G.R. No.

136914

January 25, 2002

xxx

xxx

xxx

COUNTRY BANKERS INSURANCE CORPORATION, petitioner, vs. LIANGA BAY AND COMMUNITY MULTI-PURPOSE COOPERATIVE, INC., respondent. DE LEON, JR., J.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated December 29, 1998 in CA-G.R. CV Case No. 36902 affirming in toto the Decision3 dated December 26, 1991 of the Regional Trial Court of Lianga, Surigao del Sur, Branch 28, in Civil Case No. L-518 which ordered petitioner Country Bankers Insurance Corporation to fully pay the insurance claim of respondent Lianga Bay and Community Multi-Purpose Cooperative, Inc., under Fire Insurance Policy No. F-1397, for loss sustained as a result of the fire that occurred on July 1, 1989 in the amount of Two Hundred Thousand Pesos (P200,000.00), with interest at twelve percent (12%) per annum from the date of filing of the complaint until fully paid, as well as Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, Ten Thousand Pesos (P10,000.00) as attorneys fees, and the costs of suit. The facts are undisputed: The petitioner is a domestic corporation principally engaged in the insurance business wherein it undertakes, for a consideration, to indemnify another against loss, damage or liability from an unknown or contingent event including fire while the respondent is a duly registered cooperative judicially declared insolvent and represented by the elected assignee, Cornelio Jamero. It appears that sometime in 1989, the petitioner and the respondent entered into a contract of fire insurance. Under Fire Insurance Policy No. F-1397, the petitioner insured the respondents stocks-in-trade against fire loss, damage or liability during the period starting from June 20, 1989 at 4:00 p.m. to June 20, 1990 at 4:00 p.m., for the sum of Two Hundred Thousand Pesos (P200,000.00). On July 1, 1989, at or about 12:40 a.m., the respondents building located at Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire and reduced to ashes, resulting in the total loss of the respondents stocks-in-trade, pieces of furnitures and fixtures, equipments and records. Due to the loss, the respondent filed an insurance claim with the petitioner under its Fire Insurance Policy No. F-1397, submitting: (a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated July 1, 1989; (b) the Sworn Statement of Jose Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo. The petitioner, however, denied the insurance claim on the ground that, based on the submitted documents, the building was set on fire by two (2) NPA rebels who wanted to obtain canned goods, rice and medicines as provisions for their comrades in the forest, and that such loss was an excepted risk under paragraph No. 6 of the policy conditions of Fire Insurance Policy No. F-1397, which provides: This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following occurrences, namely:

(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power. Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or through or in consequence, directly or indirectly, of any of said occurrences shall be deemed to be loss or damage which is not covered by this insurance, except to the extent that the Insured shall prove that such loss or damage happened independently of the existence of such abnormal conditions. Finding the denial of its claim unacceptable, the respondent then instituted in the trial court the complaint for recovery of "loss, damage or liability" against petitioner. The petitioner answered the complaint and reiterated the ground it earlier cited to deny the insurance claim, that is, that the loss was due to NPA rebels, an excepted risk under the fire insurance policy. In due time, the trial court rendered its Decision dated December 26, 1991 in favor of the respondent, declaring that: Based on its findings, it is therefore the considered opinion of this Court, as it so holds, that the defenses raised by defendant-Country Bankers has utterly crumbled on account of its inherent weakness, incredibility and unreliability, and after applying those helpful tools like common sense, logic and the Courts honest appraisal of the real and actual situation obtaining in this area, such defenses remains (sic) unimpressive and unconvincing, and therefore, the defendant-Country Bankers has to be irreversibly adjudged liable, as it should be, to plaintiff-Insolvent Cooperative, represented in this action by its Assignee, Cornelio Jamero, and thus, ordering said defendantCountry Bankers to pay the plaintiff-Insolvent Cooperative, as follows: 1. To fully pay the insurance claim for the loss the insured-plaintiff sustained as a result of the fire under its Fire Insurance Policy No. F-1397 in its full face value of P200,000.00 with interest of 12% per annum from date of filing of the complaint until the same is fully paid; 2. To pay as and in the concept of actual or compensatory damages in the total sum of P50,000.00; 3. To pay as and in the concept of exemplary damages in the total sum of P50,000.00; 4. To pay in the concept of litigation expenses the sum of P5,000.00; 5. To pay by way of reimbursement the attorneys fees in the sum of P10,000.00; and 6. To pay the costs of the suit. For being unsubstantiated with credible and positive evidence, the "counterclaim" is dismissed.

IT IS SO ORDERED. Petitioner interposed an appeal to the Court of Appeals. On December 29, 1998, the appellate court affirmed the challenged decision of the trial court in its entirety. Petitioner now comes before us via the instant petition anchored on three (3) assigned errors,4 to wit: 1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE CREDENCE TO THE SPOT REPORT OF PFC. ARTURO JUARBAL (EXH. 3) AND THE SWORN STATEMENT OF JOSE LOMOCSO (EXH. 4) THAT THE RESPONDENTS STOCK -INTRADE WAS BURNED BY THE NPA REBELS, HENCE AN EXCEPTED RISK UNDER THE FIRE INSURANCE POLICY. 2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE FOR 12% INTEREST PER ANNUM ON THE FACE VALUE OF THE POLICY FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID. 3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER LIABLE FOR ACTUAL AND EXEMPLARY DAMAGES, LITIGATION EXPENSES, ATTORNEYS FEES AND COST OF SUIT. A party is bound by his own affirmative allegations. This is a well-known postulate echoed in Section 1 of Rule 131 of the Revised Rules of Court. Each party must prove his own affirmative allegations by the amount of evidence required by law which in civil cases, as in this case, is preponderance of evidence, to obtain a favorable judgment.5 In the instant case, the petitioner does not dispute that the respondents stocks-in-trade were insured against fire loss, damage or liability under Fire Insurance Policy No. F- 1397 and that the respondent lost its stocks-in-trade in a fire that occurred on July 1, 1989, within the duration of said fire insurance. The petitioner, however, posits the view that the cause of the loss was an excepted risk under the terms of the fire insurance policy. Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview of the exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability.6 Stated else wise, since the petitioner in this case is defending on the ground of non-coverage and relying upon an exemption or exception clause in the fire insurance policy, it has the burden of proving the facts upon which such excepted risk is based, by a preponderance of evidence.7 But petitioner failed to do so. The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as on the Spot Report of Pfc. Arturo V. Juarbal dated July 1, 1989, more particularly the following statement therein:

xxx investigation revealed by Jose Lomocso that those armed men wanted to get can goods and rice for their consumption in the forest PD investigation further disclosed that the perpetrator are member (sic) of the NPA PD end x x x A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are derived from his perception.8 Consequently, a witness may not testify as to what he merely learned from others either because he was told or read or heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. Such is the hearsay rule which applies not only to oral testimony or statements but also to written evidence as well.9 The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or actor upon whose reliability on which the worth of the outof-court statement depends.10 Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay, inasmuch as they did not take the witness stand and could not therefore be cross-examined. There are exceptions to the hearsay rule, among which are entries in official records.11 To be admissible in evidence, however, three (3) requisites must concur, to wit: (a) that the entry was made by a public officer, or by another person specially enjoined by law to do so; (b) that it was made by the public officer in the performance of his duties, or by such other person in the performance of a duty specially enjoined by law; and (c) that the public officer or other person had sufficient knowledge of the facts by him stated, which must have been acquired by him personally or through official information.12 The third requisite was not met in this case since no investigation, independent of the statements gathered from Jose Lomocso, was conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner itself pointed out, citing the testimony of Pfc. Arturo Juarbal,13 the latters Spot Report "was based on the personal knowledge of the caretaker Jose Lomocso who witnessed every single incident surrounding the facts and circumstances of the case." This argument undeniably weakens the petitioners defense, for the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose Lomocso to the effect that NPA rebels allegedly set fire to the respondents building is inadmissible in evidence, for the purpose of proving the truth of the statements contained in the said report, for being hearsay. The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. Arturo V. Juarbal since he himself took the witness stand and was available for cross-examination. The portions of his Spot Report which were of his personal knowledge or which consisted of his perceptions and conclusions are not hearsay. The rest of the said report relative to the statement of Jose Lomocso may be considered as independently relevant statements gathered in the course of Juarbals investigation and may be admitted as such but not necessarily to prove the truth thereof.14

The petitioners evidence to prove its defense is sadly wanting and thus, gives rise to its liability to the respondent under Fire Insurance Policy No. F-1397. Nonetheless, we do not sustain the trial courts imposition of twelve percent (12%) interest on the insurance claim as well as the monetary award for actual and exemplary damages, litigation expenses and attorneys fees for lack of legal and valid basis. Concerning the application of the proper interest rates, the following guidelines were set in Eastern Shipping Lines, Inc. v. Court of Appeals and Mercantile Insurance Co., Inc.:15 I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts, is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, 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. In the said case of Eastern Shipping, the Court further observed that a "forbearance" in the context of the usury law is a "contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable." Considering the foregoing, the insurance claim in this case is evidently not a forbearance of money, goods or credit, and thus the interest rate should be as it is hereby fixed at six percent (6%) computed from the date of filing of the complaint.

We find no justification for the award of actual damages of Fifty Thousand Pesos (P50,000.00). Wellentrenched is the doctrine that actual, compensatory and consequential damages must be proved, and cannot be presumed.16That part of the dispositive portion of the Decision of the trial court ordering the petitioner to pay actual damages of Fifty Thousand Pesos (P50,000.00) has no basis at all. The justification, if any, for such an award of actual damages does not appear in the body of the decision of the trial court. Neither is there any testimonial and documentary evidence on the alleged actual damages of Fifty Thousand Pesos (P50,000.00) to warrant such an award. Thus, the same must be deleted. Concerning the award of exemplary damages for Fifty Thousand Pesos (P50,000.00), we likewise find no legal and valid basis for granting the same. Article 2229 of the New Civil Code provides that exemplary damages may be imposed by way of example or correction for the public good. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. They are designed to permit the courts to mould behavior that has socially deleterious consequences, and its imposition is required by public policy to suppress the wanton acts of an offender. However, it cannot be recovered as a matter of right. It is based entirely on the discretion of the court. We find no cogent and valid reason to award the same in the case at bar. With respect to the award of litigation expenses and attorneys fees, Article 2208 of the New Civil Code17enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be granted. Attorneys fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.18 The award of attorneys fees is the exception rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. We find none in this case to warrant the award by the trial court of litigation expenses and attorneys fees in the amounts of Five Thousand Pesos (P5,000.00) and Ten Thousand Pesos (P10,000.00), respectively, and therefore, the same must also be deleted. WHEREFORE, the appealed Decision is MODIFIED. The rate of interest on the adjudged principal amount of Two Hundred Thousand Pesos (P200,000.00) shall be six percent (6%) per annum computed from the date of filing of the Complaint in the trial court. The awards in the amounts of Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, and Ten Thousand Pesos (P10,000.00) as attorneys fees are hereby DELETED. Costs against the petitioner. SO ORDERED.

G.R. No. 103883 November 14, 1996 JACQUELINE JIMENEZ VDA. DE GABRIEL, petitioner, vs.HON. COURT OF APPEALS and FORTUNE INSURANCE & SURETY COMPANY, INC., respondents. VITUG, J.: The petition for review on certiorari in this case seeks the reversal of the decision 1 of the Court of Appeals setting aside the judgment of the Regional Trial Court of Manila, Branch 55, which has ordered private respondent Fortune Insurance & Surety Company, Inc., to pay petitioner Jacqueline Jimenez vda. de

Gabriel, the surviving spouse and beneficiary in an accident (group) insurance of her deceased husband, the amount of P100,000.00, plus legal interest. Marcelino Gabriel, the insured, was employed by Emerald Construction & Development Corporation ("ECDC") at its construction project in Iraq. He was covered by a personal accident insurance in the amount of P100,000.00 under a group policy 2 procured from private respondent by ECDC for its overseas workers. The insured risk was for "(b)odily injury caused by violent accidental external and visible means which injury (would) solely and independently of any other cause" 3 result in death or disability. On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or on 12 July 1983, ECDC reported Gabriel's death to private respondent by telephone. 4 Among the documents thereafter submitted to private respondent were a copy of the death certificate 5 issued by the Ministry of Health of the Republic of Iraq which stated REASON OF DEATH: UNDER EXAMINATION NOW NOT YET KNOWN 6

the lower court erred in ruling (a) that the insurer had waived the defense that Gabriel's death was not caused by the insured peril ("violent accidental external and visible means") specified in the policy and (b) that the cause of action had not prescribed. The Court of Appeals, on 18 September 1991, reversed the decision of the lower court. The appellate court held that petitioner had failed to substantiate her allegation that her husband's death was caused by a risk insured against. The appellate court observed that the only evidence presented by petitioner, in her attempt to show the circumstances that led to the death of the insured, were her own affidavit and a letter allegedly written by a co-worker of the deceased in Iraq which, unfortunately for her, were held to be both hearsay. 12 The motion for reconsideration was denied. 13 Petitioner's recourse to this Court must also fail. On the issue of "prescription," private respondent correctly invoked Section 384 of the Insurance Code; viz:

and an autopsy report 7 of the National Bureau of Investigation ("NBI") to the effect that "(d)ue to advanced state of postmortem decomposition, cause of death (could) not be determined." 8 Private respondent referred the insurance claim to Mission Adjustment Service, Inc. Following a series of communications between petitioner and private respondent, the latter, on 22 September 1983, ultimately denied the claim of ECDC on the ground of prescription. 9 Petitioner went to the Regional Trial Court of Manila. In her complaint against ECDC and private respondent, she averred that her husband died of electrocution while in the performance of his work and prayed for the recovery of P100,000.00 for insurance indemnification and of various other sums by way of actual, moral, and exemplary damages, plus attorney's fees and costs of suit. Private respondent filed its answer, which was not verified, admitting the genuineness and due execution of the insurance policy; it alleged, however, that since both the death certificate issued by the Iraqi Ministry of Health and the autopsy report of the NBI failed to disclose the cause of Gabriel's death, it denied liability under the policy. In addition, private respondent raised the defense of "prescription," invoking Section 384 10 of the Insurance Code. Later, private respondent filed an amended answer, still unverified, reiterating its original defenses but, this time, additionally putting up a counterclaim and a crossclaim. The trial court dismissed the case against ECDC for the failure of petitioner to take steps to cause the service of the fourth alias summons on ECDC. The dismissal was without prejudice. The case proceeded against private respondent alone. On 28 May 1987, the trial court rendered its decision 11 in favor (partly) of petitioner's claim. In arriving at its conclusion, the trial court held that private respondent was deemed to have waived the defense, i.e., that the cause of Gabriel's death was not covered by the policy, when the latter failed to impugn by evidence petitioner's averment on the matter. With regard to the defense of prescription, the court considered the complaint to have been timely filed or within one (1) year from private respondent's denial of the claim. Petitioner and private respondent both appealed to the Court of Appeals. Petitioner contended that the lower court should have awarded all the claims she had asked for. Private respondent asserted, on its part, that

Sec. 384. Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of the accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise, the claimant's right of action shall prescribe. The notice of death was given to private respondent, concededly, more than a year after the death of petitioner's husband. Private respondent, in invoking prescription, was not referring to the one-year period from the denial of the claim within which to file an action against an insurer but obviously to the written notice of claim that had to be submitted within six months from the time of the accident. Petitioner argues that private respondent must be deemed to have waived its right to controvert the claim, that is, to show that the cause of death is an excepted peril, by failing to have its answers (to the Request for Admission sent by petitioner) duly verified. It is true that a matter of which a written request for admission is made shall be deemed impliedly admitted "unless, within a period designated in the request, which shall not be less than ten (10) days after service thereof, or within such further time as the court may allow on motion and notice, the party to whom the request is directed serves upon the party requesting the admission a sworn statement either denying specifically the matters of which an admission is requested or setting forth in detail the reasons why he cannot truthfully either admit or deny those matters;" 14 however, the verification, like in most cases required by the rules of procedure, is a formal, not jurisdictional, requirement, and mainly intended to secure an assurance that matters which are alleged are done in good faith or are true and correct and not of mere speculation. When circumstances warrant, the court may simply order the correction of unverified pleadings or act on it and waive strict compliance with the rules in order that the ends of justice may thereby be served. 15 In the case of answers to written requests for admission particularly, the court can allow the party making the admission, whether made expressly or deemed to have been made impliedly, "to withdraw or amend it upon such terms as may be just." 16

The appellate court acted neither erroneously nor with grave abuse of discretion when it seconded the court a quoand ruled: As to the allegation of the plaintiff-appellant that the matters requested by her to be admitted by the defendant-appellant under the Request for Admission were already deemed admitted by the latter for its failure to answer it under oath, has already been properly laid to rest when the lower court in its Order of May 28, 1987 correctly ruled: At the outset, it must be stressed that the defendant indeed filed a written answer to the request for admission, sans verification. The case of Motor Service Co., Inc. vs. Yellow Taxicab Co., Inc., et al. may not therefore be controlling, or actually opposite. In said case, there was an absolute failure on the part of the defendant to answer the request for admission, and thus the court was justified in rendering a summary judgment. Here, however, as clearly intimated elsewhere above, the defendant answered in writing practically every question posed in the request for admission. The Court believes, under the peculiar circumstance, that the more controlling jurisprudence on the mater would be those cited by the defendant in its memorandum, particularly the case of Quimpo vs. de la Victoria, 46 SCRA 139. Prescinding from the foregoing, there is absolutely no basis in fact and in law for the lower court to hold that the appellant insurance company was deemed to have waived the defense, that the death of plaintiff-appellant's husband was not caused by violent accidental external and visible means' as contemplated in the insurance policy. The Death Certificate (Exh. 9) and the Autopsy Report (Exh. 10), more than controverted the allegation of the plaintiff-appellant as to the cause of death of her husband. 17 The insurance policy expressly provided that to be compensable, the injury or death should be caused by "violent accidental external and visible means." In attempting to prove the cause of her husband's death, all that petitioner could submit were a letter sent to her by her husband's co-worker, stating that Gabriel died when he tried to haul water out of a tank while its submerged motor was still functioning, 18 and petitioner's sinumpaang salaysay 19 which merely confirmed the receipt and stated contents of the letter. Said the appellate court in this regard: . . . . It must be noted that the only evidence presented by her to prove the circumstances surrounding her husband's death were her purported affidavit and the letter allegedly written by the deceased co-worker in Iraq. The said affidavit however suffers from procedural infirmity as it was not even testified to or identified by the affiant (plaintiff-appellant) herself. This self-serving affidavit therefore is a mere hearsay under the rules, . . . . xxx xxx xxx

In like manner, the letter allegedly written by the deceased's co-worker which was never identified to in court by the supposed author, suffers from the same defect as the affidavit of the plaintiff-appellant. 20 Not one of the other documents submitted, to wit, the POEA decision, dated 06 June 1984, 21 the death certificate issued by the Ministry of Health of Iraq and the NBI autopsy report, 22 could give any probative value to petitioner's claim. The POEA decision did not make any categorical holding on the specific cause of Gabriel's death. Neither did the death certificate issued by the health authorities in Iraq nor the NBI autopsy report provide any clue on the cause of death. All that appeared to be clear was the fact of Gabriel's demise on 22 May 1982 in Iraq. Evidence, in fine, is utterly wanting to establish that the insured suffered from an accidental death, the risk covered by the policy. In an accident insurance, the insured's beneficiary has the burden of proof in demonstrating that the cause of death is due to the covered peril. Once that fact is established, the burden then shifts to the insurer to show any excepted peril that may have been stipulated by the parties. An "accident insurance" is not thus to be likened to an ordinary life insurance where the insured's death, regardless of the cause thereof, would normally be compensable. The latter is akin in property insurance to an "all risk" coverage where the insured, on the aspect of burden of proof, has merely to show the condition of the property insured when the policy attaches and the fact of loss or damage during the period of the policy and where, thereafter, the burden would be on the insurer to show any "excluded peril." When, however, the insured risk is specified, like in the case before us, it lies with the claimant of the insurance proceeds to initially prove that the loss is caused by the covered peril. While petitioner did fail in substantiating her allegation that the death of her husband was due to an accident, considering, however, the uncertainty on the real cause of death, private respondent might find its way clear into still taking a second look on the matter and perhaps help ease the load of petitioner's loss. WHEREFORE, the decision appealed from is AFFIRMED. No costs. SO ORDERED.

G.R. No. 181132

June 5, 2009

HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG,Petitioners, vs. EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE CORPORATION, Respondents. NACHURA, J.: This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution2 dated January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners appeal for lack of jurisdiction.

The case stems from a petition3 filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or reduction of insurance proceeds for being void and/or inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary injunction. The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loretos illegitimate family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified to receive any proceeds from his insurance policies from Insular Life Assurance Company, Ltd. (Insular) 4 and Great Pacific Life Assurance Corporation (Grepalife);5 (3) the illegitimate children of LoretoOdessa, Karl Brian, and Trisha Angelie were entitled only to one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and those to be released to Karl Brian and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not be deprived of their legitimes, which should be satisfied first. In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, that part of the insurance proceeds had already been released in favor of Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors, upon the appointment of their legal guardian. Petitioners also prayed for the total amount of P320,000.00 as actual litigation expenses and attorneys fees. In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their claims for the insurance proceeds of the insurance policies; that when it ascertained that Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries; and that it released Odessas share as she was of age, but withheld the release of the shares of minors Karl Brian and Trisha Angelie pending submission of letters of guardianship. Insular alleged that the complaint or petition failed to state a cause of action insofar as it sought to declare as void the designation of Eva as beneficiary, because Loreto revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy No. A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of Loretos estate had been filed nor had the respective shares of the heirs been determined. Insular further claimed that it was bound to honor the insurance policies designating the children of Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance Code. In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for insurance due to a misrepresentation in his application form that he was born on December 10, 1936 and, thus, not more than 65 years old when he signed it in September 2001; that the case was premature, there being no claim filed by the legitimate family of Loreto; and that the law on succession does not apply where the designation of insurance beneficiaries is clear. As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners, summons by publication was resorted to. Still, the illegitimate family of Loreto failed to file their answer. Hence, the trial court, upon motion of petitioners, declared them in default in its Order dated May 7, 2004. During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their respective answers be resolved first. The trial court ordered petitioners to comment within 15 days.

In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal whether the complaint itself was proper or not and that the designation of a beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of Articles 7528 and 7729 of the Civil Code. In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiaries in the policies, not to the estate or to the heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary when it ascertained that Loreto was legally married to Vicenta Pangilinan Maramag. On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha Maramag. The action shall proceed with respect to the other defendants Eva Verna de Guzman, Insular Life and Grepalife. SO ORDERED.10 In so ruling, the trial court ratiocinated thus Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. The principal law on insurance is the Insurance Code, as amended. Only in case of deficiency in the Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.) The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made, unless otherwise specified in the policy. Since the defendants are the ones named as the primary beneficiary (sic) in the insurances (sic) taken by the deceased Loreto C. Maramag and there is no showing that herein plaintiffs were also included as beneficiary (sic) therein the insurance proceeds shall exclusively be paid to them. This is because the beneficiary has a vested right to the indemnity, unless the insured reserves the right to change the beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63). Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary succession in order to defeat the right of herein defendants to collect the insurance indemnity. The beneficiary in a contract of insurance is not the donee spoken in the law of donation. The rules on testamentary succession cannot apply here, for the insurance indemnity does not partake of a donation. As such, the insurance indemnity cannot be considered as an advance of the inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon Employees Association v. Juanita Golpeo, et al., the Honorable Supreme Court made the following pronouncements[:] "With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively to the defendant as his individual and separate property, we agree that the proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life was insured, and that such proceeds are the separate and individual property of the beneficiary and not of the heirs of the person whose life was insured, is the doctrine in America. We believe that the same doctrine obtains in these Islands by virtue of Section 428 of the Code of Commerce x x x."

In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient cause of action against defendants Odessa, Karl Brian and Trisha Angelie Maramag for the reduction and/or declaration of inofficiousness of donation as primary beneficiary (sic) in the insurances (sic) of the late Loreto C. Maramag. However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot make any donation to him, according to said article (Art. 2012, Civil Code). If a concubine is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper beneficiary. In such case, the action for the declaration of nullity may be brought by the spouse of the donor or donee, and the guilt of the donor and donee may be proved by preponderance of evidence in the same action (Comment of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance indemnity that should be paid to her must go to the legal heirs of the deceased which this court may properly take cognizance as the action for the declaration for the nullity of a void donation falls within the general jurisdiction of this Court.11 Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the main, that the petition failed to state a cause of action. Insular further averred that the proceeds were divided among the three children as the remaining named beneficiaries. Grepalife, for its part, also alleged that the premiums paid had already been refunded. Petitioners, in their comment, reiterated their earlier arguments and posited that whether the complaint may be dismissed for failure to state a cause of action must be determined solely on the basis of the allegations in the complaint, such that the defenses of Insular and Grepalife would be better threshed out during trial.1avvphi1 On June 16, 2005, the trial court issued a Resolution, disposing, as follows: WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and the case against them is hereby ordered DISMISSED. SO ORDERED.14 In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations of Insular that Loreto revoked the designation of Eva in one policy and that Insular disqualified her as a beneficiary in the other policy such that the entire proceeds would be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It ruled that it is only in cases where there are no beneficiaries designated, or when the only designated beneficiary is disqualified, that the proceeds should be paid to the estate of the insured. As to the claim that the proceeds to be paid to Loretos illegitimate children should be reduced based on the rules on legitime, the trial court held that the distribution

of the insurance proceeds is governed primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and inapplicable. With respect to the Grepalife policy, the trial court noted that Eva was never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to the illegitimate children. It further held that the matter of Loretos misrepresentation was premature; the appropriate action may be filed only upon denial of the claim of the named beneficiaries for the insurance proceeds by Grepalife. Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction, holding that the decision of the trial court dismissing the complaint for failure to state a cause of action involved a pure question of law. The appellate court also noted that petitioners did not file within the reglementary period a motion for reconsideration of the trial courts Resolution, dated September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had already attained finality. Hence, this petition raising the following issues: a. In determining the merits of a motion to dismiss for failure to state a cause of action, may the Court consider matters which were not alleged in the Complaint, particularly the defenses put up by the defendants in their Answer? b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause of action, did not the Regional Trial Court engage in the examination and determination of what were the facts and their probative value, or the truth thereof, when it premised the dismissal on allegations of the defendants in their answer which had not been proven? c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance for the concubine?15 In essence, petitioners posit that their petition before the trial court should not have been dismissed for failure to state a cause of action because the finding that Eva was either disqualified as a beneficiary by the insurance companies or that her designation was revoked by Loreto, hypothetically admitted as true, was raised only in the answers and motions for reconsideration of both Insular and Grepalife. They argue that for a motion to dismiss to prosper on that ground, only the allegations in the complaint should be considered. They further contend that, even assuming Insular disqualified Eva as a beneficiary, her share should not have been distributed to her children with Loreto but, instead, awarded to them, being the legitimate heirs of the insured deceased, in accordance with law and jurisprudence. The petition should be denied. The grant of the motion to dismiss was based on the trial courts finding that the petition failed to state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of Court, which reads SECTION 1. Grounds. Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be made on any of the following grounds: xxxx

(g) That the pleading asserting the claim states no cause of action. A cause of action is the act or omission by which a party violates a right of another. 16 A complaint states a cause of action when it contains the three (3) elements of a cause of action (1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and (3) the act or omission of the defendant in violation of the legal right. If any of these elements is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.17 When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in the complaint. The court must resolve the issue on the strength of such allegations, assuming them to be true. The test of sufficiency of a cause of action rests on whether, hypothetically admitting the facts alleged in the complaint to be true, the court can render a valid judgment upon the same, in accordance with the prayer in the complaint. This is the general rule. However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity of the allegations if: 1. the falsity of the allegations is subject to judicial notice; 2. such allegations are legally impossible; 3. the allegations refer to facts which are inadmissible in evidence; 4. by the record or document in the pleading, the allegations appear unfounded; or 5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the hearings related to the case.18 In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies issued by Insular and Grepalife. The basis of petitioners claim is that Eva, being a concubine of Loreto and a suspect i n his murder, is disqualified from being designated as beneficiary of the insurance policies, and that Evas children with Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of the policies. They also argued that pursuant to Section 12 of the Insurance Code, 19 Evas share in the proceeds should be forfeited in their favor, the former having brought about the death of Loreto. Thus, they prayed that the share of Eva and portions of the shares of Loretos illegitimate children should be awarded to them, being the legitimate heirs of Loreto entitled to their respective legitimes. It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011 of the Civil Code which expressly provides that insurance contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of the policy.20 The exception to this rule is a situation where the insurance contract was intended to benefit third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case, third parties may directly sue and claim from the insurer.21 Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation to turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary in one policy and her disqualification as such in another are of no moment considering that the designation of the illegitimate children as beneficiaries in Loretos insurance policies remains valid. Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured,22 the shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not designated any beneficiary,23 or when the designated beneficiary is disqualified by law to receive the proceeds,24 that the insurance policy proceeds shall redound to the benefit of the estate of the insured. In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure to state a cause of action is a question of law and not of fact, there being no findings of fact in the first place.25 WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners. SO ORDERED.