255
DE LA CRUZ v CAPITAL INSURANCE
G.R. No. L-21574
Petitioners:
SIMON DE LA CRUZ
Recit Ready Summary
COMMREV –Insurance: Meaning of
Accident
Barrera, J.
Tine F.
June 30, 1966
Respondents:
THE CAPITAL INSURANCE and SURETY CO., INC
Eduardo de la Cruz (Eduardo), is a mucker in Itogon-Suyoc Mines, Inc. in Baguio. He was also a holder
of an accident insurance policy with Capital Insurance. Unfortunately, Eduardo died during a boxing
game sponsored by Itogon-Suyoc Mines. During the game, Eduardo slipped, so he was hit by his
opponent on the left back part of his head, he fell and his head hit the rope of the ring. Eduardo’s father,
Simon de la Cruz (de la Cruz), tried to claim the insurance but Capital Insurance denied it. Capital
Insurance asserts that the term used in the insurance contract is “accidental means” and it is different
from the term “accident or accidental”. Thus, to be considered within the insurance policy, what is
required to be accidental is the means that caused the death and not the death itself.
Issue in this case is W/N the death of Eduardo can be considered as an accident? - YES
The term “accident” in insurance contract is defined in its ordinary meaning which is an event which
happen by chance or fortuitously, without intention and design, and which is unexpected,
unusual, and unforeseen. The US Courts considers the terms "accidental" and "accidental means" as
legally synonymous.
But even assuming that Capital Insurance is correct, the death of Eduardo is still within the coverage of
the insurance policy. As a rule, the resulting death is within the protection of policies insuring against
death or injury from accident when the death or injury is not the natural or probable result of the
insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces
the injury. Here, injury was sustained when he slid, giving a chance to his opponent to give the
blow that threw him to the ropes of the ring. Without the unintentional slipping of Eduardo, perhaps
he could not have received that blow in the head and would not have died. In boxing as in other equally
physically rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to
result. Thus, given the above, Eduardo’s death was within the coverage of the insurance policy.
Facts + Procedural History
1. Eduardo de la Cruz (Eduardo), is a mucker in the Itogon-Suyoc Mines, Inc. in Baguio. He was also
the holder of an accident insurance policy (No. ITO-BFE-170) underwritten by the Capital Insurance
& Surety Co., Inc., (Capital Insurance) for November 13, 1956 to November 12, 1957.
2. On January 1, 1957, Eduardo entered the boxing contest sponsored by Itogon-Suyoc Mines for
entertainment for the New Year celebration. Unfortunately Eduardo slipped, so he was hit by his
opponent on the left back part of his head, he fell and his head hit the rope of the ring. Despite being
brought to the hospital, he died due to hemorrhage, intracranial, left.
3. Simon de la Cruz (de la Cruz) the father of Eduardo, as beneficiary of the insurance policy, filed a
claim with Capital Insurance but was denied. So, de la Cruz filed a specific performance case with
the CFI of Pangasinan.
4. Capital Isurance alleges that the death of Eduardo, caused by his participation in a boxing contest,
was not accidental and, so not covered by insurance.
5. CFI ruled in favor of de la Cruz.
6. Thus, this present appeal.
Points of Contention
Capital Insurance: The term used in the insurance contract is “accidental means” and it is different from
the term “accident or accidental”. Thus, to be considered within the insurance policy, what is required to
be accidental is the means that caused the death and not the death itself.
Issues
Ruling
1. W/N the death of Eduardo can be considered as an accident.
1. YES
Rationale
1. The death of Eduardo falls within the coverage of the insurance policy.
ALS B2021
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•
The terms "accident" and "accidental", in insurance contracts, have not acquired any technical
meaning, and the courts define it in their ordinary and common meanings.
• Accident means:
o that which happen by chance or fortuitously, without intention and design, and
which is unexpected, unusual, and unforeseen
o an event that takes place without one's foresight or expectation — an event that
proceeds from an unknown cause, or is an unusual effect of a known cause and,
therefore, not expected.
• Contrary to the contention of Capital Insurance above (see Points of Contention), the US
Courts in recent years has eliminated the distinction between the terms "accidental" and
"accidental means" and considered them as legally synonymous.
• But even assuming that Capital Insurance’s contention is correct, the death of Eduardo is still
within the coverage of insurance policy.
o The rule is that the resulting death is within the protection of policies insuring against
death or injury from accident when:
o the death or injury is not the natural or probable result of the insured's
voluntary act, or
o if something unforeseen occurs in the doing of the act which produces the
injury
o In this case:
o While the participation of Eduardo in the boxing contest is voluntary, the injury
was sustained when he slid, giving a chance to his opponent to give the
blow that threw him to the ropes of the ring. Without the unintentional slipping
of Eduardo, perhaps he could not have received that blow in the head and would
not have died.
o The fact that boxing is attended with some risks of external injuries does not make
any injuries received during the game not accidental. In boxing as in other
equally physically rigorous sports, such as basketball or baseball, death is
not ordinarily anticipated to result.
• Lastly, the insurance policy of Eduardo excluded the following from coverage:
(e) Death or disablement consequent upon the Insured engaging in football, hunting,
pigsticking, steeplechasing, polo-playing, racing of any kind, mountaineering, or
motorcycling.
o Failure of the Capital Insurance to include death resulting from a boxing match or other
sports among the prohibitive risks leads to the conclusion that it did not intend to limit
or exempt itself from liability for such death.
Disposition
Decision appealed is AFFIRMED, with costs against appellant.
256
COMM: INSURANCE – Construction of
Insurance Contracts: Where there is
ambiguity or doubt (Meaning of accident)
September 2, 1992
NOCON, J.
GOYO
Respondents:
ASSURANCE THE HONORABLE COURT OF APPEALS and
JULIA SURPOSA
FINMAN GENERAL ASSURANCE v. CA
G.R. No. 100970
Petitioners:
FINMAN
GENERAL
CORPORATION
Recit Ready Summary
Insurer: Finman General Assurance Corp.
Insured: Carlie Surposa (deceased)
Assured: Julia Surposa (mother of deceased)
Type of Insurance Policy: Personal accident insurance policy
ALS B2021
2
Carlie Surposa is insured with Finman under a Personal Accident Insurance Policy. He died as a result
of a stab wound without provocation and warning on the part of Carlie as he was just waiting for a ride
home after attending the Maskarra Annual Festival.
Julia Surposa filed a notice of claim – which was denied by Finman because murder and assault are not
within the scope of the insurance policy. According to Finman, death resulting from murder/assault is not
accidental but rather a deliberate or intentional act.
W/N Finman is liable to pay Julia Surposa the proceeds of personal accident insurance policy
based on the murder of Carlie Surposa – YES
An accident is an event that takes place without one’s foresight or expectation — an event that
proceeds from an unknown cause or is an unusual effect of a known cause and, therefore, not
expected.
- The generally accepted rule is that death or injury does not result from accident or
accidental means within the terms of an accident-policy if it is the natural result of the
insured’s voluntary act, unaccompanied by anything unforeseen except the death or
injury.
In this case, the insured died from an event that took place without his foresight or expectation, an event
that proceeded from an unusual effect of a known cause and, therefore, not expected. Neither can it be
said that where was a capricious desire on the part of the accused to expose his life to danger considering
that he was just going home after attending a festival.
W/N the principle of “expresso unius exclusio alterius” is applicable in this case – YES
The personal accident insurance policy involved herein specifically enumerated only 10 circumstances
wherein no liability attaches to petitioner insurance company for any injury, disability or loss suffered by
the insured as a result of any of the stimulated causes. The principle of “expresso unius exclusio alterius”
— the mention of one thing implies the exclusion of another thing — is therefore applicable in the instant
case since murder and assault, not having been expressly included in the enumeration of the
circumstances that would negate liability in said insurance policy cannot be considered by implication to
discharge the petitioner insurance company from liability for, any injury, disability or loss suffered by the
insured.
Insurance contracts are construed liberally in favor of the insured and strictly against the insurer.
Any ambiguity in the words of an insurance contract should be interpreted in favor of its
beneficiary.
Facts
1. October 22, 1986 — Deceased Carlie Surposa was insured with petitioner Finman General
Assurance Corporation under Finman General Teachers Protection Plan Master Policy No. 2005
and Individual Policy No. 08924 (insurance policy) with his parents, spouses Julia and Carlos
Surposa, and brothers Christopher, Charles, Chester and Clifton, all surnamed Surposa, as
beneficiaries.
a. Type of Insurance Policy: Personal accident insurance policy
2. October 18, 1988 — The insured Carlie Surposa died as a result of a stab would inflicted by one
of the 3 unidentified men without provocation and warning on the part of the former as he and
his cousin Winston Surposa, were waiting for a ride on their way home along Rizal-Locsin
Streets, Bacolod City after attending the celebration of the “Maskarra Annual Festival”
a. At this time, insurance policy was in full force and effect
3. Private respondent Julia Surposa and the other beneficiaries of the insurance policy filed a
written notice of claim with the petitioner Finman General Assurance
a. Finman denied the claim — murder and assault are not within the scope of the coverage
of the insurance policy
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Procedural History
1. February 24, 1989 — Surposa filed a complaint with the Insurance Commission; Decision of the
Insurance Comm:
a.
“In the light of the foregoing, we find respondent liable to pay complainant the sum of
P15,000.00 representing the proceeds of the policy with interest. As no evidence was
submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same cannot
be entertained.
b.
“WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant
the sum of P15,000.00 with legal interest from the date of the filing of the complaint until
fully satisfied. With costs.”
2. July 11, 1991 — CA affirmed
Points of Contention
Finman:
• There was GAD on the part of the CA in applying the principle of “expresso unius exclusio
alterius” in a personal accident insurance policy.
o Death resulting from murder and/or assault are impliedly excluded in said insurance
policy considering that the cause of death of the insured was not accidental but rather a
deliberate and intentional act of the assailant in killing the former as indicated by the
location of the lone stab wound on the insured.
o Therefore, said death was committed with deliberate intent which, by the very nature of
a personal accident insurance policy, cannot be indemnified.
Issues
2. W/N Finman is liable to pay Julia Surposa the proceeds of personal accident
insurance policy based on the murder of Carlie Surposa.
3. W/N the principle of “expresso unius exclusio alterius” is applicable.
Ruling
2. Yes
3. Yes
Rationale
2. Finman is Finman is liable to pay Julia Surposa the proceeds of personal accident insurance
policy based on the murder of Carlie Surposa.
As ruled by the SC in De la Cruz vs. Capital Insurance & Surety Co., Inc.:
• Terms ‘accident’ and ‘accidental’, as used in insurance contracts
o Have not acquired any technical meaning
o Construed by the courts in their ordinary and common acceptation
o Meanings:
▪ That which happen by chance or fortuitously, without intention and design, and
which is unexpected, unusual, and unforeseen
▪ An event that takes place without one’s foresight or expectation—an event that
proceeds from an unknown cause, or is an unusual effect of a known cause and,
therefore, not expected
• Generally accepted rule: Death or injury does not result from accident or accidental means within
the terms of an accident-policy if it is the natural result of the insured’s voluntary act,
unaccompanied by anything unforeseen except the death or injury.
o There is no accident when a deliberate act is performed unless some additional,
unexpected, independent, and unforeseen happening occurs which produces or brings
about the result of injury or death.
• In other words, where the death or injury is not the natural or probable result of the insured’s
voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury,
the resulting death is within the protection of the policies insuring against death or injury from
accident.
As correctly pointed out by the CA:
ALS B2021
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•
•
•
It cannot be pretended that Carlie Surposa died in the course of an assault or murder as a result
of his voluntary act considering the very nature of these crimes.
o In the first place, the insured and his companion were on their way home from attending
a festival. They were confronted by unidentified persons.
o The record is barren of any circumstance showing how the stab wound was inflicted.
Nor can it be pretended that the malefactor aimed at the insured precisely because the killer
wanted to take his life.
o In any event, while the act may not exempt the unknown perpetrator from criminal
liability, the fact remains that the happening was a pure accident on the part of the victim.
o The insured died from an event that took place without his foresight or expectation, an
event that proceeded from an unusual effect of a known cause and, therefore, not
expected.
Neither can it be said that there was a capricious desire on the part of the accused to expose his
life to danger considering that he was just going home after attending a festival.
3. The principle of “expresso unius exclusio alterius” is applicable in this case. (IMPORTANT)
Furthermore, the personal accident insurance policy involved specifically enumerated only 10
circumstances wherein no liability attaches to petitioner insurance company for any injury, disability or
loss suffered by the insured as a result of any of the stipulated causes.
• The principle of “expresso unius exclusio alterius” — the mention of one thing implies the
exclusion of another thing—is applicable.
o Murder and assault, not having been expressly included in the enumeration of the
circumstances that would negate liability in said insurance policy cannot be considered
by implication to discharge the petitioner insurance company from liability for any injury,
disability or loss suffered by the insured.
• The failure of the insurance company to include death resulting from murder or assault among
the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself
from liability for such death.
Article 1377 of the Civil Code of the Philippines provides that:
“The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.”
Moreover,
“it is well settled that contracts of insurance are to be construed liberally in favor of the insured and
strictly against the insurer. Thus ambiguity in the words of an insurance contract should be
interpreted in favor of its beneficiary.”
Disposition
Petition DENIED.
Rizal Surety vs CA
257
G.R. No. 112360
COMMREV - Insurance
July 18, 2000
Petitioner/s:
Rizal Surety and Insurance Company
J. Purisima
Carl Santos (ed.
by Ilagan)
Respondent/s:
Court of Appeals and Transworld Knitting Mills,
Inc.
Recit-Ready Summary
Rizal Surety and Insurance Company issued in favor of Transworld a fire insurance policy initially for P1
Million and eventually increased to P1.5 Million. The subject policy stated that Rizal Surety is “responsible
ALS B2021
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in case of loss whilst contained and/ or stored during the currency of this Policy in the premises occupied
by them forming part of the buildings situated within own Compound xxx.” It also described therein the
four-span building covered by the same. The same pieces of property insured with Rizal Surety were
also insured with New India Assurance Company. Fire broke out in the compound of Transworld, razing
the middle portion of its four-span building and partly gutting the left and right sections thereof. A twostorey annex building (behind said four-span building), called the “annex”, where fun and amusement
machines and spare parts were stored, was also destroyed by the fire. Transworld files its insurance
claims with Rizal Insurance and New India but to no avail Transworld filed a case against the insurance
companied for collection of sum of money and damages, which the RTC and CA granted. Rizal Insurance
now argues that the insurance policy covered only the contents of the four-span building, which was
partly burned, and not the damage caused by the fire on the two-storey annex building.
Whether or not the annex should be covered by the insurance policy? YES
The SC agreed with both the RTC and CA that the so called “annex” was not an annex building but an
integral and inseparable part of the four-span building described in the policy and consequently, the
machines and spare parts stored therein were covered by the fire insurance in dispute. Most importantly,
Art. 1377 of the Civil Code provides: “The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.” The insurance policy should then be resolved against
Rizal Insurance, whose lawyer or managers drafted the fire insurance policy.
Doctrine: As regards insurance policies, if the terms thereof are ambiguous, equivocal, or uncertain,
such should be strictly construed against the insurer and liberally in favor of the insured
Facts
7. On March 13,1980, Rizal Surety and Insurance Company (Rizal Insurance) issued Fire
Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially for
P1 Million and eventually increased to P1.5 Million covering the period from August 14,1980 to
March 13,1981. The subject policy1 stated that Rizal Surety is “responsible in case of loss whilst
contained and/ or stored during the currency of this Policy in the premises occupied by them forming
part of the buildings situated within own Compound xxx.” It also described therein the four-span
building covered by the same.
8. The same pieces of property insured with Rizal Surety were also insured with New India Assurance
Company, Ltd. (New India).
9. On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion of its
four-span building and partly gutting the left and right sections thereof. A two-storey annex
building (behind said four-span building) where fun and amusement machines and spare parts
were stored, was also destroyed by the fire.
10. Transworld files its insurance claims with Rizal Insurance and New India but to no avail.
11. On May 26,1982, Transworld filed a case against the insurance companied for collection of sum of
money and damages in the CFI of Rizal.
1
“On stocks of finished and/or unfinished products, raw materials and supplies of every kind and description, the properties of the
Insureds and/or held by them in trust, on commission or on joint account with others and/or for which they (sic) responsible in case of
loss whilst contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the
buildings situate (sic) within own Compound at MAGDALO STREET, BARRIO UGONG, PASIG, METRO MANILA, PHILIPPINES,
BLOCK NO. 601.
Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete and hollow
blocks and/or concrete under galvanized iron roof and occupied as hosiery mills, garment and lingerie factory, transistor-stereo
assembly plant, offices, warehouse and caretaker’s quarters.
Bounds in front partly by one-storey concrete building under galvanized iron roof occupied as canteen and guardhouse, partly by
building of two and partly one storey constructed of concrete below, timber above undergalvanized iron roof occupied as garage and
quarters and partly by open space and/or tracking/packing, beyond which is the aforementioned Magdalo Street; on its right and left
by driveway, thence open spaces, and at the rear by open spaces”
ALS B2021
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12. CFI dismissed the case against New India and ordered Rizal Insurance to pay Transworld P826,500
representing actual value of losses.
13. Upon appeal CA modified the decision. It held that New India is also required to pay P1,818,604.19
Million while Rizal Insurance has to pay P470,328.67, based on the actual losses sustained by
Transworld, totaling P2,790,376.00 as against the amounts of fire insurance coverages respectively
extended by New India in the amount of P5,800,000 and Rizal Insurance in the amount of P1.5
Million.
14. New India appealed to the SC (Separately), but SC denied the appeal with finality. Meanwhile, Rizal
Insurance and Transworld filed an MR. During the MR, the CA amended the amount of legal interest
only. Undaunted, Rizal Insurance and Transworld filed the instant Petition for Review on Certiorari
under Rule 45.
Point/s of Contention
New India: Transworld could not be compensated for the loss of the fun and amusement machines and
spare parts stored at the two-storey building because it had no insurable interest in said goods or items.
Rizal Insurance: the insurance policy covered only the contents of the four-span building, which was
partly burned, and not the damage caused by the fire on the two-storey annex building.
Transworld: The “annex” was not an annex but was actually an integral part of the four-span building
and therefor, the goods and items stored therein were covered by the same fire insurance policy
Issue/s
Ruling
4. Whether or not the annex should be covered by the insurance policy
4. Yes
Rationale
The “Annex” is an Integral and Inseperable Part of the Four-Span Building which was Insured.
The pertinent stipulation in the insurance policy reads: “xxx contained and/ or stored during the
currency of this Policy in the premises occupied by them forming part of the buildings situate
(sic) within own Compound xxx.” It can be gleaned from this that the fire insurance policy in
question did not limit its coverage to what were stored in the four-span building. Two requirements
must concur in order that the said fun and amusement machines and spare parts would be deemed
protected by the fire insurance policy, as stipulated: “First, said properties must be contained and/
or stored in the areas occupied by Transworld and Second, said areas must form part of the building
described in the policy.”
Here, the SC agreed with both the RTC and CA that the so called “annex” was not an annex building
but an integral and inseparable part of the four-span building described in the policy and
consequently, the machines and spare parts stored therein were covered by the fire insurance in
dispute. This is also based on the letter-report2 of the Manila Adjusters and Surveyor’s Company,
which the petitioner itself cited and invoked, describing the “annex” building as a two-storey buiding,
which is a permanent structure adjoining with the “first right span of the lofty storey building,” forming
part thereof, and so meets the requisites for the compensability under the fire insurance policy being
sued upon.
Considering that the two-storey building was already existing when the subject fire insurance was
entered into on January 12, 1981, having been constructed sometime in 1978, petitioner should
have specifically excluded the said two-storey building from the coverage of the fire insurance
if minded to exclude the same but it did not, and instead, went on to provide that such fire insurance
policy covers the products, raw materials and supplies stored within the premises of respondent
Transworld which was an integral part of the four-span building occupied by Transworld,
2
“Two-storey building constructed of partly timber and partly concrete hollow blocks under g.i. roof which is adjoining and
intercommunicating with the repair of the first right span of the lofty storey building and thence by property fence wall”
ALS B2021
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knowing fully well the existence of such building adjoining and intercommunicating with the right
section of the four-span building.
Insurance Policies are strictly construed against the Insurer and in favor of the Insured
Most importantly, Art. 1377 of the Civil Code provides: “The interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity.” The insurance policy
should then be resolved against Rizal Insurance, whose lawyer or managers drafted the fire
insurance policy. Case laws (Landicho v. GSIS; and Fieldmen’s Insurance Company, Inc v. De
Songco) provide that as regards insurance policies, if the terms thereof are ambiguous,
equivocal, or uncertain, such should be strictly construed against the insurer and liberally
in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured,
especially where forfeiture is involved. The rule is also necessary in view of current business
practices. The courts cannot ignore that nowadays monopolies, cartels, and concentration of capita,
endowed with overwhelming economic power, manage to impose upon parties dealing with them
prepared agreements/ contract of adhesion that the weaker party may not change, the other party’s
participation being reduced to merely “take it or leave it” and making him or her prone to abuses.
Here, it is only proper to construe the insurance policy against Rizal Insurance. Also, since the
“annex” was already existing when the insurance policy was entered into, Rizal Insurance should
have specifically excluded the said two-story building from the coverage of the fire insurance.
Other Issues: Conclusiveness of Judgment
The issue of whether or not Transworld has an insurable interest in the fun and amusement
machines and spare parts, which entitles it to be indemnified for the loss thereof, had been settled
in G.R. No. L-111118, entitled New India Assurance Company, Ltd., vs. Court of Appeals, where
the appeal of New India from the decision of the Court of Appeals under review, was denied with
finality by this Court on February 2, 1994. The rule on conclusiveness of judgment, which obtains
under the premises, precludes the relitigation of a particular fact or issue in another action between
the same parties based on a different claim or cause of action, the judgment in the prior action
operates as estoppel only as to those matters in issue or points controverted, upon the
determination of which the finding or judgment was rendered.
Considering that private respondent’s insurable interest in, and compensability for the loss of subject
fun and amusement machines and spare parts, had been adjudicated, settled and sustained by the
Court of Appeals in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L- 111118, in a
Resolution, dated February 2, 1994, the same can no longer be relitigated and passed upon in the
present case. Ineluctably, the petitioner, Rizal Surety Insurance Company, is bound by the ruling of
the Court of Appeals and of this Court that the private respondent has an insurable interest in the
aforesaid fun and amusement machines and spare parts; and should be indemnified for the loss of
the same.
Disposition
The decision of the CA is affirmed in toto.
Alpha Insurance v Castor
258
G.R. No. 198174
Petitioners:
Alpha Insurance and Surety Co.
ALS B2021
September 2, 2013
Insurance – Insurer’s Liability
Peralta J.
Rizza (edited by
RC)
Respondents:
Arsenia Sonia Castor
8
Recit Ready Summary
Castor insured her vehicle (Toyota Revo) w/ Alpha Insurance, obligating the latter to pay her 630k in
case of loss or damage to said vehicle. When Castor instructed her driver, Lanuza, to have the vehicle
tuned-up, the driver never returned the vehicle. She then reported it to the police and demanded from
Alpha Insurance the insurance proceeds. However, Alpha Insurance denied liability claiming that, under
par. 4 of the Exceptions to Sec. III of the insurance policy, it is not liable for “any malicious damage
caused by the Insured, any member of his family or by "A PERSON IN THE INSURED'S SERVICE."
Since Lanuza was employed by Castor the exception is operative. On the contrary, Castor claims that
the exception refers to damage of the vehicle and not to its loss. The RTC, as affirmed by the CA, decided
in favor of Castor.
Issue is whether the loss of the vehicle is EXCLUDED under the insurance policy? NO, it is included.
Alpha Insurance, subject to the limits of liability, is obligated to indemnify Castor against theft. Said
provision does not qualify as to who would commit the theft. Thus, even if the same is committed by
the driver of the insured, there being no categorical declaration of exception, the same must be covered.
Moreover, contrary to Alpha Insurance’s claim, the words "loss" and "damage" mean different things in
common ordinary usage – "loss" refers to the act or fact of losing, or failure to keep possession, while
"damage" means deterioration or injury to property. Thus, the loss of vehicle under the insurance policy
cannot be excluded under par. 4 of "Exceptions to Section III," since the same refers only to "malicious
damage" to the motor vehicle caused by a person under the insured's service. Par. 4 does not
contemplate "loss of property," as what happened in the instant case. Hence, petition denied.
Doctrine: A contract of insurance is a contract of adhesion. So, when the terms contain limitations on
liability, courts should construe them in such a way as to preclude the insurer from non-compliance with
his obligation.
Facts
1. Arsenia Castor insured her Toyota Revo with Alpha Insurance & Surety Co. The contract
obligates Alpha Insurance to pay Castor Php 630,000 in case of loss or damage to said vehicle
during the period covered (February 26, 2007 to February 26, 2008).
2. On one occasion, Castor instructed Lanuza, her driver, to bring the vehicle to a nearby autoshop for a tune-up. However, Lanuza did not return the vehicle.
3. Castor reported it to the police and notified Alpha Insurance of the loss and demanded payment
of the 630k insurance proceeds.
4. Alpha Insurance denied the claim since Lanuza was employed by Castor. It claims that, under
the policy, Alpha Insurance shall not be liable for “any malicious damage caused by the Insured,
any member of his family or by "A PERSON IN THE INSURED'S SERVICE."
Significant portions of the Insurance Policy
SECTION III — LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify
the Insured against loss of or damage to the Schedule Vehicle
and its accessories and spare parts whilst thereon:
(a) by accidental collision or overturning, or collision or
overturning consequent upon mechanical breakdown or
consequent upon wear
and tear;
(b) by fire, external explosion, self-ignition or lightning or
burglary, housebreaking or theft;
(c) by malicious act;
(d) whilst in transit (including the processes of loading and
unloading) incidental to such transit by road, rail, inland
waterway, lift or elevator.
ALS B2021
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
1. 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 1% of the Insured's estimate of Fair
Market Value as shown in the Policy Schedule with a minimum
deductible amount of Php 3,000.00;
2. Consequential loss, depreciation, wear and tear,
mechanical or electrical breakdowns, failures or breakages;
3. Damage to tires, unless the Schedule Vehicle is damaged
at the same time;
4. Any malicious damage caused by the Insured, any
member of his family or by a person in the Insured's
service.
9
Procedural History
1. Castor filed a complaint for sum of money w/ damages, which the RTC ruled in its favor.
2. CA affirmed in toto RTC’s decision and denied Alpha Insurance’s subsequent MR.
3. Hence, the present Rule 45 petition by Alpha Insurance.
Points of Contention
Alpha Insurance: "Damage," under par. 4 of "Exceptions to Section III," means loss due to injury or
harm to person, property or reputation, and should be construed to cover malicious "loss" as in "theft."
Thus, the loss of the vehicle as a result of it being stolen by the driver is excluded from the policy.
Castor: The exception provision refers to damage of the motor vehicle and not to its loss.
Issue: Whether the loss of the vehicle is EXCLUDED under the insurance policy?
Included.
Rationale
Theft perpetrated by the driver of the insured is not an exception to the coverage from the
insurance policy, since Section III did not qualify as to who would commit the theft.
•
•
•
•
•
•
•
An insurance contract should be interpreted as to carry out the purpose for which the parties
entered into the contract which is to insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable meaning of language in the policy.
Where restrictive provisions are open to two interpretations, that which is most favorable to the
insured is adopted.
Alpha Insurance, subject to the limits of liability, is obligated to indemnify Castor against theft.
Said provision does not qualify as to who would commit the theft. Thus, even if the same is
committed by the driver of the insured, there being no categorical declaration of
exception, the same must be covered.
Moreover, Insurance Contracts are to be construed according to the sense and meaning of the
terms which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense. Accordingly, in
interpreting the exclusions in an insurance contract, the terms used specifying the excluded
classes therein are to be given their meaning as understood in common speech.
Contrary to Alpha Insurance’s claim, the words "loss" and "damage" mean different things in
common ordinary usage.
"loss" refers to the act or fact of losing, or failure to keep possession
"damage" means deterioration or injury to property
Thus, Alpha Insurance cannot exclude the loss of vehicle under the insurance policy under par.
4 of "Exceptions to Section III," since the same refers only to "malicious damage" to the motor
vehicle caused by a person under the insured's service. Par. 4 does not contemplate "loss of
property," as what happened in the instant case.
As aptly ruled by the CA, "malicious damage" 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. If the intention 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.
Lastly, a contract of insurance is a contract of adhesion. So, when the terms contain limitations
on liability, courts should construe them in such a way as to preclude the insurer from noncompliance with his obligation.
Disposition
Petition for Review on Certiorari is DENIED. CA decision AFFIRMED.
ALS B2021
10
259
Lalican v. Insular Life Assurance Co.
CommRev – Insurance
G.R. No. 183526
August 25, 2009
Tinga, J.
Rizza
Petitioner/s:
Respondent/s:
Violeta R. Lalican
The Insular Life Assurance Company Limited, as represented by the President Vicente R. Avilon
Doctrine/s:
1. An insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a
relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the
preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or
injury by the happening of the event insured against.
2. After death of the insured the insurance company cannot be compelled to entertain a Reinstatement Application of the
policy because the conditions precedent to reinstatement can no longer be determined and satisfied.
During his lifetime, through insurance agent Malaluan, Insular Life issued in favor of Eulogio an Insurance
Policy containing a 20-Year Endowment Variable Income Package Flexi Plan with total value 1.5M. His
wife, Violeta, was named as the primary beneficiary. Under the policy, Eulogio was to pay quarterly
premiums, w/ grace period of 31 days. If any premium was not paid on or before the due date, the policy
would be in default, and if remained unpaid until the end of the grace period, it would automatically lapse
and become void.
Eugelio failed to pay the premium on Jan 24 1998, even after lapse of grace period. Hence, the policy
lapsed and became void. Eulogio submitted a Reinstatement Application of the Policy, together with
overdue premium payment. However, Insular did not process it because there was an overdue interest
of P322.48 left unpaid. So, Eulogio submitted a 2nd Reinstatement Application with payment for the
overdue interest and subsequent premiums. As Malaluan was away on a business errand, her husband
received the application and issued a receipt. Later on the same day, Eulogio died of cardio-respiratory
arrest secondary to electrocution.
Violeta filed with Insular a claim for payment of the full proceeds of Eugelio’s Policy. However, Insular
did not grant the claim since, at the time of Eulogio's death, the Policy had already lapsed and was not
successfully reinstated. Per Reinstatement Application, the policy would only be considered reinstated
upon approval by Insular during the applicant's "lifetime and good health", and whatever amount the
applicant paid was considered to be a deposit only until approval of said application. Violeta requested
reconsideration. But even without the result of the re-evaluation, she filed with the RTC a Complaint for
Death Claim Benefit.
RTC: Ruled in favor of Insular. On Nov 8 2007, it denied Violeta’s MR. Despite receipt of denial of MR
on Dec 3 2007, Violeta still filed with the RTC a Reply Extended Discussion elaborating her arguments.
And notwithstanding RTC’s reiteration that the decision attained finality, Violeta filed Notice of Appeal on
May 20, 2008. The NoA was denied by the RTC. Hence, this Rule 45 petition. Among her contentions,
Violeta raised that SC should address the question of law arising in this case involving the interpretation
of the second sentence of Section 193 of IC. She argues that Eulogio still had insurable interest in his
own life when he reinstated the policy before he passed away.
I: W/N Violeta can claim death benefits under the policy? NO. Violeta only makes it appear that her
present Petition involves a question of law (i.e., whether Eulogio had an existing insurable interest in
his own life until the day of his death). The real question is whether Eulogio was able to reinstate the
lapsed insurance policy before his death, which he failed to successfully do.
It is obvious in the Petition that the matter of insurable interest is entirely irrelevant. It is actually beyond
question that while Eulogio was still alive, he had an insurable interest in his own life, which he did
insure. However, the Policy had lapsed and become void. And Eulogio's filing of his 1st Reinstatement
Application constitutes an admission that Policy had already lapsed.
To reinstate a policy means to restore the same to premium-paying status after it has been permitted
to lapse. The Reinstatement Application provide for specific conditions for the reinstatement of a lapsed
3
Section. 19. . . . [I]nterest in the life or health of a person insured must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs.
ALS B2021
11
policy – the policy would only be considered reinstated upon approval of the application by Insular
during the applicant's "lifetime and good health", and whatever amount the applicant paid was
considered to be a deposit only until approval of said application.
Eulogio's death rendered impossible full compliance with the conditions. True, Eulogio, before his
death, managed to file his Application and deposit the amount for payment of his overdue premiums
and interests with Malaluan; but the Policy could only be considered reinstated after the Application
had been processed and approved by Insular during Eulogio's lifetime and good health. Moreover, the
Policy Contract expressly limits the power or authority of its insurance agents. Hence, Malaluan did not
have the authority to approve Eulogio's application.
Furthermore, the conditions for reinstatement under the Policy Contract and Reinstatement Application
were written in clear and simple language, which could not admit of any meaning or interpretation other
than those that they so obviously embody. And Eulogio's death, just hours after filing his Application
and depositing his payment with Malaluan, does not constitute a special circumstance that can
persuade the Court to already consider the Policy reinstated.
Thus, the Policy remained lapsed and void. Violeta, cannot claim any death benefits from Insular Life;
but she is entitled to receive the full refund of the payments made by Eulogio.
I: W/N the RTC Decision can still be reviewed? NO. It became final for failure to file a NoA on time.
Violeta received a copy of MR denial on Dec 3 2007. Thus, she had 15 days (until Dec 18 2007) from
said date of receipt to file a NoA. She only filed it only on May 20 2008, more than five months after
receipt of the MR Denial Order.
Violeta claims that her former counsel’s failure to file the proper remedy within the reglementary period
was an honest mistake, attributable to the latter are deteriorating health. Unfortunately, her counsel's
mistakes and negligence binds her.
Facts (sorry long digest. procedural matter may be asked by sir kasi)
1. Violeta R. Lalican is the widow of deceased Eulogio C. Lalican. During his lifetime, Eulogio
applied for an insurance policy with Insular Life.
• Through Josephine Malaluan, Gapan City agent, Insular issued in favor of Eulogio Policy
No. 9011992 containing a 20-Year Endowment Variable Income Package Flexi Plan
worth 500k, with 2 riders valued at 500k each (total value 1.5M), and Violeta named as
the primary beneficiary.
2. Under the policy, Eulogio was to pay P8,062.00 premiums on quarterly basis, every 24 April, 24
July, 24 October and 24 January of each year, until the end of the 20-year period of the policy.
• w/ grace period of 31 days for the payment of each premium subsequent to the first.
• If any premium was not paid on or before the due date, the policy would be in default,
and if the premium remained unpaid until the end of the grace period, it would
automatically lapse and become void.
3. Eulogio paid the July 24 and Oct 24 1997 premiums. But failed to pay on Jan 24 1998, even after
lapse of the 31 days grace period. Hence, the policy lapsed and became void.
4. Through Malaluan, Eulogio submitted to the Cabanatuan District Office of Insular a
Reinstatement Application of the Policy, together with P8,062 premium.
• However, Insular notified Eulogio that his Application could not be fully processed
because he left unpaid the overdue interest of P322.48.
• Insular instructed Eulogio to pay the interest and to file another application. Eulogio was
likewise advised by Malaluan to pay the subsequent premiums, plus interest.
5. Eulogio submitted a 2nd Reinstatement Application, including P17,500.00, representing
payments for the overdue interest and subsequent premiums. As Malaluan was away on a
business errand, her husband received Eulogio's application and issued a receipt.
• A while later, on the same day, Eulogio died of cardio-respiratory arrest secondary to
electrocution.
ALS B2021
12
6. Without knowing of Eulogio's death, Malaluan forwarded to Insular the 2nd Application with the
deposit. However, Insular did not act on the application since it was informed beforehand that
Eulogio had passed away.
7. Violeta filed with Insular a claim for payment of the full proceeds of Eugelio’s Policy.
• Insular informed her that the claim could not be granted since, at the time of Eulogio's
death, the Policy had already lapsed, and Eulogio failed to reinstate the same.
• According to the Reinstatement Application, the policy would only be considered
reinstated upon approval of the application by Insular during the applicant's "lifetime and
good health", and whatever amount the applicant paid was considered to be a deposit
only until approval of said application.
• Enclosed with Insular’s letter to Violeta was a DBP Check for P25,417 representing full
refund of the payments made by Eulogio.
8. Violeta requested a reconsideration of the disallowance of her claim.
• In a letter, Insular stated that it could not find any reason to reconsider. It again tendered
to Violeta the same check.
• Violeta returned the check to Cabanatuan District Office of Insular. Then, her counsel
sent a letter to Insular, demanding payment of the full proceeds of the Policy. Insular
responded by agreeing to conduct a re-evaluation.
Procedural History
RTC
1. Without waiting the re-evaluation result, Violeta filed with the RTC a Complaint for Death Claim
Benefit. She alleged that Insular engaged in unfair claim settlement practice and deliberately failed
to act with reasonable promptness on her insurance claim. She prayed that Insular be ordered to
pay her 1.5M claim benefits, plus interests, attorney's fees, and cost of suit.
• Insular’s Answer with Counterclaim: Complaint had no legal or factual bases. The Policy
was rendered void by the non-payment of the Jan 24 1998 premium and non-compliance
with the requirements for the reinstatement of the same. As counterclaim, Insular prayed
that Violeta be ordered to pay attorney's fees and expenses of litigation.
• Violeta’ Reply and Answer to Counterclaim: requirements for the reinstatement had been
complied and the defenses put up by Insular were purely invented and illusory.
2. On Aug 30 2007, RTC ruled in favor of Insular. On Nov 8 2007, it denied Violeta’s MR.
• Taking into account the clear provisions of the Policy and the Reinstatement Application,
Eulogio was not able to fully comply with the requirements for the reinstatement.
• There is nothing that would justify a conclusion that such receipt of application amounted to
an automatic reinstatement of the policy that has already lapsed. The evidence suggests
clearly that no such automatic renewal was contemplated in the contract. Neither was it
shown that Malaluan was the officer authorized to approve the Reinstatement Application
and that her receipt of the documents amounted to its approval.
• Similar with Nacu vs. CA, there was no more application to approve here for the applicant
was already dead and no insurance company would issue an insurance policy to a dead
person.
3. Despite already receiving a copy of the RTC Order denying her MR, Violeta still filed with the
RTC a Reply Extended Discussion elaborating her arguments.
• RTC issued an Order declaring that the Decision in favor of Insular had attained finality
in view of Violeta's failure to file the appropriate notice of appeal within the reglementary
period.
4. Still, on May 20, 2008, Violeta filed NOA with Motion that she be allowed to file an appeal with
the CA. But, RTC denied given that the decision had long attained finality. Hence, this Petition
for Review on Certiorari.
Point/s of Contention
Violeta – prays for SC to admit and give due course to her appeal even if the same was filed out of time
1. Her former counsel committed an honest mistake in filing a Reply, instead of a NOA; and in the
computation of the reglementary period for appealing the said judgment.
ALS B2021
13
2. Her former counsel suffered from poor health, which rapidly deteriorated from the 1st week of
July 2008 until the latter's death just shortly after the filing of the instant Petition.
3. SC should address the question of law arising in this case involving the interpretation of the
second sentence of Section 19 of the Insurance Code, to wit:
Section. 19. . . . [I]nterest in the life or health of a person insured must exist when the insurance takes effect, but
need not exist thereafter or when the loss occurs.
She argues that Eulogio still had insurable interest in his own life when he reinstated the policy
before he passed away.
Issue/s
Ruling
1. Procedural: W/N the RTC Decision can still be reviewed?
5. No
2. Main: W/N the RTC in its original jurisdiction has decided the case on a
question of law not in accord with law and applicable decisions of the SC? /
W/N Violeta can claim death benefits under the policy?
6. No
Rationale
1. NO. RTC decision became final for failure of Violeta to file a NoA on time.
•
The elevation of the case to via Petition for Review on Certiorari is not justified. Rule 41, Section
1 of the ROC provides that no appeal may be taken from an order disallowing or dismissing an
appeal. In such a case, the aggrieved party may file a Petition for Certiorari under Rule 65.
•
Moreover, the RTC Aug 30 2007 Decision had long become final and executory. Violeta filed an
MR, but the RTC denied the same on Nov 8 2007. Records reveal that Violeta received a copy of
MR denial on Dec 3 2007. Thus, she had 15 days from said date of receipt, or until Dec 18 2007,
to file a NoA. Violeta filed a NoA only on May 20 2008, more than five months after receipt of the
MR Denial Order.
•
The claim that her former counsel's failure to file the proper remedy within the reglementary period
was an honest mistake, attributable to the latter's deteriorating health, is unpersuasive.
•
o
She made a general averment of her former counsel's poor health, lacking relevant details
and supporting evidence. By her own admission, her former counsel's health rapidly
deteriorated only by the 1st week of July 2008. The events pertinent to her NoA took
place months before July 2008
o
Moreover, the failure of her former counsel to file a NoA on time binds Violeta. A client is
bound by his counsel's mistakes and negligence.
A judgment becomes "final and executory" by operation of law. Finality becomes a fact when the
reglementary period to appeal lapses and no appeal is perfected within such period. As a
consequence, no court (not even this Court) can exercise appellate jurisdiction to review a case
or modify a decision that has become final. When a final judgment is executory, it becomes
immutable and unalterable. It may no longer be modified in any respect either by the court, which
rendered it or even by this Court. The doctrine is founded on considerations of public policy and
sound practice that, at the risk of occasional errors, judgments must become final at some definite
point in time.
o
The only recognized exceptions to the doctrine of immutability and unalterability are
the correction of clerical errors, the so-called nunc pro tunc entries, which cause no
prejudice to any party, and void judgments. The instant case does not fall under any of
these exceptions.
2. No. Violeta only makes it appear that her present Petition involves a question of law,
particularly, whether Eulogio had an existing insurable interest in his own life until the
day of his death. Real question is whether Eulogio was able to reinstate the lapsed
insurance policy before his death.
•
An insurable interest, one of the most basic and essential requirements in an insurance contract,
is that interest which a person is deemed to have in the subject matter insured, where he has a
ALS B2021
14
relation or connection with or concern in it, such that the person will derive pecuniary benefit or
advantage from the preservation of the subject matter insured and will suffer pecuniary loss or
damage from its destruction, termination, or injury by the happening of the event insured against.
The existence of an insurable interest gives a person the legal right to insure the subject matter
of the policy of insurance.
o
Section 10 of the Insurance Code provides that every person has an insurable interest in
his own life. Section 19 also states that an interest in the life or health of a person insured
must exist when the insurance takes effect, but need not exist thereafter or when the loss
occurs.
•
Upon extensive study of the Petition, it is evident that the matter of insurable interest is entirely
irrelevant. It is actually beyond question that while Eulogio was still alive, he had an insurable
interest in his own life, which he did insure. The real point of contention herein is whether Eulogio
was able to reinstate the lapsed insurance policy on his life before his death, which SC rules in
the negative.
•
The Court must correct the erroneous declaration of the RTC in its Aug 30 2007 Decision that
Policy lapsed because of Eulogio's non-payment of the premiums which became due on Apr 24
and July 24 1998.
•
o
The Policy had lapsed and become void earlier, on Feb 24 1998, upon the expiration of
the 31-day grace period, which fell due on Jan 24 1998, without any payment having been
made.
o
Eulogio's filing of his 1st Reinstatement Application constitutes an admission that Policy
had already lapsed. Insular did not act on the 1st Application, since the amount Eulogio
deposited was sufficient to cover only the P8,062.00 overdue premium, but not the
P322.48 overdue interests.
To reinstate a policy means to restore the same to premium-paying status after it has been
permitted to lapse Both the Policy Contract and the Reinstatement Application provide for specific
conditions for the reinstatement of a lapsed policy. The Policy states:
Policy
10. REINSTATEMENT
You may reinstate this policy at any time within
three years after it lapsed if the following conditions
are met: (1) the policy has not been surrendered for
its cash value or the period of extension as a term
insurance has not expired; (2) evidence of
insurability satisfactory to [Insular Life] is furnished;
(3) overdue premiums are paid with compound
interest at a rate not exceeding that which would
have been applicable to said premium and
indebtedness in the policy years prior to
reinstatement; and (4) indebtedness which existed
at the time of lapsation is paid or renewed
•
Reinstatement Application
I/We agree that said Policy shall not be considered
reinstated until this application is approved by the
Company during my/our lifetime and good health
and until all other Company requirements for the
reinstatement of said Policy are fully satisfied.
I/We further agree that any payment made or to be
made in connection with this application shall be
considered as deposit only and shall not bind the
Company until this application is finally approved
by the Company during my/our lifetime and good
health. If this application is disapproved, I/We also
agree to accept the refund of all payments made in
connection herewith, without interest, and to surrender
the receipts for such payment.
Eulogio's death rendered impossible full compliance with the conditions for reinstatement. True,
Eulogio, before his death, managed to file his Application and deposit the amount for payment of
his overdue premiums and interests with Malaluan; but the Policy could only be considered
reinstated after the Application had been processed and approved by Insular during Eulogio's
lifetime and good health.
o
Andres v. The Crown Life Insurance Company, citing McGuire v. The Manufacturer's Life
Insurance Co.:
"The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written
application does not give the insured absolute right to such reinstatement by the mere filing of an application.
The insurer has the right to deny the reinstatement if it is not satisfied as to the insurability of the insured
ALS B2021
15
and if the latter does not pay all overdue premium and all other indebtedness to the insurer. After the death of
the insured the insurance Company cannot be compelled to entertain an Reinstatement Application of
the policy because the conditions precedent to reinstatement can no longer be determined and satisfied."
•
It does not matter that when he died, Eulogio's Application and deposits for the overdue premiums
and interests were already with Malaluan. Insular, through the Policy Contract, expressly limits
the power or authority of its insurance agents, thus:
“Our agents have no authority to make or modify this contract, to extend the time limit for payment of premiums,
to waive any lapsation, forfeiture or any of our rights or requirements, such powers being limited to our president,
vice-president or persons authorized by the Board of Trustees and only in writing.”
o
•
•
Malaluan did not have the authority to approve Eulogio's Reinstatement Application. She
still had to turn over to Insular the application and accompanying deposits, for processing
and approval by the latter.
The conditions for reinstatement under the Policy Contract and Reinstatement Application were
written in clear and simple language, which could not admit of any meaning or interpretation other
than those that they so obviously embody. A construction in favor of the insured is not called for,
as there is no ambiguity in the said provisions in the first place. The words are clear, unequivocal,
and simple enough so as to preclude any mistake in the appreciation of the same.
o
Violeta did not adduce any evidence that Eulogio might have failed to fully understand the
import and meaning of the provisions of his Policy Contract and/or Reinstatement
Application, both of which he voluntarily signed.
o
While it is a cardinal principle of insurance law that a policy or contract of insurance is to
be construed liberally in favor of the insured and strictly as against the insurer company,
yet, 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.
Eulogio's death, just hours after filing his Application and depositing his payment with Malaluan,
does not constitute a special circumstance that can persuade the Court to already consider the
Policy reinstated.
o
The circumstance cannot override the clear and express provisions of the Policy Contract
and Reinstatement Application, and operate to remove the prerogative of Insular to
approve or disapprove the Application.
o
Even though the Court commiserates with Violeta, as the tragic and fateful turn of events
leaves her practically empty-handed, the Court cannot arbitrarily burden Insular Life with
the payment of proceeds on a lapsed insurance policy. Courts are not permitted to make
contracts for the parties. The function and duty of the courts consist simply in enforcing
and carrying out the contracts actually made.
o
The Policy remained lapsed and void. Violeta, therefore, cannot claim any death benefits
from Insular Life; but she is entitled to receive the full refund of the payments made by
Eulogio.
Disposition
Court DENIES the Petition for Review on Certiorari. The policy lapsed and Violeta is entitled to refund of
payments made by Eugelio only.
260
CHA v. CA
ALS B2021
COMMREV: Insurance; Insurable Interest
16
G.R. No. 124520
August 18, 1997
Petitioner/s: Spouses NILO CHA and STELLA
UY CHA, and UNITED INSURANCE CO., INC
J. Padilla
Caryl
Medina
Respondent/s: CA and CKS Dev’t Corp
Recit Ready Summary
Spouses Nilo Cha and Stella Uy-Cha entered into a lease contract with CKS Development Corporation,
lessor, on 5 October 1988. One of the stipulations of the one (1) year lease contract states: The LESSEE
shall not insure against fire the chattels and goods and placed at any space in the leased premises
without first obtaining the written consent of the LESSOR. If insurance is obtained without consent, the
policy is deemed assigned to the lessor for its own benefit. Notwithstanding, the Cha spouses insured
against loss by fire the merchandise inside the leased premises for Five Hundred Thousand
(P500,000.00) with the United Insurance Co., Inc. without the written consent of CKS. On the day that
the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of the
insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer a demand letter
asking that the proceeds of the insurance contract be paid directly to CKS instead of the spouses, based
on its lease stipulation. United refused to pay CKS.
I: Whether the clause in the lease contract is valid insofar as it provides that any fire insurance
policy obtained by the lessee over their merchandise inside the leased premises is deemed
assigned to the lessor if said policy is obtained without the prior written consent of the latter –
NO
The automatic assignment of the policy to CKS under the provision of the lease contract previously
quoted is void for being contrary to law and/or public policy. No contract or policy of insurance on property
shall be enforceable except for the benefit of some person having an insurable interest in the property
insured.
Insurable interest in the property insured must exist at the time the insurance takes effect and at the time
the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy on property upon which he has no
insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a
case, the contract of insurance is a mere wager which is void. Sec. 25 provides that every stipulation in
a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in
the property insured, or that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise
inside the leased premises. The insurable interest over the merchandise belongs to the spouses. The
measure of an insurable interest in property is the extent to which the insured might be damnified by loss
of injury thereof. Stipulations contained in a contract cannot be contrary to law, morals, good customs,
public order or public policy.
ALS B2021
17
Doctrine: Insurable interest in the property insured must exist at the time the insurance takes effect and
at the time the loss occurs. This is based on sound public policy that without insurable interest, the
contract is a mere wager.
Facts
1. Spouses Nilo Cha and Stella Uy-Cha entered into a lease contract with CKS Development
Corporation, lessor, on 5 October 1988.
2. One of the stipulations of the one (1) year lease contract states: The LESSEE shall not insure
against fire the chattels and goods and placed at any space in the leased premises without first
obtaining the written consent of the LESSOR. If insurance is obtained without consent, the policy
is deemed assigned to the lessor for its own benefit.
3. Notwithstanding, the Cha spouses insured against loss by fire the merchandise inside the
leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc.
without the written consent of CKS.
4. On the day that the lease contract was to expire, fire broke out inside the leased premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent),
it wrote the insurer a demand letter asking that the proceeds of the insurance contract be paid
directly to CKS instead of the spouses, based on its lease stipulation.
6. United refused to pay CKS.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision ordering United
to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as
exemplary damages, P20,000.00 as attorney's fees and costs of suit.
8. CA affirmed.
Issue/s
Ruling
1. Whether the clause in the lease contract is valid insofar as it provides that any
fire insurance policy obtained by the lessee over their merchandise inside the
leased premises is deemed assigned to the lessor if said policy is obtained
without the prior written consent of the latter.
1. No
Rationale
The proceeds of the fire insurance policy belong to the spouses. The insurer cannot be compelled
to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest
in the property insured.
a. Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of
some person having an insurable interest in the property insured.
b. Insurable interest in the property insured must exist at the time the insurance takes effect and at the
time the loss occurs. The basis of such requirement of insurable interest in property insured is based on
sound public policy: to prevent a person from taking out an insurance policy on property upon which he
has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such
a case, the contract of insurance is a mere wager which is void.
ALS B2021
18
c. Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured
has or has not any interest in the property insured, or that the policy shall be received as proof of such
interest, and every policy executed by way of gaming or wagering, is void.
d. In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises.The measure of an insurable interest in property is the extent
to which the insured might be damnified by loss of injury thereof.
e. Stipulations contained in a contract cannot be contrary to law, morals, good customs, public order or
public policy. Therefore, CKS cannot, under the Insurance Code — a special law — be validly a
beneficiary of the fire insurance policy taken by over the merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS
under the provision of the lease contract previously quoted is void for being contrary to law and/or public
policy.
g. The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses
obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a separate
and distinct issue which we do not resolve in this case.
Disposition
Proceeds of insurance goes to Cha spouses.
Saturnino vs. PHL American Life Insurance
261
G.R. No. No. L-16163.
28 Feb. 1963
COMMREV – Concealment
Makalintal, J.
Grace (edited by
Dianne)
Petitioners: (plaintiff-appellants)
Respondents: (defendant-appellee)
Ignacio Saturnino, in his own behalf and as the Judicial
Guardian of Carlos Saturnino, Minor
The Philippine American Life Insurance Company
(Philam)
Recit Ready Summary
Estefania Saturnino applied for a 20-Year Endowment Non-Medical Insurance Policy (face value of P5,000) with
PHL American Life Insurance Co. (Philam). This kind of policy does not need the applicant to undergo a
medical examination, but very detailed information is required in the application concerning the applicant’s
medical history. Philam granted her the insurance policy on Nov. 1957, so she paid the first-year premium on the
same day.
Unfortunately, Estefania died on Sept. 1958 due to pneumonia. Ignacio Saturnino (Estefania’s wife) tried to claim
the P5,000 value of Estefania’s insurance policy, but this was rejected by Philam. Ignacio filed a suit with CFI Manila
to demand payment from Philam. CFI found that 2 months before the issuance of the insurance policy (Sept.
1957), Estefania was operated for cancer (which involved the complete removal of her right breast, pectoral
muscles, and the glands found in her right armpit). Although she was discharged after her 8-day stay in the hospital,
her surgeon said that she shouldn’t be considered definitely cured as her ailment is a malignant type.Notwithstanding
ALS B2021
19
the fact of her operation Estefania did not make a disclosure thereof in her application for insurance. In her
insurance application, she stated that (1) she never had any ailments listed in the application, cancer, or
other tumors; (2) that she never consulted a doctor or undergone any operation, or suffered any injury
within the 5 preceding years; and (3) that she has never been treated for any disease peculiar to her sex.
CFI dismissed Ignacio’s complaint but ordered Philam to return the first-year premium paid by Estefania to Ignacio.
Aggrieved, Ignacio appealed to this court.
Issue: Did Estefania Saturnino make false representations of material facts as to avoid the insurance policy?
YES.
It is not disputed that the information given by Estefania in her insurance application was false (that she never had
cancer or tumors, or that she never consulted any doctor or undergone any operation within the preceding 5 years).
Sec. 30 (now 31) of the Insurance Law provides that “materiality is to be determined not by the event, but solely
by the probable and reasonable influence of the facts upon the party to whom the communication is due, in
forming his estimate of the proposed contract, or in making his inquiries.
Ignacio’s contention that the represented facts in the application were not material in view of the “non-medical”
nature of the insurance applied for is wrong. If anything, the waiver of medical examination renders even more
material the information required of the applicant concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an important factor which the insurer takes into
consideration in deciding whether to issue the policy or not. It is logical to assume that if Philam had been
properly apprised of the insured's medical history she would at least have been made to undergo medical
examination to determine her insurability.
Negligence (for not asking Estefania to submit to a medical examination) cannot be imputed to Philam as it was
precisely because Estefania had given herself a clean bill of health that Philam no longer considered an
actual medical checkup necessary. Ignacio couldn’t argue as well that there was no fraudulent concealment of
truth as Estefania’s doctor allegedly never told her that she was being operated for cancer because: (1) the
concealment of the fact of the operation itself was fraudulent, as there could not have been any mistake
about it, no matter what the ailment is; and (2) in order to avoid a policy, it is not necessary to show actual
fraud on the part of the insured. In the PHL, concealment, whether intentional or unintentional, entitles the insurer
to rescind the contract of insurance, concealment being defined as “negligence to communicate that which a party
knows and ought to communicate.”
Doctrines: Materiality is to be determined not by the event, but solely by the probable and reasonable influence
of the facts upon the party to whom the communication is due, in forming his estimate of the proposed
contract, or in making his inquiries.
Concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance,
concealment being defined as “negligence to communicate that which a party knows and ought to communicate.”
ALS B2021
20
Facts
1. The Insurance Policy of Estefania Saturnino, granted by Philippine American Life Insurance Company
(Philam, defendant-appellee), is a 20-year Endowment Non-Medical Insurance Policy with P5,000 face
value.
a. This kind of policy does not need a the applicant to undergo a medical examination. But detailed
information is required in the application concerning the applicant’s medical history.
b. [16 Nov. 1957] The written application for this insurance policy was submitted by Estefania herself to
Philam’s agent, Edward Santos. The policy was issued on the same day upon payment of the P339.25
representing the 1st year’s premium.
2. [19 Sept. 1958] Estefania died of pneumonia, secondary to influenza. So Ignacio Saturnino (Estefania’s wife)
and Carlos Saturnino (their son) (plaintiff-appellants) demanded payment of the P5,000 value of the insurance
policy from Philam. The claim was rejected by Philam, so Ignacio instituted this case with CFI Manila to recover
the P5,000 value of the insurance policy and P1,500 as attorney’s fees.
a. Philam, in turn, filed a counterclaim for damages allegedly sustained as a result of the institution of this
case.
3. [09 Sept. 1957], APPARENTLY, it was found that 2 months before the issuance of the insurance policy,
Estefania was operated for cancer (which involved the complete removal of her right breast, pectoral
muscles, and the glands found in her right armpit).
a. Although she was discharged after her 8-day stay in the hospital, her surgeon said that Estefania
shouldn’t be considered definitely cured as her ailment is a malignant type.
b. Notwithstanding the fact of her operation Estefania A. Saturnino did not make a disclosure thereof in her
application for insurance
c. On the contrary, she stated in that she:
1. never had any of the ailments listed in the application, cancer, or other tumors; and
2. that she never consulted a doctor or undergone any operation, or suffered any injury
within the 5 preceding years; and
3. that she had never been treated nor did she have any disease peculiar to her sex, particularly
the breast, ovaries, uterus, and menstrual disorders.
ii. The application also recites that the foregoing declarations constituted a “further basis for the
issuance of the policy”
4. [19 Sept. 1958] Estefania died of pneumonia, secondary to influenza. So Ignacio Saturnino (Estefania’s wife)
and Carlos Saturnino (their son) (plaintiff-appellants) demanded payment of the P5,000 value of the insurance
policy from Philam. The claim was rejected by Philam, so Ignacio instituted this case with CFI Manila to recover
the P5,000 value of the insurance policy and P1,500 as attorney’s fees.
5. [CFI Manila] the trial court dismissed both Ignacio’s complaint and Philam’s counterclaim; but the court ordered
Philam to return the premium already paid by Estefania (with 6% interest up to 08 Jan. 1959), when a P359.65
check was already sent to Ignacio by Philam.
Issues
Ruling
Did Estefania Saturnino (insured) make false representations of material facts as to avoid
the insurance policy?
Yes
Rationale – Estefania committed materially false representations in her insurance application.
1. It is not disputed that the information given by Estefania in her insurance application was false (that she never
had cancer or tumors, or that she never consulted any doctor or undergone any operation within the preceding
5 years).
2. Sec. 30 (now 31) of the Insurance Law provides that
o “materiality is to be determined not by the event,
▪ but solely by the probable and reasonable influence of the facts upon the party to whom the
communication is due,
▪ in forming his estimate of the proposed contract, or in making his inquiries.
ALS B2021
21
3. Ignacio contends that the represented facts in the application were not material in view of the “non-medical”
nature of the insurance applied for, which does away with the usual requirement of medical examination before
the policy is issued.
o SC: This contention is wrong. If anything, the waiver of medical examination renders even more
material the information required of the applicant concerning previous condition of health and
diseases suffered, for such information necessarily constitutes an important factor which the insurer
takes into consideration in deciding whether to issue the policy or not.
o It is logical to assume that if Philam had been properly apprised of the insured's medical history she
would at least have been made to undergo medical examination in order to determine her insurability.
4. Ignacio further contends that Edward Santos (Philam’s agent) was already informed of Estefania’s previous
illness and operation, as Edward was the one who filled the application form and was thereafter signed in blank
by Estefania.
o SC: This fact was denied by Edward in his testimony, which is binding upon the SC as this appeal was
brought up to the Court to deal with questions of law alone.
o SC then decided not to consider Philam’s contention (upheld by CFI) that in signing the application form
in blank and leaving it to Edward to fill (assuming that this is true), Estefania (the insured) in effect made
Edward her agent for that purpose and consequently was responsible for the errors in the entries made
by him in that capacity.
5. Ignacio maintains that Philam was guilty of negligence as it did not ask Estefania to submit a medical
examination despite her agreeing to be submitted to a medical examination by a duly appointed examiner of
Philam if it is in the opinion that such examination was necessary as further evidence of insurability.
o But SC continued to disagree with Ignacio as no such negligence can be imputed to Philam. It was
precisely because Estefania had given herself a clean bill of health that Philam no longer considered an
actual medical checkup necessary.
6. Ignacio also contends that there was no fraudulent concealment of the truth inasmuch as Estefania herself did
not know, since her doctor never told her, that the disease for which she had been operated on was cancer.
o SC disagreed again with Ignacio as:
▪ (1) the concealment of the fact of the operation itself was fraudulent, as there could not have been
any mistake about it, no matter what the ailment is; and
▪ (2) in order to avoid a policy, it is not necessary to show actual fraud on the part of the insured.
● Kasprzyk vs. Metropolitan Insurance Co.: if it were the law that an insurance company
could NOT depend on a policy on the ground of misrepresentation, unless it could show
actual knowledge on the applicant that the statements were false, then it is plan that it
would be impossible for it to protect itself and its policyholders against fraudulent and
improper claims. It would then be at the mercy of anyone who wished to apply for
insurance as it would be impossible to show actual fraud except in the extreme cases. It
could not rely on an application as containing information on which it could act.
7. In the PHL, concealment, whether intentional or unintentional, entitles the insurer to rescind the
contract of insurance, concealment being defined as “negligence to communicate that which a party knows
and ought to communicate.”
8. Argente vs. West Coast Life Insurance Co., quoting Joyce (the law of Insurance): the basis of the rule vitiating
the contract in cases of concealment is that it misleads or deceives the insurer into accepting the risk, or
accepting it at the rate of premium agreed upon. The insurer, relying upon the belief that the assured will
disclose every material fact within his actual or presumed knowledge, is misled into a belief that the
circumstance withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it
does not exist.”
Disposition: CFI Manila Judgment is AFFIRMED. Costs against Ignacio.
Ignacio is not entitled to the face value of the insurance policy, but the premium already paid by Estefania should
be returned to Ignacio with 6 % interest up to 29 Jan. 1959.
262
CANILANG v. CA
ALS B2021
Insurance - Concealment
22
G.R. No. 92492
Petitioners:
THELMA VDA. DE CANILANG
June 17, 1993
FELICIANO, J.
Ong
Respondents:
HON. COURT OF APPEALS and GREAT PACIFIC
LIFE ASSURANCE CORPORATION
Recit Ready Summary
Jaime Canilang consulted his doctor, Dr. Wilfredo B. Claudio, twice. On the first consultation, he was
diagnosed with “sinus tachycardia”. Dr. Claudio prescribed the following fro him: Trazepam, a
tranquilizer; and Aptin, a beta-blocker drug.
On the second consultation, which is less than two months later, he was diagnosed with "acute
bronchitis."
A day after his second consultation, he applied for and was granted with an insurance a "non-medical"
insurance policy [ordinary life insurance Policy No. 345163], with the face value of P19,700, effective as
of 9 August 1982 with Great Pacific Life Assurance Company naming his wife, Thelma Canilang, as his
beneficiary. A non-medical insurance is one "which does away with the usual medical examination before
the policy is issued." Saturnino v. Philippine-American Life Insurance Company (footnote # 1 in the
case)
On 5 August 1983, Jaime died due to "congestive heart failure," "anemia," and "chronic anemia."
His widow tried to claim for insurance proceeds but was denied on the ground that Jaime concealed a
Material information.
During the hearing, Canilang testified that she was not aware of any serious illness suffered by her late
husband and that, as far as she knew, her husband had died because of a kidney disorder. A deposition
given by Dr. Wilfredo Claudio, where Dr. Claudio stated that he was the family physician of the deceased
Jaime Canilang and that he had previously treated him for "sinus tachycardia" and "acute bronchitis."
Great Pacific for its part presented Dr. Esperanza Quismorio, a physician and a medical underwriter
working for Great Pacific. She testified that the deceased's insurance application had been approved on
the basis of his medical declaration. Dr. Quismorio explained that as a rule, medical examinations are
required only in cases where the applicant has indicated in his application for insurance coverage that
he has previously undergone medical consultation and hospitalization.
The Insurance Commissioner (IC) ruled in favor of Thelma, ruling that:
1. there was no intentional concealment
2. unintentional concealment under the applicable laws that time is not a defect which would render
the insurance contract void; and
3. the insurance company waived its right to inquire into the health condition of the applicant by
issuing the policy despite the lack of answers or blanks in the application
CA reversed the IC’s decision, saying that the failure of Jaime Canilang to disclose previous medical
consultation and treatment constituted material information which should have been
communicated to Great Pacific to enable the latter to make proper inquiries. CA held that the Ng
Gan Zee case which had involved misrepresentation was not applicable in respect of the case at bar
which involves concealment.
Issue: W/N there was intentional concealment on the part of Jaime - YES
The relevant provisions of P.D. No. 1460, also known as the Insurance Code of 1978 provides:
Sec. 26 Neglect to communicate that which a party knows and ought to communicate, is called a
concealment.
ALS B2021
23
Sec. 28 Each party to a contract of insurance must communicate to the other, in good faith, all
factors within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining.
Section 31 Materially is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming his
estimate of the disadvantages of the proposed contract, or in making his inquiries.
Application:
Mr. Canilang in paragraph 1 and 2 of the medical declaration, he failed to disclose in the appropriate
space, under the caption "Exceptions," that he had twice consulted Dr. Wilfredo B. Claudio who had
found him to be suffering from "sinus tachycardia" and "acute bronchitis."
MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any medical or surgical
advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney, stomach disorder, or any other physical impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
________________________________________________________________________________
The information which Jaime Canilang failed to disclose was material to the ability of Great Pacific to
estimate the probable risk he presented as a subject of life insurance. Had Canilang disclosed his visits
to his doctor, the diagnosis made and medicines prescribed by such doctor, in the insurance application,
it may be reasonably assumed that Great Pacific would have made further inquiries and would have
probably refused to issue a non-medical insurance policy or, at the very least, required a higher premium
for the same coverage.The materiality of the information withheld by Great Pacific did not depend upon
the state of mind of Jaime Canilang, the insured. A man's state of mind or subjective belief is not capable
of proof in our judicial process, except through proof of external acts or failure to act from which inferences
as to his subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or
physical events which ensue.
Applicable laws provides that any concealment (intentional or not) would render the insurance contract
void. The restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or unintentional" merely
underscored the fact that all throughout (from 1914 to 1985), the statute did not require proof that
concealment must be "intentional" in order to authorize rescission by the injured party. Thus, Section 27
of the Insurance Code of 1978 is properly read as referring to "any concealment" without regard to
whether such concealment is intentional or unintentional.
Doctrine: Materiality relates to the "probable and reasonable influence of the facts" upon the party
to whom the communication should have been made, in assessing the risk involved in making or omitting
to make further inquiries and in accepting the application for insurance; that "probable and reasonable
influence of the facts" concealed must, of course, be determined objectively, by the judge ultimately.
Materiality is neither based on the insured’s state of mind or subjective belief nor actual or physical
events which ensue.
ALS B2021
24
Excerpt from the Ng Gan Zee case cited by the CA but not discussed by the SC
Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it to the assurer, but he designedly and
intentionally withholds the same. It must be material and fraudulent or the fact must have been
intentionally withheld.
It bears emphasis that Kwong had informed the appellant’s medical examiner that the tumor for which
he was operated on was ‘’associated with ulcer of the stomach." In the absence of evidence that the
insured had sufficient medical knowledge as to enable him to distinguish between "peptic ulcer" and "a
tumor", his statement that said tumor was "associated with ulcer of the stomach," should be construed
as an expression made in good faith of his belief as to the nature of his ailment and operation. Indeed,
such statement must be presumed to have been made by him without knowledge of its incorrectness
and without any deliberate intent on his part to mislead the Appellant.
Facts + Procedural (relevant)
15. On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as
suffering from "sinus tachycardia. Sinus tachycardia is considered present when the heart rate
exceeds 100 beats per minute. The doctor prescribed the following for him:
a. Trazepam, a tranquilizer; and
b. Aptin, a beta-blocker drug.
16. Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was found to have
"acute bronchitis."
17. On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with
Great Pacific Life Assurance Company (Great Pacific) naming his wife, Thelma Canilang, as his
beneficiary. Jaime Canilang was issued ordinary life insurance Policy No. 345163, with the face
value of P19,700, effective as of 9 August 1982.
18. On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic
anemia."
19. THELMA VDA. DE CANILANG, widow and beneficiary of the insured, filed a claim with Great
Pacific which the insurer denied upon the ground that the insured had concealed material
information from it.
20. Petitioner then filed a complaint against Great Pacific with the Insurance Commission for
recovery of the insurance proceeds.
21. The Insurance Commissioner Armando Ansaldo ruled in favor of Canilang, holding that:
a. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed, it
would not have affected Great Pacific's decision to insure him;
b. Great Pacific had waived its right to inquire into the health condition of the applicant by
the issuance of the policy despite the lack of answers to "some of the pertinent
questions" in the insurance application;
c. there was no intentional concealment on the part of the insured Jaime Canilang as he
had thought that he was merely suffering from a minor ailment and simple cold; and
d. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not
concealment was intentionally made, was not applicable to Canilang's case as that law
became effective only on 1 June 1985.
22. CA reversed, ruling that:
a. the use of the word "intentionally" by the Insurance Commissioner in defining and
resolving the issue agreed upon by the parties at pre-trial before the Insurance
Commissioner was not supported by the evidence
b. the failure of Jaime Canilang to disclose previous medical consultation and treatment
constituted material information which should have been communicated to Great Pacific
to enable the latter to make proper inquiries.
23. The medical declaration was set out as follows:
MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any
medical or surgical advice/attention within the last five (5) years.
ALS B2021
25
(2) I have never been treated nor consulted a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney, stomach disorder, or any other physical
impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
____________________________________________________________________
____________
Xxx xxx xxx
Points of Contention
[Please refer to FACT NO. 7 above]
Issues
5. W/N there was intentional concealment on the part of Jaime Canilang
Ruling
7. Yes
Rationale
4. There was intentional concealment on the part of Jaime Canilang
In addition to the negative statements made by Mr. Canilang in paragraph 1 and 2 of the medical
declaration, he failed to disclose in the appropriate space, under the caption "Exceptions," that he
had twice consulted Dr. Wilfredo B. Claudio who had found him to be suffering from "sinus
tachycardia" and "acute bronchitis."
What is concealment
The relevant statutory provisions as they stood at the time Great Pacific issued the contract of
insurance and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known as the
Insurance Code of 1978, which went into effect on 11 June 1978. These provisions read as follows:
Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith,
all factors within his knowledge which are material to the contract and as to which he makes
no warranty, and which the other has not the means of ascertaining. (Emphasis supplied)
Under the foregoing provisions, the information concealed must be information which the concealing
party knew and "ought to [have] communicate[d]," that is to say, information which was "material to
the contract."
The test of materiality
Section 31 of the Insurance Code of 1978 reads:
Sec. 31. Materially is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming
his estimate of the disadvantages of the proposed contract, or in making his inquiries
The information which Jaime Canilang failed to disclose was material to the ability of Great Pacific
to estimate the probable risk he presented as a subject of life insurance. Had Canilang disclosed
his visits to his doctor, the diagnosis made and medicines prescribed by such doctor, in the
insurance application, it may be reasonably assumed that Great Pacific would have made further
inquiries and would have probably refused to issue a non-medical insurance policy or, at the very
least, required a higher premium for the same coverage.
ALS B2021
26
The materiality of the information withheld by Great Pacific did not depend upon the state of mind
of Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial
process, except through proof of external acts or failure to act from which inferences as to his
subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or
physical events which ensue. "Probable and reasonable influence of the facts" concealed must, of
course, be determined objectively, by the judge ultimately.
Concealment, intentional or not, entitles rescission
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain
information to the insurer was not "intentional" in nature, for the reason that Jaime Canilang
believed that he was suffering from minor ailment like a common cold. Section 27 of the Insurance
Code of 1978 as it existed from 1974 up to 1985, that is, throughout the time range material for
present purposes, provided that:
Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to
rescind a contract of insurance.
Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as
to read as follows:
Sec. 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance
The unspoken theory of the Insurance Commissioner appears to have been that by deleting the
phrase "intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P.
Blg. 874) intended to limit the kinds of concealment which generate a right to rescind on the part
of the injured party to "intentional concealments." This argument is not persuasive. As a simple
matter of grammar, it may be noted that "intentional" and "unintentional" cancel each other out.
The net result therefore of the phrase "whether intentional or unitentional" is precisely to leave
unqualified the term "concealment." Thus, Section 27 of the Insurance Code of 1978 is properly
read as referring to "any concealment" without regard to whether such concealment is intentional
or unintentional.
The nature of the facts not conveyed to the insurer was such that the failure to communicate must
have been intentional rather than merely inadvertent. For Jaime Canilang could not have been
unaware that his heart beat would at times rise to high and alarming levels and that he had
consulted a doctor twice in the two (2) months before applying for non-medical insurance. Indeed,
the last medical consultation took place just the day before the insurance application was filed. In
all probability, Jaime Canilang went to visit his doctor precisely because of the discomfort and
concern brought about by his experiencing "sinus tachycardia."
The restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or unintentional" merely
underscored the fact that all throughout (from 1914 to 1985), the statute did not require proof that
concealment must be "intentional" in order to authorize rescission by the injured party.
No Waiver
That Great Pacific had not waived inquiry into the concealment by issuing the insurance policy
notwithstanding Canilang's failure to set out answers to some of the questions in the insurance
application. Such failure precisely constituted concealment on the part of Canilang. Petitioner's
argument, if accepted, would obviously erase Section 27 from the Insurance Code of 1978.
ALS B2021
27
Disposition
Petition is DENIED. CA decision affirmed.
79
Sunlife v. Bacani
G.R. No. 105135
Sunlifes:
Sunlife Assurance Company of Canada
22 June 1995
INSURANCE – Concealment; good faith not a
defense
Quiason, J.
Belle, edited by Ria
Respondents:
The Hon. Court of Appeals and Sps. Rolando and Bernarda
Bacani
Recit Ready Summary
INSURED: Robert Bacani
INSURER: Sunlife
BENEFICIARY: Bernarda Bacani
The insured Robert Bacani procured from Sunlife a life insurance contract for himself valued at P100,000 with
double indemnity in case of accidental death. His mother Bernarda was the beneficiary. Subsequently, the insured
died in a plane crash thus prompting Bernarda to file a claim with Sunlife. The latter rejected the claim upon
investigation as it found that the insured did not disclose material facts, rendering the insurance contract voidable.
More particularly, Sunlife claimed that the insured gave false statements in his application because in answering the
same, the insured stated that in the last 5 years: (1) he only consulted with a certain Dr. Raymundo for cough and flu
complications, (2) that he did not submit to any medical tests, (3) that he had not been admitted to any hospital, and
(4) that he did not have or sought advice for urine, kidney or bladder disorder. Sunlife discovered that 2 weeks prior
to his application, the insured was examined and confined at the Lung Center of the Philippines, where he was
diagnosed for renal failure. During his confinement, the insured was subjected to urinalysis, ultra-sonography, and
hematology tests. Thus, Bernarda and her husband Rolando (Sps. Bacani) filed a case for specific performance
against Sunlife with the RTC. The trial court ruled in their favor and held that the facts concealed by the insured were
made in good faith and under a belief that they need not be disclosed. The CA affirmed and held that Sunlife cannot
avoid its obligation by claiming concealment because the cause of death was unrelated to the facts concealed by the
insured. Hence, this petition before the SC.
Was there material concealment on the part of the insured which warrants the exercise of the right to rescind
the insurance contract by Sunlife? Yes.
The SC cites Sec. 26 of the Insurance Code which defines concealment as a neglect to communicate that which
a party knows and ought to communicate. It discusses that said section explicitly requires a party to an insurance
contract to communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of ascertaining. It explains
that materiality is to be determined by the probable and reasonable influence of the facts upon the party to whom
communication is due. Further, citing case law, it held that materiality of the information withheld does not depend on
the state of mind of the insured; thus, good faith is not a defense in concealment. In any case, the insured's failure to
disclose the fact that he was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts
about his good faith. It appears that such concealment was deliberate on his part.
Here, the terms of the contract are clear. The insured is specifically required to disclose to the insurer matters
relating to his health. The information which the insured failed to disclose were material and relevant to the
approval and issuance of the insurance policy. The matters concealed would have definitely affected Sunlife's
action on his application, either by approving it with the corresponding adjustment for a higher premium or rejecting
the same. On the finding that the facts concealed had no bearing to the cause of death of the insured, the SC reiterates
the rule that the insured need not die of the disease he had failed to disclose to the insurer. Therefore, Sunlife
ALS B2021
28
properly exercised its right to rescind the insurance contract by reason of the concealment employed by the
insured. Petition denied.
DOCTRINE:
Sec. 26 of the Insurance Code which defines concealment as a neglect to communicate that which a party knows
and ought to communicate. It requires a party to an insurance contract to communicate to the other, in good faith, all
facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the
other has no means of ascertaining.
Materiality is to be determined by the probable and reasonable influence of the facts upon the party to whom
communication is due. Materiality of the information withheld does not depend on the state of mind of the insured;
thus, good faith is not a defense in concealment.
Facts
24. On April 15, 1986, Robert Bacani (insured) procured a life insurance contract for himself from Sunlife (Policy No. 3-903-766X) valued at P100K with double indemnity in case of accidental death. The designated beneficiary was his mother, respondent
Bernarda Bacani.
25. On June 26, 1987, the insured died in a plane crash. Bernarda filed a claim with Sunlife, seeking the benefits of the insurance
policy taken by her son. Sunlife conducted an investigation and its findings prompted it to reject the claim.
26. In its letter, Sunlife informed Bernarda that the insured did not disclose material facts relevant to the issuance of the policy,
thus, rendering the contract of insurance voidable. A check representing the total premiums paid in the amount of P10,172
was attached to said letter.
27. Sunlife claimed that the insured gave false statements in his application when he answer the following questions (the nonverbatim answers of the insured are in parenthesis):
•
5. Within the past 5 years have you:
a) Consulted any doctor or other health practitioner? (Yes, consulted with Dr. Reinaldo Raymundo of the Chinese General
Hospital on Feb. 1986, for cough and flu complications)
b) Submitted to: EGG? X-rays? Blood tests? Other tests? (No)
c) Attended or been admitted to any hospital or other medical facility? (No)
•
6. Have you ever had or sought advice for:
xxx
b) Urine, kidney or bladder disorder? (No)
5. Sunlife discovered that 2 weeks prior to his application for insurance, the insured was examined and confined at the Lung Center
of the Philippines, where he was diagnosed for renal failure. During his confinement, the insured was subjected to urinalysis, ultrasonography, and hematology tests.
Procedural History
1. On Nov. 17, 1988, Bernarda and her husband Rolando (Sps. Bacani) filed an action for specific performance against Sunlife
with the RTC, Branch 191, Valenzuela, Metro Manila. Sunlife filed its answer with counterclaim and a list of exhibits consisting
of medical records furnished by the Lung Center.
2. Sps. Bacani filed a “Proposed Stipulation with Prayer for Summary Judgment” where they manifested that they have no
evidence to refute the documentary evidence of concealment/misrepresentation by the insured of his health condition.
3. Sunlife filed its Request for Admissions relative to the authenticity and due execution of several documents as well as
allegations regarding the health of the insured. The Sps. failed to oppose the request or reply thereto, rendering an admission
of the matters alleged.
4. Sunlife moved for summary judgment. Trial court ruled in favor of the Sps; Sunlife was ordered to pay P100K (value of policy)
+ P100K (Accidental Death Benefit) + P5K (atty’s fees and costs of suit).
-
5.
It concluded that the facts concealed by the insured were made in good faith and under a belief that they need not be disclosed.
Moreover, it held that the health history of the insured was immaterial since the insurance policy was "non-medical".
Sunlife appealed to the CA which affirmed the decision.
-
CA ruled that Sunlife cannot avoid its obligation by claiming concealment because the cause of death was unrelated to the facts concealed
by the insured.
It also sustained the finding of the trial court that matters relating to the health history of the insured were irrelevant since Sunlife waived
the medical examination prior to the approval and issuance of the insurance policy.
Moreover, the CA agreed that the policy was "non-medical"
6. MR denied. Hence, this Rule 45 petition before the SC.
Issues
W/N there was material concealment on the part of the insured which warrants the exercise of the
right to rescind the insurance contract by Sunlife
Rationale
There was material concealment of facts by the Insured.
ALS B2021
Ruling
YES
29
Sec. 26 of the Insurance Code – A neglect to communicate that which a party knows and ought to communicate, is called
concealment.
-
Said section explicitly requires a party to an insurance contract to communicate to the other, in good faith, all facts within
his knowledge which are material to the contract and as to which he makes no warranty, and which the other has
no means of ascertaining.
o Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the
facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the
proposed contract or in making his inquiries (Sec. 31, Code).
-
The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating
to his health.
-
The information which the insured failed to disclose were material and relevant to the approval and issuance of
the insurance policy.
o The matters concealed would have definitely affected Sunlife's action on his application, either by approving it
with the corresponding adjustment for a higher premium or rejecting the same.
o Moreover, a disclosure may have warranted a medical examination of the insured by Sunlife in order for it to
reasonably assess the risk involved in accepting the application.
-
Case law: materiality of the information withheld does not depend on the state of mind of the insured. Neither does
it depend on the actual or physical events which ensue. (Vda. De Canilang v. CA)
-
Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized for
two weeks prior to filing his application for insurance, raises grave doubts about his bona fides. It appears that such
concealment was deliberate on his part.
-
SC rejects the Sps.’s argument, that Sunlife's waiver of the medical examination of the insured debunks the
materiality of the facts concealed.
o Case law: the waiver of a medical examination [in a non-medical insurance contract] renders even more material
the information required of the applicant concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes into consideration in deciding
whether to issue the policy or not (Saturnino v. Philam Life Insurance)
o Moreover, said argument would make Sec. 27 of the Code which allows the injured party to rescind a contract of
insurance where there is concealment, ineffective.
-
On the finding that the facts concealed had no bearing to the cause of death of the insured:
o Case law: the insured need not die of the disease he had failed to disclose to the insurer; it is sufficient that
his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in
making inquiries (Henson v. Philam Life Insurance)
-
Therefore, Sunlife properly exercised its right to rescind the insurance contract by reason of the concealment employed
by the insured. It must be noted that the rescission was exercised within the 2-year contestability period as recognized in
Sec. 48 of the Code.
Disposition
Petition is GRANTED. The CA decision is reversed. Insured is guilty of concealment.
264
Ng Gan Zee v. Asian Crusader Life Assurance
Corp.
G.R. No. L-30685
ALS B2021
May 30, 1983
Insurance: Representation
ESCOLIN, J.
Jill
30
Plaintiff-Appellee:
Defendant-Appellant:
NG GAN ZEE
ASIAN CRUSADER LIFE ASSURANCE
CORPORATION
Recit Ready Summary
Insurer: Asian Crusader
Insured: Kwong Nam
Beneficiary Ng Gan Zee (wife of Kwong Nam)
Kwong Nam applied for a 20-year endowment insurance on his life for P20,000.00, with his wife, appellee
Ng Gan Zee, as beneficiary. Asian Crusader approved the application and issued the corresponding policy.
Kwong Nam eventually died of liver cancer. All premiums had been paid at the time of his death. Ng Gan
Zee filed a claim with Asian Crusader but it was denied on the following grounds:
1. He answered “NO” to the question of whether any life insurance company ever refused his
application for insurance or for reinstatement of a lapsed policy or offered a policy different from
that applied for. Asian Crusader alleged that the insured applied for reinstatement of his lapsed life
insurance policy with Insular Life but this was declined by the insurance company, although later
on approved for reinstatement with a very high premium as a result of his medical examination.
2. He gave the medical examiner false and misleading information as to his ailment and previous
operation. Kwong Nam stated that he was operated for a tumor associated with stomach ulcer and
that the tumor was “hard and of a hen’s egg size.” In truth, the operation performed on him was a
'sub-total gastric resection’ for peptic ulcer and the specimen removed from his body was “a portion
of the stomach measuring 12 cm. and 19 cm. along the lesser curvature with a diameter of 15 cm.”
[so larger than an egg]
W/N Asian Crusader, because of the insured's representation, was misled or deceived into entering
the contract or in accepting the risk at the rate of premium agreed upon? — NO
●
Concealment exists where the insured had knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it to the insurer, but he designedly and
intentionally withholds the same. The concealment must, in the absence of inquiries, be not only
material, but fraudulent, or the fact must have been intentionally withheld.
o
●
Assuming that the answer given by the insured is false, fraudulent intent on the part of the insured
must be established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid liability is an 'affirmative' defense. The duty to
establish such a defense by satisfactory and convincing evidence rests upon the defendant.
o
The evidence before the Court does not clearly and satisfactorily establish that defense.
o
It bears emphasis that Kwong Nam had informed the medical examiner that the tumor for which he
was operated on was "associated with ulcer of the stomach." In the absence of evidence that the
insured had sufficient medical knowledge as to enable him to distinguish between "peptic ulcer"
and "a tumor", his statement that said tumor was "associated with ulcer of the stomach, "
should be construed as an expression made in good faith of his belief as to the nature of
ALS B2021
31
his ailment and operation. Such statement must be presumed to have been made by him without
knowledge of its incorrectness and without any deliberate intent on his part to mislead the appellant.
●
Where, upon the face of the application, a question appears to be not answered at all or to be
imperfectly answered, and the insurers issue a policy without any further inquiry, they waive the
imperfection of the answer and render the omission to answer more fully immaterial.
o
If the ailment and operation of Kwong Nam had such an important bearing on the question of
whether the Asian Crusader would undertake the insurance or not, the court cannot understand
why the defendant or its medical examiner did not make any further inquiries on such matters from
the hospital or require copies of the hospital records before acting on the application for insurance.
Thus, Ng Gan Zee can claim from Asian Crusader.
Doctrines:
●
Concealment exists where the insured had knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should communicate it to the insurer, but he designedly
and intentionally withholds the same. The concealment must, in the absence of inquiries, be not
only material, but fraudulent, or the fact must have been intentionally withheld.
●
Misrepresentation as a defense of the insurer to avoid liability is an 'affirmative' defense. The duty
to establish such a defense by satisfactory and convincing evidence rests upon the defendant.
●
Where, upon the face of the application, a question appears to be not answered at all or to be
imperfectly answered, and the insurers issue a policy without any further inquiry, they waive the
imperfection of the answer and render the omission to answer more fully immaterial.
Facts
1. On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum of
P20,000.00, with his wife, appellee Ng Gan Zee as beneficiary. On the same date, Asian Crusader,
upon receipt of the required premium from the insured, approved the application and issued the
corresponding policy.
2. On December 6, 1963, Kwong Nam died of cancer of the liver with metastasis. All premiums had been
religiously paid at the time of his death.
3. On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to Asian Crusader for
payment of the face value of the policy. On the same date, she submitted the required proof of death
of the insured. Asian Crusader denied the claim on the ground that the answers given by the insured
to the questions appealing in his application for life insurance were untrue.
Procedural History
3. Ng Gan Zee brought the matter to the attention of the Insurance Commissioner (IC), Francisco Y.
Mandamus. After conducting an investigation, he wrote Asian Crusader that he had found no
material concealment on the part of the insured and that, therefore, Ng Gan Zee should be paid the
full face value of the policy. This opinion of the IC notwithstanding, Asian Crusader refused to settle
its obligation.
4. Asian Crusader alleged that the insured was guilty of misrepresentation when he answered "No" to
the following question appearing in the application for life insurance-
ALS B2021
32
Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied for? If so,
name company and date.
5. In its brief, Asian Crusader explained:
… the insured had in January, 1962, applied for reinstatement of his lapsed life insurance
policy with the Insular Life Insurance Co., Ltd [Insular Life], but this was declined by the
insurance company, although later on approved for reinstatement with a very high premium
as a result of his medical examination. Thus notwithstanding the said insured answered 'No'
to the [above] question propounded to him...
6. The lower court ruled in favor of Ng Gan Zee. stating:
a. There is no evidence that Insular Life ever refused any application of Kwong Nam for
insurance. Neither is there any evidence that any other insurance company has refused
any application of Kwong Nam for insurance.
b. The evidence shows that the Insular Life approved Kwong Nam's request for reinstatement
and amendment of his lapsed insurance policy on April 24, 1962. From said application for
reinstatement and amendment, the amount applied for was P20,000.00 only and not
for P50,000.00 as it was in the lapsed policy. The amount of the reinstated and amended
policy was also for P20,000.00. It results, therefore, that when on May 12, 1962 Kwong
Nam answered 'No' to the question whether any life insurance company ever refused his
application for reinstatement of a lapsed policy he did not misrepresent any fact.
c.
The evidence shows that the application of Kwong Nam was for the reinstatement and
amendment of his lapsed insurance policy, not an application for a new insurance policy.
Such being the case, the Court finds that there is no misrepresentation on this matter.
7. Asian Crusader further maintains that when the insured was examined in connection with his
application for life insurance, he gave the medical examiner false and misleading information as to
his ailment and previous operation. The alleged false statements given by Kwong Nam are as
follows:
a. Operated on for a Tumor (myoma) of the stomach. Claims that Tumor has been associated
with ulcer of stomach. Tumor taken out was hard and of a hen's egg size. Operation was 2
years ago in Chinese General Hospital by Dr. Yap. Now, claims he is completely recovered.
8. To demonstrate the insured's misrepresentation, Asian Crusader pointed to:
a. The report of Dr. Fu Sun Yuan, the physician who treated Kwong Nam at the Chinese
General Hospital on May 22, 1960, i.e., about 2 years before he applied for an insurance
policy on May 12, 1962. According to the report, Dr. Fu Sun Yuan had diagnosed the
patient's ailment as 'peptic ulcer' for which, an operation, known as a 'sub-total gastric
resection was performed on the patient by Dr. Pacifico Yap; and
b. The Surgical Pathology Report of Dr. Elias Pantangco showing that the specimen removed
from the patient's body was 'a portion of the stomach measuring 12 cm. and 19 cm. along
the lesser curvature with a diameter of 15 cm. along the greatest dimension.
9. Asian Crusader argues that the insured's statement in his application that a tumor, "hard and of a
hen's egg size," was removed during said operation, constituted material concealment 4.
4
For reference lang:
ALS B2021
33
Issues
Ruling
1. W/N Asian Crusader, because of the insured's representation, was misled or
deceived into entering the contract or in accepting the risk at the rate of premium
agreed upon?
1. No
Rationale
1. Asian Crusader was NOT misled or deceived into entering the contract or in accepting the risk
at the rate of premium agreed upon.
●
Section 27 of the Insurance Law (Act 2427) [old law] provides:
Sec. 27. Such party to a contract of insurance must communicate to the other, in good
faith, all facts within his knowledge which are material to the contract, and which the
other has not the means of ascertaining, and as to which he makes no warranty.
●
Concealment exists where the insured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the insurer, but
he designedly and intentionally withholds the same. The concealment must, in the absence of
inquiries, be not only material, but fraudulent, or the fact must have been intentionally withheld.
●
Assuming that the answer given by the insured is false, Sec. 27 of the Insurance Law
nevertheless requires that fraudulent intent on the part of the insured be established to entitle
the insurer to rescind the contract.
●
Also, misrepresentation as a defense of the insurer to avoid liability is an 'affirmative' defense.
The duty to establish such a defense by satisfactory and convincing evidence rests upon the
defendant. The evidence before the Court does not clearly and satisfactorily establish that
defense.
●
It bears emphasis that Kwong Nam had informed the medical examiner that the tumor for which
he was operated on was "associated with ulcer of the stomach." In the absence of evidence
that the insured had sufficient medical knowledge as to enable him to distinguish between
"peptic ulcer" and "a tumor", his statement that said tumor was "associated with ulcer of
the stomach, " should be construed as an expression made in good faith of his belief as
to the nature of his ailment and operation. Such statement must be presumed to have been
made by him without knowledge of its incorrectness and without any deliberate intent on his
part to mislead the appellant.
●
While it may be conceded that, from the viewpoint of a medical expert, the information
communicated was imperfect, the same was nevertheless sufficient to have induced Asian
Crusader to make further inquiries about the ailment and operation of the insured.
Egg Size
Average Length Average Width
Medium
53.12 mm
40.61 mm
Large
55.275 mm
42.93 mm
Extra Large
59.675 mm
44.83 mm
ALS B2021
34
●
Section 32 of Insurance Law [Act No. 24271 provides as follows:
Section 32. The right to information of material facts maybe waived either by the terms
of insurance or by neglect to make inquiries as to such facts where they are distinctly
implied in other facts of which information is communicated.
●
Where, upon the face of the application, a question appears to be not answered at all or to
be imperfectly answered, and the insurers issue a policy without any further inquiry, they
waive the imperfection of the answer and render the omission to answer more fully
immaterial.
●
If the ailment and operation of Kwong Nam had such an important bearing on the question of
whether the defendant would undertake the insurance or not, the court cannot understand why
the defendant or its medical examiner did not make any further inquiries on such matters from
the Chinese General Hospital or require copies of the hospital records from the appellant before
acting on the application for insurance. The fact of the matter is that the defendant was too
eager to accept the application and receive the insured's premium. It would be inequitable now
to allow the defendant to avoid liability under the circumstances.
Disposition
Petition denied. Asian Crusader should pay Ng Gan Zee.
GREAT PACIFIC LIFE ASSURANCE CORP. V.
COURT OF APPEALS
Insurance: Representation
265
G.R. No. 113899
13 October 1999
Quisumbing, J.
Yed (edited by
Larah)
Petitioners:
Respondents:
GREAT PACIFIC LIFE ASSURANCE CORP.
COURT OF APPEALS AND MEDARDA V.
LEUTERIO
Recit Ready Summary
Grepalife and DBP entered into a contract of group life insurance to insure the lives of eligible housing loan
mortgagors of DBP. Dr. Wilfredo Leuterio, a physician and housing debtor of DBP applied for membership
in the same plan. In his application, he stated that: (1) he never had, or consulted, a physician for a heart
condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical
impairment; and (2) to the best of his knowledge, he is presently in good health. Grepalife issued an
insurance coverage to the extent of his DBP mortgage indebtedness amounting to Php 86,200.00.
Dr. Leuterio died due to massive cerebral hemorrhage so DBP submitted a death claim to Grepalife. This
was denied, arguing that the insured didn’t disclose that he was suffering from hypertension, which caused
his death. His widow filed a complaint against Grepalife for specific performance and damages.
ALS B2021
35
W/N Grepalife is liable to DBP as beneficiary?— NO
Where the mortgagor pays the insurance premium under the group insurance policy, making the loss
payable to the mortgagee, the insurance is on the mortgagor’s interest, and the mortgagor continues to be
a party to the contract. The mortgagee is simply an appointee of the insurance fund; such loss-payable
clause does not make the mortgagee a party to the contract. Insured private respondent did not cede to the
mortgagee all his rights or interests in the insurance policy. After DBP was denied payment by Grepalife,
interposing the defense of concealment, DBP collected the debt from the mortgagor and took the necessary
action of foreclosure on the residential lot of private respondent.
W/N Dr. Leuterio concealed that he had hypertension which justifies Grepalife’s refusal to pay—
NO
Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it but he designedly and intentionally withholds
the same. The testimony offered by the attending physician, Dr. Mejia is only hearsay. The medical findings
were not conclusive he did not conduct an autopsy. He also merely relied on the widow’s testimony that the
insured complained of headache, presumably due to hypertension. Fraudulent intent of the insured must
be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer
to avoid liability is an affirmative defense and the duty to establish the same by satisfactory and convincing
evidence rests on the insurer. Petitioner failed to do this.
Doctrines:
•
•
Where the mortgagor pays the insurance premium under the group insurance policy, making the
loss payable to the mortgagee, the insurance is on the mortgagor’s interest, and the mortgagor
continues to be a party to the contract. The mortgagee is simply an appointee of the insurance fund
Concealment exists where the assured had knowledge of a fact material to the risk, and honesty,
good faith, and fair dealing requires that he should communicate it but he designedly and
intentionally withholds the same.
Note: "Mortgage redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On
the part of the mortgagee, in the event of the unexpected demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby
relieving the heirs of the mortgagor from paying the obligation. On the part of the mortgagor, in the event of death, the
mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness.
Facts
1. Great Pacific Life Assurance Corporation (Grepalife) executed a contract of group life insurance with
Development Bank of the Philippines (DBP) for the former to insure the lives of eligible housing loan
mortgagors of the latter.
2. Dr. Wilfredo Leuterio, a physician and housing debtor of DBP applied for membership in the same
plan. In the application form, he answered:
“7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment?
ALS B2021
36
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No.”
3. Grepalife issued Cert. No. B-18558, as insurance coverage of Dr. Leuterio to the extent of his DBP
mortgage indebtedness amounting to Php 86,200.00.
4. Dr. Leuterio died due to massive cerebral hemorrhage. DBP submitted a death claim to Grepalife,
which the latter denied, alleging that when the insured applied, he was not physically healthy and he
didn’t disclose that he had been suffering from hypertension, which caused his death. This constituted
concealment.
5. His widow, respondent Medarda Leuterio filed a complaint with RTC Misamis Oriental against
Grepalife for specific performance with damages. Dr. Hernando Mejia, the physician who issued the
death certificate, testified based partly from the information given by the respondent widow that the
insured complained of headaches presumably due to high blood pressure. The inference was not
conclusive because he was not autopsied; other causes were not ruled out.
6. Trial court ruled in favor of the widow and against Grepalife, which CA sustained.
Points of Contention
[Grepalife]
●
Complaint was instituted by the widow, not the real party in interest so trial court acquired no
jurisdiction over the case; CA held Grepalife liable to pay the proceeds in favor of DBP, the
indispensable party who was not joined in the suit
●
Dr. Leuterio failed to disclose that he had hypertension which might have caused his death
●
Dr. Mejia’s technical diagnosis was a duly documented hospital record and the widow’s declaration
that her husband had “possible hypertension several years ago” should not be considered hearsay,
but as part of res gestae
●
There was no evidence as to the amount of Dr. Leuterio’s outstanding indebtedness to DBP at the
time of his death. Therefore, action for specific performance should be dismissed.
Issues
Ruling
1. Whether Grepalife is liable to DBP as beneficiary
1. No
2. Whether Dr. Leuterio concealed that he had hypertension, which would vitiate the
insurance contract
2. No
3. Whether Grepalife is liable for Php 86,200 even without proof of actual outstanding
mortgage payable
3. Yes
Rationale
1. No, Grepalife is not liable to DBP
●
A group insurance policy of mortgagors, otherwise known as a “mortgage redemption
insurance,” is a device for the protection of both the mortgagee and the mortgagor.
ALS B2021
37
o
Mortgagee— in the event of the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds will be applied to the payment of
mortgage debt, relieving the heirs from paying
o
Mortgagor— provides ample protection so that in the event of death, the mortgage
obligation will be extinguished by the application of the proceeds
●
Where the mortgagor pays the insurance premium under the group insurance policy, making
the loss payable to the mortgagee, the insurance is on the mortgagor’s interest, and the
mortgagor continues to be a party to the contract. The mortgagee is simply an appointee of
the insurance fund; such loss-payable clause does not make the mortgagee a party to the
contract.
●
Insured private respondent did not cede to the mortgagee all his rights or interests in the
insurance policy:
“In the event of the debtor’s death before his indebtedness with the Creditor [DBP] shall have
been fully paid, an amount to pay the outstanding indebtedness shall first be paid to
the creditor and the balance of sum assured, if there is any, shall then be paid to the
beneficiary/ies designated by the debtor.”
●
After DBP was denied payment by Grepalife, interposing the defense of concealment, the
former collected the debt from the mortgagor and took the necessary action of foreclosure on
the residential lot of private respondent.
●
In Gonzales La O v. Yek Tong Lin Fire & Marine Ins. Co:
“Insured, being the person with whom the contract was made, is primarily the proper person
to bring suit thereon. * * * Subject to some exceptions, insured may thus sue, although
the policy is taken wholly or in part for the benefit of another person named or
unnamed, and although it is expressly made payable to another as his interest may
appear or otherwise. * * * Although a policy issued to a mortgagor is taken out for the
benefit of the mortgagee and is made payable to him, yet the mortgagor may sue
thereon in his own name, especially where the mortgagee’s interest is less than the
full amount recoverable under the policy, * * *.”
●
An insurance policy upon life or health may pass by transfer, will, or succession to any person
regardless of the existence of an insurable interest, and such person may recover whatever
the insured might have recovered. Therefore, the widow may file the suit against Grepalife.
2. No, there was no concealment
●
Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it but he designedly
and intentionally withholds the same.
●
The medical findings were not conclusive because Dr. Mejia did not conduct an autopsy. He
stated that he had no knowledge of Dr. Leuterio’s previous hospital confinement. The death
certificate stated that hypertension was only “the possible cause of death.”
ALS B2021
38
●
The private respondent’s statement, as to the medical history of her husband, was due to her
unreliable recollection of events. Hence, the statement of the physician was properly
considered by the trial court as hearsay.
●
CA was correct:
“ xxx the attending physician had certified in the death certificate that the former died of
cerebral hemorrhage, probably secondary to hypertension xxx Contrary to appellant’s
allegations, there was no sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insured’s widow who was not even sure
if the medicines taken by Dr. Leuterio were for hypertension, the appellant had not
proven nor produced any witness who could attest to Dr. Leuterio’s medical history
xxx “
●
Fraudulent intent of the insured must be established to entitle the insurer to rescind the
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense
and the duty to establish the same by satisfactory and convincing evidence rests on the insurer.
Petitioner failed in this regard.
3. Yes, the indemnity to be paid is the sum fixed in the policy
●
A life insurance policy is a valued policy. Unless the interest of the insured is susceptible of
exact pecuniary measurement, the measure of indemnity is the sum fixed in the policy.
●
The mortgagor paid the premium according to the coverage of his insurance:
“The policy states that upon receipt of due proof of the Debtor’s death during the terms of this
insurance, a death benefit in the amount of Php 86,200.00 shall be paid.
In the event of the debtor’s death before his indebtedness with the creditor shall have been
fully paid, an amount to pay the outstanding indebtedness shall first be paid to the
Creditor and the balance of the Sum Assured, if there is any shall then be paid to the
beneficiary/ies designated by the debtor.”
●
CA’s decision was promulgated on May 17, 1993. In private respondent’s memorandum, she
states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor’s
outstanding loan. Considering this supervening event, the insurance proceeds shall inure to
the benefit of the heirs of the deceased person or his beneficiaries.
●
DBP cannot unjustly enrich himself at the expense of another by collecting the insurance
proceeds after it already foreclosed on the mortgage.
Disposition
Petition denied. Grepalife is ordered to pay Php 86,200.00 to the heirs of the insured.
Relevant Provision/s
ALS B2021
39
Section 8, Insurance Code:
“Unless the policy provides, where a mortgagor of property effects insurance in his own name providing
that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the
insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have
the same effect, although the property is in the hands of the mortgagee, but any act which, under the
contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein
named, with the same effect as if it had been performed by the mortgagor.”
Case
266
MANILA BANKERS LIFE v. ABAN
G.R. No. 175666
July 29, 2013
Petitioners:
MANILA BANKERS LIFE INSURANCE
CORPORATION
COMMREV - INSURANCE - ART 48
of IC
DEL CASTILLO, J
COLIE edited
by Carl Santos
Respondents:
CRESENCIA P. ABAN
Recit Ready Summary
FACTS:
Sotero obtained a life insurance policy from petitioner Manila Bankers Life Insurance Corporation
designating respondent Aban, her niece, as her beneficiary. Petitioner then issued an insurance policy
with a face value of P100,000.00, in Sotero's favor on August 30, 1993.
On April 10, 1996, when the insurance policy had been in force for more than two years and seven
months, Sotero died. Respondent Aban then filed a claim for the insurance proceeds. Petitioner denied
respondent's claim on April 16, 1997 on the ground that Aban, the beneficiary, was the one who obtained
the policy for Sotero under fraudulent circumstances.
Petitioner then filed a civil case for annulment of the policy since it was obtained by fraud, concealment
and/or misrepresentation under the Insurance Code, which thus renders it voidable under Article 1390 of
the Civil Code.
Respondent filed a Motion to Dismiss claiming that petitioner's cause of action was barred by prescription
pursuant to Section 48 of the Insurance Code. RTC dismissed the case. It 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 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. CA thus sustained the trial court.
ISSUE: W/N Art 48 applies making the insurance company liable? YES
RATIO:
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.
ALS B2021
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Here, instead of conducting at the first instance an investigation into the circumstances surrounding the
issuance of Insurance Policy which would have timely exposed the supposed flaws and irregularities
attending it as it now professes, Manila 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.
Doctrine: Under Section 48 of the Insurance Code, after the two-year period, 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.
Facts
1. 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, as her beneficiary.
2. Bankers Life issued an insurance policy with a face value of P100,000.00, in Sotero's favor on
August 30, 1993, after the requisite medical examination and payment of the insurance
premium.
3. On April 10, 1996, 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.
4. Manila Bankers conducted an investigation into the claim, and came out with the following
findings: (a) Sotero did not personally apply for insurance coverage, as she was illiterate; (b)
Sotero was sickly since 1990; (c) Sotero did not have the financial capability to pay the insurance
premiums; (d) Sotero did not sign the July 3, 1993 application for insurance; and (e) Respondent
Aban was the one who filed the insurance application, and designated herself as the beneficiary.
5. Thus, Manila Bankers denied Aban's claim on April 16, 1997 and refunded the premiums paid
on the policy.
6. Manila Bankers filed a civil case for rescission and/or annulment of the policy since it was
obtained by fraud, concealment and/or misrepresentation under the Insurance Code, which thus
renders it voidable under Article 1390 of the Civil Code.
7. Aban filed a Motion to Dismiss claiming that Manila Bankers' cause of action was barred by
prescription pursuant to Section 48 of the Insurance Code.5
8. During the proceedings on the Motion to Dismiss, Manila Bankers' investigator testified in court,
stating among others that the insurance underwriter who solicited the insurance is a cousin of
respondent's husband, Dindo Aban, and that it was Aban who paid the annual premiums on the
policy.
9. RTC dismissed the case. It found that Sotero, and not Aban, was the one who procured the
insurance; thus, Sotero could legally take out insurance on her own life and validly designate
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. CA thus sustained the trial court.
Points of Contention
Manila Bankers: 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.
Issues
Ruling
1. YES
5
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.
ALS B2021
41
1. W/N Art 48 applies making the insurance company liable?
Rationale
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.
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.
Application
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. 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.
Instead of conducting at the first instance an investigation into the circumstances surrounding the
issuance of Insurance Policy which would have timely exposed the supposed flaws and irregularities
attending it as it now professes, Manila Bankers appears to have turned a blind eye and opted instead
to continue collecting the premiums on the policy. For nearly three years, it 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.
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, Manila
Bankers 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,
Aban.
Manila Banker 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.
ALS B2021
42
Disposition
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.
267
Insular Life v. Khu
G.R. No. 195176
Apr. 18, 2016
Petitioner/s:
The Insular Life Assurance Company, Ltd.
CommRev – Insurance
Del Castillo
JTSY
Respondent/s:
Paz Y. Khu, Felipe Y. Khu, Jr., and Frederick Y.
Khu
Recit Ready Summary
Felipe Khu, Sr. applied for a life insurance policy with Insular; while applying, he accomplished the
required medical questionnaire and did not declare any illness. The policy took effect on June 22, 1997.
On June 23, 1999, the policy lapsed due to non-payment of premium. On Sep. 7, 1999, Felipe applied
for reinstatement and paid premium; on Oct. 12, 1999, Insular told him that he had to agree to other
conditions and pay additional premium, which he did on Dec. 27, 1999. On Jan. 7, 2000, Insular issued
an Endorsement that said “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”. Felipe
continued paying premiums until he died on Sep. 22, 2001 of kidney failure, liver failure, heart problems,
diabetes, alcoholism, and pneumonia. His heirs, the respondents, filed a claim, but Insular denied, saying
that Felipe committed fraud and misrepresentation and it (Insular) rescinded the contract. The heirs filed
for specific performance, and the RTC granted, such affirmed by the CA.
Issue: Was Felipe’s reinstated life insurance policy already incontestable at the time of his death? YES
Sec. 28 of the Insurance Code provides that an insurance policy becomes incontestable 2 years from
approval. In this case, the question is, when was the reinstatement approved: Dec. 27, 1999, or June 22,
1999? The resolution of this issue depends on the Endorsement and Letter of Acceptance, both of which
are documents prepared by Insular. The SC agrees with the CA that the policy should be considered as
reinstated on June 22, 1999, in accordance with the evidence, and being favorable to the insured who
was not responsible for causing the ambiguity:
• In the Letter of Acceptance, Felipe declared that he was accepting the imposition of the additional
premium effective Jun. 22, 1999
• The reinstatement was conditioned upon the payment of additional premium not only
prospectively but also retroactively
• In the Endorsement, in its first sentence, it is not clear whether the phrase “effective June 22,
1999” refers to the “reinstatement of this policy” or “changes are made on the policy”
Since the policy was reinstated on June 22, 1999, and Felipe died on Sep. 22, 2001, the policy had
already become incontestable.
Doctrine: The date of last reinstatement pertains to the date the insurer approved the application for
reinstatement. If there is ambiguity in the insurance documents, the interpretation favorable to the insured
will be used.
Facts + Procedural History
28. Mar. 6, 1997 – Felipe N. Khu, Sr. applied for a life insurance policy with Insular, under its Diamond
Jubilee Insurance Plan
a. Felipe accomplished the required medical questionnaire wherein he didn’t declare any illness
or adverse medical condition
b. Insular issued Policy No. A000015683, face value P1 million
29. Jun. 22, 1997 – the policy took effect
ALS B2021
43
30. Jun. 23, 1999 – the policy lapsed due to non-payment of premium covering period Jun. 22, 1999Jun. 23, 2000
31. Sep. 7, 1999 – Felipe applied for reinstatement of policy, paid P25,020.00 as premium; all info
submitted was identical except for change in occupation (self-employed: Municipal Mayor of
Binuangan, Misamis Oriental)
32. Oct. 12, 1999 – Insular informed Felipe that his application for reinstatement may only be
considered if he agreed to certain conditions, which he agreed:
a. Payment of additional premium
b. Cancellation of riders pertaining to premium waiver and accidental death benefit
33. Dec. 27, 1999 – Felipe paid the additional premium of P3,054.50
34. Jan. 7, 2000 – Insular issued Endorsement No. PN-A000015683, saying “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”
35. Jun. 23, 2000 – Felipe paid annual premium of P28,000.00, covering Jun. 22, 2000-2001
36. Jul. 2, 2001 – Felipe paid the same amount, covering Jun. 22, 2001-2002
37. Sep. 22, 2001 – Felipe died; Certificate of Death enumerated the following causes of death:
a. Immediate cause: end stage renal failure,6 hepatic failure7
b. Antecedent cause: congestive heart failure, 8 diffuse myocardial ischemia9
c. Underlying cause: diabetes neuropathy,10 alcoholism, pneumonia
38. Oct. 5, 2001 – respondents, Felipe’s heirs, filed a claim for benefit. The claim was denied; Insular
said that it decided to rescind on grounds of concealment and misrepresentation
39. Respondents instituted a complaint for specific performance with damages
a. Insular answered, saying that Felipe did not disclose, that it would not have reinstated had he
disclosed, and that the policy was still contestable when Felipe died
40. RTC Br. 39 of CDO found in favour of respondents:
a. The policy was reinstated on June 22, 1999
b. Any ambiguity in a contract of insurance should be resolved strictly against insurer (because it
is a contract of adhesion)
c. The policy had already become incontestable at the time of Felipe’s death (Sept. 22, 2001)
since more than 2 years had lapsed from date of reinstatement (Jun. 22, 1999)
41. CA affirmed
a. CA said that there was a genuine ambiguity in language of the 2 documents prepared by Insular
(Felipe’s Letter of Acceptance and Insular Life’s Endorsement), and thus, interpret in favour of
right to recover
b. As such, the policy should be deemed reinstated as of Jun. 22, 1999
Issue/s
Ruling
6. Is Felipe’s reinstated life insurance policy already incontestable at the time of his
8. Yes
death?
Rationale
5. The reinstated life insurance policy was already incontestable at the time of Felipe’s death
•
•
According to Sec. 48 of the Insurance Code, after 2 years from date of issue or last
reinstatement, the insurer cannot prove that the policy is void or rescissible by reason of
fraudulent concealment or misrepresentation
In Manila Bankers Life Insurance v. Aban, the SC explained that the reason for this
provision is to give insurers enough time to inquire whether there is concealment, fraud, or
misrepresentation, that it is not fair for the insurer to collect premiums while the insured is
alive only to raise issue of concealment/misrepresentation once the insured dies, and that
the period gives the beneficiary stability to recover afterward
6
Kidney failure
Liver failure
8
A chronic progressive condition that affects the pumping power of the heart
9
Condition wherein blood flow to heart muscle is blocked, partially or totally
10
Nerve damage caused by diabetes
7
ALS B2021
44
•
•
•
•
•
•
In Lalican v. Insular, the SC 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
The resolution of the issue of when the reinstatement was approved (Dec. 27, 1999 or Jun.
22, 1999) depends on 2 documents: (1) the Letter of Acceptance; and (2) the Endorsement
(see Annexes for full text)
The SC agrees with the CA that the policy should be considered as reinstated on Jun. 22,
1999, in accordance with the evidence and being favorable to the insured who was not
responsible for causing the ambiguity:
a. In the Letter of Acceptance, Felipe declared that he was accepting the imposition of the
additional premium effective Jun. 22, 1999
b. The reinstatement was conditioned upon the payment of additional premium not only
prospectively but also retroactively, for the period starting June 22, 1999, and by paying
the amount of P3,054.50 on Dec. 27, 1999 in addition to the P25,020 he earlier paid on
Sep. 7, 1999, Felipe paid for the insurance coverage starting Jun. 22, 1999
c. In the Endorsement, in its first sentence, it is not clear whether the phrase “effective
June 22, 1999” refers to the “reinstatement of this policy” or “changes are made on the
policy”
In Eternal Gardens Memorial Park Corp. v. The Philippine American Life Insurance Co.
(citing Malayan Insurance v. CA), the SC held that “a contract of insurance, being a contract
of adhesion, par excellence, any ambiguity therein should be resolved against the insurer”
More than 2 years had lapsed from the time the subject insurance policy was reinstated on
June 22, 1999, vis-à-vis Felipe’s death on Sep. 22, 2001, and as such, the policy had
become incontestable
SC also agrees with CA that there is no basis or justification for the RTC’s award of moral
damages, attorney’s fees, and litigation expenses, so that award should be deleted
Disposition
Petition denied, CA affirmed
Annex A:
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,
ALS B2021
45
Felipe N. Khu, Sr.
Annex B:
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
annually, [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
268
Development Insurance v. IAC
G.R. No. L-71360
16 July 1986
COMMREV – Insurance; Open policy
J. Cruz
Anton
Petitioner:
Respondents:
Development Insurance Corp.
Intermediate Appellate Court (“IAC”), Philippine
Union Realty Development Corp.
Insurer – Development Insurance (“Development”)
Insured – Building of Philippine Union Realty Development Corp. (“Phil. Union”), for P2.5 million
INCIDENT: Building caught fire
Recit-Ready Summary
Phil. Union had an open policy for its building, which Development insured against fire for P2.5 million.
The building eventually burned down. Phil. Union was forced to file a collection suit due to Development’s
refusal to pay the insurance proceeds. The trial court and IAC ruled in favor of Phil. Union, granting its
entire claim of P508,867 (value of actual loss) after Development was declared in default.
ALS B2021
46
On appeal, Development invoked the stipulation in the policy that provided that Phil. Union would be
liable for the difference between the insured amount and the value of the insured property, in the event
that the latter would be greater than the former at the time the fire broke out. It claimed that the building
was valued at P5.8 million (as opposed to the insured value of P2.5 million) at the time of the fire, and
that as such, its liability should be limited to P67,629.31.
Was Development’s liability limited under the open policy? – No
There was no proof that the building was valued at P5.8 million. All other claims of Development were
refuted for being self-serving.
Doctrine:
Under Sec. 60, Insurance Code, an open policy is one whereby the value of the thing insured is not
agreed upon, but to be ascertained at the time of the loss. The amount of the insurance merely
represents the insurer’s maximum liability.
HELD: IAC affirmed; Development Insurance is liable to pay Phil. Union the amount of P508,867.00.
Facts
1. Phil. Union had an open policy (No. RY/F-082), by which Development insured its building against
fire for P2.5 million. Condition 17 of the policy stated:
“If the property hereby insured shall, at the breaking out of any fire, be collectively of greater
value than the sum insured thereon, then the insured shall be considered as being his [or
her] own insurer for the difference, and shall bear a ratable proportion of the loss
accordingly. xxx xxx”
2. The building, which was still under construction, caught fire (of course).
Procedural History
1. Phil. Union filed an action for damages under the insurance contract.
2. Development was declared in default for having failed to file an Answer on time:
o The summons was served on its senior vice-president.
o 10 days after the expiry of the original 15-day period thereafter, Development filed a motion
to extend the period to file its Answer.
● Trial court granted 5 days.
ALS B2021
47
o
o
On the last day of the extension, Development filed its 2nd motion to extend said period.
● Trial court granted 5 days.
Development only filed its Answer 21 days after the deadline.
TRIAL COURT – Rendered a judgment in default in favor of Phil. Union, granting its entire claim.
3. Development only filed its motion to lift the default order more than 1 month after said judgment
was rendered. This was denied outright.
4. IAC – Affirmed the trial court in toto.
Points of Contention
Main – Development claimed that its liability should be limited only to P67,629.31, applying Condition
17 of the policy. It insisted that Phil. Union was considered as an “insurer for the difference” between
said amount and the value of the building when it burned down (P5.8 million), which is greater than the
amount stipulated (P2.5 million).
Others – See below.
Issue/s
Ruling
1. Is the insurer’s liability limited under the open policy?
2. Was the default order proper? (Not important)
1. No
2. No
Rationale
1. The liability of Development Insurance is NOT limited by the terms of the open policy.
RULE
Open Policy (Sec. 60, Insurance Code)
-
The value of the thing insured is not agreed upon, but to be ascertained at the time of the loss
The amount of the insurance merely represents the insurer’s maximum liability
APPLICATION
The actual loss of Phil. Union was ascertained by the lower courts to be worth P508,867.00. This factual
finding was to be respected, absent any reason to the contrary.
ALS B2021
48
Allegations of Development
How Refuted
The insurance covered only the building and not
the elevators.
“[a]bsurd, to say the least. This Court has little
patience with puerile arguments that affront
common sense, let alone basic legal principles
with which even law students are familiar.”
The elevators were insured after the occurrence
of the fire.
“No less preposterous.”
The elevators were not damaged by the fire.
(a) The report of the arson investigators of
the PNP said otherwise.
(b) Development itself admitted in its
Answers that the fire “destroyed a portion
of the 7th floor of the insured building, and
more particularly a Hitachi elevator
control panel.
“Self-serving estimate.” There was no evidence to
prove this.
Condition 17 should be made to apply because
the building as worth P5.8 million at the time of the
loss.
The valuation of the insurance contract at P2.5
million reflects the value of the building when the
contract was entered into — this is more
believable when considering the fact that it was
still under construction when it burned down (i.e.,
it could not have possibly gone up).
More notes on the damage caused by the fire:
-
The heat and moisture damaged the elevators without actually burning them.
Insofar as the elevators were concerned, only a control panel was damaged.
2. The default order was proper.
Going by the facts, Development “slumbered on its right and awakened too late.” There is a clear pattern
of inexcusable neglect, if not deliberate delay:
-
The senior vice-president refused to receive the Complaint.
Its subsequent inaction allowed Development to shirk its obligation to pay Phil. Union for more
than 5 years from the filing of its claim.
In any case, nothing would be gained by lifting the default order because Development had no valid
defense in its favor.
Disposition
IAC affirmed; Development Insurance is liable to pay Phil. Union the amount of P508,867.00.
ALS B2021
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269
Eagle Star Insurance v. Chia Yu
COMMREV - INSURANCE
G.R. No. L-5915
March 31, 1995
Reyes, A., J.
James V.
Petitioner/s: Eagle Star Insurance Co. LTD., Kurr Respondent/s: Chia Yu
Steamship Co. Inc., and Leif Hoegh & Company A/S
SHIPPER: Atkins, Kroll & Co.
CARRIER: S.S. Roeph Silverlight onwed by Leigh Hoegh & Co.
INSURER: Eagle Star Insurance Co. LTD
CONSIGNEE: Chia Yu
Arrastre Service: Manila Terminal Co.
Incident: Rejected Insurance Claim on April 22, 1948, while the case is filed on Nov. 16, 1948
Recit-Ready Summary
On Jan. 15, 1946, Atkins (shipper) loaded on the S. S. Roeph Silverlight (vessel) owned and operated
by Leigh (carrier) of SF, CA, 14 bales of assorted underwear valued at P8,085 consigned to Chia Yu in
Manila. The shipment was insured against all risks by Eagle Star of SF, CA. The vessel arrived in Manila
on Feb. 10, 1946, and on Mar. 4 started discharging its cargo into the custody of the Manila Terminal
Co. which was then operating the arrastre service for the Customs. Of the 14 bales consigned to Yu only
10 were delivered to him as the remaining 4 could not be found. 3 of those delivered were also found
damaged to the extent of 50%.
Yu claimed indemnity for the missing and damaged bales. But the claim was declined, first, by the carrier
and afterward by the insurer. Yu brought the present action against both, including their respective
agents in the PhH, on Nov. 16, 1948, or more than two years after delivery of the damaged bales and
the date when the missing bales should have been delivered. The action was resisted by the defendants
carriers and insurers principally on the ground of prescription. CFI found for Yu. CA affirmed the
judgment, and the case is now before SC on appeal by certiorari.
Yu’s action has prescribed as to carrier, but not as to the insurer.
As to the carrier, SC hold that Yu's failure to bring his action "within one year after the delivery of the
goods or the date when the goods should have been delivered" discharged the carrier from all liability.
For the insurer, its claim for prescription is founded upon the terms of the policy and not upon
the BL. Under our law the time limit for bringing a civil action upon a written contract is ten years after
the right of action accrues. But counsel for the insurer claim that this statutory limitation must yield to the
stipulation in the policy:
"No suit or action on this Policy, for the recovery of any claim, shall be sustainable in any Court
of law or equity unless the insured shall have fully complied with all the terms and conditions of this
Policy nor unless commenced within twelve (12) months next after the happening of the loss . . ."
SC did not agree with Yu. Act 4101, which amended the Insurance Act by inserting the following section
in chapter one thereof:
"SEC. 61-A. Any condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause
of action accrues, is void."
Examining the policy sued upon in this case, SC find that its prescriptive clause, if given effect in
accordance with the terms of the policy, would reduce the period allowed the insured for bringing his
action to less than one year. Because the said clause makes the prescriptive period begin from the
happening of the loss and at the same time provides that no suit on the policy shall be sustainable in any
court unless the insured shall have first fully complied with all the terms and conditions of the policy
(among them requires that, as soon as the loss is determined, written claim therefor be filed with the
carrier and that the letter to the carrier and the latter's reply should be attached to the claim papers to be
ALS B2021
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sent to the insurer). It is obvious that compliance with this condition precedent will necessarily consume
time and thus shorten the period for bringing suit to less than one year if the period is to begin, as stated
in the policy, from "the happening of the loss." Being contrary to the law of the forum, such stipulation
cannot be given effect.
SC agree that Yu's cause of action did not accrue until his claim was finally rejected by
the insurance company because, before such final rejection, there was no real necessity for bringing suit.
As the policy provides that the insured should file his claim, first, with the carrier and then with the insurer,
he had a right to wait for his claim to be finally decided before going to court.
It is obvious from the context that the date meant was April 22, 1948, for this was the date when,
according to the finding of the trial court, the insurance company in London rejected the claim. Since the
case is filed within twelve months, the action cannot be deemed to have prescribed even on the
supposition that the period given the insured for bringing suit under the prescriptive clause of the policy
is twelve months after the accrual of the cause of action.
Doctrine:
- "SEC. 61-A. Any condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause of
action accrues, is void."
- Contractual limitations contained in insurance policies are regarded with extreme jealousy by courts
and will be strictly construed against the insurer and should not be permitted to prevent a recovery
when their just and honest application would not produce that result.
Facts
42. On Jan. 15, 1946, Atkins, Kroll & Co.,(shipper) loaded on the S. S. Roeph Silverlight (vessel) owned
and operated by Leigh Hoegh & Co., A/S,(carrier) of San Francisco, California (SF, CA), 14 bales
of assorted underwear valued at P8,085.23 consigned to Chia Yu in the City of Manila.
43. The shipment was insured against all risks by Eagle Star Ins. Co. of SF, CA, under a policy issued
to the shipper and by the latter assigned to the consignee.
44. The vessel arrived in Manila on February 10, 1946, and on March 4 started discharging its cargo
into the custody of the Manila Terminal Co., Inc., which was then operating the arrastre service for
the Bureau of Customs.
45. Of the 14 bales consigned to Chia Yu only 10 were delivered to him as the remaining 4 could not
be found. Three of those delivered were also found damaged to the extent of 50 per cent.
46. Chia Yu claimed indemnity for the missing and damaged bales. But the claim was declined, first, by
the carrier and afterward by the insurer, whereupon Chia Yu brought the present action against
both, including their respective agents in the Philippines.
47. The action was commenced in CFI Manila on Nov. 16, 1948, or more than two years after delivery
of the damaged bales and the date when the missing bales should have been delivered, the action
was resisted by the defendants carriers & insurers principally on the ground of prescription.
48. The CFI found for plaintiff and rendered judgment in his favor for the sum claimed plus legal interest
and costs. CA affirmed the judgment, and the case is now before SC on appeal by certiorari.
Issue/s
Ruling
Whether Yu's action has prescribed.
YES as to carrier; but NO as to insurer.
Rationale
6. YU’S ACTION HAS PRESCRIBED AS TO CARRIER, BUT NOT AS TO THE INSURER.
On the part of the carrier the defense of prescription is made to rest on the following stipulation of the bill
of lading (BL):
"In any event the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after the delivery of the goods or the date when
the goods should have been delivered."
The stipulation is but a repetition of a provision contained in Sec. 3(6) of the United States COGSA of
1936, which was adopted and made applicable to the Philippines by Commonwealth Act 65 and by
express agreement incorporated by reference in the BL.
ALS B2021
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In Chua Kuy vs. Everett Steamship Corporation, and E. E. Elser, Inc. vs.CA, the SC gave force and effect
to this kind of stipulation in BL covering shipments from US to the PH. In this case, SC hold that Yu's
failure to bring his action "within one year after the delivery of the goods or the date when the
goods should have been delivered" discharged the carrier from all liability. This dispenses with the
necessity of deciding how much could be recovered from the carrier under the terms of the BL.
However, the case for the insurer stands on a different footing, for its claim of prescription is
founded upon the terms of the policy and not upon the BL. Under our law the time limit for bringing
a civil action upon a written contract is ten years after the right of action accrues. But counsel for the
insurer claim that this statutory limitation must yield to the following stipulation in the policy:
"No suit or action on this Policy, for the recovery of any claim, shall be sustainable in any Court
of law or equity unless the insured shall have fully complied with all the terms and conditions of
this Policy nor unless commenced within twelve (12) months next after the happening of the
loss . . ."
SC did not agree with the Insurer. In the case of E. Macias & Co. vs. China Fire Insurance & Co., Ltd.
relied upon by the insurer, this Court held that a clause in an insurance policy providing that an action
upon the policy by the insured must be brought within a certain time is, if reasonable, valid and will prevail
over statutory limitations of the action. That decision, however, was rendered before the passage of Act
4101, which amended the Insurance Act by inserting the following section in chapter one thereof:
"SEC. 61-A. Any condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause
of action accrues, is void."
As "matters respecting a remedy, such as the bringing of suit, admissibility of evidence, and statute of
limitations, depend upon the law of the place where the suit is brought”, any policy clause repugnant to
this amendment to the Insurance Act cannot be given effect in an action in our courts.
Examining the policy sued upon in the present case, SC find that its prescriptive clause, if given effect in
accordance with the terms of the policy, would reduce the period allowed the insured for bringing his
action to less than one year. Because the said clause makes the prescriptive period begin from the
happening of the loss and at the same time provides that no suit on the policy shall be sustainable in any
court unless the insured shall have first fully complied with all the terms and conditions of the policy,
among them that which requires that, as soon as the loss is determined, written claim therefor be filed
with the carrier and that the letter to the carrier and the latter's reply should be attached to the claim
papers to be sent to the insurer. It is obvious that compliance with this condition precedent will necessarily
consume time and thus shorten the period for bringing suit to less than one year if the period is to begin,
as stated in the policy, from "the happening of the loss." Being contrary to the law of the forum, such
stipulation cannot be given effect.
It may perhaps be suggested that the policy clause relied on by the insurer for defeating Yu's action
should be given the construction that would harmonize it with section 61-A of the Insurance Act by taking
it to mean that the time given the insured for bringing his suit is twelve months after the cause of action
accrues. But the question then would be: When did the cause of action accrue? On that question SC
agree that Yu's cause of action did not accrue until his claim was finally rejected by
the insurance company because, before such final rejection, there was no real necessity for bringing suit.
As the policy provides that the insured should file his claim, first, with the carrier and then with the insurer,
he had a right to wait for his claim to be finally decided before going to court. The law does not encourage
unnecessary litigation.
At this junction it should be explained that while the decision of the CA states that the claim against
the insurance company "was finally rejected on April 22, 1947, as correctly concluded by the court
below," it is obvious from the context and we find it to be a fact that the date meant was April 22, 1948,
for this was the date when, according to the finding of the trial court, the insurance company in London
rejected the claim.
ALS B2021
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Furthermore, there is nothing in the record to show that the claim was rejected in 1947, either by
the insurance company in London or its settling agents in the Philippines, while on the other hand
Insurer's own exhibit is indisputable proof that it was on "22nd April 1948" that the settling agents
informed the claimant "that after due and careful consideration, our Principals confirm our declination of
this claim." It not appearing that the settling agents' decisions on claims against their principals were not
subject to reversal or modification by the latter, while on the contrary the insurance policy expressly
stipulates, under the heading "Important Notice," that the said agents "have authority to certify only as to
the nature, cause and extent of the damage," and it furthermore appearing that a reiteration of Yu’s claim
was made to the principals and the latter gave it due course since only "after due and careful
consideration" did they confirm the action taken by the agents, we conclude that, for the purposes of the
present action, we should consider Yu’s claim to have been finally rejected by the insurer on April 22,
1948. Having been filed within twelve months from that date, the action cannot be deemed to have
prescribed even on the supposition that the period given the insured for bringing suit under the
prescriptive clause of the policy is twelve months after the accrual of the cause of action.
In concluding, we may state that contractual limitations contained in insurance policies are regarded with
extreme jealousy by courts and will be strictly construed against the insurer and should not be permitted
to prevent a recovery when their just and honest application would not produce that result.
Disposition
Wherefore, the judgment appealed from is reversed with respect to the carrier and its agents but affirmed
with respect to the insurance company and its agents, with costs against the latter.
270
Agricultural Credit & Cooperative v. Alpha Insurance
G.R. No. L-24566
PETITIONERS:
AGRICULTURAL
CREDIT
&
COOPERATIVE
FINANCING
ADMINISTRATION (ACCFA)
Recit Ready Summary
Insurance
July 29, 1968
REYES
Melan Yap
RESPONDENTS:
ALPHA INSURANCE & SURETY CO., INC., defendant-appellee,
RICARDO A. LADINES, ET AL., third party-defendants-appellees.
In order to guarantee the Asingan Farmers' Cooperative Marketing Association, Inc. (FACOMA) against loss on
account of personal dishonesty, amounting to larceny or estafa of its Secretary-Treasurer, Ricardo A. Ladines,
Alpha Insurance & Surety Company had issued its bond for the sum of P5,000.00. Asingan FACOMA assigned its
rights to the appellant, Agricultural Credit Cooperative and Financing Administration (ACCFA).
During the effectivity of the bond, Ricardo Ladines converted and misappropriated, to his personal benefit, some
P11,513.22 of the FACOMA funds. Despite repeated demands the surety company refused and failed to pay.
ACCFA filed suit against Alpha Insurance.
Alpha Insurance moved to dismiss because the action was filed more than one year after plaintiff made claim for
loss contrary to the eighth condition stated in the bond.
Is the condition on the bond requiring any action to be filed within 1 year from making the claim for loss valid? NO,
IT IS VOID.
A fidelity bond is in the nature of a contract of insurance against loss from misconduct. Consequently, the condition
of the bond in question, limiting the period for bringing action thereon, is subject to the provisions of Section 61-A
of the Insurance Act (No. 2427), prescribing that —
SEC. 61-A — A condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause of action
accrues is void.
ALS B2021
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Since a "cause of action" requires, as essential elements, not only a legal right of the plaintiff and a correlative
obligation of the defendant but also "an act or omission of the defendant in violation of said legal right," the cause
of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty (in this
case, to pay the amount of the bond). The year for instituting action in court must be reckoned, therefore, from the
time of appellee's refusal to comply with its bond; it cannot be counted from the creditor's filing of the claim of loss,
for that does not import that the surety company will refuse to pay.
As a consequence of the foregoing, the action may be brought within the statutory period of limitation for written
contracts.
Doctrine: The year for instituting action in court must be reckoned, therefore, from the time of appellee's
refusal to comply with its bond; it cannot be counted from the creditor's filing of the claim of loss, for that
does not import that the surety company will refuse to pay
Facts
1. In order to guarantee the Asingan Farmers' Cooperative Marketing Association, Inc. (FACOMA) against
loss on account of "personal dishonesty, amounting to larceny or estafa of its Secretary-Treasurer, Ricardo
A. Ladines, the appellee, Alpha Insurance & Surety Company had issued on 14 February 1958 its bond
for the sum of P5,000.00 with said Ricardo Ladines as principal and the appellee as solidary surety.
2. Asingan FACOMA assigned its rights to the appellant, Agricultural Credit Cooperative and Financing
Administration (ACCFA for short), with approval of the principal and the surety.
3. During the effectivity of the bond, Ricardo Ladines converted and misappropriated, to his personal benefit,
some P11,513.22 of the FACOMA funds, of which P6,307.33 belonged to the ACCFA.
4. Upon discovery of the loss, ACCFA immediately notified in writing the survey company on 10 October
1958, and presented the proof of loss within the period fixed in the bond. Despite repeated demands the
surety company refused and failed to pay.
Procedural History
1. ACCFA filed suit against appellee on 30 May 1960.
2. Alpha Insurance moved to dismiss for failure to state a cause of action, giving as reason that the same
was filed more than one year after plaintiff made claim for loss, contrary to the eighth condition of the bond,
providing as follows: “No action, suit or proceeding shall be had or maintained upon this Bond unless the
same be commenced within one year from the time of making claim for the loss upon which such action,
suit or proceeding, is based, in accordance with the fourth section hereof.”
3. At first, the Court of First Instance denied dismissal; but, upon reconsideration, the court reversed its
original stand, and dismissed the complaint on the ground that the action was filed beyond the contractual
limitation period
Parties’ Contentions
Issues
Ruling
7. Is the condition on the bond requiring any action to be filed within 1 year from making 9. NO.
the claim for loss valid?
Rationale
1. Scheme here is a sale transaction and not an investment contract requiring registration under SRC.
A fidelity bond is, in effect, in the nature of a contract of insurance against loss from misconduct, and is governed
by the same principles of interpretation. Consequently, the condition of the bond in question, limiting the period for
bringing action thereon, is subject to the provisions of Section 61-A of the Insurance Act (No. 2427), prescribing
that —
SEC. 61-A — A condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause of action
accrues is void.
Since a "cause of action" requires, as essential elements, not only a legal right of the plaintiff and a correlative
obligation of the defendant but also "an act or omission of the defendant in violation of said legal right," the cause
of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty (in this
case, to pay the amount of the bond). The year for instituting action in court must be reckoned, therefore, from the
ALS B2021
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time of appellee's refusal to comply with its bond; it cannot be counted from the creditor's filing of the claim of loss,
for that does not import that the surety company will refuse to pay. In so far, therefore, as condition eight of the
bond requires action to be filed within one year from the filing of the claim for loss, such stipulation contradicts the
public policy expressed in Section 61-A of the Philippine Insurance Act. Condition eight of the bond, therefore, is
null and void, and the appellant is not bound to comply with its provisions.
As a consequence of the foregoing, the action may be brought within the statutory period of limitation for written
contracts.
Disposition
Motion to dismiss denied. Case remanded.
271
Sun Insurance v. CA
[G.R. No. 89741]
[March 13, 1991]
Petitioners:
SUN INSURANCE OFFICE, LTD.
Recit Ready Summary
[Insurance] - [Period to bring action]
Paras, J.
[Croft] edited by andojoyan
Respondents:
COURT OF APPEALS and EMILIO TAN
Emilio Tan took from Sun Insurance a Property Insurance Policy in the amount of P300K to cover his
interest on the electrical supply store of his brother housed in a building in Iloilo city. 4 days after the
issuance of the policy, the building was burned including the insured store. On Aug 20, 1983, Tan filed
his claim for fire loss with Sun Insurance, but on Feb 29, 1984, Sun Insurance wrote to Tan denying
the claim. On April 3, 1984, Tan sought for a reconsideration of the denial of his claim. Sun Insurance
answered that its denial remains unchanged. This prompted Tan to file a civil case in RTC-Iloilo on Nov
20, 1985. Sun Insurance filed a MTD on the ground that the Tan’s action has already prescribed. RTC
dismissed the MTD which CA affirmed.
I: W/N the filing of a MR interrupts the 12-months prescriptive period to contest the denial of the insurance
claim? NO W/N Tan’s action has already prescribed? YES
The Court ruled that when the terms and conditions of an insurance policy is clear and free from
ambiguity, then it must be taken and understood in its plain, ordinary and popular sense. Tan admitted
that he received a copy of the letter of rejection on April 2, 1984. Thus, the 12-month prescriptive
period started to run from the said date, for such is the plain meaning and intention of Section 2711 of
the insurance policy. Tan only filed a civil case on Nov. 20, 1985, which is beyond the 12-month
prescriptive period. The condition contained in an insurance policy that claims must be presented within
one year after rejection is not merely a procedural requirement but an important matter essential to a
prompt settlement of claims against insurance companies as it demands that insurance suits be brought
by the insured while the evidence as to the origin and cause of destruction have not yet disappeared.
The contention of the respondents that the one-year prescriptive period does not start to run until the
petition for reconsideration had been resolved by the insurer, runs counter to the declared purpose for
requiting that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction
from the denial of the claim. 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.
W/N the rejection of the claim shall be deemed final only if it contains words to that effect? No
As to the certainty of the denial of the insurer, the Court ruled that it was clearly manifested in Sun
Insurance’s letter of denial dated Feb. 29, 1984 when it stated that it was “rejecting liability for the
27. Action or suit clause — If a claim be made and rejected and an action or suit be not commenced either in the Insurance
Commission or in any court of competent jurisdiction within twelve (12) months from receipt of notice of such rejection, or in
case of arbitration taking place as provided herein, within twelve (12) months after due notice of the award made by the arbitrator or
arbitrators or umpire, then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be
recoverable hereunder.
11
ALS B2021
55
claim”. As to the issue on when does a cause of action accrue, the Court ruled that as pointed out by
Sun Insurance, 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 petition for
reconsideration, then such should have been expressly stipulated. Hence, Sun Insurance petition was
granted and the Court ruled that Tan’s cause of action has already prescribed.
Doctrine: The filing of an MR does not interrupt the prescriptive period to contest the denial of an
insurance claim. The rejection referred to should be construed as the rejection in the first instance.
Facts + Procedural History
49. On Aug. 15, 1983, Emilio Tan took from Sun Insurance a Property Insurance Policy in the amount
of P300K to cover his interest on the electrical supply store of his brother housed in a building in
Iloilo city.
50. 4 days after the issuance of the policy, the building was burned including the insured store.
51. On Aug 20, 1983, Tan filed his claim for fire loss with Sun Insurance, but on Feb 29, 1984, Sun
Insurance wrote to Tan denying the claim.
52. On April 3, 1984, Tan sought for a reconsideration of the denial of his claim. His counsel also wrote
to the insurer inquiring about the status of the reconsideration.
53. On Oct. 11, 1985, Sun Insurance answered the counsel’s letter, advising him that the insurer’s
denial of claim remained unchanged.
54. On Nov. 20, 1985, Tan filed a civil case with RTC-Iloilo, but Sun Insurance filed a Motion to Dismiss
(MTD) on the ground that the action had already prescribed.
55. The RTC denied Sun Insurance’s MTD as well as its MR. Sun Insurance appealed to the CA which
denied the same. It also denied the MR filed by the said insurer.
Issues
Ruling
8. W/N the filing of a MR interrupts the 12-months prescriptive period to contest
10. No
the denial of the insurance claim?
9. W/N the rejection of the claim shall be deemed final only if it contains words to
11. No
that effect?
Rationale
7. No, it did not interrupt the running of the prescriptive period.
While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed
liberally in favor of the insured and strictly against the insurer company, yet, 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.
Condition 27 of the Insurance Policy, which is the subject of the conflicting contentions of the parties,
reads:
27. Action or suit clause — If a claim be made and rejected and an action or suit be not commenced either
in the Insurance Commission or in any court of competent jurisdiction within twelve (12) months from
receipt of notice of such rejection, or in case of arbitration taking place as provided herein, within twelve
(12) months after due notice of the award made by the arbitrator or arbitrators or umpire, then the claim shall
for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder.
Tan, in his letter addressed to Sun Insurance dated April 3, 1984, admitted that he received a copy of
the letter of rejection on April 2, 1984. Thus, the 12-month prescriptive period started to run from the
said date of April 2, 1984, for such is the plain meaning and intention of Section 27 of the insurance
policy.
While the question of whether or not the insured was definitely advised of the rejection of his claim
through the letter of Sun Insurance dated February 29, 1984, may arise, the certainty of the denial
of Tan's claim was clearly manifested in said letter, the pertinent portion of which reads:
ALS B2021
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“We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La Paz, Iloilo City.
We now have the report of our adjusters and after a thorough and careful review of the same and the accompanying
documents at hand, we are rejecting, much to our regrets, liability for the claim under our policies for one or more of
the following reasons:
As held in the case of Ang v. Fulton Fire Insurance Co, “The condition contained in an insurance policy
that claims must be presented within one year after rejection is not merely a procedural requirement but
an important matter essential to a prompt settlement of claims against insurance companies as it
demands that insurance suits be brought by the insured while the evidence as to the origin and cause of
destruction have not yet disappeared.”
In enunciating the above-cited principle, this Court had definitely settled the rationale for the necessity of
bringing suits against the Insurer within one year from the rejection of the claim. The contention of the
respondents that the one-year prescriptive period does not start to run until the petition for
reconsideration had been resolved by the insurer, runs counter to the declared purpose for requiting that
an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from the
denial of the claim. To uphold 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.
It is apparent that Section 27 of the insurance policy was stipulated pursuant to Section 63 of the
Insurance Code, which states that:
Sec. 63. A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing
an action thereunder to a period of less than one year from the time when the cause of action accrues, is
void.
8. No, it is not necessary. The final rejection referred to in the policy is the rejection in the
first instance.
In Eagle Star Insurance Co. v. Chia Yu, 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.
Indisputably, the above-cited pronouncement 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 commences from the time of the denial of his claim by the Insurer, either expressly or
impliedly.
[IMPT] BUT, as pointed out by Sun Insurance, 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 petition for reconsideration, such should have been expressly stipulated.
While in Eagle Star Insurance Co. v. Chia Yu, the Court uses the phrase "final rejection", the same
cannot be taken to mean the rejection of a petition for reconsideration as insisted by the CA and Tan.
The Insurance policy in said case provides that the insured should file his claim, first, with the carrier and
then with the insurer. The "final rejection" being referred to in said case is the rejection by the insurance
company.
Disposition
PREMISES CONSIDERED, the questioned decision of the Court of Appeals is REVERSED and SET
ASIDE, and Civil Case No. 16817 filed with the Regional Trial Court is hereby DISMISSED.
Tan’s cause of action has already prescribed.
ALS B2021
57
273
PRUDENTIAL GUARANTEE VS. TRANS-ASIA SHIPPING COMM – Insurance
G.R. No. 151890/151991
20 June 2006
Chico-Nazario, J.
Javier ed. By Grace
Petitioner/s:
Respondent/s:
151890 - Prudential Guarantee and Assurance, Inc.
Trans-Asia Shipping Lines, Inc.
151991 - Trans-Asia Shipping Lines, Inc.
Prudential Guarantee and Assurance, Inc.
CARRIER: Trans-Asia Shipping Lines, Inc. – owner of M/V Asia Korea (vessel)
INSURER: Prudential Guarantee and Assurance, Inc.
INCIDENT: M/V Asia Korea caught fire. Trans-Asia claims under Marine Insurance Policy.
Recit-Ready Summary
Trans-Asia Shipping is the owner of M/V Asia Korea (vessel). It insured the vessel with Prudential
Guarantee for PHP 40 million, covering the loss/damage of the hull and machinery arising from perils,
inter alia, of fire and explosion for the period of 1 July 1993 to 1 July 1994.
On 25 Oct. 1993, a fire broke out while M/V Asia Korea was undergoing repairs at the port of Cebu.
So the next day, Trans-Asia filed notice of claim for damage sustained by the vessel. It also reserved its
right to subsequently notify Prudential Guarantee as to the full amount of claim upon final survey and
determination by average adjuster Richard Hogg Int’l. Phils. Of the damage sustained by reason of fire.
On 29 May 1995, Trans-Asia executed a “Loan and Trust Receipt” for the receipt of PHP 3 Million pesos,
where the receipt provides that it was a “loan without interest under Policy No. MH 93/1353, repayable
only in the event and to the extent that any net recovery is made by Trans-Asia Shipping from any
person(s) or corporations or other parties, an account of loss by any casualty for which they may be liable
occasioned by the 15 Oct. 1993: Fire on Board”.
In 1997, Prudential Guarantee denied Trans-Asia’s insurance claim, saying that Trans-Asia was in
breach of the [marine] policy conditions, among them “Warranted Vessel Classed and Class Maintained.”
This means that Trans-Asia failed to maintain to be part of a classification society, which is an
organization which sets certain standards for a vessel to maintain in order to maintain their membership
in the classification society. So, if they failed to meet that standard, they are considered not
members of that class, and thus breaching the warranty, that requires them to maintain
membership or to maintain their class on that classification society. Note, however, that despite
Prudential Guarantee’s denial of the insurance claim, it still renewed Trans-Asia’s insurance policy
TWICE.
I1: Is Prudential Guarantee liable to Trans-Asia arising from the insurance contract? Yes.
Trans-Asia was able to establish proof of loss and the coverage of the loss (25 Oct. 1993: Fire on Board).
Thereafter, the burden of evidence shifted to Prudential Guarantee to counter Trans-Asia’s case and to
prove that Trans-Asia was in violation of the particular condition on Classed and Class Maintained. This
Prudential Guarantee failed to do.
- Prudential Guarantee made a categorical admission that at the time of the procurement of the
insurance contract in July 1993, Trans-Asia’s vessel M/V Asia Korea was properly classed by
Bureau Veritas.
- Bureau Veritas is a classification society recognized in the marine industry. Undisputedly, TransAsia was properly classed at the time the contract of insurance was entered into.
Also, the lack of certification (that M/V Asia Korea was classed and class maintained at the time of the
occurrence of the fire) in Prudential Guarantee’s records cannot be tantamount to the conclusion that
Trans-Asia in fact breached the warranty contained in the policy. Note that it was Richards Hogg’s
responsibility to secure a copy of such certification.
Sec. 74 of the Insurance Code provides that “the violation of a material warranty, or other material
provision of a policy on the part of either party thereto, entitles the other to rescind.”
ALS B2021
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-
A warranty is
o a statement or promise set forth in the policy, or by reference incorporated therein,
o the untruth or non-fulfillment of which in any respect
▪ and without reference to whether the insurer was in fact prejudiced by such
untruth or non-fulfillment,
o renders the policy voidable by the insurer.
- For the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging
the same.
- Prudential Guarantee, not having shown that Trans-Asia breached the warranty condition,
Classed and Class Maintained, it remains that Trans-Asia must be allowed to recover its
rightful claims on the policy.
Assuming Arguendo that Trans-Asia violated the policy condition on Warranted Vessel Classed
and Class Maintained, Prudential Guarantee made a valid waiver of the same. After the loss,
Prudential Guarantee renewed the insurance policy of Trans-Asia for 2 consecutive years, from July
1994 to July 1995 and then again to July 1996. This renewal is deemed a waiver of any breach of
warranty.
Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer.
- But if he so elects, he may waive his privilege and power to rescind by the mere expression of
an intention to do so.
o In that event his liability under the policy continues as before.
I2: Is Trans-Asia liable to Prudential Guarantee arising from the “Loan and Trust Receipt”
transaction? No. The PHP 3 million received by Trans-Asia is considered as partial payment of
the insurance claim.
What is clear from the wordings of the document is that Prudential Guarantee is obligated to hand over
to Trans-Asia “whatever recovery may (Trans-Asia) make and deliver to (Prudential) all documents
necessary to prove its interest in the said property.” The money received is payment under the [insurance]
policy, with Prudential Guarantee having the right of subrogation to whatever net recovery Trans-Asia
may obtain from 3rd parties resulting from the fire.
In the law on insurance, subrogation is an equitable assignment to the insurer of all remedies which
the insured may have against 3rd persons whose negligence or wrongful act caused the loss covered
by the insurance policy, which is created as the legal effect of payment by the insurer as an assignee
in equity.
- The loss in the first instance is that of the insured by after reimbursement or compensation, it
becomes the loss of the insurer.
- It has been referred to as the doctrine of substitution and rests on the principle that
substantial justice should be attained regardless of form, that is, its basis is the doing of
complete, essential, and perfect justice between all the parties without regard to form.
- The liberality in the tenor of the “Loan and Trust Receipt” in favor of Trans-Asia leads to the
conclusion that the PHP 3 million was a form of advance payment on Trans-Asia’s claim on
insurance policy MH93/1353
Prudential Guarantee is liable to Trans-Asia for the amount of PHP 8,395,072.26, representing the
balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363 + 10%
Attorney’s Fees, + the aggregate amount (P8,395,072.26 plus 10% thereof as attorneys’ fees) shall be
imposed double interest at the rate of 24% per annum to be computed from 13 September 1996 until
fully paid + a 12% interest per annum is imposed on the TOTAL amount of liability adjudged computed
from the time of finality of judgment until the full satisfaction thereof.
Facts
1. Trans-Asia Shipping Lines, Inc. (Trans-Asia) is the owner of M/V Asia Korea (vessel)
ALS B2021
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a. In consideration of payment of premiums, Prudential Guarantee insured M/V Asia Korea
for loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion
for the sum of PHP 40 million from 1 July 1993 to 1 July 1994.
2. 25 Oct. 1993: a fire broke out while M/V Asia Korea was undergoing repairs at the port of Cebu.
3. 26 Oct. 1993 (the next day): Trans-Asia filed notice of claim for damage sustained by the vessel. It
reserved its right to subsequently notify Prudential Guarantee as to the full amount of claim upon
final survey and determination by average adjuster Richard Hogg Int’l. Phils. Of the damage
sustained by reason of fire.
a. Richard Hogg eventually submitted an adjuster’s report together with the U-Marine Surveyor
Report.
4. 29 May 1995: Trans-Asia executed a “Loan and Trust Receipt” which read:
“Received from Prudential Guarantee the sum of PHP 3 MILLION PESOS as a loan
without interest under Policy No. MH 93/1353, repayable only in the event and to the
extent that any net recovery is made by Trans-Asia Shipping from any person(s) or
corporations or other parties, an account of loss by any casualty for which they may be
liable occasioned by the 15 Oct. 1993: Fire on Board”
5. 21 Apr. 1997: Prudential Guarantee denied Trans-Asia’s insurance claim, saying that Trans-Asia
was in breach of the [marine] policy conditions, among them “Warranted Vessel Classed and Class
Maintained.” The following meaning of this warranty/condition was explained in the ratio of the case:
a. A warranty is a condition that has to be complied with by the insured. When we say a class
warranty, it must be entered in the classification society.
b. A classification society is an organization which sets certain standards for a vessel to
maintain in order to maintain their membership in the classification society.
i. So, if they failed to meet that standard, they are considered not members of
that class, and thus breaching the warranty, that requires them to maintain
membership or to maintain their class on that classification society.
c. And it is not sufficient that the member of this classification society at the time of a loss, their
membership must be continuous for the whole length of the policy, their classification is
suspended, and then thereafter, they get reinstated that again still a breach of the warranty
that they maintained their class.
d. Some examples of this classification societies are: Bureau Veritas, American Bureau of
Shipping, D&V Local Classification Society, The Philippine Registration of Ships Society,
China Classification, NKK and Company Classification Society
6. The following was also only mentioned in the ratio: Despite Prudential Guarantee’s denial of the
insurance claim, it still renewed Trans-Asia’s insurance policy TWICE.
Procedural History
1. 13 Aug. 1997: Trans-Asia filed a Complaint for Sum of Money against Prudential Guarantee in RTC
Cebu for the amount of PHP 8,395,072.26, alleging that it represents the balance of the indemnity
due upon the insurance policy in the total amount of PHP 11,395,072.26. Trans-Asia also sought
interest at the amount of 42% per annum citing Sec. 243 of the Insurance Code.
a. Prudential Guarantee, in its Answer, denied the material allegations of the complaint and
interposed the defense that Trans-Asia breached insurance policy conditions, particularly
the “warranted Vessel Classed and Class Maintained.” By way of counterclaim, Prudential
Guarantee sought the refund of the PHP 3 million, which it allegedly advanced to Trans-Asia
by way of a loan without interest and without prejudice to the final evaluation of the claim.
2. RTC Cebu (06 June 2000): Ruled in favor of Prudential Guarantee and said that Trans-Asia failed to
prove compliance of the terms of the warranty, the violation thereof entitled Prudential Guarantee to
rescind the [insurance] contract. RTC further cited Sec. 107 of the Insurance code, saying that the
concealment made by Trans-Asia that the vessel was not adequately maintained to preserve its class
was a material concealment sufficient to avoid the policy, and thus, entitled the inured party to rescind
the contract.
a. With regard to the loan and trust receipt, RTC ruled that it was a loan. If Trans-Asia intended
to receive the PHP 3 million as advance payment, it should have clearly stated as such. RTC
then made Trans-Asia return the PHP 3 million to Prudential Guarantee.
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3. CA (06 Nov. 2001): reversed the RTC Cebu ruling. It said that Prudential Guarantee, the party
asserting the non-compensability of the loss had the burden of proof to show that Trans-Asia
breached the warranty, which burden it failed to discharge.
a. CA considered Prudential Guarantee’s admission that at the time the insurance contract
was entered into between the parties, the vessel was properly classed by Bureau
Veritas, a classification society recognized by the industry. CA also found that it was
Richards Hogg Int’l. Phils.’s (the average adjuster hired by Prudential Guarantee)
responsibility to secure a copy of such certification to support its conclusion that mere
absence of a certification does not warrant denial of Trans-Asia’s claim under the insurance
policy.
b. With regard to the loan and trust receipt, the CA interpreted the transaction as one of
subrogation instead of a loan. Trans-Asia has no obligation to pay back the PHP 3 million to
Prudential Guarantee based on its finding that the amount was Prudential Guarantee’s
partial payment to Trans-Asia’s claim under the policy.
c. Trans-Asia is also awarded double the interest on the policy for the duration of the delay of
payment of the unpaid balance, citing Sec. 244 of the Insurance Code.
4. Prudential Guarantee appealed to the SC.
Issue/s
Ruling
10. Is Prudential Guarantee liable to Trans-Asia arising from the 12. Yes
insurance contract?
11. Is Trans-Asia liable to Prudential Guarantee arising from the “Loan 13. No, It’s a Partial
and Trust Receipt” transaction?
Payment
12. How much should the interest be?
14. Double. Sec. 244 of
the Insurance Code
Rationale
9. Prudential Guarante is LIABLE to Trans-Asia under the insurance contract/policy.
Prudential Guarantee failed to establish that Trans-Asia violated and breached the policy
condition on “Warranted Vessel Classed and Class Maintained” as contained in the insurance
contract.
The party which alleges a fact as a matter of defense has the burden of proving it. Prudential Guarantee,
as the party which asserted the claim that Trans-Asia breached the warranty in the policy, has the burden
of evidence to establish the same.
- Trans-Asia was able to establish proof of loss and the coverage of the loss (25 Oct. 1993: Fire on
Board). Thereafter, the burden of evidence shifted to Prudential Guarantee to counter Trans-Asia’s
case, and to prove its special and affirmative defense that Trans-Asia was in violation of the
particular condition on Classed and Class maintained.
- Prudential Guarantee was not successful in discharging the burden of evidence that TransAsia breached the subject policy condition on Classed and Class maintained.
o Prudential Guarantee, through Senior Manager of its Marine and Aviation Division, Lucio
Fernandez, made a categorical admission that at the time of the procurement of the
insurance contract in July 1993, Trans-Asia’s vessel M/V Asia Korea was properly classed
by Bureau Veritas.
o Bureau Veritas is a classification society recognized in the marine industry. Undisputedly,
Trans-Asia was properly classed at the time the contract of insurance was entered into;
thus, it becomes incumbent upon Prudential Guarantee to show evidence that the status of
Trans-Asia as being properly CLASSED by Bureau Veritas had shifted in violation of the
warranty. Unfortunately, Prudential failed to support the allegation.
Also, the lack of certification in Prudential Guarantee’s records to the effect that M/V Asia Korea was
classed and class maintained at the time of the occurrence of the fire cannot be tantamount to the
conclusion that Trans-Asia in fact breached the warranty contained in the policy.
- It should be noted that it was Richards Hogg’s responsibility to secure a copy of such certification,
and the alleged breach of Trans-Asia cannot be gleaned from the average adjuster’s survey report
or adjustment of particular average per M/V Asia Korea of the 25 Oct. 1993 fire on board.
ALS B2021
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Sec. 74 of the Insurance Code provides that “the violation of a material warranty, or other material
provision of a policy on the part of either party thereto, entitles the other to rescind.”
- A warranty is a statement or promise set forth in the policy, or by reference incorporated therein,
the untruth or non-fulfillment of which in any respect and without reference to whether the insurer
was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.
- It is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly
shown by the party alleging the same.
- Prudential Guarantee, not having shown that Trans-Asia breached the warranty condition,
Classed and Class Maintained, it remains that Trans-Asia must be allowed to recover its
rightful claims on the policy.
Assuming Arguendo that Trans-Asia violated the policy condition on Warranted Vessel Classed
and Class Maintained, Prudential Guarantee made a valid waiver of the same.
After the loss, Prudential Guarantee renewed the insurance policy of Trans-Asia for 2 consecutive years,
from July 1994 to July 1995 and then again to July 1996. This renewal is deemed a waiver of any
breach of warranty.
- Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer;
but if he so elects, he may waive his privilege and power to rescind by the mere expression of an
intention to do so. In that event his liability under the policy continues as before.
- There can be no clearer intention of the waiver of the alleged breach than the renewal of the policy
insurance granted by Prudential Guarantee to Trans-Asia in MH94/1595 and MH95/1788 insurance
policies, issued in the years 1994 and 1995, respectively.
- Notwithstanding Prudential Guarantee’s claim that no [Bureau Veritas] certification was
issued to that effect, it renewed the policy, thereby evidence an intention to waive TransAsia’s alleged breach.
o Clearly, by granting the renewal of the insurance policies twice and successively after the
loss, the intent was to benefit the insured, Trans-Asia, as well as to waive compliance of
the warranty.
10. The PHP 3 million granted by Prudential Guarantee through the “Loan and Trust Receipt” is
considered a partial payment on the insurance policy.
What is clear from the wordings of the document is that Prudential Guarantee is obligated to hand over
to Trans-Asia “whatever recovery may (Trans-Asia) make and deliver to (Prudential) all documents
necessary to prove its interest in the said property.”
- The money received is payment under the [insurance] policy, with Prudential Guarantee having the
right of subrogation to whatever net recovery Trans-Asia may obtain from 3rd parties resulting from
the fire.
o In the law on insurance, subrogation is an equitable assignment to the insurer of all
remedies which the insured may have against 3rd persons whose negligence or wrongful
act caused the loss covered by the insurance policy, which is created as the legal effect of
payment by the insurer as an assignee in equity.
o The loss in the first instance is that of the insured by after reimbursement or compensation,
it becomes the loss of the insurer.
o It has been referred to as the doctrine of substitution and rests on the principle that
substantial justice should be attained regardless of form, that is, its basis is the doing of
complete, essential, and perfect justice between all the parties without regard to form.
- The liberality in the tenor of the “Loan and Trust Receipt” in favor of Trans-Asia leads to the
conclusion that the PHP 3 million was a form of advance payment on Trans-Asia’s claim on
insurance policy MH93/1353
11. Considering the above, Prudential Guarantee is directed to pay Trans-Asia the amount of
PHP 8,395,072.26 representing the balance of the loss suffered by Trans-Asia and covered
by Marine Policy No. MH93/1363.
ALS B2021
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Prudential is also directed to pay attorney’s fees equivalent to 10% of PHP 8,395,072.26
- Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other expenses
incurred by the insured after a finding by the Court or the Insurance Commissioner, as the case
may be, of an unreasonable denial or withholding of the payment of the claims due.
- The law also imposes an interest of twice the ceiling prescribed by the Monetary Board on the
amount of the claim due the insured from the date following the time prescribed in Sec. 242 or Sec.
243, as the case may be, until the claim is fully satisfied.
- Finally, Sec. 244 considers the failure to pay the claims within the time prescribed in Secs. 242 or
243, when applicable, as prima facie evidence of unreasonable delay in payment.
o Sec. 244 does not require a showing of bad faith in order that attorney’s fees be granted.
o Secs. 243 and 244 of the Insurance Code also apply when the court finds an unreasonable
delay or refusal in the payment of the insurance claims.
In this case, there was an unreasonable delay by Prudential Guarantee in the payment of the
unpaid balance of PHP 8,395,072.26 to Trans-Asia.
- On 26 Oct. 1993 (a day after the fire), Trans-Asia filed its notice of claim.
- On 13 Aug. 1996, the adjuster, Richards Hogg, completed its survey report recommending the
amount of PHP 11,395,072.26 as the total indemnity due to Trans-Asia.
- On 21 Apr.1997, Prudential denied Trans-Asia’s claim for the amount of PHP 8,395,072.26
representing the balance of the total indemnity.
- On 21 July 1997, Prudential sent a 2nd letter to Trans-Asia seeking a return of the amount of PHP 3
million.
- On 13 Aug. 1997, Trans-Asia was constrained to file a case against Prudential, praying, inter alia,
for the sum of PHP 8,395,072.26 representing the balance of the proceeds of the insurance claim.
From the foregoing, there was an unreasonable delay on the part of Prudential Guarantee to pay TransAsia. An award equivalent to 10% of the unpaid proceeds of the policy as attorney’s fees to Trans-Asia
is reasonable under the circumstances and as per jurisprudence.
Further, the aggregate amount (PHP 8,395,072.26 + 10% thereof as attorney’s fees) shall be
imposed double interest in accordance with Sec. 244 of the Insurance Code.
Sec. 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the
Monetary Board due the insured, from the date following the time prescribed in Secs. 242 or 243, as the
case may be, until the claim is fully satisfied.
- In this case, Sec. 243 is applicable as what is involved here is a marine insurance, a policy other
than life insurance.
- As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the
rate of twice the ceiling prescribed by the Monetary Board except when the failure or refusal of the
insurer to pay was founded on the ground that the claim was fraudulent.
The term “double interest” must be interpreted to mean 24% per annum. And it should be counted
from 13 Sept. 1996.
- It is clear that under Sec. 243, the insurer has until the 30th day after proof of loss and ascertainment
of the loss or damage to pay its liability under the insurance, and only after such time can the insurer
be held to be in delay, thereby necessitating the imposition of double interest.
- In this case, it was not disputed that the survey report on the ascertainment of the loss was
completed by the adjuster, Richard Hoggs, on 13 Aug. 1996.
o Prudential Guarantee had 30 days from 13 Aug. 1996 within which to pay its liability to
Trans-Asia under the insurance policy, or until 13 Sept. 1996.
o Therefore, the double interest can begin to run from 13 Sept. 1996 only.
An interest of 12% per annum should also be imposed on the TOTAL amount of liability,
computed from the time of finality of judgment until full satisfaction thereof in conformity with
the Eastern Shipping Lines Inc. vs CA case.
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-
Eastern Shipping Lines vs. CA: when the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, regardless whether the obligation involves a loan or
forbearance of money, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit.
Disposition
GR. No. 151980 (Prudential Guarantee vs. Trans-Asia) – Petition DENIED.
GR. No. 151991 (Trans-Asia vs. Prudential Guarantee) – Petition GRANTED. Awards MODIFIED:
1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing
the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363;
2. PRUDENTIAL is DIRECTED further to PAY TRANSASIA damages in the form of attorneys’ fees
equivalent to 10% of the amount of P8,395,072.26;
3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorneys’ fees) shall be imposed
double interest at the rate of 24% per annum to be computed from 13 September 1996 until fully
paid; and
4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as
above stated in paragraphs (1), (2), and (3) herein, computed from the time of finality of judgment
until the full satisfaction thereof.
COMM – INSURANCE
(Premium)
274
G.R. No. L-22684
August 31, 1967
Dizon, J.
Casipe (edited by James V.)
Petitioner/s: Philippine Phoenix Surety & Insurance, Inc. Respondent/s: Woodwork, Inc.
INSURER: Philippine Phoenix Surety & Insurance, Inc.
INSURED: Woodwork, Inc.
CONTROVERSY: Woodwork made a partial payment of
Recit-Ready Summary
Philippine Phoenix issued to Woodwork Fire Policy No. 9652 for the amount of 300,000 pesos for a
term of one year from April 1, 1960 to April 1, 1961. The premiums of the said policy amounted to
P6,051.95 plus other charges. Woodwork paid to Philippine Phoenix P3,000 on Sept. 22, 1960.
Philippine Phoenix Surety v. Woodworks Inc.
Philippine Phoenix made several demands to Woodwork to pay the remaining premium of P3,522.09.
Philippine Phoenix filed a case against Woodwork in the Municipal Court of Manila to recover the amount
of P3,522.09 pesos of unpaid premium. The lower court ruled in favor of Philippine Phoenix, and said
Woodwork is liable to pay balance of premium due. Hence the present petition. Woodwork argues that
the lower court erred in deciding that in a perfected contract of insurance non-payment of premium does
not cancel the policy.
The issue in this case is W/N non-payment of the premium cancels the policy – NO
It is clear from the foregoing that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by Philippine
Phoenix and delivered to Woodwork, and that on September 22, 1960, Philippine Phoenix paid to the
former P3,000 pesos on account of the total premium of P6,051.95 due thereon. There is consequently
no doubt at all that, as between the insurer and the insured, there was not only a perfected contract of
insurance but a partially performed one as far as the payment of the agreed premium was concerned.
When an insurance policy is delivered to the insured upon partial payment of the premium there was not
only a perfected contract of insurance but a partially performed one as far as the payment of the agreed
premium was concerned. Thereafter, the obligation of the insurer to pay the insured the amount for which
the policy was issued in case the conditions therefor had been complied with, arose and became binding
upon it, while the obligation of the insured to pay the remainder of the total amount of the premium due
became demandable. Thereafter, the parties could demand from each other the obligations each one
assumed: the insurer, to demand payment of the unpaid premium or sue for rescission.
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The Court did not agree with Woodwork’s theory that non-payment of the premium due, produced the
cancellation of the contract of insurance. Such theory would place exclusively in the hands one of the
contracting parties the right to decide whether the contract should stand or not. Rather the correct view
would seem to be this: as the contract had become perfected, the parties could demand from each other
the performance of whatever obligations they had assumed. In the case of the insurer, it is obvious that
it had the right to demand from the insured the completion of the payment of the premium due or sue for
the rescission of the contract. As Philippine Phoenix, chose to demand specific performance of the
insured’s obligation to pay the balance of the premium, Woodwork’s duty to pay is indeed indubitable.
Doctrine: When an insurance policy is delivered to the insured upon partial payment of the premium
there was a perfected contract of insurance, and the insured’s obligation to pay the remainder of the total
amount of the premium due becomes demandable.
Facts
56. On April 1, 1960, Philippine Phoenix Surety & Insurance, Inc. (Philippine Phoenix), issued to
Woodwork, Inc. (Woodwork) Fire Policy No. 9652 for the amount of 300,000 pesos for a term of
one year from April 1, 1960 to April 1, 1961. The premiums of the said policy amounted to 6,051.95
pesos; the margin fee pursuant to the adopted plan as an implementation of RA 2609 amounted to
363.72 and the documentary stamps attached to the policy was P96.42.
57. Woodwork paid to Philippine Phoenix P3,000 on September 22, 1960.
58. Philippine Phoenix made several demands to Woodwork to pay the amount of P3,522.09.
Procedural History
5. Philippine Phoenix filed a case against Woodwork in the Municipal Court of Manila to recover the
amount of P3,522.09.
6. The lower court ruled in favor of Philippine Phoenix.
7. Woodwork appealed to the CFI Manila but lost. Hence, the present appeal.
Woodwork’s Contention
• The lower court erred in stating that in fire insurance policies the risk attached upon the issuance
and delivery of the policy to the insured.
• The lower court erred in deciding that in a perfected contract of insurance non-payment of premium
does not cancel the policy.
• The lower court erred in deciding that the premium in the policy was still collectible when the
complaint was filed.
• The lower court erred in deciding that a partial payment of the premium made the policy effective
during the whole period of the policy.
Issue/s
Ruling
WoN the non-payment of premium cancels the policy.
No
Rationale
•
•
•
Non-Payment of the premium does not cancel the policy.
It is clear from the foregoing that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by
Philippine Phoenix and delivered to Woodwork, and that on September 22 of 1960 of the same year,
the Woodwork paid Philippine Phoenix the sum ofP 3,000 on account of the total premium of 6,051.95
pesos due thereon. There is consequently no doubt at all that, as between the insurer and the
insured, there was not only a perfected contract of insurance but a partially performed one as far as
the payment of the agreed premium was concerned.
- Thereafter the obligation of the insurer to pay the insured the amount for which the policy was
issued in case the conditions therefor had been complied with, arose and became binding upon
it, while the obligation of the insured to pay the remainder of the total amount of the premium
due became demandable.
The Court did not agree with Woodwork’s theory that non-payment of the premium due, produced
the cancellation of the contract of insurance. Such theory would place exclusively in the hands one
of the contracting parties the right to decide whether the contract should stand or not. Rather the
correct view would seem to be this: as the contract had become perfected, the parties could demand
from each other the performance of whatever obligations they had assumed
In the case of the insurer, it is obvious that it had the right to demand from the insured the completion
of the payment of the premium due or sue for the rescission of the contract. As it chose to demand
ALS B2021
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specific performance of the insured’s obligation to pay the balance of the premium, the latter’s duty
to pay is indeed indubitable
• Having resolved the fourth and last assignment of error submitted by Woodwork as one without merit,
the first three assignments of error must likewise be overruled.
Disposition
Lower court decision affirmed being in accordance with law and the evidence. Woodwork liable to pay
balance of premium due.
275
Philippine Phoenix Surety & Insurance Co. v.
Woodworks, Inc.
G.R. No. L-25317
August 6, 1979
PETITIONERS:
PHILIPPINE
PHOENIX
SURETY
&
INSURANCE COMPANY, plaintiff-appellee
Recit Ready Summary
Insurance: Premiums
MELENCIOHERRERA
Melan Yap
RESPONDENTS:
WOODWORKS, INC., defendant-appellant
Philippine Phoenix (insurer) issued in favor of Woodworks (insured) fire insurance policy over its building,
machinery and equipment for a term of one year. Insured did not pay the premium stipulated in the Policy when it
was issued nor at any time thereafter.
Before the expiration of the one-year term, insurer notified insured of the cancellation of the Policy. Insurer credited
defendant with the amount of P3,110.25 for the unexpired period of 94 days, and claimed the balance of P7,483.11
representing earned premium for 271 days. Insurer commenced action for collection for this earned premium.
Insurer entitled to premiums? NO, NO INSURANCE CONTRACT HERE BECAUSE PREMIUMS NEVER PAID.
The premium must be paid at the time and in the way and manner specified in the policy and, if not so paid, the
policy will lapse and be forfeited by its own terms.
The Policy here provides for pre-payment of premium. Since the premium had not been paid, the policy must be
deemed to have lapsed. The non-payment of premiums does not merely suspend but put, an end to an insurance
contract, since the time of the payment is peculiarly of the essence of the contract.
The instant case differs from that involving the same parties entitled Philippine Phoenix Surety & Insurance Inc.
vs. Woodworks, Inc., where recovery of the balance of the unpaid premium was allowed inasmuch as in that case
"there was not only a perfected contract of insurance but a partially performed one as far as the payment of the
agreed premium was concerned." This is not the situation obtaining here where no partial payment of premiums
has been made whatsoever.
Also, from the Policy provisions, we fail to find any clear agreement that a credit extension was accorded defendant.
And even if it were to be presumed that plaintiff had extended credit from the circumstances of the unconditional
delivery of the Policy without prepayment of the premium, yet it is obvious that defendant had not accepted the
insurer's offer to extend credit, which is essential for the validity of such agreement.
Doctrine: No contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, notwithstanding any agreement to the contrary.
Facts
5. Upon defendant's application, plaintiff issued in its favor Fire Insurance Policy No. 9749 for P500,000.00
whereby plaintiff insured defendant's building, machinery and equipment for a term of one year from July
21, 1960 to July 21, 1961 against loss by fire.
6. It is undisputed that defendant did not pay the premium stipulated in the Policy when it was issued nor at
any time thereafter.
ALS B2021
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7. On April 19, 1961, or before the expiration of the one-year term, plaintiff notified defendant of the
cancellation of the Policy allegedly upon request of defendant. The latter has denied having made such a
request. In said Indorsement, plaintiff credited defendant with the amount of P3,110.25 for the unexpired
period of 94 days, and claimed the balance of P7,483.11 representing earned premium from July 21, 1960
to 18th April 1961 or, say 271 days.
Procedural History
4. Plaintiff commenced action in the Court of First Instance to recover the amount of P7,483.11 as "earned
premium."
5. Defendant controverted on the theory that its failure "to pay the premium after the issuance of the policy
put an end to the insurance contract and rendered the policy unenforceable."
6. Judgment was rendered in plaintiff's favor ordering defendant to pay plaintiff the sum of P7,483.11, with
interest thereon.
7. Defendant appealed to the Court of Appeals which, as heretofore stated, certified the case to us on a
question of law.
Parties’ Contentions
Issues
Ruling
13. Insurer entitled to premiums?
15. NO.
Rationale
2. No Insurance Contract Here Because Premiums Never Paid
The premium must be paid at the time and in the way and manner specified in the policy and, if not so paid, the
policy will lapse and be forfeited by its own terms.
The Policy here provides for pre-payment of premium. Accordingly, "when the policy is tendered the insured must
pay the premium unless credit is given or there is a waiver, or some agreement obviating the necessity for
prepayment." To constitute an extension of credit there must be a clear and express agreement therefor."
From the Policy provisions, we fail to find any clear agreement that a credit extension was accorded defendant.
And even if it were to be presumed that plaintiff had extended credit from the circumstances of the unconditional
delivery of the Policy without prepayment of the premium, yet it is obvious that defendant had not accepted the
insurer's offer to extend credit, which is essential for the validity of such agreement.
An acceptance of an offer to allow credit, if one was made, is as essential to make a valid agreement for credit, to
change a conditional delivery of an insurance policy to an unconditional delivery, as it is to make any other contract.
Such an acceptance could not be merely a mental act or state of mind, but would require a promise to pay made
known in some manner to defendant.
In this respect, the instant case differs from that involving the same parties entitled Philippine Phoenix Surety &
Insurance Inc. vs. Woodworks, Inc., where recovery of the balance of the unpaid premium was allowed inasmuch
as in that case "there was not only a perfected contract of insurance but a partially performed one as far as the
payment of the agreed premium was concerned." This is not the situation obtaining here where no partial payment
of premiums has been made whatsoever.
The non-payment of premiums does not merely suspend but put, an end to an insurance contract, since the time
of the payment is peculiarly of the essence of the contract.
... the rule is that under policy provisions that upon the failure to make a payment of a premium or assessment at
the time provided for, the policy shall become void or forfeited, or the obligation of the insurer shall cease, or words
to like effect, because the contract so prescribes and because such a stipulation is a material and essential part of
the contract. This is true, for instance, in the case of life, health and accident, fire and hail insurance policies.
In fact, if the peril insured against had occurred, plaintiff, as insurer, would have had a valid defense against
recovery under the Policy it had issued. Explicit in the Policy itself is plaintiff's agreement to indemnify defendant
for loss by fire only "after payment of premium." Compliance by the insured with the terms of the contract is a
condition precedent to the right of recovery.
ALS B2021
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The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the insurer to
exert every effort to prevent the insured from allowing a policy to elapse through a failure to make premium
payments. The continuance of the insurer's obligation is conditional upon the payment of premiums, so that no
recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased.
Moreover, "an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the
purpose of indemnity."
Insurance Code now provides that no contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary.
Disposition
Complaint of insurer dismissed (insurer not entitled to collect earned premiums).
Makati Tuscany v CA12
276
GR 95546
Petitioners:
Makati Tuscany Condominium
Corporation (TUSCANY)
Recit Ready Summary
6 November 1992
COMMREVInsurance;
Sec.
(Payment of premium)
Bellosillo, J.
Pauline (e.
Belle)
77
by
Respondents:
Court of Appeals, American Home Assurance Co. (AHAC),
Represented by American International Underwriters (Phils.), Inc.
Insurer American Home issued insurance policies to cover the buildings and premises of Makati Tuscany
Condo Corporation. They entered into 3 policies, the subsequent policies replacing and renewing the
previous policies. For the first and second policies, Tuscany paid the premiums on installment, all of which
were accepted by Insurer. On the third policy, Tuscany made 2 installment payments on the premium due,
which were both accepted, but refused to pay the balance. Insurer thus filed an action to recover the unpaid
premium. Tuscany filed a counterclaim, claiming a refund of all the premiums paid on all three policies,
arguing that that Sec 77 of the Insurance Code provides that no contract of insurance is valid and binding
unless the premium thereof has been paid, notwithstanding any agreement to the contrary. Thus, it asserts
that there was no perfected contract of insurance considering the payment by installments. The trial court
and the CA dismissed the complaint and counterclaim. The CA held that the insurance contract became
valid and binding upon payment of the first premium, and the insurer could not have denied liability on the
ground that payment was not made in full, for the reason that it agreed to accept installment payments. It
thus ordered Tuscany to pay the balance of the premiums due on the third policy. Hence, this petition.
Are the subject policies valid even if the premiums were paid in installments? (YES)
SC affirmed the CA ruling and held that the policies are valid and binding. Section 77 merely precludes the
parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly
prohibit an agreement granting credit extension, and such an agreement is not contrary to
morals, good customs, public order or public policy. So, an understanding to allow insured to pay premiums
in installments is not proscribed. At the very least, both parties should be deemed in estoppel to question
the arrangement they have voluntarily accepted. Basic principles of equity and fairness would not allow the
insurer to continue collecting and accepting the premiums, although paid on installments, and later deny
liability on the lame excuse that the premiums were not prepaid in full. Here, in those three (3) years when
the policies were in effect, the insurer accepted all the installment payments, notwithstanding their
staggered nature. These circumstances show that the parties actually intended to make the 3 insurance
contracts valid, effective and binding. Consequently, Tuscany may not be allowed to renege on its obligation
to pay the balance of the premium as there indeed exists a valid insurance contract. In contrast to the facts
in Arce v. Capital Surety and Insurance Co., Tuscany paid the initial installment and thereafter made
staggered payments. In Arce, no payment was made by the insured at all despite the grace period given.
12
Short case hehe
ALS B2021
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CA decision affirmed. Tuscany ordered to pay the balance of the premiums due on the third policy.
Doctrine/s:
1. An agreement allowing premiums to be paid in installments is valid and consistent with Sec. 77.
2. Where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the
premiums paid if the insurer was exposed to the risk insured for any period, however brief or
momentary.
Facts & Procedural History
1. American Home Assurance Co. (AHAC), represented by American International Underwriters
(Phils.), Inc., issued insurance policies in favor of Makati Tuscany Condominium Corporation
(TUSCANY) on the latter’s building and premises, as follows:
• (1) For period 1 Mar 1982-1 Mar 1983 – premium (worth ~P466K) was paid in 4
installments all of which were accepted by insurer
• (2) For period 1 Mar 1983-1 Mar 1984 – same amount of premium, paid in 5 installments
all of which were likewise accepted
• (3) For period 1 Mar 1984-1 Mar 1985 – same amount of total premium, but insured made
only 2 installments (totalling P152K) which were both accepted by insurer; thereafter,
Tuscany refused to pay the balance
2. AHAC filed an action to recover the unpaid balance of P314,103.05 for the third policy.
a. Tuscany admitted the issuance of the third policy in its answer with counterclaim, explaining
that it discontinued the payment of premiums because the policy did not contain a credit clause
in its favor and the receipts for the installment payments covering the third policy, as well as
the 2 previous policies, stated the following reservations:
"2. Acceptance of this payment shall not waive any of the company rights to deny liability on any
claim under the policy arising before such payments or after the expiration of the credit
clause of the policy; and
"3. Subject to no loss prior to premium payment. If there be any loss such is not covered."
b. Tuscany further claimed that the policy was never binding and valid, and no risk attached to
the policy.
c. Tuscany then pleaded a counterclaim for P152,000.00 for the premiums already paid on the
third policy, and sought the refund of P924,206.10 representing the premium payments for all
policies.
3. The parties moved for summary judgment.
4. Trial court: dismissed the complaint and the counterclaim.
a. The payment of the premiums of the three policies (being sought to be refunded) were made
during the lifetime or term of said policies, hence, it could not be said, despite the reservations,
that no risk attached under the policies. Consequently, Tuscany’s counterclaim for refund is
not justified.
b. As regards the unpaid premiums on third policy, in view of the reservation in the receipts
ordinarily issued by the AHAC on premium payments the only plausible conclusion is that
AHAC has no right to demand payment after the lapse of the term of said policy on March 1,
1985. Therefore, the Tuscany was justified in refusing to pay the same.
5. CA: modified the decision of the trial court and affirmed the denial of Tuscany’s counterclaim.13
a. The CA ordered Tuscany to pay the balance of the premiums due on the third policy or
P314,103.05 plus legal interest until fully paid, and affirming the denial of the counterclaim.
b. The parties agreed to make the premiums payable in installments, and there is no pretense
that the parties never envisioned to make the insurance contract binding between them. It was
renewed for two succeeding years, the second and third policies being a renewal/replacement
for the previous one. And the insured never informed the insurer that it was terminating the
policy because the terms were unacceptable.
c. There is nothing in Sec. 77 which suggests that the parties may not agree to allow
payment of the premiums in installment, or to consider the contract as valid and binding
13
SC affirmed the CA decision hence the extensive discussion here!
ALS B2021
69
upon payment of the first premium. Otherwise, we would allow the insurer to renege on its
liability under the contract, had a loss occurred before completion of payment of the entire
premium, despite its voluntary acceptance of partial payments
d. The insurance contract became valid and binding upon payment of the first premium,
and the plaintiff could not have denied liability on the ground that payment was not made in full,
for the reason that it agreed to accept installment payments.
Points of Contention
Tuscany- asserts that its payment by installment of the premiums for the insurance policies for invalidated
said policies because of the provisions of Sec. 77 of the Insurance Code 14; that where the premium is not
actually paid in full, the policy would only be effective if there is an acknowledgment in the policy of the
receipt of premium pursuant to Sec. 78; the absence of an express acknowledgment in the policies of
receipt of the corresponding premium payments, and Tuscany’s failure to pay said premiums on or before
the effective dates of said policies rendered them invalid. In sum: that there is no perfected contract of
insurance + thus seeks refund of all premium payments
Issues
W/N payment by installment of the premiums due on an insurance policy invalidates
the contract of insurance in view of Sec. 77 of the Insurance Code
Rationale
Ruling
NO; VALID
The policies are valid even if the premiums were paid on installments.
1. The records clearly show that Tuscany and AHAC intended the insurance policies to be binding
and effective notwithstanding the staggered payment of the premiums.
- The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In
those three (3) years, the insurer accepted all the installment payments.
- Such acceptance of payments speaks loudly of the insurer's intention to honor the
policies it issued to petitioner.
- Basic principles of equity and fairness would not allow the insurer to continue collecting and
accepting the premiums, although paid on installments, and later deny liability on the lame
excuse that the premiums were not prepaid in full.
2. The SC quoted “with approval the well-reasoned findings and conclusion of the appellate court”—
- While the import of Section 77 is that prepayment of premiums is strictly required as a
condition to the validity of the contract, We are not prepared to rule that the request to make
installment payments duly approved by the insurer, would prevent the entire contract of
insurance from going into effect despite payment and acceptance of the initial premium or
first installment.
- Section 78 in effect allows waiver by the insurer of the condition of prepayment by making
an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of
payment so far as to make the policy binding despite the fact that premium is actually unpaid.
- Section 77 merely precludes the parties from stipulating that the policy is valid even
if premiums are not paid, but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary to morals, good customs,
public order or public policy.15
- So is an understanding to allow insured to pay premiums in installments not so
proscribed. At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted."
3. Arce v. Capital Surety and Insurance Co. does not apply because the facts therein are substantially
different. In Arce, no payment was made by the insured at all despite the grace period given.
Here, Tuscany paid the initial installment and thereafter made staggered payments resulting
14
Essentially: That no contract of insurance is valid and binding unless the premium thereof has been paid, notwithstanding any
agreement to the contrary.
15
Citing De Leon, the Insurance Code, at p. 175
ALS B2021
70
in full payment of the first and second policies. For the 1984 policy, Tuscany paid 2 installments
although it refused to pay the balance.
4. It appearing from the peculiar circumstances that the parties actually intended to make the 3
insurance contracts valid, effective and binding, Tuscany may not be allowed to renege on its
obligation to pay the balance of the premium after the expiration of the whole term of the
third policy in March 1985.
5. As correctly observed by the CA, where the risk is entire and the contract is indivisible, the
insured is not entitled to a refund of the premiums paid if the insurer was exposed to the
risk insured for any period, however brief or momentary.
Disposition
CA decision affirmed. Tuscany to pay the balance of the premiums due on the third policy or P314,103.05
plus legal interest until fully paid.
Tibay vs. CA
Insurance- Premium (Sec. 77)
277
G.R. No. 119655
May 24, 1996
Bellosillo, J.
Jebel C.
Petitioners:
Respondents:
SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY
and OFELIA M. RORALDO, VICTORINA M.
RORALDO, VIRGILIO M. RORALDO, MYRNA M.
RORALDO and ROSABELLA M. RORALDO
COURT OF APPEALS and FORTUNE LIFE AND
GENERAL INSURANCE CO., INC.
Recit Ready Summary
Fortune issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on
their two-storey residential building located at Makati City, together with all their personal effects, for
P600,000. Of the total premium of P2,983.50, Violeta only paid P600.00 thus leaving a considerable
balance unpaid. Subsequently, the insured building was completely destroyed by fire. Two days after,
Violeta paid for the balance of the premium. On that same day, she filed a claim with Fortune but the
latter denied such claim on the ground that according to Policy Condition No. 2, such insurance policy is
not in force until the premium has been fully paid to and duly received by the company. On the other
hand, Violeta contested that in the case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks,
Inc. the Court sustained the ruling of the trial court that partial payment of the premium made the policy
effective during the whole period of the policy. The trial court then ruled in favor of the petitioners but it
was reversed by the CA. Hence, this present petition.
The issue is W/N the fire insurance policy is enforceable and valid despite the mere partial payment of
premium. The Court answered in negative.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event. The consideration is the premium,
which must be paid at the time and in the way and manner specified in the policy, and if not so
paid, the policy will lapse and be forfeited by its own terms. In the case at hand, the policy clearly
provides that such insurance policy will only be enforceable upon full payment.
ALS B2021
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The Court also ruled that the phrase "unless and until the premium thereof has been paid” in
Section 77 of the Insurance Code should be interpreted as it is since where the law does not
distinguish the court should neither distinguish. In fact the phrase “with pay” used in connection with
leaves of absences, maternity leaves, vacation and sick leaves of judges of municipal courts and justices
of peace always refers to full payment and not partial payment.
Moreover, the Court ruled that the 1967 Phoenix case is not persuasive; neither is it decisive of the
instant dispute since it involves different factual scenario. Basically, the main difference is that, in the
Phoenix case there was no express stipulation that there must be a full payment of premium in order for
the policy to be enforceable. Likewise, in Makati Tuscany Condominium Corp. v. Court of Appeals, the
parties mutually agreed that the premiums could be paid in installments. Hence, the Court allowed the
partial payment of the premium since both parties agreed for such.
These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or
implied, of prepayment in full by the insurer: impliedly, by suing for the balance of the premium
as in Phoenix, and expressly, by agreeing to make premiums payable in installments as in
Tuscany. However, since there was an express stipulation in the case at hand, such stipulation
should prevail.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec.
77 of the Insurance Code the payment of partial premium by the assured in this particular instance
should not be considered the payment required by the law and the stipulation of the parties.
Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such
time that the full amount has been tendered and duly receipted for. Thus, no vinculum juris whereby
the insurer bound itself to indemnify the assured according to law ever resulted from the fractional
payment of premium.
Vitug, J., Dissenting Opinion
The payment of premium, subject to the stated exceptions, is deemed by the foregoing provisions to be an element
essential to establish the juridical relation between the insurer and the insured. Observe, however, that the law
neither requires, nor measures the strength of the vinculum juris by any speci􏰀c amount of premium payment. It
should thus be enough that payment on the premium, partly or in full, is made by the insured which the insurer
accepts. In fine, it is either that a juridical tie exists (by such payment) or that it is not extant at all (by an absence
thereof)
Moreover, it is clear that in the case at hand, the insurer HAD ACCEPTED a partial premium payment on the
policy weeks before the risk insured against took place. To say that the provisions in the policy issued by
Fortune that the insurance shall not be in force until the premium has been fully paid override the
efficaciousness of the insurance contract despite the payment and acceptance of a part of the premium. This
is clearly opposite to the correct application of Section 77, but also to the intent and spirit of Section 78, of the
Insurance Code which provides that “an acknowledgment in a policy or contract of insurance of the receipt of
premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until the premium is actually paid.”
Thus, it is clear that on the day premium payment is made by the insured, albeit only a portion of it, so long as
it is accepted by the insurer, the insurance coverage becomes effective and binding, any stipulation in the
policy to the contrary notwithstanding.
Facts
ALS B2021
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1. Fortune Life and General Insurance Co., Inc. (Fortune) issued Fire Insurance Policy No. 136171 in
favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at
5855 Zobel Street, Makati City, together with all their personal effects therein. The insurance was
for P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23 January
1987, of the total premium of P2,983.50, Violeta only paid P600.00 thus leaving a considerable
balance unpaid.
2. Subsequently, the insured building was completely destroyed by fire. Two days later, Violeta paid
the balance of the premium. On the same day, she filed a claim with Fortune but it was referred to
its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting
her to furnish it with the necessary documents for the investigation and processing of her claim.
Thereafter, Fortune wrote Violeta a letter denying her claim pursuant to Section 77 of the
Insurance Code and Policy Condition No. 2, which provides the following:
THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company in accordance with Policy
Condition No. 2 of the total premiums by the insured as stipulated above for the period aforementioned for insuring against
Loss or Damage by Fire or Lightning as herein appears, the Property herein described . . .
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has
been fully paid to and duly receipted by the Company in the manner provided herein. Any supplementary agreement
seeking to amend this condition prepared by agent, broker or Company official, shall be deemed invalid and of no effect.
xxx xxx xxx
Except only in those specific cases where corresponding rules and regulations which are or may hereafter be in force
provide for the payment of the stipulated premiums in periodic installments at fixed percentage, it is hereby declared,
agreed and warranted that this policy shall be deemed effective, valid and binding upon the Company only when
the premiums therefor have actually been paid in full and duly acknowledged in a receipt signed by any authorized
official or representative/agent of the Company in such manner as provided herein, (Emphasis supplied).
3. Since efforts to settle the case before the Insurance Commission proved futile, Violeta and other
petitioners sued Fortune for damages. The trial court then ruled in favor of Violeta but the CA
reversed said decision. Hence, this petition before the Court.
Points of Contention
Violeta and the petitioners – they contested that Fortune remains liable under the subject fire insurance
policy despite their failure to pay their premium in full. They mainly relied in the case of Philippine
Phoenix and Insurance Co., Inc. v. Woodworks, Inc. where the Court through Mr. Justice Arsenio P.
Dizon sustained the ruling of the trial court that partial payment of the premium made the policy
effective during the whole period of the policy.
Issues
1. W/N the fire insurance policy is enforceable and valid despite the mere partial
payment of premium?
Ruling
1. NO
Rationale
ALS B2021
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There must be a full payment of premium for a fire insurance policy to be enforceable and valid.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event. The consideration is the premium,
which must be paid at the time and in the way and manner specified in the policy, and if not so paid, the
policy will lapse and be forfeited by its own terms.
In the case at hand, the Policy clearly provides for payment of premium in full. Accordingly, where the
premium has only been partially paid and the balance paid only after the peril insured against has
occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy.
This is fully supported by Sec. 77 of the Insurance Code which provides —
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life
policy whenever the grace period provision applies (Emphasis supplied).
Moreover, the Court ruled that the phrase "unless and until the premium thereof has been paid” should
be interpreted as it is since where the law does not distinguish the court should neither distinguish. In
Escosura vs. San Miguel Brewery In., the Court ruled that the phrase “with pay” used in connection with
leaves of absences, maternity leaves, vacation and sick leaves of judges of municipal courts and justices
of peace refers to full payment and not partial payment.
Furthermore, the Court ruled that the 1967 Phoenix case is not persuasive; neither is it decisive of the
instant dispute. For one, the factual scenario is different. In Phoenix it was the insurance company that
sued for the balance of the premium, i.e., it recognized and admitted the existence of an insurance
contract with the insured. In the case at hand, there is a specific stipulation that this policy is not in
force until the premium has been fully paid and duly receipted by the Company. Resultantly, it is
correct to say that in Phoenix a contract was perfected upon partial payment of the premium
since the parties had not otherwise stipulated that prepayment of the premium in full was a
condition precedent to the existence of a contract. In Phoenix, by accepting the initial payment of
P3,000.00 and then later demanding the remainder of the premium without any other precondition to its
enforceability as in the instant case, the insurer in effect had shown its intention to continue with the
existing contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific
performance from the insured. This is not so here. By express agreement of the parties, no vinculum
juris or bond of law was to be established until full payment was effected prior to the occurrence
of the risk insured against.
In another case, Makati Tuscany Condominium Corp. v. Court of Appeals, the parties mutually
agreed that the premiums could be paid in installments, which in fact they did for three (3) years, hence,
the Court allowed the partial payment of the premium since both parties agreed for such.
These 2 cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or implied, of
prepayment in full by the insurer: impliedly, by suing for the balance of the premium as in Phoenix, and
expressly, by agreeing to make premiums payable in installments as in Tuscany. But contrary to the
stance taken by petitioners, there is no waiver express or implied in the case at bench. Precisely, the
insurer and the insured expressly stipulated that (t)his policy would not be enforceable until the premium
has been fully paid to and duly receipted by the Company.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the
Insurance Code the payment of partial premium by the assured in this particular instance should
not be considered the payment required by the law and the stipulation of the parties. Rather, it
must be taken in the concept of a deposit to be held in trust by the insurer until such time that
ALS B2021
74
the full amount has been tendered and duly receipted for. In other words, as expressly agreed upon
in the contract, full payment must be made before the risk occurs for the policy to be considered effective
and in force. Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according
to law ever resulted from the fractional payment of premium. The insurance contract itself expressly
provided that the policy would be effective only when the premium was paid in full. It would have been
altogether different were it not so stipulated. Thus, no vinculum juris whereby the insurer bound itself to
indemnify the assured according to law ever resulted from the fractional payment of premium.
Lastly, SC ruled that since the stipulation is clear and not ambiguous, it should not be applied strictly in
favor of the insured. Moreover, in the case of South Sea Surety and Insurance Company, Inc. v. Court
of Appeals, the SC speaks only of 2 statutory exceptions to the requirement of payment of the entire
premium as a prerequisite to the validity of the insurance contract. These exceptions are: (a) in case
the insurance coverage relates to life or industrial life (health) insurance when a grace period
applies, and (b) when the insurer makes a written acknowledgment of the receipt of premium, this
acknowledgment being declared by law to be then conclusive evidence of the premium payment.
A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others.
Exceptio firmat regulim in casibus non exceptis. The express mention of exceptions operates to
exclude other exceptions; conversely, those which are not within the enumerated exceptions are deemed
included in the general rule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and the
law has not expressly excepted partial payments, there is no valid and binding contract. Hence, in the
absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds
of the policy.
Disposition
The petition was denied.
Vitug, J., Dissenting Opinion
The law neither requires, nor measures the strength of the vinculum juris by, any specific amount of premium
payment.
The payment of premium, subject to the stated exceptions, is deemed by the foregoing provisions to be an
element essential to establish the juridical relation between the insurer and the insured. Observe, however, that
the law neither requires, nor measures the strength of the vinculum juris by, any specific amount of
premium payment. It should thus be enough that payment on the premium, partly or in full, is made by
the insured which the insurer accepts. In fine, it is either that a juridical tie exists (by such payment) or that it
is not extant at all (by an absence thereof). Once the juridical relation comes into being, the full efficacy,
not merely pro tanto, of the insurance contract naturally follows. Verily, not only is there an insurance
perfected but also a partially performed contract. In case of loss, recovery on the basis of the full contract value,
less the unpaid premium can accordingly be had; conversely, if no loss occurs, the insurer can demand the
payment of the unpaid balance of the premium. The insured, on the one hand, cannot avoid the obligation of
paying the balance of the premium while the insurer, upon the other hand, cannot treat the contract as valid only
for the purpose of collecting premiums and as invalid for the purpose of indemnity.
Nor would the non-payment of the balance due result in an AUTOMATIC cancellation of the insurance contract;
otherwise, the effect would be to place exclusively in the hands of one of the contracting parties the right to decide
whether the contract should stand or not in possible disregard of the MUTUALITY OF CONTRACTS RULE.
Instead, the parties should be able to demand from each other the performance of whatever obligations they had
ALS B2021
75
assumed or, if desired, sue timely for the rescission of the contract. Thus, in the case at hand, the net result is
that the insurer's liability to the insured would simply be reduced by the balance of the premium still due from the
latter. Thus, it becomes TOTALLY INCONSEQUENTIAL whether the insured still remits or no longer remits
payment of the balance of the premium, the insurer's liability theretofore having already attached.
The insurer accepted the partial payment on the policy weeks before the risk insured against took place.
It must here be noted that the insured HAD MADE, and the insurer HAD ACCEPTED, a partial premium payment
on the policy weeks before the risk insured against took place.
An insurance is an aleatory contract which, unlike a conditional agreement whose efficacy is dependent on stated
conditions, is at once effective upon its perfection although the occurrence of a condition or event may later
dictate the demandability of certain obligations thereunder. Founded on the autonomy of contracts, the parties,
of course, are generally not prevented from imposing conditions that alone could trigger the contract's obligatory
force. These conditions, however, must not be contrary to law, morals, good customs, public order or public
policy.
To say that the provisions in the policy issued by Fortune that the insurance shall not be in force until the premium
has been fully paid and that it shall be deemed effective, valid and binding upon the company only when the
premiums therefor have actually been paid in full and duly acknowledged override the efficaciousness of the
insurance contract despite the payment and acceptance of a part of the premium. This is clearly opposite to the
correct application of Section 77, but also to the intent and spirit of Section 78, of the Insurance Code which
provides that an acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until the premium is actually paid.
Thus, it is clear that on the day premium payment is made by the insured, albeit only a portion of it, so
long as it is accepted by the insurer, the insurance coverage becomes effective and binding, any
stipulation in the policy to the contrary notwithstanding.
American Home v. Chua
Commrev-Insurance
278
G.R. No. 130421
Petitioner/s:
June 28, 1999
DAVIDE, JR., C .J
Pauline
Respondent/s:
AMERICAN HOME ASSURANCE COMPANY ANTONIO CHUA
Recit-Ready Summary
Antonio Chua obtained fire insurance for his stock in trade for his business establishment,
Moonlight Enterprises. On April 5, he issued a PCIB check to AHAC’s agent as payment for the
renewal of the policy. The agent issued a renewal certificate showing that the check was
acknowledged. On April 6, Moonlight was entirely razed by fire. On April 10, the official receipt
was issued. Chua filed a claim with AHAC which was denied because allegedly there was no
contract due to nonpayment of premium and that even if there was, the policy is avoided due
to Chua’s violation of the other insurance clause, since he was also insured by 4 other insurance
companies.
ALS B2021
76
Issue:
1. Was there a valid payment of premium? Yes.
Section 306 of the Insurance Code provides that any insurance company which delivers a policy
or contract of insurance to an insurance agent or insurance broker shall be deemed to have
authorized such agent or broker to receive on its behalf payment of any premium which is due
on such policy or contract of insurance at the time of its issuance or delivery or which becomes
due thereon.
According to the trial court the renewal certificate issued contained the acknowledgment that
premium had been paid. Here, the best evidence of such authority is the fact that AHAC
accepted the check and issued the official receipt for the payment. AHAC is bound by its agent's
acknowledgment of receipt of payment.
Further, Section 78 provides: An acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the premium is actually
paid. This Section establishes a legal fiction of payment and should be interpreted as an
exception to Section 77.
2. Could the policy be avoided for nondisclosure to existing co-insurers? No.
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing coinsurers, non-disclosure thereof is a violation that entitles the insurer to avoid the policy. This
condition is common in fire insurance policies and is known as the "other insurance clause." An
exception is when the insurer had actual prior knowledge thereof.
AHAC’s loss adjuster testified admitting previous knowledge of the co-insurers, yet he did not
use that as basis for his recommendation of denial. The loss adjuster, being an employee of
AHAC, is deemed its representative whose awareness of the other insurance contracts binds
AHAC. Thus there was no violation of the "other insurance clause" by respondent.
However, loss of profit cannot be shouldered by AHAC whose obligation is limited to the object
of insurance, which was the stock-in-trade and not the expected loss in income or profit.
Doctrines:
1. The general rule in insurance laws is that unless the premium is paid the insurance
policy is not valid and binding. The only exceptions are life and industrial life insurance.
2. Where the insurance policy specifies as a condition the disclosure of existing coinsurers, non-disclosure thereof is a violation that entitles the insurer to avoid the policy
except when the insurer is estopped by actual prior knowledge.
3. To constitute a violation the other existing insurance contracts must be upon the same
subject matter and with the same interest and risk.
Facts
ALS B2021
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1. Sometime in 1990, Chua obtained from AHAC a fire insurance covering the stock-intrade16 of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The
insurance was due to expire on 25 March 1990.
2. On 5 April 1990 respondent issued PCIBank Check in the amount of P2,983.50 to
AHAC’s agent, James Uy, as payment for the renewal of the policy. In turn, Uy delivered
Renewal Certificate No. 00099047 to Chua. The check was drawn against a Manila
bank and deposited in AHAC’s bank account in Cagayan de Oro City. The
corresponding official receipt was issued on 10 April. Subsequently, a new insurance
policy was issued, whereby AHAC undertook to indemnify Chua for any damage or loss
arising from fire up to P200,000 for the period 25 March 1990 to 25 March 1991.
3. The renewal certificate clearly specified the following conditions:
- Subject to the payment by the assured of the amount due prior to renewal
date, the policy shall be renewed for the period stated.
- Any payment tendered other than in cash is received subject to actual cash
collection.
- Subject to no loss prior to premium payment. If there be any loss, and is not
covered [sic].
4. On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was
estimated between P4M to P5M. Chua filed an insurance claim with AHAC and four
other co-insurers.17 AHAC refused to honor the claim thus, the Chua filed an action18
before the trial court.
5. Trial court held AHAC liable for actual damages, loss of profits, moral damages,
exemplary damages, attorney’s fees. CA affirmed.
Point/s of Contention
AHAC claims it is not liable because
1. There was no existing insurance contract when the fire occurred since respondent did
not pay the premium.
- An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against (Sec. 77 Insurance Code)
- Check issued on Apr 5 did not produce payment because it was not yet cashed
when the fire occurred on Apr 6 (Civil Code). O/R for check issued only 4 days later
on Apr 10.
- The check was drawn against a Manila bank and deposited in a CDO bank, it could
not have been cleared in one day on the date of the fire
2. Violation of conditions: Chua failed to notify to AHAC of any insurance already effected
to cover the insured goods. Non-disclosure of other insurance contracts rendered the
policy void (Jurisprudence).
3. Damages awarded was unreasonable since it did not act in bad faith in denying the
claim
Issue/s
Ruling
1. Yes
16
Not specified
17
4 other co-insurers: Pioneer Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc., Filipino Merchants
Insurance Co. and Domestic Insurance Company of the Philippines.
18
Not specified what kind
ALS B2021
78
1. Was there a valid payment of premium, considering that the check was
cashed after the occurrence of the fire?
2. Did Chua violate the policy by his non-disclosure of the other existing
insurance contracts?
3. Is Chua entitled to loss of profits and damages?
Rationale
2. No
3. No.
1. There was valid payment.
The general rule in insurance laws is that unless the premium is paid the insurance policy is not
valid and binding. The only exceptions are life and industrial life insurance. Whether payment
was indeed made is a question of fact which is best determined by the trial court.
HERE: The trial court found, as affirmed by the CA, that there was a valid check payment.
According to the trial court the renewal certificate issued to respondent contained the
acknowledgment that premium had been paid. It is not disputed that the check was honored
when presented and AHAC issued its official receipt on 10 April 1990.
Section 306 of the Insurance Code provides that any insurance company which delivers a policy
or contract of insurance to an insurance agent or insurance broker shall be deemed to have
authorized such agent or broker to receive on its behalf payment of any premium which is due
on such policy or contract of insurance at the time of its issuance or delivery or which becomes
due thereon.
-
In the instant case, the best evidence of such authority is the fact that petitioner
accepted the check and issued the official receipt for the payment. It is, as well,
bound by its agent's acknowledgment of receipt of payment.
Section 78 of the Insurance Code explicitly provides: An acknowledgment in a policy or contract
of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make
the policy binding, notwithstanding any stipulation therein that it shall not be binding until the
premium is actually paid.
-
This Section establishes a legal fiction of payment and should be interpreted as an
exception to Section 77
2. Chua did not violate conditions of the policy.
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing
co-insurers, non-disclosure thereof is a violation that entitles the insurer to avoid the
policy. This condition is common in fire insurance policies and is known as the "other insurance
clause." The purpose for the inclusion of this clause is to prevent an increase in the moral
hazard. However, we see an exception in the instant case.
Section 75, which provides that: A policy may declare that a violation of specified provisions
thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.
ALS B2021
79
To constitute a violation the other existing insurance contracts must be upon the same subject
matter and with the same interest and risk.
HERE: Chua acquired several co-insurers and he failed to disclose this information to AHA .
Nonetheless, AHAC is estopped from invoking this argument. The trial court cited the testimony
of petitioner's loss adjuster who admitted previous knowledge of the co-insurers:
-
loss adjuster had known all along of the other existing insurance contracts, yet, he
did not use that as basis for his recommendation of denial.
the only reason he recommended the denial of the claim, you found three
documents to be spurious
Indubitably, it cannot be said that petitioner was deceived by respondent by the latter's nondisclosure of the other insurance contracts when petitioner actually had prior knowledge
thereof. The loss adjuster, being an employee of petitioner, is deemed a representative of the
latter whose awareness of the other insurance contracts binds petitioner. We, therefore, hold
that there was no violation of the "other insurance clause" by respondent.
The submission of the alleged fraudulent documents pertained to respondent's income tax
returns for 1987 to 1989. Chua disproved this by presenting a BIR certification that he had
paid the proper taxes for the said years.
3. Award of loss of profit not proper.
AHAC is liable for P200,000 actual damages, but there is no legal and factual basis for the
award of P200,000 for loss of profit.
It cannot be denied that the fire totally gutted respondent's business; thus, respondent no longer
had any business to operate. His loss of profit cannot be shouldered by petitioner whose
obligation is limited to the object of insurance, which was the stock-in-trade, and not the
expected loss in income or profit.
Moral and exemplary damages improper. At the core of this case is petitioner's alleged breach
of its obligation under a contract of insurance. Under Article 2220 of the Civil Code, moral
damages may be awarded in breaches of contracts where the defendant acted fraudulently or
in bad faith. We find no such fraud or bad faith. It must again be stressed that moral damages
are emphatically not intended to enrich a plaintiff at the expense of the defendant.
Disposition
AHAC liable for actual damages P200,000, DELETING P200,000 for loss of profit, P200,000
as moral damages and P100,000 as exemplary damages, and REDUCING the award of
attorney's fees from P50,000 to P10,000.
ALS B2021
80
UCPB GENERAL V. MASAGANA
279
G.R. No. 137172
Pet: UCPB Gen. Insurance
Recit Ready Summary
Commrev - Insurance
15 June 1999 (Main)
J. Pardo (1999)
4 April 2001 (MR)
C.J. Davide (2001)
Res: Masagana Telemart
J. Cu (edited by
Mikko Casipe)
Masagana Telemart obtained from UCPB General Insurance five fire insurance policies covering its
properties. These were valid from 22 May 1991 to 22 May 1992. Before the expiration of the policies,
UCPB evaluated them decided not to renew them upon their expiration. Thus, UCPB gave Masagana
written notice of the non-renewal of the policies prior to their expiration. On 13 June 1992, fire razed
Masagana’s property. One month after, or on 13 July 1992, Masagana went to UCPB and tendered five
manager’s checks as payment for premium. The next day, Masagana filed its formal claim for the
insurance proceeds arising from the fire. On this same day, UCPB returned the checks and rejected the
insurance claim on the ground that the policies had already expired, and that the fire occurred on 13
June 1992, before the tender of premium payment on 13 July 1992.
Masagana filed a collection suit for the face value of the policies against UCPB. Both the RTC and CA
ordered UCPB to pay Masagana. The CA found that based on previous practice, Masagana was
allowed a 60-90 day credit term for the payment of the premium, and that the acceptance of the late
premium payment suggested an understanding that payment could be made later.
The SC reversed the CA, holding that UCPB was not liable for the insurance proceeds because the
policies had already expired (on 22 May 1992) when the fire occurred (on 13 June 1992). The Court
based its ruling on Section 77 of the Insurance Code, which provides that an insurance policy, other than
life, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void.
Masagana then filed an MR.
Issue: W/N Section 77 [which renders void any stipulation allowing an insurance policy to take effect
even without payment of premiums] should be strictly applied, to the advantage of UCPB, despite
its previous practice of giving Masagana a 60-90 day credit term within which to pay the premium?
No.
Section 77 provides the general rule that insurance policies shall only become valid and binding once
the insurance is paid. However, there are statutory and jurisprudential exceptions to this rule:
1. Section 77: In case of a life or industrial life policy, whenever the grace period provision applies;
2. Section 78: Any acknowledgment in a policy or contract of insurance of the receipt of premium
is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until premium is actually paid.
3. When the parties have agreed to the payment in installments of the premium and partial payment
has been made at the time of loss.
4. When the insurer grants a credit extension for the payment of the premium.
5. Estoppel
Here, the fourth exception applies. There was clearly a credit term granted to Masagana, established
by long practice. Nothing in Section 77 prohibits the parties in an insurance contract to provide a credit
term within which to pay the premiums. This agreement is not against the law, morals, good customs,
public order or public policy. Thus, the agreement binds the parties.
The fifth exception also applies. It would be unjust and inequitable if recovery on the policy would not
be permitted. UCPB had consistently granted a 60- to 90-day credit term for the payment of premiums
despite its full awareness of Section 77. Estoppel bars it from taking refuge under this Section, since
Masagana relied in good faith on such practice.
Thus, the policy was in effect at the time of the fire and UCPB is therefore liable for the proceeds.
ALS B2021
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Doctrine/s:
1. There is nothing in Section 77 which prohibits the parties in an insurance contract to provide a
credit term within which to pay the premiums.
2. When an insurer had consistently granted a 60-to-90 day credit term for the payment of
premiums despite its full awareness of Section 77, and the assured had relied in good faith on
suc practice, estoppel bars it from taking refuge under said Section.
Dissenting Opinions:
1. J. Vitug, dissenting
• Estoppel cannot create a contract of insurance, and neither can it be successfully
invoked to create a primary liability, nor can it give validity to what the law so
proscribes as a matter of public policy.
• The premium payment is so essential to the creation of the vinculum juris between the
insured and the insurer that it would be doubtful to have that payment validly excused
even for a fortuitous event.
2. J. Pardo, dissenting
• The claim for insurance benefits must fail because the failure to give timely written notice
of the fire was a material misrepresentation affecting the risk insured against.
• The purported practice of giving 60 to 90-day credit extension for payment of premiums
was a disputed fact. But it is an established fact that the written notice of loss was not
immediately given. It was given only the day after the attempt to pay the delayed
premiums.
Facts
1999 Main Case
59. Masagana Telemart obtained from UCPB General Insurance 5 fire insurance policies covering its
properties. These were valid from 22 May 1991 to 22 May 1992.
60. In March 1992, UCPB evaluated the policies and decided not to renew them upon expiration. UCPB
advised Masagana’s broker, Zuellig Insurance Brokers of its intention not to renew.
61. In April 1992, UCPB gave Masagana written notice of the non-renewal of the policies.
62. On 13 June 1992, fire razed Masagana’s property.
63. One month after, or on 13 July 1992, Masagana went to UCPB and tendered 5 manager’s checks
as payment for premium. The next day, on 14 July 1992, Masagana then filed its formal claim for
the insurance proceeds arising from the fire.
64. On this same day, UCPB returned the checks and rejected the insurance claim on the following
grounds:
- the policies had already expired and were not renewed; and
- the fire occurred on 13 June 1992, before the tender of premium payment on 13 July 1992.
RTC and CA
65. Masagana filed a collection suit for the face value of the policies against UCPB.
66. The RTC ordered UCPB to pay Masagana. This was affirmed by the CA.
- The courts held that based on previous practice, 19 Masagana was allowed a 60-90 day credit
term for the renewal of its policies, and that the acceptance of the late premium payment
suggested an understanding that payment could be made later.
19
See last page for the specific dates of payment which showed that UCPB accepted premium payments for renewal
even after the expiration of the policies.
ALS B2021
82
-
The CA also held that there was no timely notice of non-renewal given to Masagana. According
to the policy, notice of non-renewal must be sent at least 45 days prior to the expiration of the
policy. Here, was not sent within the said period. 20
SC
67. The SC held that UCPB was not liable for the insurance proceeds because the policies had already
expired (on 22 May 1992) when the fire occurred (on 13 June 1992).
- The Court based its ruling on Section 77 of the Insurance Code.
- It held that an insurance policy, other than life, is not valid and binding until actual payment of
the premium. Any agreement to the contrary is void. The parties may not agree expressly or
impliedly on the extension of credit or time to pay the premium and consider the policy binding
before actual payment.
68. Masagana filed an MR.
Points of Contention
UCPB:
- The policies had already expired and were not renewed. Moreover, the fire occurred on 13 June
1992, before the tender of premium payment on 14 July 1992.
Masagana:
- Based on previous practice over the years, UCPB has granted Masagana a 60-90 day credit
term for the renewal of the policies. This practice had existed for a number of years and up to
the time the claims were filed.
- Masagana also asked the Court to take judicial notice of the fact that despite the express
provision of Section 77 of the Insurance Code, extension of credit terms in premium payment
has been the prevalent practice in the insurance industry. Most insurance companies, including
UCPB, extend credit terms because Section 77 is not a prohibitive injunction but is merely
designed for the protection of the parties to an insurance contract. In fact, Section 78 authorizes
the validity of a policy notwithstanding non-payment of premiums.
- Moreover, since no notice of non-renewal was made within 45 days of the expiration of the
policies, these were renewed by operation of law. Consequently, they were in effect when the
fire occurred on 30 June 1992, since the premiums were tendered within the 60-90 day credit
term.
Issue
W/N Section 77 should be applied strictly, to the advantage of UCPB, despite
UCPB’s established practice of granting a 60-90 day credit term to Masagana?
Rationale
Ruling
No.
Section 77 should not be applied strictly, to the advantage of UCPB, as this provision admits of
exceptions. UCPB’s previous practice shows that it habitually granted Masagana a 60-90 day credit
term after the expiration of the policy within which to pay the insurance premium. This is jurisprudentially
recognized as an exception to Section 77.
History of Section 77
-
Section 77 of the Insurance Code provides:
Section 77. An insurer is entitled to payment of the premium as soon as the thing insured
is exposed to the peril insured against. Notwithstanding any agreement to the contrary,
no policy or contract of insurance issued by an insurance company is valid and binding
20
The date was not specified, but the 2001 resolution later stated that the notice was sent after 15 April 1992, which
was already less than 45 days from the expiration of the policy on 22 May 1992. Thus, there was no timely notice of
non-renewal.
ALS B2021
83
unless and until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies.
-
Section 77 of the Insurance Code is a reproduction of Section 77 of P.D. 612, which had its
origin in Section 72 of Act No. 2427. Section 72 reads:
Section 72. An insurer is entitled to payment of premium as soon as the thing insured is
exposed to the peril insured against, unless there is clear agreement to grant the insured
credit extension of the premium due. No policy issued by an insurance company is valid
and binding unless and until the premium thereof has been paid.
-
Section 77 of the Insurance Code omitted the portion permitting an agreement to extend the
period to pay the premium. However, there are still exceptions to Section 77.
Exceptions to Section 77
6. Section 77
o In case of a life or industrial life policy, whenever the grace period provision applies.
7. Section 78
o Any acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until premium is
actually paid.
8. When the parties have agreed to the payment in installments of the premium and partial payment
has been made at the time of loss.
o This exception was recognized in Makati Tuscany Condominium Corporation v. CA,
where it was clear that the parties intended the insurance policies to be binding and
effective notwithstanding the staggered payment of premiums.
9. When the insurer grants a credit extension for the payment of the premium.
o This means that if the insurer has granted the insured a credit term for the payment of
the premium and loss occurs before the expiration of the term, recovery on the policy
should be allowed even though the premium is paid after the loss but within the credit
term. This was also derived from Makati Tuscany.
10. Estoppel
Application
-
The fourth exception applies.
o There was clearly a credit term granted to Masagana, established by long practice.
o Nothing in Section 77 prohibits the parties in an insurance contract to provide a credit
term within which to pay the premiums. This agreement is not against the law, morals,
good customs, public order or public policy. Thus, the agreement binds the parties.
-
The fifth exception applies.
o It would be unjust and inequitable if recovery on the policy would not be permitted.
UCPB had consistently granted a 60- to 90-day credit term for the payment of premiums
despite its full awareness of Section 77. Estoppel bars it from taking refuge under this
Section, since Masagana relied in good faith on such practice.
-
Thus, the policy was in effect at the time of the fire and UCPB is therefore liable for the proceeds.
Disposition: MR Granted. UCPB is liable under the insurance policies.
ALS B2021
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Separate Opinions
1. J. Vitug, dissenting
-
-
-
-
-
Section 77 amended Section 72 of the old Insurance act by deleting the phrase “unless there
is a clear agreement to grant the insured credit extension of the premium due” and adding at
the beginning of the second sentence the phrase “notwithstanding any agreement to the
contrary”.
o Commenting on the provision, Dean Hernando B. Perez states: “If the insurer wants to
favor the insured by making the policy binding notwithstanding the non-payment of
premium, a mere credit agreement would not be sufficient., The remedy would be for
the insurer to acknowledge in the policy that premiums were paid although they were
not, in which case the policy becomes binding because such acknowledgement is a
conclusive evidence of payment of premium”
Estoppel cannot create a contract of insurance, and neither can it be successfully invoked to
create a primary liability, nor can it give validity to what the law so proscribes as a matter of
public policy.
The premium payment is so essential to the creation of the vinculum juris between the
insured and the insurer that it would be doubtful to have that payment validly excused even for
a fortuitous event.
A partial payment of the premium, if accepted by the insurer, can perfect the contract and bring
the parties into an obligatory relation. A partial payment puts the contract into full binding force,
not merely pro tanto, entitling and obligating the parties by their agreement. In case of loss, full
recovery less the unpaid portion of the premium (by the operative act of legal compensation),
can be had by the insured and, correlatively, if no loss occurs the insurer can demand the
payment of the unpaid balance of the premium.
Here, no juridical tie appears to have been established at all.
2. J. Pardo, dissenting
-
-
The insurance claim is fraudulent. This is proven by the following:
o Masagana tried to pay the overdue premiums before giving written notice of the fire.
Masagana very well knew that the policy was not renewed on time. Hence, the
surreptitious attempt to pay overdue premiums. Such act revealed a reprehensible
disregard of the principle that insurance is a contract uberrima fides, the most abundant
good faith.
o Masagana deviated from its previous practice of coursing its premium payments
through its brokers. Masagana went directly to UCPB and paid through its cashier with
manager's checks. Naturally, the cashier accepted the premium payment because he
had no written notice of the occurrence of the fire.
The claim for insurance benefits must fail because the failure to give timely written notice of the
fire was a material misrepresentation affecting the risk insured against.
The purported practice of giving 60 to 90-day credit extension for payment of premiums was a
disputed fact. But it is an established fact that the written notice of loss was not immediately
given. It was given only the day after the attempt to pay the delayed premiums.
o In any case, the purported credit was a mere verbal understanding of Masagana of an
agreement that exists between the UCPB and Masagana’s brokers. What has been
established was the grant of credit to the insurance brokers, and not to Masagana.
o It must be stressed that a verbal understanding of respondent Masagana cannot amend
an insurance policy. In insurance practice, amendments or even corrections to a policy
are done by written endorsements or tickets appended to the policy
o Assuming arguendo that the 60 to 90 day-credit-term has been agreed by the parties,
estoppel is unavailing in this case. Estoppel cannot give validity to an act that is
prohibited by law or against public policy. The actual payment or premiums is a
condition precedent to the validity of an insurance contract other than life insurance
policy. Any agreement to the contrary is void as against the law and public policy.
ALS B2021
85
o
-
The fact remains that the insurance policy did not contain any proviso pertaining to the
grant of credit for the payment of premiums.
With regard to the contention that the absence of notice of non-renewal of the policy resulted to
the automatic renewal of the policy, the law provides that only upon payment of the insurance
premium will the insurance policy bind the insurer to the peril insured against and hold it liable
under the policy in case of loss
The basis for the “previous practice” that established the 60-90 day credit term impliedly granted to Masagana:
Policy
Fire Insurance
Policy No. 34658
Fire Insurance
Policy No. 34660
Fire Insurance
Policy No. 34657
Fire Insurance
Policy No. 29126
Fire Insurance
Policy No. HO/F26408
Period Covered
May 22, 1990 to
May 22, 1991
May 22, 1990 to
May 22, 1991
May 22, 1990 to
May 22, 1991
May 22, 1989 to
May 22, 1990
January 12, 1989 to
January 12, 1990
Date of Issuance
May 7, 1990
Payment
August 31, 1990
May 4, 1990
July 13, 1990
May 7, 1990
July 19, 1990
May 22, 1989
July 25, 1990
December 10, 1988
February 15,
1989
Notes
Premium paid more
than 90 days later
Premium paid more
than 60 days later
Premium paid more
than 60 days later
Premium paid more
than 60 days later
Premium paid more
than 60 days later
The list goes on, but it’s all the same.
Stokes v. Malayan Insurance
COMMREV; Insurance
G.R. No. L-34768
24 February 1984
J. Plana
Kath; updated JCC
Petitioner JAMES STOKES, as Attorney-in-Fact Respondent MALAYAN INSURANCE CO., INC.
of Daniel Stephen Adolfson and DANIEL
STEPHEN ADOLFSON
280
- A contract of insurance is a contract of indemnity upon the terms and conditions specified therein.
When the insurer is called to pay in case of loss, he has the right to insist compliance with the
terms of the contract. If the insured cannot comply, he is not entitled to recover.
- The terms of the contract constitute the measure of the insurer’s liability; compliance therewith is a
condition precedent to the right of recovery.
Daniel Adolfson insured his car with Malayan. The car collided with another while being driven by
James Stokes, who was authorized to do so by Adolfson. Stokes, an Irish citizen who had been in the
Philippines as a tourist for more than ninety days, had a valid and subsisting Irish driver’s license but
without a Philippine driver’s license. Adolfson filed a claim with Malayan but the latter refused to pay
because Stokes was not an “authorized driver”. Under the “Authorized Driver” clause of the insurance
policy, an authorized driver is either a) the insured or b) any person driving on the insured’s order or with
his permission, provided that the person driving is permitted in accordance with the licensing or other
laws or regulations to drive the motor vehicle and is not otherwise disqualified by court order, regulation,
etc.
The CFI ruled in favor of Adolfson and Stokes stating that Stokes’ lack of a Philippine driver’s license
was not fatal to the enforcement of the insurance policy, and that Malayan was estopped from denying
ALS B2021
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liability under the insurance policy because it accepted premium payment made by the insured one day
after the accident.
Was Malayan is liable for the proceeds? No.
Malayan is not liable, because the “authorized driver” clause was violated. A contract of insurance is a
contract of indemnity upon the terms and conditions specified therein. When the insurer is called to pay
in case of loss or damage, he has the right to insist upon compliance with the terms of the contract. If the
insured cannot comply with those terms, he is not entitled to recover. The terms of the contract constitute
the measure of the insurer’s liability; compliance therewith is a condition precedent to the right of
recovery.
The policy here explicitly required that an “authorized driver” must be one who is permitted to operate a
motor vehicle under the relevant licensing laws and regulations. Under the Land Transportation and
Traffic Code, tourists and transients who are licensed to operate motor vehicles in their respective
countries may be allowed to operate vehicles during but not after 90 days of their stay in the Philippines.
After 90 days, any tourist or transient desiring to operate motor vehicles must pay fees and obtain a
license.
Here, at the time of the accident, Stokes had been in the Philippines for more than 90 days. Hence, under
the law, he could not drive a motor vehicle without a Philippine driver’s license. He was therefore not an
"authorized driver" under the terms of the insurance policy in question, and Malayan was right in
denying the claim of the insured.
Was Malayan is estopped from denying the claim? No.
Malayan is not estopped. Acceptance of premium within the stipulated period for payment thereof,
including the agreed grace period, merely assures continued effectivity of the insurance policy in
accordance with its terms. Such acceptance does not estop the insurer from interposing any valid
defense under the terms of the insurance policy.
Facts
69. Daniel Adolfson (Adolfson) insured his car with Malayan Insurance Co., Inc. (Malayan).
70. On November 23, 1969 the car collided with a car owned by Cesar Poblete, resulting in damage to
both vehicles.
71. At the time of the accident, Adolfson’s car was being driven by James Stokes (Stokes), who was
authorized to do so by Adolfson. Stokes, an Irish citizen who had been in the Philippines as a tourist
for more than ninety days, had a valid and subsisting Irish driver’s license but without a
Philippine driver’s license.
72. After the collision, Adolfson filed a claim with Malayan but the latter refused to pay, contending that
Stokes was not an authorized driver under the "Authorized Driver" clause of the insurance policy in
relation to Section 21 of the Land Transportation and Traffic Code.
73. Under the insurance policy, "authorized driver" refers to —
a) The insured
b) Any person driving on the insured’s order or with his permission.
PROVIDED that the person driving is permitted in accordance with the licensing or
other laws or regulations to drive the motor vehicle and is not disqualified from
driving such motor vehicle by order of a court of law or by reason of any enactment or
regulation in that behalf.
74. The cited Section 21 of the Land Transportation and Traffic Code provides:
Operation of motor vehicles by tourists. — Bona fide tourists and similar transients who are
duly licensed to operate motor vehicles in their respective countries may be allowed to
operate motor vehicles during but not after ninety days of their sojourn in the Philippines.
After ninety days, any tourist or transient desiring to operate motor vehicles shall pay fees and
obtain and carry a license as hereinafter provided.
ALS B2021
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Procedural History
1. Court of First Instance of Manila and succeeded in getting a favorable judgment, although Stokes
had ceased to be authorized to drive a motor vehicle in the Philippines at the time of the accident,
he having stayed therein as a tourist for over 90 days without having obtained a Philippine driver’s
license.
2. The Court held that Stokes’ lack of a Philippine driver’s license was not fatal to the
enforcement of the insurance policy; and Malayan was estopped from denying liability under
the insurance policy because it accepted premium payment made by the insured one day
after the accident. It said:
- [Malayan] cannot evade liability under the policy by virtue of the above provision of the
Land Transportation and Traffic Code. This is an insurance case. The basis of
insurance contracts is good faith and trust between the insurer and the insured.
The matter of the failure on the part of Stokes to have a Philippine driver’s license
is not such a defect that can be considered as fatal to the contract of insurance,
because the fact is that Stokes still had a valid and unexpired Irish license. As a
matter of fact, the traffic officer who investigated the incident gave Stokes a
traffic violation receipt and not a ticket for driving without license.
- Malayan is in estoppel in this case because it allowed Adolfson to pay the insurance
premium even after the accident occurred. Admitting for the sake of argument that there
was a violation of the terms of the policy before the incident, the admission or
acceptance by the insurance company of the premium should be considered as
a waiver on its part to contest the claim of the plaintiffs.
Issues
14. W/N Malayan is liable
15. W/N Malayan is estopped
Ruling
16. NO
17. NO
Rationale
12. Malayan is NOT LIABLE.
- A contract of insurance is a contract of indemnity upon the terms and conditions specified
therein. When the insurer is called upon to pay in case of loss or damage, he has the right to
insist upon compliance with the terms of the contract.
- Under the "authorized driver" clause, an authorized driver must not only be permitted to drive
by the insured. It is also essential that he is permitted under the law and regulations to
drive the motor vehicle and is not disqualified from so doing under any enactment or
regulation.
- At the time of the accident, Stokes had been in the Philippines for more than 90 days. Hence,
under the law, he could not drive a motor vehicle without a Philippine driver’s license. He was
therefore not an "authorized driver" under the terms of the insurance policy in question,
and Malayan was right in denying the claim of the insured.
13. Malayan is NOT ESTOPPED.
- Acceptance of premium within the stipulated period for payment thereof, including the agreed
period of grace, merely assures continued effectivity of the insurance policy in
accordance with its terms. Such acceptance does not estop the insurer from interposing
any valid defense under the terms of the insurance policy.
- The principle of estoppel is an equitable principle rooted upon natural justice which prevents a
person from going back on his own acts and representations to the prejudice of another whom
he has led to rely upon them. The principle does not apply to the instant case. In accepting the
premium payment of the insured, Malayan was not guilty of any inequitable act or
representation. There is nothing inconsistent between acceptance of premium due under
an insurance policy and the enforcement of its terms.
ALS B2021
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Disposition
The complaint is dismissed. Costs against the appellees.
ALS B2021
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