CALANOC VS.

COURT OF APPEALS
(98 Phil 79)
FACTS:
Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal and
Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance
Company in the amount of P2,000 to which was attached asupplementary contract covering
death by accident. On January 25, 1951, he died of a gunshot wound on the occasion of a
robbery committed in the house of Atty. Ojeda at the corner of Oroquieta and Zurbaran streets.
Calanoc, the widow, was paid the sum of P2,000, face value of the policy, but when she
demanded the payment of the additional sum of P2,000 representing the value of the
supplemental policy, the company refused alleging, as main defense, that the deceased died
because he was murdered by a person who took part in the commission of the robbery and while
making an arrest as an officer of the law which contingencies were expressly excluded in the
contract and have the effect of exempting the company from liability.
It is contended in behalf of the company that Basilio was killed which "making an arrest as an
officer of the law" or as a result of an "assault or murder" committed in the place and therefore
his death was caused by one of the risks excluded by the supplementarycontract which exempts
the company from liability. This contention was upheld by the Court of Appeals. Hence, this
petition.
ISSUE:
Whether or not the death of the victim comes within the purview of the exception clause of
the supplementary policy and, hence, exempts the company from liability.
RULING:
NO. Basilio was a watchman of the Manila Auto Supply which was a block away from the house
of Atty. Ojeda where something suspicious was happening which caused the latter to ask for
help. While at first he declined the invitation of Atty. Ojeda to go with him to his residence to
inquire into what was going on because he was not a regular policeman, he later agreed to come
along when prompted by the traffic policeman, and upon approaching the gate of the residence
he was shot and died. The circumstance that he was a mere watchman and had no duty to heed
the call of Atty. Ojeda should not be taken as a capricious desire on his part to expose his life to
danger considering the fact that the place he was in duty-bound to guard was only a block away.
In volunteering to extend help under the situation, he might have thought, rightly or wrongly,
that to know the truth was in the interest of his employer it being a matter that affects the security
of the neighborhood.
No doubt there was some risk coming to him in pursuing that errand, but that risk always existed
it being inherent in the position he was holding. He cannot therefore be blamed solely for doing
what he believed was in keeping with his duty as a watchman and as a citizen. And he cannot be
considered as making an arrest as an officer of the law, as contended, simply because he went
with the traffic policeman, for certainly he did not go there for that purpose nor was he asked to
do so by the policeman.

Much less can it be pretended that Basilio died in the course of an assault or murder considering
the very nature of these crimes. In the first place, there is no proof that the death of Basilio is the
result of either crime for the record is barren of any circumstance showing how the fatal shot was
fired. Perhaps this may be clarified in thecriminal case now pending in court as regards the
incident but before that is done anything that might be said on the point would be a mere
conjecture. Nor can it be said that the killing was intentional for there is the possibility that the
malefactor had fired the shot merely to scare away the people around for his own protection and
not necessarily to kill or hit the victim.
In any event, while the act may not exempt the triggerman from liability for the damage done,
the fact remains that the happening was a pure accident on the part of the victim. The victim
could have been either the policeman or Atty. Ojeda for it cannot be pretended that the
malefactor aimed at the deceased precisely because he wanted to take his life.

BIAGTAN VS. INSULAR LIFE ASSURANCE CO., LTD.

(44 SCRA 58)
FACTS:
Juan S. Biagtan was insured with defendant Insular Life Assurance Company Ltd. for the sum of
5,000.00 and under a supplementary contract denominated Accidental Death Benefit Clause,
for an additional sum of 5,000.00 if the death of the insured resulted directly from bodily
injury effected solely through external and violent means sustained in an accident and
independently of all other causes. The clause, however, expressly provided that it would not
apply where death resulted from an injury intentionally inflicted by another party.
On the night of May 20, 1964 or during the first hours of the following day a band of robbers
entered the house of the insured Juan Biagtan, and that in committing the robbery, the robbers,
on reaching the staircase landing on the second floor, rushed towards the door of the second floor
room, where they suddenly met a person who turned to be insured who received nine wounds
(five mortal wounds and four non-mortal wounds) from their sharp pointed instruments resulting
in Mr. Biagtans death.
Beneficiaries of the insured then filed a claim under the policy the insurance company paid the
basic amount of 5,000.00 but refused to pay additional sum of 5,000.00 under the accidental
benefit clause, on the ground that the insureds death resulted from injuries intentionally inflicted
by third parties and therefore was not covered. (Respondent) Beneficiaries then filed suit to
recover in the CFI of Pangasinan who rendered a decision in their favor. Hence
the present appeal by the petitioner.
ISSUE:
Whether under the facts stipulated and found by the trial court the wounds received by the
insured at the hands of the robbers were inflicted intentionally, hence the benefit clause cannot
apply.
RULING:
Under an Accidental Death Benefit Clause providing for an additional sum of P5,000.00 if
the death of the Insured resulted directly from bodily injury effected solely through external and
violent means sustained in an accident and independently of all other causes but expressly
excepting therefrom a case where death resulted from an injury intentionally inflicted by a third
party, the insured who died under the following circumstances is not entitled to the said
additional sum, to wit: That on the night while the said life policy and supplementary contract
were in full force and effect the house of the insured was robbed by a band of robbers who-were
charged in and convicted by the Court of First Instance of Pangasinan for robbery with homicide;
that in committing the robbery, the robbers, on reaching the staircase landing of the second floor,
rushed towards the doors of the second floor room, where they suddenly met a person near the
door of one of the rooms who turned out to be the insured who received thrusts from their sharppointed instruments, causing wounds on the body resulting in his death

FINMAN GENERAL ASSURANCE CORPORATION VS. COURT OF APPEALS

[GR 100970, September 2, 1992]
FACTS:
On 22 October 1986, deceased Carlie Surposa was insured with Finman General Assurance
Corporation under Finman General Teachers Protection Plan Master Policy 2005 and Individual
Policy 08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher,
Charles, Chester and Clifton, all surnamed Surposa, as beneficiaries. While said insurance policy
was in full force and effect, the insured, Carlie Surposa, died on 18 October 1988 as a result of a
stab wound inflicted by one of 3 unidentified men without provocation and warning on the part
of the former as he and his cousin, Winston Surposa, were waiting for a ride on their way home
along Rizal-Locsin Streets, Bacolod City after attending the celebration of the "Maskarra Annual
Festival."
Thereafter, Julia Surposa and the other beneficiaries of said insurance policy filed a written
notice of claim with Finman which denied said claim contending that murder and assault are not
within the scope of the coverage of the insurance policy. On 24 February 1989, Surposa filed a
complaint with the Insurance Commission which subsequently rendered a decision, ordering
Finman liable to pay Surposa the sum of P15,000.00 representing the proceeds of the policy with
interest from the date of the filing of the complaint until fully satisfied. As no evidence was
submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same was not
entertained. On 11 July 1991, the appellate court affirmed said decision. Finman filed the
petition for certiorari.
ISSUE:
Whether the death was committed with deliberate intent which, by the very nature of a personal
accident insurance policy, cannot be indemnified.
RULING:
NO. The terms "accident" and "accidental," as used in insurance contracts have not acquired any
technical meaning, and are construed by the courts in their ordinary and common acceptation.
Thus, the terms have been taken to mean that which happen by chance or fortuitously, without
intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event
that takes place without one's foresight or expectation an event that proceeds from an
unknown cause, or is an unusual effect of a known cause and, therefore, not expected. The
generally accepted rule is that, death or injury does not result from accident or accidental means
within the terms of an accident-policy if it is, the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except the death or injury.
There is no accident when a deliberate act is performed unless some additional, unexpected,
independent, and unforeseen happening occurs which produces or brings about the result of
injury or death. In other words, where the death or injury is not the natural or probable result of
the insured's voluntary act, or if something unforeseen occurs in the doing of the act which
produces the injury, the resulting death is within the protection of the policies insuring against
death or injury from accident. Herein, it cannot be pretended that Carlie Surposa died in the
course of an assault or murder as a result of his voluntary act considering the very nature of these

crimes. In the first place, the insured and his companion were on their way home from attending
a festival. They were confronted by unidentified persons.
The record is barren of any circumstance showing how the stab wound was inflicted. Nor can it
be pretended that the malefactor aimed at the insured precisely because the killer wanted to take
his life. In any event, while the act may not exempt the unknown perpetrator from criminal
liability, the fact remains that the happening was a pure accident on the part of the victim. The
insured died from an event that took place without his foresight or expectation, an event that
proceeded from an unusual effect of a known cause and, therefore, not expected. Neither can it
be said that there was a capricious desire on the part of the accused to expose his life to danger
considering that he was just going home after attending a festival. Furthermore, the personal
accident insurance policy involved specifically enumerated only 10 circumstances wherein no
liability attaches to Finamn for any injury, disability or loss suffered by the insured as a result of
any of the stipulated causes.
The principle of "expresso unius exclusio alterius" the mention of one thing implies the
exclusion of another thing is therefore applicable in the present case since murder and assault,
not having been expressly included in the enumeration of the circumstances that would negate
liability in said insurance policy cannot be considered by implication to discharge Finman from
liability for any injury, disability or loss suffered by the insured. Thus, the failure of Finman to
include death resulting from murder or assault among the prohibited risks leads inevitably to the
conclusion that it did not intend to limit or exempt itself from liability for such death.

ZENITH INSURANCE CORP. VS. COURT OF APPEALS

(185 SCRA 398)
FACTS:
On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own damage"
with petitioner Zenith Insurance Corporation. On July 6, 1983, the car figured in an accident and
suffered actual damages in the amount of P3,640.00. After allegedly being given a run around by
Zenith for two (2) months, Fernandez filed a complaint with the Regional Trial Court of Cebu
for sum of money and damages resulting from the refusal of Zenith to pay the amount claimed.
Aside from actual damages and interests, Fernandez also prayed for moral damages in the
amount of P10,000.00, exemplary damages of P5,000.00, attorney's fees of P3,000.00 and
litigation expenses of P3,000.00.
On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of
Fernandez pursuant to the terms andconditions of the contract which, the private respondent
rejected. On June 4, 1986, a decision was rendered by the trial court in favor of private
respondent Fernandez. On August 17, 1988, the Court of Appeals rendered its decision affirming
in toto the decision of the trial court.
ISSUE:
The propriety of the award of moral damages, exemplary damages and attorney's fees is the main
issue raised herein by petitioner.
RULING:
The award of damages in case of unreasonable delay in the payment of insurance claims is
governed by the Philippine Insurance Code, which provides:
Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it
shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to
whether the payment of the claim of the insured has been unreasonably denied or withheld; and
in the affirmative case, the insurance company shall be adjudged to pay damages which shall
consist of attorney's fees and other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by
the Monetary Board of the amount ofthe claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-three, as the case
may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within
the time prescribed in said sections shall be considered prima facie evidence of unreasonable
delay in payment.
It is clear that under the Insurance Code, in case of unreasonable delay in the payment of the
proceeds of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2)
other expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment; 3) interest at twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the injured; and 4) the amount of the claim.

SUN INSURANCE OFFICE LTD. VS. COURT OF APPEALS

[GR 92383, July 17, 1992]
FACTS:
Sun Insurance Office Ltd. issued Personal Accident Policy 05687 to Felix Lim, Jr. with a face
value of P200,000.00. Two months later, he was dead with a bullet wound in his head. As
beneficiary, his wife Nerissa Lim sought payment on the policy but her claim was rejected. Sun
Insurance agreed that there was no suicide. It argued, however, that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on 6 October
1982, at about 10 p.m., after his mother's birthday party. According to Nalagon, Lim was in a
happy mood (but not drunk) and was playing with his handgun, from which he had previously
removed the magazine. As she watched the television, he stood in front of her and pointed the
gun at her. She pushed it aside and said it might be loaded. He assured her it was not and then
pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor.
He was dead before he fell. The widow sued Sun Insurance in the Regional Trial Court of
Zamboanga City and was sustained. Sun Insurance was sentenced to pay her P200,000.00,
representing the face value of the policy, with interest at the legal rate; P10,000.00 as moral
damages; P5,000.00 as exemplary damages; P50,000.00 as actual and compensatory damages;
and P5,000.00 as attorney's fees, plus the cost of the suit. This decision was affirmed on appeal,
and the motion for reconsideration was denied. Sun Insurance then came to the Supreme Court.
ISSUE:
Whether the insured willfully exposed himself to needless peril and thus removed himself from
the coverage of the insurance policy.
RULING:
NO. An accident is an event which happens without any human agency or, if happening through
human agency, an event which, under the circumstances, is unusual to and not expected by the
person to whom it happens. It has also been defined as an injury which happens by reason of
some violence or casualty to the insured without his design, consent, or voluntary co-operation.
Herein, the incident that resulted in Lim's death was indeed an accident. On the other hand, the
parties agree that Lim did not commit suicide. Nevertheless, Sun Insurance contends that the
insured willfully exposed himself to needless peril and thus removed himself from the coverage
of the insurance policy. It should be noted at the outset that suicide and willful exposure to
needless peril are in pari materia because they both signify a disregard for one's life. The only
difference is in degree, as suicide imports a positive act of ending such life whereas the second
act indicates a reckless risking of it that is almost suicidal in intent.
The posture -- that by the mere act of pointing the gun to his temple, Lim had willfully exposed
himself to needless peril and so came under the exception -- is arguable. But what is not is that
Lim had removed the magazine from the gun and believed it was no longer dangerous. He
expressed assured her that the gun was not loaded. It is submitted that Lim did not willfully
expose himself to needless peril when he pointed the gun to his temple because the fact is that he
thought it was not unsafe to do so. The act was precisely intended to assure Nalagon that the gun
was indeed harmless. Lim was unquestionably negligent and that negligence cost him his own
life. But it should not prevent his widow from recovering from the insurance policy he obtained

precisely against accident. There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his
own accident. Indeed, most accidents are caused by negligence.
There are only four exceptions expressly made in the contract to relieve the insurer from liability,
and none of these exceptions is applicable in the present case. It bears noting that insurance
contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no
reason to deviate from this rule, especially in view of the circumstances of the case.

VILLACORTA VS. THE INSURANCE COMMISSION

(100 SCRA 467)
FACTS:
JEWEL VILLACORTA was the owner of a Colt Lancer, Model 1976, insured
with respondent company forP35,000.00 - Own Damage; P30,000.00 - Theft; andP30,000.00 Third Party Liability, effective May 16,1977 to May 16, 1978.- On May 9, 1978, the vehicle was
brought to the Sunday Machine Works, Inc., for general check-up and repairs. On May 11, 1978,
while it was in the custody of the Sunday Machine Works, the car was allegedly taken by six (6)
persons and driven out to Montalban, Rizal. While travelling along Mabini St.,
Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car figured in an accident,
hitting and bumping a gravel and sand truck parked at the right side of the road going south. As a
consequence, the gravel and sand truck veered to the right side of the pavement going south and
the car veered to the right side of the pavement going north. The driver, Benito Mabasa, and
one of the passengers died and the other four sustained physical injuries.
The car, as well, suffered extensive damage. Complainant, thereafter, filed a claim for total loss
with the respondent company but claim was denied. Hence, complainant was compelled to
institute the present action."- The comprehensive motor car insurance policy for P35,000.00
issued by respondent Empire Insurance Company admittedly undertook to indemnify the
petitioner-insured against loss or damage to the car
(a)
by
accidental
collision
or
overturning,
or
collision
or overturning consequent upon mechanical breakdown or consequent upon wear and tear;
(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; and
(c) by malicious act.
Respondent insurance commission, however, dismissed petitioner's complaint for recovery of the
total loss of the vehicle against private respondent, sustaining respondent insurer's contention
that the accident did not fall within the provisions of the policy either for the Own Damage or
Theft coverage, invoking the policy provision on "Authorized Driver" clause, which clause limits
the use of the insured vehicle to two (2) persons only, namely: the insured himself or any person
on his (insured's) permission. Apparently, the Insurance commission sees the unauthorized
taking of the vehicle for a joyride as a violation of the 'Authorized Driver' clause of the policy."
Respondent commission likewise upheld private
respondent's assertion
that the
car was
not stolen and therefore not covered by the Theft clause, ruling that "The element of 'taking' in
Article 308 of the Revised Penal Code means that the act of depriving another of the possession
and dominion of a movable thing is coupled with the intention, at the time of the 'taking', of
withholding it with the character of permanency
ISSUE:
Whether or not the Insurance commissions findings are in accord with law
RULING:
NO. First, respondent commission's ruling that the person who drove the vehicle in the person of
Benito Mabasa, who, according to its own finding, was one of the residents of the Sunday

Machine Works, Inc. to whom the car had been entrusted for general check-up and repairs was
not an "authorized driver" of petitioner-complainant is too restrictive and contrary to the
established principle that insurance contracts, being contracts of adhesion where the only
participation of the other party is the signing of his signature or his "adhesion" thereto,
"obviously call for greater strictness and vigilance on the part of courts of justice with a view of
protecting the weaker party from abuse and imposition, and prevent their becoming traps for
the unwary."- The main purpose of the "authorized driver" clause, as may be seen from its text,
supra, is that a person other than the insured owner, who drives the car on the insured's order,
such as his regular driver, or with his permission, such as a friend or member of the family or the
employees of a car service or repair shop must be duly licensed drivers and have no
disqualification to drive a motor vehicle.
A car owner who entrusts his car to an established car service and repair shop necessarily
entrusts his car key to the shop owner and employees who are presumed to have the insured's
permission to drive the car for legitimate purposes of checking or road-testing the car. The mere
happenstance that the employee(s) of the shop owner diverts the use of the car to his own illicit
or unauthorized purpose in violation of the trust reposed in the shop by the insured car owner
does not mean that the "authorized driver" clause has been violated such as to bar recovery,
provided that such employee is duly qualified to drive under a valid driver's license.
Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft
clause, not the "authorized driver" clause, that applies),where a car is admittedly as in this case
unlawfully and wrongfully taken by some people, be they employees of the car shop or not to
whom it hadbeen entrusted, and taken on a long trip to Montalban without the owner's consent or
knowledge, such taking constitutes or partakes of the nature of theft as defined in Article 308 of
the Revised Penal Code.- The Court rejects respondent commission's premise that there must be
an intent on the part of the taker of the car "permanently to deprive the insured of his car" and
that since the taking here was for a "joy ride" and "merely temporary in nature," a
"temporary taking is held not a taking insured against."
The insurer must therefore indemnify the petitioner owner for the total loss of the insured car in
the sum of P35,000.00 under the theft clause of the policy, subject to the filing of such claim for
reimbursement or payment as it may have as subrogee against the Sunday Machine Works, Inc.

VDA. DE MAGLANA VS. CONSOLACION

[GR 60506, August 6, 1992]
FACTS:
Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, in
Davao City. On 20 December 1978, early morning, Lope Maglana was on his way to his work
station, driving a motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an
accident that resulted in his death. He died on the spot. The PUJ jeep that bumped the deceased
was driven by Pepito Into, operated and owned by Destrajo. From the investigation conducted by
the traffic investigator, the PUJ jeep was overtaking another passenger jeep that was going
towards the city poblacion. While overtaking, the PUJ jeep of Destrajo running abreast with the
overtaken jeep, bumped the motorcycle driven by the deceased who was going towards the
direction of Lasa, Davao City. The point of impact was on the lane of the motorcycle and the
deceased was thrown from the road and met his untimely death. Consequently, the heirs of Lope
Maglana, Sr., filed an action for damages and attorney's fees against operator Patricio Destrajo
and the Afisco Insurance Corporation (AFISCO) before the then Court of First Instance of
Davao, Branch II. An information for homicide thru reckless imprudence was also filed against
Pepito Into.
During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of 1
year, 8 months and 1 day of prision correccional, as minimum, to 4 years, 9 months and 11 days
of prision correcional, as maximum, with all the accessory penalties provided by law, and to
indemnify the heirs of Lope Maglana, Sr. in the amount of P12,000.00 with subsidiary
imprisonment in case of insolvency, plus P5,000.00 in the concept of moral and exemplary
damages with costs. No appeal was interposed by the accused who later applied for probation.
On 14 December 1981, the lower court rendered a decision finding that Destrajo had not
exercised sufficient diligence as the operator of the jeepney. The court ordered Destrajo to pay
the heirs of Maglana the sum of P28,000.00 for loss of income; the sum of P12,000.00 which
amount shall be deducted in the event judgment in Criminal Case 3527-D against the driver,
accused Into, shall have been enforced; the sum of P5,901.70 representing funeral and burial
expenses of the deceased; the sum of P5,000.00 as moral damages which shall be deducted in the
event judgment (sic) in Criminal Case 3527-D against the driver, accused Into; the sum of
P3,000.00 as attorney's fees and to pay the costs of suit.
The court ordered the insurance company is ordered to reimburse Destrajo whatever amounts the
latter shall have paid only up to the extent of its insurance coverage. The heirs of Maglana filed a
motion for the reconsideration of the second paragraph of the dispositive portion of the decision
contending that AFISCO should not merely be held secondarily liable because the Insurance
Code provides that the insurer's liability is "direct and primary and/or jointly and severally with
the operator of the vehicle, although only up to the extent of the insurance coverage." In its Order
of February 9, 1982, the lower court denied the motion for reconsideration ruling that since the
insurance contract "is in the nature of suretyship, then the liability of the insurer is secondary
only up to the extent of the insurance coverage."
The heirs filed a second motion for reconsideration reiterating that the liability of the insurer is
direct, primary and solidary with the jeepney operator because the petitioners became direct

beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. This
motion was likewise denied for lack of merit. The heirs filed the petition for certiorari.
ISSUE [1]:
Whether AFISCO is primarily liable, not secondarily liable, on the insurance policy.
ISSUE [2]:
Whether AFISCO is solidarily liable with Destrajo.
RULING [1]:
The particular provision of the insurance policy on which the heirs base their claim provides
"SECTION 1 LIABILITY TO THE PUBLIC 1. The Company will, subject to the Limits of
Liability, pay all sums necessary to discharge liability of the insured in respect of. (a) death of or
bodily injury to any THIRD PARTY; xxx 3. In the event of the death of any person entitled to
indemnity under this Policy, the Company will, in respect of the liability incurred to such person
indemnify his personal representatives in terms of, and subject to the terms and conditions
hereof." The above-quoted provision leads to no other conclusion but that AFISCO can be held
directly liable by the heirs. As the Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br.
75, "[w]here an insurance policy insures directly against liability, the insurer's liability accrues
immediately upon the occurrence of the injury or event upon which the liability depends, and
does not depend on the recovery of judgment by the injured party against the insured." The
underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle
Liability Insurance is "to protect injured persons against the insolvency of the insured who
causes such injury, and to give such injured person a certain beneficial interest in the proceeds of
the policy." Since the heirs had received from AFISCO the sum of P5,000.00 under the no-fault
clause, AFISCO's liability is now limited to P15,000.00.
RULING [2]:
NO. In Malayan Insurance Co., Inc. v. Court of Appeals, the Court had the opportunity to resolve
the issue as to the nature of the liability of the insurer and the insured vis-a-vis the third party
injured in an accident, where it ruled that "While it is true that where the insurance contract
provides for indemnity against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity contracts against third party
liability does not mean that the insurer can be held solidarily liable with the insured and/or the
other parties found at fault. The liability of the insurer is based on contract; that of the insured is
based on tort." The Court then proceeded to distinguish the extent of the liability and manner of
enforcing the same in ordinary contracts from that of insurance contracts.
While in solidary obligations, the creditor may enforce the entire obligation against one of the
solidary debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify
the insured against loss, damage or liability arising from an unknown or contingent event."
Herein, the heirs cannot validly claim that AFISCO, whose liability under the insurance policy is
also P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in
accordance with the decision of the lower court. Since under both the law and the insurance
policy, AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositive
portion of the decision in question may have unwittingly sown confusion among the heirs and

their counsel. What should have been clearly stressed as to leave no room for doubt was the
liability of AFISCO under the explicit terms of the insurance contract.
The liability of AFISCO based on the insurance contract is direct, but not solidary with that of
Destrajo which is based on Article 2180 of the Civil Code. As such, the heirs have the option
either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the entire
judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance
coverage.

GEAGONIA VS. COURT OF APPEALS

[GR 114427, FEBRUARY 6, 1995]
FACTS:
Armando Geagonia is the owner of Norman's Mart located in the public market of San
Francisco, Agusan del Sur. On 22 December 1989, he obtained from Country Bankers Insurance
Corporation fire insurance policy No. F-14622 2 for P100,000.00. The period of the policy was
from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-trade
consisting principally of dry goods such as RTW's for men and women wear and other usual to
assured's business." Geagonia declared in the policy under the subheading entitled CO
INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989
to 1990, Geagonia had in his inventory stocks amounting to P392,130.50, itemized as follows:
Zenco Sales, Inc., P55,698.00; F. Legaspi Gen. Merchandise, 86,432.50; and Cebu Tesing
Textiles,250,000.00 (on credit); totalling P392,130.50.
The policy contained the following condition, that "the insured shall give notice to the Company
of any insurance or insurances already effected, or which may subsequently be effected, covering
any of the property or properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured, and unless notice be given and the particulars of such insurance
or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits
under this policy shall be deemed forfeited, provided however, that this condition shall not apply
when the total insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00."
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of
San Francisco, Agusan del Sur. Geagonia's insured stocks-in-trade were completely destroyed
prompting him to file with Country Bankers a claim under the policy. On 28 December 1990,
Country Bankers denied the claim because it found that at the time of the loss Geagonia's stocks
in-trade were likewise covered by fire insurance policies GA-28146 and GA-28144, for
P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (PFIC).
These policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia,
Prop.)" with a mortgage clause reading ""MORTGAGEE: Loss, if any, shall be payable to
Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear subject to the terms of this
policy. CO-INSURANCE DECLARED: P100,000. Phils. First CEB/F-24758"
The basis of Country Bankers' denial was Geagonia's alleged violation of Condition 3 of the
policy. Geagonia then filed a complaint against Country Bankers with the Insurance Commission
(Case 3340) for the recovery of P100,000.00 under fire insurance policy F-14622 and for
attorney's fees and costs of litigation. He attached his letter of 18 January 1991 which asked for
the reconsideration of the denial. He admitted in the said letter that at the time he obtained
Country Bankers's fire insurance policy he knew that the two policies issued by the PFIC were
already in existence; however, he had no knowledge of the provision in Country Bankers' policy
requiring him to inform it of the prior policies; this requirement was not mentioned to him by
Country Bankers' agent; and had it been so mentioned, he would not have withheld such
information. He further asserted that the total of the amounts claimed under the three policies

was below the actual value of his stocks at the time of loss, which was P1,000,000.00. In its
decision of 21 June 1993, the Insurance Commission found that Geagonia did not violate
Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained
from the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without
informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had
insurable interest on the stocks. These findings were based on Geagonia's testimony that he came
to know of the PFIC policies only when he filed his claim with Country Bankers and that Cebu
Tesing Textile obtained them and paid for their premiums without informing him thereof.
The Insurance Commission ordered Country Bankers to pay Geagonia the sum of P100,000.00
with legal interest from the time the complaint was filed until fully satisfied plus the amount of
P10,000.00 as attorney's fees. With costs. Its motion for the reconsideration of the decision
having been denied by the Insurance Commission in its resolution of 20 August 1993, Country
Bankers appealed to the Court of Appeals by way of a petition for review (CA-GR SP 31916). In
its decision of 29 December 1993, the Court of Appeals reversed the decision of the Insurance
Commission because it found that Geagonia knew of the existence of the two other policies
issued by the PFIC. His motion to reconsider the adverse decision having been denied, Geagonia
filed the petition for review on certiorari.
ISSUE [1]:
Whether the non-disclosure of other insurance policies violate condition 3 of the policy, so as to
deny Geagonia from recovering on the policy.
ISSUE [2]:
Whether the violation of Condition 3 of the policy renders the policy void.

RULING [1]:
Condition 3 of Country Bankers's Policy F-14622 is a condition which is not proscribed by law.
Its incorporation in the policy is allowed by Section 75 of the Insurance Code, Such a condition
is a provision which invariably appears in fire insurance policies and is intended to prevent an
increase in the moral hazard. It is commonly known as the additional or "other insurance" clause
and has been upheld as valid and as a warranty that no other insurance exists. Its violation would
thus avoid the policy.
However, in order to constitute a violation, the other insurance must be upon the same subject
matter, the same interest therein, and the same risk. The fire insurance policies issued by the
PFIC name Geagonia as the assured and contain a mortgage clause which reads: "Loss, if any,
shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear
subject to the terms of the policy." This is clearly a simple loss payable clause, not a standard
mortgage clause. The Court concludes that (a) the prohibition in Condition 3 of the subject
policy applies only to double insurance, and (b) the nullity of the policy shall only be to the
extent exceeding P200,000.00 of the total policies obtained. The first conclusion is supported by
the portion of the condition referring to other insurance "covering any of the property or
properties consisting of stocks in trade, goods in process and/or inventories only hereby insured,"
and the portion regarding the insured's declaration on the subheading CO-INSURANCE that the

co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists
where the same person is insured by several insurers separately in respect of the same subject
and interest. Since the insurable interests of a mortgagor and a mortgagee on the mortgaged
property are distinct and separate; the two policies of the PFIC do not cover the same interest as
that covered by the policy of Country Bankers, no double insurance exists. The non-disclosure
then of the former policies was not fatal to Geagonia's right to recover on Country Bankers'
policy.
RULING [2]:
Unlike the "other insurance" clauses involved in General Insurance and Surety Corp. vs. Ng Hua,
106 Phil. 1117 [1960], or in Pioneer Insurance & Surety Corp. vs. Yap, 61 SCRA 426 [1974]
which reads "The insured shall give notice to the company of any insurance or insurances
already effected, or which may subsequently be effected covering any of the property hereby
insured, and unless such notice be given and the particulars of such insurance or insurances be
stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any
loss or damage, all benefits under this Policy shall be forfeited"; or in the 1930 case of Santa Ana
vs. Commercial Union Assurance Co., 55 Phil. 329, 334 [1930], which provided "that any
outstanding insurance upon the whole or a portion of the objects thereby assured must be
declared by the insured in writing and he must cause the company to add or insert it in the policy,
without which such policy shall be null and void, and the insured will not be entitled to
indemnity in case of loss," Condition 3 in Country Bankers' policy F-14622 does not absolutely
declare void any violation thereof. It expressly provides that the condition "shall not apply when
the total insurance or insurances in force at the time of the loss or damage is not more than
P200,000.00."
By stating within Condition 3 itself that such condition shall not apply if the total insurance in
force at the time of loss does not exceed P200,000.00, Country Bankers was amenable to assume
a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to
discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance"
clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When
a property owner obtains insurance policies from two or more insurers in a total amount that
exceeds the property's value, the insured may have an inducement to destroy the property for the
purpose of collecting the insurance.
The public as well as the insurer is interested in preventing a situation in which a fire would be
profitable to the insured.

FORTUNE INSURANCE & SAFETY CO., INC. VS. COURT OF APPEALS

(244 SCRA 308)
FACTS:
On June 29, 1987, Producers Bank of the Philippines armored vehicle was robbed, in transit, of
seven hundred twenty-five thousand pesos (Php 725,000.00) that it was transferring from its
branch in Pasay to its main branch in Makati. To mitigate their loss, they claim the amount from
their insurer, namely Fortune Insurance and Surety Co..
Fortune Insurance, however, assails that the general exemption clause in the Casualty Insurance
coverage had a general exemption clause, to wit:
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.
And, since the driver (Magalong) and security guard (Atiga) of the armored vehicle were
charged with three others as liable for the robbery, Fortune denies Producers Bank of its
insurance claim.
The trial court and the court appeals ruled in favor of recovery, hence, the case at bar.
ISSUE:
Whether recovery is precluded under the general exemption clause.
RULING:
Yes, recovery is precluded under the general exemption clause.
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.

EDILLON VS. MANILA BANKERS LIFE

(117 SCRA 187)
FACTS:
Sometime in April 1969, Carmen O, Lapuz applied Manila Bankers for insurance coverage
against accident and injuries. She filled up the blank application form given to her and filed the
same with the respondent insurance corporation. In the said application form she gave the date of
her birth as July 11, 1904. On the same date, she paid the sum of P20.00 representing the
premium for which she was issued the corresponding receipt signed by an authorized agent
of Manila Bankers. Upon the filing and the payment of the premium, the respondent insurance
corporation issued to Carmen O. Lapuz its Certificate of Insurance. The policy was to be
effective for a period of 90 days. During the effectivity of thecertificate of insurance Carmen
Lapuz died on a vehicular accident in the North Diversion Road. On June 7, 1969, petitioner
Regina L. Edillon, a sister of the insured and who was the named beneficiary in the policy, filed
her claim for the proceeds of the insurance, submitting all the necessary papers and other
requisites.
However, her claim was denied by the respondent corporation hence her filing of complaint in
the Court of First Instance of Rizal on August 27, 1969. The respondent insurance corporation
asserts that since Carmen Lapuz was over 60 years of age the policy in question was null and
void because there is a provision in the certificate of insurance excluding its liability to pay
claims under the policy in behalf of persons who are under the age of sixteen (16) years of age or
over the age of sixty (60) years. The trial court dismissed the complaint. Hence, this petition.
ISSUE:
Whether or not the acceptance by the private respondent insurance corporation of the premium
and the issuance of the corresponding certificate of insurance should be deemed a waiver of the
exclusionary condition of overage stated in the said certificate of insurance
RULING:
Yes. The age of the insured Carmen 0. Lapuz was not concealed to the insurance company. Her
application for insurancecoverage which was on a printed form furnished by private respondent
and which contained very few items of informationclearly indicated her age of the time of filing
the same to be almost 65 years of age. Despite such information which could hardly be
overlooked in the application form, considering its prominence thereon and its materiality to the
coverage applied for, the respondent insurance corporation received her payment of premium
and issued the corresponding certificate of insurance without question. The accident which
resulted in the death of the insured, a risk covered by the policy, occurred on May 31, 1969 or
FORTY-FIVE (45) DAYS after the insurance coverage was applied for. There was sufficient
time for the private respondent to process the application and to notice that the applicant was
over 60 years of age and thereby cancel the policy on that ground if it was minded to do so. If the
private respondent failed to act, it is either because it was willing to waive such disqualification;
or, through the negligence or incompetence of its employees for which it has only itself to blame,
it simply overlooked such fact. Under the circumstances, the insurance corporation is already
deemed in estoppel. Its inaction to revoke the policy despite a departure from the exclusionary
condition contained in the said policy constituted a waiver of such condition

PERLA COMPANIA DE SEGURO, INC. VS. COURT OF APPEALS

(185 SCRA 741)
FACTS:
Private respondent Milagros Cayas was the registered owner of a Mazda bus, insured with Perla
Compania de Seguros, Inc. (PCSI) under a policy issued on February 3, 1978. On December 17,
1978, the bus figured in an accident in Naic, Cavite injuring several of its passengers. One of
them, 19-year old Edgardo Perea, sued Milagros Cayas for damages in the CFI of Cavite,
while three others agreed to a settlement of P4,000.00 each. After trial, the court rendered a
decision in favor of Perea, ordering Cayas to compensate him, with an award of exemplary and
moral damages, as well as attorneys fees. On November 11, 1981, Milagros Cayas filed a
complaint for a sum of money and damages against PCSI in the Court of First Instance of Cavite.
In view of Milagros Cayas' failure to prosecute the case, the court motu propio ordered its
dismissal without prejudice.
Alleging
that
she
had
not
received
a
copy
of
the
answer to the complaint, and that "out of sportsmanship", she did not file a motion to hold
PCSI in default, Milagros Cayas moved for the reconsideration of the dismissal order. Said
motion for reconsideration was acted upon favorably by the court. About two months
later, Milagros Cayas filed a motion to declare PCSI in default for its failure to file an answer.
The motion was granted and plaintiff was allowed to adduce evidence ex-parte. On July 13,
1982, the court rendered judgment by default ordering PCSI to pay Milagros Cayas P50,000as
compensation for the injured passengers, P5,000 as moral damages and P5,000 as attorney's
fees.- Said decision was set aside after the PCSI filed a motion therefor. Trial of the case ensued.
In due course, the court promulgated a decision ordering defendant Perla Compania de Seguros,
Inc. to pay plaintiff Milagros Cayas the sum of P50,000.00under its maximum liability as
provided for in the insurance policy; and the sum of P5,000.00 as reasonable attorney's feePCSI appealed to the Court of Appeals, which affirmed in toto the lower court's decision. Its
motion for reconsideration having been denied by said appellate court, PCSI filed this petition
ISSUE:
Whether
or
not,
as maintained
by petitioner, its
liability is
limited only to the payment made by private respondent to Perea and only up to the amount of P
12,000.00
RULING:
YES. The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per
person and toP50,000.00 per accident. In Stokes vs. Malayan Insurance Co., Inc., The Court held
that the terms of the contract constitute the measure of the insurer's liability and compliance
therewith is a condition precedent to the insured's right of recovery from the insurer. In the case
at bar, the insurance policy clearly and categorically placed petitioner's liability for all
damages arising out of death or bodily injury sustained by one person as a result of any one
accident at P12,000.00. Said amount complied with the minimum fixed by the law then
prevailing, Section 377 of Presidential Decree No. 612, which provided that the liability

of land transportation vehicle operators for bodily injuries sustained by a passenger arising out of
the use of their vehicles shall not be less than P12,000.- In other words, under the law, the
minimum liability is P12,000 per passenger. Petitioner's liability under the insurance contract not
being less thanP12,000.00, and therefore not contrary to law, morals, good customs, public order
or public policy, said stipulation must be upheld as effective, valid and binding as between the
parties.
In like manner, we rule as valid and binding upon private respondent the condition
requiring her to secure the written permission of petitioner before effecting any payment
in settlement of any claim against her.- There is nothing unreasonable, arbitrary or objectionable
in this stipulation as would warrant its nullification. The same was obviously designed to
safeguard the insurer's interest against collusion
between
the
insured
and
the
claimants. It being specifically required that petitioner'swritten consent be first secured before
any payment in settlement of any claim could be made, private respondent is precluded from
seeking reimbursement of the payments made to the three other passengers in view of her failure
to comply with the condition contained in the insurance policy.- Clearly, the fundamental
principle that contracts are respected as the law between the contracting parties finds application
in the present case.- It was error on the part of the trial and appellate courts to have disregarded
the stipulations of theparties and to have substituted their own interpretation of the insurance
policy.
In Phil. American General Insurance Co., Inc vs. Mutuc, we ruled that contracts which are the
private laws of the contracting parties should be fulfilled according to the literal sense of their
stipulations, if their terms are clear and leave no room for doubt as
to the intention of the contracting parties, for contracts are obligatory, no matter what form they
may be, whenever the essential requisites for their validity are present. In Pacific Oxygen
& Acetylene Co. vs. Central Bank," it was stated that the first and fundamental duty of the courts
is the application of the law according
to its express terms,
interpretation
beingcalled for only when such literal application isimpossible.
We observe that although Milagros Cayas was able to prove a total loss of only P44,000.00,
petitioner was made liable for the amount of P50,000.00, the maximum liability
per accident stipulated in the policy. This is patent error. An insurance indemnity, being merely
an assistance or restitution insofar as can be fairly ascertained, cannot be availed of by any
accident victim or claimant as an instrument of enrichment by reason of an accident.

COUNTRY BANKERS INSURANCE CORPORATION VS. LIANGA BAY AND

COMMUNITY MULTI-PURPOSE COOPERATIVE INC.
[GR 136914, JANUARY 25, 2002]
FACTS:
Country Bankers Insurance Corporation (CBIC) is a domestic corporation principally engaged in
the insurance business wherein it undertakes, for a consideration, to indemnify another against
loss, damage or liability from an unknown or contingent event including fire while Lianga Baya
and Community Multipurpose Cooperative Inc. (LBCMCI) is a duly registered cooperative
judicially declared insolvent and represented by the elected assignee, Cornelio Jamero. It appears
that sometime in 1989, the CBIC and LBCMCI entered into a contract of fire insurance.
Under Fire Insurance Policy F-1397, CBIC insured LBCMCI's stocks-in-trade against fire loss,
damage or liability during the period starting from 20 June 1989 at 4:00 p.m. to 20 June 1990 at
4:00 p.m., for the sum of P200,000.00. On 1 July 1989, at or about 12:40 a.m., LBCMCI's
building located at Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire and reduced
to ashes, resulting in the total loss of LBCMCI's stocks-in-trade, pieces of furniture and fixtures,
equipments and records. Due to the loss, LBCMCI filed an insurance claim with CBIC under its
Fire Insurance Policy F-1397, submitting:
(a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated 1 July 1989;
(b) the Sworn Statement of Jose Lomocso; and
(c) the Sworn Statement of Ernesto Urbiztondo.
CBIC, however, denied the insurance claim on the ground that, based on the submitted
documents, the building was set on fire by 2 NPA rebels who wanted to obtain canned goods,
rice and medicines as provisions for their comrades in the forest, and that such loss was an
excepted risk under paragraph 6 of the policy conditions of Fire Insurance Policy F-1397, which
provides that "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: xxx (d) Mutiny,
riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power.
Any loss or damage happening during the existence of abnormal conditions (whether physical or
otherwise) which are occasioned by or through or in consequence, directly or indirectly, of any
of said occurrences shall be deemed to be loss or damage which is not covered by this insurance,
except to the extent that the Insured shall prove that such loss or damage happened
independently of the existence of such abnormal conditions."
Finding the denial of its claim unacceptable, LBCMCI then instituted in the trial court the
complaint for recovery of "loss, damage or liability" against CBIC. In due time, the trial court
rendered its Decision dated 26 December 1991 in favor of LBCMCI, ordering CBIC to pay
LBCMCI to fully pay the insurance claim for the loss LBCMCI sustained as a result of the fire
under its Fire Insurance Policy F-1397 in its full face value of P200,000.00 with interest of 12%
per annum from date of filing of the complaint until the same is fully paid; to pay as and in the
concept of actual or compensatory damages in the total sum of P50,000.00; to pay as and in the
concept of exemplary damages in the total sum of P50,000.00; to pay in the concept of litigation
expenses the sum of P5,000.00; to pay by way of reimbursement the attorney's fees in the sum of
P10,000.00; and to pay the costs of the suit. CBIC interposed an appeal to the Court of Appeals.

On 29 December 1998, the appellate court affirmed the challenged decision of the trial court in
its entirety. CBIC filed the petition for review on certiorari.
ISSUE:
Whether the burden of proof of loss in this case is upon the insurer, and not the insured.
RULING:
YES. CBIC does not dispute that LBCMCI's stocks-in-trade were insured against fire loss,
damage or liability under Fire Insurance Policy F-1397 and that LBCMCI lost its stocks-in-trade
in a fire that occurred on 1 July 1989, within the duration of said fire insurance. CBIC, however,
posits the view that the cause of them loss was an excepted risk under the terms of the fire
insurance policy.
Where a risk is excepted by the terms of a policy which insures against other perils or hazards,
loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed
that risk, and from this it follows that an insurer seeking to defeat a claim because of an
exception or limitation in the policy has the burden of proving that the loss comes within the
purview of the exception or limitation set up. If a proof is made of a loss apparently within a
contract of insurance, the burden is upon the insurer to prove that the loss arose from a cause of
loss which is excepted or for which it is not liable, or from a cause which limits its liability.
Stated elsewise, since CBIC in this case is defending on the ground of non-coverage and relying
upon an exemption or exception clause in the fire insurance policy, it has the burden of proving
the facts upon which such excepted risk is based, by a preponderance of evidence. But CBIC
failed to do so.
CBIC relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as on the
Spot Report of Pfc. Arturo V. Juarbal dated 1 July 1989. The Sworn Statements of Jose Lomocso
and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay, inasmuch as they did
not take the witness stand and could not therefore be cross examined. CBIC's evidence to prove
its defense is sadly wanting and thus, gives rise to its liability to LBCMCI under Fire Insurance
Policy F-1397.

AMERICAN HOME ASSURANCE COMPANY VS. CHUA

[GR 130421, 28 JUNE 1999]
FACTS:
American Home Assurance Company (AHAC) is a domestic corporation engaged in the
insurance business. Sometime in 1990, Antonio Chua obtained from AHAC a fire insurance
covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia,
Bukidnon. The insurance was due to expire on 25 March 1990. On 5 April 1990 Chua issued
PCIBank Check 352123 in the amount of P2,983.50 to AHACs agent, James Uy, as payment for
the renewal of the policy. In turn, the latter delivered Renewal Certificate 00099047 to Chua.
The check was drawn against a Manila bank and deposited in AHACs bank account in Cagayan
de Oro City. The corresponding official receipt was issued on 10 April. Subsequently, a new
insurance policy, Policy 206-4234498-7, was issued, whereby AHAC undertook to indemnify
Chua for any damage or loss arising from fire up to P200,000 for the period 25 March 1990 to 25
March 1991. On 6 April 1990 Moonlight Enterprises was completely razed by fire.
Total loss was estimated between P4,000,000 and P5,000,000. Chua filed an insurance claim
with AHAC and four other co-insurers, namely, Pioneer Insurance and Surety Corporation,
Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and Domestic
Insurance Company of the Philippines. AHAC refused to honor the claim notwithstanding
several demands by Chua, thus, the latter filed an action against AHAC before the trial court. In
its defense, AHAC claimed there was no existing insurance contract when the fire occurred since
Chua did not pay the premium.
It also alleged that even assuming there was a contract, Chua violated several conditions of the
policy, particularly:
(1) his submission of fraudulent income tax return and financial statements;
(2) his failure to establish the actual loss, which AHAC assessed at P70,000; and
(3) his failure to notify to AHAC of any insurance already effected to cover the insured goods.
These violations, AHAC insisted, justified the denial of the claim. The trial court ruled in favor
of Chua. It found that Chua paid by way of check a day before the fire occurred. The check,
which was deposited in AHACs bank account, was even acknowledged in the renewal
certificate issued by AHACs agent. It declared that the alleged fraudulent documents were
limited to the disparity between the official receipts issued by the Bureau of Internal Revenue
(BIR) and the income tax returns for the years 1987 to 1989. All the other documents were found
to be genuine. Nonetheless, it gave credence to the BIR certification that Chua paid the
corresponding taxes due for the questioned years. As to Chuas failure to notify AHAC of the
other insurance contracts covering the same goods, the trial court held that AHAC failed to show
that such omission was intentional and fraudulent. Finally, it noted that AHACs investigation of
Chua's claim was done in collaboration with the representatives of other insurance companies
who found no irregularity therein. In fact, Pioneer Insurance and Surety Corporation and
Prudential Guarantee and Assurance, Inc. promptly paid the claims filed by Chua.
The trial court ordered AHAC to pay Chua P200,000.00, representing the amount of the
insurance, plus legal interest from the date of filing of the case; P200,000.00 as moral damages;

P200,000.00 as loss of profit; P100,000.00 as exemplary damages; P50,000.00 as attorneys fees;

and Cost of suit. On appeal, the assailed decision was affirmed in toto by the Court of Appeals.
The Court of Appeals found that Chuas claim was substantially proved and AHACs unjustified
refusal to pay the claim entitled Chua to the award of damages. Its motion for reconsideration of
the judgment having been denied, AHAC filed the petition for review on certiorari.
ISSUE:
Whether there was a valid payment of premium, considering that Chuas check was cashed after
the occurrence of the fire.
RULING:
YES. The general rule in insurance laws is that unless the premium is paid the insurance policy is
not valid and binding. The only exceptions are life and industrial life insurance. Whether
payment was indeed made is a question of fact which is best determined by the trial court. The
trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by
Chua to AHAC. Well-settled is the rule that the factual findings and conclusions of the trial court
and the Court of Appeals are entitled to great weight and respect, and will not be disturbed on
appeal in the absence of any clear showing that the trial court overlooked certain facts or
circumstances which would substantially affect the disposition of the case.
The Supreme Cpurt sees no reason to depart from this ruling. According to the trial court the
renewal certificate issued to Chua contained the acknowledgment that premium had been paid. It
is not disputed that the check drawn by Chua in favor of AHAC and delivered to its agent was
honored when presented and AHAC forthwith issued its official receipt to Chua on 10 April
1990. Section 306 of the Insurance Code provides that any insurance company which delivers a
policy or contract of insurance to an insurance agent or insurance broker shall be deemed to have
authorized such agent or broker to receive on its behalf payment of any premium which is due on
such policy or contract of insurance at the time of its issuance or delivery or which becomes due
thereon.
Herein, the best evidence of such authority is the fact that AHAC accepted the check and issued
the official receipt for the payment. It is, as well, bound by its agents acknowledgment of receipt
of payment. Section 78 of the Insurance Code explicitly provides that "An acknowledgment in a
policy or contract of insurance of the receipt of premium is conclusive evidence of its payment,
so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid." This Section establishes a legal fiction of payment
and should be interpreted as an exception to Section 77.

ENRIQUEZ VS. SUN LIFE ASSURANCE CO. OF CANADA

(41 PHIL 269)
FACTS:
Plaintiff is estate administrator for late Joaquin Herrer. Herrer has pending application with
defendant Sun Life Assurance Co (sun Life) evidenced by a provisional receipt. The provisional
receipt reads payment of Php6, 000 for life annuity received 26 September 1917. The
application was received by Sun Life head office a month after.
04 December 1917, the policy was issued in Montreal. A petition for withdrawal of application
was filed by Herrers lawyer 18 December 1917. Herrer died 20 December. A letter from Sun
Life was received 21 December stating policy was issued and reminds the party of a notification
of acceptance of the application dated 26 November.
Plaintiff testified that he had found no letter of notification from theSun Life.
Lower Court decides in favor of respondent. Appeal was taken.
ISSUE:
Whether or not the there has been a valid offer and acceptance?
RULING:
None. The Civil Code provides that the acceptance made by letter binds the person making the
offer only from the date it has came to its knowledge. The contract of life annuity was not
perfected. There was no satisfactory evidence that the application acceptance came to the
knowledge of Herrer.
Article 16 of the civil code provides that any deficiency in the special law shall be supplied
by the Code. The Insurance Code does not provide for law on the principle of acceptance, thus
the Civil Code shall govern.
Article 1262 provides that consent is shown by concurrence of offer and acceptance with the
thing and the consideration to the contract. The acceptance by letter shall not bind the person
making the offer except from the time It came to his knowledge.
American Courts held that acceptance of offer not actually communicated does not complete the
contract but the mailing of the acceptance. Locus Poenitrntiae is ended when acceptance has
passed beyond partys control.
Furthermore, the provisional receipt provides for conditions before a contract is deemed final. 1.
Medical examination. 2. Approval by head office of the application. 3. the company
communicates approval to the applicant.
In the case, there was no letter of notification. No evidence of knowledge. Judgment reversed.
Php6000 with interest is to be returned.

GREAT PACIFIC LIFE ASSURANCE COMPANY VS. COURT OF APPEALS

[GR L-31845, 30 APRIL 1979]
FACTS:
On 14 March 1957, Ngo Hing filed an application with the Great Pacific Life Assurance
Company for a 20-year endowment policy in the amount of P50,000.00 on the life of his one
year old daughter Helen Go. Ngo Hing supplied the essential data which Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form
in his own handwriting . Mondragon finally type-wrote the data on the application form which
was signed by Ngo Hing. The latter paid the annual premium, the sum of P1,077.75 going over
to the Company, but he retained the amount of P1,317.00 as his commission for being a duly
authorized agent of Pacific Life. Upon the payment of the insurance premium, the binding
deposit receipt was issued to Ngo Hing. Likewise, 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 30 April 1957, Mondragon received a letter from Pacific Life disapproving the
insurance application. The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below 7 years old, but Pacific Life can consider the
same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the
Juvenile Non-Medical Declaration be sent to the Company. The non-acceptance of the insurance
plan by Pacific Life was allegedly not communicated by Mondragon to Ngo Hing. Instead, on 6
May 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the
20-year endowment life insurance on the ground that Pacific Life is the only insurance company
not selling the 20- year endowment insurance plan to children, pointing out that since 1954 the
customers, especially the Chinese, were asking for such coverage. It was when things were in
such state that on 28 May 1957 Helen Go died of influenza with complication of broncho
pneumonia.
Thereupon, Ngo Hing 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 a decision against Pacific Life and Mondragon, orderig them to solidarily
pay 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 P10,000.00 as attorney's fees plus costs of suits. On appeal, the Court
of Appeals set aside the appealed decision of the Court of First Instance of Cebu, and absolved
Pacific Life and Mondragon from liability on the insurance policy, but ordered the
reimbursement to Ngo Hing the amount of P1,077.75, without interest. On reconsideration,
however, the appellate court affirmed in toto the decision of the Court of First Instance of Cebu,
ordering Pacific Life and Mondragon jointly and severally to pay Ngo Hing. Two petitions for
certiorari by way of appeal were filed by Pacific Life and Mondragon. The petitons were
consolidated by the Supreme Court in a resolution dated 29 April 1970.
ISSUE:
Whether the binding deposit receipt constituted a temporary contract of the life insurance in
question, and thus negate the claim that the insurance contract was perfected.

RULING:
YES. The provisions printed on the binding deposit receipt show that the binding deposit receipt
is intended to be merely a provisional or temporary insurance contract and only upon compliance
of the following conditions:
(1) that the company shall be satisfied that the applicant was insurable on standard rates;
(2) that if the company does not accept the application and offers to issue a policy for a different
plan, the insurance contract shall not be binding until the applicant accepts the policy offered;
otherwise, the deposit shall be refunded; and
(3) that if the applicant is not insurable according to the standard rates, and the company
disapproves the application, the insurance applied for shall not be in force at any time, and the
premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is
merely an acknowledgment, on behalf of the company, that the latter's branch office had received
from the applicant the insurance premium and had accepted the application subject for
processing by the insurance company; and that the latter will either approve or reject the same on
the basis of whether or not the applicant is "insurable on standard rates." Since Pacific Life
disapproved the insurance application of Ngo Hing, the binding deposit receipt in question had
never become in force at any time.
Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not
insure outright. Where an agreement is made between the applicant and the agent, no liability
shall attach until the principal approves the risk and a receipt is given by the agent. The
acceptance is merely conditional, and is subordinated to the act of the company in approving or
rejecting the application.
Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears
repeating that through the intra-company communication of 30 April 1957, Pacific Life
disapproved the insurance application in question on the ground that it is not offering the 20-year
endowment insurance policy to children less than 7 years of age. What it offered instead is
another plan known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the
absence of a meeting of the minds between Pacific Life and Ngo Hing over the 20-year
endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old
daughter, and with the non-compliance of the above-quoted conditions stated in the disputed
binding deposit receipt, there could have been no insurance contract duly perfected between
them.
Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life.

DEVELOPMENT BANK OF THE PHILIPPINES VS. COURT OF APPEALS

[GR 109937, 21 MARCH 1994]
FACTS:
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied
for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch.
As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a
mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool
(DBP MRI Pool). A loan, in the reduced amount of P300,000.00, was approved by DBP on 4
August 1987 and released on 11 August 1987. From the proceeds of the loan, DBP deducted the
amount of P1,476.00 as payment for the MRI premium.
On 15 August 1987, Dans accomplished and submitted the "MRI Application for Insurance" and
the "Health Statement for DBP MRI Pool." On 20 August 1987, the MRI premium of Dans, less
the DBP service fee of 10%, was credited by DBP to the savings account of the DBP MRI Pool.
Accordingly, the DBP MRI Pool was advised of the credit. On 3 September 1987, Dans died of
cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On 23
September 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage,
being over the acceptance age limit of 60 years at the time of application. On 21 October 1987,
DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP
offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans
refused to accept the same, demanding payment of the face value of the MRI or an amount
equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00,
which the DBP later offered.
On 10 February 1989, the Estate of the Late Juan B. Dans, through Candida Dans as
administratrix, filed a complaint with the Regional Trial Court, Branch I, Basilan, against DBP
and the insurance pool for collection of Sum of Money with Damages. On 10 March 1990, the
trial court rendered a decision in favor of the Estate and against DBP. The DBP MRI Pool,
however, was absolved from liability, after the trial court found no privity of contract between it
and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for
MRI and actually collecting the premium and the service fee, despite knowledge of his age
ineligibility.
The court ordered DBP to return and reimburse the Estate the amount of P139,500.00 plus legal
rate of interest as amortization payment paid under protest; to consider the mortgage loan of
P300,000.00 including all interest accumulated or otherwise to have been settled, satisfied or setoff by virtue of the insurance coverage of the late Juan B. Dans; to pay the Estate the amount of
P10,000.00 as attorney's fees; to pay the Estate the amount of P10,000.00 as costs of litigation
and other expenses, and other relief just and equitable. The DBP appealed to the Court of
Appeals.
In a decision dated 7 September 1992, the appellate court affirmed in toto the decision of the trial
court. The DBP's motion for reconsideration was denied in a resolution dated 20 April 1993.
DBP filed the petition for review on certiorari.

ISSUE [1]:
Whether there was a perfected contract of insurance for DBP MRI Pool to be held liable.
ISSUE [2]:
Whether DBP is liable for the entire value of the insurance policy, as it led Dans to believe that
he has fulfilled all the requirements for the MRI and that the issuance of his policy was
forthcoming.
RULING [1]:
NO. When Dans applied for MRI, he filled up and personally signed a "Health Statement for
DBP Pool" with the following declaration: "I hereby declare and agree that all the statements and
answers contained herein are true, complete and correct to the best of my knowledge and belief
and form part of my application for insurance. It is understood and agreed that no insurance
coverage shall be effected unless and until this application is approved and the full premium is
paid during my continued good health." Under the aforementioned provisions, the MRI coverage
shall take effect: (1) when the application shall be approved by the insurance pool; and (2) when
the full premium is paid during the continued good health of the applicant. These two conditions,
being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The
pool, however, did not approve the application of Dans. There is also no showing that it accepted
the sum of P1,476.00, which DBP credited to its account with full knowledge that it was
payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence,
the DBP MRI Pool cannot be held liable on a contract that does not exist.
RULING [2]:
It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI
coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of
insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When
Dan's loan was released on 11 August 1987, DBP already deducted from the proceeds thereof the
MRI premium. Four days later, DBP made Dans fill up and sign his application for MRI, as well
as his health statement. The DBP later submitted both the application form and health statement
to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP
deducted 10% of the premium collected by it from Dans. In dealing with Dans, DBP was
wearing two legal hats: the first as a lender, and the second as an insurance agent. As an
insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby
leading him and his family to believe that they had already fulfilled all the requirements for the
MRI and that the issuance of their policy was forthcoming.
Apparently, DBP had full knowledge that Dan's application was never going to be approved. The
maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of
the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance companies
concerned. The DBP is not authorized to accept applications for MRI when its clients are more
than 60 years of age. Knowing all the while that Dans was ineligible for MRI coverage because
of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application

for MRI by collecting the insurance premium, and deducting its agent's commission and service
fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third
person is aware of the limits of the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI. If the third person dealing with an
agent is unaware of the limits of the authority conferred by the principal on the agent and he
(third person) has been deceived by the non-disclosure thereof by the agent, then the latter is
liable for damages to him. The DBP's liability, however, cannot be for the entire value of the
insurance policy.
To assume that were it not for DBP's concealment of the limits of its authority, Dans would have
secured an MRI from another insurance company, and therefore would have been fully insured
by the time he died, is highly speculative. Considering his advanced age, there is no absolute
certainty that Dans could obtain an insurance coverage from another company. It must also be
noted that Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI,
and on the twenty-third day from the date of release of his loan.

VIRGINIA PEREZ VS. COURT OF APPEALS

(323 SCRA 613)
FACTS:
Primitivo Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for
P20,000.00. In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and
convinced him to apply for additional insurance coverage of P50,000.00, to avail of the ongoing
promotional discount of P400.00 if the premium were paid annually. Primitivo B. Perez
accomplished an application form for the additional insurance coverage. Virginia A. Perez, his
wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount received was a
"deposit."
Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28,
1987, he asked the latter to fill up another application form. On November 1, 1987, Perez was
made to undergo the required medical examination, which he passed. Lalog forwarded the
application for additional insurance of Perez, together with all its supporting papers, to the office
of BF Lifeman Insurance Corporationn in Quezon which office was supposed to forward the
papers to the Manila office. On November 25, 1987, Perez died while he was riding a banca
which capsized during a storm. At the time of his death, his application papers for the additional
insurance were still with the Quezon office. Lalog testified that when he went to follow up the
papers, he found them still in the Quezon office and so he personally brought the papers to the
Manila office of BF Lifeman Insurance Corporation. It was only on November 27, 1987 that said
papers were received in Manila.
Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation
approved the application and issued the corresponding policy for the P50,000.00 on December 2,
1987 Virginia went to Manila to claim the benefits under the insurance policies of the deceased.
She was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in
case of accident) but the insurance company refused to pay the claim under the additional policy
coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple
indemnity rider on the insurance policy.
In its letter of January 29, 1988 to Virginia A. Perez, the insurance company maintained that the
insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez.
Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez
had paid Lifeman filed for the rescission and the declaration of nullity. Perez, on the other hand,
averred that the deceased had fulfilled all his prestations under the contract and all the elements
of a valid contract are present. RTC ruled in favor of Perez. CA reversed.
ISSUE:
Whether or not there was a perfected additional insurance contract.
RULING:
The contract was not perfected. Insurance is a contract whereby, for a stipulated consideration,
one party undertakes to compensate the other for loss on a specified subject by specified perils.

A contract, on the other hand, is a meeting of the minds between two persons whereby one binds
himself, with respect to the other to give something or to render some service.
Consent must be manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. When Primitivo filed an application for insurance, paid P2,075.00 and submitted the
results of his medical examination, his application was subject to the acceptance of private
respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance
between the deceased and respondent corporation was further conditioned upon compliance with
the following requisites stated in the application form:
"there shall be no contract of insurance unless and until a policy is issued on this application
and that the said policy shall not take effect until the premium has been paid and the policy
delivered to and accepted by me/us in person while I/We, am/are in good health."
The assent of private respondent BF Lifeman Insurance Corporation therefore was not given
when it merely received the application form and all the requisite supporting papers of the
applicant. Its assent was given when it issues a corresponding policy to the applicant. Under the
abovementioned provision, it is only when the applicant pays the premium and receives and
accepts the policy while he is in good health that the contract of insurance is deemed to have
been perfected.
It is not disputed, however, that when Primitivo died on November 25, 1987, his application
papers for additional insurance coverage were still with the branch office of respondent
corporation in Gumaca and it was only two days later, or on November 27, 1987, when Lalog
personally delivered the application papers to the head office in Manila. Consequently, there was
absolutely no way the acceptance of the application could have been communicated to the
applicant for the latter to accept inasmuch as the applicant at the time was already dead.

MALAYAN INSURANCE CO., INC. VS. COURT OF APPEALS

(165 SCRA 536)
FACTS:
Malayan Insurance Co. Inc. (MALAYAN) issued a Private Car Comprehensive Policy covering
a Willys jeep. The insurance coverage was for "own damage" not to exceed P600.00 and "thirdparty liability" in the amount of P20,000.00.
During the effectivity of the insurance policy, , the insured jeep, while being driven by one Juan
P. Campollo an employee of the respondent San Leon Rice Mill, Inc., (SAN LEON) collided
with a passenger bus belonging to the respondent Pangasinan Transportation Co., Inc.
(PANTRANCO) at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing
damage to theinsured vehicle and injuries to the driver, Juan P. Campollo, and the
respondent Martin C. Vallejos, who was riding in the ill-fated jeep.
Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co., Inc.
and the PANTRANCO before the Court of First Instance of Pangasinan. The trial court rendered
judgment holding Sio Choy, SAN LEON, and MALAYAN jointly and severally liable.
However, MALAYANs liability will only be up to P20,000.
On appeal, CA affirmed the decision of the trial court. However, it ruled that SAN LEON has no
obligation to indemnify or reimburse the petitioner insurance company for whatever amount it
has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the
contract of insurance between Sio Choy and the insurance company.
MALAYAN appealed to the SC by way of review on certiorari.
ISSUE[1]:
Whether or not MALAYAN is solidarily liable to Vallejos, along with Sio Choy and SAN
LEON
ISSUE[2]:
Whether or not MALAYAN is entitled to be reimbursed by SAN LEON for whatever amount
petitioner has been adjudged to pay respondent Vallejos on its insurance policy.
RULING[1]:
Only Sio Choy and SAN LEON are solidarily liable to Vallejos for the award of damages. Sio
Choy is liable as owner of the jeep pursuant to Article 2184, while SAN LEON is liable as the
employer of the driver of the jeep at the time of the accident pursuant to Art 2180.
MALAYANs liability, however, arose only out of the insurance policywith Sio Choy. Petitioner
as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as incorrectly held by the
trial court, be made "solidarily" liable with the two principal tortfeasors namely respondents Sio
Choy and SAN LEON.

RULING[2]:
MALAYAN is entitled to be reimbursed. Upon payment of the loss, the insurer is entitled to be
subrogated pro tanto to any right of action which the insured may have against the third person
whose negligence or wrongful act caused the loss. When the insurance company pays for the
loss, such payment operates as an equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery thereof. That right is not dependent upon ,
nor does it grow out of any privity of contract or upon written assignment of claim, and payment
to the insured makes the insurer assignee in equity.

MANILA MAHOGANY MANUFACTURING CORPORATION vs. COURT OF

APPEALS
(G.R. No. L-52756 (October 12, 1987)
FACTS:
Petitioner Manila Mahogany Manufacturing Corporation insured its Mercedes Benz 4-door
sedan with respondent Zenith Insurance Corporation. The insured vehicle was bumped and
damaged by a truck owned by San Miguel Corporation. For the damage caused, respondent
company paid petitioner five thousand pesos(P5,000.00) in amicable settlement. Petitioner's
general manager executed a Release of Claim, subrogating respondent company to all its right to
action against San Miguel Corporation. Thereafter, respondent company wrote Insurance
Adjusters, Inc. to demand reimbursement from SanMiguel Corporation of the amount it had paid
petitioner. Insurance Adjusters, Inc. refused reimbursement, alleging that San Miguel
Corporation had already paid petitioner P4,500.00 for the damages to petitioner's motor vehicle,
as evidenced by a cash voucher and a Release of Claim executed by the General Manager
of petitioner discharging San Miguel Corporation from "all actions, claims, demands the rights
of action that now exist or hereafter develop arising out of or as a consequence of the
accident."Respondent insurance company thus demanded from petitioner reimbursement of the s
um of P 4,500.00 paid by San Miguel Corporation. Petitioner refused; hence, the instant case.
ISSUE:
Whether or not the respondent insurance company is subrogated to the rights of the petitioner
against San Miguel Corporation.
RULING:
Yes. The Supreme Court held that if a property is insured and the owner receives the indemnity
from the insurer, it is provided in [Article 2207 of the New Civil Code] that the insurer is
deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by
the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover
the deficiency. Under this legal provision, the real party in interest with regard to the portion of
the indemnity paid is the insurer and not the insured.
Hence, petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel Corporation under
its clear right to file a deficiency claim for damages incurred, against the wrongdoer, should the
insurance company not fully pay for the injury caused (Article 2207, New Civil Code). However,
when petitioner released San Miguel Corporation from any liability, petitioner's right to retain
the sum of P 5,000.00 no longer existed, thereby entitling private respondent to recover the same.
The right of subrogation can only exist after the insurer has paid the insured otherwise the
insured will be deprived of his right to full indemnity.
If the insurance proceeds are not sufficient to cover the damages suffered by the insured, then he
may sue the party responsible for the damage for the remainder. To the extent of the amount he
has already received from, the insurer enjoys the right of subrogation. Since the insurer can be
subrogated to only such rights as the insured may have, should the insured, after receiving
payment from the insurer, release the wrongdoer who caused the loss, the insurer loses his rights

against the latter. But in such a case, the insurer will be entitled to recover from the insured
whatever it has paid to the latter, unless the release was made with the consent of the insurer

PAN MALAYAN INSURANCE CORP. VS. COURT OF APPEALS

(184 SCRA 54)
FACTS:
Canlubang Automotive Resources Corp. obtained from PanMalay an insurance for its Mitsubishi
Colt Lancer. While the policy was still in effect, the insured car was hit by a pick-up owned by
Erlinda Fabie butdriven by another person. The car suffered damages in the amount of P42K.
Panmalay defrayed the cost of repair of the insured car. It then demanded reimbursement from
Fabie and her driver of said amount, but to no avail. Panmalay filed a complaint for damages
with the RTC of Makati against Fabie and the driver. Panmalay averred that the damages caused
to the insured car was settled under the own damage coverage of the insurance policy. Private
respondents filed a motion to dismiss alleging that Panmalay had no cause of action since
the won damage clause of the policy precluded subrogation under Art. 2207 of the CC.Indemni
fication under said article is on the assumption that there was no wrongdoer or no 3rd party at
fault.
RTC dismissed Panmalays complaint. RTC held that payment by Panmalay under the own
damage clause was an admission by the insurer that the damage was caused by the assured
and/or its representatives CA affirmed, albeit on a somewhat different ground. Applying the
ejusdem generis rule, CA held that Section III-I of the policy, which was the basis for
the settlement of the claim against insurance, did not cover damage arising from collision or
overturning due to the negligence of 3rd parties as one of the insurable risks. Both tribunals
concluded that Panmalay could not now invoke Art 2207 and claim reimbursement
ISSUE:
Whether or not Panmalay was subrogated to the rights of Canlubang against the driver and his
employer
RULING:
Yes. Article 2207 of the CC is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damages through the fault or negligence of a party other than theassured,
then the insurer, upon payment to the assured, will be subrogated to the right of the assured to
recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by
the insurer to the assured operates as an equitable assignment to the former of all the remedies
which the latter may have against the 3rd party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.
There are exceptions to this rule:
1. if the assured by his won act releases the wrongdoer or 3rd party liable for the loss or
damage, from liability;
2. where the insurer pays the assured the value of the lost goods without notifying the
carrier who has in good faith settled the assureds claim for loss;
3. where the insurer pays the assured for a loss which is not a risk covered by the policy
(voluntary payment).
None of the exceptions are availing in the present case.

AS TO RTC RULING: When Panmalay utilized the phrase own damage-- a phrase which,
incidentally, is not found in the insurance policyto define the basis for its settlement, it simply
meant that it had assumed to reimburse the costs for repairing the damage to the insured vehicle.
It is in this sense that the so-called own damage coverage of policy is different from the 3rd
Party liability coverage and from the property damage coverage.
AS TO CA RULING: CAs ruling that the coverage of the insured risks under Section III-I of
the policy does not include damage to the insured vehicle arising from collision or overturning
due to negligent acts of a 3rd party, has no merit. Not only is it an erroneous interpretation of the
provisions of the section, but it also violates a fundamental rule on the interpretation of property
insurance contracts where interpretation should be liberally in favor of the assured and strictly
against the insurer in cases of disagreement between the parties. The meaning advanced by
Panmalay regarding the coverage of Section III-I of the policy is undeniable more beneficial to
Canlubang than that insisted upon by the CA. In any case, the very parties to the policy,
Canlubang and Panmalay, were not shown to be in disagreement regarding the meaning and
coverage of Section III-I. Hence, it was improper for CA to assert its own interpretation of the
contract that is contrary to the clear understanding and intention of the parties to it.
Thus, SC held that Panmalay, as subrogee, has no legal obstacle from filing the complaint
for damages against the 3rd parties responsible for the damage to the car.

CEBU SHIPYARD AND ENGINEERING WORKS, INC. VS. WILLIAM LINES

(306 SCRA 762)
FACTS:
Cebu Shipyard and Engineering Works, Inc. repaired marine vessels while the Prudential is in
the non-life insurance business. William Lines, Inc., the owner of M/V Manila City, a luxury
passenger-cargo vessel, which caught fire and sank. At the time of the incident, subject vessel
was insured with Prudential for P45M for hull and machinery. CSEW was insured for only Php
10 million for the ship repairers liability policy. They entered into a contract where
negligence was the only factor that could make CSEW liable for damages. Moreover, liability of
CSEW was limited to only Php 1million for damages. The Hull Policy included an Additional
Perils (INCHMAREE) Clause covering loss of or damage to the vessel through
the negligence of, among others, ship repairmen.
William brought M/VManila City to the dry dock of CSEW for repairs. The officers and cabin
crew stayed at the ship while it was being repaired. After the vessel was transferred to the
docking quay, it caught fire and sank, resulting to its total loss. William brought suit against
CSEW alleging that it was through the latters negligence that the ship caught fire and sank.
Prudential was impleaded as co-plaintiff after it had paid the value of insured items. It was
subrogated to 45 million, or the value it claimed to indemnify.
The trial court brought judgment against CSEW 45 million for the ship indemnity, 65 million
for loss of income, and more than 13 million in other damages. The CA affirmed the TC
decision. CSEW contended that the cause of the fire was due to Williams hotworks on the said
portion of the ship which they didnt ask CSEW permission for. Prudential, on the other hand,
blamed the negligence of the CSEW workers in the instance when they didnt mind rubber
insulation wire coming out of the air-conditioning unit that was already burning.
ISSUE:
Whether or not Prudential has the right of subrogation against its own insured
RULING:
Petitioner contends that Prudential is not entitled to be subrogated to the rights of William Lines,
Inc., theorizing that (1) the fire which gutted M/V Manila City was an excluded risk and (2) it is
a co-assured under the Marine Hull Insurance Policy. This was wrong. The one who caused the
fire has already been adjudicated by the courts as CSEW.
Upon proof of payment by Prudential to William Lines, Inc., the former was subrogated to the
right of the latter to indemnification from CSEW. As aptly ruled by the Court of Appeals, the
law says:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.

When Prudential paid the latter the total amount covered by its insurance policy, it was
subrogated to the right of the latter to recover the insured loss from the liable party, CSEW.
Petitioner theorizes further that there can be no right of subrogation as it is deemed a co-assured
under the subject insurance policy with reliance on Clause 20 of the Work Order which states:
20. The insurance on the vessel should be maintained by the customer and/or owner of the
vessel during the period the contract is in effect.
Clause 20 of the Work Order in question is clear in the sense that it requires William Lines to
maintain insurance on the vessel during the period of dry-docking or repair. However, the fact
that CSEW benefits from the said stipulation does not automatically make it as a co-assured of
William Lines. The intention of the parties to make each other a co-assured under an insurance
policy is to be read from the insurance contract or policy itself and not from any other contract or
agreement because the insurance policy denominates the beneficiaries of the insurance. The hull
and machinery insurance procured by William Lines, Inc. from Prudential named only William
Lines, Inc. as the assured. There was no manifestation of any intention of William Lines, Inc.
to constitute CSEW as a co-assured under subject policy. The claim of CSEW that it is a coassured is unfounded.
Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is provided that
this insurance also covers loss of or damage to vessel directly caused by the negligence of
charterers and repairers who are not assured.
As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured under the
policy, it would nullify any claim of William Lines, Inc. from Prudential for any loss or damage
caused by the negligence of CSEW. Certainly, no shipowner would agree to make a ship repairer
a co-assured under such insurance policy; otherwise, any claim for loss or damage under the
policy would be invalidated.

SPOUSES CHA VS. COURT OF APPEALS

(227 SCRA 690)
FACTS:
Petitioner spouses Nilo Cha and Stella Uy-Cha, as lessees entered into a lease contract with
private respondent CKS Development Corporation as lessor. A stipulation of the lease
contract provides that the Lessee is not allowed to insure against fire the chattels, merchandise,
textiles, goods and effects placed at any stall or store or space in the leased premises without first
obtaining the written consent and approval of the Lessor. If the Lessee violates this the policy is
deemed assigned and transferred to the Lessor for his own benefit.
Petitioner took out a policy of fire insurance over the merchandise inside the leased premises
with United Insurance without consent of CKS.
On the day the lease contract was to expire a fire broke out inside the leased premises. CKS,
wrote a letter to United asking that the proceeds of the fire insurance be paid directly to CKS.
United refused. Hence, the latter filed a complaint against the Cha spouses and United.
RTC ruled in favor of CKS. CA affirmed, hence the petition.
ISSUE:
Whether or not CKS can recover from the insurance policy.
RULING:
No. Section 18 of the Insurance Code provides that: No contract or policy of insurance on
property shall be enforceable except for the benefit of some person having an
insurable interest in the property insured.
In the present case, it cannot be denied that CKS has no insurableinterest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the
Insurance Code: The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof. Therefore, CKS cannot be validly a
beneficiary of the fire insurance policy taken by petitioner-spouses. The
insurable interest remains with the Cha spouses.
The stipulation in the lease contract is void for being contrary to law and public policy. This is in
keeping with the provision under Sec. 25 of the Insurance Code that: Every stipulation in
a policy of Insurance for the payment of loss, whether the person insured has or has not
any interest in the property insured or that the policy shall be received as proof of
such interest and every policy executed by way of gaming or wagering is void.

GREAT PACIFIC LIFE INSURANCE CORP. VS. COURT OF APPEALS

(316 SCRA 677)
FACTS:
A contract of group life insurance was executed between Grepalife and DBP. The former agreed
to insure the lives of eligiblehousing loan mortgagors of DBP. Dr. Leuterio applied membership
in the group life insurance plan. He answered in the application formthat he has never consulted
a physician for heart condition, high blood pressure, cancer, diabetes, lung, kidney, or stomach
disorder or any other physical impairment, and that to the best of his knowledge he is in good
condition. During the subsistence of the insurance he died from massive cerebral hemorrhage.
Grepalife denied the claim because of concealment since it was discovered that he had high
blood. His widow filed a claim.
ISSUE:
Whether or not there was misrepresentaion so as to warrant denial of claim; Whether or not the
widow of Leuterio is a real party in interest
RULING:
The Supreme Court ruled that there was no sufficient proof that the insured suffered from
hypertension. It is a well-settled ruled that the fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the contract. As regards the second issue, the widow
can be regarded as real party in interest because in mortgage redemption insurance the mortgagor
and not the mortgagee is the contracting party. The mortgagor merely assigns the proceeds to the
mortgagee. Therefore, since by principle of succession the widow may claim.

HARVARDIAN COLLEGES OF SAN FERNANDO, PAMPANGA, INC. VS. COUNTRY

BANKERS INSURANCE CORP. VS. COURT OF APPEALS
(CA CV No. 0377; January 6, 1986, 1 CARA 1)
FACTS:
Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King
Yap and their children. Prior to Aug. 9, 1979, an agent of Country Bankers proposed to
Harvardian to insure its school building. Although at first reluctant, Harvardian agreed. Country
Banks sent an inspector to inspect the school building and agreed to insure the same for
P500,000 for which Harvardian paid an annual premium of P2,500. On Aug. 9, 1979, Country
Bankers issued to Harvardian a fire insurance policy. On March 12, 1980, during the effectivity
of said insurance policy, the insured property was totally burned rendering it a total loss.
A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff
had no insurable interest over the building constructed on the piece of land in the name of the
late Ildefonso Yap as owner. It was contended that both the lot and the building were owned by
Ildefonso Yap and NOT by the Harvardian Colleges.
ISSUE:
Whether or not Harvardian colleges has a right to the proceeds.
RULING:
Harvardian has a right to the proceeds.
Regardless of the nature of the title of the insured or even if he did not have title to the property
insured, the contract of fire insurance should still be upheld if his interest in or his relation to the
property is such that he will be benefited in its continued existence or suffer a direct pecuniary
loss from its destruction or injury. The test in determining insurable interest in property is
whether one will derive pecuniary benefit or advantage from its preservation, or will suffer
pecuniary loss or damage from its destruction, termination or injury by the happening of the
event insured against.
Here Harvardian was not only in possession of the building but was in fact using the same for
several years with the knowledge and consent of Ildefonso Yap. It is reasonably fair to assume
that had the building not been burned, Harvardian would have been allowed the continued use of
the same as the site of its operation as an educational institution. Harvardian therefore would
have been directly benefited by the preservation of the property, and certainly suffered a
pecuniary loss by its being burned.

ANG KA YU VS. PHOENIX ASSURANCE CO., LTD.

(1 CAR2s, September 28, 1961)
FACTS:
Ang Ka Yu had a piece of property in his possession. He insured it with Phoenix. The property
was lost, so Ang Ka Yu sought to claim the proceeds. Phoenix denied liability on the ground that
Ang was not the owner but a mere possessor and as such, had no insurable interest over the
property.
ISSUE:
Whether or not a mere possessor has insurable interest over the property.
RULING:
Yes. A person having a mere right or possession of property may insure it to its full value and in
his own name, even when he is not responsible for its safekeeping. The reason is that even if a
person is NOT interested in the safety and preservation of material in his possession because
they belong to 3rd parties, said person still has insurable interest, because he stands either to
benefit from their continued existence or to be prejudiced by their destruction.

INSULAR LIFE ASSURANCE CORP. VS. FELICIANO

(73 Phil 201)
FACTS:
Evaristo Feliciano was issued an insurance policy by Insular Life. In September 1935 he died.
His heirs filed an insurance claim but Insular Life denied the application as it claimed that
Felicianos application was attended by fraud. It was later found in court that the insurance agent
and the medical examiner of Insular Life who assisted Feliciano in signing the application knew
that Feliciano was already suffering from tuberculosis; that they were aware of the true medical
condition of Feliciano yet they still made it appear that he was healthy in the insurance
application from: that Feliciano signed the application in blank and the agent filed
the information for him.
ISSUE:
Whether or not Insular Life was bound by their agents act and liable to pay respondent.
RULING:
In the present case, the agent knew all the time the true state of health of the insured. The
insurers medical examiner approved the application knowing full well that the applicant was
sick. The situation is one in which one of two innocent parties must bear a loss for his reliance
upon a third person. In this case, it was the insurer who gave the agent authority to deal with the
applicant. It was the one who selected the agent, thus implying that the insured could put his trust
on him. It was the one who drafted and accepted the policy and consummated the contract.
That as between the two of them, the one who employed and gave character to the third person
as its agent should be the one to bear the loss. If an agent of the insurer, after obtaining from an
applicant for insurance a correct and truthful answer to interrogatories contained in the
application for insurance, without knowledge of the applicant fills in false answers, either
fraudulently or otherwise, the insurer cannot assert the falsity of such answers as a defense to
liability on the policy, and this is true generally without regard to the subject matter of the
answers or the nature of the agents duties or limitations on his authority, at least if not brought
to the attention of the applicant.
The fact that the insured did not read the application which he signed, is not indicative of bad
faith. It has been held that it is not negligence for the insured to sign an application without first
reading it if the insurer by its conduct in appointing the agent influenced the insured to place
trust and confidence in the agent. In the instant case, it has been proved that the insured could not
read English, the language in which the application was written, and that after the contract was
signed, it was kept by his mother. As a consequence, the insured had no opportunity to read or
correct any misstatement therein.

INSULAR LIFE ASSURANCE CORP. VS. FELICIANO

(74 Phil 465)
FACTS:
One Evaristo Feliciano filed an application for insurance with the herein petitioner upon the
solicitation of one of its agents. Two insurance policies to the aggregate amount of P25,000 were
issued to him. Feliciano died on September 29, 1935. The defendant company (petitioner)
refused to pay on the ground that the policies were fraudulently obtained, the insured having
given false answers and statements in the application as well as in the medical report.
The present action was brought to recover on said policies. Lower court in favor of plaintiff
(respondent) found that Feliciano was made to sign the application and the examiner's report in
blank, and that afterwards the blank spaces therein were filled in by the agent (Romulo M.
David) and the medical examiner (Dr. Gregorio Valdez), who made it appear therein that
Feliciano was a fit subject for insurance.
Neither the insured nor any member of his family concealed the real state of health of the
insured; that as a matter of fact the insured, as well as the members of his family, told the agent
and the medical examiner that the applicant had been sick and coughing for sometime and that he
had also gone three times to the Santol Sanatarium. CA affirmed. Hence this petition.
ISSUE:
Whether or not the policy remains to be valid in spite of the fact that the agent, without fraud,
collusion or bad faith on the part of the insured, falsified the answers given by the insured.
RULING:
Yes. Insurance companies send detailed instructions to their agents to solicit and procure
applications. These agents are to be found all over the length and breadth of the land. The agents,
in short, do what the company set them to do.
In the present case, the agent knew all the time the true state of health of the insured. The
insurer's medical examiner approve the application knowing full well that the applicant was sick.
The situation is one in which one of two innocent parties must bear a loss for his reliance upon
a third person.
In this case, it was the insurer who gave the agent authority to deal with the applicant. It was the
one who selected the agent, thus implying that the insured could put his trust on him. It seems
reasonable that as between the two of them, the one who employed and gave character to the
third person as its agent should be the one to bear the loss. If the policy should be avoided, it
must be because it was void from the very beginning. The insurer cannot assert the falsity
of such answers as a defense to liability on the policy. The fact that the insured did not read the
application which he signed, is not indicative of bad faith.

It has been held that it is not negligence for the insured to sign an application without first
reading it if the insurer by its conduct in appointing the agent influenced the insured to place
trust and confidence in the agent.
In the instant case, it has been proved that the insured could not read English, the language in
which the application was written, and that after the contract was signed, it was kept by his
mother. As a consequence, the insured had no opportunity to read or correct any misstatement
therein.
Petition dismissed.

SUN LIFE ASSURANCE CORP. OF CANADA VS. COURT OF APPEALS

(245 SCRA 268)
FACTS:
Robert John B. Bacani procured a life insurance contract for himself from Sunlife. He was issued
a Policy valued atP100,000.00, with double indemnity in case of accidental death. The
designated beneficiary was his mother, Bernarda Bacani. In his application for insurance Robert
was asked if within 5 years he
(a) consulted any doctor or other health practitioner
(b) subjected to different test i.e. blood, x-rays etc.
(c) attended or been admitted to any hospital or othermedical facility.
Robert answered yes in letter a. but limited his answer to a consultation with a certain
Dr. Reinaldo D.Raymundo of the Chinese General Hospital on February 1986, for cough and flu
complications. Sunlife discovered that two weeks prior to Roberts application for insurance, that
Robert was examined and confined at the Lung Center of the Philippines, where he was
diagnosed for renal failure. During his confinement, the deceased was subjected to urinalysis,
ultra-sonography and hematology tests. Robert died in a plane crash. Bernarda filed a claim with
sunlife, seeking the benefits of the insurance policy taken by her son. Sunlife conducted an
investigation and its findings prompted it to reject the claim. Sunlife informed Bernarda that
Robert did not disclose material facts relevant to the issuance of the policy, thus rendering the
contract of insurance voidable. A check representing the total premiums paid in the amount
of P10,172.00 was attached to said letter. Bernarda subsequently filed an action for specific
performance against Sunlife. Sunlife filed a counter claim and a list of exhibits consisting of
medical records furnished by the Lung Center of the Philippines.
Bernarda filed a "Proposed Stipulation with Prayer for Summary Judgment" where they
manifested that they "have no evidence to refute the documentary evidence of
concealment/misrepresentation by the decedent of his health condition. Sunlife also filed a
motion for summary judgement.
Trial court ruled in favor of Bernarda and concluded that although there was concealment and
misrepresentation the facts concealed by the insured were made in good faith and under a belief
that they need not be disclosed. Moreover, it held that the health history of the insured was
immaterial since the insurance policy was "non-medical".
Court of Appeals affirmed the decision and stated that the cause of death was unrelated to the
facts concealed by the insured.
ISSUE:
Whether or not there was concealment and can good faith be used as a defense.
RULING:
Yes there was concealment and No the defense of good faith is not applicable. Section 26 of The
Insurance Code requires a party to a contract of insurance to communicate to the other, in good
faith, all facts within his knowledge which are material to the contract and as to which he makes

no warranty, and which the other has no means of ascertaining and thus it provides that A
neglect to communicate that which a party knows and ought to communicate, is called
concealment.Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom communication is due, in forming his
estimate of the disadvantages of the proposed contract or in making his inquiries. The
information which the insured failed to disclose were material and relevant to the approval and
issuance of the insurance policy. The matters concealed would have definitely affected Sunlife's
action on Roberts application, either by approving it with the corresponding adjustment for a
higher premium or rejecting the same.
Moreover, a disclosure may have warranted a medical examination of the insured by Sunlife in
order for it to reasonably assess the risk involved in accepting the application. It is well settled
that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient
that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed
insurance policy or in making inquiries.
Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that
he was hospitalized for two weeks prior to filing his application for insurance, raises grave
doubts about his bonafides. It appears that such concealment was deliberate on his part.

THELMA VDA. DE CAMILING VS. COURT OF APPEALS

(223 SCRA 443)
FACTS:
Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus tachycardia." Mr.
Canilang consulted the same doctor again on 3 August 1982 and this time was found to have
"acute bronchitis." On the next day, 4 August 1982, Canilang applied for a "non-medical"
insurance policy with Grepalife naming his wife, as his beneficiary. Canilang was issued
ordinary life insurance with the face value of P19,700. On 5 August 1983, Canilang died of
"congestive heart failure," "anemia," and "chronic anemia." The wife as beneficiary, filed a
claim with Grepalife which the insurer denied on the ground that the insured had concealed
material information from it. Vda Canilang filed a complaint with the Insurance Commissioner
against Grepalife contending that as far as she knows her husband was not suffering from any
disorder and that he died of kidney disorder.
Grepalife was ordered to pay the widow by the Insurance Commissioner holding that there was
no intentional concealment on the Part of Canilang and that Grepalife had waived its right to
inquire into the health condition of the applicant by the issuance of the policy despite the lack of
answers to "some of the pertinent questions" in the insurance application. CA reversed.
ISSUE:
Whether or not Grepalife is liable.
RULING:
SC took note of the fact that Canilang failed to disclose that hat he had twice consulted Dr.
Wilfredo B. Claudio who had found him to be suffering from "sinus tachycardia" and "acute
bronchitis. Under the relevant provisions of the Insurance Code, the information concealed must
be information which the concealing party knew and "ought to [have] communicate[d]," that is to
say, information which was "material to the contract.
The information which Canilang failed to disclose was material to the ability of Grepalife to
estimate the probable risk he presented as a subject of life insurance. Had Canilang disclosed his
visits to his doctor, the diagnosis made and the medicines prescribed by such doctor, in the
insurance application, it may be reasonably assumed that Grepalife would have made further
inquiries and would have probably refused to issue a non-medical insurance policy or, at the very
least, required a higher premium for the same coverage.
The materiality of the information withheld by Canilang from Grepalife did not depend upon the
state of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of
proof in our judicial process, except through proof of external acts or failure to act from which
inferences as to his subjective belief may be reasonably drawn. Neither does materiality depend
upon the actual or physical events which ensue. Materiality relates rather to the "probable and
reasonable influence of the facts" upon the party to whom the communication should have been
made, in assessing the risk involved in making or omitting to make further inquiries and in
accepting the application for insurance; that "probable and reasonable influence of the facts"
concealed must, of course, be determined objectively, by the judge ultimately.

SC found it difficult to take seriously the argument that Grepalife had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out
answers to some of the questions in the insurance application. Such failure precisely constituted
concealment on the part of Canilang. Petitioner's argument, if accepted, would obviously erase
Section 27 from the Insurance Code of 1978.

PHILAMCARE HEALTH SYSTEMS, INC. COURT OF APPEALS AND JULIA

TRINOS
(379 SCRA 356)
FACTS:
Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with
Philamcare Health Systems, Inc. In the standard application form, he answered no to the
following question: "Have you or any of your family members ever consulted or been treated for
high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes,
give details). " The application was approved for a period of one year from 1 March 1988 to 1
March 1989. Accordingly, he was issued Health Care Agreement P010194. Under the
agreement, Trinos' husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual
physical examinations, preventive health care and other out-patient services. Upon the
termination of the agreement, the same was extended for another year from 1 March 1989 to 1
March 1990, then from 1 March 1990 to 1 June 1990. The amount of coverage was increased to
a maximum sum of P75,000.00 per disability.
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month beginning 9 March 1990. While her husband was in the
hospital, Trinos tried to claim the benefits under the health care agreement. However, Philamcare
denied her claim saying that the Health Care Agreement was void. According to Philamcare,
there was a concealment regarding Ernani's medical history. Doctors at the MMC allegedly
discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic,
contrary to his answer in the application form. Thus, Trinos paid the hospitalization expenses
herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he
was attended by a physical therapist at home. Later, he was admitted at the Chinese General
Hospital. Due to financial difficulties, however, Trinos brought her husband home again. In the
morning of 13 April 1990, Ernani had fever and was feeling very weak. Trinos was constrained
to bring him back to the Chinese General Hospital where he died on the same day.
On 24 July 1990, Trinos instituted with the Regional Trial Court of Manila, Branch 44, an action
for damages against Philamcare and its president, Dr. Benito Reverente (Civil Case 90 53795).
She asked for reimbursement of her expenses plus moral damages and attorney's fees. After trial,
the lower court ruled against Philamcare and Reverente, ordering them to pay and reimburse the
medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus
interest, until the amount is fully paid to plaintiff who paid the same; the reduced amount of
moral damages of P10,000.00 to Trinos; the reduced amount of P10,000.00 as exemplary
damages to Trinos; and the attorney's fees of P20,000.00, plus costs of suit. On appeal, the Court
of Appeals affirmed the decision of the trial court but deleted all awards for damages and
absolved Reverente. Philamcare's motion for reconsideration was denied. Hence, Philamcare
brought the petition for review, raising the primary argument that a health care agreement is not
an insurance contract; hence the "incontestability clause" under the Insurance Code does not
apply.

ISSUE:
Whether answers made in good faith, where matters of opinion or judgment are called for,
without intent to deceive will avoid a policy when they were untrue.
RULING:
NO. Where matters of opinion or judgment are called for, answers made in good faith and
without intent to deceive will not avoid a policy even though they are untrue. Thus, although
false, a representation of the expectation, intention, belief, opinion, or judgment of the insured
will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its
acceptance at a lower rate of premium, and this is likewise the rule although the statement is
material to the risk, if the statement is obviously of the foregoing character, since in such case
the insurer is not justified in relying upon such statement, but is obligated to make further
inquiry.
There is a clear distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then knows, to
be actually untrue, or the impossibility of which is shown by the facts within his knowledge,
since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The
fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract.
Concealment as a defense for the health care provider or insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer. In any case, with or without the authority to
investigate, Philamcare is liable for claims made under the contract. Having assumed a
responsibility under the agreement, Philamcare is bound to answer the same to the extent agreed
upon. In the end, the liability of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he avails of the covered benefits
which he has prepaid.