December 18, 2007 the Court of Appeals (CA) reversed the RTC
decision,17 holding that insurance policies are traditionally contracts
uberrimae fidae or contracts of utmost good faith. As such, it required
Manuel to disclose to Philam Plans conditions affecting the risk of which he
was aware or material facts that he knew or ought to know.18
Issues Presented
The issues presented in this case are:

Aside from pension benefits, the comprehensive pension plan also
provided life insurance coverage to Florendo.4This was covered by a Group
Master Policy that Philippine American Life Insurance Company (Philam
Life) issued to Philam Plans.5 Under the master policy, Philam Life was to
automatically provide life insurance coverage, including accidental death,
to all who signed up for Philam Plans’ comprehensive pension plan.6 If the
plan holder died before the maturity of the plan, his beneficiary was to
instead receive the proceeds of the life insurance, equivalent to the pre-
need price. Further, the life insurance was to take care of any unpaid
premium until the pension plan matured, entitling the beneficiary to the
maturity value of the pension plan.7
On October 30, 1997 Philam Plans issued Pension Plan Agreement
PP430055848 to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife,
as beneficiary. In time, Manuel paid his quarterly premiums.9
1. Whether or not the CA erred in finding Manuel guilty of
concealing his illness when he kept blank and did not answer
questions in his pension plan application regarding the ailments he
suffered from;
2. Whether or not the CA erred in holding that Manuel was bound
by the failure of respondents Perla and Ma. Celeste to declare the
condition of Manuel’s health in the pension plan application; and
3. Whether or not the CA erred in finding that Philam Plans’
approval of Manuel’s pension plan application and acceptance of
his premium payments precluded it from denying Lourdes’ claim.
Rulings of the Court

One. Lourdes points out that, seeing the unfilled spaces in Manuel’s
Eleven months later or on September 15, 1998, Manuel died of blood
pension plan application relating to his medical history, Philam Plans
poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the
should have returned it to him for completion. Since Philam Plans chose to
payment of the benefits under her husband’s plan.10 Because Manuel died
approve the application just as it was, it cannot cry concealment on
before his pension plan matured and his wife was to get only the benefits
Manuel’s part. Further, Lourdes adds that Philam Plans never queried
of his life insurance, Philam Plans forwarded her claim to Philam Life.11
Manuel directly regarding the state of his health. Consequently, it could
not blame him for not mentioning it.19
On May 3, 1999 Philam Plans wrote Lourdes a letter,12 declining her claim.
Philam Life found that Manuel was on maintenance medicine for his heart
But Lourdes is shifting to Philam Plans the burden of putting on the
and had an implanted pacemaker. Further, he suffered from diabetes
pension plan application the true state of Manuel’s health. She forgets that
mellitus and was taking insulin. Lourdes renewed her demand for payment
since Philam Plans waived medical examination for Manuel, it had to rely
under the plan13 but Philam Plans rejected it,14prompting her to file the
largely on his stating the truth regarding his health in his application. For,
present action against the pension plan company before the Regional Trial
after all, he knew more than anyone that he had been under treatment for
Court (RTC) of Quezon City.15
heart condition and diabetes for more than five years preceding his
submission of that application. But he kept those crucial facts from Philam
Plans.
Besides, when Manuel signed the pension plan application, he adopted as
his own the written representations and declarations embodied in it. It is
clear from these representations that he concealed his chronic heart
ailment and diabetes from Philam Plans. The pertinent portion of his
representations and declarations read as follows:
I hereby represent and declare to the best of my knowledge that:
xxxx
(c) I have never been treated for heart condition, high blood
pressure, cancer, diabetes, lung, kidney or stomach disorder or
any other physical impairment in the last five years.
(d) I am in good health and physical condition.
If your answer to any of the statements above reveal otherwise, please
give details in the space provided for:
Date of confinement : ____________________________
Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________
x x x x.20 (Emphasis supplied)
Since Manuel signed the application without filling in the details regarding
his continuing treatments for heart condition and diabetes, the assumption
is that he has never been treated for the said illnesses in the last five
years preceding his application. This is implicit from the phrase "If your
answer to any of the statements above (specifically, the statement: I have
never been treated for heart condition or diabetes) reveal otherwise,
please give details in the space provided for." But this is untrue since he
had been on "Coumadin," a treatment for venous thrombosis,21 and
insulin, a drug used in the treatment of diabetes mellitus, at that time.22
Lourdes insists that Manuel had concealed nothing since Perla, the
soliciting agent, knew that Manuel had a pacemaker implanted on his
chest in the 70s or about 20 years before he signed up for the pension
plan.23 But by its tenor, the responsibility for preparing the application
belonged to Manuel. Nothing in it implies that someone else may provide
the information that Philam Plans needed. Manuel cannot sign the
application and disown the responsibility for having it filled up. If he
furnished Perla the needed information and delegated to her the filling up
of the application, then she acted on his instruction, not on Philam Plans’
instruction.
Lourdes next points out that it made no difference if Manuel failed to
reveal the fact that he had a pacemaker implant in the early 70s since this
did not fall within the five-year timeframe that the disclosure
contemplated.24 But a pacemaker is an electronic device implanted into the
body and connected to the wall of the heart, designed to provide regular,
mild, electric shock that stimulates the contraction of the heart muscles
and restores normalcy to the heartbeat.25 That Manuel still had his
pacemaker when he applied for a pension plan in October 1997 is an
admission that he remained under treatment for irregular heartbeat within
five years preceding that application.
Besides, as already stated, Manuel had been taking medicine for his heart
condition and diabetes when he submitted his pension plan application.
These clearly fell within the five-year period. More, even if Perla’s
knowledge of Manuel’s pacemaker may be applied to Philam Plans under
the theory of imputed knowledge,26 it is not claimed that Perla was aware
of his two other afflictions that needed medical treatments. Pursuant to
Section 2727 of the Insurance Code, Manuel’s concealment entitles Philam
Plans to rescind its contract of insurance with him.
Two. Lourdes contends that the mere fact that Manuel signed the
application in blank and let Perla fill in the required details did not make
her his agent and bind him to her concealment of his true state of health.
Since there is no evidence of collusion between them, Perla’s fault must be
considered solely her own and cannot prejudice Manuel.28
But Manuel forgot that in signing the pension plan application, he certified
that he wrote all the information stated in it or had someone do it under
his direction. Thus:
APPLICATION FOR PENSION PLAN
(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan
Program described herein in accordance with the General Provisions set
forth in this application and hereby certify that the date and other
information stated herein are written by me or under my direction. x x waived after the same has been approved, the policy has been issued, and
x.29 (Emphasis supplied) the premiums have been collected. 34

Assuming that it was Perla who filled up the application form, Manuel is
still bound by what it contains since he certified that he authorized her
action. Philam Plans had every right to act on the faith of that certification.
Lourdes could not seek comfort from her claim that Perla had assured
Manuel that the state of his health would not hinder the approval of his
application and that what is written on his application made no difference
to the insurance company. But, indubitably, Manuel was made aware when
he signed the pension plan application that, in granting the same, Philam
Plans and Philam Life were acting on the truth of the representations
contained in that application. Thus:
DECLARATIONS AND REPRESENTATIONS
xxxx
I agree that the insurance coverage of this application is based on the
truth of the foregoing representations and is subject to the provisions of
the Group Life Insurance Policy issued by THE PHILIPPINE AMERICAN LIFE
INSURANCE CO. to PHILAM PLANS, INC.30 (Emphasis supplied)
As the Court said in New Life Enterprises v. Court of Appeals:31
The Court cannot agree. The comprehensive pension plan that Philam
Plans issued contains a one-year incontestability period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we can no
longer contest for health reasons any claim for insurance under this
Agreement, except for the reason that installment has not been paid
(lapsed), or that you are not insurable at the time you bought this pension
program by reason of age. If this Agreement lapses but is reinstated
afterwards, the one (1) year contestability period shall start again on the
date of approval of your request for reinstatement.35 1âwphi1
The above incontestability clause precludes the insurer from disowning
liability under the policy it issued on the ground of concealment or
misrepresentation regarding the health of the insured after a year of its
issuance.
Since Manuel died on the eleventh month following the issuance of his
plan,36 the one year incontestability period has not yet set in.
Consequently, Philam Plans was not barred from questioning Lourdes’
entitlement to the benefits of her husband’s pension plan.

It may be true that x x x insured persons may accept policies without WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of
reading them, and that this is not negligence per se. But, this is not Appeals in CA-G.R. CV 87085 dated December 18, 2007.
without any exception. It is and was incumbent upon petitioner Sy to read
the insurance contracts, and this can be reasonably expected of him SO ORDERED.
considering that he has been a businessman since 1965 and the contract
concerns indemnity in case of loss in his money-making trade of which
important consideration he could not have been unaware as it was
precisely the reason for his procuring the same.32

The same may be said of Manuel, a civil engineer and manager of a

construction company.33 He could be expected to know that one must read
every document, especially if it creates rights and obligations affecting
him, before signing the same. Manuel is not unschooled that the Court
must come to his succor. It could reasonably be expected that he would
not trifle with something that would provide additional financial security to
him and to his wife in his twilight years.

Three. In a final attempt to defend her claim for benefits under Manuel’s
pension plan, Lourdes points out that any defect or insufficiency in the
information provided by his pension plan application should be deemed

14.Malayan Insurance Co v. Alberto, GR No. 194320, 1 February
2012
The Case
Before Us is a Petition for Review on Certiorari under Rule 45, seeking to
reverse and set aside the July 28, 2010 Decision1 of the Court of Appeals
(CA) and its October 29, 2010 Resolution2 denying the motion for
reconsideration filed by petitioner Malayan Insurance Co., Inc. (Malayan
Insurance). The July 28, 2010 CA Decision reversed and set aside the
Decision3 dated February 2, 2009 of the Regional Trial Court, Branch 51 in
Manila.
The Facts
At around 5 o’clock in the morning of December 17, 1995, an accident
occurred at the corner of EDSA and Ayala Avenue, Makati City, involving
four (4) vehicles, to wit: (1) a Nissan Bus operated by Aladdin Transit with
plate number NYS 381; (2) an Isuzu Tanker with plate number PLR 684;
(3) a Fuzo Cargo Truck with plate number PDL 297; and (4) a Mitsubishi
Galant with plate number TLM 732.4
Based on the Police Report issued by the on-the-spot investigator, Senior
Police Officer 1 Alfredo M. Dungga (SPO1 Dungga), the Isuzu Tanker was
in front of the Mitsubishi Galant with the Nissan Bus on their right side
shortly before the vehicular incident. All three (3) vehicles were at a halt
along EDSA facing the south direction when the Fuzo Cargo Truck
simultaneously bumped the rear portion of the Mitsubishi Galant and the
rear left portion of the Nissan Bus. Due to the strong impact, these two
vehicles were shoved forward and the front left portion of the Mitsubishi
Galant rammed into the rear right portion of the Isuzu Tanker.5
Previously, particularly on December 15, 1994, Malayan Insurance issued
Car Insurance Policy No. PV-025-00220 in favor of First Malayan Leasing
and Finance Corporation (the assured), insuring the aforementioned
Mitsubishi Galant against third party liability, own damage and theft,
among others. Having insured the vehicle against such risks, Malayan
Insurance claimed in its Complaint dated October 18, 1999 that it paid the
damages sustained by the assured amounting to PhP 700,000.6
Maintaining that it has been subrogated to the rights and interests of the
assured by operation of law upon its payment to the latter, Malayan
Insurance sent several demand letters to respondents Rodelio Alberto
(Alberto) and Enrico Alberto Reyes (Reyes), the registered owner and the
driver, respectively, of the Fuzo Cargo Truck, requiring them to pay the
amount it had paid to the assured. When respondents refused to settle
their liability, Malayan Insurance was constrained to file a complaint for
damages for gross negligence against respondents.7
In their Answer, respondents asserted that they cannot be held liable for
the vehicular accident, since its proximate cause was the reckless driving
of the Nissan Bus driver. They alleged that the speeding bus, coming from
the service road of EDSA, maneuvered its way towards the middle lane
without due regard to Reyes’ right of way. When the Nissan Bus abruptly
stopped, Reyes stepped hard on the brakes but the braking action could
not cope with the inertia and failed to gain sufficient traction. As a
consequence, the Fuzo Cargo Truck hit the rear end of the Mitsubishi
Galant, which, in turn, hit the rear end of the vehicle in front of it. The
Nissan Bus, on the other hand, sideswiped the Fuzo Cargo Truck, causing
damage to the latter in the amount of PhP 20,000. Respondents also
controverted the results of the Police Report, asserting that it was based
solely on the biased narration of the Nissan Bus driver.8
After the termination of the pre-trial proceedings, trial ensued. Malayan
Insurance presented the testimony of its lone witness, a motor car claim
adjuster, who attested that he processed the insurance claim of the
assured and verified the documents submitted to him. Respondents, on
the other hand, failed to present any evidence.
In its Decision dated February 2, 2009, the trial court, in Civil Case No. 99-
95885, ruled in favor of Malayan Insurance and declared respondents
liable for damages. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff against
defendants jointly and severally to pay plaintiff the following:
1. The amount of P700,000.00 with legal interest from the time of
the filing of the complaint;
2. Attorney’s fees of P10,000.00 and;
3. Cost of suit.
SO ORDERED.9
Dissatisfied, respondents filed an appeal with the CA, docketed as CA-G.R.
CV No. 93112. In its Decision dated July 28, 2010, the CA reversed and
set aside the Decision of the trial court and ruled in favor of respondents,
disposing:
WHEREFORE, the foregoing considered, the instant appeal is hereby
GRANTED and the assailed Decision dated 2 February 2009 REVERSED and
SET ASIDE. The Complaint dated 18 October 1999 is hereby DISMISSED
for lack of merit. No costs.
SO ORDERED.10
The CA held that the evidence on record has failed to establish not only
negligence on the part of respondents, but also compliance with the other
requisites and the consequent right of Malayan Insurance to
subrogation.11 It noted that the police report, which has been made part of
the records of the trial court, was not properly identified by the police
officer who conducted the on-the-spot investigation of the subject
collision. It, thus, held that an appellate court, as a reviewing body, cannot
rightly appreciate firsthand the genuineness of an unverified and
unidentified document, much less accord it evidentiary value.12
Subsequently, Malayan Insurance filed its Motion for Reconsideration,
arguing that a police report is a prima facie evidence of the facts stated in
it. And inasmuch as they never questioned the presentation of the report
in evidence, respondents are deemed to have waived their right to
question its authenticity and due execution.13
In its Resolution dated October 29, 2010, the CA denied the motion for
reconsideration. Hence, Malayan Insurance filed the instant petition.
The Issues
In its Memorandum14 dated June 27, 2011, Malayan Insurance raises the
following issues for Our consideration:
I police investigator who prepared the police report, said report is still
WHETHER THE CA ERRED IN REFUSING ADMISSIBILITY OF THE
POLICE REPORT SINCE THE POLICE INVESTIGATOR WHO
PREPARED THE SAME DID NOT ACTUALLY TESTIFY IN COURT
THEREON.
II
WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS
IMPAIRED AND/OR DEFICIENT.
On the other hand, respondents submit the following issues in its
Memorandum15 dated July 7, 2011:
I
WHETHER THE CA IS CORRECT IN DISMISSING THE COMPLAINT
FOR FAILURE OF MALAYAN INSURANCE TO OVERCOME THE
BURDEN OF PROOF REQUIRED TO ESTABLISH THE NEGLIGENCE
OF RESPONDENTS.
II
WHETHER THE PIECES OF EVIDENCE PRESENTED BY MALAYAN
INSURANCE ARE SUFFICIENT TO CLAIM FOR THE AMOUNT OF
DAMAGES.
III
WHETHER THE SUBROGATION OF MALAYAN INSURANCE HAS
PASSED COMPLIANCE AND REQUISITES AS PROVIDED UNDER
PERTINENT LAWS.
Essentially, the issues boil down to the following: (1) the admissibility of
the police report; (2) the sufficiency of the evidence to support a claim for
gross negligence; and (3) the validity of subrogation in the instant case.
Our Ruling
The petition has merit.
Admissibility of the Police Report
Malayan Insurance contends that, even without the presentation of the
admissible in evidence, especially since respondents failed to make a
timely objection to its presentation in evidence.16 Respondents counter
that since the police report was never confirmed by the investigating police
officer, it cannot be considered as part of the evidence on record.17
Indeed, under the rules of evidence, a witness can testify only to those
facts which the witness knows of his or her personal knowledge, that is,
which are derived from the witness’ own perception.18 Concomitantly, a
witness may not testify on matters which he or she merely learned from
others either because said witness was told or read or heard those
matters.19 Such testimony is considered hearsay and may not be received
as proof of the truth of what the witness has learned. This is known as the
hearsay rule.20
As discussed in D.M. Consunji, Inc. v. CA,21 "Hearsay is not limited to oral
testimony or statements; the general rule that excludes hearsay as
evidence applies to written, as well as oral statements."
There are several exceptions to the hearsay rule under the Rules of Court,
among which are entries in official records.22 Section 44, Rule 130
provides:
Entries in official records made in the performance of his duty by a public
officer of the Philippines, or by a person in the performance of a duty
specially enjoined by law are prima facie evidence of the facts therein
stated.
In Alvarez v. PICOP Resources,23 this Court reiterated the requisites for the
admissibility in evidence, as an exception to the hearsay rule of entries in
official records, thus: (a) that the entry was made by a public officer or by
another person specially enjoined by law to do so; (b) that it was made by
the public officer in the performance of his or her duties, or by such other
person in the performance of a duty specially enjoined by law; and (c) that
the public officer or other person had sufficient knowledge of the facts by
him or her stated, which must have been acquired by the public officer or
other person personally or through official information.
Notably, the presentation of the police report itself is admissible as an
exception to the hearsay rule even if the police investigator who prepared
it was not presented in court, as long as the above requisites could be
adequately proved.24
Here, there is no dispute that SPO1 Dungga, the on-the-spot investigator,
prepared the report, and he did so in the performance of his duty.
However, what is not clear is whether SPO1 Dungga had sufficient
personal knowledge of the facts contained in his report. Thus, the third
requisite is lacking.
Respondents failed to make a timely objection to the police report’s
presentation in evidence; thus, they are deemed to have waived their right
to do so.25 As a result, the police report is still admissible in evidence.
Sufficiency of Evidence
Malayan Insurance contends that since Reyes, the driver of the Fuzo Cargo
truck, bumped the rear of the Mitsubishi Galant, he is presumed to be
negligent unless proved otherwise. It further contends that respondents
failed to present any evidence to overturn the presumption of
negligence.26 Contrarily, respondents claim that since Malayan Insurance
did not present any witness who shall affirm any negligent act of Reyes in
driving the Fuzo Cargo truck before and after the incident, there is no
evidence which would show negligence on the part of respondents.27
We agree with Malayan Insurance. Even if We consider the inadmissibility
of the police report in evidence, still, respondents cannot evade liability by
virtue of the res ipsa loquitur doctrine. The D.M. Consunji, Inc. case is
quite elucidating:
Petitioner’s contention, however, loses relevance in the face of the
application of res ipsa loquitur by the CA. The effect of the doctrine is to
warrant a presumption or inference that the mere fall of the elevator was a
result of the person having charge of the instrumentality was negligent. As
a rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law of
negligence which recognizes that prima facie negligence may be
established without direct proof and furnishes a substitute for specific
proof of negligence.
The concept of res ipsa loquitur has been explained in this wise:
While negligence is not ordinarily inferred or presumed, and while the
mere happening of an accident or injury will not generally give rise to an
inference or presumption that it was due to negligence on defendant’s
part, under the doctrine of res ipsa loquitur, which means, literally, the
thing or transaction speaks for itself, or in one jurisdiction, that the thing
or instrumentality speaks for itself, the facts or circumstances
accompanying an injury may be such as to raise a presumption, or at least
permit an inference of negligence on the part of the defendant, or some
other person who is charged with negligence.
x x x where it is shown that the thing or instrumentality which caused the
injury complained of was under the control or management of the
defendant, and that the occurrence resulting in the injury was such as in
the ordinary course of things would not happen if those who had its control
or management used proper care, there is sufficient evidence, or, as
sometimes stated, reasonable evidence, in the absence of explanation by
the defendant, that the injury arose from or was caused by the
defendant’s want of care.
One of the theoretical bases for the doctrine is its necessity, i.e., that
necessary evidence is absent or not available.
The res ipsa loquitur doctrine is based in part upon the theory that the
defendant in charge of the instrumentality which causes the injury either
knows the cause of the accident or has the best opportunity of
ascertaining it and that the plaintiff has no such knowledge, and therefore
is compelled to allege negligence in general terms and to rely upon the
proof of the happening of the accident in order to establish negligence. The
inference which the doctrine permits is grounded upon the fact that the
chief evidence of the true cause, whether culpable or innocent, is
practically accessible to the defendant but inaccessible to the injured
person.
It has been said that the doctrine of res ipsa loquitur furnishes a bridge by
which a plaintiff, without knowledge of the cause, reaches over to
defendant who knows or should know the cause, for any explanation of
care exercised by the defendant in respect of the matter of which the
plaintiff complains. The res ipsa loquitur doctrine, another court has said,
is a rule of necessity, in that it proceeds on the theory that under the
peculiar circumstances in which the doctrine is applicable, it is within the
power of the defendant to show that there was no negligence on his part,
and direct proof of defendant’s negligence is beyond plaintiff’s power.
Accordingly, some courts add to the three prerequisites for the application
of the res ipsa loquitur doctrine the further requirement that for the res
ipsa loquitur doctrine to apply, it must appear that the injured party had
no knowledge or means of knowledge as to the cause of the accident, or
that the party to be charged with negligence has superior knowledge or
opportunity for explanation of the accident.
The CA held that all the requisites of res ipsa loquitur are present in the
case at bar:
There is no dispute that appellee’s husband fell down from the 14th floor
of a building to the basement while he was working with appellant’s
construction project, resulting to his death. The construction site is within
the exclusive control and management of appellant. It has a safety
engineer, a project superintendent, a carpenter leadman and others who
are in complete control of the situation therein. The circumstances of any
accident that would occur therein are peculiarly within the knowledge of
the appellant or its employees. On the other hand, the appellee is not in a
position to know what caused the accident. Res ipsa loquitur is a rule of
necessity and it applies where evidence is absent or not readily available,
provided the following requisites are present: (1) the accident was of a
kind which does not ordinarily occur unless someone is negligent; (2) the
instrumentality or agency which caused the injury was under the exclusive
control of the person charged with negligence; and (3) the injury suffered
must not have been due to any voluntary action or contribution on the
part of the person injured. x x x.
No worker is going to fall from the 14th floor of a building to the basement
while performing work in a construction site unless someone is
negligent[;] thus, the first requisite for the application of the rule of res
ipsa loquitur is present. As explained earlier, the construction site with all
its paraphernalia and human resources that likely caused the injury is
under the exclusive control and management of appellant[;] thus[,] the
second requisite is also present. No contributory negligence was attributed
to the appellee’s deceased husband[;] thus[,] the last requisite is also
present. All the requisites for the application of the rule of res ipsa loquitur
are present, thus a reasonable presumption or inference of appellant’s
negligence arises. x x x.
Petitioner does not dispute the existence of the requisites for the
application of res ipsa loquitur, but argues that the presumption or
inference that it was negligent did not arise since it "proved that it
exercised due care to avoid the accident which befell respondent’s
husband."
Petitioner apparently misapprehends the procedural effect of the doctrine.
As stated earlier, the defendant’s negligence is presumed or inferred when
the plaintiff establishes the requisites for the application of res ipsa
loquitur. Once the plaintiff makes out a prima facie case of all the
elements, the burden then shifts to defendant to explain. The presumption
or inference may be rebutted or overcome by other evidence and, under
appropriate circumstances a disputable presumption, such as that of due
care or innocence, may outweigh the inference. It is not for the defendant
to explain or prove its defense to prevent the presumption or inference
from arising. Evidence by the defendant of say, due care, comes into play
only after the circumstances for the application of the doctrine has been
established.28
In the case at bar, aside from the statement in the police report, none of
the parties disputes the fact that the Fuzo Cargo Truck hit the rear end of
the Mitsubishi Galant, which, in turn, hit the rear end of the vehicle in front
of it. Respondents, however, point to the reckless driving of the Nissan
Bus driver as the proximate cause of the collision, which allegation is
totally unsupported by any evidence on record. And assuming that this
allegation is, indeed, true, it is astonishing that respondents never even
bothered to file a cross-claim against the owner or driver of the Nissan
Bus.
What is at once evident from the instant case, however, is the presence of
all the requisites for the application of the rule of res ipsa loquitur. To
reiterate, res ipsa loquitur is a rule of necessity which applies where
evidence is absent or not readily available. As explained in D.M. Consunji,
Inc., it is partly based upon the theory that the defendant in charge of the
instrumentality which causes the injury either knows the cause of the
accident or has the best opportunity of ascertaining it and that the plaintiff
has no such knowledge, and, therefore, is compelled to allege negligence
in general terms and to rely upon the proof of the happening of the
accident in order to establish negligence.
As mentioned above, the requisites for the application of the res ipsa
loquitur rule are the following: (1) the accident was of a kind which does
not ordinarily occur unless someone is negligent; (2) the instrumentality
or agency which caused the injury was under the exclusive control of the
person charged with negligence; and (3) the injury suffered must not have
been due to any voluntary action or contribution on the part of the person
injured.29
In the instant case, the Fuzo Cargo Truck would not have had hit the rear
end of the Mitsubishi Galant unless someone is negligent. Also, the Fuzo
Cargo Truck was under the exclusive control of its driver, Reyes. Even if
respondents avert liability by putting the blame on the Nissan Bus driver,
still, this allegation was self-serving and totally unfounded. Finally, no
contributory negligence was attributed to the driver of the Mitsubishi
Galant. Consequently, all the requisites for the application of the doctrine
of res ipsa loquitur are present, thereby creating a reasonable presumption
of negligence on the part of respondents.
It is worth mentioning that just like any other disputable presumptions or
inferences, the presumption of negligence may be rebutted or overcome
by other evidence to the contrary. It is unfortunate, however, that
respondents failed to present any evidence before the trial court. Thus, the
presumption of negligence remains. Consequently, the CA erred in
dismissing the complaint for Malayan Insurance’s adverted failure to prove
negligence on the part of respondents.
Validity of Subrogation
Malayan Insurance contends that there was a valid subrogation in the
instant case, as evidenced by the claim check voucher30 and the Release of
Claim and Subrogation Receipt31 presented by it before the trial court.
Respondents, however, claim that the documents presented by Malayan
Insurance do not indicate certain important details that would show proper
subrogation.
As noted by Malayan Insurance, respondents had all the opportunity, but
failed to object to the presentation of its evidence. Thus, and as We have
mentioned earlier, respondents are deemed to have waived their right to
make an objection. As this Court held in Asian Construction and
Development Corporation v. COMFAC Corporation:
The rule is that failure to object to the offered evidence renders it
admissible, and the court cannot, on its own, disregard such
evidence. We note that ASIAKONSTRUCT’s counsel of record before the
trial court, Atty. Bernard Dy, who actively participated in the initial stages
of the case stopped attending the hearings when COMFAC was about to
end its presentation. Thus, ASIAKONSTRUCT could not object to COMFAC’s
offer of evidence nor present evidence in its defense; ASIAKONSTRUCT
was deemed by the trial court to have waived its chance to do so.
Note also that when a party desires the court to reject the
evidence offered, it must so state in the form of a timely objection
and it cannot raise the objection to the evidence for the first time
on appeal. Because of a party’s failure to timely object, the
evidence becomes part of the evidence in the case. Thereafter, all
the parties are considered bound by any outcome arising from the
offer of evidence properly presented.32(Emphasis supplied.)
Bearing in mind that the claim check voucher and the Release of Claim and
Subrogation Receipt presented by Malayan Insurance are already part of
the evidence on record, and since it is not disputed that the insurance
company, indeed, paid PhP 700,000 to the assured, then there is a valid
subrogation in the case at bar. As explained in Keppel Cebu Shipyard, Inc.
v. Pioneer Insurance and Surety Corporation:
Subrogation is the substitution of one person by another with reference to
a lawful claim or right, so that he who is substituted succeeds to the rights
of the other in relation to a debt or claim, including its remedies or
securities. The principle covers a situation wherein an insurer has paid a
loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution such that it places
the party subrogated in the shoes of the creditor, and he may use all
means that the creditor could employ to enforce payment.1âwphi1
We have held that payment by the insurer to the insured operates as an
equitable assignment to the insurer of all the remedies that the insured
may have against the third party whose negligence or wrongful act caused
the loss. The right of subrogation is not dependent upon, nor does it grow
out of, any privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim. The doctrine of subrogation has
its roots in equity. It is designed to promote and to accomplish justice;
and is the mode that equity adopts to compel the ultimate payment of a
debt by one who, in justice, equity, and good conscience, ought to pay.33
Considering the above ruling, it is only but proper that Malayan Insurance
be subrogated to the rights of the assured.
WHEREFORE, the petition is hereby GRANTED. The CA’s July 28, 2010
Decision and October 29, 2010 Resolution in CA-G.R. CV No. 93112 are
hereby REVERSED and SET ASIDE. The Decision dated February 2, 2009
issued by the trial court in Civil Case No. 99-95885 is hereby REINSTATED.
No pronouncement as to cost.
SO ORDERED.
15.First Lepanto-Taisho Insurance Corp v. Chevron Philippines, GR agreement since no such agreement was executed between Fumitechniks
No. 177839, 18 January 2012 and respondent. Fumitechniks also enclosed a copy of another surety bond
issued by CICI General Insurance Corporation in favor of respondent to
secure the obligation of Fumitechniks and/or Prime Asia Sales and
Services, Inc. in the amount of ₱15,000,000.00.7 Consequently, petitioner
Before this Court is a Rule 45 Petition assailing the Decision1 dated
advised respondent of the non-existence of the principal agreement as
November 20, 2006 and Resolution2 dated May 8, 2007 of the Court of
confirmed by Fumitechniks. Petitioner explained that being an accessory
Appeals (CA) in CA-G.R. CV No. 86623, which reversed the Decision3 dated
contract, the bond cannot exist without a principal agreement as it is
August 5, 2005 of the Regional Trial Court (RTC) of Makati City, Branch 59
essential that the copy of the basic contract be submitted to the proposed
in Civil Case No 02-857.
surety for the appreciation of the extent of the obligation to be covered by
the bond applied for.8
Respondent Chevron Philippines, Inc., formerly Caltex Philippines, Inc.,
sued petitioner First Lepanto-Taisho Insurance Corporation (now known as
On April 9, 2002, respondent formally demanded from petitioner the
FLT Prime Insurance Corporation) for the payment of unpaid oil and
payment of its claim under the surety bond. However, petitioner reiterated
petroleum purchases made by its distributor Fumitechniks Corporation
its position that without the basic contract subject of the bond, it cannot
(Fumitechniks).
act on respondent’s claim; petitioner also contested the amount of
Fumitechniks’ supposed obligation.9
Fumitechniks, represented by Ma. Lourdes Apostol, had applied for and
was issued Surety Bond FLTICG (16) No. 01012 by petitioner for the
Alleging that petitioner unjustifiably refused to heed its demand for
amount of ₱15,700,000.00. As stated in the attached rider, the bond was
payment, respondent prayed for judgment ordering petitioner to pay the
in compliance with the requirement for the grant of a credit line with the
sum of ₱15,080,030.30, plus interest, costs and attorney’s fees equivalent
respondent "to guarantee payment/remittance of the cost of fuel products
to ten percent of the total obligation.10
withdrawn within the stipulated time in accordance with the terms and
conditions of the agreement." The surety bond was executed on October
15, 2001 and will expire on October 15, 2002.4 Petitioner, in its Answer with Counterclaim,11 asserted that the Surety
Bond was issued for the purpose of securing the performance of the
obligations embodied in the Principal Agreement stated therein, which
Fumitechniks defaulted on its obligation. The check dated December 14,
contract should have been attached and made part thereof.
2001 it issued to respondent in the amount of ₱11,461,773.10, when
presented for payment, was dishonored for reason of "Account Closed." In
a letter dated February 6, 2002, respondent notified petitioner of After trial, the RTC rendered judgment dismissing the complaint as well as
Fumitechniks’ unpaid purchases in the total amount of ₱15,084,030.30. In petitioner’s counterclaim. Said court found that the terms and conditions
its letter-reply dated February 13, 2002, petitioner through its counsel, of the oral credit line agreement between respondent and Fumitechniks
requested that it be furnished copies of the documents such as delivery have not been relayed to petitioner and neither were the same conveyed
receipts.5 Respondent complied by sending copies of invoices showing even during trial. Since the surety bond is a mere accessory contract, the
deliveries of fuel and petroleum products between November 11, 2001 and RTC concluded that the bond cannot stand in the absence of the written
December 1, 2001. agreement secured thereby. In holding that petitioner cannot be held
liable under the bond it issued to Fumitechniks, the RTC noted the practice
of petitioner, as testified on by its witnesses, to attach a copy of the
Simultaneously, a letter6 was sent to Fumitechniks demanding that the
written agreement (principal contract) whenever it issues a surety bond,
latter submit to petitioner the following: (1) its comment on respondent’s
or to be submitted later if not yet in the possession of the assured, and in
February 6, 2002 letter; (2) copy of the agreement secured by the Bond,
case of failure to submit the said written agreement, the surety contract
together with copies of documents such as delivery receipts; and (3)
will not be binding despite payment of the premium.
information on the particulars, including "the terms and conditions, of any
arrangement that [Fumitechniks] might have made or any ongoing
negotiation with Caltex in connection with the settlement of the obligations Respondent filed a motion for reconsideration while petitioner filed a
subject of the Caltex letter." motion for partial reconsideration as to the dismissal of its counterclaim.
With the denial of their motions, both parties filed their respective notice
of appeal.
In its letter dated March 1, 2002, Fumitechniks through its counsel wrote
petitioner’s counsel informing that it cannot submit the requested
The CA ruled in favor of respondent, the dispositive portion of its decision
reads:
WHEREFORE, the appealed Decision is REVERSED and SET ASIDE. A new
judgment is hereby entered ORDERING defendant-appellant First Lepanto-
Taisho Insurance Corporation to pay plaintiff-appellant Caltex (Philippines)
Inc. now Chevron Philippines, Inc. the sum of P15,084,030.00.
SO ORDERED.12
According to the appellate court, petitioner cannot insist on the submission
of a written agreement to be attached to the surety bond considering that
respondent was not aware of such requirement and unwritten company
policy. It also declared that petitioner is estopped from assailing the oral
credit line agreement, having consented to the same upon presentation by
Fumitechniks of the surety bond it issued. Considering that such oral
contract between Fumitechniks and respondent has been partially
executed, the CA ruled that the provisions of the Statute of Frauds do not
apply.
The main issue to be resolved is one of first impression: whether a surety
is liable to the creditor in the absence of a written contract with the
principal.
Section 175 of the Insurance Code defines a suretyship as a contract or
agreement whereby a party, called the surety, guarantees the
performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of a third party, called the obligee. It
includes official recognizances, stipulations, bonds or undertakings issued
under Act 536,14 as amended. Suretyship arises upon the solidary binding
of a person – deemed the surety – with the principal debtor, for the
purpose of fulfilling an obligation.15 Such undertaking makes a surety
agreement an ancillary contract as it presupposes the existence of a
principal contract. Although the contract of a surety is in essence
secondary only to a valid principal obligation, the surety becomes liable for
the debt or duty of another although it possesses no direct or personal
interest over the obligations nor does it receive any benefit therefrom. And
notwithstanding the fact that the surety contract is secondary to the
principal obligation, the surety assumes liability as a regular party to the
undertaking.16

With the denial of its motion for reconsideration, petitioner appealed to

The extent of a surety’s liability is determined by the language of the
this Court raising the following issues:
suretyship contract or bond itself. It cannot be extended by implication,
beyond the terms of the contract.17 Thus, to determine whether petitioner
I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ITS is liable to respondent under the surety bond, it becomes necessary to
INTERPRETATION OF THE PROVISIONS OF THE SURETY BOND WHEN IT examine the terms of the contract itself.
HELD THAT THE SURETY BOND SECURED AN ORAL CREDIT LINE
AGREEMENT NOTWITHSTANDING THE STIPULATIONS THEREIN CLEARLY
Surety Bond FLTICG (16) No. 01012 is a standard form used by petitioner,
SHOWING BEYOND DOUBT THAT WHAT WAS BEING SECURED WAS A
which states:
WRITTEN AGREEMENT, PARTICULARLY, THE WRITTEN AGREEMENT A
COPY OF WHICH WAS EVEN REQUIRED TO BE ATTACHED TO THE SURETY
BOND AND MADE A PART THEREOF. That we, FUMITECHNIKS CORP. OF THE PHILS. of #154 Anahaw St.,
Project 7, Quezon City as principal and First Lepanto-Taisho Insurance
Corporation a corporation duly organized and existing under and by virtue
II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
of the laws of the Philippines as Surety, are held firmly bound unto CALTEX
NOT STRIKING OUT THE QUESTIONED RESPONDENT’S EVIDENCE FOR
PHILIPPINES, INC. of ______ in the sum of FIFTEEN MILLION SEVEN
BEING CONTRARY TO THE PAROL EVIDENCE RULE, IMMATERIAL AND
HUNDRED THOUSAND ONLY PESOS (P15,700,000.00), Philippine
IRRELEVANT AND CONTRARY TO THE STATUTE OF FRAUDS.
Currency, for the payment of which sum, well and truly to be made, we
bind ourselves, our heirs, executors, administrators, successors, and
III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN assigns, jointly and severally, firmly by these presents:
NOT STRIKING OUT THE RESPONDENT’S MOTION FOR RECONSIDERATION
OF THE RTC DECISION FOR BEING A MERE SCRAP OF PAPER AND PRO
The conditions of this obligation are as follows:
FORMA AND, CONSEQUENTLY, IN NOT DECLARING THE RTC DECISION AS
FINAL AND EXECUTORY IN SO FAR AS IT DISMISSED THE COMPLAINT.
WHEREAS, the above-bounden principal, on 15th day of October,
2001 entered into [an] agreement with CALTEX PHILIPPINES, INC. of
IV. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN
________________ to fully and faithfully
REVERSING THE RTC DECISION AND IN NOT GRANTING PETITIONER’S
COUNTERCLAIM.13
a copy of which is attached hereto and made a part hereof:
WHEREAS, said Obligee__ requires said principal to give a good and
sufficient bond in the above stated sum to secure the full and faithful
performance on his part of said agreement__.
NOW THEREFORE, if the principal shall well and truly perform and fulfill all
the undertakings, covenants, terms, conditions, and agreements stipulated
in said agreement__ then this obligation shall be null and void; otherwise
it shall remain in full force and effect.
The liability of First Lepanto-Taisho Insurance Corporation under this bond
will expire on October 15, 2002__.
x x x x18 (Emphasis supplied.)
The rider attached to the bond sets forth the following:
WHEREAS, the Principal has applied for a Credit Line in the amount of
PESOS: Fifteen Million Seven Hundred thousand only (₱15,700,000.00),
Philippine Currency with the Obligee for the purchase of Fuel Products;
WHEREAS, the obligee requires the Principal to post a bond to guarantee
payment/remittance of the cost of fuel products withdrawn within the
stipulated time in accordance with terms and conditions of the agreement;
IN NO CASE, however, shall the liability of the Surety hereunder exceed
the sum of PESOS: Fifteen million seven hundred thousand only
(₱15,700,000.00), Philippine Currency.
NOW THEREFORE, if the principal shall well and truly perform and fulfill all
the undertakings, covenants, terms and conditions and agreements
stipulated in said undertakings, then this obligation shall be null and void;
otherwise, it shall remain in full force and effect.
The liability of FIRST LEPANTO-TAISHO INSURANCE CORPORATION, under
this Bond will expire on 10.15.01_. Furthermore, it is hereby understood
that FIRST LEPANTO-TAISHO INSURANCE CORPORATION will not be liable
for any claim not presented to it in writing within fifteen (15) days from
the expiration of this bond, and that the Obligee hereby waives its right to
claim or file any court action against the Surety after the termination of
fifteen (15) days from the time its cause of action accrues.19
Petitioner posits that non-compliance with the submission of the written
agreement, which by the express terms of the surety bond, should be
attached and made part thereof, rendered the bond ineffective. Since all
stipulations and provisions of the surety contract should be taken and
interpreted together, in this case, the unmistakable intention of the parties
was to secure only those terms and conditions of the written agreement.
Thus, by deleting the required submission and attachment of the written
agreement to the surety bond and replacing it with the oral credit
agreement, the obligations of the surety have been extended beyond the
limits of the surety contract.
On the other hand, respondent contends that the surety bond had been
delivered by petitioner to Fumitechniks which paid the premiums and
delivered the bond to respondent, who in turn, opened the credit line
which Fumitechniks availed of to purchase its merchandise from
respondent on credit. Respondent points out that a careful reading of the
surety contract shows that there is no such requirement of submission of
the written credit agreement for the bond’s effectivity. Moreover,
respondent’s witnesses had already explained that distributorship accounts
are not covered by written distribution agreements. Supplying the details
of these agreements is allowed as an exception to the parol evidence rule
even if it is proof of an oral agreement. Respondent argues that by
introducing documents that petitioner sought to exclude, it never intended
to change or modify the contents of the surety bond but merely to
establish the actual terms of the distribution agreement between
Fumitechniks and respondent, a separate agreement that was executed
shortly after the issuance of the surety bond. Because petitioner still
issued the bond and allowed it to be delivered to respondent despite the
fact that a copy of the written distribution agreement was never attached
thereto, respondent avers that clearly, such attaching of the copy of the
principal agreement, was for evidentiary purposes only. The real intention
of the bond was to secure the payment of all the purchases of
Fumitechniks from respondent up to the maximum amount allowed under
the bond.
A reading of Surety Bond FLTICG (16) No. 01012 shows that it secures the
payment of purchases on credit by Fumitechniks in accordance with the
terms and conditions of the "agreement" it entered into with respondent.
The word "agreement" has reference to the distributorship agreement, the
principal contract and by implication included the credit agreement
mentioned in the rider. However, it turned out that respondent has
executed written agreements only with its direct customers but not
distributors like Fumitechniks and it also never relayed the terms and
conditions of its distributorship agreement to the petitioner after the
delivery of the bond. This was clearly admitted by respondent’s Marketing
Coordinator, Alden Casas Fajardo, who testified as follows:
Atty. Selim:
Q : Mr. Fajardo[,] you mentioned during your cross-examination
that the surety bond as part of the requirements of [Fumitechniks]
before the Distributorship Agreement was approved?
A : Yes Sir.
xxxx
Q : Is it the practice or procedure at Caltex to reduce
distributorship account into writing?
xxxx
A : No, its not a practice to make an agreement.
xxxx
Atty. Quiroz:
Q : What was the reason why you are not reducing your
agreement with your client into writing?
A : Well, of course as I said, there is no fix pricing in terms of
distributorship agreement, its usually with regards to direct service
to the customers which have direct fixed price.
xxxx
Q : These supposed terms and conditions that you agreed with
[Fumitechniks], did you relay to the defendant…
A : Yes Sir.
xxxx
Q : How did you relay that, how did you relay the terms and
conditions to the defendant?
A : I don’t know, it was during the time for collection because I
collected them and explain the terms and conditions.
Q : You testified awhile ago that you did not talk to the defendant
First Lepanto-Taisho Insurance Corporation?
A : I was confused with the question. I’m talking about Malou
Apostol.
Q : So, in your answer, you have not relayed those terms and
conditions to the defendant First Lepanto, you have not?
A : Yes Sir.
Q : And as of this present, you have not yet relayed the terms and
conditions?
A : Yes Sir.
xxxx 20
Respondent, however, maintains that the delivery of the bond and
acceptance of premium payment by petitioner binds the latter as surety,
notwithstanding the non-submission of the oral distributorship and credit
agreement which understandably cannot be attached to the bond.
The contention has no merit.
The law is clear that a surety contract should be read and interpreted
together with the contract entered into between the creditor and the
principal. Section 176 of the Insurance Code states:
Sec. 176. The liability of the surety or sureties shall be joint and several
with the obligor and shall be limited to the amount of the bond. It is
determined strictly by the terms of the contract of suretyship in relation to
the principal contract between the obligor and the obligee. (Emphasis
supplied.)
A surety contract is merely a collateral one, its basis is the principal
contract or undertaking which it secures.21Necessarily, the stipulations in
such principal agreement must at least be communicated or made known
to the surety particularly in this case where the bond expressly guarantees
the payment of respondent’s fuel products withdrawn by Fumitechniks in
accordance with the terms and conditions of their agreement. The bond
specifically makes reference to a written agreement. It is basic that if the
terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall
control.22 Moreover, being an onerous undertaking, a surety agreement is
strictly construed against the creditor, and every doubt is resolved in favor
of the solidary debtor.23 Having accepted the bond, respondent as creditor
must be held bound by the recital in the surety bond that the terms and
conditions of its distributorship contract be reduced in writing or at the
very least communicated in writing to the surety. Such non-compliance by
the creditor (respondent) impacts not on the validity or legality of the
surety contract but on the creditor’s right to demand performance.
It bears stressing that the contract of suretyship imports entire good faith
and confidence between the parties in regard to the whole transaction,
although it has been said that the creditor does not stand as a fiduciary in
his relation to the surety. The creditor is generally held bound to a faithful
observance of the rights of the surety and to the performance of every
duty necessary for the protection of those rights.24 Moreover, in this
jurisdiction, obligations arising from contracts have the force of law
between the parties and should be complied with in good
faith.25Respondent is charged with notice of the specified form of the
agreement or at least the disclosure of basic terms and conditions of its
distributorship and credit agreements with its client Fumitechniks after its
acceptance of the bond delivered by the latter. However, it never made
any effort to relay those terms and conditions of its contract with
Fumitechniks upon the commencement of its transactions with said client,
which obligations are covered by the surety bond issued by petitioner.
Contrary to respondent’s assertion, there is no indication in the records
that petitioner had actual knowledge of its alleged business practice of not
having written contracts with distributors; and even assuming petitioner
was aware of such practice, the bond issued to Fumitechniks and accepted
by respondent specifically referred to a "written agreement."
Petitioner is likewise not entitled to attorney’s fees. The settled rule is that
no premium should be placed on the right to litigate and that not every
winning party is entitled to an automatic grant of attorney’s fees.30 In
pursuing its claim on the surety bond, respondent was acting on the belief
that it can collect on the obligation of Fumitechniks notwithstanding the
non-submission of the written principal contract.
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The
Decision dated November 20, 2006 and Resolution dated May 8, 2007 of
the Court of Appeals in CA-G.R. CV No. 86623, are REVERSED and SET
ASIDE. The Decision dated August 5, 2005 of the Regional Trial Court of
Makati City, Branch 59 in Civil Case No. 02-857 dismissing respondent’s
complaint as well as petitioner’s counterclaim, is hereby REINSTATED and
UPHELD.
No pronouncement as to costs.
SO ORDERED.

As to the contention of petitioner that respondent’s motion for

reconsideration filed before the trial court should have been deemed not
filed for being pro forma, the Court finds it to be without merit. The mere
fact that a motion for reconsideration reiterates issues already passed
upon by the court does not, by itself, make it a pro forma motion. Among
the ends to which a motion for reconsideration is addressed is precisely to
convince the court that its ruling is erroneous and improper, contrary to
the law or evidence; the movant has to dwell of necessity on issues
already passed upon.26 1avvphi1

Finally, we hold that the trial court correctly dismissed petitioner’s

counterclaim for moral damages and attorney’s fees. The filing alone of a
civil action should not be a ground for an award of moral damages in the
same way that a clearly unfounded civil action is not among the grounds
for moral damages.27 Besides, a juridical person is generally not entitled to
moral damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock.28 Although in some recent cases we have
held that the Court may allow the grant of moral damages to corporations,
it is not automatically granted; there must still be proof of the existence of
the factual basis of the damage and its causal relation to the defendant’s
acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the
wrongdoer.29There is no evidence presented to establish the factual basis
of petitioner’s claim for moral damages.
16. New World International Devt Philippines v. NYK-FILJAPAN
Shipping Corp, GR No. 1714468, 24 August 2011
These consolidated petitions involve a cargo owner’s right to recover
damages from the loss of insured goods under the Carriage of Goods by
Sea Act and the Insurance Code.
The Facts and the Case
Petitioner New World International Development (Phils.), Inc. (New World)
bought from DMT Corporation (DMT) through its agent, Advatech
Industries, Inc. (Advatech) three emergency generator sets worth
US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United States, to
LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From there,
the shipment went by train to Oakland, California, where it was loaded on
S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping
Corporation (NYK) for delivery to petitioner New World in Manila. NYK
issued a bill of lading, declaring that it received the goods in good
condition.
NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX
Ruby V/72 that it also owned and operated. On its journey to Manila,
however, ACX Ruby encountered typhoon Kadiang whose captain filed a
sea protest on arrival at the Manila South Harbor on October 5, 1993
respecting the loss and damage that the goods on board his vessel
suffered.
Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or
cargo-handling operator, received the shipment on October 7, 1993. Upon
inspection of the three container vans separately carrying the generator
sets, two vans bore signs of external damage while the third van appeared
unscathed. The shipment remained at Pier 3’s Container Yard under
Marina’s care pending clearance from the Bureau of Customs. Eventually,
on October 20, 1993 customs authorities allowed petitioner’s customs
broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment
and deliver the same to petitioner New World’s job site in Makati City.
An examination of the three generator sets in the presence of petitioner
New World’s representatives, Federal Builders (the project contractor) and
surveyors of petitioner New World’s insurer, Seaboard–Eastern Insurance
Company (Seaboard), revealed that all three sets suffered extensive
damage and could no longer be repaired. For these reasons, New World
demanded recompense for its loss from respondents NYK, DMT, Advatech,
LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros.
While LEP and NYK acknowledged receipt of the demand, both denied
liability for the loss.
Since Seaboard covered the goods with a marine insurance policy,
petitioner New World sent it a formal claim dated November 16, 1993.
Replying on February 14, 1994, Seaboard required petitioner New World to
submit to it an itemized list of the damaged units, parts, and accessories,
with corresponding values, for the processing of the claim. But petitioner
New World did not submit what was required of it, insisting that the
insurance policy did not include the submission of such a list in connection
with an insurance claim. Reacting to this, Seaboard refused to process the
claim.
On October 11, 1994 petitioner New World filed an action for specific
performance and damages against all the respondents before the Regional
Trial Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770.
On August 16, 2001 the RTC rendered a decision absolving the various
respondents from liability with the exception of NYK. The RTC found that
the generator sets were damaged during transit while in the care of NYK’s
vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the
degree of diligence required of it in the face of a foretold raging typhoon in
its path.
The RTC ruled, however, that petitioner New World filed its claim against
the vessel owner NYK beyond the one year provided under the Carriage of
Goods by Sea Act (COGSA). New World filed its complaint on October 11,
1994 when the deadline for filing the action (on or before October 7, 1994)
had already lapsed. The RTC held that the one-year period should be
counted from the date the goods were delivered to the arrastre operator
and not from the date they were delivered to petitioner’s job site.1
As regards petitioner New World’s claim against Seaboard, its insurer, the
RTC held that the latter cannot be faulted for denying the claim against it
since New World refused to submit the itemized list that Seaboard needed
for assessing the damage to the shipment. Likewise, the belated filing of
the complaint prejudiced Seaboard’s right to pursue a claim against NYK in
the event of subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31,
2006,2 affirming the RTC’s rulings except with respect to Seaboard’s
liability. The CA held that petitioner New World can still recoup its loss
from Seaboard’s marine insurance policy, considering a) that the
submission of the itemized listing is an unreasonable imposition and b)
that the one-year prescriptive period under the COGSA did not affect New
World’s right under the insurance policy since it was the Insurance Code
that governed the relation between the insurer and the insured.
Although petitioner New World promptly filed a petition for review of the
CA decision before the Court in G.R. 171468, Seaboard chose to file a
motion for reconsideration of that decision. On August 17, 2006 the CA
rendered an amended decision, reversing itself as regards the claim
against Seaboard. The CA held that the submission of the itemized listing
was a reasonable requirement that Seaboard asked of New World. Further,
the CA held that the one-year prescriptive period for maritime claims
applied to Seaboard, as insurer and subrogee of New World’s right against
the vessel owner. New World’s failure to comply promptly with what was
required of it prejudiced such right.
Instead of filing a motion for reconsideration, petitioner instituted a second
petition for review before the Court in G.R. 174241, assailing the CA’s
amended decision.
The Issues Presented
The issues presented in this case are as follows:
a) In G.R. 171468, whether or not the CA erred in affirming the
RTC’s release from liability of respondents DMT, Advatech, LEP,
LEP Profit, Marina, and Serbros who were at one time or another
involved in handling the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that
Seaboard’s request from petitioner New World for an itemized list
is a reasonable imposition and did not violate the insurance
contract between them; and 2) whether or not the CA erred in
failing to rule that the one-year COGSA prescriptive period for
marine claims does not apply to petitioner New World’s
prosecution of its claim against Seaboard, its insurer.
The Court’s Rulings
In G.R. 171468 --
Petitioner New World asserts that the roles of respondents DMT, Advatech,
LEP, LEP Profit, Marina and Serbros in handling and transporting its
shipment from Wisconsin to Manila collectively resulted in the damage to
the same, rendering such respondents solidarily liable with NYK, the vessel
owner.
But the issue regarding which of the parties to a dispute incurred
negligence is factual and is not a proper subject of a petition for review on
certiorari. And petitioner New World has been unable to make out an
exception to this rule.3Consequently, the Court will not disturb the finding
of the RTC, affirmed by the CA, that the generator sets were totally
damaged during the typhoon which beset the vessel’s voyage from Hong
Kong to Manila and that it was her negligence in continuing with that
journey despite the adverse condition which caused petitioner New World’s
loss.
That the loss was occasioned by a typhoon, an exempting cause under
Article 1734 of the Civil Code, does not automatically relieve the common
carrier of liability. The latter had the burden of proving that the typhoon
was the proximate and only cause of loss and that it exercised due
diligence to prevent or minimize such loss before, during, and after the
disastrous typhoon.4 As found by the RTC and the CA, NYK failed to
discharge this burden.
In G.R. 174241 --
One. The Court does not regard as substantial the question of
reasonableness of Seaboard’s additional requirement of an itemized listing
of the damage that the generator sets suffered. The record shows that
petitioner New World complied with the documentary requirements
evidencing damage to its generator sets.
The marine open policy that Seaboard issued to New World was an all-risk
policy. Such a policy insured against all causes of conceivable loss or
damage except when otherwise excluded or when the loss or damage was
due to fraud or intentional misconduct committed by the insured. The
policy covered all losses during the voyage whether or not arising from a
marine peril.5
Here, the policy enumerated certain exceptions like unsuitable packaging,
inherent vice, delay in voyage, or vessels unseaworthiness, among
others.6 But Seaboard had been unable to show that petitioner New
World’s loss or damage fell within some or one of the enumerated
exceptions.
What is more, Seaboard had been unable to explain how it could not verify
the damage that New World’s goods suffered going by the documents that
it already submitted, namely, (1) copy of the Supplier’s Invoice KL2504;
(2) copy of the Packing List; (3) copy of the Bill of Lading
01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and
1224; (5) original copy of Marine Insurance Policy MA-HO-000266; (6)
copies of Damage Report from Supplier and Insurance Adjusters; (7)
Consumption Report from the Customs Examiner; and (8) Copies of
Received Formal Claim from the following: a) LEP International Philippines,
Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier
Corporation.7 Notably, Seaboard’s own marine surveyor attended the
inspection of the generator sets.
Seaboard cannot pretend that the above documents are inadequate since
they were precisely the documents listed in its insurance policy.8 Being a
contract of adhesion, an insurance policy is construed strongly against the
insurer who prepared it. The Court cannot read a requirement in the policy
that was not there.
Further, it appears from the exchanges of communications between
Seaboard and Advatech that submission of the requested itemized listing
was incumbent on the latter as the seller DMT’s local agent. Petitioner New
World should not be made to suffer for Advatech’s shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the COGSA provides
that the carrier and the ship shall be discharged from all liability in case of
loss or damage unless the suit is brought within one year after delivery of
the goods or the date when the goods should have been delivered.
But whose fault was it that the suit against NYK, the common carrier, was
not brought to court on time? The last day for filing such a suit fell on
October 7, 1994. The record shows that petitioner New World filed its
formal claim for its loss with Seaboard, its insurer, a remedy it had the
right to take, as early as November 16, 1993 or about 11 months before
the suit against NYK would have fallen due.
In the ordinary course, if Seaboard had processed that claim and paid the
same, Seaboard would have been subrogated to petitioner New World’s
right to recover from NYK. And it could have then filed the suit as a
subrogee. But, as discussed above, Seaboard made an unreasonable
demand on February 14, 1994 for an itemized list of the damaged units,
parts, and accessories, with corresponding values when it appeared settled
that New World’s loss was total and when the insurance policy did not
require the production of such a list in the event of a claim.
Besides, when petitioner New World declined to comply with the demand
for the list, Seaboard against whom a formal claim was pending should not
have remained obstinate in refusing to process that claim. It should have
examined the same, found it unsubstantiated by documents if that were
the case, and formally rejected it. That would have at least given
petitioner New World a clear signal that it needed to promptly file its suit
directly against NYK and the others. Ultimately, the fault for the delayed
court suit could be brought to Seaboard’s doorstep.
Section 241 of the Insurance Code provides that no insurance company
doing business in the Philippines shall refuse without just cause to pay or
settle claims arising under coverages provided by its policies. And, under
Section 243, the insurer has 30 days after proof of loss is received and
ascertainment of the loss or damage within which to pay the claim. If such
ascertainment is not had within 60 days from receipt of evidence of loss,
the insurer has 90 days to pay or settle the claim. And, in case the insurer
refuses or fails to pay within the prescribed time, the insured shall be
entitled to interest on the proceeds of the policy for the duration of delay
at the rate of twice the ceiling prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle petitioner
New World’s claim as Section 243 required. Under Section 244, a prima
facie evidence of unreasonable delay in payment of the claim is created by
the failure of the insurer to pay the claim within the time fixed in Section
243.
Consequently, Seaboard should pay interest on the proceeds of the policy
for the duration of the delay until the claim is fully satisfied at the rate of
twice the ceiling prescribed by the Monetary Board. The term "ceiling
prescribed by the Monetary Board" means the legal rate of interest of 12%
per annum provided in Central Bank Circular 416, pursuant to Presidential
Decree 116.9 Section 244 of the Insurance Code also provides for an
award of attorney’s fees and other expenses incurred by the assured due
to the unreasonable withholding of payment of his claim.
In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines,
Inc.,10 the Court regarded as proper an award of 10% of the insurance
proceeds as attorney’s fees. Such amount is fair considering the length of
time that has passed in prosecuting the claim.11 Pursuant to the Court’s
ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,12 a 12% interest
per annum from the finality of judgment until full satisfaction of the claim
should likewise be imposed, the interim period equivalent to a forbearance
of credit.1avvphi1
Petitioner New World is entitled to the value stated in the policy which is
commensurate to the value of the three emergency generator sets or
US$721,500.00 with double interest plus attorney’s fees as discussed
above.
WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS
the Court of Appeals decision of January 31, 2006 insofar as petitioner
New World International Development (Phils.), Inc. is not allowed to
recover against respondents DMT Corporation, Advatech Industries, Inc.,
LEP International Philippines, Inc., LEP Profit International, Inc., Marina
Port Services, Inc. and Serbros Carrier Corporation.
With respect to G.R. 174241, the Court GRANTS the petition and
REVERSES and SETS ASIDE the Court of Appeals Amended Decision of
August 17, 2006. The Court DIRECTS Seaboard-Eastern Insurance
Company, Inc. to pay petitioner New World International Development
(Phils.), Inc. US$721,500.00 under Policy MA-HO-000266, with 24%
interest per annum for the duration of delay in accordance with Sections
243 and 244 of the Insurance Code and attorney’s fees equivalent to 10%
of the insurance proceeds. Seaboard shall also pay, from finality of
judgment, a 12% interest per annum on the total amount due to petitioner
until its full satisfaction.

SO ORDERED.

17.Country Bankers Insurance Corporation v. Lagman, GR No.
165487, 13 July 2011
This is a petition for review on certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, assailing the Decision1and Resolution2 of the Court of
Appeals dated 21 June 2004 and 24 September 2004, respectively.
These are the undisputed facts.
Nelson Santos (Santos) applied for a license with the National Food
Authority (NFA) to engage in the business of storing not more than 30,000
sacks of palay valued at ₱5,250,000.00 in his warehouse at Barangay
Malacampa, Camiling, Tarlac. Under Act No. 3893 or the General Bonded
Warehouse Act, as amended, 3 the approval for said license was
conditioned upon posting of a cash bond, a bond secured by real estate, or
a bond signed by a duly authorized bonding company, the amount of
which shall be fixed by the NFA Administrator at not less than thirty-three
and one third percent (33 1/3%) of the market value of the maximum
quantity of rice to be received.
Accordingly, Country Bankers Insurance Corporation (Country Bankers)
issued Warehouse Bond No. 033044 for ₱1,749,825.00 on 5 November
1989 and Warehouse Bond No. 023555 for ₱749,925.00 on 13 December
1989 (1989 Bonds) through its agent, Antonio Lagman (Lagman). Santos
was the bond principal, Lagman was the surety and the Republic of the
Philippines, through the NFA was the obligee. In consideration of these
issuances, corresponding Indemnity Agreements6 were executed by
Santos, as bond principal, together with Ban Lee Lim Santos (Ban Lee
Lim), Rhosemelita Reguine (Reguine) and Lagman, as co-signors. The
latter bound themselves jointly and severally liable to Country Bankers for
any damages, prejudice, losses, costs, payments, advances and expenses
of whatever kind and nature, including attorney’s fees and legal costs,
which it may sustain as a consequence of the said bond; to reimburse
Country Bankers of whatever amount it may pay or cause to be paid or
become liable to pay thereunder; and to pay interest at the rate of 12%
per annum computed and compounded monthly, as well as to pay
attorney’s fees of 20% of the amount due it.7
Santos then secured a loan using his warehouse receipts as
collateral.8 When the loan matured, Santos defaulted in his payment. The
sacks of palay covered by the warehouse receipts were no longer found in
the bonded warehouse.9 By virtue of the surety bonds, Country Bankers
was compelled to pay ₱1,166,750.37.10
Consequently, Country Bankers filed a complaint for a sum of money
docketed as Civil Case No. 95-73048 before the Regional Trial Court (RTC)
of Manila. In his Answer, Lagman alleged that the 1989 Bonds were valid
only for 1 year from the date of their issuance, as evidenced by receipts;
that the bonds were never renewed and revived by payment of premiums;
that on 5 November 1990, Country Bankers issued Warehouse Bond No.
03515 (1990 Bond) which was also valid for one year and that no
Indemnity Agreement was executed for the purpose; and that the 1990
Bond supersedes, cancels, and renders no force and effect the 1989
Bonds.11
The bond principals, Santos and Ban Lee Lim, were not served with
summons because they could no longer be found.12 The case was
eventually dismissed against them without prejudice.13 The other co-
signor, Reguine, was declared in default for failure to file her answer.14
On 21 September 1998, the trial court rendered judgment declaring
Reguine and Lagman jointly and severally liable to pay Country Bankers
the amount of ₱2,400,499.87.15 The dispositive portion of the RTC
Decision16 reads:
WHEREFORE, premises considered, judgment is hereby rendered, ordering
defendants Rhomesita [sic] Reguine and Antonio Lagman, jointly and
severally liable to pay plaintiff, Country Bankers Assurance Corporation,
the amount of ₱2,400,499.87, with 12% interest from the date the
complaint was filed until fully satisfied plus 20% of the amount due
plaintiff as and for attorney’s fees and to pay the costs.
As the Court did not acquire jurisdiction over the persons of defendants
Nelson Santos and Ban Lee Lim Santos, let the case against them be
DISMISSED. Defendant Antonio Lagman’s counterclaim is likewise
DISMISSED, for lack of merit.17
In holding Lagman and Reguine solidarily liable to Country Bankers, the
trial court relied on the express terms of the Indemnity Agreement that
they jointly and severally bound themselves to indemnify and make good
to Country Bankers any liability which the latter may incur on account of or
arising from the execution of the bonds.18
The trial court rationalized that the bonds remain in force unless cancelled
by the Administrator of the NFA and cannot be unilaterally cancelled by
Lagman. The trial court emphasized that for the failure of Lagman to
comply with his obligation under the Indemnity Agreements, he is likewise
liable for damages as a consequence of the breach.
Lagman filed an appeal to the Court of Appeals, docketed as CA G.R. CV
No. 61797. He insisted that the lifetime of the 1989 Bonds, as well as the
corresponding Indemnity Agreements was only 12 months. According to
Lagman, the 1990 Bond was not pleaded in the complaint because it was
not covered by an Indemnity Agreement and it superseded the two prior
bonds.19
On 21 June 2004, the Court of Appeals rendered the assailed Decision
reversing and setting aside the Decision of the RTC and ordering the
dismissal of the complaint filed against Lagman.20
The appellate court held that the 1990 Bond superseded the 1989 Bonds.
The appellate court observed that the 1990 Bond covers 33.3% of the
market value of the palay, thereby manifesting the intention of the parties
to make the latter bond more comprehensive. Lagman was also
exonerated by the appellate court from liability because he was not a
signatory to the alleged Indemnity Agreement of 5 November 1990
covering the 1990 Bond. The appellate court rejected the argument of
Country Bankers that the 1989 bonds were continuing, finding, as reason
therefor, that the receipts issued for the bonds indicate that they were
effective for only one-year.
Country Bankers sought reconsideration which was denied in a Resolution
dated 24 September 2004.21
Expectedly, Country Bankers filed the instant petition attributing two (2)
errors to the Court of Appeals, to wit:
A.
THE HONORABLE COURT OF APPEALS seriously erred in
disregarding the express provisions of Section 177 of the insurance
code when it held that the subject surety bonds were superseded
by a subsequent bond notwithstanding the non-cancellation
thereof by the bond obligee.
B.
The honorable court of appeals seriously erred in holding that
receipts for the payment of premiums prevail over the express
provision of the surety bond that fixes the term thereof.22
Country Bankers maintains that by the express terms of the 1989 Bonds,
they shall remain in full force until cancelled by the Administrator of the
NFA. As continuing bonds, Country Bankers avers that Section 177 of the
Insurance Code applies, in that the bond may only be cancelled by the
obligee, by the Insurance Commissioner or by a competent court.
Country Bankers questions the existence of a third bond, the 1990 Bond,
which allegedly cancelled the 1989 Bonds on the following grounds: First,
Lagman failed to produce the original of the 1990 Bond and no basis has
been laid for the presentation of secondary evidence; Second, the issuance
of the 1990 Bond was not approved and processed by Country Bankers;
Third, the NFA as bond obligee was not in possession of the 1990 Bond.
Country Bankers stresses that the cancellation of the 1989 Bonds requires
the participation of the bond obligee. Ergo, the bonds remain subsisting
until cancelled by the bond obligee. Country Bankers further assert that
Lagman also failed to prove that the NFA accepted the 1990 Bond in
replacement of the 1989 Bonds.
Country Bankers notes that the receipts issued for the 1989 Bonds are
mere evidence of premium payments and should not be relied on to
determine the period of effectivity of the bonds. Country Bankers explains
that the receipts only represent the transactions between the bond
principal and the surety, and does not involve the NFA as bond obligee.
Country Bankers calls this Court’s attention to the incontestability clause
contained in the Indemnity Agreements which prohibits Lagman from
questioning his liability therein.
In his Comment, Lagman raises the issue of novation by asserting that the
1989 Bonds were superseded by the 1990 Bond, which did not include
Lagman as party. Therefore, Lagman argues, Country Bankers has no
cause of action against him. Lagman also reiterates that because of
novation, the 1989 bonds are neither perpetual nor continuing.
Lagman anchors his defense on two (2) arguments: 1) the 1989 Bonds
have expired and 2) the 1990 Bond novates the 1989 Bonds.
The Court of Appeals held that the 1989 bonds were effective only for one
(1) year, as evidenced by the receipts on the payment of premiums.
We do not agree.
The official receipts in question serve as proof of payment of the premium
for one year on each surety bond. It does not, however, automatically
mean that the surety bond is effective for only one (1) year. In fact, the
effectivity of the bond is not wholly dependent on the payment of
premium. Section 177 of the Insurance Code expresses:
Sec. 177. The surety is entitled to payment of the premium as soon as the
contract of suretyship or bond is perfected and delivered to the obligor. No
contract of suretyship or bonding shall be valid and binding unless and
until the premium therefor has been paid, except where the obligee
has accepted the bond, in which case the bond becomes valid and
enforceable irrespective of whether or not the premium has been
paid by the obligor to the surety: Provided, That if the contract of
suretyship or bond is not accepted by, or filed with the obligee, the surety
shall collect only reasonable amount, not exceeding fifty per centum of the
premium due thereon as service fee plus the cost of stamps or other taxes
imposed for the issuance of the contract or bond: Provided, however, That
if the non-acceptance of the bond be due to the fault or negligence of the
surety, no such service fee, stamps or taxes shall be collected. (Emphasis
supplied)
The 1989 Bonds have identical provisions and they state in very clear
terms the effectivity of these bonds, viz:
NOW, THEREFORE, if the above-bounded Principal shall well and truly
deliver to the depositors PALAY received by him for STORAGE at any time
that demand therefore is made, or shall pay the market value therefore in
case he is unable to return the same, then this obligation shall be null and
void; otherwise it shall remain in full force and effect and may be enforced
in the manner provided by said Act No. 3893 as amended by Republic Act
No. 247 and P.D. No. 4. This bond shall remain in force until cancelled by
the Administrator of National Food Authority.23
This provision in the bonds is but in compliance with the second paragraph
of Section 177 of the Insurance Code, which specifies that a continuing
bond, as in this case where there is no fixed expiration date, may be
cancelled only by the obligee, which is the NFA, by the Insurance
Commissioner, and by the court. Thus:
In case of a continuing bond, the obligor shall pay the subsequent annual
premium as it falls due until the contract of suretyship is cancelled by the
obligee or by the Commissioner or by a court of competent jurisdiction, as
the case may be.
By law and by the specific contract involved in this case, the effectivity of
the bond required for the obtention of a license to engage in the business
of receiving rice for storage is determined not alone by the payment of
premiums but principally by the Administrator of the NFA. From beginning
to end, the Administrator’s brief is the enabling or disabling document.
The clear import of these provisions is that the surety bonds in question
cannot be unilaterally cancelled by Lagman. The same conclusion was
reached by the trial court and we quote:
As there appears no record of cancellation of the Warehouse Bonds No.
03304 and No. 02355 either by the administrator of the NFA or by the
Insurance Commissioner or by the Court, the Warehouse Bonds are valid
and binding and cannot be unilaterally cancelled by defendant Lagman as
general agent of the plaintiff.24
While the trial court did not directly rule on the existence and validity of
the 1990 Bond, it upheld the 1989 Bonds as valid and binding, which could
not be unilaterally cancelled by Lagman. The Court of Appeals, on the
other hand, acknowledged the 1990 Bond as having cancelled the two
previous bonds by novation. Both courts however failed to discuss their
basis for rejecting or admitting the 1990 Bond, which, as we indicated, is
bone to pick in this case.
Lagman’s insistence on novation depends on the validity, nay, existence of
the allegedly novating 1990 Bond. Country Bankers understandably
impugns both. We see the point. Lagman presented a mere photocopy of
the 1990 Bond. We rule as inadmissible such copy.
Under the best evidence rule, the original document must be produced
whenever its contents are the subject of inquiry.25 The rule is encapsulated
in Section 3, Rule 130 of the Rules of Court, as follow:
Sec. 3. Original document must be produced; exceptions. — When the
subject of inquiry is the contents of a documents, no evidence shall be
admissible other than the original document itself, except in the following
cases:
(a) When the original has been lost or destroyed, or cannot be
produced in court, without bad faith on the part of the offeror;
(b) When the original is in the custody or under the control of the
party against whom the evidence is offered, and the latter fails to
produce it after reasonable notice;
(c) When the original consists of numerous accounts or other
documents which cannot be examined in court without great loss
of time and the fact sought to be established from them is only the
general result of the whole; and
(d) When the original is a public record in the custody of a public
officer or is recorded in a public office.26
A photocopy, being a mere secondary evidence, is not admissible unless it
is shown that the original is unavailable.27 Section 5, Rule 130 of the Rules
of Court states:
SEC.5 When original document is unavailable. — When the original
document has been lost or destroyed, or cannot be produced in court, the
offeror, upon proof of its execution or existence and the cause of its
unavailability without bad faith on his part, may prove its contents by a
copy, or by a recital of its contents in some authentic document, or by the
testimony of witnesses in the order stated.
Before a party is allowed to adduce secondary evidence to prove the
contents of the original, the offeror must prove the following: (1) the
existence or due execution of the original; (2) the loss and destruction of
the original or the reason for its non-production in court; and (3) on the
part of the offeror, the absence of bad faith to which the unavailability of
the original can be attributed. The correct order of proof is as follows:
existence, execution, loss, and contents.28
In the case at bar, Lagman mentioned during the direct examination that
there are actually four (4) duplicate originals of the 1990 Bond: the first is
kept by the NFA, the second is with the Loan Officer of the NFA in Tarlac,
the third is with Country Bankers and the fourth was in his possession.29 A
party must first present to the court proof of loss or other satisfactory
explanation for the non-production of the original instrument.30 When
more than one original copy exists, it must appear that all of them have
been lost, destroyed, or cannot be produced in court before secondary
evidence can be given of any one. A photocopy may not be used without
accounting for the other originals.31
Despite knowledge of the existence and whereabouts of these duplicate
originals, Lagman merely presented a photocopy. He admitted that he
kept a copy of the 1990 Bond but he could no longer produce it because
he had already severed his ties with Country Bankers. However, he did not
explain why severance of ties is by itself reason enough for the non-
availability of his copy of the bond considering that, as it appears from the
1989 Bonds, Lagman himself is a bondsman. Neither did Lagman explain
why he failed to secure the original from any of the three other custodians
he mentioned in his testimony. While he apparently was able to find the
original with the NFA Loan Officer, he was merely contented with
producing its photocopy. Clearly, Lagman failed to exert diligent efforts to
produce the original.
Fueling further suspicion regarding the existence of the 1990 Bond is the
absence of an Indemnity Agreement. While Lagman argued that a 1990
Bond novates the 1989 Bonds, he raises the defense of "non-existence of
an indemnity agreement" which would conveniently exempt him from
liability. The trial court deemed this defense as indicia of bad faith, thus:
To the observation of the Court, defendant Lagman contended that being a
general agent (which requires a much higher qualification than an ordinary
agent), he is expected to have attended seminars and workshops on
general insurance wherein he is supposed to have acquired sufficient
knowledge of the general principles of insurance which he had fully
practised or implemented from experience. It somehow appears to the
Court’s assessment of his reneging liability of the bonds in question, that
he is still short of having really understood the principle of suretyship with
reference to the transaction of indemnity in which he is a signatory. If, as
he alleged, that he is well-versed in insurance, the Court finds no excuse
for him to stand firm in denying his liability over the claim against the
bonds with indemnity provision. If he insists in not recognizing that
liability, the more that this Court is convinced that his knowledge that
insurance operates under the principle of good faith is inadequate. He
missed the exception provided by Section 177 of the Insurance Code, as
amended, wherein non-payment of premium would not have the same
essence in his mind that the agreements entered into would not have full
force or effect. It could be glimpsed, therefore, that the mere fact of
cancelling bonds with indemnity agreements and replacing them (absence
of the same) to escape liability clearly manifests bad faith on his
part.32 (Emphasis supplied.)
Having discounted the existence and/or validity of the 1990 Bond, there
can be no novation to speak of. Novation is the extinguishment of an
obligation by the substitution or change of the obligation by a subsequent
one which extinguishes or modifies the first, either by changing the object
or principal conditions, or by substituting another in place of the debtor, or
by subrogating a third person in the rights of the creditor. For novation to
take place, the following requisites must concur: 1) There must be a
previous valid obligation; 2) The parties concerned must agree to a new
contract; 3) The old contract must be extinguished; and 4) There must be
a valid new contract.33
In this case, only the first element of novation exists. Indeed, there is a
previous valid obligation, i.e., the 1989 Bonds. There is however neither a
valid new contract nor a clear agreement between the parties to a new
contract since the very existence of the 1990 Bond has been rendered
dubious. Without the new contract, the old contract is not extinguished.
Implied novation necessitates a new obligation with which the old is in
total incompatibility such that the old obligation is completely superseded
by the new one.34 Quite obviously, neither can there be implied novation.
In this case, there is no new obligation.
The liability of Lagman is expressed in Indemnity Agreements executed in
consideration of the 1989 Bonds which we have considered as continuing
contracts. Under both Indemnity Agreements, Lagman, as co-signor,
together with Santos, Ban Lee Lim and Reguine, bound themselves jointly
and severally to Country Bankers to indemnify it for any damage or loss
sustained on the account of the execution of the bond, among others. The
pertinent identical stipulations of the Indemnity Agreements state:
INDEMNITY: ─ To indemnify and make good to the COMPANY jointly and
severally, any damages, prejudice, loss, costs, payments advances and
expenses of whatever kind and nature, including attorney’s fees and legal
costs, which the COMPANY may, at any time, sustain or incur, as well as to
reimburse to said COMPANY all sums and amounts of money which the
COMPANY or its representatives shall or may pay or cause to be paid or
become liable to pay, on account of or arising from the execution of the
above-mentioned BOND or any extension, renewal, alteration or
substitution thereof made at the instance of the undersigned or anyone of
them.35

Moreover, the Indemnity Agreements also contained identical

Incontestability Clauses which provide:

INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: ─ Any

payment or disbursement made by the COMPANY on account of the above-
mentioned Bond, its renewals, extensions, alterations or substitutions
either in the belief that the COMPANY was obligated to make such
payment or in the belief that said payment was necessary or expedient in
order to avoid greater losses or obligations for which the COMPANY might
be liable by virtue of the terms of the above-mentioned Bond, its
renewals, extensions, alterations, or substitutions, shall be final and shall
not be disputed by the undersigned, who hereby jointly and severally bind
themselves to indemnify [Country Bankers] of any and all such payments,
as stated in the preceding clauses.

In case the COMPANY shall have paid[,] settled or compromised any

liability, loss, costs, damages, attorney’s fees, expenses, claims[,]
demands, suits, or judgments as above-stated, arising out of or in
connection with said bond, an itemized statement thereof, signed by an
officer of the COMPANY and other evidence to show said payment,
settlement or compromise, shall be prima facie evidence of said payment,
settlement or compromise, as well as the liability of the undersigned in
any and all suits and claims against the undersigned arising out of said
bond or this bond application.361awphil

Lagman is bound by these Indemnity Agreements. Payments made by

Country Bankers by virtue of the 1989 Bonds gave rise to Lagman’s
obligation to reimburse it under the Indemnity Agreements. Lagman, being
a solidary debtor, is liable for the entire obligation.

WHEREFORE, the petition is GRANTED. The assailed Decision and

Resolution of the Court of Appeals in CA-G.R. CV No. 61797 are SET ASIDE
and the Decision dated 21 September 1998 of the RTC is hereby
REINSTATED.

SO ORDERED.
18.Asian Terminals v. Malayan Insurance, GR No. 171406, 4 April
2011
Once the insurer pays the insured, equity demands reimbursement as no
one should benefit at the expense of another.
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
assails the July 14, 2005 Decision2 and the February 14, 2006
Resolution3 of the Court of Appeals (CA) in CA G.R. CV No. 61798.
Factual Antecedents
On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on
board the vessel MV "Jinlian I" 60,000 plastic bags of soda ash dense
(each bag weighing 50 kilograms) from China to Manila.4 The shipment,
with an invoice value of US$456,000.00, was insured with respondent
Malayan Insurance Company, Inc. under Marine Risk Note No. RN-0001-
21430, and covered by a Bill of Lading issued by Tianjin Navigation
Company with Philippine Banking Corporation as the consignee and
Chemphil Albright and Wilson Corporation as the notify party.5
On November 21, 1995, upon arrival of the vessel at Pier 9, South Harbor,
Manila,6 the stevedores of petitioner Asian Terminals, Inc., a duly
registered domestic corporation engaged in providing arrastre and
stevedoring services,7 unloaded the 60,000 bags of soda ash dense from
the vessel and brought them to the open storage area of petitioner for
temporary storage and safekeeping, pending clearance from the Bureau of
Customs and delivery to the consignee.8 When the unloading of the bags
was completed on November 28, 1995, 2,702 bags were found to be in
bad order condition.9
On November 29, 1995, the stevedores of petitioner began loading the
bags in the trucks of MEC Customs Brokerage for transport and delivery to
the consignee.10 On December 28, 1995, after all the bags were unloaded
in the warehouses of the consignee, a total of 2,881 bags were in bad
order condition due to spillage, caking, and hardening of the contents.11
On April 19, 1996, respondent, as insurer, paid the value of the lost/
damaged cargoes to the consignee in the amount of ₱643,600.25.12
Ruling of the Regional Trial Court
On November 20, 1996, respondent, as subrogee of the consignee, filed
before the Regional Trial Court (RTC) of Manila, Branch 35, a
Complaint13 for damages against petitioner, the shipper Inchcape Shipping
Services, and the cargo broker MEC Customs Brokerage.14
After the filing of the Answers,15 trial ensued.
On June 26, 1998, the RTC rendered a Decision16 finding petitioner liable
for the damage/loss sustained by the shipment but absolving the other
defendants. The RTC found that the proximate cause of the damage/loss
was the negligence of petitioner’s stevedores who handled the unloading
of the cargoes from the vessel.17 The RTC emphasized that despite the
admonitions of Marine Cargo Surveyors Edgar Liceralde and Redentor
Antonio not to use steel hooks in retrieving and picking-up the bags,
petitioner’s stevedores continued to use such tools, which pierced the bags
and caused the spillage.18 The RTC, thus, ruled that petitioner, as
employer, is liable for the acts and omissions of its stevedores under
Articles 217619 and 2180 paragraph (4)20 of the Civil Code.21 Hence, the
dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant Asian Terminal,
Inc. to pay plaintiff Malayan Insurance Company, Inc. the sum of
₱643,600.25 plus interest thereon at legal rate computed from November
20, 1996, the date the Complaint was filed, until the principal obligation is
fully paid, and the costs.
The complaint of the plaintiff against defendants Inchcape Shipping
Services and MEC Customs Brokerage, and the counterclaims of said
defendants against the plaintiff are dismissed.
SO ORDERED.22
Ruling of the Court of Appeals
Aggrieved, petitioner appealed23 to the CA but the appeal was denied. In
its July 14, 2005 Decision, the CA agreed with the RTC that the
damage/loss was caused by the negligence of petitioner’s stevedores in
handling and storing the subject shipment.24 The CA likewise rejected
petitioner’s assertion that it received the subject shipment in bad order
condition as this was belied by Marine Cargo Surveyors Redentor Antonio
and Edgar Liceralde, who both testified that the actual counting of bad
order bags was done only after all the bags were unloaded from the vessel
and that the Turn Over Survey of Bad Order Cargoes (TOSBOC) upon
which petitioner anchors its defense was prepared only on November 28,
1995 or after the unloading of the bags was completed.25 Thus, the CA
disposed of the appeal as follows:
WHEREFORE, premises considered, the appeal is DENIED. The assailed
Decision dated June 26, 1998 of the Regional Trial Court of Manila, Branch
35, in Civil Case No. 96-80945 is hereby AFFIRMED in all respects.
SO ORDERED.26
Petitioner moved for reconsideration27 but the CA denied the same in a
Resolution28 dated February 14, 2006 for lack of merit.
Issues
Hence, the present recourse, petitioner contending that:
1. RESPONDENT-INSURER IS NOT ENTITLED TO THE RELIEF
GRANTED AS IT FAILED TO ESTABLISH ITS CAUSE OF ACTION
AGAINST HEREIN PETITIONER SINCE, AS THE ALLEGED
SUBROGEE, IT NEVER PRESENTED ANY VALID, EXISTING,
ENFORCEABLE INSURANCE POLICY OR ANY COPY THEREOF IN
COURT.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
OVERLOOKED THE FACT THAT THE TOSBOC & RESBOC WERE
ADOPTED AS COMMON EXHIBITS BY BOTH PETITIONER AND
RESPONDENT.
3. CONTRARY TO TESTIMONIAL EVIDENCE ON RECORD, VARIOUS
DOCUMENTATIONS WOULD POINT TO THE VESSEL’S LIABILITY AS
THERE IS, IN THIS INSTANT CASE, AN OVERWHELMING
DOCUMENTARY EVIDENCE TO PROVE THAT THE DAMAGE IN
QUESTION WERE SUSTAINED WHEN THE SHIPMENT WAS IN THE
CUSTODY OF THE VESSEL.
4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
ADJUDGED HEREIN DEFENDANT LIABLE DUE TO [THE] FACT THAT
THE TURN OVER SURVEY OF BAD ORDER CARGOES (TOSBOC)
WAS PREPARED ONLY AFTER THE COMPLETION OF THE
DISCHARGING OPERATIONS OR ON NOVEMBER 28, 1995. THUS,
CONCLUDING THAT DAMAGE TO THE CARGOES WAS DUE TO THE
IMPROPER HANDLING THEREOF BY ATI STEVEDORES.
5. THE HONORABLE COURT OF APPEALS ERRED IN NOT TAKING
JUDICIAL NOTICE OF THE CONTRACT FOR CARGO HANDLING
SERVICES BETWEEN PPA AND ATI AND APPLYING THE PERTINENT
PROVISIONS THEREOF AS REGARDS ATI’S LIABILITY.29
In sum, the issues are: (1) whether the non-presentation of the
insurance contract or policy is fatal to respondent’s cause of
action; (2) whether the proximate cause of the damage/loss to the
shipment was the negligence of petitioner’s stevedores; and (3)
whether the court can take judicial notice of the Management
Contract between petitioner and the Philippine Ports Authority
(PPA) in determining petitioner’s liability.
Petitioner’s Arguments
Petitioner contends that respondent has no cause of action because it
failed to present the insurance contract or policy covering the subject
shipment.30 Petitioner argues that the Subrogation Receipt presented by
respondent is not sufficient to prove that the subject shipment was insured
and that respondent was validly subrogated to the rights of the
consignee.31 Thus, petitioner submits that without proof of a valid
subrogation, respondent is not entitled to any reimbursement.32
Petitioner likewise puts in issue the finding of the RTC, which was affirmed
by the CA, that the proximate cause of the damage/loss to the shipment
was the negligence of petitioner’s stevedores.33 Petitioner avers that such
finding is contrary to the documentary evidence, i.e., the TOSBOC, the
Request for Bad Order Survey (RESBOC) and the Report of
Survey.34 According to petitioner, these documents prove that it received
the subject shipment in bad order condition and that no additional damage
was sustained by the subject shipment under its custody.35 Petitioner
asserts that although the TOSBOC was prepared only after all the bags
were unloaded by petitioner’s stevedores, this does not mean that the
damage/loss was caused by its stevedores.36
Petitioner also claims that the amount of damages should not be more
than ₱5,000.00, pursuant to its Management Contract for cargo handling
services with the PPA.37 Petitioner contends that the CA should have taken
judicial notice of the said contract since it is an official act of an executive
department subject to judicial cognizance.38
Respondent’s Arguments
Respondent, on the other hand, argues that the non-presentation of the
insurance contract or policy was not raised in the trial court. Thus, it
cannot be raised for the first time on appeal.39 Respondent likewise
contends that under prevailing jurisprudence, presentation of the
insurance policy is not indispensable.40 Moreover, with or without the
insurance contract or policy, respondent claims that it should be allowed to
recover under Article 123641 of the Civil Code.42 Respondent further avers
that "the right of subrogation has its roots in equity - it is designed to
promote and to accomplish justice and is the mode which equity adopts to
compel the ultimate payment of a debt by one who in justice, equity and
good conscience ought to pay."43
Respondent likewise maintains that the RTC and the CA correctly found
that the damage/loss sustained by the subject shipment was caused by
the negligent acts of petitioner’s stevedores.44 Such factual findings of the
RTC, affirmed by the CA, are conclusive and should no longer be
disturbed.45 In fact, under Section 146 of Rule 45 of the Rules of Court,
only questions of law may be raised in a petition for review on certiorari.47
As to the Management Contract for cargo handling services, respondent
contends that this is outside the operation of judicial notice.48 And even if
it is not, petitioner’s liability cannot be limited by it since it is a contract of
adhesion.49
Our Ruling
The petition is bereft of merit.
Non-presentation of the insurance contract or policy is not fatal in the
instant case
Petitioner claims that respondent’s non-presentation of the insurance
contract or policy between the respondent and the consignee is fatal to its
cause of action.
We do not agree.
First of all, this was never raised as an issue before the RTC. In fact, it is
not among the issues agreed upon by the parties to be resolved during the
pre-trial.50 As we have said, "the determination of issues during the pre-
trial conference bars the consideration of other questions, whether during
trial or on appeal."51 Thus, "[t]he parties must disclose during pre-trial all
issues they intend to raise during the trial, except those involving
privileged or impeaching matters. x x x The basis of the rule is simple.
Petitioners are bound by the delimitation of the issues during the pre-trial
because they themselves agreed to the same."52
Neither was this issue raised on appeal.53 Basic is the rule that "issues or
grounds not raised below cannot be resolved on review by the Supreme
Court, for to allow the parties to raise new issues is antithetical to the
sporting idea of fair play, justice and due process."54
Besides, non-presentation of the insurance contract or policy is not
necessarily fatal.55 In Delsan Transport Lines, Inc. v. Court of
Appeals,56 we ruled that:
Anent the second issue, it is our view and so hold that the presentation in
evidence of the marine insurance policy is not indispensable in this case
before the insurer may recover from the common carrier the insured value
of the lost cargo in the exercise of its subrogatory right. The subrogation
receipt, by itself, is sufficient to establish not only the relationship of
herein private respondent as insurer and Caltex, as the assured shipper of
the lost cargo of industrial fuel oil, 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.
The presentation of the insurance policy was necessary in the case of
Home Insurance Corporation v. CA (a case cited by petitioner) because the
shipment therein (hydraulic engines) passed through several stages with
different parties involved in each stage. First, from the shipper to the port
of departure; second, from the port of departure to the M/S Oriental
Statesman; third, from the M/S Oriental Statesman to the M/S Pacific
Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival;
fifth, from the port of arrival to the arrastre operator; sixth, from the
arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private
respondent therein); and lastly, from the hauler to the consignee. We
emphasized in that case that in the absence of proof of stipulations to the
contrary, the hauler can be liable only for any damage that occurred from
the time it received the cargo until it finally delivered it to the consignee.
Ordinarily, it cannot be held responsible for the handling of the cargo
before it actually received it. The insurance contract, which was not
presented in evidence in that case would have indicated the scope of the
insurer’s liability, if any, since no evidence was adduced indicating at what
stage in the handling process the damage to the cargo was
sustained.57 (Emphasis supplied.)
In International Container Terminal Services, Inc. v. FGU Insurance
Corporation,58 we used the same line of reasoning in upholding the
Decision of the CA finding the arrastre contractor liable for the lost
shipment despite the failure of the insurance company to offer in evidence
the insurance contract or policy. We explained:
Indeed, jurisprudence has it that the marine insurance policy needs to be
presented in evidence before the trial court or even belatedly before the
appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,
the Court stated that the presentation of the marine insurance policy was
necessary, as the issues raised therein arose from the very existence of an
insurance contract between Malayan Insurance and its consignee, ABB
Koppel, even prior to the loss of the shipment. In Wallem Philippines
Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court
ruled that the insurance contract must be presented in evidence in order
to determine the extent of the coverage. This was also the ruling of the
Court in Home Insurance Corporation v. Court of Appeals.
However, as in every general rule, there are admitted exceptions. In
Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the
presentation of the insurance policy was not fatal because the loss of the
cargo undoubtedly occurred while on board the petitioner’s vessel, unlike
in Home Insurance in which the cargo passed through several stages with
different parties and it could not be determined when the damage to the
cargo occurred, such that the insurer should be liable for it.
As in Delsan, there is no doubt that the loss of the cargo in the present
case occurred while in petitioner’s custody. Moreover, there is no issue as
regards the provisions of Marine Open Policy No. MOP-12763, such that
the presentation of the contract itself is necessary for perusal, not to
mention that its existence was already admitted by petitioner in open
court. And even though it was not offered in evidence, it still can be
considered by the court as long as they have been properly identified by
testimony duly recorded and they have themselves been incorporated in
the records of the case.59
Similarly, in this case, the presentation of the insurance contract or policy
was not necessary. Although petitioner objected to the admission of the
Subrogation Receipt in its Comment to respondent’s formal offer of
evidence on the ground that respondent failed to present the insurance
contract or policy,60 a perusal of petitioner’s Answer61 and Pre-Trial
Brief62 shows that petitioner never questioned respondent’s right to
subrogation, nor did it dispute the coverage of the insurance contract or
policy. Since there was no issue regarding the validity of the insurance
contract or policy, or any provision thereof, respondent had no reason to
present the insurance contract or policy as evidence during the trial.
Factual findings of the CA, affirming the RTC, are conclusive and binding
Petitioner’s attempt to absolve itself from liability must likewise fail.
Only questions of law are allowed in petitions for review on certiorari under
Rule 45 of the Rules of Court. Thus, it is not our duty "to review, examine,
and evaluate or weigh all over again the probative value of the evidence
presented,"63 especially where the findings of both the trial court and the
appellate court coincide on the matter.64As we have often said, factual
findings of the CA affirming those of the RTC are conclusive and binding,
except in the following cases: "(1) when the inference made is manifestly
mistaken, absurd or impossible; (2) when there is grave abuse of
discretion; (3) when the findings are grounded entirely on speculations,
surmises or conjectures; (4) when the judgment of the [CA] is based on
misapprehension of facts; (5) when the [CA], in making its findings, went
beyond the issues of the case and the same is contrary to the admissions
of both appellant and appellee; (6) when the findings of fact are
conclusions without citation of specific evidence on which they are based;
(7) when the [CA] manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly considered, would justify a
different conclusion; and (8) when the findings of fact of the [CA] are
premised on the absence of evidence and are contradicted by the evidence
on record."65 None of these are availing in the present case.
Both the RTC and the CA found the negligence of petitioner’s stevedores to
be the proximate cause of the damage/loss to the shipment. In
disregarding the contention of petitioner that such finding is contrary to
the documentary evidence, the CA had this to say:
ATI, however, contends that the finding of the trial court was contrary to
the documentary evidence of record, particularly, the Turn Over Survey of
Bad Order Cargoes dated November 28, 1995, which was executed prior to
the turn-over of the cargo by the carrier to the arrastre operator ATI, and
which showed that the shipment already contained 2,702 damaged bags.
We are not persuaded.
Contrary to ATI’s assertion, witness Redentor Antonio, marine cargo
surveyor of Inchcape for the vessel Jinlian I which arrived on November
21, 1995 and up to completion of discharging on November 28,
1995, testified that it was only after all the bags were unloaded
from the vessel that the actual counting of bad order bags was
made, thus:
xxxx
The above testimony of Redentor Antonio was corroborated by
Edgar Liceralde, marine cargo surveyor connected with SMS Average
Surveyors and Adjusters, Inc., the company requested by consignee
Chemphil Albright and Wilson Corporation to provide superintendence,
report the condition and determine the final outturn of quantity/weight of
the subject shipment. x x x
xxxx
Defendant-appellant ATI, for its part, presented its claim officer as witness
who testified that a survey was conducted by the shipping company and
ATI before the shipment was turned over to the possession of ATI and that
the Turn Over Survey of Bad Order Cargoes was prepared by ATI’s Bad
Order (BO) Inspector.
Considering that the shipment arrived on November 21, 1998 and
the unloading operation commenced on said date and was
completed on November 26, 1998, while the Turn Over Survey of
Bad Order Cargoes, reflecting a figure of 2,702 damaged bags, was
prepared and signed on November 28, 1998 by ATI’s BO Inspector
and co-signed by a representative of the shipping company, the trial
court’s finding that the damage to the cargoes was due to the
improper handling thereof by ATI’s stevedores cannot be said to be
without substantial support from the records.
We thus see no cogent reason to depart from the ruling of the trial court
that ATI should be made liable for the 2,702 bags of damaged shipment.
Needless to state, it is hornbook doctrine that the assessment of witnesses
and their testimonies is a matter best undertaken by the trial court, which
had the opportunity to observe the demeanor, conduct or attitude of the
witnesses. The findings of the trial court on this point are accorded great
respect and will not be reversed on appeal, unless it overlooked
substantial facts and circumstances which, if considered, would materially
affect the result of the case.
We also find ATI liable for the additional 179 damaged bags discovered
upon delivery of the shipment at the consignee’s warehouse in Pasig. The
final Report of Survey executed by SMS Average Surveyors & Adjusters,
Inc., and independent surveyor hired by the consignee, shows that the
subject shipment incurred a total of 2881 damaged bags.
The Report states that the withdrawal and delivery of the shipment took
about ninety-five (95) trips from November 29, 1995 to December 28,
1995 and it was upon completion of the delivery to consignee’s warehouse
where the final count of 2881 damaged bags was made. The damage
consisted of torn/bad order condition of the bags due to spillages and
caked/hardened portions.
We agree with the trial court that the damage to the shipment was caused
by the negligence of ATI’s stevedores and for which ATI is liable under
Articles 2180 and 2176 of the Civil Code. The proximate cause of the
damage (i.e., torn bags, spillage of contents and caked/hardened portions
of the contents) was the improper handling of the cargoes by ATI’s
stevedores, x x x
xxxx
ATI has not satisfactorily rebutted plaintiff-appellee’s evidence on the
negligence of ATI’s stevedores in the handling and safekeeping of the
cargoes. x x x
xxxx
We find no reason to disagree with the trial court’s conclusion. Indeed,
from the nature of the [damage] caused to the shipment, i.e., torn bags,
spillage of contents and hardened or caked portions of the contents, it is
not difficult to see that the damage caused was due to the negligence of
ATI’s stevedores who used steel hooks to retrieve the bags from the
higher portions of the piles thereby piercing the bags and spilling their
contents, and who piled the bags in the open storage area of ATI with
insufficient cover thereby exposing them to the elements and [causing]
the contents to cake or harden.66
Clearly, the finding of negligence on the part of petitioner’s stevedores is
supported by both testimonial and documentary evidence. Hence, we see
no reason to disturb the same.
Judicial notice does not apply
Finally, petitioner implores us to take judicial notice of Section
7.01,67 Article VII of the Management Contract for cargo handling services
it entered with the PPA, which limits petitioner’s liability to ₱5,000.00 per
package.
Unfortunately for the petitioner, it cannot avail of judicial notice.
Sections 1 and 2 of Rule 129 of the Rules of Court provide that:
SECTION 1. Judicial notice, when mandatory. — A court shall take judicial
notice, without the introduction of evidence, of the existence and territorial
extent of states, their political history, forms of government and symbols
of nationality, the law of nations, the admiralty and maritime courts of the
world and their seals, the political constitution and history of the
Philippines, the official acts of the legislative, executive and judicial
departments of the Philippines, the laws of nature, the measure of time,
and the geographical divisions.1avvphi1
SEC. 2. Judicial notice, when discretionary. — A court may take judicial
notice of matters which are of public knowledge, or are capable of
unquestionable demonstration or ought to be known to judges because of
their judicial functions.
The Management Contract entered into by petitioner and the PPA is clearly
not among the matters which the courts can take judicial notice of. It
cannot be considered an official act of the executive department. The PPA,
which was created by virtue of Presidential Decree No. 857, as
amended,68 is a government-owned and controlled corporation in charge
of administering the ports in the country.69 Obviously, the PPA was only
performing a proprietary function when it entered into a Management
Contract with petitioner. As such, judicial notice cannot be applied.
WHEREFORE, the petition is hereby DENIED. The assailed July 14,
2005 Decision and the February 14, 2006 Resolution of the Court
of Appeals in CA-G.R. CV No. 61798 are hereby AFFIRMED.

SO ORDERED.

19.Philippine Health Care Providers v. CIR, GR No. 167330, 18 Sept
2009
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the
people and instill health consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive
approach to health development which shall endeavor to make essential
goods, health and other social services available to all the people at
affordable cost. There shall be priority for the needs of the underprivileged
sick, elderly, disabled, women, and children. The State shall endeavor to
provide free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion
for reconsideration dated July 10, 2008 and July 14, 2008, respectively,
filed by petitioner Philippine Health Care Providers, Inc.2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o
establish, maintain, conduct and operate a prepaid group practice health
care delivery system or a health maintenance organization to take care of
the sick and disabled persons enrolled in the health care plan and to
provide for the administrative, legal, and financial responsibilities of the
organization." Individuals enrolled in its health care programs pay an
annual membership fee and are entitled to various preventive, diagnostic
and curative medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in the group
practice health delivery system at a hospital or clinic owned, operated or
accredited by it.
xxx xxx xxx
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR]
sent petitioner a formal demand letter and the corresponding assessment
notices demanding the payment of deficiency taxes, including surcharges
and interest, for the taxable years 1996 and 1997 in the total amount of
₱224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was imposed
on petitioner’s health care agreement with the members of its health care
program pursuant to Section 185 of the 1997 Tax Code xxxx
xxx xxx xxx
Petitioner protested the assessment in a letter dated February 23, 2000.
As respondent did not act on the protest, petitioner filed a petition for
review in the Court of Tax Appeals (CTA) seeking the cancellation of the
deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of
which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency
VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20%
interest from January 20, 1997 until fully paid for the 1996 VAT deficiency
and ₱31,094,163.87 inclusive of 25% surcharge plus 20% interest from
January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly,
VAT Ruling No. [231]-88 is declared void and without force and effect. The
1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from
collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)]
insofar as it cancelled the DST assessment. He claimed that petitioner’s
health care agreement was a contract of insurance subject to DST under
Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioner’s
health care agreement was in the nature of a non-life insurance contract
subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the
Court of Tax Appeals, insofar as it cancelled and set aside the 1996 and
1997 deficiency documentary stamp tax assessment and ordered
petitioner to desist from collecting the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of ₱55,746,352.19 and
₱68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment and 20% interest per
annum from January 27, 2000, pursuant to Sections 248 and 249 of the
Tax Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence,
petitioner filed this case.
xxx xxx xxx
In a decision dated June 12, 2008, the Court denied the petition and
affirmed the CA’s decision. We held that petitioner’s health care agreement
during the pertinent period was in the nature of non-life insurance which is
a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares3 and Philamcare Health Systems, Inc. v. CA.4We also ruled that
petitioner’s contention that it is a health maintenance organization (HMO)
and not an insurance company is irrelevant because contracts between
companies like petitioner and the beneficiaries under their plans are
treated as insurance contracts. Moreover, DST is not a tax on the business
transacted but an excise on the privilege, opportunity or facility offered at
exchanges for the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for
reconsideration and supplemental motion for reconsideration, asserting the
following arguments:
(a) The DST under Section 185 of the National Internal Revenue of
1997 is imposed only on a company engaged in the business of
fidelity bonds and other insurance policies. Petitioner, as an HMO,
is a service provider, not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine
National Bank, affirmed in effect the CA’s disposition that health
care services are not in the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from
items subject to DST is clear, especially in the light of the
amendments made in the DST law in 2002.
(e) Assuming arguendo that petitioner’s agreements are contracts
of indemnity, they are not those contemplated under Section 185.
(f) Assuming arguendo that petitioner’s agreements are akin to
health insurance, health insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of
insurance" mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA5 9480
for the taxable year 2005 and all prior years. Therefore, the
questioned assessments on the DST are now rendered moot and
academic.6
Oral arguments were held in Baguio City on April 22, 2009. The parties
submitted their memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it
availed of a tax amnesty under RA 94807(also known as the "Tax Amnesty
Act of 2007") by fully paying the amount of ₱5,127,149.08 representing
5% of its net worth as of the year ending December 31, 2005.8
We find merit in petitioner’s motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and
Exchange Commission on June 30, 1987.9 It is engaged in the
dispensation of the following medical services to individuals who enter into
health care agreements with it:
Preventive medical services such as periodic monitoring of health
problems, family planning counseling, consultation and advices on diet,
exercise and other healthy habits, and immunization;
Diagnostic medical services such as routine physical examinations, x-
rays, urinalysis, fecalysis, complete blood count, and the like and
Curative medical services which pertain to the performing of other
remedial and therapeutic processes in the event of an injury or sickness on
the part of the enrolled member.10
Individuals enrolled in its health care program pay an annual membership
fee. Membership is on a year-to-year basis. The medical services are
dispensed to enrolled members in a hospital or clinic owned, operated or
accredited by petitioner, through physicians, medical and dental
practitioners under contract with it. It negotiates with such health care
practitioners regarding payment schemes, financing and other procedures
for the delivery of health services. Except in cases of emergency, the
professional services are to be provided only by petitioner's physicians, i.e.
those directly employed by it11 or whose services are contracted by
it.12 Petitioner also provides hospital services such as room and board
accommodation, laboratory services, operating rooms, x-ray facilities and
general nursing care.13 If and when a member avails of the benefits under
the agreement, petitioner pays the participating physicians and other
health care providers for the services rendered, at pre-agreed rates.14
To avail of petitioner’s health care programs, the individual members are
required to sign and execute a standard health care agreement embodying
the terms and conditions for the provision of the health care services. The
same agreement contains the various health care services that can be
engaged by the enrolled member, i.e., preventive, diagnostic and curative
medical services. Except for the curative aspect of the medical service
offered, the enrolled member may actually make use of the health care
services being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The
Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is
an HMO and not an insurer because its agreements are treated as
insurance contracts and the DST is not a tax on the business but an excise
on the privilege, opportunity or facility used in the transaction of the
business.15
Petitioner, however, submits that it is of critical importance to characterize
the business it is engaged in, that is, to determine whether it is an HMO or
an insurance company, as this distinction is indispensable in turn to the
issue of whether or not it is liable for DST on its health care agreements.16
A second hard look at the relevant law and jurisprudence convinces the
Court that the arguments of petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997)
provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. –
On all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the
business of accident, fidelity, employer’s liability, plate, glass, steam
boiler, burglar, elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire insurance), and all
bonds, undertakings, or recognizances, conditioned for the performance of
the duties of any office or position, for the doing or not doing of anything
therein specified, and on all obligations guaranteeing the validity or
legality of any bond or other obligations issued by any province, city,
municipality, or other public body or organization, and on all obligations
guaranteeing the title to any real estate, or guaranteeing any mercantile
credits, which may be made or renewed by any such person, company or
corporation, there shall be collected a documentary stamp tax of fifty
centavos (₱0.50) on each four pesos (₱4.00), or fractional part thereof, of
the premium charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause,
sentence, provision or part of a statute shall be considered surplusage or
superfluous, meaningless, void and insignificant. To this end, a
construction which renders every word operative is preferred over that
which makes some words idle and nugatory.17 This principle is expressed
in the maxim Ut magis valeat quam pereat, that is, we choose the
interpretation which gives effect to the whole of the statute – its every
word.18
From the language of Section 185, it is evident that two requisites must
concur before the DST can apply, namely: (1) the document must be
a policy of insurance or an obligation in the nature of
indemnity and (2) the maker should be transacting the business
of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health
Insurance Act of 1995"), an HMO is "an entity that provides, offers or
arranges for coverage of designated health services needed by plan
members for a fixed prepaid premium."19 The payments do not vary with
the extent, frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of
insurance during the pertinent taxable years? We rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code)
enumerates what constitutes "doing an insurance business" or "transacting
an insurance business:"
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.
In the application of the provisions of this Code, the fact that no profit is
derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received
therefore, shall not be deemed conclusive to show that the making thereof
does not constitute the doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive
effect on our decisions,21 have determined that HMOs are not in the
insurance business. One test that they have applied is whether the
assumption of risk and indemnification of loss (which are elements of an
insurance business) are the principal object and purpose of the
organization or whether they are merely incidental to its business. If these
are the principal objectives, the business is that of insurance. But if they
are merely incidental and service is the principal purpose, then the
business is not insurance.
Applying the "principal object and purpose test,"22 there is significant
American case law supporting the argument that a corporation (such as an
HMO, whether or not organized for profit), whose main object is to provide
the members of a group with health services, is not engaged in the
insurance business.
The rule was enunciated in Jordan v. Group Health Association23 wherein
the Court of Appeals of the District of Columbia Circuit held that Group
Health Association should not be considered as engaged in insurance
activities since it was created primarily for the distribution of health care
services rather than the assumption of insurance risk.
xxx Although Group Health’s activities may be considered in one aspect as
creating security against loss from illness or accident more truly they
constitute the quantity purchase of well-rounded, continuous medical
service by its members. xxx The functions of such an organization are
not identical with those of insurance or indemnity companies. The
latter are concerned primarily, if not exclusively, with risk and the
consequences of its descent, not with service, or its extension in kind,
quantity or distribution; with the unusual occurrence, not the daily routine
of living. Hazard is predominant. On the other hand, the cooperative is
concerned principally with getting service rendered to its members
and doing so at lower prices made possible by quantity purchasing
and economies in operation. Its primary purpose is to reduce the
cost rather than the risk of medical care; to broaden the service to
the individual in kind and quantity; to enlarge the number
receiving it; to regularize it as an everyday incident of living, like
purchasing food and clothing or oil and gas, rather than merely
protecting against the financial loss caused by extraordinary and
unusual occurrences, such as death, disaster at sea, fire and
tornado. It is, in this instance, to take care of colds, ordinary aches and
pains, minor ills and all the temporary bodily discomforts as well as the
more serious and unusual illness. To summarize, the distinctive
features of the cooperative are the rendering of service, its
extension, the bringing of physician and patient together, the
preventive features, the regularization of service as well as
payment, the substantial reduction in cost by quantity purchasing
in short, getting the medical job done and paid for; not, except
incidentally to these features, the indemnification for cost after the
services is rendered. Except the last, these are not distinctive or
generally characteristic of the insurance arrangement. There is,
therefore, a substantial difference between contracting in this way for the
rendering of service, even on the contingency that it be needed, and
contracting merely to stand its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be
present should not outweigh all other factors. If attention is focused only
on that feature, the line between insurance or indemnity and other types
of legal arrangement and economic function becomes faint, if not extinct.
This is especially true when the contract is for the sale of goods or services
on contingency. But obviously it was not the purpose of the insurance
statutes to regulate all arrangements for assumption or distribution of risk.
That view would cause them to engulf practically all contracts, particularly
conditional sales and contingent service agreements. The fallacy is in
looking only at the risk element, to the exclusion of all others
present or their subordination to it. The question turns, not on
whether risk is involved or assumed, but on whether that or
something else to which it is related in the particular plan is its
principal object purpose.24 (Emphasis supplied)
In California Physicians’ Service v. Garrison,25 the California court felt that,
after scrutinizing the plan of operation as a whole of the corporation, it
was service rather than indemnity which stood as its principal purpose.
There is another and more compelling reason for holding that the service
is not engaged in the insurance business. Absence or presence of
assumption of risk or peril is not the sole test to be applied in
determining its status. The question, more broadly, is whether,
looking at the plan of operation as a whole, ‘service’ rather than
‘indemnity’ is its principal object and purpose. Certainly the objects
and purposes of the corporation organized and maintained by the
California physicians have a wide scope in the field of social
service. Probably there is no more impelling need than that of
adequate medical care on a voluntary, low-cost basis for persons
of small income. The medical profession unitedly is endeavoring to
meet that need. Unquestionably this is ‘service’ of a high order and
not ‘indemnity.’26 (Emphasis supplied)
American courts have pointed out that the main difference between an
HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify the
insured for medical expenses incurred up to a pre-agreed
limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue
Shield of New Jersey27 is clear on this point:
The basic distinction between medical service corporations and ordinary
health and accident insurers is that the former undertake to provide
prepaid medical services through participating physicians, thus
relieving subscribers of any further financial burden, while the latter only
undertake to indemnify an insured for medical expenses up to, but not
beyond, the schedule of rates contained in the policy.
xxx xxx xxx
The primary purpose of a medical service corporation, however, is an
undertaking to provide physicians who will render services to subscribers
on a prepaid basis. Hence, if there are no physicians participating in
the medical service corporation’s plan, not only will the
subscribers be deprived of the protection which they might
reasonably have expected would be provided, but the corporation
will, in effect, be doing business solely as a health and accident
indemnity insurer without having qualified as such and rendering itself
subject to the more stringent financial requirements of the General
Insurance Laws….
A participating provider of health care services is one who agrees in
writing to render health care services to or for persons covered by a
contract issued by health service corporation in return for which the
health service corporation agrees to make payment directly to the
participating provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override
the primary purpose of the business to provide medical services as
needed, with payment made directly to the provider of these services.29 In
short, even if petitioner assumes the risk of paying the cost of these
services even if significantly more than what the member has prepaid, it
nevertheless cannot be considered as being engaged in the insurance
business.
By the same token, any indemnification resulting from the payment for
services rendered in case of emergency by non-participating health
providers would still be incidental to petitioner’s purpose of providing and
arranging for health care services and does not transform it into an
insurer. To fulfill its obligations to its members under the agreements,
petitioner is required to set up a system and the facilities for the delivery
of such medical services. This indubitably shows that indemnification is not
its sole object.
In fact, a substantial portion of petitioner’s services covers preventive and
diagnostic medical services intended to keep members from developing
medical conditions or diseases.30 As an HMO, it is its obligation to maintain
the good health of its members. Accordingly, its health care programs
are designed to prevent or to minimize thepossibility of any
assumption of risk on its part. Thus, its undertaking under its
agreements is not to indemnify its members against any loss or damage
arising from a medical condition but, on the contrary, to provide the health
and medical services needed to prevent such loss or damage.31
Overall, petitioner appears to provide insurance-type benefits to its
members (with respect to its curative medical services), but these are
incidental to the principal activity of providing them medical care. The
"insurance-like" aspect of petitioner’s business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health
care services rather than insurance services, it cannot be considered as
being in the insurance business.
It is important to emphasize that, in adopting the "principal purpose test"
used in the above-quoted U.S. cases, we are not saying that petitioner’s
operations are identical in every respect to those of the HMOs or health
providers which were parties to those cases. What we are stating is that,
for the purpose of determining what "doing an insurance business" means,
we have to scrutinize the operations of the business as a whole and not its
mere components. This is of course only prudent and appropriate, taking
into account the burdensome and strict laws, rules and regulations
applicable to insurers and other entities engaged in the insurance
business. Moreover, we are also not unmindful that there are other
American authorities who have found particular HMOs to be actually
engaged in insurance activities.32
Lastly, it is significant that petitioner, as an HMO, is not part of the
insurance industry. This is evident from the fact that it is not supervised
by the Insurance Commission but by the Department of Health.33 In fact,
in a letter dated September 3, 2000, the Insurance Commissioner
confirmed that petitioner is not engaged in the insurance business. This
determination of the commissioner must be accorded great weight. It is
well-settled that the interpretation of an administrative agency which is
tasked to implement a statute is accorded great respect and ordinarily
controls the interpretation of laws by the courts. The reason behind this
rule was explained in Nestle Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the
multifarious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to the accumulation of experience
and growth of specialized capabilities by the administrative agency
charged with implementing a particular statute. In Asturias Sugar Central,
Inc. vs. Commissioner of Customs,35 the Court stressed that executive
officials are presumed to have familiarized themselves with all the
considerations pertinent to the meaning and purpose of the law, and to
have formed an independent, conscientious and competent expert opinion
thereon. The courts give much weight to the government agency officials
charged with the implementation of the law, their competence,
expertness, experience and informed judgment, and the fact that they
frequently are the drafters of the law they interpret.36
A Health Care Agreement Is Not An Insurance Contract
Contemplated Under Section 185 Of The NIRC of 1997
Section 185 states that DST is imposed on "all policies of insurance… or
obligations of the nature of indemnity for loss, damage, or liability…." In
our decision dated June 12, 2008, we ruled that petitioner’s health care
agreements are contracts of indemnity and are therefore insurance
contracts:
It is … incorrect to say that the health care agreement is not based on loss
or damage because, under the said agreement, petitioner assumes the
liability and indemnifies its member for hospital, medical and related
expenses (such as professional fees of physicians). The term "loss or
damage" is broad enough to cover the monetary expense or liability a
member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and
professional services to the member in case of sickness, injury or
emergency or his availment of so-called "out-patient services" (including
physical examination, x-ray and laboratory tests, medical consultations,
vaccine administration and family planning counseling) is the contingent
event which gives rise to liability on the part of the member. In case of
exposure of the member to liability, he would be entitled to
indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability
by paying for expenses arising from the stipulated contingencies belies its
claim that its services are prepaid. The expenses to be incurred by each
member cannot be predicted beforehand, if they can be predicted at all.
Petitioner assumes the risk of paying for the costs of the services even if
they are significantly and substantially more than what the member has
"prepaid." Petitioner does not bear the costs alone but distributes or
spreads them out among a large group of persons bearing a similar risk,
that is, among all the other members of the health care program. This is
insurance.37
We reconsider. We shall quote once again the pertinent portion of Section
185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. –
On all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any
person, association or company or corporation transacting the business of
accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar,
elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax
statutes are strictly construed against the taxing authority.38 This is
because taxation is a destructive power which interferes with the personal
and property rights of the people and takes from them a portion of their
property for the support of the government.39 Hence, tax laws may not be
extended by implication beyond the clear import of their language, nor
their operation enlarged so as to embrace matters not specifically
provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced
that a health care agreement is in the nature of non-life insurance, which
is primarily a contract of indemnity. However, those cases did not involve
the interpretation of a tax provision. Instead, they dealt with the liability of
a health service provider to a member under the terms of their health care
agreement. Such contracts, as contracts of adhesion, are liberally
interpreted in favor of the member and strictly against the HMO. For this
reason, we reconsider our ruling that Blue Cross and Philamcare are
applicable here.
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
designed 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.41
Do the agreements between petitioner and its members possess all these
elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed
out that, even if a contract contains all the elements of an insurance
contract, if its primary purpose is the rendering of service, it is not a
contract of insurance:
It does not necessarily follow however, that a contract containing all the
four elements mentioned above would be an insurance contract. The
primary purpose of the parties in making the contract may negate
the existence of an insurance contract. For example, a law firm which
enters into contracts with clients whereby in consideration of periodical
payments, it promises to represent such clients in all suits for or against
them, is not engaged in the insurance business. Its contracts are simply
for the purpose of rendering personal services. On the other hand, a
contract by which a corporation, in consideration of a stipulated amount,
agrees at its own expense to defend a physician against all suits for
damages for malpractice is one of insurance, and the corporation will be
deemed as engaged in the business of insurance. Unlike the lawyer’s
retainer contract, the essential purpose of such a contract is not to render
personal services, but to indemnify against loss and damage resulting from
the defense of actions for malpractice.42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are
present in petitioner’s agreements. To begin with, there is no loss, damage
or liability on the part of the member that should be indemnified by
petitioner as an HMO. Under the agreement, the member pays petitioner a
predetermined consideration in exchange for the hospital, medical and
professional services rendered by the petitioner’s physician or affiliated
physician to him. In case of availment by a member of the benefits under
the agreement, petitioner does not reimburse or indemnify the member as
the latter does not pay any third party. Instead, it is the petitioner who
pays the participating physicians and other health care providers for the
services rendered at pre-agreed rates. The member does not make any
such payment.
In other words, there is nothing in petitioner's agreements that gives rise
to a monetary liability on the part of the member to any third party-
provider of medical services which might in turn necessitate
indemnification from petitioner. The terms "indemnify" or "indemnity"
presuppose that a liability or claim has already been incurred. There is no
indemnity precisely because the member merely avails of medical services
to be paid or already paid in advance at a pre-agreed price under the
agreements.
Third. According to the agreement, a member can take advantage of the
bulk of the benefits anytime, e.g. laboratory services, x-ray, routine
annual physical examination and consultations, vaccine administration as
well as family planning counseling, even in the absence of any peril, loss
or damage on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the
member who receives care from a non-participating physician or hospital.
However, this is only a very minor part of the list of services available. The
assumption of the expense by petitioner is not confined to the happening
of a contingency but includes incidents even in the absence of illness or
injury.
In Michigan Podiatric Medical Association v. National Foot Care Program,
Inc.,43 although the health care contracts called for the defendant to
partially reimburse a subscriber for treatment received from a non-
designated doctor, this did not make defendant an insurer. Citing Jordan,
the Court determined that "the primary activity of the defendant (was) the
provision of podiatric services to subscribers in consideration of
prepayment for such services."44 Since indemnity of the insured was not
the focal point of the agreement but the extension of medical services to
the member at an affordable cost, it did not partake of the nature of a
contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not
necessarily true that risk alone is sufficient to establish it. Almost anyone
who undertakes a contractual obligation always bears a certain degree of
financial risk. Consequently, there is a need to distinguish prepaid service
contracts (like those of petitioner) from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to
provide health services: the risk that it might fail to earn a reasonable
return on its investment. But it is not the risk of the type peculiar only to
insurance companies. Insurance risk, also known as actuarial risk, is the
risk that the cost of insurance claims might be higher than the premiums
paid. The amount of premium is calculated on the basis of assumptions
made relative to the insured.45
However, assuming that petitioner’s commitment to provide medical
services to its members can be construed as an acceptance of the risk that
it will shell out more than the prepaid fees, it still will not qualify as an
insurance contract because petitioner’s objective is to provide medical
services at reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioner’s agreements with its members leads
us to conclude that it is not an insurance contract within the context of our
Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care
Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST
on petitioner’s health care agreements under Section 185 of the NIRC of
1997 is the provision’s legislative history. The text of Section 185 came
into U.S. law as early as 1904 when HMOs and health care agreements
were not even in existence in this jurisdiction. It was imposed under
Section 116, Article XI of Act No. 1189 (otherwise known as the "Internal
Revenue Law of 1904")46enacted on July 2, 1904 and became effective on
August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of
1997 is a verbatim reproduction of the pertinent portion of Section 116, to
wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and in respect to
the several bonds, debentures, or certificates of stock and indebtedness,
and other documents, instruments, matters, and things mentioned and
described in this section, or for or in respect to the vellum, parchment, or
paper upon which such instrument, matters, or things or any of them shall
be written or printed by any person or persons who shall make, sign, or
issue the same, on and after January first, nineteen hundred and five, the
several taxes following:
xxx xxx xxx
Third xxx (c) on all policies of insurance or bond or obligation of the
nature of indemnity for loss, damage, or liability made or renewed
by any person, association, company, or corporation transacting
the business of accident, fidelity, employer’s liability, plate glass,
steam boiler, burglar, elevator, automatic sprinkle, or other branch
of insurance (except life, marine, inland, and fire
insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914)
was enacted revising and consolidating the laws relating to internal
revenue. The aforecited pertinent portion of Section 116, Article XI of Act
No. 1189 was completely reproduced as Section 30 (l), Article III of Act
No. 2339. The very detailed and exclusive enumeration of items subject to
DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was
again reproduced as Section 1604 (l), Article IV of Act No. 2657
(Administrative Code). Upon its amendment on March 10, 1917, the
pertinent DST provision became Section 1449 (l) of Act No. 2711,
otherwise known as the Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No.
466 (the NIRC of 1939), which codified all the internal revenue laws of the
Philippines. In an amendment introduced by RA 40 on October 1, 1946,
the DST rate was increased but the provision remained substantially the
same.
Thereafter, on June 3, 1977, the same provision with the same DST rate
was reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs
1457 and 1959, enacted on June 11, 1978 and October 10, 1984
respectively, the DST rate was again increased.1avvphi1
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234
of the NIRC of 1977 was renumbered as Section 198. And under Section
23 of EO47 273 dated July 25, 1987, it was again renumbered and became
Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but,
again, only with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by
RA 8424 (or the NIRC of 1997), the subject legal provision was retained as
the present Section 185. In 2004, amendments to the DST provisions were
introduced by RA 924348 but Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the
Philippines with the formation of Bancom Health Care Corporation in 1974.
The same pioneer HMO was later reorganized and renamed Integrated
Health Care Services, Inc. (or Intercare). However, there are those who
claim that Health Maintenance, Inc. is the HMO industry pioneer, having
set foot in the Philippines as early as 1965 and having been formally
incorporated in 1991. Afterwards, HMOs proliferated quickly and currently,
there are 36 registered HMOs with a total enrollment of more than 2
million.49
We can clearly see from these two histories (of the DST on the one hand
and HMOs on the other) that when the law imposing the DST was first
passed, HMOs were yet unknown in the Philippines. However, when the
various amendments to the DST law were enacted, they were already in
existence in the Philippines and the term had in fact already been defined
by RA 7875. If it had been the intent of the legislature to impose DST on
health care agreements, it could have done so in clear and categorical
terms. It had many opportunities to do so. But it did not. The fact that the
NIRC contained no specific provision on the DST liability of health care
agreements of HMOs at a time they were already known as such, belies
any legislative intent to impose it on them. As a matter of fact,
petitioner was assessed its DST liability only on January 27, 2000,
after more than a decade in the business as an HMO.50
Considering that Section 185 did not change since 1904 (except for the
rate of tax), it would be safe to say that health care agreements were
never, at any time, recognized as insurance contracts or deemed engaged
in the business of insurance within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is
unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who is to pay
it.51 So potent indeed is the power that it was once opined that "the power
to tax involves the power to destroy."52
Petitioner claims that the assessed DST to date which amounts to ₱376
million53 is way beyond its net worth of ₱259 million.54 Respondent never
disputed these assertions. Given the realities on the ground, imposing the
DST on petitioner would be highly oppressive. It is not the purpose of the
government to throttle private business. On the contrary, the government
ought to encourage private enterprise.55 Petitioner, just like any concern
organized for a lawful economic activity, has a right to maintain a
legitimate business.56 As aptly held in Roxas, et al. v. CTA, et al.:57
The power of taxation is sometimes called also the power to destroy.
Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg."58
Legitimate enterprises enjoy the constitutional protection not to be taxed
out of existence. Incurring losses because of a tax imposition may be an
acceptable consequence but killing the business of an entity is another
matter and should not be allowed. It is counter-productive and ultimately
subversive of the nation’s thrust towards a better economy which will
ultimately benefit the majority of our people.59
Petitioner’s Tax Liability Was Extinguished Under The Provisions Of
RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment
for taxable years 1996 and 1997 became moot and academic60 when it
availed of the tax amnesty under RA 9480 on December 10, 2007. It paid
₱5,127,149.08 representing 5% of its net worth as of the year ended
December 31, 2005 and complied with all requirements of the tax
amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from
payment of taxes as well as additions thereto, and the appurtenant civil,
criminal or administrative penalties under the 1997 NIRC, as amended,
arising from the failure to pay any and all internal revenue taxes for
taxable year 2005 and prior years.61
Far from disagreeing with petitioner, respondent manifested in its
memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a
taxpayer to immunity from payment of the tax involved, including the civil,
criminal, or administrative penalties provided under the 1997 [NIRC], for
tax liabilities arising in 2005 and the preceding years.
In view of petitioner’s availment of the benefits of [RA 9840], and without
conceding the merits of this case as discussed above, respondent
concedes that such tax amnesty extinguishes the tax liabilities of
petitioner. This admission, however, is not meant to preclude a
revocation of the amnesty granted in case it is found to have been granted
under circumstances amounting to tax fraud under Section 10 of said
amnesty law.62 (Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered
by the tax amnesty program under RA 9480.63 There is no other
conclusion to draw than that petitioner’s liability for DST for the taxable
years 1996 and 1997 was totally extinguished by its availment of the tax
amnesty under RA 9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration:
whether this Court is bound by the ruling of the CA64 in CIR v. Philippine
National Bank65 that a health care agreement of Philamcare Health
Systems is not an insurance contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute
resolution of this Court dismissing the appeal in Philippine National
Bank (G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No.
148680 by minute resolution was a judgment on the merits; hence, the
Court should apply the CA ruling there that a health care agreement is not
an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of
the petition was a disposition of the merits of the case. When we
dismissed the petition, we effectively affirmed the CA ruling being
questioned. As a result, our ruling in that case has already become
final.67 When a minute resolution denies or dismisses a petition for failure
to comply with formal and substantive requirements, the challenged
decision, together with its findings of fact and legal conclusions, are
deemed sustained.68 But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning
the same parties, it constitutes res judicata.69 However, if other parties or
another subject matter (even with the same parties and issues) is
involved, the minute resolution is not binding precedent. Thus, in CIR v.
Baier-Nickel,70 the Court noted that a previous case, CIR v. Baier-
Nickel71 involving the same parties and the same issues, was
previously disposed of by the Court thru a minute resolution dated
February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court
ruled that the previous case "ha(d) no bearing" on the latter
case because the two cases involved different subject matters as they
were concerned with the taxable income of different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a
minute resolution and a decision. The constitutional requirement under the
first paragraph of Section 14, Article VIII of the Constitution that the facts
and the law on which the judgment is based must be expressed clearly
and distinctly applies only to decisions, not to minute resolutions. A minute
resolution is signed only by the clerk of court by authority of the justices,
unlike a decision. It does not require the certification of the Chief Justice.
Moreover, unlike decisions, minute resolutions are not published in the
Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII
speaks of a decision.73Indeed, as a rule, this Court lays down doctrines or
principles of law which constitute binding precedent in a decision duly
signed by the members of the Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since
petitioner’s liability for DST on its health care agreement was not the
subject matter of G.R. No. 148680, petitioner cannot successfully invoke
the minute resolution in that case (which is not even binding precedent) in
its favor. Nonetheless, in view of the reasons already discussed, this does
not detract in any way from the fact that petitioner’s health care
agreements are not subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the
ambit of Section 185 of the NIRC and there was never any legislative
intent to impose the same on HMOs like petitioner, the same should not be
arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for
adequate medical services at a cost which the average wage earner can
afford. HMOs arrange, organize and manage health care treatment in the
furtherance of the goal of providing a more efficient and inexpensive
health care system made possible by quantity purchasing of services and
economies of scale. They offer advantages over the pay-for-service system
(wherein individuals are charged a fee each time they receive medical
services), including the ability to control costs. They protect their members
from exposure to the high cost of hospitalization and other medical
expenses brought about by a fluctuating economy. Accordingly, they play
an important role in society as partners of the State in achieving its
constitutional mandate of providing its citizens with affordable health
services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium
charged.74 Its imposition will elevate the cost of health care services. This
will in turn necessitate an increase in the membership fees, resulting in
either placing health services beyond the reach of the ordinary wage
earner or driving the industry to the ground. At the end of the day, neither
side wins, considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August
16, 2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency
DST assessment against petitioner is hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from collecting the said tax.
No costs.
SO ORDERED.
20.Eastern Shipping Lines v. Prudential Guarantee and Assurance
Inc., GR No. 174116, 1 September 2009
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of
the Rules of Court, seeking to set aside the April 26, 2006 Decision2 and
August 15, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV
No. 68165.
The facts of the case:
On November 8, 1995, fifty-six cases of completely knock-down auto parts
of Nissan motor vehicle (cargoes) were loaded on board M/V Apollo Tujuh
(carrier) at Nagoya, Japan, to be shipped to Manila. The shipment was
consigned to Nissan Motor Philippines, Inc. (Nissan) and was covered by
Bill of Lading No. NMA-1.4 The carrier was owned and operated by
petitioner Eastern Shipping Lines, Inc.
On November 16, 1995, the carrier arrived at the port of Manila. On
November 22, 1995, the shipment was then discharged from the vessel
onto the custody of the arrastre operator, Asian Terminals, Inc. (ATI),
complete and in good condition, except for four cases.5
On November 24 to 28, 1995, the shipment was withdrawn by Seafront
Customs and Brokerage from the pier and delivered to the warehouse of
Nissan in Quezon City.6
A survey of the shipment was then conducted by Tan-Gaute Adjustment
Company, Inc. (surveyor) at Nissan’s warehouse. On January 16, 1996,
the surveyor submitted its report7 with a finding that there were "short
(missing)" items in Cases Nos. 10/A26/T3K and 10/A26/7K and
"broken/scratched" and "broken" items in Case No. 10/A26/70K"; and that
"(i)n (its) opinion, the "shortage and damage sustained by the shipment
were due to pilferage and improper handling, respectively while in the
custody of the vessel and/or Arrastre Contractors."8
As a result, Nissan demanded the sum of ₱1,047,298.349 representing the
cost of the damages sustained by the shipment from petitioner, the owner
of the vessel, and ATI, the arrastre operator. However, the demands were
not heeded.10
On August 21, 1996, as insurer of the shipment against all risks per
Marine Open Policy No. 86-168 and Marine Cargo Risk Note No. 3921/95,
respondent Prudential Guarantee and Assurance Inc. paid Nissan the sum
of ₱1,047,298.34.
On October 1, 1996, respondent sued petitioner and ATI for
reimbursement of the amount it paid to Nissan before the Regional Trial
Court (RTC) of Makati City, Branch 148, docketed as Civil Case No. 96-
1665, entitled Prudential Guarantee and Assurance, Inc. v. Eastern
Shipping Lines, Inc. Respondent claimed that it was subrogated to the
rights of Nissan by virtue of said payment.11
On June 21, 1999, the RTC rendered a Decision,12 the dispositive portion
of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff and against the defendants Eastern Shipping Lines, Inc. and
ATI, and said defendants are hereby ordered to pay jointly and solidarily
plaintiff the following:
1) The claim of ₱1,047,298.34 with legal interest thereon of 6%
per annum from the date of the filing of this complaint until the
same is fully paid;
2) [Twenty-five (25%)] percent of the principal claim, as and for
attorney’s fees;
3) Plus costs of suit.
Both the counterclaims and crossclaims are without legal basis. The
counterclaims and crossclaims are based on the assumption that the other
defendant is the one solely liable. However, inasmuch as the solidary
liability of the defendants have been established, the counterclaims and
crossclaims must be denied.
Equal costs against Eastern Shipping Lines, Inc. and Asian Terminals, Inc.
SO ORDERED.13
Both petitioner and ATI appealed to the CA.
On April 26, 2006, the CA rendered a Decision the dispositive portion of
which reads:
WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS, in
that (i) defendant-appellant Eastern Shipping Lines, Inc. is ordered to pay
appellee (a) the amount of ₱904,293.75 plus interest thereon at the rate
of 6% per annum from the filing of the complaint up to the finality of this
judgment, when the interest shall become 12% per annum until fully paid,
and (b) the costs of suit; (ii) the award of attorney’s fees is DELETED; and
(iii) the complaint against defendant-appellant Asian Terminals, Inc. is
DISMISSED.
SO ORDERED.14
The CA exonerated ATI and ruled that petitioner was solely responsible for
the damages caused to the cargoes. Moreover, the CA relying on Delsan
Transport Lines, Inc. vs. Court of Appeals,15 ruled that the right of
subrogation accrues upon payment by the insurance company of the
insurance claim and that the presentation of the insurance policy is not
indispensable before the appellee may recover in the exercise of its
subrogatory right.16
Petitioner then filed a motion for reconsideration, which was, however,
denied by the CA in a Resolution dated August 15, 2006.
Hence, herein petition, with petitioner raising the following assignment of
errors to wit:
I.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING
THE DECISION OF THE LOWER COURT FINDING HEREIN
PETITIONER LIABLE DESPITE THE FACT THAT RESPONDENT
FAILED TO SUBMIT ANY INSURANCE POLICY.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT
APPLYING THE US$500.00/PACKAGE/CASE PACKAGE LIMITATION
OF LIABILITY IN ACCORDANCE WITH THE CARRIAGE OF GOODS BY
SEA ACT.17
The petition is meritorious.
The rule in our jurisdiction is that only questions of law may be entertained
by this Court in a petition for review on certiorari. This rule, however, is
not iron-clad and admits of certain exceptions, one of which is when the
CA manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion.18 In the case at
bar, the records of the case contain evidence which justify the application
of the exception.
Anent the first error, petitioner argues that respondent was not properly
subrogated because of the non-presentation of the marine insurance
policy. In the case at bar, in order to prove its claim, respondent
presented a marine cargo risk note and a subrogation receipt. Thus, the
question to be resolved is whether the two documents, without the Marine
Insurance Policy, are sufficient to prove respondent’s right of subrogation.
Before anything else, it must be emphasized that a marine risk note is not
an insurance policy. It is only an acknowledgment or declaration of the
insurer confirming the specific shipment covered by its marine open policy,
the evaluation of the cargo and the chargeable premium.19 In International
Container Terminal Services, Inc. v. FGU Insurance Corporation
(International),20 the nature of a marine cargo risk note was explained,
thus:
x x x It is the marine open policy which is the main insurance contract. In
other words, the marine open policy is the blanket insurance to be
undertaken by FGU on all goods to be shipped by RAGC during the
existence of the contract, while the marine risk note specifies the
particular goods/shipment insured by FGU on that specific transaction,
including the sum insured, the shipment particulars as well as the
premium paid for such shipment. x x x.21
For clarity, the pertinent portions of the Marine Cargo Risk Note, 22 relied
upon by respondent, are hereunder reproduced, to wit:
RN NO 39821/95
Date: Nov. 16, 1995
NISSAN MOTOR PHILS., INC.
xxx
Gentlemen:
We have this day noted a Risk in your favor subject to all clauses and
condition of the Company’s printed form of Marine Open Policy No.
86-168
For PHILIPINE PESOS FOURTEEN MILLION ONE HUNDRED SEVENTY-
THREE THOUSAND FORTY-TWO & 91/100 ONLY (P14, 173,042.91) xxx
CARGO: 56 CASES NISSAN MOTOR VEHICLE CKD (GC22)
CONDITIONS: INSTITUTE CARGO CLAUSES "A"
OTHER TERMS AND CONDITIONS PER
MOP-86-168
From: NAGOYA
To: MANILA, PHILS.
ETD: NOV. 8, 1995 ETA: NOV. 17, 1995
CARRIER: "APOLLO TUJUH"
B/L NO: NMA-1
BANK: BANK OF THE PHILLIPINE ISLANDS
L/C NO: 026010051971
Shipper/ Consignee: MARUBENI CORPORATION
It is undisputed that the cargoes were already on board the carrier as
early as November 8, 1995 and that the same arrived at the port of Manila
on November 16, 1995. It is, however, very apparent that the Marine
Cargo Risk Note was issued only on November 16, 1995. The same,
therefore, should have raised a red flag, as it would be impossible to know
whether said goods were actually insured while the same were in transit
from Japan to Manila. On this score, this Court is guided by Malayan
Insurance Co., Inc. v. Regis Brokerage Corp.,23 where this Court ruled:
Thus, we can only consider the Marine Risk Note in determining whether
there existed a contract of insurance between ABB Koppel and Malayan at
the time of the loss of the motors. However, the very terms of the
Marine Risk Note itself are quite damning. It is dated 21 March
1995, or after the occurrence of the loss, and specifically states that
Malayan "ha[d] this day noted the above-mentioned risk in your favor and
hereby guarantee[s] that this document has all the force and effect of the
terms and conditions in the Corporation’s printed form of the standard
Marine Cargo Policy and the Company’s Marine Open Policy."24
Likewise, the date of the issuance of the Marine Risk Note also caught the
attention of petitioner. In petitioner’s Comment/Opposition25 to the formal
offer of evidence before the RTC, petitioner made the following
manifestations, to wit:
Exhibit "B," Marine Cargo Risk Note No. 39821 dated November 16,
1995 is being objected to for being irrelevant and immaterial as it
was executed on November 16, 1995. The cargoes arrived in
Manila on November 16, 1995. This means that the cargoes are not
specifically covered by any particular insurance at the time of
transit. The alleged Marine Open Policy was not presented. Marine Open
Policy may be subject to Institute Cargo Clauses which may require
arbitration prior to the filing of an action in court.26
In addition, petitioner also contended that the Marine Cargo Risk Note
referred to "Institute Cargo Clauses A and other terms and conditions per
Marine Open Policy-86-168."
Based on the forgoing, it is already evident why herein petition is
meritorious. The Marine Risk Note relied upon by respondent as the basis
for its claim for subrogation is insufficient to prove said claim.
As previously stated, the Marine Risk Note was issued only on November
16, 1995; hence, without a copy of the marine insurance policy, it would
be impossible and simply guesswork to know whether the cargo was
insured during the voyage which started on November 8, 1995. Again,
without the marine insurance policy, it would be impossible for this Court
to know the following: first, the specifics of the "Institute Cargo Clauses A
and other terms and conditions per Marine Open Policy-86-168" as alluded
to in the Marine Risk Note; second, if the said terms and conditions were
actually complied with before respondent paid Nissan’s claim.
Furthermore, a reading of the transcript of the records clearly show that,
at the RTC, petitioner had already objected to the non-presentation of the
marine insurance policy, to wit:
Q. Are you also the one preparing the Marine Insurance Contract?
A. No, sir.
Q. Who is the one?
A. Our Marine Cargo Underwriting Department.
Q. And do you know anybody in that department?
A. Yes, sir.
Q. And you were aware that this particular cargo of the shipment
was insured?
A. Yes, sir, per policy issued.
Q. And that you are referring to Exhibit?
A. The Marine Cargo Risk.
Q. Is this the only contract of Insurance between Prudential
Guarantee and Nissan?
A. Sir, there is a Marine Open Policy.
Q. Do you have any copy of that?
A. It is in the office.
Atty. Alojado Can you produce that copy?
Atty. Zapa May we know the request of counsel for producing this
Marine Open Policy?
Atty. Alojado The basis of the question is the answer of the witness
which says that there is another contract of insurance.
COURT Yes, that is a Marine Open Policy.
Are you familiar with Marine Open Policy?
Atty. Alojado Yes, Your Honor.
But we would also like to be familiarize with that contract.
COURT But you know already a Marine Open Policy
Atty. Alojado Yes, Your Honor.
COURT I do not know if you work as a lawyer for several Insurance
Company?
Atty. Alojado No, Your Honor. Honestly, Your Honor I worked as
a Maritime lawyer.
COURT Then you should know what is Marine Open Policy.
Atty. Alojado I would like to know the specification of the
Marine Open Policy in this regard.
Atty. Zapa I think your Honor, between the plaintiff and the
defendant there is no issue against the insurance.
COURT Yes because this witness it not testifying on the Marine
Open Policy.
Atty. Alojado We submit.
COURT Proceed.
Atty. Alojado
Q. But there is a Marine Open Policy
A. Yes, sir.27
xxxx
COURT
Q. Is the policy a standing policy, a continuing policy or is it going
only for only a year or for a particular shipment or what?
A. For this particular consignee, they have Marine Open Policy.
Atty. Alojado That was not presented.
COURT That’s why I’m asking. So the policy is not only for a
particular shipment, but all other shipments that may come?
A. Yes, Your Honor.
Q. Are covered?
A. Yes, Your Honor.
Q. Without any specifications?
A. Yes, Your Honor.28
Clearly, petitioner was not remiss when it openly objected to the non-
presentation of the Marine Insurance Policy. As testified to by respondent’s
witness, they had a copy of the marine insurance policy in their office.
Thus, respondent was already apprised of the possible importance of the
said document to their cause.
In addition, this Court takes notice that notwithstanding that the RTC may
have denied the repeated manifestation of petitioner of the non-
presentation of the marine insurance policy, the same by itself does not
exonerate respondent. As plaintiff, it was respondent’s burden to present
the evidence necessary to substantiate its claim.
In its Complaint,29 respondent alleged: "That the above-described
shipment was insured for ₱14,173,042.91 against all risks under plaintiff’s
Marine Cargo Risk Note No. 39821/Marine Open Policy No. 86-
168."30 Therefore, other than the marine cargo risk note, respondent
should have also presented the marine insurance policy, as the same also
served as the basis for its complaint. Section 7, Rule 9 of the 1997 Rules
of Civil Procedure, provide:
SECTION 7. Action or defense based on document.—Whenever an action
or defense is based upon a written instrument or document, the substance
of such instrument or document shall be set forth in the pleading, and the
original or a copy thereof shall be attached to the pleading as an exhibit,
which shall be deemed to be a part of the pleading, or said copy may, with
like effect, be set forth in the pleading.
On this score, Malayan is instructive:
Malayan’s right of recovery as a subrogee of ABB Koppel cannot be
predicated alone on the liability of the respondent to ABB Koppel, even
though such liability will necessarily have to be established at the trial for
Malayan to recover. Because Malayan’s right to recovery derives from
contractual subrogation as an incident to an insurance relationship, and
not from any proximate injury to it inflicted by the respondents, it is
critical that Malayan establish the legal basis of such right to subrogation
by presenting the contract constitutive of the insurance relationship
between it and ABB Koppel. Without such legal basis, its cause of action
cannot survive.
Our procedural rules make plain how easily Malayan could have adduced
the Marine Insurance Policy. Ideally, this should have been accomplished
from the moment it filed the complaint. Since the Marine Insurance Policy
was constitutive of the insurer-insured relationship from which Malayan
draws its right to subrogation, such document should have been attached
to the complaint itself, as provided for in Section 7, Rule 9 of the 1997
Rules of Civil Procedure: x x x31
Therefore, since respondent alluded to an actionable document in its
complaint, the contract of insurance between it and Nissan, as integral to
its cause of action against petitioner, the Marine Insurance Policy should
have been attached to the Complaint. Even in its formal offer of evidence,
respondent alluded to the marine insurance policy which can stand
independent of the Marine Cargo Risk Note, to wit:
EXH "B" = Marine Cargo Risk Note No. 39821/95 Dated November 16,
1995.
Purpose: As proof that the subject shipment was covered by insurance for
₱14,173, 042.91 under Marine Open Policy No. 86-168.32
It is significant that the date when the alleged insurance contract was
constituted cannot be established with certainty without the contract itself.
Said point is crucial because there can be no insurance on a risk that had
already occurred by the time the contract was executed.33 Surely, the
Marine Risk Note on its face does not specify when the insurance was
constituted.
The importance of the presentation of the Marine Insurance Policy was also
emphasized in Wallem Philippines Shipping, Inc. v. Prudential Guarantee &
Assurance, Inc.,34 where this Court ruled:
x x x Wallem still cannot be held liable because of the failure of Prudential
to present the contract of insurance or a copy thereof. Prudential claims
that it is subrogated to the rights of GMC pursuant to their insurance
contract. For this purpose, it submitted a subrogation receipt (Exh. J) and
a marine cargo risk note (Exh. D). However, as the trial court pointed out,
this is not sufficient. As GMC’s subrogee, Prudential can exercise only
those rights granted to GMC under the insurance contract. The contract of
insurance must be presented in evidence to indicate the extent of its
coverage. As there was no determination of rights under the insurance
contract, this Court’s ruling in Home Insurance Corporation v. Court of
Appeals is applicable:
The insurance contract has not been presented. It may be assumed for the
sake of argument that the subrogation receipt may nevertheless be used
to establish the relationship between the petitioner [Home Insurance
Corporation] and the consignee [Nestlé Phil.] and the amount paid to
settle the claim. But that is all the document can do. By itself alone, the
subrogation receipt is not sufficient to prove the petitioner’s claim holding
the respondent [Mabuhay Brokerage Co., Inc.] liable for the damage to the
engine.
....
It is curious that the petitioner disregarded this rule, knowing that the best
evidence of the insurance contract was its original copy, which was
presumably in the possession of Home itself. Failure to present this
original (or even a copy of it), for reasons the Court cannot comprehend,
must prove fatal to this petition.35
Finally, there have been cases where this Court ruled that the non-
presentation of the marine insurance policy is not fatal, as can be gleaned
in
International, where this Court held:
Indeed, jurisprudence has it that the marine insurance policy needs to be
presented in evidence before the trial court or even belatedly before the
appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,
the Court stated that the presentation of the marine insurance policy was
necessary, as the issues raised therein arose from the very existence of an
insurance contract between Malayan Insurance and its consignee, ABB
Koppel, even prior to the loss of the shipment. In Wallem Philippines
Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court
ruled that the insurance contract must be presented in evidence in order
to determine the extent of the coverage. This was also the ruling of the
Court in Home Insurance Corporation v. Court of Appeals.
However, as in every general rule, there are admitted exceptions.
In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that
the presentation of the insurance policy was not fatal because the loss of
the cargo undoubtedly occurred while on board the petitioner's vessel,
unlike in Home Insurance in which the cargo passed through several
stages with different parties and it could not be determined when the
damage to the cargo occurred, such that the insurer should be liable for it.
As in Delsan, there is no doubt that the loss of the cargo in the present
case occurred while in petitioner's custody. Moreover, there is no issue as
regards the provisions of Marine Open Policy No. MOP-12763, such that
the presentation of the contract itself is necessary for perusal, not to
mention that its existence was already admitted by petitioner in open
court. And even though it was not offered in evidence, it still can be
considered by the court as long as they have been properly identified by
testimony duly recorded and they have themselves been incorporated in
the records of the case.36
Although the CA may have ruled that the damage to the cargo occurred
while the same was in petitioner’s custody, this Court cannot apply the
ruling in International to the case at bar. In contrast, unlike in
International where there was no issue as regards the provisions of the
marine insurance policy, such that the presentation of the contract itself is
necessary for perusal, herein petitioner had repeatedly objected to the
non-presentation of the marine insurance policy and had manifested its
desire to know the specific provisions thereof. Moreover, and the same is
critical, the marine risk note in the case at bar is questionable
because: first, it is dated on the same day the cargoes arrived at the port
of Manila and not during the duration of the voyage; second, without the
Marine Insurance Policy to elucidate on the specifics of the terms and
conditions alluded to in the marine risk note, it would be simply guesswork
to know if the same were complied with.
Lastly, to cast all doubt on the merits of herein petition, this Court is
guided by the ruling in Malayan, to wit:
It cannot be denied from the only established facts that Malayan and ABB
Koppel comported as if there was an insurance relationship between them
and documents exist that evince the presence of such legal relationship.
But, under these premises, the very insurance contract emerges as the
white elephant in the room – an obdurate presence which everybody
reacts to, yet, legally invisible as a matter of evidence since no attempt
had been made to prove its corporeal existence in the court of law. It may
seem commonsensical to conclude anyway that there was a contract of
insurance between Malayan and ABB Koppel since they obviously behaved
in a manner that indicates such relationship, yet the same conclusion could
be had even if, for example, those parties staged an elaborate charade to
impress on the world the existence of an insurance contract when there
actually was none. While there is absolutely no indication of any bad faith
of such import by Malayan or ABB Koppel, the fact that the
"commonsensical" conclusion can be drawn even if there was bad faith
that convinces us to reject such line of thinking.1avvphi1
The Court further recognizes the danger as precedent should we sustain
Malayan’s position, and not only because such a ruling would formally
violate the rule on actionable documents. Malayan would have us
effectuate an insurance contract without having to consider its particular
terms and conditions, and on a blind leap of faith that such contract is
indeed valid and subsisting. The conclusion further works to the utter
prejudice of defendants such as Regis or Paircargo since they would be
deprived the opportunity to examine the document that gives rise to the
plaintiff’s right to recover against them, or to raise arguments or
objections against the validity or admissibility of such document. If a legal
claim is irrefragably sourced from an actionable document, the defendants
cannot be deprived of the right to examine or utilize such document in
order to intelligently raise a defense. The inability or refusal of the plaintiff
to submit such document into evidence constitutes an effective denial of
that right of the defendant which is ultimately rooted in due process of
law, to say nothing on how such failure fatally diminishes the plaintiff’s
substantiation of its own cause of action.37
In conclusion, this Court rules that based on the applicable jurisprudence,
because of the inadequacy of the Marine Cargo Risk Note for the reasons
already stated, it was incumbent on respondent to present in evidence the
Marine Insurance Policy, and having failed in doing so, its claim of
subrogation must necessarily fail.
Because of the foregoing, it would be unnecessary to discuss the second
error raised by petitioner.

WHEREFORE, premises considered, the petition is GRANTED. The April

26, 2006 Decision and August 15, 2006 Resolution of the Court of Appeals
in CA-G.R. CV No. 68165 are hereby REVERSED and SET ASIDE. The
Complaint in Civil Case No. 96-1665 is DISMISSED.

SO ORDERED.
21. Heirs of Maramag v. Maramag, GR No. 181132, 5 June 2009
This is a petition1 for review on certiorari under Rule 45 of the Rules,
seeking to reverse and set aside the Resolution2 dated January 8, 2008 of
the Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing
petitioners’ appeal for lack of jurisdiction.
The case stems from a petition3 filed against respondents with the
Regional Trial Court, Branch 29, for revocation and/or reduction of
insurance proceeds for being void and/or inofficious, with prayer for a
temporary restraining order (TRO) and a writ of preliminary injunction.
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)4 and Great Pacific Life Assurance
Corporation (Grepalife);5 (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.
In support of the prayer for TRO and writ of preliminary injunction,
petitioners alleged, among others, that part of the insurance proceeds had
already been released in favor of Odessa, while the rest of the proceeds
are to be released in favor of Karl Brian and Trisha Angelie, both minors,
upon the appointment of their legal guardian. Petitioners also prayed for
the total amount of ₱320,000.00 as actual litigation expenses and
attorney’s fees.
In answer,6 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 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.
In its own answer7 with compulsory counterclaim, 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.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were
not known to petitioners, summons by publication was resorted to. Still,
the illegitimate family of Loreto failed to file their answer. Hence, the trial
court, upon motion of petitioners, declared them in default in its Order
dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved
that the issues raised in their respective answers be resolved first. The
trial court ordered petitioners to comment within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and
Grepalife was purely legal – whether the complaint itself was proper or not
– and that the designation of a beneficiary is an act of liberality or a
donation and, therefore, subject to the provisions of Articles 7528 and
7729 of the Civil Code.
In reply, both Insular and Grepalife countered that the insurance proceeds
belong exclusively to the designated beneficiaries in the policies, not to the
estate or to the heirs of the insured. Grepalife also reiterated that it had
disqualified Eva as a beneficiary when it ascertained that Loreto was
legally married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive
portion of which reads –
WHEREFORE, the motion to dismiss incorporated in the answer of
defendants Insular Life and Grepalife is granted with respect to defendants
Odessa, Karl Brian and Trisha Maramag. The action shall proceed with
respect to the other defendants Eva Verna de Guzman, Insular Life and
Grepalife.
SO ORDERED.10
In so ruling, the trial court ratiocinated thus –
Art. 2011 of the Civil Code provides that the contract of insurance is
governed by the (sic) special laws. Matters not expressly provided for in
such special laws shall be regulated by this Code. The principal law on
insurance is the Insurance Code, as amended. Only in case of deficiency in
the Insurance Code that the Civil Code may be resorted to. (Enriquez v.
Sun Life Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to whom
the insurance proceeds shall be paid. It is very clear under Sec. 53 thereof
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. Since the defendants are the ones
named as the primary beneficiary (sic) in the insurances (sic) taken by the
deceased Loreto C. Maramag and there is no showing that herein plaintiffs
were also included as beneficiary (sic) therein the insurance proceeds shall
exclusively be paid to them. This is because the beneficiary has a vested
right to the indemnity, unless the insured reserves the right to change the
beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the rules
on testamentary succession in order to defeat the right of herein
defendants to collect the insurance indemnity. The beneficiary in a
contract of insurance is not the donee spoken in the law of donation. The
rules on testamentary succession cannot apply here, for the insurance
indemnity does not partake of a donation. As such, the insurance
indemnity cannot be considered as an advance of the inheritance which
can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of
Southern Luzon Employees’ Association v. Juanita Golpeo, et al., the
Honorable Supreme Court made the following pronouncements[:]
"With the finding of the trial court that the proceeds to the Life Insurance
Policy belongs exclusively to the defendant as his individual and separate
property, we agree that the proceeds of an insurance policy belong
exclusively to the beneficiary and not to the estate of the person whose
life was insured, and that such proceeds are the separate and individual
property of the beneficiary and not of the heirs of the person whose life
was insured, is the doctrine in America. We believe that the same doctrine
obtains in these Islands by virtue of Section 428 of the Code of Commerce
x x x."
In [the] light of the above pronouncements, it is very clear that the
plaintiffs has (sic) no sufficient cause of action against defendants Odessa,
Karl Brian and Trisha Angelie Maramag for the reduction and/or
declaration of inofficiousness of donation as primary beneficiary (sic) in the
insurances (sic) of the late Loreto C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One
of the named beneficiary (sic) in the insurances (sic) taken by the late
Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person
who is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a life insurance policy of the person who cannot
make any donation to him, according to said article (Art. 2012, Civil
Code). If a concubine is made the beneficiary, it is believed that the
insurance contract will still remain valid, but the indemnity must go to the
legal heirs and not to the concubine, for evidently, what is prohibited
under Art. 2012 is the naming of the improper beneficiary. In such case,
the action for the 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 (Comment of Edgardo L.
Paras, Civil Code of the Philippines, page 897). Since the designation of
defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in
the insurances (sic) taken by the late Loreto C. Maramag is void under Art.
739 of the Civil Code, the insurance indemnity that should be paid to her
must go to the legal heirs of the deceased which this court may properly
take cognizance as the action for the declaration for the nullity of a void
donation falls within the general jurisdiction of this Court.11
Insular12 and Grepalife13 filed their respective motions for reconsideration,
arguing, in the main, that the petition failed to state a cause of action.
Insular further averred that the proceeds were divided among the three
children as the remaining named beneficiaries. Grepalife, for its part, also
alleged that the premiums paid had already been refunded.
Petitioners, in their comment, reiterated their earlier arguments and
posited that whether the complaint may be dismissed for failure to state a
cause of action must be determined solely on the basis of the allegations
in the complaint, such that the defenses of Insular and Grepalife would be
better threshed out during trial.1avvphi1
On June 16, 2005, the trial court issued a Resolution, disposing, as
follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for
Reconsideration filed by defendants Grepalife and Insular Life are hereby
GRANTED. Accordingly, the portion of the Resolution of this Court dated 21
September 2004 which ordered the prosecution of the case against
defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET
ASIDE, and the case against them is hereby ordered DISMISSED.
SO ORDERED.14
In granting the motions for reconsideration of Insular and Grepalife, the
trial court considered the allegations of Insular that Loreto revoked the
designation of Eva in one policy and that Insular disqualified her as a
beneficiary in the other policy such that the entire proceeds would be paid
to the illegitimate children of Loreto with Eva pursuant to Section 53 of the
Insurance Code. It ruled that it is only in cases where there are no
beneficiaries designated, or when the only designated beneficiary is
disqualified, that the proceeds should be paid to the estate of the insured.
As to the claim that the proceeds to be paid to Loreto’s illegitimate
children should be reduced based on the rules on legitime, the trial court
held that the distribution of the insurance proceeds is governed primarily
by the Insurance Code, and the provisions of the Civil Code are irrelevant
and inapplicable. With respect to the Grepalife policy, the trial court noted
that Eva was never designated as a beneficiary, but only Odessa, Karl
Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to
the illegitimate children. It further held that the matter of Loreto’s
misrepresentation was premature; the appropriate action may be filed only
upon denial of the claim of the named beneficiaries for the insurance
proceeds by Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it
dismissed the appeal for lack of jurisdiction, holding that the decision of
the trial court dismissing the complaint for failure to state a cause of
action involved a pure question of law. The appellate court also noted that
petitioners did not file within the reglementary period a motion for
reconsideration of the trial court’s Resolution, dated September 21, 2004,
dismissing the complaint as against Odessa, Karl Brian, and Trisha
Angelie; thus, the said Resolution had already attained finality.
Hence, this petition raising the following issues:
a. In determining the merits of a motion to dismiss for failure to
state a cause of action, may the Court consider matters which
were not alleged in the Complaint, particularly the defenses put up
by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss
for failure to state a cause of action, did not the Regional Trial
Court engage in the examination and determination of what were
the facts and their probative value, or the truth thereof, when it
premised the dismissal on allegations of the defendants in their
answer – which had not been proven?
c. x x x (A)re the members of the legitimate family entitled to the
proceeds of the insurance for the concubine?15
In essence, petitioners posit that their petition before the trial court should
not have been dismissed for failure to state a cause of action because the
finding that Eva was either disqualified as a beneficiary by the insurance
companies or that her designation was revoked by Loreto, hypothetically
admitted as true, was raised only in the answers and motions for
reconsideration of both Insular and Grepalife. They argue that for a motion
to dismiss to prosper on that ground, only the allegations in the complaint
should be considered. They further contend that, even assuming Insular
disqualified Eva as a beneficiary, her share should not have been
distributed to her children with Loreto but, instead, awarded to them,
being the legitimate heirs of the insured deceased, in accordance with law
and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial court’s finding
that the petition failed to state a cause of action, as provided in Rule 16,
Section 1(g), of the Rules of Court, which reads –
SECTION 1. Grounds. – Within the time for but before filing the answer to
the complaint or pleading asserting a claim, a motion to dismiss may be
made on any of the following grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of
another.16 A complaint states a cause of action when it contains the three
(3) elements of a cause of action—(1) the legal right of the plaintiff; (2)
the correlative obligation of the defendant; and (3) the act or omission of
the defendant in violation of the legal right. If any of these elements is
absent, the complaint becomes vulnerable to a motion to dismiss on the
ground of failure to state a cause of action.17
When a motion to dismiss is premised on this ground, the ruling thereon
should be based only on the facts alleged in the complaint. The court must
resolve the issue on the strength of such allegations, assuming them to be
true. The test of sufficiency of a cause of action rests on whether,
hypothetically admitting the facts alleged in the complaint to be true, the
court can render a valid judgment upon the same, in accordance with the
prayer in the complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there
is no hypothetical admission of the veracity of the allegations if:
 1. the falsity of the allegations is subject to judicial notice;
2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations
appear unfounded; or
5. there is evidence which has been presented to the court by
stipulation of the parties or in the course of the hearings related to
the case.18
In this case, it is clear from the petition filed before the trial court that,
although petitioners are the legitimate heirs of Loreto, they were not
named as beneficiaries in the insurance policies issued by Insular and
Grepalife. The basis of petitioners’ claim is that Eva, being a concubine of
Loreto and a suspect in his murder, is disqualified from being designated
as beneficiary of the insurance policies, and that Eva’s children with
Loreto, being illegitimate children, are entitled to a lesser share of the
proceeds of the policies. They also argued that pursuant to Section 12 of
the Insurance Code,19 Eva’s share in the proceeds should be forfeited in
their favor, the former having brought about the death of Loreto. Thus,
they prayed that the share of Eva and portions of the shares of Loreto’s
illegitimate children should be awarded to them, being the legitimate heirs
of Loreto entitled to their respective legitimes.
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,22 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,23 or when the
designated beneficiary is disqualified by law to receive the proceeds,24 that
the insurance policy proceeds shall redound to the benefit of the estate of
the insured.
In this regard, the assailed June 16, 2005 Resolution of the trial court
should be upheld. In the same light, the Decision of the CA dated January
8, 2008 should be sustained. Indeed, the appellate court had no
jurisdiction to take cognizance of the appeal; the issue of failure to state a
cause of action is a question of law and not of fact, there being no findings
of fact in the first place.25
WHEREFORE, the petition is DENIED for lack of merit. Costs against
petitioners.
SO ORDERED.

It is evident from the face of the complaint that petitioners are not entitled
to a favorable judgment in light of Article 2011 of the Civil Code which
expressly provides that insurance contracts shall be governed by special
laws, i.e., the Insurance Code. Section 53 of the Insurance Code states—

SECTION 53. 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.20 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.21

Petitioners are third parties to the insurance contracts with Insular and
Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly,