THIRD DIVISION

[G.R. No. 112360. July 18, 2000]

RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and

TRANSWORLD KNITTING MILLS, INC., respondents.

D E C I S I O N

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of

Court seeking to annul and set aside the July 15, 1993 Decision[1] and October

22, 1993 Resolution[2] of the Court of Appeals[3] in CA-G.R. CV NO. 28779,

which modified the Ruling[4] of the Regional Trial Court of Pasig, Branch 161,

in Civil Case No. 46106.

The antecedent facts that matter are as follows:

On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued

Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc.

(Transworld), initially for One Million (P1,000,000.00) Pesos and eventually

increased to One Million Five Hundred Thousand (P1,500,000.00) Pesos, covering

the period from August 14, 1980 to March 13, 1981.

Pertinent portions of subject policy on the buildings insured, and location

thereof, read:

"On stocks of finished and/or unfinished products, raw materials and supplies

of every kind and description, the properties of the Insureds and/or held by

them in trust, on commission or on joint account with others and/or for which

they (sic) responsible in case of loss whilst contained and/or stored during

the currency of this Policy in the premises occupied by them forming part of

the buildings situate (sic) within own Compound at MAGDALO STREET, BARRIO

UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.

xxx...............xxx...............xxx

Said building of four-span lofty one storey in height with mezzanine portions

is constructed of reinforced concrete and hollow blocks and/or concrete under

galvanized iron roof and occupied as hosiery mills, garment and lingerie

factory, transistor-stereo assembly plant, offices, warehouse and caretaker's

quarters.

'Bounds in front partly by one-storey concrete building under galvanized iron

roof occupied as canteen and guardhouse, partly by building of two and partly

one storey constructed of concrete below, timber above undergalvanized iron

roof occupied as garage and quarters and partly by open space and/or tracking/

packing, beyond which is the aforementioned Magdalo Street; on its right and

left by driveway, thence open spaces, and at the rear by open spaces.'"[5]

The same pieces of property insured with the petitioner were also insured with

New India Assurance Company, Ltd., (New India).

On January 12, 1981, fire broke out in the compound of Transworld, razing the

middle portion of its four-span building and partly gutting the left and right

sections thereof. A two-storey building (behind said four-span building) where

fun and amusement machines and spare parts were stored, was also destroyed by

the fire.

Transworld filed its insurance claims with Rizal Surety & Insurance Company

and New India Assurance Company but to no avail.

On May 26, 1982, private respondent brought against the said insurance

companies an action for collection of sum of money and damages, docketed as

Civil Case No. 46106 before Branch 161 of the then Court of First Instance of

Rizal; praying for judgment ordering Rizal Insurance and New India to pay the

amount of P2,747, 867.00 plus legal interest, P400,000.00 as attorney's fees,

exemplary damages, expenses of litigation of P50,000.00 and costs of suit.[6]

Petitioner Rizal Insurance countered that its fire insurance policy sued upon

covered only the contents of the four-span building, which was partly burned,

and not the damage caused by the fire on the two-storey annex building.[7]

On January 4, 1990, the trial court rendered its decision; disposing as

follows:

"ACCORDINGLY, judgment is hereby rendered as follows:

(1)Dismissing the case as against The New India Assurance Co., Ltd.;

(2) Ordering defendant Rizal Surety And Insurance Company to pay Transwrold

(sic) Knitting Mills, Inc. the amount of P826, 500.00 representing the actual

value of the losses suffered by it; and

(3) Cost against defendant Rizal Surety and Insurance Company.

SO ORDERED."[8]

Both the petitioner, Rizal Insurance Company, and private respondent,

Transworld Knitting Mills, Inc., went to the Court of Appeals, which came out

with its decision of July 15, 1993 under attack, the decretal portion of which

reads:

"WHEREFORE, and upon all the foregoing, the decision of the court below is

MODIFIED in that defendant New India Assurance Company has and is hereby

required to pay plaintiff-appellant the amount of P1,818,604.19 while the

other Rizal Surety has to pay the plaintiff-appellant P470,328.67, based on

the actual losses sustained by plaintiff Transworld in the fire, totalling

P2,790,376.00 as against the amounts of fire insurance coverages respectively

extended by New India in the amount of P5,800,000.00 and Rizal Surety and

Insurance Company in the amount of P1,500,000.00.

No costs.

SO ORDERED."[9]

On August 20, 1993, from the aforesaid judgment of the Court of Appeals New

India appealed to this Court theorizing inter alia that the private respondent

could not be compensated for the loss of the fun and amusement machines and

spare parts stored at the two-storey building because it (Transworld) had no

insurable interest in said goods or items.

On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-

111118 (New India Assurance Company Ltd. vs. Court of Appeals).

Petitioner Rizal Insurance and private respondent Transworld, interposed a

Motion for Reconsideration before the Court of Appeals, and on October 22,

1993, the Court of Appeals reconsidered its decision of July 15, 1993, as

regards the imposition of interest, ruling thus:

"WHEREFORE, the Decision of July 15, 1993 is amended but only insofar as the

imposition of legal interest is concerned, that, on the assessment against New

India Assurance Company on the amount of P1,818,604.19 and that against Rizal

Surety & Insurance Company on the amount of P470,328.67, from May 26, 1982

when the complaint was filed until payment is made. The rest of the said

decision is retained in all other respects.

SO ORDERED."[10]

Undaunted, petitioner Rizal Surety & Insurance Company found its way to this

Court via the present Petition, contending that:

I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX BUILDING WHERE

THE BULK OF THE BURNED PROPERTIES WERE STORED, WAS INCLUDED IN THE COVERAGE OF

THE INSURANCE POLICY ISSUED BY RIZAL SURETY TO TRANSWORLD.

II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT CONSIDERING

THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN IMMEDIATELY AFTER THE FIRE,

WHICH CLEARLY SHOW THAT THE PREMISES OCCUPIED BY TRANSWORLD, WHERE THE INSURED

PROPERTIES WERE LOCATED, SUSTAINED PARTIAL DAMAGE ONLY.

III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT TRANSWORLD HAD ACTED IN

PALPABLE BAD FAITH AND WITH MALICE IN FILING ITS CLEARLY UNFOUNDED CIVIL

ACTION, AND IN NOT ORDERING TRANSWORLD TO PAY TO RIZAL SURETY MORAL AND

PUNITIVE DAMAGES (ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND EXPENSES OF

LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL CODE).[11]

The Petition is not impressed with merit.

It is petitioner's submission that the fire insurance policy litigated upon

protected only the contents of the main building (four-span),[12] and did not

include those stored in the two-storey annex building. On the other hand, the

private respondent theorized that the so called "annex" was not an annex but

was actually an integral part of the four-span building[13] and therefore, the

goods and items stored therein were covered by the same fire insurance policy.

Resolution of the issues posited here hinges on the proper interpretation of

the stipulation in subject fire insurance policy regarding its coverage, which

reads:

"xxx contained and/or stored during the currency of this Policy in the

premises occupied by them forming part of the buildings situate (sic) within

own Compound xxx"

Therefrom, it can be gleaned unerringly that the fire insurance policy in

question did not limit its coverage to what were stored in the four-span

building. As opined by the trial court of origin, two requirements must concur

in order that the said fun and amusement machines and spare parts would be

deemed protected by the fire insurance policy under scrutiny, to wit:

"First, said properties must be contained and/or stored in the areas occupied

by Transworld and second, said areas must form part of the building described

in the policy xxx"[14]

'Said building of four-span lofty one storey in height with mezzanine portions

is constructed of reinforced concrete and hollow blocks and/or concrete under

galvanized iron roof and occupied as hosiery mills, garment and lingerie

factory, transistor-stereo assembly plant, offices, ware house and caretaker's

quarter.'

The Court is mindful of the well-entrenched doctrine that factual findings by

the Court of Appeals are conclusive on the parties and not reviewable by this

Court, and the same carry even more weight when the Court of Appeals has

affirmed the findings of fact arrived at by the lower court.[15]

In the case under consideration, both the trial court and the Court of Appeals

found that the so called "annex " was not an annex building but an integral

and inseparable part of the four-span building described in the policy and

consequently, the machines and spare parts stored therein were covered by the

fire insurance in dispute. The letter-report of the Manila Adjusters and

Surveyor's Company, which petitioner itself cited and invoked, describes the

"annex" building as follows:

"Two-storey building constructed of partly timber and partly concrete hollow

blocks under g.i. roof which is adjoining and intercommunicating with the

repair of the first right span of the lofty storey building and thence by

property fence wall."[16]

Verily, the two-storey building involved, a permanent structure which adjoins

and intercommunicates with the "first right span of the lofty storey

building",[17] formed part thereof, and meets the requisites for

compensability under the fire insurance policy sued upon.

So also, considering that the two-storey building aforementioned was already

existing when subject fire insurance policy contract was entered into on

January 12, 1981, having been constructed sometime in 1978,[18] petitioner

should have specifically excluded the said two-storey building from the

coverage of the fire insurance if minded to exclude the same but if did not,

and instead, went on to provide that such fire insurance policy covers the

products, raw materials and supplies stored within the premises of respondent

Transworld which was an integral part of the four-span building occupied by

Transworld, knowing fully well the existence of such building adjoining and

intercommunicating with the right section of the four-span building.

After a careful study, the Court does not find any basis for disturbing what

the lower courts found and arrived at.

Indeed, the stipulation as to the coverage of the fire insurance policy under

controversy has created a doubt regarding the portions of the building insured

thereby. Article 1377 of the New Civil Code provides:

"Art.1377. The interpretation of obscure words or stipulations in a contract

shall not favor the party who caused the obscurity"

Conformably, it stands to reason that the doubt should be resolved against the

petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted

the fire insurance policy contract under scrutiny. Citing the aforecited

provision of law in point, the Court in Landicho vs. Government Service

Insurance System,[19] ruled:

"This is particularly true as regards insurance policies, in respect of which

it is settled that the 'terms in an insurance policy, which are ambiguous,

equivocal, or uncertain x x x are to be construed strictly and most strongly

against the insurer, and liberally in favor of the insured so as to effect the

dominant purpose of indemnity or payment to the insured, especially where

forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that

the 'insured usually has no voice in the selection or arrangement of the words

employed and that the language of the contract is selected with great care and

deliberation by experts and legal advisers employed by, and acting exclusively

in the interest of, the insurance company.' (44 C.J.S., p. 1174).""[20]

Equally relevant is the following disquisition of the Court in Fieldmen's

Insurance Company, Inc. vs. Vda. De Songco,[21] to wit:

"'This rigid application of the rule on ambiguities has become necessary in

view of current business practices. The courts cannot ignore that nowadays

monopolies, cartels and concentration of capital, endowed with overwhelming

economic power, manage to impose upon parties dealing with them cunningly

prepared 'agreements' that the weaker party may not change one whit, his

participation in the 'agreement' being reduced to the alternative to 'take it

or leave it' labelled since Raymond Saleilles 'contracts by adherence'

(contrats [sic] d'adhesion), in contrast to these entered into by parties

bargaining on an equal footing, such contracts (of which policies of insurance

and international bills of lading are prime example) obviously call for

greater strictness and vigilance on the part of courts of justice with a view

to protecting the weaker party from abuses and imposition, and prevent their

becoming traps for the unwary (New Civil Code, Article 24; Sent. of Supreme

Court of Spain, 13 Dec. 1934, 27 February 1942.)'"[22]

The issue of whether or not Transworld has an insurable interest in the fun

and amusement machines and spare parts, which entitles it to be indemnified

for the loss thereof, had been settled in G.R. No. L-111118, entitled New

India Assurance Company, Ltd., vs. Court of Appeals, where the appeal of New

India from the decision of the Court of Appeals under review, was denied with

finality by this Court on February 2, 1994.

The rule on conclusiveness of judgment, which obtains under the premises,

precludes the relitigation of a particular fact or issue in another action

between the same parties based on a different claim or cause of action. "xxx

the judgment in the prior action operates as estoppel only as to those matters

in issue or points controverted, upon the determination of which the finding

or judgment was rendered. In fine, the previous judgment is conclusive in the

second case, only as those matters actually and directly controverted and

determined and not as to matters merely involved therein."[23]

Applying the abovecited pronouncement, the Court, in Smith Bell and Company

(Phils.), Inc. vs. Court of Appeals,[24] held that the issue of negligence of

the shipping line, which issue had already been passed upon in a case filed by

one of the insurers, is conclusive and can no longer be relitigated in a

similar case filed by another insurer against the same shipping line on the

basis of the same factual circumstances. Ratiocinating further, the Court

opined:

"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru')

had been negligent, or so negligent as to have proximately caused the

collision between them, was an issue that was actually, directly and expressly

raised, controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J.,

resolved that issue in his Decision and held the 'Don Carlos' to have been

negligent rather than the 'Yotai Maru' and, as already noted, that Decision

was affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6

December 1987. The Reyes Decision thus became final and executory

approximately two (2) years before the Sison Decision, which is assailed in

the case at bar, was promulgated. Applying the rule of conclusiveness of

judgment, the question of which vessel had been negligent in the collision

between the two (2) vessels, had long been settled by this Court and could no

longer be relitigated in C.A.-G.R. No. 61206-R. Private respondent Go Thong

was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of

this Court. The Court of Appeals fell into clear and reversible error when it

disregarded the Decision of this Court affirming the Reyes Decision."[25]

The controversy at bar is on all fours with the aforecited case. Considering

that private respondent's insurable interest in, and compensability for the

loss of subject fun and amusement machines and spare parts, had been

adjudicated, settled and sustained by the Court of Appeals in CA-G.R. CV NO.

28779, and by this Court in G.R. No. L-111118, in a Resolution, dated February

2, 1994, the same can no longer be relitigated and passed upon in the present

case. Ineluctably, the petitioner, Rizal Surety Insurance Company, is bound by

the ruling of the Court of Appeals and of this Court that the private

respondent has an insurable interest in the aforesaid fun and amusement

machines and spare parts; and should be indemnified for the loss of the same.

So also, the Court of Appeals correctly adjudged petitioner liable for the

amount of P470,328.67, it being the total loss and damage suffered by

Transworld for which petitioner Rizal Insurance is liable.[26]

All things studiedly considered and viewed in proper perspective, the Court is

of the irresistible conclusion, and so finds, that the Court of Appeals erred

not in holding the petitioner, Rizal Surety Insurance Company, liable for the

destruction and loss of the insured buildings and articles of the private

respondent.

WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated

October 22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED

in toto. No pronouncement as to costs.

SO ORDERED.

FIRST DIVISION

BLUE CROSS HEALTH CARE, G.R. No. 169737

INC.,

Petitioner, Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,

- v e r s u s - CORONA,

AZCUNA and

LEONARDO-DE CASTRO, JJ.

NEOMI* and DANILO OLIVARES,

Respondents. Promulgated:

February 12, 2008

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - x

D E C I S I O N

CORONA, J.:

This is a petition for review on certiorari[1] of a decision[2] and

resolution[3] of the Court of Appeals (CA) dated July 29, 2005 and September

21, 2005, respectively, in CA-G.R. SP No. 84163 which affirmed the decision of

the Regional Trial Court (RTC), Makati City, Branch 61 dated February 2, 2004

in Civil Case No. 03-1153,[4] which in turn reversed the decision of the

Metropolitan Trial Court (MeTC), Makati City, Branch 66 dated August 5, 2003

in Civil Case No. 80867.[5]

Respondent Neomi T. Olivares applied for a health care program with petitioner

Blue Cross Health Care, Inc., a health maintenance firm. For the period

October 16, 2002 to October 15, 2003,[6] she paid the amount of P11,117. For

the same period, she also availed of the additional service of limitless

consultations for an additional amount of P1,000. She paid these amounts in

full on October 17, 2002. The application was approved on October 22, 2002. In

the health care agreement, ailments due to pre-existing conditions were

excluded from the coverage.[7]

On November 30, 2002, or barely 38 days from the effectivity of her health

insurance, respondent Neomi suffered a stroke and was admitted at the Medical

City which was one of the hospitals accredited by petitioner. During her

confinement, she underwent several laboratory tests. On December 2, 2002, her

attending physician, Dr. Edmundo Saniel,[8] informed her that she could be

discharged from the hospital. She incurred hospital expenses amounting to

P34,217.20. Consequently, she requested from the representative of petitioner

at Medical City a letter of authorization in order to settle her medical

bills. But petitioner refused to issue the letter and suspended payment

pending the submission of a certification from her attending physician that

the stroke she suffered was not caused by a pre-existing condition.[9]

She was discharged from the hospital on December 3, 2002. On December 5, 2002,

she demanded that petitioner pay her medical bill. When petitioner still

refused, she and her husband, respondent Danilo Olivares, were constrained to

settle the bill.[10] They thereafter filed a complaint for collection of sum

of money against petitioner in the MeTC on January 8, 2003.[11] In its answer

dated January 24, 2003, petitioner maintained that it had not yet denied

respondents' claim as it was still awaiting Dr. Saniel's report.

In a letter to petitioner dated February 14, 2003, Dr. Saniel stated that:

This is in response to your letter dated February 13, 2003. [Respondent] Neomi

T. Olivares called by phone on January 29, 2003. She stated that she is

invoking patient-physician confidentiality. That she no longer has any

relationship with [petitioner]. And that I should not release any medical

information concerning her neurologic status to anyone without her approval.

Hence, the same day I instructed my secretary to inform your office thru Ms.

Bernie regarding [respondent's] wishes.

xxx xxx xxx[12]

In a decision dated August 5, 2003, the MeTC dismissed the complaint for lack

of cause of action. It held:

xxx the best person to determine whether or not the stroke she suffered was

not caused by pre-existing conditions is her attending physician Dr. Saniel

who treated her and conducted the test during her confinement. xxx But since

the evidence on record reveals that it was no less than [respondent Neomi]

herself who prevented her attending physician from issuing the required

certification, petitioner cannot be faulted from suspending payment of her

claim, for until and unless it can be shown from the findings made by her

attending physician that the stroke she suffered was not due to pre-existing

conditions could she demand entitlement to the benefits of her policy.[13]

On appeal, the RTC, in a decision dated February 2, 2004, reversed the ruling

of the MeTC and ordered petitioner to pay respondents the following amounts:

(1) P34,217.20 representing the medical bill in Medical City and P1,000 as

reimbursement for consultation fees, with legal interest from the filing of

the complaint until fully paid; (2) P20,000 as moral damages; (3) P20,000 as

exemplary damages; (4) P20,000 as attorney's fees and (5) costs of suit.[14]

The RTC held that it was the burden of petitioner to prove that the stroke of

respondent Neomi was excluded from the coverage of the health care program for

being caused by a pre-existing condition. It was not able to discharge that

burden.[15]

Aggrieved, petitioner filed a petition for review under Rule 42 of the Rules

of Court in the CA. In a decision promulgated on July 29, 2005, the CA

affirmed the decision of the RTC. It denied reconsideration in a resolution

promulgated on September 21, 2005. Hence this petition which raises the

following issues: (1) whether petitioner was able to prove that respondent

Neomi's stroke was caused by a pre-existing condition and therefore was

excluded from the coverage of the health care agreement and (2) whether it was

liable for moral and exemplary damages and attorney's fees.

The health care agreement defined a pre-existing condition as:

x x x a disability which existed before the commencement date of membership

whose natural history can be clinically determined, whether or not the Member

was aware of such illness or condition. Such conditions also include

disabilities existing prior to reinstatement date in the case of lapse of an

Agreement. Notwithstanding, the following disabilities but not to the

exclusion of others are considered pre-existing conditions including their

complications when occurring during the first year of a Members coverage:

I. Tumor of Internal Organs

II. Hemorrhoids/Anal Fistula

III. Diseased tonsils and sinus conditions requiring surgery

IV. Cataract/Glaucoma

V. Pathological Abnormalities of nasal septum or turbinates

VI. Goiter and other thyroid disorders

VII. Hernia/Benign prostatic hypertrophy

VIII. Endometriosis

IX. Asthma/Chronic Obstructive Lung disease

X. Epilepsy

XI. Scholiosis/Herniated disc and other Spinal column

abnormalities

XII. Tuberculosis

XIII. Cholecysitis

XIV. Gastric or Duodenal ulcer

XV. Hallux valgus

XVI. Hypertension and other Cardiovascular diseases

XVII. Calculi

XVIII. Tumors of skin, muscular tissue, bone or any form of blood

dyscracias

XIX. Diabetes Mellitus

XX. Collagen/Auto-Immune disease

After the Member has been continuously covered for 12 months, this pre-

existing provision shall no longer be applicable except for illnesses

specifically excluded by an endorsement and made part of this Agreement.[16]

Under this provision, disabilities which existed before the commencement of

the agreement are excluded from its coverage if they become manifest within

one year from its effectivity. Stated otherwise, petitioner is not liable for

pre-existing conditions if they occur within one year from the time the

agreement takes effect.

Petitioner argues that respondents prevented Dr. Saniel from submitting his

report regarding the medical condition of Neomi. Hence, it contends that the

presumption that evidence willfully suppressed would be adverse if produced

should apply in its favor.[17]

Respondents counter that the burden was on petitioner to prove that Neomi's

stroke was excluded from the coverage of their agreement because it was due to

a pre-existing condition. It failed to prove this.[18]

We agree with respondents.

In Philamcare Health Systems, Inc. v. CA,[19] we ruled that a health care

agreement is in the nature of a non-life insurance.[20] It is an established

rule in insurance contracts that when their terms contain limitations on

liability, they should be construed strictly against the insurer. These are

contracts of adhesion the terms of which must be interpreted and enforced

stringently against the insurer which prepared the contract. This doctrine is

equally applicable to health care agreements.[21]

Petitioner never presented any evidence to prove that respondent Neomi's

stroke was due to a pre-existing condition. It merely speculated that Dr.

Saniel's report would be adverse to Neomi, based on her invocation of the

doctor-patient privilege. This was a disputable presumption at best.

Section 3 (e), Rule 131 of the Rules of Court states:

Sec. 3. Disputable presumptions. The following presumptions are satisfactory

if uncontradicted, but may be contradicted and overcome by other evidence:

xxx xxx xxx

(e) That evidence willfully suppressed would be adverse if produced.

Suffice it to say that this presumption does not apply if (a) the evidence is

at the disposal of both parties; (b) the suppression was not willful; (c) it

is merely corroborative or cumulative and (d) the suppression is an exercise

of a privilege.[22] Here, respondents' refusal to present or allow the

presentation of Dr. Saniel's report was justified. It was privileged

communication between physician and patient.

Furthermore, as already stated, limitations of liability on the part of the

insurer or health care provider must be construed in such a way as to preclude

it from evading its obligations. Accordingly, they should be scrutinized by

the courts with extreme jealousy[23] and care and with a jaundiced eye.[24]

Since petitioner had the burden of proving exception to liability, it should

have made its own assessment of whether respondent Neomi had a pre-existing

condition when it failed to obtain the attending physician's report. It could

not just passively wait for Dr. Saniel's report to bail it out. The mere

reliance on a disputable presumption does not meet the strict standard

required under our jurisprudence.

Next, petitioner argues that it should not be held liable for moral and

exemplary damages, and attorney's fees since it did not act in bad faith in

denying respondent Neomi's claim. It insists that it waited in good faith for

Dr. Saniel's report and that, based on general medical findings, it had

reasonable ground to believe that her stroke was due to a pre-existing

condition, considering it occurred only 38 days after the coverage took

effect.[25]

We disagree.

The RTC and CA found that there was a factual basis for the damages adjudged

against petitioner. They found that it was guilty of bad faith in denying a

claim based merely on its own perception that there was a pre-existing

condition:

[Respondents] have sufficiently shown that [they] were forced to engage in a

dispute with [petitioner] over a legitimate claim while [respondent Neomi was]

still experiencing the effects of a stroke and forced to pay for her medical

bills during and after her hospitalization despite being covered by

[petitioners] health care program, thereby suffering in the process extreme

mental anguish, shock, serious anxiety and great stress. [They] have shown

that because of the refusal of [petitioner] to issue a letter of authorization

and to pay [respondent Neomi's] hospital bills, [they had] to engage the

services of counsel for a fee of P20,000.00. Finally, the refusal of

petitioner to pay respondent Neomi's bills smacks of bad faith, as its refusal

[was] merely based on its own perception that a stroke is a pre-existing

condition. (emphasis supplied)

This is a factual matter binding and conclusive on this Court.[26] We see no

reason to disturb these findings.

WHEREFORE, the petition is hereby DENIED. The July 29, 2005 decision and

September 21, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 84163

are AFFIRMED.

Treble costs against petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.

COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari

is whether the petitioner is liable under the Money, Security, and Payroll

Robbery policy it issued to the private respondent or whether recovery

thereunder is precluded under the general exceptions clause thereof. Both the

trial court and the Court of Appeals held that there should be recovery. The

petitioner contends otherwise.

This case began with the filing with the Regional Trial Court (RTC) of Makati,

Metro Manila, by private respondent Producers Bank of the Philippines

(hereinafter Producers) against petitioner Fortune Insurance and Surety Co.,

Inc. (hereinafter Fortune) of a complaint for recovery of the sum of

P725,000.00 under the policy issued by Fortune. The sum was allegedly lost

during a robbery of Producer's armored vehicle while it was in transit to

transfer the money from its Pasay City Branch to its head office in Makati.

The case was docketed as Civil Case No. 1817 and assigned to Branch 146

thereof.

After joinder of issues, the parties asked the trial court to render judgment

based on the following stipulation of facts:

1. The plaintiff was insured by the defendants and an insurance policy was

issued, the duplicate original of which is hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring

cash in the sum of P725,000.00 under the custody of its teller, Maribeth

Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas,

Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The

robbery took place while the armored car was traveling along Taft Avenue in

Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted

by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by

PRC Management Systems with the plaintiff by virtue of an Agreement executed

on August 7, 1983, a duplicate original copy of which is hereto attached as

Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc.

with the plaintiff by virtue of a contract of Security Service executed on

October 25, 1982, a duplicate original copy of which is hereto attached as

Exhibit "C";

5. After an investigation conducted by the Pasay police authorities, the

driver Magalong and guard Atiga were charged, together with Edelmer Bantigue Y

Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-

Highway Robbery Law) before the Fiscal of Pasay City. A copy of the complaint

is hereto attached as Exhibit "D";

6. The Fiscal of Pasay City then filed an information charging the

aforesaid persons with the said crime before Branch 112 of the Regional Trial

Court of Pasay City. A copy of the said information is hereto attached as

Exhibit "E." The case is still being tried as of this date;

7. Demands were made by the plaintiff upon the defendant to pay the amount

of the loss of P725,000.00, but the latter refused to pay as the loss is

excluded from the coverage of the insurance policy, attached hereto as Exhibit

"A," specifically under page 1 thereof, "General Exceptions" Section (b),

which is marked as Exhibit "A-1," and which reads as follows:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in report of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the

insured or any officer, employee, partner, director, trustee or authorized

representative of the Insured whether acting alone or in conjunction with

others. . . .

8. The plaintiff opposes the contention of the defendant and contends that

Atiga and Magalong are not its "officer, employee, . . . trustee or authorized

representative . . . at the time of the robbery. 1

On 26 April 1990, the trial court rendered its decision in favor of Producers.

The dispositive portion thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and against

defendant, and

(a) orders defendant to pay plaintiff the net amount of P540,000.00 as

liability under Policy No. 0207 (as mitigated by the P40,000.00 special clause

deduction and by the recovered sum of P145,000.00), with interest thereon at

the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for

attorney's fees; and

(c) orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or

representatives of Producers. It Said:

The Court is satisfied that plaintiff may not be said to have selected and

engaged Magalong and Atiga, their services as armored car driver and as

security guard having been merely offered by PRC Management and by Unicorn

Security and which latter firms assigned them to plaintiff. The wages and

salaries of both Magalong and Atiga are presumably paid by their respective

firms, which alone wields the power to dismiss them. Magalong and Atiga are

assigned to plaintiff in fulfillment of agreements to provide driving services

and property protection as such in a context which does not impress the

Court as translating into plaintiff's power to control the conduct of any

assigned driver or security guard, beyond perhaps entitling plaintiff to

request are replacement for such driver guard. The finding is accordingly

compelled that neither Magalong nor Atiga were plaintiff's "employees" in

avoidance of defendant's liability under the policy, particularly the general

exceptions therein embodied.

Neither is the Court prepared to accept the proposition that driver Magalong

and guard Atiga were the "authorized representatives" of plaintiff. They were

merely an assigned armored car driver and security guard, respectively, for

the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati

Head Office. Quite plainly it was teller Maribeth Alampay who had "custody"

of the P725,000.00 cash being transferred along a specified money route, and

hence plaintiff's then designated "messenger" adverted to in the policy. 3

Fortune appealed this decision to the Court of Appeals which docketed the case

as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May 1994, it

affirmed in toto the appealed decision.

The Court of Appeals agreed with the conclusion of the trial court that

Magalong and Atiga were neither employees nor authorized representatives of

Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of the

insured and strictly against the insurance company (New Life Enterprises vs.

Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of

Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to

be construed according to the sense and meaning of the terms which the parties

themselves have used. If such terms are clear and unambiguous, they must be

taken and understood in their plain, ordinary and popular sense (New Life

Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of

Appeals, 195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is

plain, ordinary and simple. No other interpretation is necessary. The word

"employee" must be taken to mean in the ordinary sense.

The Labor Code is a special law specifically dealing with/and specifically

designed to protect labor and therefore its definition as to employer-employee

relationships insofar as the application/enforcement of said Code is concerned

must necessarily be inapplicable to an insurance contract which defendant-

appellant itself had formulated. Had it intended to apply the Labor Code in

defining what the word "employee" refers to, it must/should have so stated

expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiff-

appellee bank because it has no power to hire or to dismiss said driver and

security guard under the contracts (Exhs. 8 and C) except only to ask for

their replacements from the contractors. 5

On 20 June 1994, Fortune filed this petition for review on certiorari. It

alleges that the trial court and the Court of Appeals erred in holding it

liable under the insurance policy because the loss falls within the general

exceptions clause considering that driver Magalong and security guard Atiga

were Producers' authorized representatives or employees in the transfer of the

money and payroll from its branch office in Pasay City to its head office in

Makati.

According to Fortune, when Producers commissioned a guard and a driver to

transfer its funds from one branch to another, they effectively and

necessarily became its authorized representatives in the care and custody of

the money. Assuming that they could not be considered authorized

representatives, they were, nevertheless, employees of Producers. It asserts

that the existence of an employer-employee relationship "is determined by law

and being such, it cannot be the subject of agreement." Thus, if there was in

reality an employer-employee relationship between Producers, on the one hand,

and Magalong and Atiga, on the other, the provisions in the contracts of

Producers with PRC Management System for Magalong and with Unicorn Security

Services for Atiga which state that Producers is not their employer and that

it is absolved from any liability as an employer, would not obliterate the

relationship.

Fortune points out that an employer-employee relationship depends upon four

standards: (1) the manner of selection and engagement of the putative

employee; (2) the mode of payment of wages; (3) the presence or absence of a

power to dismiss; and (4) the presence and absence of a power to control the

putative employee's conduct. Of the four, the right-of-control test has been

held to be the decisive factor. 6 It asserts that the power of control over

Magalong and Atiga was vested in and exercised by Producers. Fortune further

insists that PRC Management System and Unicorn Security Services are but

"labor-only" contractors under Article 106 of the Labor Code which provides:

Art. 106. Contractor or subcontractor. There is "labor-only" contracting

where the person supplying workers to an employer does not have substantial

capital or investment in the form of tools, equipment, machineries, work

premises, among others, and the workers recruited and placed by such persons

are performing activities which are directly related to the principal business

of such employer. In such cases, the person or intermediary shall be

considered merely as an agent of the employer who shall be responsible to the

workers in the same manner and extent as if the latter were directly employed

by him.

Fortune thus contends that Magalong and Atiga were employees of Producers,

following the ruling in International Timber Corp. vs. NLRC 7 that a finding

that a contractor is a "labor-only" contractor is equivalent to a finding that

there is an employer-employee relationship between the owner of the project

and the employees of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga were not its

employees since it had nothing to do with their selection and engagement, the

payment of their wages, their dismissal, and the control of their conduct.

Producers argued that the rule in International Timber Corp. is not applicable

to all cases but only when it becomes necessary to prevent any violation or

circumvention of the Labor Code, a social legislation whose provisions may set

aside contracts entered into by parties in order to give protection to the

working man.

Producers further asseverates that what should be applied is the rule in

American President Lines vs. Clave, 8 to wit:

In determining the existence of employer-employee relationship, the following

elements are generally considered, namely: (1) the selection and engagement of

the employee; (2) the payment of wages; (3) the power of dismissal; and (4)

the power to control the employee's conduct.

Since under Producers' contract with PRC Management Systems it is the latter

which assigned Magalong as the driver of Producers' armored car and was

responsible for his faithful discharge of his duties and responsibilities, and

since Producers paid the monthly compensation of P1,400.00 per driver to PRC

Management Systems and not to Magalong, it is clear that Magalong was not

Producers' employee. As to Atiga, Producers relies on the provision of its

contract with Unicorn Security Services which provides that the guards of the

latter "are in no sense employees of the CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a

theft or robbery insurance policy which is a form of casualty insurance.

Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising

from accident or mishap, excluding certain types of loss which by law or

custom are considered as falling exclusively within the scope of insurance

such as fire or marine. It includes, but is not limited to, employer's

liability insurance, public liability insurance, motor vehicle liability

insurance, plate glass insurance, burglary and theft insurance, personal

accident and health insurance as written by non-life insurance companies, and

other substantially similar kinds of insurance. (emphases supplied)

Except with respect to compulsory motor vehicle liability insurance, the

Insurance Code contains no other provisions applicable to casualty insurance

or to robbery insurance in particular. These contracts are, therefore,

governed by the general provisions applicable to all types of insurance.

Outside of these, the rights and obligations of the parties must be determined

by the terms of their contract, taking into consideration its purpose and

always in accordance with the general principles of insurance law. 9

It has been aptly observed that in burglary, robbery, and theft insurance,

"the opportunity to defraud the insurer the moral hazard is so great that

insurers have found it necessary to fill up their policies with countless

restrictions, many designed to reduce this hazard. Seldom does the insurer

assume the risk of all losses due to the hazards insured against." 10 Persons

frequently excluded under such provisions are those in the insured's service

and employment. 11 The purpose of the exception is to guard against liability

should the theft be committed by one having unrestricted access to the

property. 12 In such cases, the terms specifying the excluded classes are to

be given their meaning as understood in common speech. 13 The terms "service"

and "employment" are generally associated with the idea of selection, control,

and compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity therein

should be resolved against the insurer, 15 or it should be construed liberally

in favor of the insured and strictly against the insurer. 16 Limitations of

liability should be regarded with extreme jealousy and must be construed

in such a way, as to preclude the insurer from non-compliance with its

obligation. 17 It goes without saying then that if the terms of the contract

are clear and unambiguous, there is no room for construction and such terms

cannot be enlarged or diminished by judicial construction. 18

An insurance contract is a contract of indemnity upon the terms and conditions

specified therein. 19 It is settled that the terms of the policy constitute

the measure of the insurer's liability. 20 In the absence of statutory

prohibition to the contrary, insurance companies have the same rights as

individuals to limit their liability and to impose whatever conditions they

deem best upon their obligations not inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong

and Atiga qualify as employees or authorized representatives of Producers

under paragraph (b) of the general exceptions clause of the policy which, for

easy reference, is again quoted:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the

insured or any officer, employee, partner, director, trustee or authorized

representative of the Insured whether acting alone or in conjunction with

others. . . . (emphases supplied)

There is marked disagreement between the parties on the correct meaning of the

terms "employee" and "authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention

to exclude and exempt from protection and coverage losses arising from

dishonest, fraudulent, or criminal acts of persons granted or having

unrestricted access to Producers' money or payroll. When it used then the term

"employee," it must have had in mind any person who qualifies as such as

generally and universally understood, or jurisprudentially established in the

light of the four standards in the determination of the employer-employee

relationship, 21 or as statutorily declared even in a limited sense as in the

case of Article 106 of the Labor Code which considers the employees under a

"labor-only" contract as employees of the party employing them and not of the

party who supplied them to the employer. 22

Fortune claims that Producers' contracts with PRC Management Systems and

Unicorn Security Services are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not the

employer of Magalong. Notwithstanding such express assumption of PRC

Management Systems and Unicorn Security Services that the drivers and the

security guards each shall supply to Producers are not the latter's employees,

it may, in fact, be that it is because the contracts are, indeed, "labor-only"

contracts. Whether they are is, in the light of the criteria provided for in

Article 106 of the Labor Code, a question of fact. Since the parties opted to

submit the case for judgment on the basis of their stipulation of facts which

are strictly limited to the insurance policy, the contracts with PRC

Management Systems and Unicorn Security Services, the complaint for violation

of P.D. No. 532, and the information therefor filed by the City Fiscal of

Pasay City, there is a paucity of evidence as to whether the contracts between

Producers and PRC Management Systems and Unicorn Security Services are "labor-

only" contracts.

But even granting for the sake of argument that these contracts were not

"labor-only" contracts, and PRC Management Systems and Unicorn Security

Services were truly independent contractors, we are satisfied that Magalong

and Atiga were, in respect of the transfer of Producer's money from its Pasay

City branch to its head office in Makati, its "authorized representatives" who

served as such with its teller Maribeth Alampay. Howsoever viewed, Producers

entrusted the three with the specific duty to safely transfer the money to its

head office, with Alampay to be responsible for its custody in transit;

Magalong to drive the armored vehicle which would carry the money; and Atiga

to provide the needed security for the money, the vehicle, and his two other

companions. In short, for these particular tasks, the three acted as agents of

Producers. A "representative" is defined as one who represents or stands in

the place of another; one who represents others or another in a special

capacity, as an agent, and is interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the general

exceptions clause of the insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court

of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch

146 of the Regional Trial Court of Makati in Civil Case No. 1817 are REVERSED

and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.

SECOND DIVISION

[G.R. No. 156167. May 16, 2005]

GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION,

respondent.

D E C I S I O N

PUNO, J.:

Before the Court is the petition for certiorari under Rule 45 of the Revised

Rules of Court by petitioner GULF RESORTS, INC., against respondent PHILIPPINE

CHARTER INSURANCE CORPORATION. Petitioner assails the appellate court

decision[1] which dismissed its two appeals and affirmed the judgment of the

trial court.

For review are the warring interpretations of petitioner and respondent on the

scope of the insurance companys liability for earthquake damage to petitioners

properties. Petitioner avers that, pursuant to its earthquake shock

endorsement rider, Insurance Policy No. 31944 covers all damages to the

properties within its resort caused by earthquake. Respondent contends that

the rider limits its liability for loss to the two swimming pools of

petitioner.

The facts as established by the court a quo, and affirmed by the appellate

court are as follows:

[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and

had its properties in said resort insured originally with the American Home

Assurance Company (AHAC-AIU). In the first four insurance policies issued by

AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. C, D, E and F;

also Exhs. 1, 2, 3 and 4 respectively), the risk of loss from earthquake shock

was extended only to plaintiffs two swimming pools, thus, earthquake shock

endt. (Item 5 only) (Exhs. C-1; D-1, and E and two (2) swimming pools only

(Exhs. C-1; D-1, E and F-1). Item 5 in those policies referred to the two (2)

swimming pools only (Exhs. 1-B, 2-B, 3-B and F-2); that subsequently AHAC(AIU)

issued in plaintiffs favor Policy No. 206-4182383-0 covering the period March

14, 1988 to March 14, 1989 (Exhs. G also G-1) and in said policy the

earthquake endorsement clause as indicated in Exhibits C-1, D-1, Exhibits E

and F-1 was deleted and the entry under Endorsements/Warranties at the time of

issue read that plaintiff renewed its policy with AHAC (AIU) for the period of

March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. H) which

carried the entry under Endorsement/Warranties at Time of Issue, which read

Endorsement to Include Earthquake Shock (Exh. 6-B-1) in the amount of

P10,700.00 and paid P42,658.14 (Exhs. 6-A and 6-B) as premium thereof,

computed as follows:

Item -P7,691,000.00 - on the Clubhouse only

@ .392%;

1,500,000.00 - on the furniture, etc.

contained in the building

above-mentioned@ .490%;

393,000.00- on the two swimming

pools, only (against the

peril of earthquake

shock only) @ 0.100%

116,600.00- other buildings include

as follows:

a) Tilter House- P19,800.00- 0.551%

b) Power House- P41,000.00- 0.551%

c) House Shed- P55,000.00 -0.540%

P100,000.00 for furniture, fixtures,

lines air-con and

operating equipment

that plaintiff agreed to insure with defendant the properties covered by AHAC

(AIU) Policy No. 206-4568061-9 (Exh. H) provided that the policy wording and

rates in said policy be copied in the policy to be issued by defendant; that

defendant issued Policy No. 31944 to plaintiff covering the period of March

14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of

P45,159.92 (Exh. I); that in the computation of the premium, defendants Policy

No. 31944 (Exh. I), which is the policy in question, contained on the right-

hand upper portion of page 7 thereof, the following:

Rate-Various

Premium - P37,420.60 F/L

2,061.52 Typhoon

1,030.76 EC

393.00 ES

Doc. Stamps 3,068.10

F.S.T. 776.89

Prem. Tax 409.05

TOTAL 45,159.92;

that the above break-down of premiums shows that plaintiff paid only P393.00

as premium against earthquake shock (ES); that in all the six insurance

policies (Exhs. C, D, E, F, G and H), the premium against the peril of

earthquake shock is the same, that is P393.00 (Exhs. C and 1-B; 2-B and 3-B-1

and 3-B-2; F-02 and 4-A-1; G-2 and 5-C-1; 6-C-1; issued by AHAC (Exhs. C, D,

E, F, G and H) and in Policy No. 31944 issued by defendant, the shock

endorsement provide(sic):

In consideration of the payment by the insured to the company of the sum

included additional premium the Company agrees, notwithstanding what is stated

in the printed conditions of this policy due to the contrary, that this

insurance covers loss or damage to shock to any of the property insured by

this Policy occasioned by or through or in consequence of earthquake (Exhs. 1-

D, 2-D, 3-A, 4-B, 5-A, 6-D and 7-C);

that in Exhibit 7-C the word included above the underlined portion was

deleted; that on July 16, 1990 an earthquake struck Central Luzon and Northern

Luzon and plaintiffs properties covered by Policy No. 31944 issued by

defendant, including the two swimming pools in its Agoo Playa Resort were

damaged.[2]

After the earthquake, petitioner advised respondent that it would be making a

claim under its Insurance Policy No. 31944 for damages on its properties.

Respondent instructed petitioner to file a formal claim, then assigned the

investigation of the claim to an independent claims adjuster, Bayne Adjusters

and Surveyors, Inc.[3] On July 30, 1990, respondent, through its adjuster,

requested petitioner to submit various documents in support of its claim. On

August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its Vice-

President A.R. de Leon,[4] rendered a preliminary report[5] finding extensive

damage caused by the earthquake to the clubhouse and to the two swimming

pools. Mr. de Leon stated that except for the swimming pools, all affected

items have no coverage for earthquake shocks.[6] On August 11, 1990,

petitioner filed its formal demand[7] for settlement of the damage to all its

properties in the Agoo Playa Resort. On August 23, 1990, respondent denied

petitioners claim on the ground that its insurance policy only afforded

earthquake shock coverage to the two swimming pools of the resort.[8]

Petitioner and respondent failed to arrive at a settlement.[9] Thus, on

January 24, 1991, petitioner filed a complaint[10] with the regional trial

court of Pasig praying for the payment of the following:

1.) The sum of P5,427,779.00, representing losses sustained by the insured

properties, with interest thereon, as computed under par. 29 of the policy

(Annex B) until fully paid;

2.) The sum of P428,842.00 per month, representing continuing losses sustained

by plaintiff on account of defendants refusal to pay the claims;

3.) The sum of P500,000.00, by way of exemplary damages;

4.) The sum of P500,000.00 by way of attorneys fees and expenses of

litigation;

5.) Costs.[11]

Respondent filed its Answer with Special and Affirmative Defenses with

Compulsory Counterclaims.[12]

On February 21, 1994, the lower court after trial ruled in favor of the

respondent, viz:

The above schedule clearly shows that plaintiff paid only a premium of P393.00

against the peril of earthquake shock, the same premium it paid against

earthquake shock only on the two swimming pools in all the policies issued by

AHAC(AIU) (Exhibits C, D, E, F and G). From this fact the Court must

consequently agree with the position of defendant that the endorsement rider

(Exhibit 7-C) means that only the two swimming pools were insured against

earthquake shock.

Plaintiff correctly points out that a policy of insurance is a contract of

adhesion hence, where the language used in an insurance contract or

application is such as to create ambiguity the same should be resolved against

the party responsible therefor, i.e., the insurance company which prepared the

contract. To the mind of [the] Court, the language used in the policy in

litigation is clear and unambiguous hence there is no need for interpretation

or construction but only application of the provisions therein.

From the above observations the Court finds that only the two (2) swimming

pools had earthquake shock coverage and were heavily damaged by the earthquake

which struck on July 16, 1990. Defendant having admitted that the damage to

the swimming pools was appraised by defendants adjuster at P386,000.00,

defendant must, by virtue of the contract of insurance, pay plaintiff said

amount.

Because it is the finding of the Court as stated in the immediately preceding

paragraph that defendant is liable only for the damage caused to the two (2)

swimming pools and that defendant has made known to plaintiff its willingness

and readiness to settle said liability, there is no basis for the grant of the

other damages prayed for by plaintiff. As to the counterclaims of defendant,

the Court does not agree that the action filed by plaintiff is baseless and

highly speculative since such action is a lawful exercise of the plaintiffs

right to come to Court in the honest belief that their Complaint is

meritorious. The prayer, therefore, of defendant for damages is likewise

denied.

WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum

of THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage

to the two (2) swimming pools, with interest at 6% per annum from the date of

the filing of the Complaint until defendants obligation to plaintiff is fully

paid.

No pronouncement as to costs.[13]

Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an

appeal with the Court of Appeals based on the following assigned errors:[14]

A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER

FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944,

CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID

POLICY AND THE ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY

16, 1990.

B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHT TO RECOVER

UNDER DEFENDANT-APPELLEES POLICY (NO. 31944; EXH I) BY LIMITING ITSELF TO A

CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING

ITS ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY

16, 1990.

C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED

TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON

PROCEEDS OF POLICY.

On the other hand, respondent filed a partial appeal, assailing the lower

courts failure to award it attorneys fees and damages on its compulsory

counterclaim.

After review, the appellate court affirmed the decision of the trial court and

ruled, thus:

However, after carefully perusing the documentary evidence of both parties, We

are not convinced that the last two (2) insurance contracts (Exhs. G and H),

which the plaintiff-appellant had with AHAC (AIU) and upon which the subject

insurance contract with Philippine Charter Insurance Corporation is said to

have been based and copied (Exh. I), covered an extended earthquake shock

insurance on all the insured properties.

x x x

We also find that the Court a quo was correct in not granting the plaintiff-

appellants prayer for the imposition of interest 24% on the insurance claim

and 6% on loss of income allegedly amounting to P4,280,000.00. Since the

defendant-appellant has expressed its willingness to pay the damage caused on

the two (2) swimming pools, as the Court a quo and this Court correctly found

it to be liable only, it then cannot be said that it was in default and

therefore liable for interest.

Coming to the defendant-appellants prayer for an attorneys fees, long-standing

is the rule that the award thereof is subject to the sound discretion of the

court. Thus, if such discretion is well-exercised, it will not be disturbed on

appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002).

Moreover, being the award thereof an exception rather than a rule, it is

necessary for the court to make findings of facts and law that would bring the

case within the exception and justify the grant of such award (Country Bankers

Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R.

No. 136914, January 25, 2002). Therefore, holding that the plaintiff-

appellants action is not baseless and highly speculative, We find that the

Court a quo did not err in granting the same.

WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and

judgment of the Trial Court hereby AFFIRMED in toto. No costs.[15]

Petitioner filed the present petition raising the following issues:[16]

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENTS

INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL

THE PROPERTIES COVERED THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE

SHOCK.

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS PRAYER FOR

DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED, ATTORNEYS FEES AND EXPENSES

OF LITIGATION.

Petitioner contends:

First, that the policys earthquake shock endorsement clearly covers all of the

properties insured and not only the swimming pools. It used the words any

property insured by this policy, and it should be interpreted as all

inclusive.

Second, the unqualified and unrestricted nature of the earthquake shock

endorsement is confirmed in the body of the insurance policy itself, which

states that it is [s]ubject to: Other Insurance Clause, Typhoon Endorsement,

Earthquake Shock Endt., Extended Coverage Endt., FEA Warranty & Annual Payment

Agreement On Long Term Policies.[17]

Third, that the qualification referring to the two swimming pools had already

been deleted in the earthquake shock endorsement.

Fourth, it is unbelievable for respondent to claim that it only made an

inadvertent omission when it deleted the said qualification.

Fifth, that the earthquake shock endorsement rider should be given precedence

over the wording of the insurance policy, because the rider is the more

deliberate expression of the agreement of the contracting parties.

Sixth, that in their previous insurance policies, limits were placed on the

endorsements/warranties enumerated at the time of issue.

Seventh, any ambiguity in the earthquake shock endorsement should be resolved

in favor of petitioner and against respondent. It was respondent which caused

the ambiguity when it made the policy in issue.

Eighth, the qualification of the endorsement limiting the earthquake shock

endorsement should be interpreted as a caveat on the standard fire insurance

policy, such as to remove the two swimming pools from the coverage for the

risk of fire. It should not be used to limit the respondents liability for

earthquake shock to the two swimming pools only.

Ninth, there is no basis for the appellate court to hold that the additional

premium was not paid under the extended coverage. The premium for the

earthquake shock coverage was already included in the premium paid for the

policy.

Tenth, the parties contemporaneous and subsequent acts show that they intended

to extend earthquake shock coverage to all insured properties. When it secured

an insurance policy from respondent, petitioner told respondent that it wanted

an exact replica of its latest insurance policy from American Home Assurance

Company (AHAC-AIU), which covered all the resorts properties for earthquake

shock damage and respondent agreed. After the July 16, 1990 earthquake,

respondent assured petitioner that it was covered for earthquake shock.

Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise

requested petitioner to submit the necessary documents for its building claims

and other repair costs. Thus, under the doctrine of equitable estoppel, it

cannot deny that the insurance policy it issued to petitioner covered all of

the properties within the resort.

Eleventh, that it is proper for it to avail of a petition for review by

certiorari under Rule 45 of the Revised Rules of Court as its remedy, and

there is no need for calibration of the evidence in order to establish the

facts upon which this petition is based.

On the other hand, respondent made the following counter arguments:[18]

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990

explicitly extended coverage against earthquake shock to petitioners insured

properties other than on the two swimming pools. Petitioner admitted that from

1984 to 1988, only the two swimming pools were insured against earthquake

shock. From 1988 until 1990, the provisions in its policy were practically

identical to its earlier policies, and there was no increase in the premium

paid. AHAC-AIU, in a letter[19] by its representative Manuel C. Quijano,

categorically stated that its previous policy, from which respondents policy

was copied, covered only earthquake shock for the two swimming pools.

Second, petitioners payment of additional premium in the amount of P393.00

shows that the policy only covered earthquake shock damage on the two swimming

pools. The amount was the same amount paid by petitioner for earthquake shock

coverage on the two swimming pools from 1990-1991. No additional premium was

paid to warrant coverage of the other properties in the resort.

Third, the deletion of the phrase pertaining to the limitation of the

earthquake shock endorsement to the two swimming pools in the policy schedule

did not expand the earthquake shock coverage to all of petitioners properties.

As per its agreement with petitioner, respondent copied its policy from the

AHAC-AIU policy provided by petitioner. Although the first five policies

contained the said qualification in their riders title, in the last two

policies, this qualification in the title was deleted. AHAC-AIU, through Mr.

J. Baranda III, stated that such deletion was a mere inadvertence. This

inadvertence did not make the policy incomplete, nor did it broaden the scope

of the endorsement whose descriptive title was merely enumerated. Any

ambiguity in the policy can be easily resolved by looking at the other

provisions, specially the enumeration of the items insured, where only the two

swimming pools were noted as covered for earthquake shock damage.

Fourth, in its Complaint, petitioner alleged that in its policies from 1984

through 1988, the phrase Item 5 P393,000.00 on the two swimming pools only

(against the peril of earthquake shock only) meant that only the swimming

pools were insured for earthquake damage. The same phrase is used in toto in

the policies from 1989 to 1990, the only difference being the designation of

the two swimming pools as Item 3.

Fifth, in order for the earthquake shock endorsement to be effective, premiums

must be paid for all the properties covered. In all of its seven insurance

policies, petitioner only paid P393.00 as premium for coverage of the swimming

pools against earthquake shock. No other premium was paid for earthquake shock

coverage on the other properties. In addition, the use of the qualifier ANY

instead of ALL to describe the property covered was done deliberately to

enable the parties to specify the properties included for earthquake coverage.

Sixth, petitioner did not inform respondent of its requirement that all of its

properties must be included in the earthquake shock coverage. Petitioners own

evidence shows that it only required respondent to follow the exact provisions

of its previous policy from AHAC-AIU. Respondent complied with this

requirement. Respondents only deviation from the agreement was when it

modified the provisions regarding the replacement cost endorsement. With

regard to the issue under litigation, the riders of the old policy and the

policy in issue are identical.

Seventh, respondent did not do any act or give any assurance to petitioner as

would estop it from maintaining that only the two swimming pools were covered

for earthquake shock. The adjusters letter notifying petitioner to present

certain documents for its building claims and repair costs was given to

petitioner before the adjuster knew the full coverage of its policy.

Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase

Item 5 Only after the descriptive name or title of the Earthquake Shock

Endorsement. However, the words of the policy reflect the parties clear

intention to limit earthquake shock coverage to the two swimming pools.

Before petitioner accepted the policy, it had the opportunity to read its

conditions. It did not object to any deficiency nor did it institute any

action to reform the policy. The policy binds the petitioner.

Eighth, there is no basis for petitioner to claim damages, attorneys fees and

litigation expenses. Since respondent was willing and able to pay for the

damage caused on the two swimming pools, it cannot be considered to be in

default, and therefore, it is not liable for interest.

We hold that the petition is devoid of merit.

In Insurance Policy No. 31944, four key items are important in the resolution

of the case at bar.

First, in the designation of location of risk, only the two swimming pools

were specified as included, viz:

ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of

earthquake shock only)[20]

Second, under the breakdown for premium payments,[21] it was stated that:

PREMIUM RECAPITULATION

ITEM NOS. AMOUNT RATES PREMIUM

x x x

3 393,000.00 0.100%-E/S 393.00[22]

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through

or in consequence, directly or indirectly of any of the following occurrences,

namely:--

(a) Earthquake, volcanic eruption or other convulsion of nature. [23]

Fourth, the rider attached to the policy, titled Extended Coverage Endorsement

(To Include the Perils of Explosion, Aircraft, Vehicle and Smoke), stated,

viz:

ANNUAL PAYMENT AGREEMENT ON

LONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN

EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 % OF

THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER

THE ABOVE NAMED x x x AND TO PAY THE PREMIUM.

Earthquake Endorsement

In consideration of the payment by the Insured to the Company of the sum of P.

. . . . . . . . . . . . . . . . additional premium the Company agrees,

notwithstanding what is stated in the printed conditions of this Policy to the

contrary, that this insurance covers loss or damage (including loss or damage

by fire) to any of the property insured by this Policy occasioned by or

through or in consequence of Earthquake.

Provided always that all the conditions of this Policy shall apply (except in

so far as they may be hereby expressly varied) and that any reference therein

to loss or damage by fire should be deemed to apply also to loss or damage

occasioned by or through or in consequence of Earthquake.[24]

Petitioner contends that pursuant to this rider, no qualifications were placed

on the scope of the earthquake shock coverage. Thus, the policy extended

earthquake shock coverage to all of the insured properties.

It is basic that all the provisions of the insurance policy should be examined

and interpreted in consonance with each other.[25] 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.[26]

(Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to

indemnify the insured against a specified peril.[27] In fire, casualty, and

marine insurance, the premium payable becomes a debt as soon as the risk

attaches.[28] 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. As borne out by petitioners witnesses:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 12-13

Q. Now Mr. Mantohac, will it be correct to state also that insofar as your

insurance policy during the period from March 4, 1984 to March 4, 1985 the

coverage on earthquake shock was limited to the two swimming pools only?

A. Yes, sir. It is limited to the two swimming pools, specifically shown in

the warranty, there is a provision here that it was only for item 5.

Q. More specifically Item 5 states the amount of P393,000.00 corresponding to

the two swimming pools only?

A. Yes, sir.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 23-26

Q. For the period from March 14, 1988 up to March 14, 1989, did you personally

arrange for the procurement of this policy?

A. Yes, sir.

Q. Did you also do this through your insurance agency?

A. If you are referring to Forte Insurance Agency, yes.

Q. Is Forte Insurance Agency a department or division of your company?

A. No, sir. They are our insurance agency.

Q. And they are independent of your company insofar as operations are

concerned?

A. Yes, sir, they are separate entity.

Q. But insofar as the procurement of the insurance policy is concerned they

are of course subject to your instruction, is that not correct?

A. Yes, sir. The final action is still with us although they can recommend

what insurance to take.

Q. In the procurement of the insurance police (sic) from March 14, 1988 to

March 14, 1989, did you give written instruction to Forte Insurance Agency

advising it that the earthquake shock coverage must extend to all properties

of Agoo Playa Resort in La Union?

A. No, sir. We did not make any written instruction, although we made an oral

instruction to that effect of extending the coverage on (sic) the other

properties of the company.

Q. And that instruction, according to you, was very important because in April

1987 there was an earthquake tremor in La Union?

A. Yes, sir.

Q. And you wanted to protect all your properties against similar tremors in

the [future], is that correct?

A. Yes, sir.

Q. Now, after this policy was delivered to you did you bother to check the

provisions with respect to your instructions that all properties must be

covered again by earthquake shock endorsement?

A. Are you referring to the insurance policy issued by American Home Assurance

Company marked Exhibit G?

Atty. Mejia: Yes.

Witness:

A. I examined the policy and seeing that the warranty on the earthquake shock

endorsement has no more limitation referring to the two swimming pools only, I

was contented already that the previous limitation pertaining to the two

swimming pools was already removed.

Petitioner also cited and relies on the attachment of the phrase Subject to:

Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement,

Extended Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long

Term Policies[29] to the insurance policy as proof of the intent of the

parties to extend the coverage for earthquake shock. However, this phrase is

merely an enumeration of the descriptive titles of the riders, clauses,

warranties or endorsements to which the policy is subject, as required under

Section 50, paragraph 2 of the Insurance Code.

We also hold that no significance can be placed on the deletion of the

qualification limiting the coverage to the two swimming pools. The earthquake

shock endorsement cannot stand alone. As explained by the testimony of Juan

Baranda III, underwriter for AHAC-AIU:

DIRECT EXAMINATION OF JUAN BARANDA III[30]

TSN, August 11, 1992

pp. 9-12

Atty. Mejia:

We respectfully manifest that the same exhibits C to H inclusive have been

previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did

you have occasion to review of (sic) these six (6) policies issued by your

company [in favor] of Agoo Playa Resort?

WITNESS:

Yes[,] I remember having gone over these policies at one point of time, sir.

Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C

to H respectively carries an earthquake shock endorsement[?] My question to

you is, on the basis on (sic) the wordings indicated in Exhibits C to H

respectively what was the extent of the coverage [against] the peril of

earthquake shock as provided for in each of the six (6) policies?

x x x

WITNESS:

The extent of the coverage is only up to the two (2) swimming pools, sir.

Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and

H?

A. Yes, sir.

ATTY. MEJIA:

What is your basis for stating that the coverage against earthquake shock as

provided for in each of the six (6) policies extend to the two (2) swimming

pools only?

WITNESS:

Because it says here in the policies, in the enumeration Earthquake Shock

Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock

Endorsement), sir.

ATTY. MEJIA:

Witness referring to Exhibit C-1, your Honor.

WITNESS:

We do not normally cover earthquake shock endorsement on stand alone basis.

For swimming pools we do cover earthquake shock. For building we covered it

for full earthquake coverage which includes earthquake shock

COURT:

As far as earthquake shock endorsement you do not have a specific coverage for

other things other than swimming pool? You are covering building? They are

covered by a general insurance?

WITNESS:

Earthquake shock coverage could not stand alone. If we are covering building

or another we can issue earthquake shock solely but that the moment I see

this, the thing that comes to my mind is either insuring a swimming pool,

foundations, they are normally affected by earthquake but not by fire, sir.

DIRECT EXAMINATION OF JUAN BARANDA III

TSN, August 11, 1992

pp. 23-25

Q. Plaintiffs witn