Qua Chee Gan v.

Law Union Rock - Breach of

Facts:

> Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for the
storage or copra and hemp in which the appelle deals with exclusively.

> The warehouses together with the contents were insured with Law Union since 1937
and the loss made payable to PNB as mortgagee of the hemp and copra.

> A fire of undetermined cause broke out in July 21, 1940 and lasted for almost 1 whole
week.

> Bodegas 1, 3, and 4 including the merchandise stored were destroyed completely.

> Insured then informed insurer of the unfortunate event and submitted the
corresponding fire claims, which were later reduced to P370T.

> Insurer refused to pay claiming violations of the warranties and conditions, filing of
fraudulent claims and that the fire had been deliberately caused by the insured.

> Insured filed an action before CFI which rendered a decision in favor of the insured.

Issues and Resolutions:

(1) Whether or not the policies should be avoided for the reason that there was a breach
of warranty.

Under the Memorandum of Warranty, there should be no less than 1 hydrant for each
150 feet of external wall measurements of the compound, and since bodegas insured
had an external wall per meter of 1640 feet, the insured should have 11 hydrants in the
compound. But he only had 2.
Even so, the insurer is barred by estoppel to claim violation of the fire hydrants
warranty, because knowing that the number of hydrants it demanded never existed from
the very beginning, appellant nevertheless issued the policies subject to such warranty
and received the corresponding premiums. The insurance company was aware, even
before the policies were issued, that in the premises there were only 2 hydrants and 2
others were owned by the Municipality, contrary to the requirements of the warranties in
question.

It should be close to conniving at fraud upon the insured to allow the insurer to claim
now as void the policies it issued to the insured, without warning him of the fatal defect,
of which the insurer was informed, and after it had misled the insured into believing that
the policies were effective.

Accdg to American Jurisprudence: It is a well-settled rule that the insurer at the time of
the issuance of a policy has the knowledge of existing facts, which if insisted on, would
invalidate the contract from its very inception, such knowledge constitutes a waiver of
conditions in the contract inconsistent with known facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. The reason for the rule is: To
allow a company to accept one’s money for a policy of insurance which it knows to be
void and of no effect, though it knows as it must that the insured believes it to be valid
and binding is so contrary to the dictates of honesty and fair dealing, as so closely
related to positive fraud, as to be abhorrent to fair-minded men. It would be to allow the
company to treat the policy as valid long enough to get the premium on it, and leave it at
liberty to repudiate it the next moment.

Moreover, taking into account the well-known rule that ambiguities or obscurities must
strictly be interpreted against the party that cause them, the memorandum of warranty
invoked by the insurer bars the latter from questioning the existence of the appliances
called for, since its initial expression “the undernoted appliances for the extinction of fire
being kept on the premises insured hereby..” admits of the interpretation as an
admission of the existence of such appliances which insurer cannot now contradict,
should the parole evidence apply.
(2) Whether or not the insured violated the hemp warranty provision against the storage
of gasoline since insured admitted there were 36 cans of gasoline in Bodega 2 which
was a separate structure and not affected by the fire.

It is well to note that gasoline is not specifically mentioned among the prohibited articles
listed in the so-called hemp warranty. The clause relied upon by the insurer speaks of
“oils”. Ordinarily, oils mean lubricants and not gasoline or kerosene. Here again, by
reason of the exclusive control of the insurance company over the terms of the contract,
the ambiguity must be held strictly against the insurer and liberally in favor of the
insured, specially to avoid a forfeiture.

Furthermore, the gasoline kept was only incidental to the insured’s business. It is a well
settled rule that keeping of inflammable oils in the premises though prohibited by the
policy does NOT void it if such keeping is incidental to the business. Also, the hemp
warranty forbade the storage only in the building to which the insurance applies, and/or
in any building communicating therewith; and it is undisputed that no gasoline was
stored in the burnt bodegas and that Bodega No. 2 which was where the gasoline was
found stood isolated from the other bodegas.

Gulf Resorts, Inc. v. Phil Charter Insurance, Corp.

FACTS:

Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance Company which
includes loss or damage to shock to any of the property insured by this Policy occasioned by or through
or in consequence of earthquake. On July 16, 1990, an earthquake struck Central Luzon and Northern
Luzon so the properties and 2 swimming pools in its Agoo Playa Resort were damaged. On August
23, 1990, Gulf’s claim was denied on the ground that its insurance policy only afforded earthquake
shock coverage to the two swimming pools of the resort. Petitioner contends that pursuant to this rider,
no qualifications were placed on the scope of the earthquake shock coverage. Thus, the policy
extended earthquake shock coverage to all of the insured properties.The RTC Favored American
Home endorsement rider means that only the two swimming pools were insured against earthquake
shock the CA, affirmed RTC.
ISSUE:

W/N Gulf can claim for its properties aside from the 2 swimming pools

HELD:

YES. Affirmed.

It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other. All its parts are reflective of the true intent of the parties. Under Section
2 (1), contract of insurance as an agreement whereby one undertakes consideration to indemnify
another against loss damages or liability arising from unknown or contingent events. An insurance
premium is the consideration paid an insurer for undertaking to indemnify the insured against a
specified peril. In the subject policy, no premium payments were made with regard to earthquake
shock coverage, except on the two swimming pools.

Alpha Insurance and Surety Co. vs Castor

Facts: On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-
00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates
the petitioner to pay the respondent the amount of Six Hundred Thirty Thousand Pesos (P 630,000.00) in case of loss
or damage to said vehicle during the period covered, which is from February 26, 2007 to February 26, 2008. On April
16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the above-
described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor vehicle to
respondent and despite diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of the said loss and demanded payment of the
insurance proceeds in the total sum of P 630,000.00. In a letter dated July 5, 2007, petitioner denied the insurance
claim of respondent, stating among others, thus: Upon verification of the documents submitted, particularly the Police
Report and your Affidavit, which states that the culprit, who stole the Insured unit, is employed with you. We would
like to invite you on the provision of the Policy under Exceptions to Section-III.

Issue: Whether or not respondent Castor is entitled to the insurance policy for the loss of her car by her driver.

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

A contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations on
liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation.

Theft perpetrated by the driver of the insured is not an exception to the coverage from the insurance policy, since
Section III thereof did not qualify as to who would commit the theft.
Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under paragraph 4 of
“Exceptions to Section III,” since the same refers only to “malicious damage,” or more specifically, “injury” to the
motor vehicle caused by a person under the insured’s service. Paragraph 4 clearly does not contemplate “loss of
property,” as what happened in the instant case.