Verendia v.

Court of Appeals
G. R. No. 75605, 22 January 1993
217 SCRA 417

Facts:
Fidelity & Surety Co. of the Philippines issued a fire insurance policy covering Rafael Verendia's residential
building located at Antipolo, Rizal, in the amount of P385,000.00, in which he designated Monte de Piedad
& Savings Bank as his beneficiary. He also insured his building with 2 other companies, the Country
Bankers Insurance and Development Insurance. While the 3 policies were in force, his building was
destroyed by fire, and despite his demands to claim his proceeds, the insurance company refused
payment, which led to Verendia to file a case against Fidelity. The trial court ruled in favor of Fidelity, in
which the CA reversed the prior decision.

Issue:
Whether or not Verendia can avail the proceeds of the insurance policy.

Held:
No.
Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking
Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure of
the insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery
from the insurer (Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991], citing Perla
Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it is also a contract of
adhesion, an insurance contract should be liberally construed in favor of the insured and strictly against the
insurer company which usually prepares it (Western Guaranty Corporation vs. Court of Appeals, 187 SCRA
652 [1980]).

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease
contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be
strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically Section
13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the policy
shall be forfeited "If the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in his
behalf to obtain any benefit under the policy". Verendia, having presented a false declaration to support his
claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue of
Section 13 of the policy in the absence of proof that Fidelity waived such provision (Pacific Banking
Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false lease contract, Verendia,
reprehensibly disregarded the principle that insurance contracts are uberrimaefidae and demand the most
abundant good faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).

Gulf Resort Inc. v. Philippine Charter Insurance Corporation

G. R. No. 155167, 16 May 2005
458 SCRA 550

Facts:
Gulf Resorts availed of four insurance policies from American Home Assurance Company (AHAC-AIU),
which includes earthquake shock endorsement rider, which will cover all damages to the properties
destroyed by earthquake. It includes at first up to the two swimming pools of the resort, then later on
extended up to their properties, issued through another insurance policy, provided that the policy wording
and rates in the prior policies be copied to the policy to be issued to the resort. However, on 16 July 1990,
an earthquake struck Central and Northern Luzon in which the resort was among the ones destroyed,
particularly the one in Agoo Playa Resort. After the earthquake, Gulf Resort filed its claim for settlement of
the damage of its properties in Agoo Playa, however they failed to arrive at a settlement leading to the filing
of a case against PCIC. The trial court ruled in favor of PCIC, which was affirmed by the CA.

Issue:
Whether or not there is a payable premium in the insurance policy.

Held:
No.
It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance
with each other. All its parts are reflective of the true intent of the parties. The policy cannot be construed
piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words
or phrases necessarily determine its character. Petitioner cannot focus on the earthquake shock
endorsement to the exclusion of the other provisions. All the provisions and riders, taken and interpreted
together, indubitably show the intention of the parties to extend earthquake shock coverage to the two
swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent of the parties to
extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code
defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. Thus, an insurance
contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk; and

5. In consideration of the insurer's promise, the insured pays a premium. (Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against
a specified peril. In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as
the risk attaches. In the subject policy, no premium payments were made with regard to earthquake shock
coverage, except on the two swimming pools. There is no mention of any premium payable for the other
resort properties with regard to earthquake shock. This is consistent with the history of petitioners previous
insurance policies from AHAC-AIU.

Philamcare Health Systems v. Court of Appeals

G. R. No. 125678, 18 March 2002
379 SCRA 356

Facts:
ErnaniTrinos, the late husband of JulitaTrinos, applied for a health care coverage with Philamcare and
approved it for one year, which was later renewed every year in two instances. During the period of his
coverage, Ernani suffered a heart attack and was confined to the hospital for 1 month. After being
discharged, he was attended by a physical therapist. Due to his weakening condition, he was rushed again
to the hospital where he died on the same day. Julita filed an action against Philamcare, in which the trial
court ruled in her favor and affirmed by the CA.

Issue:
Whether or not there is assumption of risk on the part of the insured.

Held:
No.
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:

Failure to disclose or misrepresentation of any material information by the member in the application or
medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement
from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid.
An undisclosed or misrepresented information is deemed material if its revelation would have resulted in
the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the
benefit or benefits applied for.

The answer assailed by petitioner was in response to the question relating to the medical history of the
applicant. This largely depends on opinion rather than fact, especially coming from respondent’s husband
who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good
faith and without intent to deceive will not avoid a policy even though they are untrue. Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured
will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at
a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such case the insurer is not justified in relying
upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a
case and one in which the insured is fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown
by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud.15 (Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims
made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches
once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails
of the covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
insurance." The right to rescind should be exercised previous to the commencement of an action on the
contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. 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.

Topic: Right of subrogation

Subtopic: Exceptions

Manila Mahogany Manufacturing Corporation v. Court of Appeals

G. R. No. L-52756, 12 October 1987
154 SCRA 650

Facts:
Manila Mahogany insured its Mercedes Benz 4-door sedan to Zenith Insurance Corporation, which was
bumped and damaged by a truck owned by San Miguel Corporation (SMC), in which later paid Manila
Mahogany P5,000.00 in amicable settlement. Zenith demanded reimbursements from SMC of the amount
paid to Manila Mahogany, but Insurance Adjusters refused since SMC paid Manila Mahogany P4,500.000
for the damages of the latter's vehicle Zenith demanded from Manila Mahogany of the reimbursement but
the latter refused, which led for Zenith to file a case in court against Manila Mahogany. The City Court of
Manila ruled in favor of Zenith ordering Manila Mahogany to pay P4,500.00, which was affirmed by the
Manila CFI.

Issue:
Whether or not Manila Mahogany has the right of subrogation.
Held:
No.
The decision of the respondent court ordering petitioner to pay respondent company, not the P4,500.00 as
originally asked for, but P5,000.00, the amount respondent company paid petitioner as insurance, is also in
accord with law and jurisprudence. In disposing of this issue, the Court of Appeals held:

... petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel Corporation under its clear right to
file a deficiency claim for damages incurred, against the wrongdoer, should the insurance company not fully
pay for the injury caused (Article 2207, New Civil Code). However, when petitioner released San Miguel
Corporation from any liability, petitioner's right to retain the sum of P5,000.00 no longer existed, thereby
entitling private respondent to recover the same. (Emphasis supplied)

As has been observed:

... The right of subrogation can only exist after the insurer has paid the otherwise the insured will be
deprived of his right to full indemnity. If the insurance proceeds are not sufficient to cover the damages
suffered by the insured, then he may sue the party responsible for the damage for the the [sic] remainder.
To the extent of the amount he has already received from the insurer enjoy's [sic] the right of subrogation.

Since the insurer can be subrogated to only such rights as the insured may have, should the insured, after
receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer loses his rights
against the latter. But in such a case, the insurer will be entitled to recover from the insured whatever it has
paid to the latter, unless the release was made with the consent of the insurer. (Emphasis supplied.)

Federal Express Corporation v. American Home Assurance Company

G. R. No. 150094, 18 August 2004
437 SCRA 50

Facts:
Smithkline Beecham of Nebraska, USA, delivered to FedEx through Burlington Air Express, a shipment of
109 cartons of veterinary biologicals to be delivered to a consignee in Makati City, which was insured with
American Home Assurance Company. The packages were turned over to FedEx which were brought to
Manila. The shipments were divided into two: 92 were stored at Cargohaus's warehouse and the other 17
were stored at the same warehouse 2 days later. 12 days later, the cargoes were inspected by a non-
licensed customs broker, and found out that the cargoes were stored in the "cool room" only with 2 air
conditioners running. Instead of withdrawing them, they took a sample and brought it to the Bureau of
Animal Industry and found out that it was below the positive reference serum, in which Smithkline
abandoned the shipment and declared "total loss" then filed an insurance claim with American Home
through Philam Insurance and later on filed a case against FedEx. The trial court ruled in favor of American
Home which the CA affirmed.

Issue:
Whether or not American Home is entitled to subrogation.

Held:
Yes.
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt in
favor of respondents. The latter were thus authorized "to file claims and begin suit against any such carrier,
vessel, person, corporation or government." Undeniably, the consignee had a legal right to receive the
goods in the same condition it was delivered for transport to petitioner. If that right was violated, the
consignee would have a cause of action against the person responsible therefor.

Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the
insurer's entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of action
in case of a contractual breach or negligence. "Further, the insurer's subrogatory right to sue for recovery
under the bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld."
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all intents and
purposes, it stands in the place and in substitution of the consignee. A fortiori, both the insurer and the
consignee are bound by the contractual stipulations under the bill of lading.

Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and Surety Corporation

G. R. Nos. 180880-81, 25 September 2009
601 SCRA 96

Facts:
Keppel Cebu and WG&A executed a shiprepair agreement wherein Keppel would renovate and reconstruct
Super Ferry 3 using their facilities pursuant to its rules and regulations. Prior to that, it was already insured
with Pioneer. However, during one of its repairs, Super Ferry 3 was caught on fire in which WG&A declared
it as a "total constructive loss," and eventually filed an insurance claim with Pioneer, which issued a loss
and subrogation receipt. Pioneer tried to collect from Keppel but the latter denied any responsibility from
the loss of Super Ferry 3. Despite demands, Keppel refused, tus, the filing of the case by Pioneer with the
CIAC, which by amicable settlement, it was dismissed, but later the action commenced, holding WG&A and
Keppel guilty of negligence, which was reversed by the CA, but partially granted its motion for
reconsideration.

Issue:
Whether or not Keppel can be subrogated.

Held:
No.
On the matter of subrogation, Article 2207 of the Civil Code provides—

Art. 2207. If the plaintiff’s property has been insured and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he
who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or
securities. The principle covers a situation wherein an insurer has paid a loss under an insurance policy is
entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes
of the creditor, and he may use all means that the creditor could employ to enforce payment.

We have held that payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies that the insured may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of
subrogation has its roots in equity. It is designed to promote and to accomplish justice; and is the mode that
equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good
conscience, ought to pay.

We cannot accept KCSI’s insistence on upholding the validity Clause 20, which provides that the limit of its
liability is only up to P50,000,000.00; nor of Clause 22(a), that KCSI stands as a co-assured in the
insurance policies, as found in the Shiprepair Agreement.

Malayan Insurance Co., Inc. v. Alberto

G. R. No. 194320, 1 February 2012
644 SCRA 791

Facts:
Malayan Insurance issued a car insurance policy to First Malayan Leasing and Finance Corporation,
insuring the Mitsubishi Galant, which was involved in a vehicular accident at EDSA Ayala in Makati City.
Malayan paid the insured company in the amount of P700,000.00, and demanding his driver to pay the
insured company of the amount paid to the latter, but Alberto refused, leading to the filing of the case
against the latter by Malayan. The trial court ruled in favor of Malayan, which was reversed by the CA.

Issue:
Whether or not there can be subrogation.

Held:
Yes.
Bearing in mind that the claim check voucher and the Release of Claim and Subrogation Receipt presented
by Malayan Insurance are already part of the evidence on record, and since it is not disputed that the
insurance company, indeed, paid PhP 700,000 to the assured, then there is a valid subrogation in the case
at bar. As explained in Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and Surety Corporation:

Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he
who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or
securities. The principle covers a situation wherein an insurer has paid a loss under an insurance policy is
entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes
of the creditor, and he may use all means that the creditor could employ to enforce payment.

We have held that payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies that the insured may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of
subrogation has its roots in equity. It is designed to promote and to accomplish justice; and is the mode that
equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good
conscience, ought to pay.

Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to the rights of the
assured.

Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corporation

G. R. No. 185964, 16 June 2014
726 SCRA 415

Facts:
3,000 bags of sodium tripolyphosphate were loaded and received on board a vessel owned by China
Ocean Shipping to Grand Asian Sales, Inc. (GASI), in which the vessel was insured with First Lepanto
under a marine open policy. The shipment arrived and brought under the custody of Asian Terminals, Inc.,
until withdrawn by Proven Customs Brokerage Corporation to be delivered to GASI. Upon receipt of the
shipment, it was found out that it incurred shortages considering it as a loss or damage. GASI tried to
recompense from China Ocean but it was denied, followed by its filing of claim with First Lepanto, paying it
P165,772.40 as indemnity. First Lepanto tried to reimburse the amount paid to China Ocean, Asian
Terminals, Proven and Smith Bell but was ignored, thus, an action was filed against them. The MeTC ruled
that Asian Terminals and Proven were absolved from liability, but only China Ocean is liable, but was
reversed by the RTC, making all of them liable,which was affirmed by the CA.

Issue:
Whether or not Asian Terminals can be subrogated.

Held:
No.
The fact that the CA took cognizance of and resolved the said issue did not cure or ratify ATI’s faux pas.
"[A] judgment that goes beyond the issues and purports to adjudicate something on which the court did not
hear the parties, is not only irregular but also extrajudicial and invalid." Thus, for resolving an issue not
framed during the pre-trial and on which the parties were not heard during the trial, that portion of the CA’s
judgment discussing the necessity of presenting an insurance contract was erroneous.

At any rate, the non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s right to collect
reimbursement as the subrogee of GASI.

"Subrogation is the substitution of one person in the place of another with reference to a lawful claim or
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities." The right of subrogation springs from Article 2207 of the Civil Code
which states:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrong-doer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may
recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right.

Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by declaring
that a marine insurance policy is dispensable evidence in reimbursement claims instituted by the insurer.

Based on the attendant facts of the instant case, the application of the exception is warranted. It is already
settled that the loss/damage to the GASI’s shipment occurred while they were in ATI’s custody, possession
and control as arrastre operator. Verily, the Certificate of Insurance and the Release of Claim presented as
evidence sufficiently established FIRST LEPANTO’s right to collect reimbursement as the subrogee of the
consignee, GASI.

With ATI’s liability having been positively established, to strictly require the presentation of the insurance
contract will run counter to the principle of equity upon which the doctrine of subrogation is premised.
Subrogation is designed to promote and to accomplish justice and is the mode which equity adopts to
compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay.

The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the
remedies which the insured may have against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or upon
payment by the insurance company of the insurance claim. It accrues simply upon payment by the
insurance company of the insurance claim.

II. Contract of Insurance

Topic: Perfection

Subtopic: Cognition theory

Development Bank of the Philippines v. Court of Appeals

G. R. No. 100937, 21 March 1994
231 SCRA 370

Facts:
Juan Dans, together with his family applied for a loan with DBP but only P300,000.00 was approved after
obtaining a mortgage redemption insurance (MRI). From the proceeds of the loan, DBP deducted
P1,476.00 as payment for the MRI premium. Later, Dans died of cardiac arrest. The DBP MRI Pool
informed DBP that Dans was not eligible for the MRI coverage, being over the age of 60 at the time of
application. DBP offered Dans' wife a refund from the MRI premium and the P300,000.00 settlement but
she refused. She filed a case for sum of money against DBP, in which the trial court ruled in favor of Dans,
and affirmed by the CA.

Issue:
Whether or not there was a perfected contract of insurance.

Held:
No.
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP MRI Pool"
(Exh. "5-Bank") with the following declaration:

I hereby declare and agree that all the statements and answers contained herein are true, complete and
correct to the best of my knowledge and belief and form part of my application for insurance. It is
understood and agreed that no insurance coverage shall be effected unless and until this application is
approved and the full premium is paid during my continued good health (Records, p. 40).

Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be
approved by the insurance pool; and (2) when the full premium is paid during the continued good health of
the applicant. These two conditions, being joined conjunctively, must concur.

Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however,
did not approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00,
which DBP credited to its account with full knowledge that it was payment for Dan's premium. There was,
as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a
contract that does not exist.

Enriquez v. Sun Life Assurance Company of Canada

G. R. No. L-15895, 29 November 1920
41 Phil. 269

Facts:
A certain Joaquin Ma.Herrer applied for a life annuity to the Sun Life Assurance Company which was later
on accepted. However, Herrer's lawyer informed Sun Life Manila that Herrer withdrew his application
despite the issuance of the policy. Later on, Herrer passed away. On trial, the parties argued on the fact
that whether Herrer had received notice of acceptance of his application in which the trial court found out
that he never received the said notice.

Issue:
Whether or not there is a perfected contract of insurance.

Held:
No.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be
followed in order that there may be a contract of insurance. On the other hand, the Civil Code, in article
1802, not only describes a contact of life annuity markedly similar to the one we are considering, but in two
other articles, gives strong clues as to the proper disposition of the case. For instance, article 16 of the Civil
Code provides that "In matters which are governed by special laws, any deficiency of the latter shall be
supplied by the provisions of this Code." On the supposition, therefore, which is incontestable, that the
special law on the subject of insurance is deficient in enunciating the principles governing acceptance, the
subject-matter of the Civil code, if there be any, would be controlling. In the Civil Code is found article 1262
providing that "Consent is shown by the concurrence of offer and acceptance with respect to the thing and
the consideration which are to constitute the contract. An acceptance made by letter shall not bind the
person making the offer except from the time it came to his knowledge. The contract, in such case, is
presumed to have been entered into at the place where the offer was made." This latter article is in
opposition to the provisions of article 54 of the Code of Commerce.

The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the
date it came to his knowledge, may not be the best expression of modern commercial usage. Still it must
be admitted that its enforcement avoids uncertainty and tends to security. Not only this, but in order that the
principle may not be taken too lightly, let it be noticed that it is identical with the principles announced by a
considerable number of respectable courts in the United States. The courts who take this view have
expressly held that an acceptance of an offer of insurance not actually or constructively communicated to
the proposer does not make a contract. Only the mailing of acceptance, it has been said, completes the
contract of insurance, as the locus poenitentiae is ended when the acceptance has passed beyond the
control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)

Great Pacific Life Assurance Company v. Court of Appeals

G. R. No. 31845, 30 April 1979
89 SCRA 543

Facts:
Private respondent Ngo Hing applied for a 20-year endowment policy with Great Pacific in the amount of
P50,000.00 on the life of his 1 year old daughter Helen Go, but it was denied because the endowment plan
is not available for minors below 7 years old. However, the branch manager Lapulapu Mondragon tried to
convince Great Pacific to approve the said plan, but unfortunately, Helen Go died of influenza with
complication of bronchopneumonia. Ngo Hing demanded the claiming of proceeds but filed a case in court
instead when it was denied.

Issue:
Whether or not there is a perfected contract of insurance.

Held:
No.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance, like other
contracts, must be assented to by both parties either in person or by their agents ... The contract, to be
binding from the date of the application, must have been a completed contract, one that leaves nothing to
be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect.
There can be no contract of insurance unless the minds of the parties have met in agreement."

We are not impressed with private respondent's contention that failure of petitioner Mondragon to
communicate to him the rejection of the insurance application would not have any adverse effect on the
allegedly perfected temporary contract (Respondent's Brief, pp. 13-14). In this first place, there was no
contract perfected between the parties who had no meeting of their minds. Private respondent, being an
authorized insurance agent of Pacific Life at Cebu branch office, is indubitably aware that said company
does not offer the life insurance applied for. When he filed the insurance application in dispute, private
respondent was, therefore, only taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in question along with his proposal that the
insurance company starts to offer the 20-year endowment insurance plan for children less than seven
years. Nonetheless, the record discloses that Pacific Life had rejected the proposal and recommendation.
Secondly, having an insurable interest on the life of his one-year old daughter, aside from being an
insurance agent and an offense associate of petitioner Mondragon, private respondent Ngo Hing must
have known and followed the progress on the processing of such application and could not pretend
ignorance of the Company's rejection of the 20-year endowment life insurance application.

Topic: Parties to a contract of insurance

Subtopic: Beneficiary

Insular Life Assurance Company, Ltd. v. Ebrado

G. R. No. L-44059, 28 October 1977
80 SCRA 281

Facts:
Buenaventura Ebrado was issued a policy by Insular Life for accidental death in which he designated his
wife as his beneficiary. He died however when he was hit by a falling branch of a tree. His wife Carponia
filed a claim for the proceeds of the policy, although she admitted that they lived together as husband and
wife without the benefit of marriage. Pascualvda. De Ebrado also filed her claim as the widow of the
deceased , insisting her entitlement to the proceeds, not the common-law wife. The trial court held that
Carponia is disqualified from becoming beneficiary of the deceased. She appealed her case to the CA, but
the latter certified it to the Supreme Court.

Issue:
Whether or not a common-law wife can be designated as beneficiary.

Held:
No.
Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the
new Civil Code provides:

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;

2.Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same
action.

In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive
the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil
Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside:
any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of
the person who cannot make the donation. Under American law, a policy of life insurance is considered as
a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect
of a clause designating the beneficiary by rules under which wins are interpreted.

III. Insurable Interest

Topic: Insurable interest in property insurance

Subtopic: Kinds of insurable interest in property

Gaisano Cagayan, Inc. v. Insurance Company of North America

G. R. No. 147839, 8 June 2006
490 SCRA 289

Facts:
Intercapitol Marketing Corporation (IMC) obtained a fire insurance policy from the Insurance Company of
North America, which provided for coverage on "bank debts in connection with ready-made clothing
materials which have been sold or delivered to various customer and dealers of the insured anywhere in
the Philippines." Gaisano Cagayan, being the customer of the products of IMC and Levi Strauss
Philippines, has its establishment, the Gaisano Superstore Complex in Cagayan de Oro City, affected by
fire which destroyed the products of IMC and Levi's, leading them to file their insurance claims with the
Insurance Company of North America, and later on an action for damages against Gaisano, which denied
liability because the fire was caused by a fortuitous event. The RTC dismissed the complaint which was
reversed by the CA.

Issue:
Whether or not the IMC and Levi Strauss Philippines has insurable interest over the goods.

Held:
Yes.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest
is not determined by concept of title, but whether insured has substantial economic interest in the property.

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon,
or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest, it is sufficient that the insured is so situated with reference to
the property that he would be liable to loss should it be injured or destroyed by the peril against which it is
insured. Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the property sold
so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as
where he has a vendor's lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid
accounts appearing in their Books of Account 45 days after the time of the loss covered by the policies.

Topic: Insurable interest in case of mortgaged property

Geagonia v. Court of Appeals
G. R. No. 114427, 6 February 1995
241 SCRA 152

Facts:
Armando Geagonia, the owner of Norman's Mart, obtained a fire insurance policy with the Country Bankers
Insurance Corporation which covered the following: "stock-in-trade consisting principally of dry goods such
as RTWs for men and women wear and other usual to assured's business." Geagonia declared in the
policy that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00, adding his inventory stocks
from 1989 to 1990.

Later on, fire of accidental origin broke out, at a public market, destroying the goods insured by Geagonia.
He filed a claim but it was denied by Country Bankers Insurance Corporation, which was followed by the
filing of an action with the Insurance Commission, which ruled in his favor which was reversed by the Court
of Appeals.

Issue:
Whether or not the loss incurred under the provisions of the policy is considered applicable under the loss
payable clause.

Held:
Yes.
As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be one policy, or each may take out a separate policy covering his
interest, either at the same or at separate times. The mortgagor's insurable interest covers the full value of
the mortgaged property, even though the mortgage debt is equivalent to the full value of the property. The
mortgagee's insurable interest is to the extent of the debt, since the property is relied upon as security
thereof, and in insuring he is not insuring the property but his interest or lien thereon. His insurable interest
is prima facie the value mortgaged and extends only to the amount of the debt, not exceeding the value of
the mortgaged property. Thus, separate insurances covering different insurable interests may be obtained
by the mortgagor and the mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual practice.
The mortgagee may be made the beneficial payee in several ways. He may become the assignee of the
policy with the consent of the insurer; or the mere pledgee without such consent; or the original policy may
contain a mortgage clause; or a rider making the policy payable to the mortgagee "as his interest may
appear" may be attached; or a "standard mortgage clause," containing a collateral independent contract
between the mortgagee and insurer, may be attached; or the policy, though by its terms payable absolutely
to the mortgagor, may have been procured by a mortgagor under a contract duty to insure for the
mortgagee's benefit, in which case the mortgagee acquires an equitable lien upon the proceeds.

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest
may appear, the mortgagee is only a beneficiary under the contract, and recognized as such by the insurer
but not made a party to the contract himself. Hence, any act of the mortgagor which defeats his right will
also defeat the right of the mortgagee. This kind of policy covers only such interest as the mortgagee has at
the issuing of the policy.

On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the
terms of an agreement by which the mortgagor is to pay the premiums upon such insurance. It has been
noted, however, that although the mortgagee is himself the insured, as where he applies for a policy, fully
informs the authorized agent of his interest, pays the premiums, and obtains on the assurance that it
insures him, the policy is in fact in the form used to insure a mortgagor with loss payable clause.

The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage
clause which reads:

Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear
subject to the terms of this policy.

This is clearly a simple loss payable clause, not a standard mortgage clause.

Rizal Commercial Banking Corporation v. Court of Appeals

G. R. No. 128833, 20 April 1998
289 SCRA 292

Facts:
Goyu and Sons applied for credit facilities and accommodations with RCBC Binondo, which was approved,
in addition to the subsequent credit increases, and execution of several mortgages. However, one of the
factories of Goyu was destroyed by fire. Having a fire insurance policy with Malayan Insurance, Goyu filed
its claim for indemnity but it was denied, which led to the filing of the case for specific performance and
damages by Goyu. The RTC ruled in favor of Goyu, which the CA modified the previous decision.

Issue:
Whether or not RCBC as mortgagee, has any right over the insurance policies taken by Goyu, in case of
the occurrence of loss.

Held:
Yes.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same
mortgaged property, such that each one of them may insure the same property for his own sole benefit.
There is no question that GOYU could insure the mortgaged property for its own exclusive benefit. In the
present case, although it appears that GOYU obtained the subject insurance policies naming itself as the
sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity.

It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The
Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in
favor of any particular beneficiary or payee other than the insured had not such named payee or
beneficiary been specifically disclosed by the insured itself. It is also significant that GOYU voluntarily and
purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other
insurance company. Alchester would not have found out that the subject pieces of property were
mortgaged to RCBC had not such information been voluntarily disclosed by GOYU itself. Had it not been
for GOYU, Alchester would not have known of GOYUs intention of obtaining insurance coverage in
compliance with its undertaking in the mortgage contracts with RCBC, and verily, Alchester would not have
endorsed the policies to RCBC had it not been so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of
mortgagor RCBC. The basis and purpose of the doctrine was explained in Philippine National Bank vs.
Court of Appeals (94 SCRA 357 [1979]), to wit:

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and
its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of
one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from
equitable principles and the equities in the case. It is designed to aid the law in the administration of justice
where without its aid injustice might result. It has been applied by this Court wherever and whenever
special circumstances of a case so demand. (p. 368.)

Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain Mr. Yam, she
prepared in quadruplicate on February 11, 1992 the nine endorsement documents for GOYUs nine
insurance policies in favor of RCBC.The original copies of each of these nine endorsement documents
were sent to GOYU, and the others were sent to RCBC and MICO, while the fourth copies were retained
for Alchesters file (tsn, February 23, pp. 7-8). GOYU has not denied having received from Alchester the
originals of these endorsements.

Topic: Assignee in life, property insurance

Cha v. Court of Appeals

G. R. No. 124520, 18 August 1997
277 SCRA 690

Facts:
Spouses Nilo and Stella Cha entered into a lease contract with CKS Development Corporation which under
the contract provides that "the lessee shall not insure against fire the chattels, merchandise, textiles, goods
and effects placed at any stall or store or space in the leased premises without the consent of the lessor,
otherwise, the policy is deemed assigned and transferred to the lessor." The spouses, however insured
against fire their merchandise without the consent of CKS. Before the expiration of the contract, fire broke
out. When CKS learned about the policy, it demanded United Insurance to ask for the proceeds but it
refused to pay, thus, the action against Cha and United. The RTC ruled in favor of CKS which was affirmed
by the Court of Appeals.

Issue:
Whether or not CKS has an insurable interest over the policy.

Held:
No.
It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary
to law, morals, good customs, public order or public policy.

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some
person having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable
interest in property insured is based on sound public policy: to prevent a person from taking out an
insurance policy on property upon which he has no insurable interest and collecting the proceeds of said
policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is
void under Section 25 of the Insurance Code, which provides:

SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured
has or has not any interest in the property insured, or that the policy shall be received as proof of such
interest, and every policy executed by way of gaming or wagering, is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise
inside the leased premises under the provisions of Section 17 of the Insurance Code which provide.

Section 17. The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof."

Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the
fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over
said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to
CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or
public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and
Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the
fire insurance policy to a person (CKS) who has no insurable interest in the property insured.

IV. Devices for ascertaining and controlling risk and loss

Topic: Concealment

Great Pacific Life Assurance Corporation v. Court of Appeals

G. R. No. 113899, 13 October 1999
316 SCRA 678

Facts:
Great Pacific Life Assurance Corporation (Grepalife) entered into a contract of group life insurance with the
Development Bank of the Philippines (DBP), which the former agreed to insure the lives of eligible housing
loan mortgagors of DBP. Dr. Wilfredo Leutero applied for membership in the group life insurance plan, in
which he stated that he has no medical history of any health problem stated in the application form.
Unfortunately, he died due to massive cerebral hemorrhage. DBP filed a claim to Grepalife but it was
denied due to non-disclosure by Dr.Leuterio of his medical condition when he applied for the life insurance
plan, which constitutes concealment. The widow of Dr.Leuterio filed an action for specific performance with
damages against Grepalife. The trial court ruled in favor of the widow, which was affirmed by the Court of
Appeals.

Issue:
Whether or not there was concealment on the part of Dr.Leuterio.

Held:
No.
The question of whether there was concealment was aptly answered by the appellate court, thus:

The insured, Dr.Leuterio, had answered in his insurance application that he was in good health and that he
had not consulted a doctor or any of the enumerated ailments, including hypertension; when he died the
attending physician had certified in the death certificate that the former died of cerebral hemorrhage,
probably secondary to hypertension. From this report, the appellant insurance company refused to pay the
insurance claim. Appellant alleged that the insured had concealed the fact that he had hypertension.

Contrary to appellants allegations, there was no sufficient proof that the insured had suffered from
hypertension. Aside from the statement of the insureds widow who was not even sure if the medicines
taken by Dr.Leuterio were for hypertension, the appellant had not proven nor produced any witness who
could attest to Dr.Leuterios medical history...

x xx

Appellant insurance company had failed to establish that there was concealment made by the insured,
hence, it cannot refuse payment of the claim.

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. In the case
at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay
the proceeds of the insurance.

Sunlife Assurance Company of Canada v. Court of Appeals

G. R. No. 105135, 22 June 1995
245 SCRA 268

Facts:
Robert John Bacani procured a life insurance contract for himself from Sunlife Assurance Company of
Canada, in which he assigned his mother Bernarda Bacani. However, Bacani died in the a plane crash in
which his mother filed a claim with Sunlife but it was denited due to non-disclosure of material facts by
Bacani, which is his diagnosis of renal failure, rendering the contract voidable. Bacani's mother filed a case
for specific performance against Sunlife, in which the trial court rendered judgment in favor of Bacani which
was affirmed by the Court of Appeals.

Issue:
Whether or not there is concealment on the part of Bacani.

Held:
Yes.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to communicate
to the other, in good faith, all facts within his knowledge which are material to the contract and as to which
he makes no warranty, and which the other has no means of ascertaining. Said Section provides:

A neglect to communicate that which a party knows and ought to communicate, is called concealment.

Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the
facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the
proposed contract or in making his inquiries (The Insurance Code, Sec. 31).

The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters
relating to his health.

The information which the insured failed to disclose were material and relevant to the approval and
issuance of the insurance policy. The matters concealed would have definitely affected petitioner's action
on his application, either by approving it with the corresponding adjustment for a higher premium or
rejecting the same. Moreover, a disclosure may have warranted a medical examination of the insured by
petitioner in order for it to reasonably assess the risk involved in accepting the application.

In Vda.deCanilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the information
withheld does not depend on the state of mind of the insured. Neither does it depend on the actual or
physical events which ensue.

Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he was
hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about his
bonafides. It appears that such concealment was deliberate on his part.

The argument, that petitioner's waiver of the medical examination of the insured debunks the materiality of
the facts concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine American Life Insurance
Company, 7 SCRA 316 (1963), that " . . . the waiver of a medical examination [in a non-medical insurance
contract] renders even more material the information required of the applicant concerning previous
condition of health and diseases suffered, for such information necessarily constitutes an important factor
which the insurer takes into consideration in deciding whether to issue the policy or not . . . "

Moreover, such argument of private respondents would make Section 27 of the Insurance Code, which
allows the injured party to rescind a contract of insurance where there is concealment, ineffective (See
Vda. de Canilang v. Court of Appeals, supra).

Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well
settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance
policy or in making inquiries (Henson v. The Philippine American Life Insurance Co., 56 O.G. No. 48
[1960]).

We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by reason
of the concealment employed by the insured. It must be emphasized that rescission was exercised within
the two-year contestability period as recognized in Section 48 of The Insurance Code.

Philamcare Health Systems v. Court of Appeals

G. R. No. 125678, 18 March 2002
379 SCRA 356

Facts:
ErnaniTrinos, the late husband of JulitaTrinos, applied for a health care coverage with Philamcare and
approved it for one year, which was later renewed every year in two instances. During the period of his
coverage, Ernani suffered a heart attack and was confined to the hospital for 1 month. After being
discharged, he was attended by a physical therapist. Due to his weakening condition, he was rushed again
to the hospital where he died on the same day. Julita filed an action against Philamcare, in which the trial
court ruled in her favor and affirmed by the CA.

Issue:
Whether or not there is concealment on the part of the insured.

Held:
No.
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims
made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches
once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails
of the covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
insurance." The right to rescind should be exercised previous to the commencement of an action on the
contract. In this case, no rescission was made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. 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.

Vda.deCanilang v. Court of Appeals

G. R. No. 92492, 17 June 1993
223 SCRA 443

Facts:
Jaime Canilang was diagnosed with "sinus tachycardia" and later "acute bronchitis" upon consultation to a
physician. He applied for a "non-medical" insurance policy with Great Pacific Life Assurance Company
(Grepalife), naming his wife Thelma as his beneficiary. Later on, he died of "congestive heart failure,"
anemia" and "chronic anemia." His widow fled a claim with Grepalife but denied on the ground of
concealment. Vda.deCanilang filed a case with the Insurance Commission which ruled in her favor, but it
was reversed by the Court of Appeals.

Issue:
Whether or not there was concealment on the part of Canilang.

Held:
Yes.
We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose was
material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life
insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and medicines prescribed by
such doctor, in the insurance application, it may be reasonably assumed that Great Pacific would have
made further inquiries and would have probably refused to issue a non-medical insurance policy or, at the
very least, required a higher premium for the same coverage. The materiality of the information withheld by
Great Pacific did not depend upon the state of mind of Jaime Canilang. A man's state of mind or subjective
belief is not capable of proof in our judicial process, except through proof of external acts or failure to act
from which inferences as to his subjective belief may be reasonably drawn. Neither does materiality
depend upon the actual or physical events which ensue. Materiality relates rather to the "probable and
reasonable influence of the facts" upon the party to whom the communication should have been made, in
assessing the risk involved in making or omitting to make further inquiries and in accepting the application
for insurance; that "probable and reasonable influence of the facts" concealed must, of course, be
determined objectively, by the judge ultimately.

Topic: Representation

Tan v. Court of Appeals

G. R. No. 48049, 29 June 1989
174 SCRA 403

Facts:
Tan Lee Siong applied for life insurance with the Philamlife Insurance Company. He later died of
hepatoma. His sons filed their claim for the proceeds of the policy, but Philamlife denied the claim due to
the alleged misrepresentation and concealment of material facts made by the deceased insured in his
application for insurance. The premiums were later on refunded. Later on, the sons of Tan Lee Siong filed a
complaint with the Insurance Commission against Philamlife, which dismissed it, and affirmed by the Court
of Appeals.

Issue:
Whether or not the incontestability clause applies to this case.

Held:
No.
In the face of all the above, it would be unjust if, having been subjected to the whirlwind pressure of
insurance salesmanship this Court itself has long denounced, the assured who dies within the two-year
period, should stand charged of fraudulent concealment and misrepresentation." (p. 142, Rollo)

The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by
the second paragraph of Section 48.

The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement
within which to contest the policy, whether or not, the insured still lives within such period. After two years,
the defenses of concealment or misrepresentation, no matter how patent or well founded, no longer lie.
Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid
liability. The petitioners' interpretation would give rise to the incongruous situation where the beneficiaries
of an insured who dies right after taking out and paying for a life insurance policy, would be allowed to
collect on the policy even if the insured fraudulently concealed material facts.

The petitioners argue that no evidence was presented to show that the medical terms were explained in a
layman's language to the insured. They state that the insurer should have presented its two medical field
examiners as witnesses. Moreover, the petitioners allege that the policy intends that the medical
examination must be conducted before its issuance otherwise the insurer "waives whatever imperfection by
ratification."

Topic: Warranty

Prudential Guarantee and Assurance Inc. v. Trans-Asia Shipping Lines, Inc.

G. R. No. 151890, 20 June 2006
491 SCRA 411

Facts:
Trans-Asia obtained a marine insurance policy from Prudential Guarantee for its vessel M/V Asia Korea
against fire and explosion. A fire broke out at the vessel while undergoing repairs at the port of Cebu.
Trans-Asia filed its claim for damage sustained by the vessel but denied by Prudential due to their claim is
not compensable by reason of the breach of policy conditions, thus, an action for sum of money by Trans-
Asia against Prudential. The trial court ruled in favor of Prudential, which was reversed by the Court of
Appeals.

Issue:
Whether or not there was violation of a material warranty by Trans-Asia.

Held:
No.
We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL’s
records to the effect that TRANS-ASIA’s "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at
the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact
breached the warranty contained in the policy. With more reason must we sustain the findings of the Court
of Appeals on the ground that as admitted by PRUDENTIAL, it was likewise the responsibility of the
average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the
alleged breach of TRANS-ASIA cannot be gleaned from the average adjuster’s survey report, or
adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on board.

We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the
violation of a material warranty, or other material provision of a policy on the part of either party thereto,
entitles the other to rescind." It is generally accepted that "[a] warranty is a statement or promise set forth in
the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and
without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders
the policy voidable by the insurer." However, it is similarly indubitable that for the breach of a warranty to
avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an
allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached
the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be
allowed to recover its rightful claims on the policy.

V. The Policy of Insurance

Topic: Cover notes

Pacific Timber Export Corporation v. Court of Appeals

G. R. No. L-38613, 25 February 1982
112 SCRA 199

Facts:
Pacific Timber Export Corporation secured temporary insurance from Workmen’s Insurance Company for
its exportation of lauan and apitong logs to be shipped from Quezon Province to Okinawa and Tokyo in
Japan. Later on, marine insurance policies were issued, but before the issuance of such and after receipt of
the cover note, some of the logs were lost during loading operations and during voyage due to bad
weather. Pacific Timber filed a claim with Workmen’s Insurance, which they requested the inspection of
loss and assessment of damage to an adjustment company. They found out that the loss was not covered
by the insurance policies issued to Pacific Timber, thus, the case in court. The trial court ruled in favor of
Workmen’s Insurance, which was reversed by the Court of Appeals.

Issue:
Whether or not the cover note is valid.

Held:
Yes.
At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the statement
issued by private respondent after the issuance of the two regular marine insurance policies, thereby
leaving no account unpaid by petitioner due on the insurance coverage, which must be deemed to include
the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular
policies subsequently issued, the purpose and function of the Cover Note would be set at naught or
rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is a
mere offer.

It may be true that the marine insurance policies issued were for logs no longer including those which had
been lost during loading operations. This had to be so because the risk insured against is not for loss
during operations anymore, but for loss during transit, the logs having already been safely placed aboard.
This would make no difference, however, insofar as the liability on the cover note is concerned, for the
number or volume of logs lost can be determined independently as in fact it had been so ascertained at the
instance of private respondent itself when it sent its own adjuster to investigate and assess the loss, after
the issuance of the marine insurance policies.

The adjuster went as far as submitting his report to respondent, as well as its computation of respondent's
liability on the insurance coverage. This coverage could not have been no other than what was stipulated in
the Cover Note, for no loss or damage had to be assessed on the coverage arising from the marine
insurance policies. For obvious reasons, it was not necessary to ask petitioner to pay premium on the
Cover Note, for the loss insured against having already occurred, the more practical procedure is simply to
deduct the premium from the amount due the petitioner on the Cover Note. The non-payment of premium
on the Cover Note is, therefore, no cause for the petitioner to lose what is due it as if there had been
payment of premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost
during the loading operations, but after the issuance of the Cover Note, liability on the note would have
already arisen even before payment of premium. This is how the cover note as a "binder" should legally
operate otherwise, it would serve no practical purpose in the realm of commerce, and is supported by the
doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that
a credit was intended and policy is valid.

Topic: Papers attached to the policy and their binding effect (rider, warranties, clause,
endorsement)

Great Pacific Life Assurance Company v. Court of Appeals

G. R. No. L-31845, 30 April 1979
89 SCRA 543

Facts:
Private respondent Ngo Hing applied for a 20-year endowment policy with Great Pacific in the amount of
P50,000.00 on the life of his 1 year old daughter Helen Go, but it was denied because the endowment plan
is not available for minors below 7 years old. However, the branch manager Lapulapu Mondragon tried to
convince Great Pacific to approve the said plan, but unfortunately, Helen Go died of influenza with
complication of bronchopneumonia. Ngo Hing demanded the claiming of proceeds but filed a case in court
instead when it was denied.

Issue:
Whether or not the binding slip can be the basis of the insurance policy.

Held:
No.
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to be
merely a provisional or temporary insurance contract and only upon compliance of the following conditions:
(1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the
company does not accept the application and offers to issue a policy for a different plan, the insurance
contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be
refunded; and (3) that if the applicant is not able according to the standard rates, and the company
disapproves the application, the insurance applied for shall not be in force at any time, and the premium
paid shall be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant
the insurance premium and had accepted the application subject for processing by the insurance company;
and that the latter will either approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had never become in force at any time.

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not
insure outright. As held by this Court, where an agreement is made between the applicant and the agent,
no liability shall attach until the principal approves the risk and a receipt is given by the agent. The
acceptance is merely conditional and is subordinated to the act of the company in approving or rejecting
the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim
vs. Sun Life Assurance Company of Canada, 41 Phil. 264).

It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific
Life disapproved the insurance application in question on the ground that it is not offering the twenty-year
endowment insurance policy to children less than seven years of age. What it offered instead is another
plan known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year
endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and
with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there
could have been no insurance contract duly perfected between them. Accordingly, the deposit paid by
private respondent shall have to be refunded by Pacific Life.

Topic: Time to commence action on the policy; effect of stipulation

Philippine American Life and General Insurance Company v. Valencia-Bagalacsa

G. R. No. 139776, 1 August 2002
386 SCRA 103

Facts:
Faustino Lumaniog was insured by Philamlife under a life insurance policy. He died of “coronary
thrombosis,” and which later on his children filed a claim which was refused by Philamlife. The children filed
an action in court, which the trial court ruled in favour of the Lumaniogs, and affirmed by the Court of
Appeals.

Issue:
Whether or not the action for recovery is prescribed by the 10-year period.
Held:
No.
It must be emphasized that petitioner had specifically alleged in the Answer that it had denied private
respondents claim per its letter dated July 11, 1983. Hence, due process demands that it be given the
opportunity to prove that private respondents had received said letter, dated July 11, 1983. Said letter is
crucial to petitionersdefense that the filing of the complaint for recovery of sum of money in June, 1995 is
beyond the 10-year prescriptive period.

It is for the above reason that the RTC committed a grave abuse of discretion when, in resolving the motion
for reconsideration of petitioner, it arbitrarily ruled in its Order dated December 12, 1997, that the period of
ten (10) years had not yet lapsed. It based its finding on a mere explanation of the private respondents
counsel and not on evidence presented by the parties as to the date when to reckon the prescriptive
period. Portions of the Order dated December 12, 1997 read:

A perusal of the record will likewise reveal that plaintiffs counsel explained that the running of the ten (10)
year period was stopped on May 25, 1983, upon demand of Celso Lomaniog for the compliance of the
contract and reconsideration of the decision. Counsel also wrote the President of the Company on
December 1, 1994, asking for reconsideration. The letter was answered by the Assistant Vice President of
the Claims Department of Philamlife, with the advise that the company is reviewing the claim. On February
14, 1995, Atty. Abis sent a letter to counsel, finally deciding the plaintiffs claim. Thus, the period of
prescription should commence to run only from February 14, 1995, when Atty. Abis finally decided plaintiffs
claim.

It is evident from the foregoing that the ten (10) year period for plaintiffs to claim the insurance proceeds
has not yet prescribed. The final determination denying the claim was made only on February 14, 1995.
Hence, when the instant case was filed on June 20, 1995, the ten year period has not yet lapsed.
Moreover, defendants counsel failed to comply with the requirements of the Rules in filing his motion for
reconsideration. (emphasis supplied)

The ruling of the RTC that the cause of action of private respondents had not prescribed, is arbitrary and
patently erroneous for not being founded on evidence on record, and therefore, the same is void.

VI. Premium

Topic: Concept

Makati Tuscany Condominium Corporation v. Court of Appeals

G. R. No. 95546, 6 November 1992
215 SCRA 462

Facts:
American Home Assurance Company issued an insurance policy to Makati Tuscany Condominium
Corporation on its building and premises, in which they paid their premium on instalments, all were
accepted. The policy was renewed with the continuance of payment of premium on instalments by Makati
Tuscany which were all accepted, until such time that Makati Tuscany stopped paying the premium after
the second renewal. American Home filed an action for recovery of sum of money, which the trial court
dismissed it. The Court of Appeals modified the decision that Makati Tuscany has to pay the balance of the
premium and the denial of the counterclaim.

Issue:
Whether or not the payment of premium by instalments is allowed.

Held:
Yes.
It argues that where the premiums is not actually paid in full, the policy would only be effective if there is an
acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the Insurance Code. The
absence of an express acknowledgment in the policies of such receipt of the corresponding premium
payments, and petitioner's failure to pay said premiums on or before the effective dates of said policies
rendered them invalid. Petitioner thus concludes that there cannot be a perfected contract of insurance
upon mere partial payment of the premiums because under Sec. 77 of the Insurance Code, no contract of
insurance is valid and binding unless the premium thereof has been paid, notwithstanding any agreement
to the contrary. As a consequence, petitioner seeks a refund of all premium payments made on the alleged
invalid insurance policies.
We hold that the subject policies are valid even if the premiums were paid on installments. The records
clearly show that petitioner and private respondent intended subject insurance policies to be binding and
effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered
into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the
installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the
policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer
to continue collecting and accepting the premiums, although paid on installments, and later deny liability on
the lame excuse that the premiums were not prepared in full.

We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and
conclusion of the appellate court contained in its Resolution denying the motion to reconsider its Decision
—

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the
validity of the contract, We are not prepared to rule that the request to make installment payments duly
approved by the insurer, would prevent the entire contract of insurance from going into effect despite
payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in
effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy
binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary to morals, good customs,
public order or public policy (De Leon, the Insurance Code, at p. 175). So is an understanding to allow
insured to pay premiums in installments not so proscribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily accepted.

Topic: Effect of non-payment of premium; exceptions

UCPB General Insurance Co., Inc. v. MasaganaTelamart, Inc.

G. R. No. 137172, 15 June 1999
308 SCRA 259

Facts:
UCPB General Insurance issued 5 insurance policies covering MasaganaTelamart’s various properties
against fire, without renewal. Later on, fire broke out on properties covered by 3 insurance policies.
Masagana presented 5 manager’s checks as premium for the renewal of the policies, without filing any
notice of loss. It filed its claim with UCPB for indemnification of the insured property razed by fire, but the
checks were returned to Masagana, denying the claim as well, due to the expiry and non-renewal of the
said policies. Masagana filed an action against UCPB, in which the trial court ruled in its favour, and
affirmed by the Court of Appeals.

Issue:
Whether or not the policy is renewed by an implied credit arrangement though actual payment of premium
was tendered on a later date after the fire occurred.

Held:
No.
The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued originally
or on renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary
is void. The parties may not agree expressly or impliedly on the extension of credit or time to pay the
premium and consider the policy binding before actual payment.

The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, cited by the Court of Appeals, is not applicable.
In that case, payment of the premium was in fact actually made on December 24, 1981, and the fire
occurred on January 18, 1982. Here, the payment of the premium for renewal of the policies was tendered
on July 13, 1992, a month after the fire occurred on June 13, 1992. The assured did not even give the
insurer a notice of loss within a reasonable time after occurrence of the fire.

UCPB General Insurance Co., Inc. v. MasaganaTelamart, Inc.

G. R. No. 137172, 4 April 2001
356 SCRA 307
Facts:
UCPB General Insurance issued 5 insurance policies covering MasaganaTelamart’s various properties
against fire, without renewal. Later on, fire broke out on properties covered by 3 insurance policies.
Masagana presented 5 manager’s checks as premium for the renewal of the policies, without filing any
notice of loss. It filed its claim with UCPB for indemnification of the insured property razed by fire, but the
checks were returned to Masagana, denying the claim as well, due to the expiry and non-renewal of the
said policies. Masagana filed an action against UCPB, in which the trial court ruled in its favour, and
affirmed by the Court of Appeals. The Supreme Court reversed the decision of the Court of Appeals.
Masagana filed its motion for reconsideration arguing the 60-90 day credit term for the payment of
premiums.

Issue:
Whether or not Section 77 of Presidential Decree No. 612 (Insurance Code) applies in this case.

Held:
Yes.
Section 77 of the Insurance Code of 1978 provides:

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has been paid,
except in the case of a life or an industrial life policy whenever the grace period provision applies.

This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18
December 1974. In turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as the
Insurance Act as amended by R.A. No. 3540, approved on 21 June 1963, which read:

SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril
insured against, unless there is clear agreement to grant the insured credit extension of the premium due.
No policy issued by an insurance company is valid and binding unless and until the premium thereof has
been paid. (Underscoring supplied)

It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an
agreement to extend the period to pay the premium. But are there exceptions to Section 77?

The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy
whenever the grace period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive
evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it
shall not be binding until premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,
wherein we ruled that Section 77 may not apply if the parties have agreed to the payment in installments of
the premium and partial payment has been made at the time of loss. We said therein, thus:

We hold that the subject policies are valid even if the premiums were paid on installments. The records
clearly show that the petitioners and private respondent intended subject insurance policies to be binding
and effective notwithstanding the staggered payment of the premiums. The initial insurance contract
entered into in 1982 was renewed in 1983, then in 1984. In those three years, the insurer accepted all the
installment payments. Such acceptance of payments speaks loudly of the insurers intention to honor the
policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer
to continue collecting and accepting the premiums, although paid on installments, and later deny liability on
the lame excuse that the premiums were not prepaid in full.

By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided
a fourth exception to Section 77, namely, that the insurer may grant credit extension for the payment of the
premium. This simply means that if the insurer has granted the insured a credit term for the payment of the
premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even
though the premium is paid after the loss but within the credit term.

American Home Assurance Company v. Chua

G. R. No. 130421, 28 June 1999
309 SCRA 250

Facts:
Antonio Chua obtained a fire insurance from American Home Assurance covering the stock-in-trade of his
business, Moonlight Enterprises located at Valencia, Bukidnon. He issued a check for renewal of his policy.
Later on, Moonlight Enterprises was destroyed by fire. Chua filed a claim with American Home but it was
denied. Chua filed an action in court afterwards. The trial court ruled in his favor and affirmed by the Court
of Appeals.

Issue:
Whether or not the premium has been paid by Chua.

Held:
Yes.
The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and
binding. The only exceptions are life and industrial life insurance.[6] Whether payment was indeed made is
a question of fact which is best determined by the trial court. The trial court found, as affirmed by the Court
of Appeals, that there was a valid check payment by respondent to petitioner. Well-settled is the rule that
the factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight
and respect, and will not be disturbed on appeal in the absence of any clear showing that the trial court
overlooked certain facts or circumstances which would substantially affect the disposition of the case. We
see no reason to depart from this ruling.

According to the trial court the renewal certificate issued to respondent contained the acknowledgment that
premium had been paid. It is not disputed that the check drawn by respondent in favor of petitioner and
delivered to its agent was honored when presented and petitioner forthwith issued its official receipt to
respondent on 10 April 1990. Section 306 of the Insurance Code provides that any insurance company
which delivers a policy or contract of insurance to an insurance agent or insurance broker shall be deemed
to have authorized such agent or broker to receive on its behalf payment of any premium which is due on
such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon. In
the instant case, the best evidence of such authority is the fact that petitioner accepted the check and
issued the official receipt for the payment. It is, as well, bound by its agents acknowledgment of receipt of
payment.

Tibay v. Court of Appeals

G. R. No. 119655, 24 May 1996
257 SCRA 126

Facts:
Fortune Life and General Insurance Co. issued a fire insurance policy in favour of Victoria Tibay and/or
Nicolas Roraldo on their 2-storey residential building at Makati City. With the total premium of P2,983.50,
Tibay only paid P600.00,thus leaving a considerable balance unpaid. Later on, the insured building was
completely destroyed by fire. Two days later, Tibay paid the remaining balance of the premium, then later
on, filed a claim with Fortune but it was denied, thus, the filing of the case by Tibay in court after failure to
settle it with the Insurance Commission. The trial court ruled in favour of Tibay but was reversed by the
Court of Appeals.

Issue:
Whether or not the fire insurance is valid upon mere partial payment of premium.

Held:
No.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the
Insurance Code the payment of partial premium by the assured in this particular instance should not be
considered the payment required by the law and the stipulation of the parties. Rather, it must be taken in
the concept of a deposit to be held in trust by the insurer until such time that the full amount has been
tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full payment
must be made before the risk occurs for the policy to be considered effective and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever
resulted from the fractional payment of premium. The insurance contract itself expressly provided that the
policy would be effective only when the premium was paid in full. It would have been altogether different
were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be insured by
FORTUNE under the terms of its policy and they freely opted to adhere thereto.

Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the
intention of the parties as expressed in the policy. Courts have no other function but to enforce the same.
The rule that contracts of insurance will be construed in favor of the insured and most strongly against the
insurer should not be permitted to have the effect of making a plain agreement ambiguous and then
construe it in favor of the insured. Verily, it is elemental law that the payment of premium is requisite to
keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as
intended by the parties the policy is ineffective. Partial payment even when accepted as a partial payment
will not keep the policy alive even for such fractional part of the year as the part payment bears to the
whole payment.

Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc.

G. R. No. L-22684, 31 August 1967
20 SCRA 1270

Facts:
Philippine Phoenix Surety and Insurance, Inc. issued a fire insurance policy to Woodworks, Inc., in which
the latter paid P3,000.00. Later on, Phoenix made several demands on Woodworks to pay the amount of
P3,522.09, thus, an action filed in court by Phoenix. The municipal court ruled in favor of the latter which
was sustained by the Court of First Instance.

Issue:
Whether or not the non-payment of premium will not cancel the policy.

Held:
Yes.
It is clear from the foregoing that on April 1, 1960 Fire Insurance Policy No. 9652 was issued by appellee
and delivered to appellant, and that on September 22 of the same year, the latter paid to the former the
sum of P3,000.00 on account of the total premium of P6,051.95 due thereon. There is, consequently, no
doubt at all that, as between the insurer and the insured, there was not only a perfected contract of
insurance but a partially performed one as far as the payment of the agreed premium was concerned.
Thereafter the obligation of the insurer to pay the insured the amount for which the policy was issued in
case the conditions therefor had been complied with, arose and became binding upon it, while the
obligation of the insured to pay the remainder of the total amount of the premium due became demandable.

We can not agree with appellant’s theory that non-payment by it of the premium due, produced the
cancellation of the contract of insurance. Such theory would place exclusively in the hands of one of the
contracting parties the right to decide whether the contract should stand or not. Rather the correct view
would seem to be this: as the contract had become perfected, the parties could demand from each other
the performance of whatever obligations they had assumed. In the case of the insurer, it is obvious that it
had the right to demand from the insured the completion of the payment of the premium due or sue for the
rescission of the contract. As it chose to demand specific performance of the insured’s obligation to pay the
balance of the premium, the latter’s duty to pay is indeed indubitable.

VII. Persons entitled to recover on the policy and conditions to recovery

Topic: Beneficiary

Bonifacio Bros., Inc. v. Mora

G. R. No. L-20853, 29 May 1967
20 SCRA 262

Facts:
Enrique Mora mortgaged his Oldsmobile Sedan model 1956 to H. S. Reyes, Inc. with the condition that the
former would insure the automobile with the latter as beneficiary, which was later insured with the State
Bonding and Insurance Co., Inc. Later on, the car met with an accident. Mora, without the knowledge and
consent of H. S. Reyes, authorized the Bonifacio Bros., Inc. to furnish the labor and materials. Later on, the
car was delivered to Mora without the consent of H. S. Reyes, and without payment to Bonifacio Bros.

Bonifacio Bros., later on filed a case against Mora for their belief that the insurance proceeds shall be paid
directly to them. The municipal court ordered State Bonding to pay H. S. Reyes the sum claimed, which
was affirmed by the Court of First Instance.

Issue:
Whether or not H. S. Reyes asa the right to the insurance proceeds only if there was loss and not where
there is mere damage.

Held:
Yes.
Suffice it to say that any attempt to draw a distinction between "loss" and "damage" is uncalled for, because
the word "loss" in insurance law embraces injury or damage.

Loss in insurance, defined. — The injury or damage sustained by the insured in consequence of the
happening of one or more of the accidents or misfortune against which the insurer, in consideration of the
premium, has undertaken to indemnify the insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary;
Cyclopedic Law Dictionary, cited in Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608).

Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial.

Insular Life Assurance Company, Ltd. v. Ebrado

G. R. No. L-44059, 28 October 1977
80 SCRA 281

Facts:
Buenaventura Ebrado was issued a policy by Insular Life for accidental death in which he designated his
wife as his beneficiary. He died however when he was hit by a falling branch of a tree. His wife Carponia
filed a claim for the proceeds of the policy, although she admitted that they lived together as husband and
wife without the benefit of marriage. Pascualvda. De Ebrado also filed her claim as the widow of the
deceased , insisting her entitlement to the proceeds, not the common-law wife. The trial court held that
Carponia is disqualified from becoming beneficiary of the deceased. She appealed her case to the CA, but
the latter certified it to the Supreme Court.

Issue:
Whether or not a common-law wife can be designated as beneficiary.

Held:
No.
In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive
the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil
Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside:
any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of
the person who cannot make the donation. Under American law, a policy of life insurance is considered as
a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect
of a clause designating the beneficiary by rules under which wins are interpreted.

Vda.deConsuegra v. Government Service Insurance System

G. R. No. L-28093, 30 January 1971
37 SCRA 315

Facts:
The late Jose Consuegra during his lifetime had two marriages: the first which bore two children, but both
predeceased their father; and the second one which were solemnized in good faith while the first was
subsisting and bore 7 children. Being a member of GSIS when he died, the proceeds were paid to the
second wife BasiliaBerdinvda. deConsuegra. The first wife filed a claim asking that the proceeds shall be
paid to her as the only legal heir of the decedent. Later on, Vda.deConsuegra filed a case in court against
GSIS, praying that they shall be declared as beneficiaries of the retirement insurance of the decedent, in
which the trial court ruled in their favor.
Issue:
Whether or not Vda. deConsuegra and her children are the legal heirs of the retirement insurance of the
deceased.

Held:
Yes.
In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in
the life insurance policy. As in the case of a life insurance provided for in the Insurance Act (Act 2427, as
amended), the beneficiary in a life insurance under the GSIS may not necessarily be a heir of the insured.
The insured in a life insurance may designate any person as beneficiary unless disqualified to be so under
the provisions of the Civil Code. And in the absence of any beneficiary named in the life insurance policy,
the proceeds of the insurance will go to the estate of the insured.

Retirement insurance is primarily intended for the benefit of the employee — to provide for his old age, or
incapacity, after rendering service in the government for a required number of years. If the employee
reaches the age of retirement, he gets the retirement benefits even to the exclusion of the beneficiary or
beneficiaries named in his application for retirement insurance. The beneficiary of the retirement insurance
can only claim the proceeds of the retirement insurance if the employee dies before retirement. If the
employee failed or overlooked to state the beneficiary of his retirement insurance, the retirement benefits
will accrue to his estate and will be given to his legal heirs in accordance with law, as in the case of a life
insurance if no beneficiary is named in the insurance policy.

It is Our view, therefore, that the respondent GSIS had correctly acted when it ruled that the proceeds of
the retirement insurance of the late Jose Consuegra should be divided equally between his first living wife
Rosario Diaz, on the one hand, and his second wife BasiliaBerdin and his children by her, on the other; and
the lower court did not commit error when it confirmed the action of the GSIS, it being accepted as a fact
that the second marriage of Jose Consuegra to BasiliaBerdin was contracted in good faith. The lower court
has correctly applied the ruling of this Court in the case of Lao, et al. vs. Dee Tim, et al., 45 Phil. 739 as
cited in the stipulation of facts and in the decision appealed from. In the recent case of Gomez vs. Lipana,
L-23214, June 30, 1970, this Court, in construing the rights of two women who were married to the same
man — a situation more or less similar to the case of appellant BasiliaBerdin and appellee Rosario Diaz —
held "that since the defendant's first marriage has not been dissolved or declared void the conjugal
partnership established by that marriage has not ceased. Nor has the first wife lost or relinquished her
status as putative heir of her husband under the new Civil Code, entitled to share in his estate upon his
death should she survive him. Consequently, whether as conjugal partner in a still subsisting marriage or
as such putative heir she has an interest in the husband's share in the property here in dispute.... " And
with respect to the right of the second wife, this Court observed that although the second marriage can be
presumed to be void ab initio as it was celebrated while the first marriage was still subsisting, still there is
need for judicial declaration of such nullity. And inasmuch as the conjugal partnership formed by the
second marriage was dissolved before judicial declaration of its nullity, "[t]he only lust and equitable
solution in this case would be to recognize the right of the second wife to her share of one-half in the
property acquired by her and her husband and consider the other half as pertaining to the conjugal
partnership of the first marriage."

Go v. Redfern
G. R. No. L-47705, 25 April 1941
72 Phil. 71

Facts:
Edward Redfern obtained an insurance policy against accidents from the International Assurance Co., Ltd.
Later, he died as a result of an accident. The mother of the deceased filed a claim but it was refused by the
insurance company because of the amended policy in which Concordia Go was added as beneficiary.

Issue:
Whether or not the designation of Go as beneficiary is valid.

Held:
Yes.
In the case of Wallace v. Mutual Benefit Life Insurance Co. doctrine sat the following: Upon the issuance of
a policy, the beneficiary or the beneficiary of it acquires a right which can not be deprived without their
consent, unless it has reserved specifically the insured the right to change the policy. Same doctrine
enunciated by this Court in the cases of Gercio v Assurance Sun Life Co. of Canada (48 Phil. Rep., 55) and
Insular Life v Suva (34 Off. Gaz. 861)

We, therefore, that unless the insured has expressly reserved the right to change or modify the policy in
respect of the beneficiary of it, this policy is an acquired right of the beneficiary, which can not be changed
except with the consent. And such is the case before us. This allowed the insured Edward K. Redfern is not
expressly reserve the right to change or modify the policy. The appellant maintains, however, that the
addition of his name as one of the beneficiaries of the policy is not change. Change involves the idea of
alteration. And every addition is alteration. Then have added the name of the appellant was altered, ie, the
policy was changed in form, inasmuch as, with the addition of the name of the appellant, that already has
two beneficiaries, instead of one as at its bottom, since the original beneficiary did not receive the full
amount of the policy. So the appellant's argument lacks merit.

Topic: Loss

Country Bankers Insurance Corporation v. Lianga Bay and Community Multi-Purpose Cooperative,
Inc.
G. R. No. 136914, 25 January 2002
374 SCRA 653

Facts:
Country Bankers issued a fire insurance policy to Lianga Bay, in which the building of the latter were
destroyed by fire, resulting in the loss of the insured stocks-in-trade, among others. Lianga Bay filed a claim
to Country Bankers but it was denied because the building was burned by NPA rebels, which is an
excepted risk under the fire insurance policy. Lianga Bay filed a case against Country Bankers, in which the
trial court ruled in favor of the former and affirmed by the CA.

Issue:
Whether or not the loss incurred is covered by the policy.

Held:
Yes.
In the instant case, the petitioner does not dispute that the respondent’s stocks-in-trade were insured
against fire loss, damage or liability under Fire Insurance Policy No. F- 1397 and that the respondent lost
its stocks-in-trade in a fire that occurred on July 1, 1989, within the duration of said fire insurance. The
petitioner, however, posits the view that the cause of the loss was an excepted risk under the terms of the
fire insurance policy.

Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from
such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from
this it follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy
has the burden of proving that the loss comes within the purview of the exception or limitation set up. If a
proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove
that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which
limits its liability. Stated else wise, since the petitioner in this case is defending on the ground of non-
coverage and relying upon an exemption or exception clause in the fire insurance policy, it has the burden
of proving the facts upon which such excepted risk is based, by a preponderance of evidence. But
petitioner failed to do so.

X. Marine Insurance

Topic: Risks or losses covered in marine insurance

Subtopic: Perils of the sea vs. Perils of the ship

Roque v. Intermediate Appellate Court

G. R. No. L-66935, 11 November 1985
139 SCRA 596

Facts:
The Manila Bay Lighterage Corporation entered into a contract with Isabela Roque Timber Enterprises
whereby the former would carry and load on board its barge from Malampaya Sound, palawan to Manila
North Harbor, in which the logs were insured with Pioneer Insurance and Surety Corporation. The barge
where the logs were loaded was allegedly not seaworthy such that it developed a leak, which was also
found that there was one hatch open which caused the water to enter the barge Roque filed a claim with
Pioneer but it was refused on the ground that its hability depended upon the "total loss by total loss of
vessel only," thus, an action in court. The trial court ruled in favor of Roque, which was reversed by the CA
with modification.

Issue:
Whether or not the loss was occasioned by the perils of the sea.

Held:
Yes.
It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of
the sea. The facts clearly negate the petitioners' claim under the insurance policy. In the case of Go Tiaoco
y Hermanos v. Union Ins. Society of Canton, supra, we had occasion to elaborate on the term "perils of the
ship." We ruled:

It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results
from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the
negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargo under
ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the
"peril of the ship." The insurer undertakes to insure against perils of the sea and similar perils, not against
perils of the ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the
Xantho ([1887], 12 A. C., 503, 509), there must, in order to make the insurer liable, be some casualty,
something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of
the policy is to secure an indemnity against accidents which may happen, not against events which must
happen.

In the present case the entrance of the sea water into the ship's hold through the defective pipe already
described was not due to any accident which happened during the voyage, but to the failure of the ship's
owner properly to repair a defect of the existence of which he was apprised. The loss was therefore more
analogous to that which directly results from simple unseaworthiness than to that which result from the
perils of the sea.

xxxxxxxxx

Suffice it to say that upon the authority of those cases there is no room to doubt the liability of the
shipowner for such a loss as occurred in this case. By parity of reasoning the insurer is not liable; for
generally speaking, the shipownerexcepts the perils of the sea from his engagement under the bill of
lading, while this is the very perils against which the insurer intends to give protection. As applied to the
present case it results that the owners of the damaged rice must look to the shipowner for redress and not
to the insurer.

Go Tiaoco y Hermanos v. Union Insurance Society of Canton, Ltd.

G. R. No. 13983, 1 September 1919
40 Phil. 401

Facts:
Union Insurance Society of Canton issued a marine insurance policy to Go Tiaoco Brothers upon a cargo
of rice belonging to him, which was transported on the steamship Hondagua from the port of Saigon to
Cebu. Upon discharging of the rice upon arrival in Cebu, it was discovered that 1473 sacks had been
damaged by sea water, which was found out that there was a defect in one of the drain pipes of the ship
which cause such damage. The trial court ruled that such loss was not covered by the policy.

Issue:
Whether or not the loss was caused by the perils of the sea.

Held:
No.
It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results
from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the
negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargo under
ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the
"peril of the ship." The insurer undertakes to insure against perils of the sea and similar perils, not against
perils of the ship. As was well said by Lord Herschell in Wilson, Sons & Co. vs. Owners of Cargo per the
Xantho ([1887], 12 A. C., 503,509), there must, in order to make the insurer liable, be "some casualty,
something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of
the policy is to secure an indemnity against accidents which may happen, not against events which must
happen."

In the present case the entrance of the sea water into the ship's hold through the defective pipe already
described was not due to any accident which happened during the voyage, but to the failure of the ship's
owner properly to repair a defect of the existence of which he was apprised. The loss was therefore more
analogous to that which directly results from simple unseaworthiness than to that which results from perils
of the sea.

Cathay Insurance Co. v. Court of Appeals

G. R. No. 76145, 30 June 1987
151 SCRA 710

Facts:
Remington Industrial Sales Corporation filed a complaint against Cathay Insurance Co. Seeking collection
of the insurance claim representing losses and damages incurred in a shipment of seamless steel pipes
under an insurance contract in favor of Remington. The trial court ruled in favor of Remington which was
affirmed by the CA.

Issue:
Whether or not the loss was caused by the perils of the sea.

Held:
Yes.
There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of
the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer cannot be held
accountable therefor, We would fail to observe a cardinal rule in the interpretation of contracts, namely, that
any ambiguity therein should be construed against the maker/issuer/drafter thereof, namely, the insurer.
Besides the precise purpose of insuring cargo during a voyage would be rendered fruitless. Be it noted that
any attack of the 15-day clause in the policy was foreclosed right in the pre-trial conference.

Subtopic: "All-risks" marine insurance policy

Filipino Merchants Insurance Co. v. Court of Appeals

G. R. No. 85141, 28 November 1989
179 SCRA 638

Facts:
ChoaTiek Seng insured his shipment of fishmeal with Filipino Merchants Insurance Co. covering 600 tons
but the actual imported was 59.940 tons. The shipment was unloaded from SS Bouganville at Manila but
the shipment were in bad order condition upon certification by Choa. Choa filed his claim but it was denied,
which led to the filing of an action n court. The trial court ruled in favor of Choa which was affirmed by the
CA.

Issue:
Whether or not the "all risks" clause applies in this case.

Held:
Yes.
The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any
loss other than a willful and fraudulent act of the insured. This is pursuant to the very purpose of an "all
risks" insurance to give protection to the insured in those cases where difficulties of logical explanation or
some mystery surround the loss or damage to property. An "all asks" policy has been evolved to grant
greater protection than that afforded by the "perils clause," in order to assure that no loss can happen
through the incidence of a cause neither insured against nor creating liability in the ship; it is written against
all losses, that is, attributable to external causes.

The term "all risks" cannot be given a strained technical meaning, the language of the clause under the
Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses
suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b)
loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under
an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which
it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving
that the cargo was in good condition when the policy attached and that the cargo was damaged when
unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the
coverage. As we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. the basic rule is that
the insurance company has the burden of proving that the loss is caused by the risk excepted and for want
of such proof, the company is liable.

Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance
which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden
of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid
coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. A
marine insurance policy providing that the insurance was to be "against all risks" must be construed as
creating a special insurance and extending to other risks than are usually contemplated, and covers all
losses except such as arise from the fraud of the insured. The burden of the insured, therefore, is to prove
merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is
shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the
burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective
purpose of "all risks" insurance.

In the present case, there being no showing that the loss was caused by any of the excepted perils, the
insurer is liable under the policy. As aptly stated by the respondent Court of Appeals, upon due
consideration of the authorities and jurisprudence it discussed —

... it is believed that in the absence of any showing that the losses/damages were caused by an excepted
peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such showing,
the lower court did not err in holding that the loss was covered by the policy.

There is no evidence presented to show that the condition of the gunny bags in which the fishmeal was
packed was such that they could not hold their contents in the course of the necessary transit, much less
any evidence that the bags of cargo had burst as the result of the weakness of the bags themselves. Had
there been such a showing that spillage would have been a certainty, there may have been good reason to
plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance
Claims, Ibid, p. 125). Under an 'all risks' policy, it was sufficient to show that there was damage occasioned
by some accidental cause of any kind, and there is no necessity to point to any particular cause.

Topic: Loss

Subtopic: Kinds of total loss (actual and constructive)

Oriental Assurance Corporation v. Court of Appeals

G. R. No. 94052, 9 August 991
200 SCRA 459

Facts:
Panama Saw Mill Co., Inc. insured its apitong logs with Oriental Assurance Corporation, which later hired
Transpacific Towage, Inc. to transport them by sea to Manila through 2 barges. They were towed by one
tug boat, but during the voyage, rough seas and strong winds caused damage to one of the barges
resulting in the loss of some of the logs loaded. Panama demanded payment for the loss but Oriental
refused on the ground that its contracted liability was for "total loss only." Panama filed a case against
Oriental in which the trial court ruled in favor of the former. The CA affirmed the said decision.

Issue:
Whether or not the loss is a constructive total loss.

Held:
No.
More importantly, the insurer's liability was for "total loss only." A total loss may be either actual or
constructive (Sec. 129, Insurance Code). An actual total loss is caused by:
(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;

(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or

(d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the
thing insured. (Section 130, Insurance Code).

A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of
the Insurance Code. This provision reads:

SECTION 139. A person insured by a contract of marine insurance may abandon the thing insured, or any
particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a
total loss thereof, when the cause of the loss is a peril injured against,

(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it
from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths;

xxxxxxxxx
(Emphasis supplied)

Respondent Appellate Court treated the loss as a constructive total loss, and for the purpose of computing
the more than three-fourths value of the logs actually lost, considered the cargo in one barge as separate
from the logs in the other. Thus, it concluded that the loss of 497 pieces of logs from barge TPAC-1000,
mathematically speaking, is more than three-fourths (¾) of the 598 pieces of logs loaded in that barge and
may, therefore, be considered as constructive total loss.

The basis thus used is, in our opinion, reversible error. The requirements for the application of Section 139
of the Insurance Code, quoted above, have not been met. The logs involved, although placed in two
barges, were not separately valued by the policy, nor separately insured. Resultantly, the logs lost in barge
TPAC-1000 in relation to the total number of logs loaded on the same barge can not be made the basis for
determining constructive total loss. The logs having been insured as one inseparable unit, the correct basis
for determining the existence of constructive total loss is the totality of the shipment of logs. Of the entirety
of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost
of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment can not be
said to have sustained a constructive total loss under Section 139(a) of the Insurance Code.

XI. Fire Insurance

Malayan Insurance Company, Inc. v. PAP Co., Ltd. (Phil. Branch)

G. R. No. 200784, 7 August 2013
703 SCRA 314

Facts:
Malayan Insurance Company issued a fire insurance policy to PAP Co., Ltd. for its machineries and
equipment located at the Sanyo Building in Rosario, Cavite. During the effectivity of the said policy, the
insured machineries and equipment were totally lost by fire. PAP filed its claim but Malayan denied if on the
ground that at the time of the loss, the insured machineries and equipment were transferred by PAP to a
location different from the one stated in the policy, which later the action was filed by PAP against Malayan.
The trial court ruled in favor of PAP which was affirmed by the CA.

Issue:
Whether or not Malayan is liable for the loss of the insured properties under the fire insurance policy.

Held:
No.
Under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in case of
an alteration in the use or condition of the thing insured. Section 168 of the Insurance Code provides, as
follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the
policy made without the consent of the insurer, by means within the control of the insured, and increasing
the risks, entitles an insurer to rescind a contract of fire insurance.

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

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

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

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

XII. Casualty Insurance

Topic: Personal accident and health insurance

Sun Insurance Office. Ltd. v. Court of Appeals

G. R. No. 92383, 17 July 1992
211 SCRA 554

Facts:
Sun Insurance Office issued a personal accident policy to Felix Lim, Jr. Two months later, while being in a
happy mood on a party, he played with his handgun and accidentally shot himself in the head. His widow
Nerissa filed a case in court which ruled in her favor and affirmed by the CA.

Issue:
Whether or not the death of Felix Lim, Jr. was an accident.

Held:
Yes.
The words "accident" and "accidental" have never acquired any technical signification in law, and when
used in an insurance contract are to be construed and considered according to the ordinary understanding
and common usage and speech of people generally. In-substance, the courts are practically agreed that
the words "accident" and "accidental" mean that which happens by chance or fortuitously, without intention
or design, and which is unexpected, unusual, and unforeseen. The definition that has usually been adopted
by the courts is that an accident is an event that takes place without one's foresight or expectation — an
event that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not
expected.

An accident is an event which happens without any human agency or, if happening through human agency,
an event which, under the circumstances, is unusual to and not expected by the person to whom it
happens. It has also been defined as an injury which happens by reason of some violence or casualty to
the injured without his design, consent, or voluntary co-operation.

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was indeed
an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, says that "there is no
accident when a deliberate act is performed unless some additional, unexpected, independent and
unforeseen happening occurs which produces or brings about their injury or death." There was such a
happening. This was the firing of the gun, which was the additional unexpected and independent and
unforeseen occurrence that led to the insured person's death.

Finman General Assurance Corporation v. Court of Appeals

G. R. No. 100970, 2 September 1992
213 SCRA 493

Facts:
Carlie Surposa was insured with Finman under its General Teachers Protection Plan Master Policy with his
parents and siblings as beneficiaries. While the policy is in effect, she died of a stab wound inflicted by one
of the three unidentified men while waiting for a ride on their way home after attending the Maskara
Festival. The beneficiaries filed their claim with Finman but it was denied on the ground that murder and
assault are not covered by the policy. They filed a case with the Insurance Commission in which it ruled in
their favor, which was affirmed by the CA.

Issue:
Whether or not the murder of Carlie Surposa can be covered by the policy.

Held:
Yes.
The terms "accident" and "accidental" as used in insurance contracts have not acquired any technical
meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have
been taken to mean that which happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or
expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known cause
and, therefore, not expected.

. . . The generally accepted rule is that, death or injury does not result from accident or accidental means
within the terms of an accident-policy if it is the natural result of the insured's voluntary act, unaccompanied
by anything unforeseen except the death or injury. There is no accident when a deliberate act is performed
unless some additional, unexpected, independent, and unforeseen happening occurs which produces or
brings about the result of injury or death. In other words, where the death or injury is not the natural or
probable result of the insured's voluntary act, or if something unforeseen occurs in the doing of the act
which produces the injury, the resulting death is within the protection of the policies insuring against death
or injury from accident.

As correctly pointed out by the respondent appellate court in its decision:

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an assault or murder as
a result of his voluntary act considering the very nature of these crimes. In the first place, the insured and
his companion were on their way home from attending a festival. They were confronted by unidentified
persons. The record is barren of any circumstance showing how the stab wound was inflicted. Nor can it be
pretended that the malefactor aimed at the insured precisely because the killer wanted to take his life. In
any event, while the act may not exempt the unknown perpetrator from criminal liability, the fact remains
that the happening was a pure accident on the part of the victim. The insured died from an event that took
place without his foresight or expectation, an event that proceeded from an unusual effect of a known
cause and, therefore, not expected. Neither can it be said that where was a capricious desire on the part of
the accused to expose his life to danger considering that he was just going home after attending a festival.

Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten (10)
circumstances wherein no liability attaches to petitioner insurance company for any injury, disability or loss
suffered by the insured as a result of any of the stimulated causes. The principle of " expresso
uniusexclusioalterius" — the mention of one thing implies the exclusion of another thing — is therefore
applicable in the instant case since murder and assault, not having been expressly included in the
enumeration of the circumstances that would negate liability in said insurance policy cannot be considered
by implication to discharge the petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance company to include death resulting
from murder or assault among the prohibited risks leads inevitably to the conclusion that it did not intend to
limit or exempt itself from liability for such death.

Biagtan v. Insular Life Assurance Company, Ltd.

G. R. No. L-25579, 29 March 1972
44 SCRA 58

Facts:
Juan Biagtan was insured with Insular Life in which the policy include an "accidental death benefit
clause,"providing that if "the death of the insured resulted directly from bodily injury effected solely through
external and violent means sustained in an accident... and independently of all other causes," but will not
apply where death resulted from an injury "intentionally inflicted by another party." Later on, a band of
robbers entered the house of Biagtan who was eventually killed in the process. The family of the insured
filed a claim with Insular Life but only paid the covered proceeds, which did not include the "accidental
death benefit clause" sum on the ground that the injuries were "intentionally inflicted," thus, the action in
court, which ruled in favor of Biagtan.

Issue:
Whether or not the injury resulted in the death of Biagtan was considered intentional.

Held:
Yes.
Court decisions in the American jurisdiction, where similar provisions in accidental death benefit clauses in
insurance policies have been construed, may shed light on the issue before Us. Thus, it has been held that
"intentional" as used in an accident policy excepting intentional injuries inflicted by the insured or any other
person, etc., implies the exercise of the reasoning faculties, consciousness and volition. Where a provision
of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling.
If the injuries suffered by the insured clearly resulted from the intentional act of a third person the insurer is
relieved from liability as stipulated.

In the case of Hutchcraft'sEx'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484, the
insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses were interposed to the
action to recover indemnity, namely: (1) that the insured having been killed by intentional means, his death
was not accidental, and (2) that the proviso in the policy expressly exempted the insurer from liability in
case the insured died from injuries intentionally inflicted by another person. In rendering judgment for the
insurance company the Court held that while the assassination of the insured was as to him an unforeseen
event and therefore accidental, "the clause of the proviso that excludes the (insurer's) liability, in case
death or injury is intentionally inflicted by another person, applies to this case."

In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured was shot
three times by a person unknown late on a dark and stormy night, while working in the coal shed of a
railroad company. The policy did not cover death resulting from "intentional injuries inflicted by the insured
or any other person." The inquiry was as to the question whether the shooting that caused the insured's
death was accidental or intentional; and the Court found that under the facts, showing that the murderer
knew his victim and that he fired with intent to kill, there could be no recovery under the policy which
excepted death from intentional injuries inflicted by any person.

Topic: Compulsory motor liability insurance

Subtopic: Theft clause

Paramount Insurance Corporation v. Remondeulaz

G. R. No. 173773, 28 November 2012
686 SCRA 567

Facts:
Spouses Yves and Maria Teresa Remondeulaz insured their 1994 Toyota Corolla sedan with Paramount
under a comprehensive motor vehicle insurance policy. During its effectivity, the vehicle was stolen. The
spouses reported the theft to the PNP Traffic Management Command and determined the person who rook
the vehicle, but failed to return the vehicle. Later, they notified Paramount to claim for the reimbursement of
the vehicle but refused to pay, thus an action in court. The trial court dismissed the action which was
reversed by the CA.

Issue:
Whether or not the loss of the spouses' vehicle falls within the concept of the "theft clause" under the
insurance policy.

Held:
Yes.
In People v. Bustinera, this Court had the occasion to interpret the "theft clause" of an insurance policy. In
this case, the Court explained that when one takes the motor vehicle of another without the latter’s consent
even if the motor vehicle is later returned, there is theft – there being intent to gain as the use of the thing
unlawfully taken constitutes gain.

Also, in Malayan Insurance Co., Inc. v. Court of Appeals, this Court held that the taking of a vehicle by
another person without the permission or authority from the owner thereof is sufficient to place it within the
ambit of the word theft as contemplated in the policy, and is therefore, compensable.
Moreover, the case of Santos v. People is worthy of note. Similarly in Santos, the owner of a car entrusted
his vehicle to therein petitioner Lauro Santos who owns a repair shop for carburetor repair and repainting.
However, when the owner tried to retrieve her car, she was not able to do so since Santos had abandoned
his shop. In the said case, the crime that was actually committed was Qualified Theft. However, the Court
held that because of the fact that it was not alleged in the information that the object of the crime was a car,
which is a qualifying circumstance, the Court found that Santos was only guilty of the crime of Theft and
merely considered the qualifying circumstance as an aggravating circumstance in the imposition of the
appropriate penalty. The Court therein clarified the distinction between the crime of Estafa and Theft, to wit:

x xx The principal distinction between the two crimes is that in theft the thing is taken while in estafa the
accused receives the property and converts it to his own use or benefit. However, there may be theft even
if the accused has possession of the property. If he was entrusted only with the material or physical
(natural) or de facto possession of the thing, his misappropriation of the same constitutes theft, but if he
has the juridical possession of the thing his conversion of the same constitutes embezzlement or estafa.

In the instant case, Sales did not have juridical possession over the vehicle. Hence, it is apparent that the
taking of repondents’ vehicle by Sales is without any consent or authority from the former.

Records would show that respondents entrusted possession of their vehicle only to the extent that Sales
will introduce repairs and improvements thereon, and not to permanently deprive them of possession
thereof. Since, Theft can also be committed through misappropriation, the fact that Sales failed to return
the subject vehicle to respondents constitutes Qualified Theft. Hence, since repondents’ car is undeniably
covered by a Comprehensive Motor Vehicle Insurance Policy that allows for recovery in cases of theft,
petitioner is liable under the policy for the loss of respondents’ vehicle under the "theft clause."

All told, Sales’ act of depriving respondents of their motor vehicle at, or soon after the transfer of physical
possession of the movable property, constitutes theft under the insurance policy, which is compensable.

XVI. Claims Settlement

Topic: Unfair claim settlement practices

TioKheChio v. Court of Appeals

G. R. Nos. 761010-02, 30 September 1991
202 SCRA 119

Facts:
TioKheChio imported 1000 bags of fishmeal from Dallas, Texas, USA, which were insured with Eastern
Assurance and Surety Corporation (EASCO) and shipped on board a vessel owned by Far Eastern
Shipping. When the goods reached Manila, they were found to be damaged by sea water, rendering them
useless. Tio filed a claim with EASCO and Far Eastern Shipping but both refused to pay, thus an action
filed in court. The trial court ruled in favor of Tio, which was set aside by the CA.

Issue:
Whether or not there is refusal to settle the claims.

Held:
No.
The legal rate of interest in the case at bar is six (6%) per annum as correctly held by the Appellate Court.

Section 243 of the Insurance Code provides:

The amount of any loss or damage for which an insurer may be liable, under any policy other than life
insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between the insured and the insurer or
by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the
insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt.
Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to
collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the
claim is fraudulent.
Section 244 of the aforementioned Code also provides:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim
of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance
company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses
incurred by the insured person by reason of such undeniable denial or withholding of payment plus interest
of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the
date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as
the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the
time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in
payment.

In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal or withholding
of payment on petitioner's claim. In fact, respondent court had this to say on EASCO's refusal to settle the
claim of petitioner:

... EASCO's refusal to settle the claim to TioKheChio was based on some ground which, while not sufficient
to free it from liability under its policy, nevertheless is sufficient to negate any assertion that in refusing to
pay, it acted unjustifiably.

xxxxxxxxx

The case posed some genuine issues of interpretation of the terms of the policy as to which persons may
honestly differ. This is the reason the trial court did not say EASCO's refusal was unjustified.

Topic: Delay in payment of claims

Finman General Assurance Corporation v. Court of Appeals

G. R. No. 138737, 12 July 2001
361 SCRA 514

Facts:
Usiphil Inc. obtained a fire insurance policy with Finman covering certain properties like office, furniture,
fixtures, shop machinery, and trade equipment. Later on, Usiphil filed its claim for the loss of the insured
properties due to fire, in which Finman appointed an adjuster H. H. Bayne to assess the value of the loss.
After the assessment, Usiphil demanded its claim but Finman refused, which led to the filing of an action in
court, which the trial court ruled in favor of Usiphil. The Court of Appeals affirmed the said decision.

Issue:
Whether or not there was unreasonable delay in payment of the claim.

Held:
Yes.
Anent the payment of 24% interest per annum computed from May 3, 1985 until fully paid, suffice it to say
that the same is authorized by Sections 243 and 244 of the Insurance Code:

Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other
than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between the insured and the insurer or
by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the
insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt.
Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to
collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the
claim is fraudulent.

Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the
duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of
the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the
insurance company shall be adjudged to pay damages which shall consist of attorney’s fees and other
expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment
plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the
insured, from the date following the time prescribed in section two hundred forty-two or in section two
hundred forty-three, as the case may be, until the claim is fully satisfied: Provided, That the failure to pay
any such claim within the time prescribed in said sections shall be considered prima facie evidence of
reasonable delay in payment.

Notably, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is
created by the failure of the insurer to pay the claim within the time fixed in both Sections 243 and 244.
Further, Section 29 of the policy itself provides for the payment of such interest:

29. Settlement of claim clause. The amount of any loss or damage for which the company may be liable,
under this policy shall be paid within thirty days after proof of loss is received by the company and
ascertainment of the loss or damage is made either in an agreement between the insured and the company
or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the
company of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt.
Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to
collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal to pay is based on the grounds (sic) that
the claim is fraudulent.

The policy itself obliges petitioner to pay the insurance claim within thirty days after proof of loss and
ascertainment of the loss made in an agreement between private respondent and petitioner. In this case,
as found by the CA, petitioner and private respondent signed the agreement (Exhibit E) indicating that the
amount due private respondent was P842,683.40 on April 2, 1985. Petitioner thus had until May 2, 1985 to
pay private respondent’s insurance.12 For its failure to do so, the CA and the trial court rightfully directed
petitioner to pay, inter alia, 24% interest per annum in accordance with the above quoted provisions.

Prudential Guarantee and Assurance Inc. v. Trans-Asia Shipping Lines, Inc.

G. R. No. 151890, 20 June 2006
491 SCRA 411

Facts:
Trans-Asia obtained a marine insurance policy from Prudential Guarantee for its vessel M/V Asia Korea
against fire and explosion. A fire broke out at the vessel while undergoing repairs at the port of Cebu.
Trans-Asia filed its claim for damage sustained by the vessel but denied by Prudential due to their claim is
not compensable by reason of the breach of policy conditions, thus, an action for sum of money by Trans-
Asia against Prudential. The trial court ruled in favor of Prudential, which was reversed by the Court of
Appeals.

Issue:
Whether or not there was unreasonable delay in the payment of claims.

Held:
Yes.
Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other expenses incurred
by the insured after a finding by the Insurance Commissioner or the Court, as the case may be, of an
unreasonable denial or withholding of the payment of the claims due. Moreover, the law imposes an
interest of twice the ceiling prescribed by the Monetary Board on the amount of the claim due the insured
from the date following the time prescribed in Section 242 or in Section 243, as the case may be, until the
claim is fully satisfied. Finally, Section 244 considers the failure to pay the claims within the time prescribed
in Sections 242 or 243, when applicable, as prima facie evidence of unreasonable delay in payment.

To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney’s fees
be granted. As earlier stated, under Section 244, a prima facie evidence of unreasonable delay in payment
of the claim is created by failure of the insurer to pay the claim within the time fixed in both Sections 242
and 243 of the Insurance Code. As established in Section 244, by reason of the delay and the consequent
filing of the suit by the insured, the insurers shall be adjudged to pay damages which shall consist of
attorney’s fees and other expenses incurred by the insured.

Section 244 reads:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim
of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance
company shall be adjudged to pay damages which shall consist of attorney’s fees and other expenses
incurred by the insured person by reason of such unreasonable denial or withholding of payment plus
interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured,
from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-
three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim
within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay
in payment.

Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal
in the payment of the insurance claims.

In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that
there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of P8,395,072.26
to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in "M/V Asia Korea", TRANS-
ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg International (Phils.), Inc.,
completed its survey report recommending the amount of P11,395,072.26 as the total indemnity due to
TRANS-ASIA. On 21 April 1997, PRUDENTIAL, in a letter addressed to TRANS-ASIA denied the latter’s
claim for the amount of P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997,
PRUDENTIAL sent a second letter40 to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On
13 August 1997, TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL
praying, inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the insurance
claim.

As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to
pay TRANS-ASIA, as in fact, it refuted the latter’s right to the insurance claims, from the time proof of loss
was shown and the ascertainment of the loss was made by the insurance adjuster. Evidently,
PRUDENTIAL’s unreasonable delay in satisfying TRANS-ASIA’s unpaid claims compelled the latter to file a
suit for collection.