THE INSULAR LIFE ASSURANCE COMPANY, LTD.

, PETITIONER,
VS. PAZ Y. KHU, FELIPE Y. KHU, JR., AND FREDERICK Y. KHU,
RESPONDENTS.
G.R. No. 195176 | 2016-04-18

DECISION

DEL CASTILLO, J.:

The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains
to the date that the insurer approved' the application for reinstatement. However, in
light of the ambiguity in the insurance documents to this case, this Court adopts the
interpretation favorable to the insured in determining the date when the reinstatement
was approved.

Assailed in this Petition for Review on Certiorari[1] are the June 24, 2010 Decision[2] of
the Court of Appeals (CA), which dismissed the Petition in CA-GR. CV No. 81730, and
its December 13, 2010 Resolution, [3] which denied the petitioner Insular Life Assurance
Company Ltd.'s (Insular Life) motion for partial reconsideration. [4]

Factual Antecedents

On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with
Insular Life under the latter's Diamond Jubilee Insurance Plan. Felipe accomplished the
required medical questionnaire wherein he did not declare any illness or adverse
medical condition. Insular Life thereafter issued him Policy Number A000015683 with a
face value of PI million. This took effect on June 22, 1997. [5]

On June 23, 1999, Felipe's policy lapsed due to non-payment of the premium covering
the period from June 22, 1999 to June 23, 2000.[6]

On September 7, 1999, Felipe applied for the reinstatement of his policy and paid
P25,020.00 as premium. Except for the change in his occupation of being self-employed
to being the Municipal Mayor of Binuangan, Misamis Oriental, all the other information
submitted by Felipe in his application for reinstatement was virtually identical to those
mentioned in his original policy.[7]
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement
may only be considered if he agreed to certain conditions such as payment of additional
premium and the cancellation of the riders pertaining to premium waiver and accidental
death benefits. Felipe agreed to these conditions [8] and on December 27, 1999 paid the
agreed additional premium of P3,054.50.[9]

On January 7, 2000, Insular Life issued Endorsement No. PN-A000015683, which

reads:

This certifies that as agreed by the Insured, the reinstatement of this policy has been
approved by the Company on the understanding that the following changes are made
on the policy effective June 22, 1999:

1. The EXTRA PREMIUM is imposed; and

2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY

(WPD) rider originally attached to and forming parts of this policy [are] deleted.

In consequence thereof, the premium rates on this policy are adjusted to P28,000.00
annually, P14,843.00 semi-annually and P7,557.00 quarterly, Philippine currency.[10]

On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00
covering the period from June 22, 2000 to June 22, 2001. And on July 2, 2001, he also
paid the same amount as annual premium covering the period from June 22,2001 to
June 21, 2002.[11]

On September 22, 2001, Felipe died. His Certificate of Death enumerated the following
as causes of death:

Immediate cause: a. End stage renal failure, Hepatic failure

Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.

Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia. [12]

On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. .and Frederick Y. Khu (collectively,
Felipe's beneficiaries or respondents) filed with Insular Life a claim for benefit under the
reinstated policy. This claim was denied. Instead, Insular Life advised Felipe's
beneficiaries that it had decided to rescind the reinstated policy on the grounds of
concealment and misrepresentation by Felipe.

Hence, respondents instituted a complaint for specific performance with damages.

Respondents prayed that the reinstated life insurance policy be declared valid,
enforceable and binding on Insular Life; and that the latter be ordered to pay unto
Felipe's beneficiaries the proceeeds of this policy, among others. [13]

In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type
2 Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites)
that he already had prior to his application for reinstatement of his insurance policy;
and that it would not have reinstated the insurance policy had Felipe disclosed the
material information on his adverse health condition. It contended that when Felipe
died, the policy was still contestable.[14]

Ruling of the Regional Trial Court (RTC)

On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found [15] for Felipe's
beneficiaries, thus:

WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by

preponderance of evidence, judgment is hereby rendered in their favor and against
defendants, ordering the latter to pay jointly and severally the sum of One Million
(P1,000,000.00) Pesos with legal rate of interest from the date of demand until it is
fully paid representing the face value of Plan Diamond Jubilee No. PN-A000015683
issued to insured the late Felipe N. Khu[,] Sr; the sum of P20.000.00 as moral
damages; P30,000.00 as attorney's fees; P10,000.00 as litigation expenses.

SO ORDERED.[16]

In ordering Insular Life to pay Felipe's beneficiaries, the RTC agreed with the latter's
claim that the insurance policy was reinstated on June 22, 1999. The RTC cited the
ruling in Malayan Insurance Corporation v. Court of Appeals [17] that any ambiguity in a
contract of insurance should be resolved strictly against the insurer upon the principle
that an insurance contract is a contract of adhesion. [18] The RTC also held that the
reinstated insurance policy had already become incontestable by the time of Felipe's
death on September 22, 2001 since more than two years had already lapsed from the
date of the policy's reinstatement on June 22, 1999. The RTC noted that' since it was
Insular Life itself that supplied all the pertinent forms relative to the reinstated policy,
then it is barred from taking advantage of any ambiguity/obscurity perceived therein
particularly as regards the date when the reinstated insurance policy became effective.

Ruling of the Court of Appeals

On June 24, 2010, the CA issued the assailed Decision [19] which contained the following
decretal portion:

WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is
AFFIRMED with the MODIFICATION that the award of moral damages, attorney's fees
and litigation expenses [is] DELETED.

SO ORDERED.[20]

The CA upheld the RTC's ruling on the non-contestability of the reinstated insurance
policy on the date the insured died. It declared that contrary to Insular Life's
contention, there in fact exists a genuine ambiguity or obscurity in the language of the
two documents prepared by Insular Life itself, viz., Felipe's Letter of Acceptance and
Insular Life's Endorsement; that given the obscurity/ambiguity in the language of these
two documents, the construction/interpretation that favors the insured's right to
recover should be adopted; and that in keeping with this principle, the insurance policy
in dispute must be deemed reinstated as of June 22, 1999. [21]

Insular Life moved for partial reconsideration [22] but this was denied by the CA in its
Resolution of December 13, 2010.[23] Hence, the present Petition.

Issue

The fundamental issue to be resolved in this case is whether Felipe's reinstated life
insurance policy is already incontestable at the time of his death.
 Petitioner's Arguments

In praying for the reversal of the CA Decision, Insular Life basically argues that
respondents should not be allowed to recover on the reinstated insurance policy
because the two-year contestability period had not yet lapsed inasmuch as the
insurance policy was reinstated only on December 27, 1999, whereas Felipe died on
September 22, 2001;[24] that the CA overlooked the fact that Felipe paid the additional
extra premium only on December 27, 1999, hence, it is only upon this date that the
reinstated policy had become effective; that the CA erred in declaring that resort to the
principles of statutory construction is still necessary to resolve that question given that
the Application for Reinstatement, the Letter of Acceptance and the Endorsement in and
by themselves already embodied unequivocal provisions stipulating that the two-year
contestability clause should be reckoned from the date of approval of the
reinstatement;[25] and that Felipe's misrepresentation and concealment of material facts
in regard to his health or adverse medical condition gave it (Insular Life) the right to
rescind the contract of insurance and consequently, the right to deny the claim of
Felipe's beneficiaries for death benefits under the disputed policy.[26]

Respondents'Arguments

Respondents maintain that the phrase "effective June 22, 1999" found in both the
Letter of Acceptance and in the Endorsement is unclear whether it refers to the subject
of the sentence, i.e., the "reinstatement of this policy" or to the subsequent phrase
"changes are made on the policy;" that granting that there was any obscurity or
ambiguity in the insurance policy, the same, should be laid at the door of Insular Life as
it was this insurance company that prepared the necessary documents that make up
the same;[27] and that given the CA's .finding which effectively affirmed the RTC's finding
on this particular issue, it stands to reason that the insurance policy had indeed become
incontestable upon the date of Felipe's death. [28]

Our Ruling

We deny the Petition.

The Insurance Code pertinently provides that:

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by
any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have
been in force during the lifetime of the insured for a period of two years from the date
of its issue or of its last reinstatement, the insurer cannot prove that the policy is void
ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation
of the insured or his agent.

The rationale for this provision was discussed by the Court in Manila Bankers Life
Insurance Corporation v. Aban,[29]

Section 48 regulates both the actions of the insurers and prospective takers of life
insurance. It gives insurers enough time to inquire whether the policy was obtained by
fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming
individuals that their attempts at insurance fraud would be timely uncovered - thus
deterring them from venturing into such nefarious enterprise. At the same time,
legitimate policy holders are absolutely protected from unwarranted denial of their
claims or delay in the collection of insurance proceeds occasioned by allegations of
fraud, concealment, or misrepresentation by insurers, claims which may no longer be
set up after the two-year period expires as ordained under the law.

x x x x

The Court therefore agrees fully with the appellate court's pronouncement that-

x x x x

'The insurer is deemed to have the necessary facilities to discover such fraudulent
concealment or misrepresentation within a period of two (2) years. It is not fair for the
insurer to collect the premiums as long as the insured is still alive, only to raise the
issue of fraudulent concealment or misrepresentation when the insured dies in order to
defeat the right of the beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the
beneficiary is given the stability to recover under the policy when the insured dies. The
provision also makes clear when the two-year period should commence in case the
policy should lapse and is reinstated, that is, from the date of the last reinstatement'.

In Lalican v. The Insular Life Assurance Company, Limited,[30] which coincidentally also
involves the herein petitioner, it was there held that the reinstatement of the insured's
policy is to be reckoned from the date when the application was processed and
approved by the insurer. There, we stressed that:

To reinstate a policy means to restore the same to premium-paying status after it has
been permitted to lapse. x x x

x x x x

In the instant case, Eulogio's death rendered impossible full compliance with the
conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death,
managed to file his Application for Reinstatement and deposit the amount for payment
of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992
could only be considered reinstated after the Application for Reinstatement had been
processed and approved by Insular Life during Eulogio's lifetime and good health. [31]

Thus, it is settled that the reinstatement of an insurance policy should be reckoned

from the date when the same was approved by the insurer.

In this case, the parties differ as to when the reinstatement was actually approved.
Insular Life claims that it approved the reinstatement only on December 27, 1999. On
the other hand, respondents contend that it was on June 22, 1999 that the
reinstatement took effect.

The resolution of this issue hinges on the following documents:

1) Letter of Acceptance; and

2) the Endorsement.
The Letter of Acceptance[32] wherein Felipe affixed his signature was actually drafted and
prepared by Insular Life. This pro-forma document reads as follows:

LETTER OF ACCEPTANCE

Place: Cag. De [O]ro City

The Insular Life Assurance Co., Ltd.

P.O. Box 128, MANILA

Policy No. A000015683

Gentlemen:

Thru your Reinstatement Section, I/WE learned that this policy may be reinstated
provided I/we agree to the following condition/s indicated with a check mark:

Accept the imposition of an extra/additional extra premium of [P]5.00 a year per thous
[xx
effective June 22,1999
]
Accept the rating on the WPD at ____ at standard rates; the ABD at ____ the standard rates;
[ ] annually perthousand of Insurance;

[xx Accept the cancellation of the Premium waiver & Accidental death benefit.
]
[]

I am/we are agreeable to the above condition/s. Please proceed with the reinstatement
of the policy.

Very truly yours,

Felipe N. Khu, Sr.

After Felipe accomplished this form, Insular Life, through its Regional Administrative
Manager, Jesse James R. Toyhorada, issued an Endorsement[33] dated January 7, 2000.
For emphasis, the Endorsement is again quoted as follows:
 ENDORSEMENT

PN-A000015683

This certifies that as agreed to by the Insured, the reinstatement of this policy has been
approved by the Company on the understanding that the following changes are made
on the policy effective June 22, 1999:

1. The EXTRA PREMIUM is imposed; and

2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY

(WPD) rider originally attached to and forming parts of this policy is deleted.

In consequence thereof, the PREMIUM RATES on this policy are adjusted to

[P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00 quarterly,
Philippine Currency.

Cagayan de Oro City, 07 January 2000.

RCV/

(Signed) Authorized Signature

Based on the foregoing, we find that the CA did not commit any error in holding that
the subject insurance policy be considered as reinstated on June 22, 1999. This finding
must be upheld not only because it accords with the evidence, but also because this is
favorable to the insured who was not responsible for causing the ambiguity or obscurity
in the insurance contract.[34]

The CA expounded on this point thus -

The Court discerns a genuine ambiguity or obscurity in the language of the two
documents.

In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an
extra/additional x x x premium of P5.00 a year per thousand of insurance; effective
June 22, 1999". It is true that the phrase as used in this particular paragraph does not
refer explicitly to the effectivity of the reinstatement. But the Court notes that the
reinstatement was conditioned upon the payment of additional premium not only
prospectively, that is, to cover the remainder of the annual period of coverage, but also
retroactively, that is for the period starting June 22, 1999. Hence, by paying the
amount of P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had
earlier paid on September 7, 1999, Khu had paid for the insurance coverage starting
June 22, 1999. At the very least, this circumstance has engendered a true lacuna.

hi the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it
is not entirely clear whether the phrase "effective June 22, 1999" refers to the subject
of the sentence, namely "the reinstatement of this policy," or to the subsequent phrase
"changes are made on the policy."

The court below is correct. Given the obscurity of the language, the construction
favorable to the insured will be adopted by the courts.

Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the
period of contestability has lapsed.[35]

In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance
Company,[36] we ruled in favor of the insured and in favor of the erfectivity of the
insurance contract in the midst of ambiguity in the insurance contract provisions. We
held that:

It must be remembered that an insurance contract is a contract of adhesion which must

be construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latter's interest. Thus, in Malayan Insurance Corporation v. Court of
Appeals, this Court held that:

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

x x x x

As a final note, to characterize the insurer and the insured as contracting parties on
equal footing is inaccurate at best. Insurance contracts are wholly prepared by the
insurer with vast amounts of experience in the industry purposefully used to its
advantage. More often than not, insurance contracts are contracts of adhesion
containing technical terms and conditions of the industry, confusing if at all
understandable to laypersons, that are imposed on those who wish to avail of
insurance. As such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the insured are to be
delineated. Hence, in order to protect the interest of insurance applicants, insurance
companies must be obligated to act with haste upon insurance applications, to either
deny or approve the same, or otherwise be bound to honor the application as a valid,
binding, and effective insurance contract.[37]

Indeed, more than two years had lapsed from the time the subject insurance policy was
reinstated on June 22, 1999 vis-a-vis Felipe's death on September 22, 2001. As such,
the subject insurance policy has already become incontestable at the time of Felipe's
death.

Finally, we agree with the CA that there is neither basis nor justification for the RTC's
award of moral damages, attorney's fees and litigation expenses; hence this award
must be deleted.

WHEREFORE, the Petition is DENIED. The assailed June 24, 2010 Decision and
December 13, 2010 Resolution of the Court of Appeals in CA-GR. CV No. 81730
are AFFIRMED.

SO ORDERED.

Bank of the Philippine Islands vs. Laingo (2016)

G.R. No. 205206 | 2016-03-16
Subject: BPI acted as agent of FGU Insurance with respect to the insurance feature of
its own marketed product; BPI, as agent, had the responsibility to give proper notice of
the existence and terms of the insurance coverage to the beneficiary; otice to the agent
is notice to the principal

Facts:

In 1999, Rheozel Laingo, the son of respondent Yolanda Laingo, opened a "Platinum 2-
in-1 Savings and Insurance" account with Bank of the Philippine Islands (BPI). It was a
savings account where depositors are automatically covered by an insurance policy
against disability or death issued by FGU Insurance Corporation, now known as BPI/MS
Insurance Corporation. A Personal Accident Insurance Coverage Certificate No. 043549
was issued by FGU Insurance in the name of Rheozel with Laingo as his named
beneficiary.

On September 25, 2000, Rheozel died due to a vehicular accident. Since Rheozel came
from a reputable and affluent family, the Daily Mirror headlined the story in its
newspaper on 26 September 2000.

Yolanda Laingo instructed the family's personal secretary, Alice Torbanos to go to BPI,
Davao City branch. Yolanda wanted to use the money in the savings account for
Rheozel's burial and funeral expenses. BPI accommodated Yolanda who was allowed to
withdraw P995,000 from the account of Rheozel. A certain Ms. Laura Cabico, an
employee of BPI, went to Rheozel's wake at the Cosmopolitan Funeral Parlor to verify
some information from Alice and brought with her a number of documents for Yolanda
to sign for the withdrawal of the P995,000.

More than two years later or on 21 January 2003, Rheozel's sister, Rhealyn, while
arranging Rheozel's personal things in his room found the Personal Accident Insurance
Coverage Certificate No. 043549 issued by FGU Insurance. Rhealyn immediately
conveyed the information to Yolanda who then sent letters to BPI and FGU Insurance
requesting them to process her claim as beneficiary of Rheozel's insurance policy.

FGU Insurance sent a reply-letter to Yolanda denying her claim, stating that Yolanda
should have filed the claim within three calendar months from the death of Rheozel as
required under Paragraph 15 of the Personal Accident Certificate of Insurance.

Yolanda filed a Complaint for Specific Performance with Damages and Attorney's Fees
with the Regional Trial Court against BPI and FGU Insurance.

The RTC ruled that the prescriptive period of 90 days shall commence from the time of
death of the insured and not from the knowledge of the beneficiary. Since the insurance
claim was filed more than 90 days from the death of the insured, the case must be
dismissed.

The Court of Appeals reversed and ruled that Yolanda could not be expected to do an
obligation which she did not know existed. Laingo was not a party to the insurance
contract entered into between Rheozel and BPI/FGU. Thus, she could not be bound by
the 90-day stipulation. Motion for reconsideration was denied. Hence, the instant
petition.

The issue is WON Yolanda, as named beneficiary who had no knowledge of the
existence of the insurance contract, is bound by the three calendar month deadline for
filing a written notice of claim upon the death of the insured.

Held:

BPI acted as agent of FGU Insurance with respect to the insurance feature of
its own marketed product

1. As the main proponent of the 2-in-1 deposit account, BPI tied up with its affiliate,
FGU Insurance, as its partner. Any customer interested to open a deposit account under
this 2-in-1 product, after submitting all the required documents to BPI and obtaining
BPI's approval, will automatically be given insurance coverage. Thus, BPI acted as
agent of FGU Insurance with respect to the insurance feature of its own marketed
product.

2. Under the law, an agent is one who binds himself to render some service or to do
something in representation of another. The basis of an agency is representation. The
question of whether an agency has been created is ordinarily a question which may be
established in the same way as any other fact, either by direct or circumstantial
evidence. The question is ultimately one of intention. Agency may even be implied from
the words and conduct of the parties and the circumstances of the particular case. For
an agency to arise, it is not necessary that the principal personally encounter the third
person with whom the agent interacts. Precisely, the purpose of agency is to extend the
personality of the principal through the facility of the agent.

3. In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's
commercial product, offering the insurance coverage for free for every deposit account
opened, Rheozel directly communicated with BPI, the agent of FGU Insurance. BPI not
only facilitated the processing of the deposit account and the collection of necessary
documents but also the necessary endorsement for the prompt approval of the
insurance coverage without any other action on Rheozel's part. Rheozel did not interact
with FGU Insurance directly and every transaction was coursed through BPI.
BPI, as agent, had the responsibility to give proper notice of the existence and
terms of the insurance coverage to the beneficiary

4. When an agency relationship is established, the agent acts for the principal insofar
as the world is concerned. Consequently, the acts of the agent on behalf of the principal
within the scope of the delegated authority have the same legal effect and consequence
as though the principal had been the one so acting in the given situation.

5. BPI, as agent of FGU Insurance, had the primary responsibility to ensure that the 2-
in-1 account be reasonably carried out with full disclosure to the parties concerned,
particularly the beneficiaries. Thus, it was incumbent upon BPI to give proper notice of
the existence of the insurance coverage and the stipulation in the insurance contract for
filing a claim to Yolanda Laingo, as Rheozel's beneficiary, upon the latter's death.

6. Articles 1884 and 1887 of the Civil Code state:

Art. 1884. The agent is bound by his acceptance to carry out the agency and is liable
for the damages which, through his non-performance, the principal may suffer.

He must also finish the business already begun on the death of the principal, should
delay entail any danger.

Art. 1887. In the execution of the agency, the agent shall act in accordance with the
instructions of the principal.

In default, thereof, he shall do all that a good father of a family would do, as required
by the nature of the business.

7. The provision is clear that an agent is bound to carry out the agency. The
relationship existing between principal and agent is a fiduciary one, demanding
conditions of trust and confidence. It is the duty of the agent to act in good faith for the
advancement of the interests of the principal. In this case, BPI had the obligation to
carry out the agency by informing the beneficiary, who appeared before BPI to withdraw
funds of the insured who was BPI's depositor, not only of the existence of the insurance
contract but also the accompanying terms and conditions of the insurance policy in
order for the beneficiary to be able to properly and timely claim the benefit.

8. Upon Rheozel's death, which was properly communicated to BPI by his mother
Laingo, BPI, in turn, should have fulfilled its duty, as agent of FGU Insurance, of
advising Laingo that there was an added benefit of insurance coverage in Rheozel's
savings account. An insurance company has the duty to communicate with the
beneficiary upon receipt of notice of the death of the insured. This notification is how a
good father of a family should have acted within the scope of its business dealings with
its clients. BPI is expected not only to provide utmost customer satisfaction in terms of
its own products and services but also to give assurance that its business concerns with
its partner entities are implemented accordingly.

Notice to the agent is notice to the principal

9. There is a rationale in the contract of agency, which flows from the "doctrine of
representation," that notice to the agent is notice to the principal, Here, BPI had been
informed of Rheozel's death by the latter's family. Since BPI is the agent of FGU
Insurance, then such notice of death to BPI is considered as notice to FGU Insurance as
well. FGU Insurance cannot now justify the denial of a beneficiary's insurance claim for
being filed out of time when notice of death had been communicated to its agent within
a few days after the death of the depositor-insured. In short, there was timely notice of
Rheozel's death given to FGU Insurance within three months from Rheozel's death as
required by the insurance company.

10. BPI had ample opportunity to inform Laingo, whether verbally or in writing,
regarding the existence of the insurance policy attached to the deposit account. First,
Rheozel's death was headlined in a daily major newspaper a day after his
death. Second, not only was Yolanda Laingo, through her representative, able to inquire
about Rheozel's deposit account with BPI two days after his death but she was also
allowed by BPI's Claveria, Davao City branch to withdraw from the funds in order to
help defray Rheozel's funeral and burial expenses. Lastly, an employee of BPI visited
Rheozel's wake and submitted documents for Laingo to sign in order to process the
withdrawal request. These circumstances show thatdespite being given many
opportunities to communicate with Laingo regarding the existence of the insurance
contract, BPI neglected to carry out its duty.

11. Thus, BPI and FGU Insurance shall bear the loss and must compensate Laingo for
the actual damages suffered by her family plus attorney's fees. Likewise, FGU Insurance
has the obligation to pay the insurance proceeds of Rheozel's personal accident
insurance coverage to Yolanda Laingo, as Rheozel's named beneficiary.

H.H. Hollero Construction, Inc. vs. GSIS and Pool of Machinery Insurers
(2014)
G.R. No. 152334 | 2014-09-24
Subject: Contracts must be understood in their plain, ordinary, and popular sense;
Prescriptive period for the insureds action for indemnity should be reckoned from the
final rejection of the claim; Final rejection should be construed as the rejection in the
first instance

Facts:

In 1988, the GSIS and H.H. Hollero Construction, Inc. (petitioner) entered into a Project
Agreement whereby petitioner undertook the development of a GSIS housing project
known as Modesta Village Section B (Project). Petitioner obligated itself to insure the
Project, including all the improvements, upon the execution of the Project Agreement
under a Contractors All Risks (CAR) Insurance with the GSIS General Insurance
Department.

Petitioner secured CAR Policy No. 88/085 in the amount of P1M for land development,
which was later increased to P10M, effective from May 2, 1988 to May 2, 1989.
Petitioner likewise secured CAR Policy No. 88/086 in the amount of P1M for the
construction of 20 housing units, which was later increased to P17.75 M to cover the
construction of another 355 new units, effective from May 2, 1988 to June 1, 1989. In
turn, the GSIS reinsured CAR Policy No. 88/085 with respondent Pool of Machinery
Insurers (Pool).

Under both policies, it was provided that: (a) there must be prior notice of claim for
loss, damage or liability within fourteen (14) days from the occurrence of the loss or
damage; (b) all benefits thereunder shall be forfeited if no action is instituted within
twelve (12) months after the rejection of the claim for loss, damage or liability.

During the construction, three typhoons hit the country (Typhoon Biring, Huaning,
Saling) which caused considerable damage to the Project. Accordingly, petitioner filed
several claims for indemnity with the GSIS on June 30, 1988, August 25, 1988, and
October 18, 1989, respectively.

In a letter dated April 26, 1990, the GSIS rejected petitioners indemnity claims for the
damages wrought by Typhoons Biring and Huaning, finding that no amount is
recoverable pursuant to the average clause provision under the policies. In a letter
dated June 21, 1990, the GSIS similarly rejected petitioners indemnity claim for
damages wrought by Typhoon Saling on a no loss basis, it appearing from its records
that the policies were not renewed before the onset of the said typhoon.

On September 27, 1991, petitioner filed a Complaint for Sum of Money and Damages
before the RTC. The GSIS filed a Motion to Dismiss on the ground that the causes of
action stated therein are barred by the twelve-month limitation provided under the
policies, i.e., the complaint was filed more than one (1) year from the rejection of the
indemnity claims.

The RTC denied the motion to dismiss and held the GSIS liable to pay the petitioner's
claims. The Court of Appeals reversed the RTC decision, thereby dismissing the
complaint. The CA ruled that the complaint filed on September 27, 1991 was barred by
prescription, having been commenced beyond the twelve-month limitation provided
under the policies, reckoned from the final rejection of the indemnity claims on April 26,
1990 and June 21, 1990.

Hence, the present petition. The issue is WON the claims of petitioner are barred by
prescription.

Held:

Contracts must be understood in their plain, ordinary, and popular sense

1. Contracts of insurance, like other contracts, are to be construed according to the

sense and meaning of the terms which the parties themselves have used. If such terms
are clear and unambiguous, they must be taken and understood in their plain, ordinary,
and popular sense.

2. Section 10 of the General Conditions of the subject CAR Policies commonly read: ..
if a claim is made and rejected and no action or suit is commenced within twelve
months after such rejection... all benefit under this Policy shall be forfeited.

Prescriptive period for the insureds action for indemnity should be reckoned
from the final rejection of the claim

3. Case law illumines that the prescriptive period for the insureds action for indemnity
should be reckoned from the final rejection of the claim.

4. A perusal of the letter dated April 26, 1990 shows that the GSIS denied petitioners
indemnity claims wrought by Typhoons Biring and Huaning, it appearing that no amount
was recoverable under the policies. While the GSIS gave petitioner the opportunity to
dispute its findings, neither of the parties pursued any further action on the matter; this
logically shows that they deemed the said letter as a rejection of the claims. Lest it
cause any confusion, the statement in that letter pertaining to any queries petitioner
may have on the denial should be construed, at best, as a form of notice to the former
that it had the opportunity to seek reconsideration of the GSISs rejection.
Surely, petitioner cannot construe the said letter to be a mere tentative resolution. In
fact, despite its disavowals, petitioner admitted in its pleadings that the GSIS indeed
denied its claim through the aforementioned letter, but tarried in commencing the
necessary action in court.
5. The same conclusion obtains for the letter dated June 21, 1990 denying petitioners
indemnity claim caused by Typhoon Saling on a no loss basis due to the non-renewal
of the policies therefor before the onset of the said typhoon. The fact that petitioner
filed a letter of reconsideration therefrom, considering too the inaction of the GSIS on
the same similarly shows that the June 21, 1990 letter was also a final rejection of
petitioners indemnity claim.

6. The right of the insured to the payment of his loss accrues from the happening of
the loss. However, the cause of action in an insurance contract does not accrue until the
insureds claim is finally rejected by the insurer. This is because before such final
rejection there is no real necessity for bringing suit. (see Eagle Star Insurance Co. vs.
Chia Yu)

Final rejection should be construed as the rejection in the first instance

7. A final rejection simply means denial by the insurer of the claims of the insured
and not the rejection or denial by the insurer of the insureds motion or request for
reconsideration. The rejection referred to should be construed as the rejection in the
first instance, as in the two instances above-discussed.

8. The insureds cause of action or his right to file a claim either in the Insurance
Commission or in a court of competent jurisdiction commences from the time of the
denial of his claim by the Insurer, either expressly or impliedly. But therejection referred
to should be construed as the rejection, in the first instance, for if what is being
referred to is a reiterated rejection conveyed in a resolution of a petition for
reconsideration, such should have been expressly stipulated.

FORTUNE MEDICARE, INC.,

Petitioner,
vs.
DAVID ROBERT u. AMORIN, Respondent.

G.R. No. 195872 | 2014-03-13

FIRST DIVISION

DECISION
REYES,J.:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which
challenges the Decision2 dated September 27, 2010 and Resolution3 dated February
24, 2011 of the Court of Appeals (CA) in CAG. R. CV No. 87255.

The Facts

David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc.

(Fortune Care), a corporation engaged in providing health maintenance services to its
members. The terms of Amorin's medical coverage were provided in a Corporate Health
Program Contract4 (Health Care Contract) which was executed on January 6, 2000 by
Fortune Care and the House of Representatives, where Amorin was a permanent
employee.

While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999,
Amorin underwent an emergency surgery, specifically appendectomy, at the St. Francis
Medical Center, causing him to incur professional and hospitalization expenses of
US$7,242.35 and US$1,777.79, respectively. He attempted to recover from Fortune Care
the full amount thereof upon his return to Manila, but the company merely approved a
reimbursement of P12,151.36, an amount that was based on the average cost of
appendectomy, net of medicare deduction, if the procedure were performed in an
accredited hospital in Metro Manila.5 Amorin received under protest the approved
amount, but asked for its adjustment to cover the total amount of professional fees
which he had paid, and eighty percent (80%) of the approved standard charges based
on American standard, considering that the emergency procedure occurred in the
U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and Coverages
of the Health Care Contract, to wit:

A. EMERGENCY CARE IN ACCREDITED HOSPITAL.

Whether as an in-patient or out-patient, the member shall be entitled to

full coverage under the benefits provisions of the Contract at any
 FortuneCare accredited hospitals subject only to the pertinent provision of Article
VII (Exclusions/Limitations) hereof. For emergency care attended by non affiliated
physician (MSU), the member shall be reimbursed 80% of the professional fee
which should have been paid, had the member been treated by an affiliated
physician. The availment of emergency care from an unaffiliated physician shall
not invalidate or diminish any claim if it shall be shown to have been reasonably
impossible to obtain such emergency care from an affiliated physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total

hospitalization cost including the professional fee (based on the total approved
charges) to a member who receives emergency care in a non-accredited hospital.
The above coverage applies only to Emergency confinement within Philippine
Territory. However, if the emergency confinement occurs in a foreign territory,
Fortune Care will be obligated to reimburse or pay eighty (80%) percent of
the approved standard charges which shall cover the hospitalization costs and
professional fees. x x x6

Still, Fortune Care denied Amorins request, prompting the latter to file a complaint7 for
breach of contract with damages with the Regional Trial Court (RTC) of Makati City.

For its part, Fortune Care argued that the Health Care Contract did not cover
hospitalization costs and professional fees incurred in foreign countries, as the
contracts operation was confined to Philippine territory.8 Further, it argued that its
liability to Amorin was extinguished upon the latters acceptance from the company of
the amount of P12,151.36.

The RTC Ruling

On May 8, 2006, the RTC of Makati, Branch 66 rendered its Decision9 dismissing
Amorins complaint. Citing Section 3, Article V of the Health Care Contract, the RTC
explained:
 Taking the contract as a whole, the Court is convinced that the parties intended to
use the Philippine standard as basis. Section 3 of the Corporate Health Care
Program Contract provides that:

xxxx

On the basis of the clause providing for reimbursement equivalent to 80% of the
professional fee which should have been paid, had the member been treated by
an affiliated physician, the Court concludes that the basis for reimbursement shall
be Philippine rates. That provision, taken with Article V of the health program
contract, which identifies affiliated hospitals as only those accredited clinics,
hospitals and medical centers located nationwide only point to the Philippine
standard as basis for reimbursement.

The clause providing for reimbursement in case of emergency operation in a

foreign territory equivalent to 80% of the approved standard charges which shall
cover hospitalization costs and professional fees, can only be reasonably
construed in connection with the preceding clause on professional fees to give
meaning to a somewhat vague clause. A particular clause should not be studied as
a detached and isolated expression, but the whole and every part of the contract
must be considered in fixing the meaning of its parts.10

In the absence of evidence to the contrary, the trial court considered the amount of
P12,15[1].36 already paid by Fortune Care to Amorin as equivalent to 80% of the
hospitalization and professional fees payable to the latter had he been treated in an
affiliated hospital.11

Dissatisfied, Amorin appealed the RTC decision to the CA.

The CA Ruling

On September 27, 2010, the CA rendered its Decision12 granting the appeal. Thus, the
dispositive portion of its decision reads:
 WHEREFORE, all the foregoing premises considered, the instant appeal is
hereby GRANTED. The May 8, 2006 assailed Decision of the Regional Trial Court
(RTC) of Makati City, Branch 66 is hereby REVERSED and SET ASIDE, and a new
one entered ordering Fortune Medicare, Inc. to reimburse [Amorin] 80% of the
total amount of the actual hospitalization expenses of $7,242.35 and professional
fee of $1,777.79 paid by him to St. Francis Medical Center pursuant to Section
3, Article V of the Corporate Health Care Program Contract, or their peso
equivalent at the time the amounts became due, less the [P]12,151.36 already
paid by Fortunecare.

SO ORDERED.13

In so ruling, the appellate court pointed out that, first, health care agreements such as
the subject Health Care Contract, being like insurance contracts, must be liberally
construed in favor of the subscriber. In case its provisions are doubtful or reasonably
susceptible of two interpretations, the construction conferring coverage is to be adopted
and exclusionary clauses of doubtful import should be strictly construed against the
provider.14 Second, the CA explained that there was nothing under Article V of
the Health Care Contract which provided that the Philippine standard should be used
even in the event of an emergency confinement in a foreign territory.15 Fortune Cares
motion for reconsideration was denied in a Resolution16 dated February 24, 2011.
Hence, the filing of the present petition for review on certiorari.

The Present Petition

Fortune Care cites the following grounds to support its petition:

I. The CA gravely erred in concluding that the phrase approved standard charges
is subject to interpretation, and that it did not automatically mean Philippine
Standard; and

II. The CA gravely erred in denying Fortune Cares motion for reconsideration,
 which in effect affirmed its decision that the American Standard Cost shall be
applied in the payment of medical and hospitalization expenses and professional
fees incurred by the respondent.17

The Courts Ruling

The petition is bereft of merit.

The Court finds no cogent reason to disturb the CAs finding that Fortune Cares liability
to Amorin under the subject Health Care Contract should be based on the expenses for
hospital and professional fees which he actually incurred, and should not be limited by
the amount that he would have incurred had his emergency treatment been performed
in an accredited hospital in the Philippines.

We emphasize that for purposes of determining the liability of a health care provider to
its members, jurisprudence holds that a health care agreement is in the nature of non-
life insurance, which is primarily a contract of indemnity. Once the member incurs
hospital, medical or any other expense arising from sickness, injury or other stipulated
contingent, the health care provider must pay for the same to the extent agreed
upon under the contract.18

To aid in the interpretation of health care agreements, the Court laid down the following
guidelines in Philamcare Health Systems v. CA19:

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

should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which prepared
the contract the insurer. By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract, ambiguity
must be strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture. This is equally applicable to Health
Care Agreements. The phraseology used in medical or hospital service contracts,
such as the one at bar, must be liberally construed in favor of the subscriber, and
if doubtful or reasonably susceptible of two interpretations the construction
 conferring coverage is to be adopted, and exclusionary clauses of doubtful import
should be strictly construed against the provider.20 (Citations omitted and
emphasis ours)

Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses
Olivares21:

In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is
in the nature of a non-life insurance. It is an established rule in insurance
contracts that when their terms contain limitations on liability, they should be
construed strictly against the insurer. These are contracts of adhesion the terms of
which must be interpreted and enforced stringently against the insurer which
prepared the contract. This doctrine is equally applicable to health care
agreements.

xxxx

x x x [L]imitations of liability on the part of the insurer or health care provider

must be construed in such a way as to preclude it from evading its obligations.
Accordingly, they should be scrutinized by the courts with extreme jealousy and
care and with a jaundiced eye. x x x.22 (Citations omitted and emphasis
supplied)

In the instant case, the extent of Fortune Cares liability to Amorin under the attendant
circumstances was governed by Section 3(B), Article V of the subject Health Care
Contract, considering that the appendectomy which the member had to undergo
qualified as an emergency care, but the treatment was performed at St. Francis Medical
Center in Honolulu, Hawaii, U.S.A., a non-accredited hospital. We restate the pertinent
portions of Section 3(B):

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

 1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total
hospitalization cost including the professional fee (based on the total approved
charges) to a member who receives emergency care in a non-accredited hospital.
The above coverage applies only to Emergency confinement within Philippine
Territory. However, if the emergency confinement occurs in foreign territory,
Fortune Care will be obligated to reimburse or pay eighty (80%) percent of
the approved standard charges which shall cover the hospitalization costs and
professional fees. x x x23 (Emphasis supplied)

The point of dispute now concerns the proper interpretation of the phrase approved
standard charges, which shall be the base for the allowable 80% benefit. The trial court
ruled that the phrase should be interpreted in light of the provisions of Section 3(A), i.e.,
to the extent that may be allowed for treatments performed by accredited physicians
in accredited hospitals. As the appellate court however held, this must be interpreted in
its literal sense, guided by the rule that any ambiguity shall be strictly construed against
Fortune Care, and liberally in favor of Amorin.

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the
parties thereto contemplated the possibility of emergency care in a foreign country. As
the contract recognized Fortune Cares liability for emergency treatments even in
foreign territories, it expressly limited its liability only insofar as the percentage of
hospitalization and professional fees that must be paid or reimbursed was concerned,
pegged at a mere 80% of the approved standard charges.

The word standard as used in the cited stipulation was vague and ambiguous, as it
could be susceptible of different meanings. Plainly, the term standard charges could
be read as referring to the hospitalization costs and professional fees which were
specifically cited as compensable even when incurred in a foreign country. Contrary to
Fortune Cares argument, from nowhere in the Health Care Contract could it be
reasonably deduced that these standard charges referred to the Philippine standard,
or that cost which would have been incurred if the medical services were performed in
an accredited hospital situated in the Philippines. The RTC ruling that the use of the
Philippine standard could be inferred from the provisions of Section 3(A), which
covered emergency care in an accredited hospital, was misplaced. Evidently, the parties
to the Health Care Contract made a clear distinction between emergency care in an
accredited hospital, and that obtained from a non-accredited hospital. The limitation on
payment based on Philippine standard for services of accredited physicians
was expressly made applicable only in the case of an emergency care in an accredited
hospital.

The proper interpretation of the phrase standard charges could instead be correlated
with and reasonably inferred from the other provisions of Section 3(B), considering that
Amorins case fell under the second case, i.e., emergency care in a non-accredited
hospital. Rather than a determination of Philippine or American standards, the first part
of the provision speaks of the full reimbursement of the total hospitalization
cost including the professional fee (based on the total approved charges) to a member
who receives emergency care in a non-accredited hospital within the Philippines. Thus,
for emergency care in non-accredited hospitals, this cited clause declared the standard
in the determination of the amount to be paid, without any reference to and regardless
of the amounts that would have been payable if the treatment was done by an affiliated
physician or in an affiliated hospital. For treatments in foreign territories, the
only qualification was only as to the percentage, or 80% of that payable for treatments
performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability
to costs that are applicable in the Philippines, the amount payable by Fortune Care
should not be limited to the cost of treatment in the Philippines, as to do so would result
in the clear disadvantage of its member. If, as Fortune Care argued, the premium
and other charges in the Health Care Contract were merely computed on assumption
and risk under Philippine cost and, that the American cost standard or any foreign
country's cost was never considered, such limitations should have been distinctly
specified and clearly reflected in the extent of coverage which the company voluntarily
assumed. This was what Fortune Care found appropriate when in its new health care
agreement with the House of Representatives, particularly in their 2006 agreement,
the provision on emergency care in non-accredited hospitals was modified to read as
follows:

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

will be obligated to reimburse or pay one hundred (100%) percent under approved
Philippine Standard covered charges for hospitalization costs and professional fees
but not to exceed maximum allowable coverage, payable in pesos at prevailing
currency exchange rate at the time of availment in said territory where he/she is
confined. x x x24
Settled is the rule that ambiguities in a contract are interpreted against the party that
caused the ambiguity. "[A ]ny ambiguity in a contract whose terms are susceptible of
different interpretations must be read against the party who drafted it."25

WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and
Resolution dated February 24, 2011 of the Court of Appeals in CA-G.R. CV No. 87255
are AFFIRMED.

SO ORDERED.

EASTERN SHIPPING LINES, INC., Petitioner

vs.
BPI/MS INSURANCE CORP., and
MITSUI SUMITOMO INSURANCE
CO., LTD.,
Respondents.
G.R. No. 193986 | 2014-01-15

FIRST DIVISION

DECISION

VILLARAMA, JR., J.:

Before this Court is a petition 1 for review on certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, as amended, seeking the reversal of the Decision2 of the Court of
Appeals (CA) in CA-G.R. CV No. 88361, which affirmed with modification the Decision3 of
the Regional Trial Court (RTC), ofMakati City, Branch 138 in Civil Case No. 04-1005.

The facts follow:

On August 29, 2003, Sumitomo Corporation (Sumitomo) shipped through MV Eastern

Challenger V-9-S, a vessel owned by petitioner Eastern Shipping Lines, Inc. (petitioner),
31 various steel sheets in coil weighing 271,828 kilograms from Yokohama, Japan for
delivery in favor of the consignee Calamba Steel Center Inc. (Calamba Steel).4 The
cargo had a declared value ofUS$125,417.26 and was insured against all risk by
Sumitomo with respondent Mitsui Sumitomo Insurance Co., Ltd. (Mitsui). On or about
September 6, 2003, the shipment arrived at the port of Manila. Upon unloading from the
vessel, nine coils were observed to be in bad condition as evidenced by the Turn Over
Survey of Bad Order Cargo No. 67327. The cargo was then turned over to Asian
Terminals, Inc. (ATI) for stevedoring, storage and safekeeping pending Calamba Steels
withdrawal of the goods. When ATI delivered the cargo to Calamba Steel, the latter
rejected its damaged portion, valued at US$7,751.15, for being unfit for its intended
purpose.5

Subsequently, on September 13, 2003, a second shipment of 28 steel sheets in coil,

weighing 215,817 kilograms, was made by Sumitomo through petitioners MV Eastern
Challenger V-10-S for transport and delivery again to Calamba Steel.6 Insured by
Sumitomo against all risk with Mitsui,7 the shipment had a declared value of
US$121,362.59. This second shipment arrived at the port of Manila on or about
September 23, 2003. However, upon unloading of the cargo from the said vessel, 11
coils were found damaged as evidenced by the Turn Over Survey of Bad Order Cargo No.
67393. The possession of the said cargo was then transferred to ATI for stevedoring,
storage and safekeeping pending withdrawal thereof by Calamba Steel. When ATI
delivered the goods, Calamba Steel rejected the damaged portion thereof, valued at
US$7,677.12, the same being unfit for its intended purpose.8

Lastly, on September 29, 2003, Sumitomo again shipped 117 various steel sheets in coil
weighing 930,718 kilograms through petitioners vessel, MV Eastern Venus V-17-S, again
in favor of Calamba Steel.9 This third shipment had a declared value of US$476,416.90
and was also insured by Sumitomo with Mitsui. The same arrived at the port of Manila
on or about October 11, 2003. Upon its discharge, six coils were observed to be in bad
condition. Thereafter, the possession of the cargo was turned over to ATI for
stevedoring, storage and safekeeping pending withdrawal thereof by Calamba Steel.
The damaged portion of the goods being unfit for its intended purpose, Calamba Steel
rejected the damaged portion, valued at US$14,782.05, upon ATIs delivery of the third
shipment.10

Calamba Steel filed an insurance claim with Mitsui through the latters settling agent,
respondent BPI/MS Insurance Corporation (BPI/MS), and the former was paid the sums of
US$7,677.12, US$14,782.05 and US$7,751.15 for the damage suffered by all three
shipments or for the total amount of US$30,210.32. Correlatively, on August 31, 2004,
as insurer and subrogee of Calamba Steel, Mitsui and BPI/MS filed a Complaint for
Damages against petitioner and ATI.11

As synthesized by the RTC in its decision, during the pre-trial conference of the case, the
following facts were established, viz:

1. The fact that there were shipments made on or about August 29, 2003, September
13, 2003 and September 29, 2003 by Sumitomo to
Calamba Steel through petitioners vessels;
2. The declared value of the said shipments and the fact that the shipments were
insured by respondents;

3. The shipments arrived at the port of Manila on or about September 6, 2003,

September 23, 2003 and October 11, 2003 respectively;

4. Respondents paid Calamba Steels total claim in the amount of US$30,210.32.12

Trial on the merits ensued.

On September 17, 2006, the RTC rendered its Decision,13 the dispositive portion of
which provides:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against

defendants Eastern Shipping Lines, Inc. and Asian Terminals, Inc., jointly and severally,
ordering the latter to pay plaintiffs the following:

1. Actual damages amounting to US$30,210.32 plus 6% legal interest thereon

commencing from the filing of this complaint, until the same is fully paid;

2. Attorneys fees in a sum equivalent to 25% of the amount claimed;

3. Costs of suit.

The defendants counterclaims and ATIs crossclaim are DISMISSED for lack of merit.

SO ORDERED.14

Aggrieved, petitioner and ATI appealed to the CA. On July 9, 2010, the CA in its assailed
Decision affirmed with modification the RTCs findings and ruling, holding, among
others, that both petitioner and ATI were very negligent in the handling of the subject
cargoes. Pointing to the affidavit of Mario Manuel, Cargo Surveyor, the CA found that
during the unloading operations, the steel coils were lifted from the vessel but were not
carefully laid on the ground. Some were even dropped while still several inches from
the ground while other coils bumped or hit one another at the pier while being arranged
by the stevedores and forklift operators of ATI and [petitioner]. The CA added that such
finding coincides with the factual findings of the RTC that both petitioner and ATI were
both negligent in handling the goods. However, for failure of the RTC to state the
justification for the award of attorneys fees in the body of its decision, the CA
accordingly deleted the same.15 Petitioner filed its Motion for Reconsideration16 which
the CA, however, denied in its Resolution17 dated October 6, 2010.
Both petitioner and ATI filed their respective separate petitions for review on certiorari
before this Court. However, ATIs petition, docketed as G.R. No. 192905, was denied by
this Court in our Resolution18 dated October 6, 2010 for failure of ATI to show any
reversible error in the assailed CA decision and for failure of ATI to submit proper
verification. Said resolution had become final and executory on March 22, 2011.19
Nevertheless, this Court in its Resolution20 dated September 3, 2012, gave due course
to this petition and directed the parties to file their respective memoranda.

In its Memorandum,21 petitioner essentially avers that the CA erred in affirming the
decision of the RTC because the survey reports submitted by respondents themselves
as their own evidence and the pieces of evidence submitted by petitioner clearly show
that the cause of the damage was the rough handling of the goods by ATI during the
discharging operations. Petitioner attests that it had no participation whatsoever in the
discharging operations and that petitioner did not have a choice in selecting the
stevedore since ATI is the only arrastre operator mandated to conduct discharging
operations in the South Harbor. Thus, petitioner prays that it be absolved from any
liability relative to the damage incurred by the goods.

On the other hand, respondents counter, among others, that as found by both the RTC
and the CA, the goods suffered damage while still in the possession of petitioner as
evidenced by various Turn Over Surveys of Bad Order Cargoes which were unqualifiedly
executed by petitioners own surveyor, Rodrigo Victoria, together with the
representative of ATI. Respondents assert that petitioner would not have executed such
documents if the goods, as it claims, did not suffer any damage prior to their turn-over
to ATI. Lastly, respondents aver that petitioner, being a common carrier is required by
law to observe extraordinary diligence in the vigilance over the goods it carries.22

Simply put, the core issue in this case is whether the CA committed any reversible error
in finding that petitioner is solidarily liable with ATI on account of the damage incurred
by the goods.

The Court resolves the issue in the negative.

Well entrenched in this jurisdiction is the rule that factual questions may not be raised
before this Court in a petition for review on certiorari as this Court is not a trier of facts.
This is clearly stated in Section 1, Rule 45 of the 1997 Rules of Civil Procedure, as
amended, which provides:

SECTION 1. Filing of petition with Supreme Court.A party desiring to appeal by

certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law,
may file with the Supreme Court a verified petition for review on certiorari. The petition
shall raise only questions of law which must be distinctly set forth.
Thus, it is settled that in petitions for review on certiorari, only questions of law may be
put in issue. Questions of fact cannot be entertained.23

A question of law exists when the doubt or controversy concerns the correct application
of law or jurisprudence to a certain set of facts, or when the issue does not call for an
examination of the probative value of the evidence presented, the truth or falsehood of
facts being admitted. A question of fact exists when the doubt or difference arises as to
the truth or falsehood of facts or when the query invites calibration of the whole
evidence considering mainly the credibility of the witnesses, the existence and
relevancy of specific surrounding circumstances as well as their relation to each other
and to the whole, and the probability of the situation.24

In this petition, the resolution of the question as to who between petitioner and ATI
should be liable for the damage to the goods is indubitably factual, and would clearly
impose upon this Court the task of reviewing, examining and evaluating or weighing all
over again the probative value of the evidence presented25 something which is not,
as a rule, within the functions of this Court and within the office of a petition for review
on certiorari.

While it is true that the aforementioned rule admits of certain exceptions,26 this Court
finds that none are applicable in this case. This Court finds no cogent reason to disturb
the factual findings of the RTC which were duly affirmed by the CA. Unanimous with the
CA, this Court gives credence and accords respect to the factual findings of the RTC a
special commercial court27 which has expertise and specialized knowledge on the
subject matter28 of maritime and admiralty highlighting the solidary liability of both
petitioner and ATI. The RTC judiciously found:

x x x The Turn Over Survey of Bad Order Cargoes (TOSBOC, for brevity) No. 67393 and
Request for Bad Order Survey No. 57692 show that prior to the turn over of the first
shipment to the custody of ATI, eleven (11) of the twenty-eight (28) coils were already
found in bad order condition. Eight (8) of the said eleven coils were already partly
dented/crumpled and the remaining three (3) were found partly dented, scratches on
inner hole, crumple (sic). On the other hand, the TOSBOC No. 67457 and Request for
Bad Order Survey No. 57777 also show that prior to the turn over of the second
shipment to the custody of ATI, a total of six (6) coils thereof were already partly
dented on one side, crumpled/cover detach (sic). These documents were issued by ATI.
The said TOSBOCs were jointly executed by ATI, vessels representative and surveyor
while the Requests for Bad Order Survey were jointly executed by ATI, consignees
representative and the Shed Supervisor. The aforementioned documents were
corroborated by the Damage Report dated 23 September 2003 and Turn Over Survey
No. 15765 for the first shipment, Damage Report dated 13 October 2003 and Turn Over
Survey No. 15772 for the second shipment and, two Damage Reports dated 6
September 2003 and Turn Over Survey No. 15753 for the third shipment.

It was shown to this Court that a Request for Bad Order Survey is a document which is
requested by an interested party that incorporates therein the details of the damage, if
any, suffered by a shipped commodity. Also, a TOSBOC, usually issued by the arrastre
contractor (ATI in this case), is a form of certification that states therein the bad order
condition of a particular cargo, as found prior to its turn over to the custody or
possession of the said arrastre contractor.

The said Damage Reports, Turn Over Survey Reports and Requests for Bad Order Survey
led the Court to conclude that before the subject shipments were turned over to ATI, the
said cargo were already in bad order condition due to damage sustained during the sea
voyage. Nevertheless, this Court cannot turn a blind eye to the fact that there was also
negligence on the part of the employees of ATI and [Eastern Shipping Lines, Inc.] in the
discharging of the cargo as observed by plaintiffs witness, Mario Manuel, and [Eastern
Shipping
Lines, Inc.s] witness, Rodrigo Victoria.

In ascertaining the cause of the damage to the subject shipments, Mario Manuel stated
that the coils were roughly handled during their discharging from the vessel to the pier
of (sic) ASIAN TERMINALS, INC. and even during the loading operations of these coils
from the pier to the trucks that will transport the coils to the consignees warehouse.
During the aforesaid operations, the employees and forklift operators of EASTERN
SHIPPING LINES and ASIAN TERMINALS, INC. were very negligent in the handling of the
subject cargoes. Specifically, during unloading, the steel coils were lifted from the
vessel and not carefully laid on the ground, sometimes were even dropped while
still several inches from the ground. The tine (forklift blade) or the portion that carries
the coils used for the forklift is improper because it is pointed and sharp and the
centering of the tine to the coils were negligently done such that the pointed and sharp
tine touched and caused scratches, tears and dents to the coils. Some of the coils were
also dragged by the forklift instead of being carefully lifted from one place to another.
Some coils bump/hit one another at the pier while being arranged by
the stevedores/forklift operators of ASIAN TERMINALS, INC. and EASTERN SHIPPING
LINES.29 (Emphasis supplied.)

Verily, it is settled in maritime law jurisprudence that cargoes while being unloaded
generally remain under the custody of the carrier.30 As hereinbefore found by the RTC
and affirmed by the CA based on the evidence presented, the goods were damaged
even before they were turned over to ATI. Such damage was even compounded by the
negligent acts of petitioner and ATI which both mishandled the goods during the
discharging operations. Thus, it bears stressing unto petitioner that common carriers,
from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods transported by them. Subject to
certain exceptions enumerated under Article 173431 of the Civil Code, common carriers
are responsible for the loss, destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for transportation until the same
are delivered, actually or constructively, by the carrier to the consignee, or to the
person who has a right to receive them.32 Owing to this high degree of diligence
required of them, common carriers, as a general rule, are presumed to have been at
fault or negligent if the goods they transported deteriorated or got lost or destroyed.
That is, unless they prove that they exercised extraordinary diligence in transporting the
goods. In order to avoid responsibility for any loss or damage, therefore, they have the
burden of proving that they observed such high level of diligence.33 In this case,
petitioner failed to hurdle such burden.

In sum, petitioner failed to show any reversible error on the part of the CA in affirming
the ruling of the RTC as to warrant the modification, much less the reversal of its
assailed decision.

WHEREFORE, the petition is DENIED. The Decision dated July 9, 2010 of the Court of
Appeals in CA-G.R. CV No. 88361 is herebyAFFIRMED.

With costs against the petitioner.

SO ORDERED.

ALPHA INSURANCE AND SURETY CO., Petitioner, - versus -

ARSENIA SONIA CASTOR, Respondent.
G.R. No. 198174 | 2013-09-02

THIRD DIVISION

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing
the Decision 1 dated May 31, 2011 and Resolution 2 dated August 10, 2011 of the Court of
Appeals (CA) in CA-G.R. CV No. 93027.

The facts follow.

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV -00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The
contract of insurance obligates the petitioner to pay the respondent the amount of Six
Hundred Thirty Thousand Pesos (P630,000.00) in case of loss or damage to said vehicle
during the period covered, which is from February 26, 2007 to February 26, 2008.

On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar
Lanuza (Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up.
However, Lanuza no longer returned the motor vehicle to respondent and despite diligent
efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of the said loss and
demanded payment of the insurance proceeds in the total sum of P630,000.00.

In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating
among others, thus:

Upon verification of the documents submitted, particularly the Police Report and your
Affidavit, which states that the culprit, who stole the Insure[d] unit, is employed with you.
We would like to invite you on the provision of the Policy under Exceptions to Section-III,
which we quote:

1.) The Company shall not be liable for:

xxxx

(4) Any malicious damage caused by the Insured, any member of his family or by A
PERSON IN THE INSUREDS SERVICE.

In view [of] the foregoing, we regret that we cannot act favorably on your claim.

In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and
argued that the exception refers to damage of the motor vehicle and not to its loss.
However, petitioners denial of respondents insured claim remains firm.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against
petitioner before the Regional Trial Court (RTC) of Quezon City on September 10, 2007.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of
respondent in this wise:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant ordering the latter as follows:
1. To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per annum from the
time of demand up to the time the amount is fully settled;

2. To pay attorneys fees in the sum of P65,000.00; and

3. To pay the costs of suit.

All other claims not granted are hereby denied for lack of legal and factual basis. 3

Aggrieved, petitioner filed an appeal with the CA.

On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon Citys
decision. The fallo reads:

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision,
dated December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil
Case No. Q-07-61099, is hereby AFFIRMED in toto.

SO ORDERED. 4

Petitioner filed a Motion for Reconsideration against said decision,but the same was denied
in a Resolution dated August 10, 2011.

Hence, the present petition wherein petitioner raises the following grounds for the allowance
of its petition:

1. WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY
OR GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE
RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION DOES NOT
COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY ARE
[AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES
DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY WILL BE
CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY
AGAINST THE INSURER.

2. WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND

COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE JUDGMENT
OF THE TRIAL COURT. 5

Simply, the core issue boils down to whether or not the loss of respondents vehicle is
excluded under the insurance policy.

We rule in the negative.

Significant portions of Section III of the Insurance Policy states:

SECTION III LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or
damage to the Schedule Vehicle and its accessories and spare parts whilst thereon:

(a) by accidental collision or overturning, or collision or overturning consequent upon

mechanical breakdown or consequent upon wear and tear;

(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

(c) by malicious act;

(d) whilst in transit (including the processes of loading and unloading) incidental to such
transit by road, rail, inland waterway, lift or elevator.

xxxx

EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:

1. Loss or Damage in respect of any claim or series of claims arising out of one event, the
first amount of each and every loss for each and every vehicle insured by this Policy, such
amount being equal to one percent (1.00%) of the Insureds estimate of Fair Market Value
as shown in the Policy Schedule with a minimum deductible amount of Php3,000.00;

2. Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns,

failures or breakages;

3. Damage to tires, unless the Schedule Vehicle is damaged at the same time;

4. Any malicious damage caused by the Insured, any member of his family or by a
person in the Insureds service. 6

In denying respondents claim, petitioner takes exception by arguing that the word
damage, under paragraph 4 of Exceptions to Section III, means loss due to injury or
harm to person, property or reputation, and should be construed to cover malicious loss
as in theft. Thus, it asserts that the loss of respondents vehicle as a result of it being
stolen by the latters driver is excluded from the policy.
We do not agree.

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft
perpetrated by the driver of the insured is not an exception to the coverage from the
insurance policy, since Section III thereof did not qualify as to who would commit the theft.
Thus:

Theft perpetrated by a driver of the insured is not an exception to the coverage from the
insurance policy subject of this case. This is evident from the very provision of Section III
Loss or Damage. The insurance company, subject to the limits of liability, is obligated to
indemnify the insured against theft. Said provision does not qualify as to who would commit
the theft. Thus, even if the same is committed by the driver of the insured, there being no
categorical declaration of exception, the same must be covered. As correctly pointed out by
the plaintiff, (A)n insurance contract should be interpreted as to carry out the purpose for
which the parties entered into the contract which isto insure against risks of loss or damage
to the goods. Such interpretation should result from the natural and reasonable meaning of
language in the policy. Where restrictive provisions are open to two interpretations, that
which is most favorable to the insured is adopted. The defendant would argue that if the
person employed by the insured would commit the theft and the insurer would be held
liable, then this would result to an absurd situation where the insurer would also be held
liable if the insured would commit the theft. This argument is certainly flawed. Of course, if
the theft would be committed by the insured himself, the same would be an exception to the
coverage since in that case there would be fraud on the part of the insured or breach of
material warranty under Section 69 of the Insurance Code. 7

Moreover, contracts of insurance, like other contracts, are to be construed according to the
sense and meaning of the terms which the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and understood in their plain, ordinary and
popular sense. 8 Accordingly, in interpreting the exclusions in an insurance contract, the
terms used specifying the excluded classes therein are to be given their meaning as
understood in common speech. 9

Adverse to petitioners claim, the words loss and damage mean different things in
common ordinary usage. The word loss refers to the act or fact of losing, or failure to keep
possession, while the word damage means deterioration or injury to property.

Therefore, petitioner cannot exclude the loss of respondents vehicle under the insurance
policy under paragraph 4 of Exceptions to Section III, since the same refers only to
malicious damage, or more specifically, injury to the motor vehicle caused by a person
under the insureds service. Paragraph 4 clearly does not contemplate loss of property, as
what happened in the instant case.
Further, the CA aptly ruled that malicious damage, as provided for in the subject policy as
one of the exceptions from coverage, is the damage that is the direct result from the
deliberate or willful act of the insured, members of his family, and any person in the
insureds service, whose clear plan or purpose was to cause damage to the insured vehicle
for purposes of defrauding the insurer, viz.:

This interpretation by the Court is bolstered by the observation that the subject policy
appears to clearly delineate between the terms loss and damage by using both terms
throughout the said policy. x x x

xxxx

If the intention of the defendant-appellant was to include the term loss within the term
damage then logic dictates that it should have used the term damage alone in the entire
policy or otherwise included a clear definition of the said term as part of the provisions of
the said insurance contract. Which is why the Court finds it puzzling that in the said policys
provision detailing the exceptions to the policys coverage in Section III thereof, which is one
of the crucial parts in the insurance contract, the insurer, after liberally using the words
loss and damage in the entire policy, suddenly went specific by using the word damage
only in the policys exception regarding malicious damage. Now, the defendant-appellant
would like this Court to believe that it really intended the word damage in the term
malicious damage to include the theft of the insured vehicle.

The Court does not find the particular contention to be well taken.

True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be
construed according to the sense and meaning of the terms which the parties thereto have
used. In the case of property insurance policies, the evident intention of the contracting
parties, i.e., the insurer and the assured, determine the import of the various terms and
provisions embodied in the policy. However, when the terms of the insurance policy are
ambiguous, equivocal or uncertain, such that the parties themselves disagree
about the meaning of particular provisions, the policy will be construed by the
courts liberally in favor of the assured and strictly against the insurer. 10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the
insurance contract contain limitations on liability, courts should construe them in such a way
as to preclude the insurer from non-compliance with his obligation. Thus, in Eternal Gardens
Memorial Park Corporation v. Philippine American Life Insurance Company, 11 this Court
ruled

It must be remembered that an insurance contract is a contract of adhesion which must be

construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latters interest. Thus, in Malayan Insurance Corporation v. Court of Appeals,
this Court held that:

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

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we
reiterated the above ruling, stating that:

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

WHEREFORE, premises considered, the instant Petition for Review

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

SO ORDERED.

MALAYAN INSURANCE
COMPANY, INC., Petitioner,
- Versus -
PAP CO., LTD. (PHIL. BRANCH), Respondent.
G.R. No. 200784 | 2013-08-07

THIRD DIVISION

DECISION

MENDOZA, J.:

the Rules of Court is

Challenged in this petition for review on certiorari under Rule 45 of
the October 27, 2011 Decision 1 of the Court of Appeals (CA), which
affirmed with modification the September 17, 2009 Decision 2 of the
Regional Trial Court, Branch 15, Manila (RTC), and its February 24, 2012
Resolution 3 denying the motion for reconsideration tiled by
petitioner Malayan Insurance Company, Inc. (Malayan).

The Facts

The undisputed factual antecedents were succinctly summarized by the CA as follows:

issued Fire Insurance Policy

On May 13, 1996, Malayan Insurance Company (Malayan)
No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the latters machineries
and equipment located at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block
15, PEZA, Rosario, Cavite (Sanyo Building). The insurance, which was
for Fifteen Million Pesos (P15,000,000.00) and effective for a period of one
(1) year, was procured by PAP Co. for Rizal Commercial Banking Corporation
(RCBC), the mortgagee of the insured machineries and equipment.

After the passage of almost a year but prior to the expiration of the
insurance coverage, PAP Co. renewed the policy on an as is basis. Pursuant
thereto, a renewal policy, Fire Insurance Policy No. F00227000079, was
issued by Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998.

On October 12, 1997 and during the subsistence of the renewal policy, the
insured machineries and equipment were totally lost by fire. Hence, PAP Co.
filed a fire insurance claim with Malayan in the amount insured.

In a letter, dated December 15, 1997, Malayan denied the claim upon the
ground that, at the time of the loss, the insured machineries and equipment
were transferred by PAP Co. to a location different from that indicated in the
policy. Specifically, that the insured machineries were transferred in
September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14,
Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the
denial, PAP Co. argued that Malayan cannot avoid liability as it was informed
of the transfer by RCBC, the party dutybound to relay such information.
However, Malayan reiterated its denial of PAP Co.s claim. Distraught, PAP Co.
filed the complaint below against Malayan. 4

Ruling of the RTC

Malayan to pay
On September 17, 2009, the RTC handed down its decision, ordering
PAP Company Ltd (PAP) an indemnity for the loss under the fire insurance
policy as well as for attorneys fees. The dispositive portion of the RTC
decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff. Defendant is hereby ordered:

PESOS (P15,000,000.00) as and for

a) To pay plaintiff the sum of FIFTEEN MILLION
indemnity for the loss under the fire insurance policy, plus interest thereon
at the rate of 12% per annum from the time of loss on October 12, 1997
until fully paid;

b) To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS

(PhP500,000.00) as and by way of attorneys fees; [and,]

c) To pay the costs of suit.

SO ORDERED. 5

loss under the subject

The RTC explained that Malayan is liable to indemnify PAP for the
fire insurance policy because, although there was a change in the condition
of the thing insured as a result of the transfer of the subject machineries to
another location, said insurance company failed to show proof that such
transfer resulted in the increase of the risk insured against. In the absence
of proof that the alteration of the thing insured increased the risk, the
contract of fire insurance is not affected per Article 169 of the Insurance
Code.

Banking Corporation
The RTC further stated that PAPs notice to Rizal Commercial
(RCBC) sufficiently complied with the notice requirement under the policy
considering that it was RCBC which procured the insurance. PAP acted in
good faith in notifying RCBC about the transfer and the latter even
conducted an inspection of the machinery in its new location.

basically arguing that the

Not contented, Malayan appealed the RTC decision to the CA
trial court erred in ordering it to indemnify PAP for the loss of the subject
machineries since the latter, without notice and/or consent, transferred the
same to a location different from that indicated in the fire insurance policy.

Ruling of the CA

affirmed the RTC

On October 27, 2011, the CA rendered the assailed decision which
decision but deleted the attorneys fees. The decretal portion of the CA
decision reads:

WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan

Insurance Company must indemnify PAP Co. Ltd the amount of Fifteen
Million Pesos (PhP15,000,000.00) for the loss under the fire insurance policy,
plus interest thereon at the rate of 12% per annum from the time of loss on
October 12, 1997 until fully paid. However, the Five Hundred Thousand
Pesos (PhP500,000.00) awarded to PAP Co., Ltd. as attorneys fees
is DELETED. With costs.

SO ORDERED. 6

prohibition on the
The CA wrote that Malayan failed to show proof that there was a
transfer of the insured properties during the efficacy of the insurance policy.
Malayan also failed to show that its contractual consent was needed before
carrying out a transfer of the insured properties. Despite its bare claim that
the original and the renewed insurance policies contained provisions on
transfer limitations of the insured properties, Malayan never cited the
specific provisions.

transfer restrictions of
The CA further stated that even if there was such a provision on
the insured properties, still Malayan could not escape liability because the
transfer was made during the subsistence of the original policy, not the
renewal policy. PAP transferred the insured properties from the Sanyo
Factory to the Pace Pacific Building (Pace Factory) sometime in September
1996. Therefore, Malayan was aware or should have been aware of such
transfer when it issued the renewal policy on May 14, 1997. The CA opined
that since an insurance policy was a contract of adhesion, any ambiguity must be
resolved against the party that prepared the contract, which, in this case,
was Malayan.

the insured
Finally, the CA added that Malayan failed to show that the transfer of
properties increased the risk of the loss. It, thus, could not use such transfer
as an excuse for not paying the indemnity to PAP. Although the insurance
proceeds were payable to RCBC, PAP could still sue Malayan to enforce its
rights on the policy because it remained a party to the insurance contract.

Not in conformity with the CA decision, Malayan filed this petition for review anchored
on the following

GROUNDS

MANNER NOT IN
THE COURT OF APPEALS HAS DECIDED THE CASE IN A
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE
HONORABLE COURT WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT AND THUS RULING IN THE QUESTIONED DECISION
AND RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER
THE INSURANCE CONTRACT BECAUSE:
A. CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS,
PETITIONER MALAYAN WAS ABLE TO PROVE AND IT IS NOT DENIED,
THAT ON THE FACE OF THE RENEWAL POLICY ISSUED TO
RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR
A REPRESENTATION MADE BY THE INSURED THAT THE LOCATION
OF THE RISK WAS AT THE SANYO BUILDING. IT IS LIKEWISE
UNDISPUTED THAT WHEN THE RENEWAL POLICY WAS ISSUED TO
RESPONDENT PAP CO., THE INSURED PROPERTIES WERE NOT AT
THE SANYO BUILDING BUT WERE AT A DIFFERENT LOCATION, THAT
IS, AT THE PACE FACTORY AND IT WAS IN THIS DIFFERENT
LOCATION WHEN THE LOSS INSURED AGAINST OCCURRED. THESE
SET OF UNDISPUTED FACTS, BY ITSELF ALREADY
ENTITLES PETITIONER MALAYAN TO CONSIDER THE
RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW, BECAUSE OF
CONCEALMENT, MISREPRESENTATION AND BREACH OF AN
AFFIRMATIVE WARRANTY UNDER SECTIONS 27, 45 AND 74 IN
RELATION TO SECTION 31 OF THE INSURANCE CODE,
RESPECTIVELY.

B. RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID

NOT COMMIT CONCEALMENT, MISREPRESENTATION OR BREACH OF
AN AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE THAT
IT INFORMED PETITIONER MALAYAN THAT THE
INSURED PROPERTIES HAD BEEN TRANSFERRED TO A
LOCATION DIFFERENT FROM WHAT WAS INDICATED IN
THE INSURANCE POLICY.

C. IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT

THERE ARE CONDITIONS AND LIMITATIONS TO THE RENEWAL
POLICY WHICH ARE THE REASONS WHY ITS CLAIM WAS DENIED IN
THE FIRST PLACE. IN FACT, THE BEST PROOF THAT RESPONDENT
PAP CO. RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE
FACT THAT ITS ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL
ASSERTION THAT IT SUPPOSEDLY NOTIFIED PETITIONER MALAYAN
OF THE TRANSFER AS REQUIRED BY THE INSURANCE POLICY.

D. MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT

THERE WAS AN INCREASE IN RISK BECAUSE OF THE UNILATERAL
TRANSFER OF THE INSURED PROPERTIES. IN FACT, THIS PIECE
OF EVIDENCE WAS UNREBUTTED BY RESPONDENT PAP CO.

II
 NOT APPLY, THE LAW
THE COURT OF APPEALS DEPARTED FROM, AND DID
AND ESTABLISHED DECISIONS OF THE HONORABLE COURT WHEN IT
IMPOSED INTEREST AT THE RATE OF TWELVE PERCENT
(12%) INTEREST FROM THE TIME OF THE LOSS UNTIL FULLY PAID.

A. JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE

POLICY IS NOT A LOAN OR FORBEARANCE OF MONEY FROM WHICH
A BREACH ENTITLES A PLAINTIFF TO AN AWARD OF INTEREST AT
THE RATE OF TWELVE PERCENT (12%) PER ANNUM.

B. MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE

CODE SHOULD NOT HAVE BEEN APPLIED BY THE COURT OF APPEALS
BECAUSE THERE WAS NEVER ANY FINDING THAT PETITIONER
MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD THE PROCEEDS
OF THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE
WAS A LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON
WHETHER RESPONDENT PAP CO. COMMITTED
CONCEALMENT, MISREPRESENTATION AND BREACH OF
AN AFFIRMATIVE WARRANTY WHICH ENTITLES PETITIONER
MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO
CONSIDER THE CLAIM AS VOIDED.

III

IN A MANNER NOT IN
THE COURT OF APPEALS HAS DECIDED THE CASE
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE
HONORABLE COURT WHEN IT AGREED WITH THE TRIAL COURT AND
HELD IN THE QUESTIONED DECISION THAT THE PROCEEDS OF THE
INSURANCE CONTRACT IS PAYABLE TO RESPONDENT PAP CO.
DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE
INSURANCE POLICY.

IV

FROM ESTABLISHED LAW

THE COURT OF APPEALS ERRED AND DEPARTED
AND JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED
DECISION AND RESOLUTION THAT THE INTERPRETATION MOST
FAVORABLE TO THE INSURED SHALL BE ADOPTED. 7

insurance contract
Malayan basically argues that it cannot be held liable under the
because PAP committed concealment, misrepresentation and breach of an
affirmative warranty under the renewal policy when it transferred the
location of the insured properties without informing it. Such transfer affected
the correct estimation of the risk which should have enabled Malayan to decide
whether it was willing to assume such risk and, if so, at what rate of
premium. The transfer also affected Malayans ability to control the risk by
guarding against the increase of the risk brought about by the change in
conditions, specifically the change in the location of the risk.

Section 27 of the
Malayan claims that PAP concealed a material fact in violation of
Insurance Code 8 when it did not inform Malayan of the actual and new
location of the insured properties. In fact, before the issuance of the renewal
policy on May 14, 1997, PAP even informed it that there would be no
changes in the renewal policy. Malayan also argues that PAP is guilty of
breach of warranty under the renewal policy in violation of Section 74 of the
Insurance Code 9 when, contrary to its affirmation in the renewal policy that
the insured properties were located at the Sanyo Factory, these were already
transferred to the Pace Factory. Malayan adds that PAP is guilty of
misrepresentation upon a material fact in violation of Section 45 of the
Insurance Code 10 when it informed Malayan that there would be
no changes in the original policy, and that the original policy would be
renewed on an as is basis.

proving that the

Malayan further argues that PAP failed to discharge the burden of
transfer of the insured properties under the insurance policy was with its
knowledge and consent. Granting that PAP informed RCBC of the transfer or
change of location of the insured properties, the same is irrelevant and does
not bind Malayan considering that RCBC is a corporation vested with
separate and distinct juridical personality. Malayan did not consent to be the
principal of RCBC. RCBC did not also act as Malayans representative.

is evidence of an
With regard to the alleged increase of risk, Malayan insists that there
increase in risk as a result of the unilateral transfer of the insured properties.
According to Malayan, the Sanyo Factory was occupied as a factory of
automotive/computer parts by the assured and factory of zinc & aluminum
die cast and plastic gear for copy machine by Sanyo Precision Phils., Inc.
with a rate of 0.449% under 6.1.2 A, while Pace Factory was occupied as
factory that repacked silicone sealant to plastic cylinders with a rate of
0.657% under 6.1.2 A.

PAP s position

misrepresentation,
On the other hand, PAP counters that there is no evidence of any
concealment or deception on its part and that its claim is not fraudulent. It
insists that it can still sue to protect its rights and interest on the policy
notwithstanding the fact that the proceeds of the same was payable to
RCBC, and that it can collect interest at the rate of 12% per annum on the
proceeds of the policy because its claim for indemnity was unduly delayed
without legal justification.
 The Courts Ruling

The Court agrees with the position of Malayan that it cannot be held liable for the loss of
the insured properties under the fire insurance policy.

13, 1996, PAP

As can be gleaned from the pleadings, it is not disputed that on May
obtained a P15,000,000.00 fire insurance policy from Malayan covering its
machineries and equipment effective for one (1) year or until May 13, 1997;
that the policy expressly stated that the insured properties were located at
Sanyo Precision Phils. Building, Phase 111, Lots 4 & 6, Block 15, EPZA,
Rosario, Cavite; that before its expiration, the policy was renewed 11 on an
as is basis for another year or until May 13, 1998; that the subject
properties were later transferred to the Pace Factory also in PEZA; and that
on October 12, 1997, during the effectivity of the renewal policy, a fire broke
out at the Pace Factory which totally burned the insured properties.

The policy forbade the removal

of the insured properties unless
sanctioned by Malayan

Condition No. 9(c) of the renewal policy provides:

ceases to attach as regards

9. Under any of the following circumstances the insurance
the property affected unless the insured, before the occurrence of any loss
or damage, obtains the sanction of the company signified by endorsement
upon the policy, by or on behalf of the Company:

XXXX XXXX XXXX

(c) If property insured be removed to any building or place other than in that
which is herein stated to be insured. 12

the removal of the

Evidently, by the clear and express condition in the renewal policy,
insured property to any building or place required the consent of Malayan.
Any transfer effected by the insured, without the insurers consent, would
free the latter from any liability.

The respondent failed to notify, and

to obtain the consent of, Malayan
regarding the removal

Malayan was
The records are bereft of any convincing and concrete evidence that
notified of the transfer of the insured properties from the Sanyo factory to
the Pace factory. The Court has combed the records and found nothing that
would show that Malayan was duly notified of the transfer of the insured
properties.

relayed the fact of

What PAP did to prove that Malayan was notified was to show that it
transfer to RCBC, the entity which made the referral and the named
beneficiary in the policy. Malayan and RCBC might have been sister
companies, but such fact did not make one an agent of the other. The fact
that RCBC referred PAP to Malayan did not clothe it with authority
to represent and bind the said insurance company. After the referral, PAP
dealt directly with Malayan. The respondent overlooked the fact that during
the November 9, 2006 hearing, 13 its counsel stipulated in open court that it
was Malayans authorized insurance agent, Rodolfo Talusan, who procured
the original policy from Malayan, not RCBC. This was the reason why
Talusans testimony was dispensed with.

PAPs hostile witness,

Moreover, in the previous hearing held on November 17, 2005, 14
Alexander Barrera, Administrative Assistant of Malayan, testified that he was
the one who procured Malayans renewal policy, not RCBC, and that RCBC
merely referred fire insurance clients to Malayan. He stressed, however, that
no written referral agreement exists between RCBC and Malayan. He also
denied that PAP notified Malayan about the transfer before the renewal
policy was issued. He added that PAP, through Maricar Jardiniano
(Jardiniano), informed him that the fire insurance would be renewed on an
as is basis. 15

claim that it notified

Granting that any notice to RCBC was binding on Malayan, PAPs
RCBC and Malayan was not indubitably established. At best, PAP could only
come up with the hearsay testimony of its principal witness, Branch Manager
Katsumi Yoneda (Mr. Yoneda), who testified as follows:

Q What did you do as Branch Manager of Pap Co. Ltd.?

equipment was bank loan
A What I did I instructed my Secretary, because these
and because of the insurance I told my secretary to notify.

Q To notify whom?
A I told my Secretary to inform the bank.

Q You are referring to RCBC?

A Yes, sir.

xxxx

did you do regarding

Q After the RCBC was informed in the manner you stated, what
the new location of these properties at Pace Pacific Bldg. insofar as Malayan
Insurance Company is concerned?
 of the equipment and
A After that transfer, we informed the RCBC about the transfer
also Malayan Insurance but we were not able to contact Malayan
Insurance so I instructed again my secretary to inform Malayan about
the transfer.

Q Who was the secretary you instructed to contact Malayan Insurance, the defendant
in this case?
A Dory Ramos.

Q How many secretaries do you have at that time in your office?

A Only one, sir.

Q Do you know a certain Maricar Jardiniano?

A Yes, sir.

Q Why do you know her?

A Because she is my secretary.

Q So how many secretaries did you have at that time?

A Two, sir.

Q What happened with the instruction that you gave to your secretary Dory
Ramos about the matter of informing the defendant Malayan Insurance Co of
the new location of the insured properties?
A She informed me that the notification was already given to Malayan
Insurance.

Q Aside from what she told you how did you know that the information was
properly relayed by the said secretary, Dory Ramos, to Malayan Insurance?
A I asked her, Dory Ramos, did you inform Malayan Insurance and she said
yes, sir.

Q Now after you were told by your secretary, Dory Ramos, that she was able
to inform Malayan Insurance Company about the transfer of the properties
insured to the new location, do you know what happened insofar this
information was given to the defendant Malayan Insurance?
A I heard that someone from Malayan Insurance came over to our
company.

Q Did you come to know who was that person who came to your place at
Pace Pacific?
A I do not know, sir.
Q How did you know that this person from Malayan Insurance came to your
place?
A It is according to the report given to me.

Q Who gave that report to you?

A Dory Ramos.

Q Was that report in writing or verbally done?

A Verbal. 16 [Emphases supplied]

obviously had no
The testimony of Mr. Yoneda consisted of hearsay matters. He
personal knowledge of the notice to either Malayan or RCBC. PAP should
have presented his secretaries, Dory Ramos and Maricar Jardiniano, at the
witness stand. His testimony alone was unreliable.

that the insured

Moreover, the Court takes note of the fact that Mr. Yoneda admitted
properties were transferred to a different location only after the renewal of
the fire insurance policy.

COURT

Q When did you transfer the machineries and equipments before the renewal or after
the renewal of the insurance?

A After the renewal.

COURT

Q You understand my question?

A Yes, Your Honor. 17 [Emphasis supplied]

This enfeebles PAPs position that the subject properties were already transferred to the
Pace factory before the policy was renewed.

The transfer from the Sanyo Factory

to the PACE Factory increased the risk.

the transfer of the

The courts below held that even if Malayan was not notified thereof,
insured properties to the Pace Factory was insignificant as it did not increase
the risk.

from the Sanyo

Malayan argues that the change of location of the subject properties
Factory to the Pace Factory increased the hazard to which the insured
properties were exposed. Malayan wrote:
 location, this was occupied as
With regards to the exposure of the risk under the old
factory of automotive/ computer parts by the assured, and factory of zinc &
aluminum die cast, plastic gear for copy machine by Sanyo Precision Phils.,
Inc. with a rate of 0.449% under 6.1.2 A. But under Pace Pacific Mfg.
Corporation this was occupied as factory that repacks silicone sealant to
plastic cylinders with a rate of 0.657% under 6.1.2 A. Hence, there was
an increase in the hazard as indicated by the increase in rate. 18

The Court agrees with Malayan that the transfer to the Pace Factory exposed
the properties to a hazardous environment and negatively affected the fire
rating stated in the renewal policy. The increase in tariff rate from 0.449% to
0.657% put the subject properties at a greater risk of loss. Such increase in
risk would necessarily entail an increase in the premium payment on the fire
policy.

crucial point. Despite

Unfortunately, PAP chose to remain completely silent on this very
the importance of the issue, PAP failed to refute Malayans argument on the
increased risk.

Malayan is entitled to rescind

the insurance contract

it follows that the

Considering that the original policy was renewed on an as is basis,
renewal policy carried with it the same stipulations and limitations. The
terms and conditions in the renewal policy provided, among others, that the
location of the risk insured against is at the Sanyo factory in PEZA. The
subject insured properties, however, were totally burned at the Pace Factory.
Although it was also located in PEZA, Pace Factory was not the location
stipulated in the renewal policy. There being an unconsented removal, the
transfer was at PAPs own risk. Consequently, it must suffer the
consequences of the fire. Thus, the Court agrees with the report
of Cunningham Toplis Philippines, Inc., an international loss adjuster
which investigated the fire incident at the Pace Factory, which opined that
[g]iven that the location of risk covered under the policy is not the location
affected, the policy will, therefore, not respond to this loss/claim. 19

It can also be said that with the transfer of the location of the
subject properties,
without notice and without Malayans consent,
after the renewal of the policy, PAP clearly committed
concealment, misrepresentation and a breach of a material warranty. Section
26 of the Insurance Code provides:

Section 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to
rescind a contract of insurance.

Moreover, under Section 168 of the Insurance Code, the insurer is entitled to
rescind the insurance contract in case of an alteration in the use or condition
of the thing insured. Section 168 of the Insurance Code provides, as follows:

insured from that to which

Section 68. An alteration in the use or condition of a thing
it is limited by the policy made without the consent of the insurer, by means
within the control of the insured, and increasing the risks, entitles an insurer
to rescind a contract of fire insurance.

Accordingly, an insurer can exercise its right to rescind an insurance contract when the
following conditions are present, to wit:

1) the policy limits the use or condition ofthe thing insured;

2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insureds control; and
5) the alteration increases the risk of loss. 20

established that
In the case at bench, all these circumstances are present. It was clearly
the renewal policy stipulated that the insured properties were located at the
Sanyo factory; that PAP removed the properties without the consent of
Malayan; and that the alteration of the location increased the risk of loss.

WHEREFORE, the October 27, 2011 Decision of Appeals is

the Court of
hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance Company,
Inc. is hereby declared NOT liable for the loss of the insured machineries
and equipment suffered by PAP Co., Ltd.

SO ORDERED.