Insurance Case Digests E

28. Heirs of Ildefonso Coscolluela Sr vs Rico Gen

Ins (1989)
Facts:
The petitioner, Heirs of Ildefonso Coscoluella, was
the registered owner of an Isuzu pick-up truck that was
insured with Rico General Insurance Corporation (Rico
Gen) for P100,000. But an incident occurred at
Hacienda Puyas, Barangay Blumentritt, Murcia, Negros
Occidental where the vehicle was fired upon by a group
of unidentified men. Four persons also died at the
same time. As a result of the incident, the insured
vehicle was rendered unserviceable. When petitioner
sought to collect from Rico Gen, the latter refused
payment, pointing out to an exception clause, which
include an indirect consequence of rebellion,
insurrection or civil commotion.
Petitioner sued Rico Gen. The RTC dismissed the
case based on Rico Gens motion to dismiss based on
lack of cause of action. Thereafter, the RTC refused to
transmit the records of the case, saying that
petitioners remedy should be petition for review by
way of certiorari and not a notice of appeal. But what
petitioner did was to file a petition for certiorari under
Rule 65 before the CA. The CA affirmed the the
dismissal, adding that an ordinary appeal was the
proper remedy and not a special civil action for
certioari.1
Issue: Whether or not petitioner has a cause of action.
Held: Yes. At the onset, it should be noted that Rico
Gens motion to dismiss based on lack of cause of
action had the effect of hypothetically admitting the
facts stated by petitioner. We do not find anything in
the complaint which does not deserve admission by
the motion since there are no "conclusions or
interpretations of law" nor "allegations of fact the
falsity of which is subject to judicial notice." It is clear
that the complaint does no more and no less than state
simply that the van was damaged due to the firing by
unidentified armed men. Since the complaint does not
explicitly state nor intimate civil strife which private
respondent insists to be the cause of the damage, the
motion to dismiss cannot go beyond the admission of
the facts stated and inferences reasonably deducible
from them. Any other assertion by the private
respondent is subject to proof. Meanwhile, the
sufficiency of the petitioner's cause of action has been
shown since, admitting the facts alleged, a valid
judgment can be rendered. The private respondent's
invocation of the exceptions clause in the insurance
policy as the basis for its non-liability and the
consequent dismissal of the complaint is without merit.
We also reiterate the established rule that when the
terms of an insurance contract contain limitations on
liability, the court "should construe them in such a way

1 The Supreme Court later on took note of

this absurdity. The CA reprimanded petitioner
when the RTC was the one that prevented
petitioner from availing of an ordinary
appeal.

as to preclude the insurer from non-compliance with

his obligations." A policy of insurance with a narration
of exceptions tending to work a forfeiture of the policy
shall be interpreted liberally in favor of the insured and
strictly against the insurance company or the party for
whose benefit they are inserted.
29. Pacific Timber Corp vs CA (1982)
Facts:
Pacific Timber Export Corporation (Pacific) secured
a temporary insurance from the Workmens Insurance
Co. for its exportation from Quezon Province to
Okinawa and Tokyo, Japan. The insurance company
issued a Cover Note insuring the cargo. Thereafter, the
insurance company issued two regular marine cargo
policies. But it was discovered that some of the logs
were
missing during
the
loading
operations.
Apparently, when the logs were alongside the vessel,
bad weather developed resulting in 75 pieces of log to
break loose from each other, with only 45 being saved.
The insurance company refused to pay for the loss,
informing the Insurance Commissioner that it was
denying Pacifics claim on the ground that the cover
note is null and void for lack of valuable consideration.
Issue: Whether or not the cover note is null and void
for lack of valuable consideration.
Held: No. Petitioner contends that the Cover Note was
issued with a consideration when, by express
stipulation, the cover note is made subject to the terms
and conditions of the marine policies, and the payment
of premiums is one of the terms of the policies. From
this undisputed fact, We uphold petitioner's submission
that the Cover Note was not without consideration for
which the respondent court held the Cover Note as null
and void, and denied recovery therefrom. The fact that
no separate premium was paid on the Cover Note
before the loss insured against occurred, does not
militate against the validity of petitioner's contention,
for no such premium could have been paid, since by
the nature of the Cover Note, it did not contain, as all
Cover Notes do not contain particulars of the shipment
that would serve as basis for the computation of the
premiums. As a logical consequence, no separate
premiums are intended or required to be paid on a
Cover Note. This is a fact admitted by an official of
respondent company, Juan Jose Camacho, in charge of
issuing cover notes of the respondent company (p. 33,
tsn, September 24, 1965). At any rate, it is not
disputed that petitioner paid in full all the premiums as
called for by the statement issued by private
respondent after the issuance of the two regular
marine insurance policies, thereby leaving no account
unpaid by petitioner due on the insurance coverage,
which must be deemed to include the Cover Note. If
the Note is to be treated as a separate policy instead of
integrating it to the regular policies subsequently
issued, the purpose and function of the Cover Note
would be set at naught or rendered meaningless, for it
is in a real sense a contract, not a mere application for
insurance which is a mere offer.
It may be true that the marine insurance policies
issued were for logs no longer including those which

had been lost during loading operations. This had to be

so because the risk insured against is not for loss
during operations anymore, but for loss during transit,
the logs having already been safely placed aboard.
This would make no difference, however, insofar as the
liability on the cover note is concerned, for the number
or volume of logs lost can be determined
independently as in fact it had been so ascertained at
the instance of private respondent itself when it sent
its own adjuster to investigate and assess the loss,
after the issuance of the marine insurance policies. The
adjuster went as far as submitting his report to
respondent, as well as its computation of respondent's
liability on the insurance coverage. This coverage could
not have been no other than what was stipulated in the
Cover Note, for no loss or damage had to be assessed
on the coverage arising from the marine insurance
policies. For obvious reasons, it was not necessary to
ask petitioner to pay premium on the Cover Note, for
the loss insured against having already occurred, the
more practical procedure is simply to deduct the
premium from the amount due the petitioner on the
Cover Note. The non-payment of premium on the Cover
Note is, therefore, no cause for the petitioner to lose
what is due it as if there had been payment of
premium, for non-payment by it was not chargeable
against its fault. Had all the logs been lost during the
loading operations, but after the issuance of the Cover
Note, liability on the note would have already arisen
even before payment of premium. This is how the
cover note as a "binder" should legally operate
otherwise, it would serve no practical purpose in the
realm of commerce, and is supported by the doctrine
that where a policy is delivered without requiring
payment of the premium, the presumption is that a
credit was intended and policy is valid.
30. Great Pacific Life Assurance Co vs CA (1979)
Facts:
Ngo Hing filed an application with the Great Pacific
for a twenty-year endowment policy in the amount of
P50,000.00 on the life of his one-year old daughter
Helen. He supplied the essential data which petitioner
Mondragon, the Branch Manager, wrote on the form.
The latter paid the annual premium the sum of
P1,077.75 going over to the Company, but he retained
the amount of P1,317.00 as his commission for being a
duly authorized agent of Pacific Life. Upon the payment
of the insurance premium, the binding deposit receipt
was issued Ngo Hing. Likewise, petitioner Mondragon
handwrote at the bottom of the back page of the
application form his strong recommendation for the
approval of the insurance application. Then Mondragon
received a letter from Pacific Life disapproving the
insurance application. The letter stated that the said
life insurance application for 20-year endowment plan
is not available for minors below seven years old, but
Pacific Life can consider the same under the Juvenile
Triple Action Plan, and advised that if the offer is
acceptable, the Juvenile Non-Medical Declaration be
sent to the company. The non-acceptance of the
insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private
respondent Ngo Hing. Instead, on May 6, 1957,
Mondragon wrote back Pacific Life again strongly
recommending the approval of the 20-year endowment
insurance plan to children, pointing out that since the

customers were asking for such coverage. Helen Go

died of influenza. Ngo Hing sought the payment of the
proceeds of the insurance, but having failed in his
effort, he filed the action for the recovery before the
Court of First Instance of Cebu, which ruled against
him.
Issue: Whether the binding deposit receipt constituted
a temporary contract of the life insurance in question.
Held: No. The receipt was intended to be merely a
provisional insurance contract. Its perfection was
subject to compliance of the following conditions: (1)
that the company shall be satisfied that the applicant
was insurable on standard rates; (2) that if the
company does not accept the application and offers to
issue a policy for a different plan, the insurance
contract shall not be binding until the applicant accepts
the policy offered; otherwise, the deposit shall be
refunded; and (3) that if the company disapproves the
application, the insurance applied for shall not be in
force at any time, and the premium paid shall be
returned to the applicant. The receipt is merely an
acknowledgment that the latter's branch office had
received from the applicant the insurance premium
and had accepted the application subject for
processing by the insurance company. There was still
approval or rejection the same on the basis of whether
or not the applicant is "insurable on standard rates."
Since Pacific Life disapproved the insurance application
of respondent Ngo Hing, the binding deposit receipt in
question had never become in force at any time. The
binding deposit receipt is conditional and does not
insure outright.
31. RCBC vs CA (1998)
Facts:
Goyu
&
Sons
applied
for
credit
facilities/accommodations with RCBC. It was granted
for an initial amount of P30 million which later on
increased to P117 million. As security, Goyu executed
two REMs and two chattel mortgages in favor of RCBC.
It also committed itself to insure the mortgaged
property with Malayan Insurance Co I (Mico). Goyu
obtained in its name a total of ten insurance policies
from Mico. Thereafter, Alchester Insurance Agency Inc,
the agent where Goyu obtained the Malayan insurance
policies, issued nine endorsements in favor of RCBC
seemingly upon instructions of Goyu.
Later on, Goyus factory buildings in Valenzuela
was gutted by fire. When it claimed from Mico, the
latter denied on the ground that the insurance policies
were
either
attached
pursuant
to
writs
of
attachments/garnishments issued by various courts or
that the insurance proceeds were also claimed by other
creditors of Goyu alleging better rights to the proceeds
than the insured. Goyu filed a complaint for specific
performance against Mico. It was later revealed that
Goyu had other creditors that obtained their respective
writs of attachments from various courts covering an
aggregate amount of P14,938,080.23, and the RTC
ordered that the proceeds of the ten insurance policies
be deposited with the court. Hence, Mico deposited the
amount of around P50 million with the RTC.

Goyu invoked Sec. 53 of the Insurance Code which

provides: 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.
The RTC ruled in favor of Goyu and ordered Mico
and RCBC to pay damages. The CA sustained the
findings of the RTC with respect to the liability of Mico
and RCBC.
Issue: whether or not RCBC, as mortgagee, has any
right over the insurance policies taken by Goyu, the
mortgagor, in case of the occurrence of loss.
Held: Yes.
It is settled that a mortgagor and a
mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that
each one of them may insure the same property for his
own sole benefit. There is no question that GOYU could
insure the mortgaged property for its own exclusive
benefit. In the present case, although it appears that
GOYU obtained the subject insurance policies naming
itself as the sole payee, the intentions of the parties as
shown by their contemporaneous acts, must be given
due consideration in order to better serve the interest
of justice and equity.
It is to be noted that nine endorsement documents
were prepared by Alchester in favor of RCBC. The Court
is in a quandary how Alchester could arrive at the idea
of endorsing any specific insurance policy in favor of
any particular beneficiary or payee other than the
insured had not such named payee or beneficiary been
specifically disclosed by the insured itself. It is also
significant that GOYU voluntarily and purposely took
the insurance policies from MICO, a sister company of
RCBC, and not just from any other insurance company.
Alchester would not have found out that the subject
pieces of property were mortgaged to RCBC had not
such information been voluntarily disclosed by GOYU
itself. Had it not been for GOYU, Alchester would not
have known of GOYUs intention of obtaining insurance
coverage in compliance with its undertaking in the
mortgage contracts with RCBC, and verily, Alchester
would not have endorsed the policies to RCBC had it
not been so directed by GOYU. On equitable principles,
particularly on the ground of estoppel, the Court is
constrained to rule in favor of mortgagor RCBC.
GOYU cannot seek relief under Section 53 of the
Insurance Code which provides that the proceeds of
insurance shall exclusively apply to the interest of the
person in whose name or for whose benefit it is made.
The peculiarity of the circumstances obtaining in the
instant case presents a justification to take exception
to the strict application of said provision, it having been
sufficiently established that it was the intention of the
parties to designate RCBC as the party for whose
benefit the insurance policies were taken out. The
Court considered the following: (1.) It is undisputed
that the insured pieces of property were the subject of
mortgage contracts entered into between RCBC and
GOYU in consideration of and for securing GOYUs credit
facilities from RCBC. The mortgage contracts contained
common provisions whereby GOYU, as mortgagor,
undertook to have the mortgaged property properly
covered against any loss by an insurance company
acceptable to RCBC. (2.) GOYU voluntarily procured

insurance policies to cover the mortgaged property

from MICO, no less than a sister company of RCBC and
definitely an acceptable insurance company to RCBC.
(3.) Endorsement documents were prepared by MICOs
underwriter, Alchester Insurance Agency, Inc., and
copies thereof were sent to GOYU, MICO, and RCBC.
GOYU did not assail, until of late, the validity of said
endorsements. (4.) GOYU continued until the
occurrence of the fire, to enjoy the benefits of the
credit facilities extended by RCBC which was
conditioned upon the endorsement of the insurance
policies to be taken by GOYU to cover the mortgaged
properties.
Significantly, the Court notes that out of the 10
insurance policies subject of this case, only 8 of them
appear to have been subject of the endorsements
prepared and delivered by Alchester for and upon
instructions of GOYU. The proceeds of the 8 insurance
policies
endorsed
to
RCBC
aggregate
to
P89,974,488.36. Being exclusively payable to RCBC by
reason of the endorsement by Alchester to RCBC,
which we already ruled to have the force and effect of
an endorsement by GOYU itself, these 8 policies can
not be attached by GOYUs other creditors up to the
extent of the GOYUs outstanding obligation in RCBCs
favor. Section 53 of the Insurance Code ordains that
the insurance proceeds of the endorsed policies shall
be applied exclusively to the proper interest of the
person for whose benefit it was made. In this case, to
the extent of GOYUs obligation with RCBC, the interest
of GOYU in the subject policies had been transferred to
RCBC effective as of the time of the endorsement.
These policies may no longer be attached by the other
creditors of GOYU, like Alfredo Sebastian in the present
G.R. No. 128834, which may nonetheless forthwith be
dismissed for being moot and academic in view of the
results reached herein. Only the two other policies
amounting to P19,646,224.92 may be validly attached,
garnished, and levied upon by GOYUs other creditors.
To the extent of GOYUs outstanding obligation with
RCBC, all the rest of the other insurance policies abovelisted which were endorsed to RCBC, are, therefore, to
be released from attachment, garnishment, and levy
by the other creditors of GOYU.
32. Aboitiz Shipping
Insurance Co (1989)

Corp

vs

Philamgen

Facts:
Marinduque Mining Industrial Corp (Marinduque)
shipped on board SS Arthur Maersk from Boston a
shipment of one skid carton parts for valves. When the
cargo arrived in Manila, it was received and deposited
in the office of Aboitiz Shipping Corp in Manila for
transshipment to Nonoc Island. But thereafter, the
cargo was pilfered on a rainy night at the Aboitiz
terminal. Of the total value of around $42,000, only
$7,000 remains. Philamgen paid Marinduque P246,430
as insurer of the cargo. And thereafter, Philamgen sued
Aboitiz.
Aboitiz contended that the insurance policy
covering the cargo was issued at the time when the
cargo was already pilfered and that the coverage under
the Marine Policy No. 100105 PAG never began and
that Marine Policy No. 100184 did not attach to the

shipment, because the shipment was never loaded on

any vessel of the defendant.
The RTC ruled in favor of Aboitiz, the CA reversed.
Hence, this petition.
Issue: Whether or not Aboitiz is liable.
Held: Yes. The records of this case show that private
respondent executed a continuous and open insurance
coverage covering goods of Marinduque imported into
and exported from the Philippines which took effect
after September 1, 1975, as contained in Marine Open
Policy No. 100184. A similar insurance coverage was
also executed by petitioner in favor of Marinduque for
all its goods shipped or moved within the territorial
limits of the Philippines also effective after September
1, 1975 and contained in Marine Open Policy No.
100185. The questioned shipment is covered by this
continuing open insurance coverage from the time it
was loaded aboard the SS Arthur Maersk in Boston,
U.S.A. to the time it was delivered to the possession of
petitioner at its offices at Pier 4 in Manila until it was
pilfered when the great majority of the cargo was lost
on July 3, 1980. The trial court in dismissing the
complaint apparently relied on Marine Risk Note No.
017545 which was issued by private respondent only
on July 28, 1980 after the shipment in question was
already pilfered. Obviously the trial court mistook said
Marine Risk Note as an insurance policy when it is not.
It is only an acknowledgment or declaration of the
private respondent confirming the specific shipment
covered by its Marine Open Policy, the evaluation of
the cargo and the chargeable premium. The contention
of the petitioner that it could not be liable for the
pilferage of the cargo as it was stolen even before it
was loaded on its vessel is untenable. Petitioner
received the cargo when it arrived in Manila at its
offices at Pier 4, North Harbor and it was while in its
possession and before loading it in its vessel that the
cargo was pilfered. Its liability is clear.
33. Development Insurance Corp vs IAC (1986)
Facts:
Private respondent Philippine Union Realty
Development Corporations building was insured by
petitioner Development Insurance Corp. A fire occurred
in the building of the private respondent and it sued for
recovery of damages from the petitioner on the basis
of an insurance contract between them. The petitioner
allegedly failed to answer on time and was declared in
default by the trial court. A judgment of default was
subsequently rendered on the strength of the evidence
submitted ex parte by the private respondent, which
was allowed full recovery of its claimed damages. On
learning of this decision, the petitioner moved to lift
the order of default, invoking excusable neglect, and to
vacate the judgment by default. Its motion was denied.
It then went to the respondent court, which affirmed
the decision of the trial court in toto. The petitioner is
now before us, hoping presumably that it will fare
better here than before the trial court and the
Intermediate Appellate Court. We shall see.
The only remaining question to be settled is the
amount of the indemnity due to the private respondent
under its insurance contract with the petitioner. This

will require an examination of this contract, Policy No.

RY/F-082, as renewed, by virtue of which the petitioner
insured the private respondent's building against fire
for P2,500,000.00. The petitioner argues that since at
the time of the fire the building insured was worth
P5,800,000.00, the private respondent should be
considered its own insurer for the difference between
that amount and the face value of the policy and
should share pro rata in the loss sustained.
Accordingly, the private respondent is entitled to an
indemnity of only P67,629.31, the rest of the loss to be
shouldered by it alone. In support of this contention,
the petitioner cites Condition 17 of the policy, which
provides: 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 own insurer for the difference,
and shall bear a ratable proportion of the loss
accordingly. Every item, if more than one, of the policy
shall be separately subject to this condition.
Issue: Whether
tenable.

or

not

petitioners

contention

is

Held: No! there is no evidence on record that the

building was worth P5,800,000.00 at the time of the
loss; only the petitioner says so and it does not back up
its self-serving estimate with any independent
corroboration. On the contrary, the building was
insured at P2,500,000.00, and this must be considered,
by agreement of the insurer and the insured, the actual
value of the property insured on the day the fire
occurred. This valuation becomes even more
believable if it is remembered that at the time the
building was burned it was still under construction and
not yet completed. The Court notes that Policy RY/F082 is an open policy and is subject to the express
condition that: Open Policy This is an open policy as
defined in Section 57 of the Insurance Act. In the event
of loss, whether total or partial, it is understood that
the amount of the loss shall be subject to appraisal and
the liability of the company, if established, shall be
limited to the actual loss, subject to the applicable
terms, conditions, warranties and clauses of this Policy,
and in no case shall exceed the amount of the policy.
As defined in the aforestated provision, which is now
Section 60 of the Insurance Code, "an open policy is
one in which the value of the thing insured is not
agreed upon but is left to be ascertained in case of
loss. " This means that the actual loss, as determined,
will represent the total indemnity due the insured from
the insurer except only that the total indemnity shall
not exceed the face value of the policy.
The actual loss has been ascertained in this case
and, to repeat, this Court will respect such factual
determination in the absence of proof that it was
arrived at arbitrarily. There is no such showing. Hence,
applying the open policy clause as expressly agreed
upon by the parties in their contract, we hold that the
private respondent is entitled to the payment of
indemnity under the said contract in the total amount
of P508,867.00.
34. Eagle Star Insurance Co vs Yu (1955)
Facts:

Atkin, Kroll & Co., loaded on the S. S. Roeph

Silverlight owned and operated by Leigh Hoegh & Co.,
A/S, of San Francisco California, 14 bales of assorted
underwear valued at P8,085.23 consigned to Chia Yu in
the City of Manila. The shipment was insured against
all risks by Eagle Star Ins. Co. of San Francisco,
California, under a policy issued to the shipper and by
the latter assigned to the consignee. 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. But the 14
bales consigned to Chia Yu only 10 were delivered to
him as the remaining 3 could not be found. Three of
those delivered were also found damaged to the extent
of 50 per cent. 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 on Nov. 16, 1948.
Both interposed the defense of prescription. The
RTC and CA ruled in favor of plaintiff.
Issue: Whether or not the action has prescribed.
Held: As to the shipping company, yes it has prescribed
for being filed more than one year (more than two
years).
As to the insurer, no. 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 bill of lading. Under our law the time
limit for bringing a civil action upon a written contract
is ten years after the right of action accrues. (Sec. 43,
Act 190; Art. 1144, New Civil Code.) But counsel for the
insurer claim that this statutory in the policy: No suit
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 with twelve (12) months next after the
happening of the loss . . . To this we cannot agree.
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.
It may perhaps be suggested that the policy clause
relied on by the insurer for defeating plaintiff'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 we agree with the
court below that plaintiff's cause of action did not
accrue until his claim was finally rejected by the
insurance company. This is 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 encourages
unnecessary litigation. At this junction it should be
explained that while the decision of the Court of

Appeals states that the claim against the insurance

company "was finally rejected o 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.
35. ACCFA vs Alpha Insurance (1968)
Facts:
-To guarantee the Asingan Farmers' Cooperative
Marketing Association, Inc. (FACOMA) against loss on
account of personal dishonesty, amounting to
larceny/estafa of its Secretary-Treasurer, Ladines,
appellee Alpha Insurance & Surety Company had
issued, on 14 February 1958, its bond with Ladines as
principal and the appellee as solidary surety. On the
same date, the Asingan FACOMA assigned its rights to
the appellant, Agricultural Credit Cooperative and
Financing Administration (ACCFA) with approval of the
principal and the surety. During the effectivity of the
bond, Ladines converted and misappropriated, to his
personal benefit, some of the FACOMA funds, of which
a part belonged to the ACCFA. 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; but despite
repeated demands the surety company refused and
failed to pay. ACCFA filed suit against appellee on 30
May 1960. Defendant Alpha Insurance & Surety Co.,
Inc., (now appellee) moved to dismiss the complaint as
it was filed more than one year after plaintiff made
claim for loss, contrary to the eighth condition of the
bond 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. Hence, this
appeal.
Issue: WON the provision of a fidelity bond that no
action shall be had or maintained thereon unless
commenced within one year from the making of a
claim for the loss upon which the action is based, is
valid, in view of Section 61-A of the Insurance Act
invalidating stipulations limiting the time for
commencing an action thereon to less than one year
from the time the cause of action accrues?
Held: No. A fidelity bond is, 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 is subject to the
provisions of Section 61-A of the Insurance Act (No.
2427), as amended by Act 4101 of the preCommonwealth Philippine Legislature, 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 from the time of appellee's refusal to
comply with its bond. It cant 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. The discouraging
of unnecessary litigation must be deemed a rule of
public policy, considering the unrelieved congestion in
the courts. -As a consequence, the action may be
brought within the statutory period of limitation for
written contracts (New Civil Code, Article 1144).
36. Travellers Insurance & Surety Corp vs CA
(1997)
Facts:
A 78-year-old woman named Feliza Mendoza was
on her way to hear mass at the Tayuman Cathedral
when she was ran over by a speeding taxi driven by
Rodrigo Dumlao and owned by Armando Abellon. She
died as a result of the accident.
Thereafter, her son, Vicente Mendoza, sued
Armando Abellon and Rodrigo Dumalo for damages. He
amended his complaint to include petitioner Travellers
Insurance as the compulsory insurer of the said
taxicab.
Petitioner mainly contends that it did not issue an
insurance policy as compulsory insurer of the Lady
Love Taxi and that, assuming arguendo that it had
indeed covered said taxicab for third-party liability
insurance, private respondent failed to file a written
notice of claim with petitioner as required by Section
384 of P.D. No. 612, otherwise known as the Insurance
Code.
The RTC and CA ruled against petitioner.
Issue: Whether
meritorious.

or

not

petitioners

contention

is

Held: Yes. It is significant to point out at this juncture

that the right of a third person to sue the insurer
depends on whether the contract of insurance is
intended to benefit third persons also or only the
insured. Since private respondent failed to attach a
copy of the insurance contract to his complaint, the
trial court could not have been able to apprise itself of
the real nature and pecuniary limits of petitioners
liability. More importantly, the trial court could not have
possibly ascertained the right of private respondent as
third person to sue petitioner as insurer of the Lady
Love taxicab because the trial court never saw nor
read the insurance contract and learned of its terms
and conditions.
Apparently, the trial court did not distinguish
between the private respondents cause of action
against the owner and the driver of the Lady Love
taxicab and his cause of action against petitioner. The
former is based on torts and quasi-delicts while the

latter is based on contract. Confusing these two

sources of obligations as they arise from the same act
of the taxicab fatally hitting private respondents
mother, and in the face of overwhelming evidence of
the reckless imprudence of the driver of the Lady Love
taxicab, the trial court brushed aside its ignorance of
the terms and conditions of the insurance contract and
forthwith found all three - the driver of the taxicab, the
owner of the taxicab, and the alleged insurer of the
taxicab - jointly and severally liable for actual, moral
and exemplary damages as well as attorneys fees and
litigation expenses. This is clearly a misapplication of
the law by the trial court, and respondent appellate
court grievously erred in not having reversed the trial
court on this ground.
While it is true that where the insurance contract
provides for indemnity against liability to third persons,
such third persons can directly sue the insurer,
however, the direct liability of the insurer under
indemnity contracts against third-party liability does
not mean that the insurer can be held solidarily liable
with the insured and/or the other parties found at fault.
The liability of the insurer is based on contract; that of
the insured is based on tort.
The above principles take on more significance in
the light of the counterallegation of petitioner that,
assuming arguendo that it is the insurer of the Lady
Love taxicab in question, its liability is limited to
onlyP50,000.00, this being its standard amount of
coverage in vehicle insurance policies. It bears
repeating that no copy of the insurance contract was
ever proffered before the trial court by the private
respondent, notwithstanding knowledge of the fact that
the latters complaint against petitioner is one under a
written contract. Thus, the trial court proceeded to hold
petitioner liable for an award of damages exceeding its
limited liability of P50,000.00. This only shows beyond
doubt that the trial court was under the erroneous
presumption that petitioner could be found liable
absent proof of the contract and based merely on the
proof of reckless imprudence on the part of the driver
of the Lady Love taxicab that fatally hit private
respondents mother.
With regard to the issue of failure to file a claim.
When petitioner asseverates, thus, that no written
claim was filed by private respondent and rejected by
petitioner, and private respondent does not dispute
such asseveration through a denial in his pleadings, we
are constrained to rule that respondent appellate court
committed reversible error in finding petitioner liable
under an insurance contract the existence of which had
not at all been proven in court.Even if there were such
a contract, private respondents cause of action can not
prevail because he failed to file the written claim
mandated by Section 384 of the Insurance Code. He is
deemed, under this legal provision, to have waived his
rights as against petitioner-insurer.
37. Coastwise Lighterage
Philamgen (1995)

Corp

vs

CA

and

Facts:
Pag-asa Sales Inc. entered into a contract to
transport molasses from the province of Negros to
Manila
with
Coastwise
Lighterage
Corporation

(Coastwise for brevity), using the latter's dumb barges.

The barges were towed in tandem by the tugboat MT
Marica, which is likewise owned by Coastwise. Upon
reaching Manila Bay, one of the barges, "Coastwise 9",
struck an unknown sunken object. The forward
buoyancy compartment was damaged, and water
gushed in through a hole "two inches wide and twentytwo inches long". As a consequence, the molasses at
the cargo tanks were contaminated. Pag-asa filed a
claim against Philippine General Insurance Company,
the insurer of its cargo. Philgen paid P700,000 for the
value of the molasses lost. Philgen then filed an action
against Coastwise to recover the money it paid,
claiming to be subrogated to the claims which the
consignee may have against the carrier. Both the trial
court and the Court of Appeals ruled against Coastwise.
Issues: (1) Whether Coastwise was transformed into a
private carrier by virtue of the contract it entered into
with Pag-asa, and whether it exercised the required
degree of diligence; (2) Whether Philgen was
subrogated into the rights of the consignee against the
carrier.
Held: (1) Pag-asa Sales, Inc. only leased three of
petitioner's vessels, in order to carry cargo from one
point to another, but the possession, command mid
navigation of the vessels remained with petitioner
Coastwise Lighterage. Coastwise Lighterage, by the
contract of affreightment, was not converted into a
private carrier, but remained a common carrier and
was still liable as such. The law and jurisprudence on
common carriers both hold that the mere proof of
delivery of goods in good order to a carrier and the
subsequent arrival of the same goods at the place of
destination in bad order makes for a prima facie case
against the carrier. It follows then that the presumption
of negligence that attaches to common carriers, once
the goods it is sports are lost, destroyed or
deteriorated,
applies
to
the
petitioner.
This
presumption, which is overcome only by proof of the
exercise
of
extraordinary
diligence,
remained
unrebutted in this case. Jesus R. Constantino, the
patron of the vessel "Coastwise 9" admitted that he
was not licensed. Coastwise Lighterage cannot safely
claim to have exercised extraordinary diligence, by
placing a person whose navigational skills are
questionable, at the helm of the vessel which
eventually met the fateful accident. It may also
logically, follow that a person without license to
navigate, lacks not just the skill to do so, but also the
utmost familiarity with the usual and safe routes taken
by seasoned and legally authorized ones. Had the
patron been licensed he could be presumed to have
both the skill and the knowledge that would have
prevented the vessel's hitting the sunken derelict ship
that lay on their way to Pier 18. As a common carrier,
petitioner is liable for breach of the contract of
carriage, having failed to overcome the presumption of
negligence with the loss and destruction of goods it
transported, by proof of its exercise of extraordinary
diligence.
(2) Article 2207 of the Civil Code is founded on the
well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or
negligence of a party other than the assured, then the
insurer, upon payment to the assured will be
subrogated to the rights of the assured to recover from

the wrongdoer to the extent that the insurer has been

obligated to pay. Payment by the insurer to the assured
operated as an equitable assignment to the former of
all remedies which the latter may have against the
third party whose negligence or wrongful act caused
the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any private of contract or
upon written assignment of, claim. It accrues simply
upon payment of the insurance claim by the insurer.
38. Servicewide Specialists Inc vs CA (1996)
Facts:
On August 1, 1983, private respondent spouses
Ricardo and Elisa Trinidad purchased one unit Isuzu
Gemini car, 1983 model, yellow in color, from
Autoworld Sales Corporation. The price was P98,156.00
payable in 24 equal monthly installments of P4,089.00
every 15th of each month beginning September 1983
to August 15, 1985. To secure payment thereof, the
Trinidads executed on the same date a promissory note
and a deed of chattel mortgage on the subject car in
favor of Autoworld Sales Corporation. Autoworlds
interest eventually passed to petitioner Servicewide
Specialists Inc.
On November 18, 1985, private respondent Ricardo
Trinidad received a demand letter from petitioner dated
November 8, 1985 stating that an assignment of credit
had been made by Filinvest in its favor and that the
Trinidads had not paid two successive installments on
the car which had matured on July 15 and August 15,
1985. No mention was made in the letter that Filinvest
had paid insurance premiums to Perla Compania de
Seguros to insure the car against loss and damage
corresponding to two years, i.e., from July 29, 1984 to
July 29, 1985 and July 29, 1985 to July 29, 1986. Private
respondents were also never informed by Filinvest that
their installment payments on the car were converted
to premium payments on the insurance.
After informing private respondents that they failed
to pay the last two consecutive monthly installments,
petitioner demanded that either they pay the whole
remaining balance of P6,977.67, including accrued
interest, or return possession of the car to petitioner.
When private respondents refused to pay the amount
demanded or to return the car, petitioner filed an
action for replevin and damages with the Metropolitan
Trial Court, Branch V, Manila. The sole issue resolved
by the trial court was whether private respondents
were liable for the payment of the insurance premiums
effected by petitioner.
RTC and CA ruled against Servicewide.
Issue: Whether or not petitioner should have applied
the installment payments made by private respondents
for the payment of the car to the payment of the
insurance premiums without prior notice to private
respondents.
Held: No. While it is true that the Chattel Mortgage
does not say that notice to the mortgagor of the
renewal of the insurance premium by the mortgagee is
necessary, at the same time, there is no provision that
authorizes petitioner to apply the payments made to it
for the payment of the chattel to the payment of the
said premiums. From the records of the case, it is clear

that private respondents had fully paid for the car. This
fact was never rebutted by petitioner; it was the
insurance premiums pertaining to the two-year period
from July 29, 1984 to July 29, 1986 that petitioner
claims were not paid. Both the Regional Trial Court and
the Court of Appeals found that before the mortgagee
(petitioner) may effect the renewal of insurance, two
conditions must be met: (1) Default by the mortgagor
(private respondents) in effecting renewal of the
insurance and (2) failure to deliver the policy with
endorsement to petitioner. The Court notes an
additional element of the provisions regarding the
renewal of the insurance; specifically, that petitioner
was under no obligation to effect the same. In other
words, petitioner as mortgagee was not duty-bound to
renew the insurance in the event that private
respondents failed to do so; it was merely optional on
its part. The question now arises whether private

respondents were in default for failing to have the car

covered by insurance for the period in question. Private
respondents claim that the car was duly covered and
the Court finds no evidence on record showing this
assertion to be false. Petitioner has averred, however,
that the insurance taken by private respondents was
only for third-party liability and not the comprehensive
insurance required. If petitioner was aware that the
insurance coverage was inadequate, why did it not
inform private respondent about it? After all, since
petitioner was under no obligation to effect renewal
thereof, it is but logical that it should relay to private
respondents any defect of the insurance coverage
before itself assuming the same. Furthermore, even if
the car were not covered with the proper insurance,
there is nothing in the provisions of the Chattel
Mortgage that authorizes petitioner to apply previous
payments for the car to the insurance.