Commercial Law Cases INSURANCE-Part 2

8/13/2019 Commercial Law Cases INSURANCE-Part 2

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G.R. No. 147839 June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.

INSURANCE COMPANY OF NORTH AMERICA, Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision1dated October 11, 2000 of the Court of

Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial

Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and uph eld the causes of action for damages of

Insurance Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA

Resolution dated April 11, 2001 which denied petitioner's motion for reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is

the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately

obtained from respondent fire insurance policies with book debt endorsements. The insurance policies provide

for coverage on "book debts in connection with ready-made clothing materials which have been sold or

delivered to various customers and dealers of the Insured anywhere in the Philippines."2The policies defined

book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the timeof the loss covered under this Policy."

3The policies also provide for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the

merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period

in excess of six (6) months from the date of the covering invoice or actual delivery of the merchandise

whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of

every calendar month all amount shown in their books of accounts as unpaid and thus become

receivable item from their customers and dealers. x x x4

x x x x

Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano

Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items

lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI

filed with respondent their claims under their respective fire insurance policies with book debt endorsements;

that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing

materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the

IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights against petitioner; th

respondent made several demands for payment upon petitioner but these went unheeded.5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held lia

because the property covered by the insurance policies were destroyed due to fortuities event or fo

majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of co

committed by it since the loss was d ue to fire which it could not prevent or foresee; that IMC an d LS

communicated to it that they insured their properties; that it n ever consented to paying the claim o

insured.6

At the pre-trial conference the parties failed to arrive at an amicable settlement.7Thus, trial on the

ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8It held that t

purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner

not been established that petitioner is the d ebtor of IMC and LSPI; that since the sales invoices stat

further agreed that merely for pu rpose of securing the payment of purchase price, the above-descr

merchandise remains the property of the vendor until the purchase price is fully paid", IMC and LSP

ownership of the delivered goods and must bear the loss.

Dissatisfied, petitioner appealed to the CA.9On October 11, 2000, the CA rendered its decision setti

the decision of the RTC. The d ispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new

entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:

1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to

insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand u

paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to t

Levi Strauss Phil., Inc., plus legal interest from the time of demand until fu lly paid.

With costs against the defendant-appellee.

SO ORDERED.10

The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quan

cost of the thing sold; that loss of the goods in the fire must be borne by petitioner since theproviso

in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule that

is lost by a fortuitous event, the risk is borne by the owner of the thing at the time the loss under th

of res perit domino; that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods

payment of its unpaid account and as such the obligation to pay is not extinguished, even if the fire

considered a fortuitous event; that by subrogation, the insurer has the right to go against petitione
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being a fire insurance with book debt endorsements, what was insured was the vendor's interest as a

creditor.11

Petitioner filed a motion for reconsideration12

but it was denied by the CA in its Resolution dated April 11,

2001.13

Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVER

CREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE

HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART. 2207

OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14

Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over

credit since an insurance "on credit" belies not only the nature of fire insurance but the express terms of the

policies; that it was not credit that was insured since respondent paid on the occasion of the loss of the

insured goods to fire and not because of the non-payment by petitioner of any obligation; that, even if the

insurance is deemed as one over credit, there was no loss as the accounts were not yet due since no prior

demands were made by IMC and LSPI against petitioner for payment of the debt and such demands came

from respondent only after it had already paid IMC and LSPI under the fire insurance policies.15

As to the second error, petitioner avers that d espite delivery of the goods, petitioner-buyer IMC and LSPI

assumed the risk of loss when they secured fire insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as n o valid

insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon

delivery of the goods; that petitioner was not p rivy to the insurance contract or the payment between

respondent and its insured nor was its consent or approval ever secured; that this lack of privity forecloses any

real interest on the part of respondent in the obligation to pay, limiting its interest to keeping the insured

goods safe from fire.

For its part, respondent counters that while ownership over the ready- made clothing materials was

transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who

stand to suffer direct pecuniary loss from its destruction by fire; that petitioner is liable for loss of the r eady-

made clothing materials since it failed to overcome the presumption of liability under Article 126516

of the Civil

Code; that the fire was caused through petitioner's negligence in failing to provide stringent measures of

caution, care and maintenance on its property because electric wires do not usually short circuit unless there

are defects in their installation or when there is lack of proper maintenance and supervision of the pr operty;

that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and should be

liable to respondent for contracted lawyer's fees, litigation expenses and cost of suit.17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from

limited to reviewing questions of law which involves no examination of the probative value of the e

presented by the litigants or any of them.18

The Supreme Court is not a trier of facts; it is not its fun

analyze or weigh evidence all over again.19

Accordingly, findings of fact of the appellate court are ge

conclusive on the Supreme Court.20

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolv

Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures

the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of d

(4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are co

(6) when in making its findings the CA went beyond the issues of the case, or its findings are contraradmissions of both the appellant and the appellee; (7) when the findings are contrary to the trial co

when the findings are conclusions without citation of specific evidence on which they are based; (9

facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by

respondent; (10) when the findings of fact are premised on the supposed absence of evidence and

contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain releva

disputed by the parties, which, if properly considered, would justify a different conclusion.21

Except

(5), (7), and (11) apply to the present petition.

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the C

construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LS

such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner

The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no roo

construction .22

In this case, the qu estioned insurance policies provide coverage for "book debts in c

with ready-made clothing materials which have been sold or delivered to various customers and de

Insured anywhere in the Philippines."23

; and defined book debts as the "unpaid account still appear

Book of Account of the Insured 45 days after the time of the loss covered under this Policy."24

Nowh

provided in the questioned insurance policies that the subject of the insurance is the goods sold and

to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt t

it any alleged intention of the parties, the terms are to be understood literally just as they appear o

of the contract.25

Thus, what were insured against were the accounts of IMC and LSPI with petitione

remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods de

Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goo

stipulating in the sales invoices that "[i]t is fu rther agreed that merely for purpose of securing the pa

the purchase price the above described merchandise remains the property of the vendor until the p

price thereof is fully paid."26

The Court is not persuaded.
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The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is

transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the

buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the b uyer, in pursuance of the

contract and the ownership in the goods has been retained by the seller merely to secure performance by the

buyer of his obligations under the contract, the goods are at the buyer's risk from the time of su ch delivery;

(Emphasis supplied)

x x x x

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne

by the buyer.27

Accordingly, petitioner bears the risk of loss of the goods delivered.

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 p roperty insurance, one's interest is not determined by

concept of title, but whether insured has substantial economic interest in the property.28

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 inproperty 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.29

Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from

its destruction.30

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.31

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.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432

of the Civil

Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's

accounts with IMC and LSPI that remained unp aid 45 days after the fire. Accordingly, petitioner's obligation is

for the payment of money. As correctly stated by the CA, where the obligation consists in the payment of

money, the failure of the debtor to make the payment even by reason of a fortuitous event shall no

him of his liability.33

The rationale for this is that the rule that an obligor should be held exempt from

when the loss occurs thru a fortuitous event only holds true when the obligation consists in the deli

determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It d

apply when the obligation is pecuniary in nature.34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruc

anything of the same kind does not extinguish the obligation." If the obligation is generic in the sens

object thereof is designated merely by its class or genus without any particular designation or physi

segregation from all others of the same class, the loss or destruction of anything of the same kind e

without the debtor's fault and before he has incurred in delay will not have the effect of extinguishiobligation.

35This rule is based on the principle that the genus of a thing can never perish. Genus nu

perit.36

An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any s

property of the debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this ca

relevant here is whether it has been established that petitioner has outstanding accounts with IMC

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38

s

petitioner has an outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39

is the

voucher evidencing payment to IMC. Exhibit "F"40

is the subrogation receipt executed by IMC in fav

respondent upon receipt of the insurance proceeds. All these documents have been properly identi

presented and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to establis

the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle

insurance claim. The right of subrogation accrues simply upon payment by the insurance company o

insurance claim.41

Respondent's action against petitioner is squarely sanctioned by Article 2207 of t

Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insur

company for the injury or loss arising out of the wrong or breach of contract complained of, the insu

company shall be subrogated to the rights of the insured against the wrongdoer or the person who

violated the contract. x x x

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to p rove its cause of action. No evidenti

can be given to Exhibit "F Levi Strauss",42

a letter dated April 23, 1991 from petitioner's General Ma

Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It only cthe loss of Levi's products in the amount of P535,613.00 in the fire that razed petitioner's building o

25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt

offered in evidence. Thus, there is no evidence that respondent has been subrogated to any right w

may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's c

recovery of the amount of P535,613.00.
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WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution

dated April 11, 2001 of the Court of App eals in CA-G.R. CV No. 61848 are AFFIRMEDwith the MODIFICATION

that the order to pay the amount of P535,613.00 to respondent is DELETEDfor lack of factual basis.

No pronouncement as to costs.

SO ORDERED.

GREAT PACIFIC LIFE ASSURANCE COMPANY

316 SCRA 677 (1999)

INSURANCE LAW: Parties in Insuran ce Contract

FACTS:

Great Pacific Life Assurance Corporation (Grepalife) executed a contract of group life insurance with

Development Bank of the Philippines (DBP) wherein Grepalife agreed to insure the lives of eligible housing

loan mortgagors of DBP.

One such loan mortgagor is Dr. Wilfredo Leuterio. In an application form, Dr. Leuterio answered questions

concerning his test, attesting among others that he does not have any heart conditions and that he is in good

health to the best of his knowledge.

However, after about a year, Dr. Leuterio died due to massive cerebral hemorrhage. When DBP submitted a

death claim to Grepalife, the latter denied the claim, alleging that Dr. Leuterio did not disclose he had been

suffering from hypertension, which caused his death. Allegedly, su ch non-disclosure constituted concealment

that justified the denial of the claim.

Hence, the widow of the late Dr. Leuterio filed a complaint against Grepalife for Specific Performance with

Damages. Both the trial court and the Court of Appeals found in favor of the widow and ordered Grepalife to

pay DBP.

ISSUE:

Whether the CA erred in holding Grepalife liable to DBP as beneficiary in a group life insurancecontract from a complaint filed by the widow of the decedent/mortgagor

HELD:

The rationale of a group of insurance policy of mortgagors, otherwise known as the mortgage rede

insurance, is a device for the protection of both the mortgagee and the mortgagor. On the part of t

mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise

mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will

to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the

In a similar vein, ample protection is given to the mortgagor under such a concept so that in the eve

death, the mortgage obligation will be extinguished by the application of the insuran ce proceeds to

mortgage indebtedness. In this type of policy insurance, the mortgagee is simply an appointee of th

fund. Such loss-payable clause does not make the mortgagee a party to the contract.

The insured, being the person with whom the contract was made, is primarily the proper person to

thereon. Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in

the benefit of another person, such as a mortgagee.

And since a policy of insurance upon life or health may pass by transfer, will or succession to any pe

whether he has an insurable interest or not, and such person may recover it whatever the insured m

recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,

vs.

HONORABLE COURT OF APPEALS, respondents.

G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,

vs.

HON. COURT OF APPEALS and NGO HING, respondents.

Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.

Voltaire Garcia for petitioner Mondragon.

Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:


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5

The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29, 1970,

(Rollo, No. L-31878, p. 58), because the petitioners in both cases seek similar relief, through these petitions for

certiorari by way of appeal, from the amended decision of respondent Court of Appeals which affirmed in toto

the decision of the Court of First Instance of Cebu, ordering "the defendants (herein petitioners Great Pacific

Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein private respondent Ngo

Hing) the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the sum

of P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life

Assurance Company (hereinafter referred to as Pacific Life) for a twenty-year endownment policy in the

amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said respondent supplied theessential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote

on the corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the

application form which was signed by p rivate respondent Ngo Hing. The latter paid the annual premuim the

sum of P1,077.75 going over to the Company, but he reatined the amount of P1,317.00 as his commission for

being a duly authorized agebt of Pacific Life. Upon the payment of the insurance premuim, the binding deposit

receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at

the bottom of the back page of the application form his strong recommendation for the approval of the

insurance application. Then on April 30, 1957, Mondragon received a letter from Pacific Life disapproving the

insurance application (Exhibit 3-M). The letter stated that the said life insurance application for 20-year

endowment plan is not available for minors below seven years old, but Pacific Life can consider the same

under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical

Declaration be sent to the company.

The non-acceptance of the insurance plan b y Pacific Life was allegedly not communicated by petitionerMondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life again

strongly recommending the approval of the 20-year endowment insurance plan to children, pointing out that

since 1954 the customers, especially the Chinese, were asking for such coverage (Exhibit 4-M).

It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of

bronchopneumonia. Thereupon, private respondent sought the payment of the proceeds of the insurance, but

having failed in his effort, he filed the action for the recovery of the same before the Court of First Instance of

Cebu, which rendered the adverse decision as earlier refered to against both petitioners.

The decisive issues in these cases are: (1) whether the b inding deposit receipt (Exhibit E) constituted a

temporary contract of the life insurance in question; and (2) whether private respondent Ngo Hing concealed

the state of health and physical condition of Helen Go, which rendered void the aforesaid Exhibit E.

1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING

RECEIPT. These conditions state that:

A. If the Company or its agent, shan have received the premium deposit ... and the

insurance application, ON or PRIOR to the date of medical examination ... said insurance

shan be in force and in effectfrom the date of such medical examination, for such period as

is covered by the deposit ..., PROVIDED the company shall be satisfied that on said date the

applicant was insurable on standard rates under its rule for the amount of insura

kind of policy requested in the application.

D. If the Company does not accept the application on standard rate for the amou

insurance and/or the kind of policy requested in the application butissue, or offe

a policy for a different plan and/or amount ..., the insurance shall not be in force a

effect until the applicant shall have accepted the policyas issued or offered by th

and shall have paid the full premium thereof. If the applicant does not accept the

deposit shall be refunded.

E. If the applicant shall not have been insurable under Condition A above, and the

declines to approve the application the insurance applied for shall not have been

any time and the sum paid be returned to the applicant upon the surrender of this

(Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is intended to

a provisional or temporary insurance contract and only upon compliance of the following condition

the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the com

not accept the application and offers to issue a policy for a different plan, the insurance contract sh

binding until the applicant accepts the policy offered; otherwise, the deposit shall be reftmded; and

the applicant is not ble according to the standard rates, and the company disapproves the applicati

insurance applied for shall not be in force at any time, and the premium paid shall be returned to th

applicant.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merel

acknowledgment, on behalf of the company, that the latter's branch office had received from the ap

insurance premium and had accepted the application subject for processing by the insurance compa

that the latter will either approve or reject the same on the basis of whether or not the applicant is

on standard rates." Since petitioner Pacific Life disapproved the insurance application of responden

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 doe

insure outright. As held by this Court, where an agreement is made between the applicant and the a

liability shall attach until the principal approves the risk and a receipt is given by the agent. The acce

merely conditional and is subordinated to the act of the company in approving or rejecting the appl

Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De Lim vs. Sun

Assurance Company of Canada, 41 Phil. 264).

It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), P

disapproved the insurance application in question on the ground that it is not offering the twenty-y

endowment insurance policy to children less than seven years of age. What it offered instead is ano

known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of a m

the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-year endow

insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the n

compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there cou


6/34

6

been no insurance contract duly perfected between thenl Accordingly, the deposit paid by private respondent

shall have to be refunded by Pacific Life.

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

dione, 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 pr ivate 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 theallegedly 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 respondet, 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.

At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate AssociateJustice Ruperto G. Martin who later came up to this Court, from his dissenting opinion to the amended

decision of the respondent court which completely reversed the original decision, the following:

Of course, there is the insinuation that n either the memorandum of rejection (Exhibit 3-M)

nor the reply thereto of appellant Mondragon reiterating the desire for applicant's father to

have the application considered as one for a 20-year endowment plan was ever duly

communicated to Ngo; Hing, father of the minor applicant. I am not quite conninced that

this was so. Ngo Hing, as father of the applicant herself, was precisely the "underwriter who

wrote this case" (Exhibit H-1). The unchallenged statement of appellant Mondragon in h is

letter of May 6, 1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our

associate" and that it was the latter who "insisted that the plan be placed on the 20-year

endowment plan." Under these circumstances, it is inconceivable that the progress in the

processing of the application was not brought home to his knowledge. He must have been

duly apprised of the rejection of the application for a 20-year endowment plan otherwise

Mondragon would not have asserted that it was Ngo Hing himself who insisted on the

application as originally filed, thereby implictly declining the offer to consider the

application under the Juvenile Triple Action Plan. Besides, the associate of Mondragon that

he was, Ngo Hing should only be presumed to know what kind of policies are available in

the company for minors below 7 years old. What he and Mondragon were apparently trying

to do in the p remises was merely to prod the company into going into the business of

issuing endowment policies for minors just as other insurance companies allegedly do. Until

such a definite policy is however, adopted by the company, it can hardly be said t

could have been bound at all under the binding slip for a plan of insurance that it

have, by then issued at all. (Amended Decision, Rollo, pp- 52-53).

2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private re

had deliberately concealed the state of health and piysical condition of his daughter Helen Go. Whe

regpondeit supplied the required essential data for the insurance application form, he was fully awa

one-year old daughter is typically a mongoloid child. Such a congenital physical defect could never b

ensconced nor disguished. Nonetheless, private respondent, in apparent bad faith, withheld the fac

to the risk to be assumed by the insurance compary. As an insurance agent of Pacific Life, he ought

he surely must have known. his duty and responsibility to such a material fact. Had he diamond saidfact in the insurance application fom Pacific Life would h ave verified the same and would have had

but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute a

candor or openness and h onesty; the absence of any concealment or demotion, however slight [Bla

Dictionary, 2nd Edition], not for the alone but equally so for the insurer (Field man's Insurance Co.,

de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a partY knows aDd O

communicate (Section 25, Act No. 2427). Whether intentional or unintentional the concealment en

insurer to rescind the contract of insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et a

930; Satumino vs. Philippine American Life Insurance Company, 7 SCRA 316). Private respondent ap

guilty thereof.

We are thus constrained to hold that no insurance contract was perfected between the parties with

noncompliance of the conditions provided in the binding receipt, and concealment, as legally definebeen comraitted by herein private respondent.

WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one is hereby ente

absolving petitioners Lapulapu D. Mondragon and Great Pacific Life Assurance Company from their

liabilities as found by respondent Court and ordering the aforesaid insurance company to reimburse

amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs against private respo

SO ORDERED.

Tan v. CA - Rescission of the contract of insurance

174 SCRA 403

Facts:

> Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973.

> On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed a claim with Philamlife for th

of the insurance.


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7

> Philamlife wrote the beneficiaries in Sep. 1975 denying their claim and rescinding the contract on the

ground of misrepresentation. The beneficiaries contend that Philamlife can no longer rescind the contract on

the ground of misrepresentation as rescission must allegedly be done during the lifetime of the insured

within two years and prior to the commencement of the action following the wording of Sec. 48, par. 2.

Issue:

Whether or not Philamlife can rescind the contract.

Held:

YES.

The phrase during the lifetime found in Sec. 48 simply means that the policy is no longer in force after the

insured has died. The key phrase in the second paragraph is for a period of two years.

What is a simpler illustration of the ruling in Tan v. CA?

The period to consider in a life insurance poiicy is two years from the date of issue or of the lastreinstatement. So if for example the policy was issued/reinstated on Jan 1, 2000, the insurer can still exercise

his right to rescind up to Jan. 1, 2003 or two years from the date of issue/reinstatement, REGARDLESS of

whether the insured died b efore or after Jan. 1, 2003.

G.R. No. 48049 June 29, 1989

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,

vs.

THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondents.

O.F. Santos & P.C. Nolasco for petitioners.

Ferry, De la Rosa and Associ ates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of t

Insurance Commissioner which dismissed the p etitioners' complaint against respondent Philippine A

Life Insurance Company for the recovery of the proceeds from their late father's policy. The facts of

found by the Court of Appeals are:

Petitioners appeal from the Decision of the Insurance Commissioner dismissing h

petitioners' complaint against respondent Philippine American Life Insurance Com

the recovery of the proceeds of Policy No. 1082467 in the amount of P 80,000.00

On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for lif

insurance in the amount of P 80,000.00 with respondent company. Said applicatapproved and Policy No. 1082467 was issued effective November 6,1973, with p

the beneficiaries thereof (Exhibit A).

On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then fil

respondent company their claim for the proceeds of the life insurance policy. Ho

letter dated September 11, 1975, respondent company denied petitioners' claim

rescinded the policy by reason of the alleged misrepresentation and concealmen

material facts made by the deceased Tan Lee Siong in his application for insuranc

3). The premiums paid on the policy were thereupon refunded .

Alleging that respondent company's refusal to pay them the proceeds of the poli

unjustified and unreasonable, petitioners filed on November 27, 1975, a complai

the former with the Office of the Insurance Commissioner, docketed as I.C. Case

After hearing the evidence of both parties, the Insurance Commissioner rendered

on August 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)

The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decisio

merit

Hence, this petition.

The petitioners raise the following issues in their assignment of errors, to wit:

A. The conclusion in law of respondent Court that respondent insurer has the rig

rescind the policy contract when insured is already dead is not in accordance wit

law and applicable jurisprudence.

B. The conclusion in law of respondent Court that respondent insurer may be allo

avoid the policy on grounds of concealment by the deceased assured, is contrary

provisions of the policy contract itself, as well as, of applicable legal provisions an

established jurisprudence.


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8

C. The inference of respondent Court that r espondent insurer was misled in issuing the

policy are manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)

The petitioners contend that the respondent company no longer had the right to rescind the contract of

insurance as rescission must allegedly be done during the lifetime of the insured within two years and prior to

the commencement of action.

The contention is without merit.

The pertinent section in the Insurance Code p rovides:

Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any

provision of this chapter, such right must be exercised previous to the commencement of an

action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in

force during the lifetime of the insured for a period of two years from the date of its issue or

of its last reinstatement, the insurer cannot prove that the policy is void ab initioor is

rescindable by reason of the fraudulent concealment or misrepresentation of the insured or

his agent.

According to the petitioners, the Insurance Law was amended and the second paragraph of Section 48 added

to prevent the insurance company from exercising a right to rescind after the death of the insured.

The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations

or concealment of material facts insofar as health and previous diseases are concerned if the insurance has

been in force for at least two years during the insured's lifetime. The phrase "during the lifetime" found in

Section 48 simply means that the policy is n o longer considered in force after the insured has died. The key

phrase in the second paragraph of Section 48 is "for a period of two years."

As noted by the Court of Appeals, to wit:

The policy was issued on November 6,1973 and the insured died on April 26,1975. The

policy was thus in force for a period of only one year and five months. Considering that the

insured died before the two-year period had lapsed, respondent company is not, therefore,

barred from proving that the policy is void ab initioby reason of the insured's fraudulent

concealment or misrepresentation. Moreover, respondent company rescinded the contract

of insurance and refunded the premiums paid on September 11, 1975, previous to thecommencement of this action on November 27,1975. (Rollo, pp. 99-100)

xxx xxx xxx

The petitioners contend that there could have been no concealment or misrepresentation by their l

because Tan Lee Siong did not have to buy insurance. He was only pressured by insistent salesmen t

The petitioners state:

Here then is a case of an assured whose application was submitted because of re

visits and solicitations by the insurer's agent. Assured did not knock at the door o

insurer to buy insurance. He was the object of solicitations and visits.

Assured was a man of means. He could have obtained a b igger insurance, not jus

80,000.00. If his p urpose were to misrepresent and to conceal his ailments in ant

death during the two-year period, he certainly could have gotten a bigger insuranot.

Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urba

It was he who accomplished the application, Part II, medical. Philamlife did not.

Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a r

Dr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)

xxx xxx xxx

This Honorable Supreme Court has had occasion to denounce the pressure and p

indulged in by agents in selling insurance. At one time or another most of us have

subjected to that pressure, that practice. This court took judicial cognizance of thwhirlwind pressure of insurance selling-especially of the agent's practice of 'supp

information,preparingand answeringthe application, submittingthe application

companies, concludingthe transactions and otherwise smoothing out all difficult

We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at

It is of common knowledge that the selling of insurance today is subjected to the

pressureof modern salesmanship.

Insurance companies send detailed instructions to their agents to solicit and pr oc

applications.

These agents are to be found all over the length and breadth of the land. They ar

stimulated to more active efforts by contests and by the keen competition offere

other rival insurance companies.

They supply all the i nformation, prepare and answer the applications, submit the

applications to their companies, conclude the transactions, and otherwise smooth

difficulties.


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9

The agents in short do what the company set them out to do.

The Insular Lifecase was decided some forty years ago when the pressure of insurance

salesmanship was not overwhelming as it is now; when the population of this country was

less than one-fourth of what it is now; when the insurance companies competing with one

another could be counted by the fingers. (pp. 140-142, Rollo)

xxx xxx xxx

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 fou nded, no longer lie.

Congress felt this was a su fficient 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 d ies 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."

We agree with the Court of Appeals which ruled:

On the other hand, p etitioners argue that no evidence was presented by respondent

company to show that the questions appearing in Part II of the application for insurance

were asked, explained to and understood by the deceased so as to prove concealment on

his part. The same is not well taken. The deceased, by affixing his signature on the

application form, affirmed the correctness of all the entries and answers appearing therein.

It is but to be expected that he, a businessman, would not have affixed his signature on theapplication form unless he clearly understood its significance. For, the presumption is that a

person intends the ordinary consequence of his voluntary act and takes ordinary care of his

concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court].

The evidence for respondent company shows that on September 19,1972, the deceased

was examined by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that by

January, 1973, the deceased was complaining of progressive weight loss and abdominal

pain and was diagnosed to be suffering from hepatoma, (t.s.n. August 23, 1976, p

Exhibit 2). Another physician, Dr. Wenceslao Vitug, testified that the deceased ca

him on December 14, 1973 for consolation and claimed to have been diabetic fo

(t.s.n., Aug. 23,1976, p. 5; Exhibit 6) Because of the concealment made by the de

his consultations and treatments for hypertension, diabetes and liver disorders, r

company was thus misled into accepting the risk and approving his application as

standard (Exhibit 5- C) and dispensing with further medical investigation and exa

(Exhibit 5-A). For as long as no adverse medical history is revealed in the applicat

an applicant for insurance is presumed to be healthy and physically fit and no fur

medical investigation or examination is conducted by respondent company. (t.s.n

8,1976, pp. 6-8). (Rollo, pp. 96-98)

There is no strong showing that we should apply the "fine pr int" or "contract of adhesion" rule in th

(Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:

It is a matter of common knowledge that large amounts of money are collected f

ignorant persons by companies and associations which adopt high sounding title

the amount of benefits they agree to pay in large black-faced type, following suc

undertakings by fine print conditions which destroy the substance of the promise

provisions, conditions, or exceptions which in any way tend to work a forfeiture o

policy should be construed most strongly against those for whose benefit they ar

and most favorably toward those against whom they are meant to operate. (Trin

Orient Protective Assurance Assn., 67 Ph il. 184)

There is no showing that the questions in the application form for insurance regarding the insured'shistory are in smaller print than the rest of the printed form or that they are designed in such a way

conceal from the applicant their importance. If a warning in bold red letters or a boxed warning sim

required for cigarette advertisements by the Surgeon General of the United States is n ecessary, tha

Congress or the Insurance Commission to provide as protection against high pressure insurance sale

We are limited in this petition to ascertaining whether or not the respondent Court of Appeals com

reversible error. It is the petitioners' burden to show that the factual findings of the respondent cou

based on substantial evidence or that its conclusions are contrary to applicable law and jurispruden

have failed to discharge that burden.

WHEREFORE, the petition is hereby DENIED for lack of merit. The qu estioned decision of the Court o

is AFFIRMED.

SO ORDERED.

G.R. No. 81026 April 3, 1990

PAN MALAYAN INSURANCE CORPORATION, petitioner,

vs.

COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents.


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Regulus E. Cabote & Associates for petitioner.

Benito P. Fabie for private respondents.

CORTES, J.:

Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a d ecision of the Court of

Appeals which upheld an order of the trial court dismissing for n o cause of action PANMALAY's complaint for

damages against private respondents Erlinda Fabie and her driver.

The principal issue presented for resolution before this Court is whether or not the insurer PANMALAY may

institute an action to recover the amount it had paid its assured in settlement of an insurance claim against

private respondents as the parties allegedly responsible for the damage caused to the insured vehicle.

On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private

respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured a Mitsubishi Colt

Lancer car with plate No. DDZ-431 and registered in the name of Canlubang Automotive Resources

Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness, recklessness, and imprudence" of

the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered damages in the

amount of P42,052.00; that PANMALAY defrayed the cost of repair of the insured car and, therefore, was

subrogated to the rights of CANLUBANG against the driver of the pick-up and his employer, Erlinda Fabie; and

that, despite repeated demands, defendants, failed and refused to pay the claim of PANMALAY.

Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion thereto. In

compliance therewith, PANMALAY clarified, among others, that the damage caused to the insured car was

settled under the "own damage", coverage of the insuran ce policy, and that the driver of the insured car was,

at the time of the a ccident, an authorized driver duly licensed to drive the vehicle. PANMALAY also submitted

a copy of the insurance policy and the Release of Claim and Subrogation Receipt executed by CANLUBANG in

favor of PANMALAY.

On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had no cause of

action against them. They argued that payment under the "own damage" clause of the insurance policy

precluded subrogation under Article 2207 of the Civil Code, since indemnification thereunder was made on the

assumption that there was no wrongdoer or no third party at fault.

After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued an orderdated June 16, 1986 dismissing PANMALAY's complaint for no cause of action. On August 19, 1986, the RTC

denied PANMALAY's motion for reconsideration.

On appeal taken by PANMALAY, these orders were u pheld by the Court of Appeals on November 27, 1987.

Consequently, PANMALAY filed the present petition for review.

After private respondents filed its comment to the petition, and p etitioner filed its reply, the Court c

the issues joined and the case submitted for decision.

Deliberating on the various arguments adduced in the pleadings, the Court finds merit in the petitio

PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had indem

CANLUBANG for the damage to the insured car resulting from a traffic accident allegedly caused by

negligence of the driver of private respondent, Erlinda Fab ie. PANMALAY contended, therefore, tha

of action against private respondents was anchored upon Article 2207 of the Civil Code, which read

If the plaintiffs property has been insured, and he has received indemnity from t

insurance company for the injury or loss arising out of the wrong or breach of con

complained of, the insurance company shall be subrogated to the rights of the in

against the wrongdoer or the person who has violated the contract. . . .

PANMALAY is correct.

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured p

destroyed or damaged through the fault or negligence of a party other than the assured, then the in

upon payment to the assured, will b e subrogated to the rights of the assured to recover from the w

to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured ope

equitable assignment to the former of all remedies which the latter may have against the third part

negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, n or doe

out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment

insurance claim by the insurer [ Compania Maritima v. Insurance Company of North America, G.R. N

October 30, 1964, 12 SCRA 213; Fireman's Fund Insurance Company v. Jamilla & Company, Inc., G.R

27427, April 7, 1976, 70 SCRA 323].

There are a few recognized exceptions to this rule. For instance, if the assured by his own act releas

wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of subrogati

defeated [Phoenix Ins. Co. of Brooklyn v. Erie & Western Transport, Co., 117 US 312, 29 L. Ed. 873 (1

Insurance Company of North America v. Elgin, Joliet & Eastern Railway Co., 229 F 2d 705 (1956)]. Sim

where the insurer pays the assured the value of the lost goods without notifying the carrier who ha

faith settled the assured's claim for loss, the settlement is binding on both the assured and the insu

latter cannot bring an action against the carrier on his right of subrogation [McCarthy v. Barber Stea

Lines, Inc., 45 Phil. 488 (1923)]. And where the insurer pays the assured for a loss which is not a risk

the policy, thereby effecting "voluntary payment", the former has no right of subrogation against th

party liable for the loss [Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, G. R. No. L-22146,5, 1967, 21 SCRA 12].

None of the exceptions are availing in the present case.

The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legall

subrogated under Article 2207 of the Civil Code to the rights of CANLUBANG, and therefore did not

cause of action against private respondents. On the one hand, the trial court held that payment by


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11

of CANLUBANG's claim under the "own damage" clause of the insurance policy was an admission by the

insurer that the damage was caused by the assured and/or its representatives. On the other hand, the Court of

Appeals in applying the ejusdem generis rule held that Section III-1 of the policy, which was the basis for

settlement of CANLUBANG's claim, did not cover damage arising from collision or overturning due to the

negligence of third parties as one of the insurable risks. Both tribunals concluded that PANMALAY could not

now invoke Article 2207 and claim reimbursement from private respondents as alleged wrongdoers or parties

responsible for the damage.

The above conclusion is without merit.

It must be emphasized that the lower court's ruling that the "own damage" coverage under the policy impliesdamage to the insured car caused by the assured itself, instead of third parties, proceeds from an incorrect

comprehension of the phrase "own damage" as used by the insurer. When PANMALAY utilized the phrase

"own damage" a phrase which, incidentally, is not found in the insurance policy to define the basis for its

settlement of CANLUBANG's claim under the policy, it simply meant that it had assumed to reimburse the

costs for repairing thedamage to the insured vehicle[SeePANMALAY's Compliance with Supplementary

Motion for Bill of Particulars, p. 1; Record, p. 31]. It is in this sense that the so-called "own damage" coverage

under Section III of the insurance p olicy is differentiated from Sections I and IV -1 which refer to "Third Party

Liability" coverage (liabilities arising from the death of, or bodily injuries suffered by, third parties) and from

Section IV-2 which refer to "Property Damage" coverage (liabilities arising from damage caused by the insured

vehicle to the properties of third parties).

Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section III-1 of

the policy does not include to the insured vehicle arising from collision or overturning due to the n egligent acts

of the third party. Not only does it stem from an erroneous interpretation of the provisions of the section, butit also violates a fundamental rule on the interpretation of property insurance contracts.

It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to

the sense and meaning of the terms which theparties theretohave used. In the case of property insurance

policies, the evident intention of the contracting parties, i.e., the insurer and the assured, determine the

import of the various terms and provisions embodied in the policy. It is only when the terms of the policy are

ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of particular

provisions, that the courts will intervene. In such an event, the policy will be construed by the courts liberally

in favor of the assured and strictly against the insurer [Union Manufacturing Co., Inc. v. Philippine Guaranty

Co., Inc., G.R., No. L-27932, October 30, 1972, 47 SCRA 271; National Power Corporation v. Court of Appeals,

G.R. No. L-43706, November 14, 1986, 145 SCRA 533; Pacific Banking Corporation v. Court of Appeals, G.R. No.

L-41014, November 28, 1988, 168 SCRA 1. AlsoArticles 1370-1378 of the Civil Code].

Section III-1 of the insurance policy which refers to the conditions under which the insurer PANMALAY is liable

to indemnify the assured CANLUBANG against damage to or loss of the insured vehicle, reads as follows:

SECTION III LOSS OR DAMAGE

1. The Company will, subject to the Limits of Liability, indemnify the Insured against loss of

or damage to the Scheduled Vehicle and its accessories and spare parts whilst thereon:

(a) by accidental collision or overturning, or collision or overtur

consequent upon mechanical breakdown or consequent upon

tear;

(b) by fire, external explosion, self ignition or lightning or burg

housebreaking or theft;

(c) by malicious act;

(d) whilst in transit (including the processes of loading and unl

incidental to such transit by road, rail, inland, waterway, lift or

xxx xxx xxx

[Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of

Record, p. 34; Emphasis supplied].

PANMALAY contends that the coverage of insured risks under the above section, specifically Sectio

comprehensive enough to include damage to the insured vehicle arising from collision or overturnin

the fault or negligence of a third party. CANLUBANG is apparently of the same understanding. Base

police report wherein the driver of the insured car reported that after the vehicle was sideswiped b

the driver thereof fled the scene [Record, p. 20], CANLUBANG filed its claim with PANMALAY for

indemnification of the damage caused to its car. It then accepted payment from PANMALAY, and ex

Release of Claim and Subrogation Receipt in favor of latter.

Considering that the very parties to the policy were not shown to be in disagreement regarding the

and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the appellat

indulge in contract construction, to apply the ejusdem generisrule, and to ascribe meaning contrary

clear intention and understanding of these parties.

It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by acciden

or overturning" found in the first paint of sub-paragraph (a) is untenable. Although the terms "accid

"accidental" as used in insurance contracts have not acquired a technical meaning, the Court has on

occasions defined these terms to mean that which takes place "without one's foresight or expectat

event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefo

expected" [De la Cruz v. The Capital Insurance & Surety Co., Inc., G.R. No. L -21574, June 30, 1966, 1

Filipino Merchants Insurance Co., Inc. v. Court of Appeals, G.R. No. 85141, November 28, 1989]. Cer

cannot be inferred from jurisprudence that these terms, without qualification, exclude events resuldamage or loss due to the fault, recklessness or negligence of third p arties. The concept "accident"

necessarily synonymous with the concept of "no fault". It may be utilized simply to distinguish inten

malicious acts from negligent or careless acts of man.

Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, the

vehicle due to negligent or careless acts of third parties is not listed under the general and specific e


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12

to the coverage of insured risks which are enumerated in detail in the insurance policy itself [SeeAnnex "A-1"

of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, supra.]

The Court, furthermore. finds it noteworthy that the meaning advanced b y PANMALAY regarding the coverage

of Section III-1(a) of the policy is und eniably more beneficial to CANLUBANG than that insisted upon by

respondents herein. By arguing that this section covers losses or damages due not only to malicious, but also

to negligent acts of third parties, PANMALAY in effect advocates for a more comprehensive coverage of

insured risks. And this, in the final analysis, is more in keeping with the rationale behind the various rules on

the interpretation of insurance contracts favoring the assured or beneficiary so as to effect the dominant

purpose of indemnity or payment [SeeCalanoc v. Court of Appeals, 98 Phil. 79 (1955); Del Rosario v. The

Equitable Insurance and Casualty Co., Inc., G.R. No. L-16215, June 29, 1963, 8 SCRA 343; Serrano v. Court ofAppeals, G.R. No. L-35529, July 16, 1984, 130 SCRA 327].

Parenthetically, even assuming for the sake of argument that S ection III-1(a) of the insurance policy does not

cover damage to the insured vehicle caused by negligent acts of third p arties, and that PANMALAY's

settlement of CANLUBANG's claim for damages allegedly arising from a collision due to private respondents'

negligence would amount to unwarranted or "voluntary payment", dismissal of PANMALAY's complaint

against private respondents for no cause of action would still be a grave error of law.

For even if under the above circumstances PANMALAY could not be deemed subrogated to the rights of its

assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of action against private

respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening v.Qua Chee Gan, supra., the

Court ruled that the insurer who may have no r ights of subrogation due to "voluntary" payment may

nevertheless recover from the third party responsible for the damage to the insured p roperty under Article

1236 of the Civil Code.

In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as subrogee merely prays

that it be allowed to institute an action to recover from third parties who allegedly caused d amage to the

insured vehicle, the amount which it had paid its assured under the insurance policy. Having thus shown from

the above discussion that PANMALAY has a cause of action against third parties whose negligence may have

caused damage to CANLUBANG's car, the Court holds that there is no legal obstacle to the filing by PANMALAY

of a complaint for damages against private respondents as the third parties allegedly responsible for the

damage. Respondent Court of Appeals therefore committed reversible error in sustaining the lower court's

order which dismissed PANMALAY's complaint against private respondents for no cause of action. Hence, it is

now for the trial court to determine if in fact the damage caused to the insured vehicle was due to the

"carelessness, recklessness and imprudence" of the driver of private respondent Erlinda Fabie.

WHEREFORE, in view of the foregoing, the present p etition is GRANTED. Petitioner's complaint for damages

against private respondents is hereby REINSTATED. Let the case be remanded to the lower court for trial on

the merits.

SO ORDERED.

G.R. No. L-49699 August 8, 1988

PERLA COMPANIA de SEGUROS, INC., petitioner,

vs.

HON. CONSTANTE A. ANCHETA, Presiding Judge of the Court of First instance of Camarines Norte,

ERNESTO A. RAMOS and GOYENA ZENAROSA-RAMOS, for themselves and as Guardian Ad Litem f

JOBET, BANJO, DAVID and GRACE all surnamed RAMOS, FERN ANDO M. ABCEDE, SR., for him self a

Guardian Ad Litem for minor FERNANDO G. ABCEDE, JR., MIGUEL JEREZ MAGO as Guardian Ad Lit

minors ARLEEN R. MAGO, and ANACLETA J. ZENAROSA., respondents.

Jose B. Sanez for petitioner.

James B. Pajares for private respondents.

CORTES, J.:

The instant petition for certiorari and prohibition with preliminary injunction concerns the ability of

under the "no fault indemnity" provision of the Insurance Code. *

On December 27, 1977, in a collision between the IH Scout in which private respondents were riding

Superlines bus along the national highway in Sta. Elena, Camarines Norte, private respondents susta

physics injuries in varying degrees of gravity. Thus, they filed with the Court of First Instance of Cam

Norte on February 23,1978 a complaint for damages against Superlines, the bu s driver and p etition

insurer of the bus [Rollo, pp. 27-39.] The bus was insured with petitioner for the amount of P50,000for passenger liability and P50,000.00 as and for third party liability. The vehicle in which private res

were riding was insured with Malayan Insurance Co.

Even before summons could be served, respondent judge issued an order dated March 1, 1978 [Rol

41], the pertinent portion of which stated:

The second incident is the prayer for an order of this court for the Insurance Com

Compania de Seguros, Inc., to pay immediately the P5,000.00 under the "no fault

provided for under Section 378 of the Insurance Code, and finding that the requi

documents to be attached in the record, the said Insurance Company is therefor

to pay the plaintiffs (private respondents herein) within five (5) days from receip

order.

Petitioner denied in its Answer its alleged liability under the "no fault indemnity" provision [Rollo, plikewise moved for the reconsideration of the order. Petitioner held the position that under Sec. 37

Insurance Code, the insurer liable to pay the P5,000.00 is the insurer of the vehicle in which private

respondents were riding, not petitioner, as the provision states that "[i]n the case of an occupant of

claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismou

from." Respondent judge, however, denied reconsideration. A second motion for reconsideration w

petitioner. However, in an order dated January 3, 1979, respondent judge denied the second motio

reconsideration and ordered the issuance of a writ of execution [Rollo, p. 69.] Hence, the instant pe


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praying principally for the annulment and setting aside of respondent judge's orders dated March 1, 1978 and

January 3, 1979.

The Court issued a temporary restraining order on January 24,1979 [Rollo pp. 73-74.]

The sole issue raised in this petition is whether or not petitioner is the insurer liable to indemnify private

respondents under Sec. 378 of the Insur ance Code.

The key to the resolution of the issue is of courts e Sec. 378, which provides:

Sec. 378. Any claim for death or injury to any passenger or third party pursuant to the

provision of this chapter shall be paid without the necessity of proving fault or negligence of

any kind. Provided, That for purposes of this section

(i) The indemnity in respect of any one person shall not exceed five thousand pesos;

(ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to

substantiate the claim:

(a) Police report of accident, and

(b) Death certificate and evidence sufficient to establish the proper

payee, or

(c) Medical report and evidence of medical or hospital disbursement in

respect of which refund is claimed;

(iii) Claim may be made against one motor vehicle only. In the case of an occupant of a

vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding,

mounting or dismounting from. In any other case, claim shall lie against the insurer of the

directly offending vehicle. In all cases, the right of the party paying the claim to recover

against the owner of the vehicle responsible for the accident shall be maintained. [Emphasis

su

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Commercial Law Cases INSURANCE-Part 2