INSURANCE

1. The Insular Life Assurance Company, Ltd., v. Khu, G.R. No. 195176, 18 April 2016

The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date that the insurer approved· the application for
reinstatement. However, in light of the ambiguity in the insurance documents to this case, this Court adopts the interpretation favorable to the insured in
determining the date when the reinstatement was approved.
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010 Decision2 of the Court of Appeals (CA), which dismissed the Petition in CA-GR.
CV No. 81730, and its December 13, 2010 Resolution3 which denied the petitioner Insular Life Assurance Company Ltd. 's (Insular Life) motion for
partial reconsideration.4

Factual Antecedents

On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter’s Diamond Jubilee Insurance Plan.
Felipe accomplished the required medical questionnaire wherein he did not declare any illness or adverse medical condition. Insular Life thereafter
issued him Policy Number A000015683 with a face value of P1 million. This took effect on June 22, 1997. 5

On June 23, 1999, Felipe’s policy lapsed due to non-payment of the

premium covering the period from June 22, 1999 to June 23, 2000. 6

On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as premium. Except for the change in his occupation of
being self-employed to being the Municipal Mayor of Binuangan, Misamis Oriental, all the other information submitted by Felipe in his application for
reinstatement was virtually identical to those mentioned in his original policy.7

On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be considered if he agreed to certain conditions such as
payment of additional premium and the cancellation of the riders pertaining to premium waiver and accidental death benefits. Felipe agreed to these
conditions8 and on December 27, 1999 paid the agreed additional premium of P3,054.50. 9

On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which reads:

This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the following
changes are made on the policy effective June 22, 1999:

1. The EXTRA PREMIUM is imposed; and

2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and forming parts
of this policy [are] deleted.

In consequence thereof, the premium rates on this policy are adjusted to P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly,
Philippine currency.10

On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period from June 22, 2000 to June 22, 2001. And on July
2, 2001, he also paid the same amount as annual premium covering the period from June 22, 2001 to June 21, 2002. 11

On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes of death:

Immediate cause: a. End stage renal failure, Hepatic failure

Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia.12

On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipe’s beneficiaries or respondents) filed with Insular Life a
claim for benefit under the reinstated policy. This claim was denied. Instead, Insular Life advised Felipe’s beneficiaries that it had decided to rescind the
reinstated policy on the grounds of concealment and misrepresentation by Felipe.

Hence, respondents instituted a complaint for specific performance with damages. Respondents prayed that the reinstated life insurance policy be
declared valid, enforceable and binding on Insular Life; and that the latter be ordered to pay unto Felipe’s beneficiaries the proceeds of this policy,
among others.13

In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver
Cirrhosis with Ascites) that he already had prior to his application for reinstatement of his insurance policy; and that it would not have reinstated the
insurance policy had Felipe disclosed the material information on his adverse health condition. It contended that when Felipe died, the policy was still
contestable.14

Ruling of the Regional Trial Court (RTC)

On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found 15 for Felipe’s beneficiaries, thus:

WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by preponderance of evidence, judgment is hereby rendered in their
favor and against defendants, ordering the latter to pay jointly and severally the

sum of One Million (P1,000,000.00) Pesos with legal rate of interest from the date of demand until it is fully paid representing the face value of Plan
Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N. Khu[,] Sr; the sum of P20,000.00 as moral damages; P30,000.00 as
attorney’s fees; P10,000.00 as litigation expenses.
SO ORDERED.16

In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the latter’s claim that the insurance policy was reinstated on June 22, 1999.
The RTC cited the ruling in Malayan Insurance Corporation v. Court of
Appeals17 that any ambiguity in a contract of insurance should be resolved strictly against the insurer upon the principle that an insurance contract is a
contract of adhesion.18 The RTC also held that the reinstated insurance policy had already become incontestable by the time of Felipe’s death on
September 22, 2001 since more than two years had already lapsed from the date of the policy’s reinstatement on June 22, 1999. The RTC noted that
since it was Insular Life itself that supplied all the pertinent forms relative to the reinstated policy, then it is barred from taking advantage of any
ambiguity/obscurity perceived therein particularly as regards the date when the reinstated insurance policy became effective.

Ruling of the Court of Appeals

On June 24, 2010, the CA issued the assailed Decision19 which contained the following decretal portion:

WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is AFFIRMED with the MODIFICATION that the award of
moral damages, attorney’s fees and litigation expenses [is] DELETED.
SO ORDERED.20

The CA upheld the RTC’s ruling on the non-contestability of the reinstated insurance policy on the date the insured died. It declared that contrary to
Insular Life’s contention, there in fact exists a genuine ambiguity or obscurity in the language of the two documents prepared by Insular Life
itself, viz., Felipe’s Letter of Acceptance and Insular Life’s Endorsement; that given the obscurity/ambiguity in the language of these two documents, the
construction/interpretation that favors the insured’s right to recover should be adopted; and that in keeping with this principle, the insurance policy in
dispute must be deemed reinstated as of June 22, 1999. 21
Insular Life moved for partial reconsideration22 but this was denied by the CA in its Resolution of December 13, 2010.23 Hence, the present Petition.

Issue
The fundamental issue to be resolved in this case is whether Felipe’s reinstated life insurance policy is already incontestable at the time of his death.
Petitioner’s Arguments

In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should not be allowed to recover on the reinstated
insurance policy because the two-year contestability period had not yet lapsed inasmuch as the insurance policy was reinstated only on December 27,
1999, whereas Felipe died on September 22, 2001;24 that the CA overlooked the fact that Felipe paid the additional extra premium only on December
27, 1999, hence, it is only upon this date that the reinstated policy had become effective; that the CA erred in declaring that resort to the principles of
statutory construction is still necessary to resolve that question given that the Application for Reinstatement, the Letter of Acceptance and the
Endorsement in and by themselves already embodied unequivocal provisions stipulating that the two-year contestability clause should be reckoned from
the date of approval of the reinstatement;25 and that Felipe’s misrepresentation and concealment of material facts in regard to his health or adverse
medical condition gave it (Insular Life) the right to rescind the contract of insurance and consequently, the right to deny the claim of Felipe’s beneficiaries
for death benefits under the disputed policy.26

Respondents’ Arguments

Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of Acceptance and in the Endorsement is unclear whether it
refers to the subject of the sentence, i.e., the "reinstatement of this policy" or to the subsequent phrase "changes are made on the policy;" that granting
that there was any obscurity or ambiguity in the insurance policy, the same should be laid at the door of Insular Life as it was this insurance company
that prepared the necessary documents that make up the same; 27 and that given the CA’s finding which effectively affirmed the RTC’s finding on this
particular issue, it stands to reason that the insurance policy had indeed become incontestable upon the date of Felipe’s death.28

Our Ruling
We deny the Petition.

The Insurance Code pertinently provides that:

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised
previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two
years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the insured or his agent.

The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance Corporation v. Aban,29

Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers enough time to inquire whether the policy
was obtained by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at insurance fraud
would be timely uncovered – thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate policy holders are absolutely
protected from unwarranted denial of their claims or delay in the collection of insurance proceeds occasioned by allegations of fraud, concealment, or
misrepresentation by insurers, claims which may no longer be set up after the two-year period expires as ordained under the law.
xxxx
The Court therefore agrees fully with the appellate court’s pronouncement that-
xxxx
‘The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or misrepresentation within a period of two (2) years. It
is not fair for the insurer to collect the premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover under the policy.

At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the stability to recover under the policy when the
insured dies. The provision also makes clear when the two-year period should commence in case the policy should lapse and is reinstated, that is, from
the date of the last reinstatement’.

In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally also involves the herein petitioner, it was there held that the
reinstatement of the insured’s policy is to be reckoned from the date when the application was processed and approved by the insurer. There, we
stressed that:

To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. x x x

xxxx
In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992. True, Eulogio,
before his death, managed to file his Application for Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon
with Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for Reinstatement had been processed and approved by
Insular Life during Eulogio’s lifetime and good health.31

Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the date when the same was approved by the insurer.

In this case, the parties differ as to when the reinstatement was actually approved. Insular Life claims that it approved the reinstatement only on
December 27, 1999. On the other hand, respondents contend that it was on June22, 1999 that the reinstatement took effect.
The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the Endorsement.

The Letter of Acceptance32 wherein Felipe affixed his signature was actually drafted and prepared by Insular Life. This pro-forma document reads as
follows:
LETTER OF ACCEPTANCE

Place: Cag. De [O]ro City

The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA
Policy No. A000015683

Gentlemen:

Thru your Reinstatement Section, I/WE learned that this policy may be reinstated provided I/we agree to the following condition/s indicated with a check
mark:

[xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a year per thousand of insurance; effective June 22, 1999
[ ] Accept the rating on the WPD at ____ at standard rates; the ABD at _____ the standard rates; the SAR at P____ annually per thousand of
Insurance;
[xx] Accept the cancellation of the Premium waiver & Accidental death benefit.
[]

I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of the policy.
Very truly yours,
Felipe N. Khu, Sr.

After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager, Jesse James R. Toyhorada, issued an
Endorsement33 dated January 7, 2000. For emphasis, the Endorsement is again quoted as follows:
ENDORSEMENT
PN-A000015683

This certifies that as agreed to by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the
following changes are made on the policy effective June 22, 1999:

1. The EXTRA PREMIUM is imposed; and

2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and forming parts
of this policy is deleted.

In consequence thereof, the PREMIUM RATES on this policy are adjusted to [P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00
quarterly, Philippine Currency.
Cagayan de Oro City, 07 January 2000.
RCV/
(Signed) Authorized Signature

Based on the foregoing, we find that the CA did not commit any error in holding that the subject insurance policy be considered as reinstated on June
22, 1999. This finding must be upheld not only because it accords with the evidence, but also because this is favorable to the insured who was not
responsible for causing the ambiguity or obscurity in the insurance contract. 34

The CA expounded on this point thus –The Court discerns a genuine ambiguity or obscurity in the language of the two documents.

In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an extra/additional x x x premium of P5.00 a year per thousand of
insurance; effective June 22, 1999". It is true that the phrase as used in this particular paragraph does not refer explicitly to the effectivity of the
reinstatement. But the Court notes that the reinstatement was conditioned upon the payment of additional premium not only prospectively, that is, to
cover the remainder of the annual period of coverage, but also retroactively, that is for the period starting June 22, 1999. Hence, by paying the amount of
P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier paid on September 7, 1999, Khu had paid for the insurance coverage
starting June 22, 1999. At the very least, this circumstance has engendered a true lacuna.

In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely clear whether the phrase "effective June 22,
1999" refers to the subject of the sentence, namely "the reinstatement of this policy," or to the subsequent phrase "changes are made on the
policy."

The court below is correct. Given the obscurity of the language, the construction favorable to the insured will be adopted by the courts.
Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of contestability has lapsed. 35

In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance Company,36 we ruled in favor of the insured and in
favor of the effectivity of the insurance contract in the midst of ambiguity in the insurance contract provisions. We held that:
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest. Thus, in MalayanInsurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance
with its obligations.

xxxx
As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not, insurance contracts are
contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on
those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must
be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a
valid, binding, and effective insurance contract.37

Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated on June 22, 1999 vis-a-vis Felipe’s death on
September 22, 2001.1âwphi1 As such, the subject insurance policy has already become incontestable at the time of Felipe’s death.

Finally, we agree with the CA that there is neither basis nor justification for the RTC’s award of moral damages, attorney’s fees and litigation expenses;
hence this award must be deleted.

WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010 Decision and December 13, 2010 Resolution of the Court of Appeals in CA-GR. CV
No. 81730 are AFFIRMED.

SO ORDERED.

2. BPI and FGU Insurance Corp v. Laingo, G.R. No. 205206, 16 March 2016 (liability; agency)

The Case

This is a petition for review on certiorari[1] assailing the Decision dated 29 June 2012[2] and Resolution dated 11 December 2012[3] of the Court of
Appeals in CA-G.R. CV No. 01575.

On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda Laingo (Laingo), opened a "Platinum 2-in-1 Savings and Insurance" account
with petitioner Bank of the Philippine Islands (BPI) in its Claveria, Davao City branch. The Platinum 2-in-1 Savings and Insurance account is a savings
account where depositors are automatically covered by an insurance policy against disability or death issued by petitioner FGU Insurance Corporation
(FGU Insurance), now known as BPI/MS Insurance Corporation. BPI issued Passbook No. 50298 to Rheozel corresponding to Savings Account No.
2233-0251-11. A Personal Accident Insurance Coverage Certificate No. 043549 was also issued by FGU Insurance in the name of Rheozel with Laingo
as his named beneficiary.

On 25 September 2000, Rheozel died due to a vehicular accident as evidenced by a Certificate of Death issued by the Office of the Civil Registrar
General of Tagum City, Davao del Norte. Since Rheozel came from a reputable and affluent family, the Daily Mirror headlined the story in its newspaper
on 26 September 2000.

On 27 September 2000, Laingo instructed the family's personal secretary, Alice Torbanos (Alice) to go to BPI, Claveria, Davao City branch and inquire
about the savings account of Rheozel. Laingo wanted to use the money in the savings account for Rheozel's burial and funeral expenses.

Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager regarding Laingo's request. Due to Laingo's credit standing and relationship
with BPI, BPI accommodated Laingo who was allowed to withdraw P995,000 from the account of Rheozel. A certain Ms. Laura Cabico, an employee of
BPI, went to Rheozel's wake at the Cosmopolitan Funeral Parlor to verify some information from Alice and brought with her a number of documents for
Laingo to sign for the withdrawal of the P995,000.

More than two years later or on 21 January 2003, Rheozel's sister, Rhealyn Laingo-Concepcion, while arranging Rheozel's personal things in his room
at their residence in Ecoland, Davao City, found the Personal Accident Insurance Coverage Certificate No. 043549 issued by FGU Insurance. Rhealyn
immediately conveyed the information to Laingo.

Laingo sent two letters dated 11 September 2003 and 7 November 2003 to BPI and FGU Insurance requesting them to process her claim as beneficiary
of Rheozel's insurance policy. On 19 February 2004, FGU Insurance sent a reply-letter to Laingo denying her claim. FGU Insurance stated that Laingo
should have filed the claim within three calendar months from the death of Rheozel as required under Paragraph 15 of the Personal Accident
Certificate of Insurance which states:

15. Written notice of claim shall be given to and filed at FGU Insurance Corporation within three calendar months of death or disability.
On 20 February 2004, Laingo filed a Complaint[4] for Specific Performance with Damages and Attorney's Fees with the Regional Trial Court of Davao
City, Branch 16 (trial court) against BPI and FGU Insurance.

In a Decision[5] dated 21 April 2008, the trial court decided the case in favor of respondents. The trial court ruled that the prescriptive period of 90 days
shall commence from the time of death of the insured and not from the knowledge of the beneficiary. Since the insurance claim was filed more than 90
days from the death of the insured, the case must be dismissed. The dispositive portion of the Decision states:

PREMISES CONSIDERED, judgment is hereby rendered dismissing both the complaint and the counterclaims.

SO ORDERED.[6]
Laingo filed an appeal with the Court of Appeals.

The Ruling of the Court of Appeals

In a Decision dated 29 June 2012, the Court of Appeals reversed the ruling of the trial court. The Court of Appeals ruled that Laingo could not be
expected to do an obligation which she did not know existed. The appellate court added that Laingo was not a party to the insurance contract entered
into between Rheozel and petitioners. Thus, she could not be bound by the 90-day stipulation. The dispositive portion of the Decision states:

WHEREFORE, the Appeal is hereby GRANTED. The Decision dated April 21, 2008 of the Regional Trial Court, Branch 16, Davao City, is hereby
REVERSED and SET ASIDE.

Appellee Bank of the Philippine Islands and FGU Insurance Corporation are DIRECTED to PAY jointly and severally appellant Yolanda Laingo Actual
Damages in the amount of P44,438.75 and Attorney's Fees in the amount of P200,000.00.

Appellee FGU Insurance Corporation is also DIRECTED to PAY appellant the insurance proceeds of the Personal Accident Insurance Coverage of
Rheozel Laingo with legal interest of six percent (6%) per annum reckoned from February 20, 2004 until this Decision becomes final. Thereafter, an
interest of twelve percent (12%) per annum shall be imposed until fully paid.

SO ORDERED.[7]
Petitioners filed a Motion for Reconsideration which was denied by the appellate court in a Resolution dated 11 December 2012.

Hence, the instant petition.

The Issue

The main issue for our resolution is whether or not Laingo, as named beneficiary who had no knowledge of the existence of the insurance contract, is
bound by the three calendar month deadline for filing a written notice of claim upon the death of the insured.

The Court's Ruling

The petition lacks merit.

Petitioners contend that the words or language used in the insurance contract, particularly under paragraph 15, is clear and plain or readily
understandable by any reader which leaves no room for construction. Petitioners also maintain that ignorance about the insurance policy does not
exempt respondent from abiding by the deadline and petitioners cannot be faulted for respondent's failure to comply.

Respondent, on the other hand, insists that the insurance contract is ambiguous since there is no provision indicating how the beneficiary is to be
informed of the three calendar month claim period. Since petitioners did not notify her of the insurance coverage of her son where she was named as
beneficiary in case of his death, then her lack of knowledge made it impossible for her to fulfill the condition set forth in the insurance contract.

In the present case, the source of controversy stems from the alleged non-compliance with the written notice of insurance claim to FGU Insurance within
three calendar months from the death of the insured as specified in the insurance contract. Laingo contends that as the named beneficiary entitled to the
benefits of the insurance claim she had no knowledge that Rheozel was covered by an insurance policy against disability or death issued by FGU
Insurance that was attached to Rheozel's savings account with BPI. Laingo argues that she dealt with BPI after her son's death, when she was allowed
to withdraw funds from his savings account in the amount of P995,000. However, BPI did not notify her of the attached insurance policy. Thus, Laingo
attributes responsibility to BPI and FGU Insurance for her failure to file the notice of insurance claim within three months from her son's death.

We agree.

BPI offered a deposit savings account with life and disability insurance coverage to its customers called the Platinum 2-in-1 Savings and Insurance
account. This was a marketing strategy promoted by BPI in order to entice customers to invest their money with the added benefit of an insurance policy.
Rheozel was one of those who availed of this account, which not only included banking convenience but also the promise of compensation for loss or
injury, to secure his family's future.

As the main proponent of the 2-in-1 deposit account, BPI tied up with its affiliate, FGU Insurance, as its partner. Any customer interested to open a
deposit account under this 2-in-1 product, after submitting all the required documents to BPI and obtaining BPI's approval, will automatically be given
insurance coverage. Thus, BPI acted as agent of FGU Insurance with respect to the insurance feature of its own marketed product.

Under the law, an agent is one who binds himself to render some service or to do something in representation of another. [8] In Doles v. Angeles,[9] we
held that the basis of an agency is representation. The question of whether an agency has been created is ordinarily a question which may be
established in the same way as any other fact, either by direct or circumstantial evidence. The question is ultimately one of intention. Agency may even
be implied from the words and conduct of the parties and the circumstances of the particular case. For an agency to arise, it is not necessary that the
principal personally encounter the third person with whom the agent interacts. The law in fact contemplates impersonal dealings where the principal
need not personally know or meet the third person with whom the agent transacts: precisely, the purpose of agency is to extend the personality of the
principal through the facility of the agent.

In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's commercial product, offering the insurance coverage for free for every
deposit account opened, Rheozel directly communicated with BPI, the agent of FGU Insurance. BPI not only facilitated the processing of the deposit
account and the collection of necessary documents but also the necessary endorsement for the prompt approval of the insurance coverage without any
other action on Rheozel's part. Rheozel did not interact with FGU Insurance directly and every transaction was coursed through BPI.

In Eurotech Industrial Technologies, Inc. v. Cuizon,[10] we held that when an agency relationship is established, the agent acts for the principal
insofar as the world is concerned. Consequently, the acts of the agent on behalf of the principal within the scope of the delegated authority have the
same legal effect and consequence as though the principal had been the one so acting in the given situation.

BPI, as agent of FGU Insurance, had the primary responsibility to ensure that the 2-in-1 account be reasonably carried out with full disclosure to the
parties concerned, particularly the beneficiaries. Thus, it was incumbent upon BPI to give proper notice of the existence of the insurance coverage and
the stipulation in the insurance contract for filing a claim to Laingo, as Rheozel's beneficiary, upon the latter's death.

Articles 1884 and 1887 of the Civil Code state:

Art. 1884. The agent is bound by his acceptance to carry out the agency and is liable for the damages which, through his non-performance, the principal
may suffer.

He must also finish the business already begun on the death of the principal, should delay entail any danger.

Art. 1887. In the execution of the agency, the agent shall act in accordance with the instructions of the principal.

In default, thereof, he shall do all that a good father of a family would do, as required by the nature of the business.

The provision is clear that an agent is bound to carry out the agency. The relationship existing between principal and agent is a fiduciary one, demanding
conditions of trust and confidence. It is the duty of the agent to act in good faith for the advancement of the interests of the principal. In this case, BPI
had the obligation to carry out the agency by informing the beneficiary, who appeared before BPI to withdraw funds of the insured who was BPI's
depositor, not only of the existence of the insurance contract but also the accompanying terms and conditions of the insurance policy in order for the
beneficiary to be able to properly and timely claim the benefit.

Upon Rheozel's death, which was properly communicated to BPI by his mother Laingo, BPI, in turn, should have fulfilled its duty, as agent of FGU
Insurance, of advising Laingo that there was an added benefit of insurance coverage in Rheozel's savings account. An insurance company has the duty
to communicate with the beneficiary upon receipt of notice of the death of the insured. This notification is how a good father of a family should have
acted within the scope of its business dealings with its clients. BPI is expected not only to provide utmost customer satisfaction in terms of its own
products and services but also to give assurance that its business concerns with its partner entities are implemented accordingly.

There is a rationale in the contract of agency, which flows from the "doctrine of representation," that notice to the agent is notice to the
principal,[11] Here, BPI had been informed of Rheozel's death by the latter's family. Since BPI is the agent of FGU Insurance, then such notice of death to
BPI is considered as notice to FGU Insurance as well. FGU Insurance cannot now justify the denial of a beneficiary's insurance claim for being filed out
of time when notice of death had been communicated to its agent within a few days after the death of the depositor-insured. In short, there was timely
notice of Rheozel's death given to FGU Insurance within three months from Rheozel's death as required by the insurance company.

The records show that BPI had ample opportunity to inform Laingo, whether verbally or in writing, regarding the existence of the insurance policy
attached to the deposit account. First, Rheozel's death was headlined in a daily major newspaper a day after his death. Second, not only was Laingo,
through her representative, able to inquire about Rheozel's deposit account with BPI two days after his death but she was also allowed by BPI's
Claveria, Davao City branch to withdraw from the funds in order to help defray Rheozel's funeral and burial expenses. Lastly, an employee of BPI
visited Rheozel's wake and submitted documents for Laingo to sign in order to process the withdrawal request. These circumstances show that despite
being given many opportunities to communicate with Laingo regarding the existence of the insurance contract, BPI neglected to carry out its duty.

Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of the insurance policy, Laingo had no means to ascertain that she
was entitled to the insurance claim. It would be unfair for Laingo to shoulder the burden of loss when BPI was remiss in its duty to properly notify her that
she was a beneficiary.

Thus, as correctly decided by the appellate court, BPI and FGU Insurance shall bear the loss and must compensate Laingo for the actual damages
suffered by her family plus attorney's fees. Likewise, FGU Insurance has the obligation to pay the insurance proceeds of Rheozel's personal accident
insurance coverage to Laingo, as Rheozel's named beneficiary.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 29 June 2012 and Resolution dated 11 December 2012 of the Court of Appeals
in CA-G.R. CV No. 01575.

SO ORDERED.

3. HH Hollero Construction Inc v. GSIS and Pool of Machinery Insurers, GR No. 152334, 24 September 2014 (prescription)

Assailed in this petition for review on certiorari1 are the Decision2 dated March 13, 2001 and the Resolution3 dated February 21, 2002 of the Court of
Appeals (CA) in CA-G.R. CV No. 63175, which set aside and reversed the Judgment 4 dated February 3, 1999 of the Regional Trial Court of Quezon
City, Branch 220 (RTC) in Civil Case No. 91-10144, and dismissed petitioner H.H. Hollero Construction, Inc.' s (petitioner) Complaint for Sum of Money
and Damages under the insurance policies issued by public respondent, the Government Service Insurance System (GSIS), on the ground of
prescription.
The Facts
On April 26, 1988, the GSIS and petitioner entered into a Project Agreement (Agreement) whereby the latter undertook the development of a GSIS
housing project known as Modesta Village Section B (Project).5 Petitioner obligated itself to insurethe Project, including all the improvements, upon the
execution of the Agreement under a Contractors’ All Risks (CAR) Insurance with the GSIS General Insurance Department for an amount equal to its cost
or sound value, which shall not be subject to any automatic annual reduction. 6

Pursuant to its undertaking, petitioner secured CAR Policy No. 88/0857 in the amount of ₱1,000,000.00 for land development, which was later increased
to ₱10,000,000.00,8 effective from May 2, 1988 to May 2, 1989.9 Petitioner likewise secured CAR Policy No. 88/08610 in the amount of ₱1,000,000.00 for
the construction of twenty (20) housing units, which amount was later increased to ₱17,750,000.0011 to cover the construction of another 355 new units,
effective from May 2, 1988 toJune 1, 1989.12 In turn, the GSIS reinsured CAR Policy No. 88/085 with respondent Pool of Machinery Insurers (Pool). 13

Under both policies, it was provided that: (a) there must be prior notice of claim for loss, damage or liability within fourteen (14) days from the occurrence
of the loss or damage;14 (b) all benefits thereunder shall be forfeited if no action is instituted within twelve(12) months after the rejection of the claim for
loss, damage or liability;15 and (c) if the sum insured is found to be less than the amount required to be insured, the amount recoverable shall be reduced
tosuch proportion before taking into account the deductibles stated in the schedule (average clause provision). 16

During the construction, three (3) typhoons hit the country, namely, Typhoon Biring from June 1 to June 4, 1988, Typhoon Huaning on July 29, 1988,
and Typhoon Saling on October 11, 1989, which caused considerable damage to the Project. 17 Accordingly, petitioner filed several claims for indemnity
with the GSIS on June 30, 1988,18 August 25, 1988,19 and October 18, 1989,20 respectively. In a letter21 dated April 26, 1990, the GSIS rejected
petitioner’s indemnity claims for the damages wrought by Typhoons Biring and Huaning, finding that no amount is recoverable pursuant to the average
clause provision under the policies.22 In a letter23 dated June 21, 1990, the GSIS similarly rejected petitioner’s indemnity claim for damages wrought by
Typhoon Saling on a "no loss" basis, itappearing from its records that the policies were not renewed before the onset of the said typhoon. 24
In a letter25 dated April 18, 1991, petitioner impugned the rejection of its claims for damages/loss on accountof Typhoon Saling, and reiterated its
demand for the settlement of its claims.

On September 27, 1991, petitioner filed a Complaint26 for Sum of Money and Damages before the RTC, docketed as Civil Case No. 91-10144,27 which
was opposed by the GSIS through a Motion to Dismiss28 dated October 25, 1991 on the ground that the causes of action stated therein are barred by
the twelve-month limitation provided under the policies, i.e., the complaint was filed more than one(1) year from the rejection of the indemnity claims.
The RTC, in an Order29 dated May 13, 1993, denied the said motion; hence, the GSIS filed its answer30 with counterclaims for litigation expenses,
attorney’s fees, and exemplary damages. Subsequently, the GSIS filed a Third Party Complaint31 for indemnification against Pool, the reinsurer.

The RTC Ruling

In a Judgment32 dated February 3, 1999, the RTC granted petitioner’s indemnity claims. It held that: (a) the average clauseprovision in the policies
which did not contain the assentor signature of the petitioner cannot limit the GSIS’ liability, for being inefficacious and contrary to public policy; 33 (b)
petitioner has established that the damages it sustained were due to the peril insured against; 34 and (c) CAR Policy No. 88/086 was deemed renewed
when the GSIS withheld the amount of 35,855.00 corresponding to the premium payable,35 from the retentions it released to petitioner.36 The RTC
thereby declared the GSIS liable for petitioner’s indemnity claims for the damages brought about by the said typhoons, less the stipulated deductions
under the policies,plus 6% legal interest from the dates of extrajudicial demand, as well as for attorney’s fees and costs of suit. It further dismissed for
lack of merit GSIS’s counterclaim and third party complaint.37

Dissatisfied, the GSIS elevated the matter to the CA. The CA Ruling In a Decision38 dated March 13, 2001, the CAset aside and reversed the RTC
Judgment, thereby dismissing the complaint. It ruled that the complaint filed on September 27, 1991 was barred by prescription, having been
commenced beyond the twelve-month limitation provided under the policies, reckoned from the final rejection of the indemnity claims on April 26, 1990
and June 21, 1990. The essential issue for the Court’s resolution is whether or not the CA committed reversible error in dismissing the complaint onthe
ground of prescription.

The Court’s Ruling

The petition lacks merit.
Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have
used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary, and popular sense. 39
Section 1040 of the General Conditions of the subject CAR Policies commonly read:

10. If a claim is in any respect fraudulent, or if any false declaration is made or used in support thereof, or if any fraudulent means or devices are used by
the Insured or anyone acting on his behalf to obtain any benefit under this Policy, or if a claim is made and rejected and no action or suit is commenced
within twelve months after such rejectionor, in case of arbitration taking place as provided herein, within twelve months after the Arbitrator or Arbitrators
or Umpire have made their award, all benefit under this Policy shall be forfeited. (Emphases supplied)

In this relation, case law illumines that the prescriptive period for the insured’s action for indemnity should bereckoned from the "final rejection" of the
claim.41

Here, petitioner insists that the GSIS’s letters dated April 26, 1990 and June 21, 1990 did not amount to a "final rejection" ofits claims, arguing that they
were mere tentative resolutions pending further action on petitioner’s part or submission of proof in refutation of the reasons for rejection. 42 Hence, its
causes of action for indemnity did not accrue on those dates.

The Court does not agree.

A perusal of the letter43 dated April 26, 1990 shows that the GSIS denied petitioner’s indemnity claims wrought by Typhoons Biring and Huaning, it
appearing that no amount was recoverable under the policies. While the GSIS gave petitioner the opportunity to dispute its findings, neither of the parties
pursued any further action on the matter; this logically shows that they deemed the said letter as a rejection of the claims. Lest it cause any confusion,
the statement in that letter pertaining to any queries petitioner may have on the denial should be construed, at best, as a form of notice to the former that
it had the opportunity to seek reconsideration of the GSIS’s rejection. Surely, petitioner cannot construe the said letter to be a mere "tentative resolution."
In fact, despite its disavowals, petitioner admitted in its pleadings 44 that the GSIS indeed denied its claim through the aforementioned letter, buttarried in
commencing the necessary action in court.

The same conclusion obtains for the letter45 dated June 21, 1990 denying petitioner’s indemnity claim caused by Typhoon Saling on a "no loss" basis
due to the non-renewal of the policies therefor before the onset of the said typhoon. The fact that petitioner filed a letter46 of reconsideration therefrom
dated April 18, 1991, considering too the inaction of the GSIS on the same similarly shows that the June 21, 1990 letter was also a final rejection of
petitioner’s indemnity claim.As correctly observed by the CA, "final rejection" simply means denial by the insurer of the claims of the insured and not the
rejection or denial by the insurer of the insured’s motion or request for reconsideration.47 The rejection referred to should be construed as the rejection in
the first instance,48 as in the two instances above-discussed.

Comparable to the foregoing is the Court’s action in the case of Sun Insurance Office, Ltd. v. CA 49 wherein it debunked "[t]he contention of the
respondents [therein] that the one-year prescriptive period does not start to run until the petition for reconsideration had been resolved by the insurer,"
holding that such view "runs counter to the declared purpose for requiring that an action or suit be filed in the Insurance Commission or in a court of
competent jurisdiction from the denial of the claim."50 In this regard, the Court rationalized that "uphold[ing]respondents' contention would contradict and
defeat the very principle which this Court had laid down. Moreover, it can easily be used by insured persons as a scheme or device to waste time until
any evidence which may be considered against them is destroyed." 51 Expounding on the matter, the Court had this to say:
The crucial issue in this case is: When does the cause of action accrue?
In support of private respondent’s view, two rulings of this Court have been cited, namely, the case of Eagle Star Insurance Co.vs.Chia Yu ([supra note
41]), where the Court held:
The right of the insured to the payment of his loss accrues from the happening of the loss. However, the cause of action in an insurance contract does
not accrue until the insured’s claim is finally rejected by the insurer. This is because before such final rejection there is no real necessity for bringing
suit.and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968], holding that:
Since "cause of action" requires as essential elements not only a legal right of the plaintiff and a correlated obligation of the defendant in violation of the
said legal right, the cause of action does not accrue until the party obligated (surety) refuses, expressly or impliedly, to comply with its duty (in this case
to pay the amount of the bond)."Indisputably, the above-cited pronouncements of this Court may be taken to mean that the insured' s cause of action or
his right to file a claim either in the Insurance Commission or in a court of competent jurisdiction [as in this case] commences from the time of the denial
of his claim by the Insurer, either expressly or impliedly.1âwphi1
But as pointed out by the petitioner insurance company, the rejection referred to should be construed as the rejection, in the first instance, for if what is
being referred to is a reiterated rejection conveyed in a resolution of a yetition for reconsideration, such should have been expressly stipulated. 52

In light of the foregoing, it is thus clear that petitioner's causes of action for indemnity respectively accrued from its receipt of the letters dated April 26,
1990 and June 21, 1990, or the date the GSIS rejected its claims in the first instance. Consequently, given that it allowed more than twelve (12) months
to lapse before filing the necessary complaint before the R TC on September 27, 1991, its causes of action had already prescribed.
WHEREFORE, the petition is DENIED. The Decision dated March 13, 2001 and the Resolution dated February 21, 2002 of the Court of Appeals (CA)
in CA-G.R. CV No. 63175 are hereby AFFIRMED. SO ORDERED.

4.Fortune Medicare Inc v. Amorin, GR No. 195872, 12 March 2014

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which challenges the Decision2 dated September 27, 2010 and
Resolution3 dated February 24, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 87255.
The Facts

David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc. (Fortune Care), a corporation engaged in providing health
maintenance services to its members. The terms of Amorin's medical coverage were provided in a Corporate Health Program Contract4 (Health Care
Contract) which was executed on January 6, 2000 by Fortune Care and the House of Representatives, where Amorin was a permanent employee.

While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999, Amorin underwent an emergency surgery, specifically
appendectomy, at the St. Francis Medical Center, causing him to incur professional and hospitalization expenses of US$7,242.35 and US$1,777.79,
respectively. He attempted to recover from Fortune Care the full amount thereof upon his return to Manila, but the company merely approved a
reimbursement of ₱12,151.36, an amount that was based on the average cost of appendectomy, net of medicare deduction, if the procedure were
performed in an accredited hospital in Metro Manila.5 Amorin received under protest the approved amount, but asked for its adjustment to cover the total
amount of professional fees which he had paid, and eighty percent (80%) of the approved standard charges based on "American standard", considering
that the emergency procedure occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and Coverages of the
Health Care Contract, to wit:

A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-patient, the member shall be entitled to full coverage
under the benefits provisions of the Contract at any FortuneCare accredited hospitals subject only to the pertinent provision of Article VII
(Exclusions/Limitations) hereof. For emergency care attended by non affiliated physician (MSU), the member shall be reimbursed 80% of the
professional fee which should have been paid, had the member been treated by an affiliated physician. The availment of emergency care from
an unaffiliated physician shall not invalidate or diminish any claim if it shall be shown to have been reasonably impossible to obtain such
emergency care from an affiliated physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the professional fee (based on the total
approved charges) to a member who receives emergency care in a non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency confinement occurs in a foreign territory, Fortune Care will be obligated to reimburse
or pay eighty (80%) percent of the approved standard charges which shall cover the hospitalization costs and professional fees. x x x6
Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint 7 for breach of contract with damages with the Regional Trial Court
(RTC) of Makati City.

For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs and professional fees incurred in foreign countries, as
the contract’s operation was confined to Philippine territory. 8 Further, it argued that its liability to Amorin was extinguished upon the latter’s acceptance
from the company of the amount of ₱12,151.36.
The RTC Ruling

On May 8, 2006, the RTC of Makati, Branch 66 rendered its Decision9 dismissing Amorin’s complaint. Citing Section 3, Article V of the Health Care
Contract, the RTC explained:

Taking the contract as a whole, the Court is convinced that the parties intended to use the Philippine standard as basis. Section 3 of the Corporate
Health Care Program Contract provides that:

xxxx
On the basis of the clause providing for reimbursement equivalent to 80% of the professional fee which should have been paid, had the member been
treated by an affiliated physician, the Court concludes that the basis for reimbursement shall be Philippine rates. That provision, taken with Article V of
the health program contract, which identifies affiliated hospitals as only those accredited clinics, hospitals and medical centers located "nationwide" only
point to the Philippine standard as basis for reimbursement.

The clause providing for reimbursement in case of emergency operation in a foreign territory equivalent to 80% of the approved standard charges which
shall cover hospitalization costs and professional fees, can only be reasonably construed in connection with the preceding clause on professional fees to
give meaning to a somewhat vague clause. A particular clause should not be studied as a detached and isolated expression, but the whole and every
part of the contract must be considered in fixing the meaning of its parts. 10

In the absence of evidence to the contrary, the trial court considered the amount of ₱12,151.36 already paid by Fortune Care to Amorin as equivalent to
80% of the hospitalization and professional fees payable to the latter had he been treated in an affiliated hospital. 11
Dissatisfied, Amorin appealed the RTC decision to the CA.

The CA Ruling
12
On September 27, 2010, the CA rendered its Decision granting the appeal. Thus, the dispositive portion of its decision reads:
WHEREFORE, all the foregoing premises considered, the instant appeal is hereby GRANTED. The May 8, 2006 assailed Decision of the Regional
Trial Court (RTC) of Makati City, Branch 66 is hereby REVERSED and SET ASIDE, and a new one entered ordering Fortune Medicare, Inc. to
reimburse [Amorin] 80% of the total amount of the actual hospitalization expenses of $7,242.35 and professional fee of $1,777.79 paid by him to St.
Francis Medical Center pursuant to Section 3, Article V of the Corporate Health Care Program Contract, or their peso equivalent at the time the amounts
became due, less the [P]12,151.36 already paid by Fortunecare.

SO ORDERED.13

In so ruling, the appellate court pointed out that, first, health care agreements such as the subject Health Care Contract, being like insurance contracts,
must be liberally construed in favor of the subscriber. In case its provisions are doubtful or reasonably susceptible of two interpretations, the construction
conferring coverage is to be adopted and exclusionary clauses of doubtful import should be strictly construed against the provider.14 Second, the CA
explained that there was nothing under Article V of the Health Care Contract which provided that the Philippine standard should be used even in the
event of an emergency confinement in a foreign territory.15

Fortune Care’s motion for reconsideration was denied in a Resolution16 dated February 24, 2011. Hence, the filing of the present petition for review on
certiorari.

The Present Petition

Fortune Care cites the following grounds to support its petition:

I. The CA gravely erred in concluding that the phrase "approved standard charges" is subject to interpretation, and that it did not automatically
mean "Philippine Standard"; and
II. The CA gravely erred in denying Fortune Care’s motion for reconsideration, which in effect affirmed its decision that the American Standard
Cost shall be applied in the payment of medical and hospitalization expenses and professional fees incurred by the respondent.17

The Court’s Ruling

The petition is bereft of merit.

The Court finds no cogent reason to disturb the CA’s finding that Fortune Care’s liability to Amorin under the subject Health Care Contract should be
based on the expenses for hospital and professional fees which he actually incurred, and should not be limited by the amount that he would have
incurred had his emergency treatment been performed in an accredited hospital in the Philippines.

We emphasize that for purposes of determining the liability of a health care provider to its members, jurisprudence holds that a health care agreement is
in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising
from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract.18

To aid in the interpretation of health care agreements, the Court laid down the following guidelines in Philamcare Health Systems v. CA19:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract – the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally
construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider. 20 (Citations omitted and emphasis ours)
Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses Olivares21:

In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of a non-life insurance. It is an established rule in
insurance contracts that when their terms contain limitations on liability, they should be construed strictly against the insurer. These are contracts of
adhesion the terms of which must be interpreted and enforced stringently against the insurer which prepared the contract. This doctrine is equally
applicable to health care agreements.
xxxx
x x x [L]imitations of liability on the part of the insurer or health care provider must be construed in such a way as to preclude it from evading its
obligations. Accordingly, they should be scrutinized by the courts with "extreme jealousy" and "care" and with a "jaundiced eye." x x x.22 (Citations
omitted and emphasis supplied)

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances was governed by Section 3(B), Article V of the
subject Health Care Contract, considering that the appendectomy which the member had to undergo qualified as an emergency care, but the treatment
was performed at St. Francis Medical Center in Honolulu, Hawaii, U.S.A., a non-accredited hospital. We restate the pertinent portions of Section 3(B):

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the professional fee (based on the total
approved charges) to a member who receives emergency care in a non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency confinement occurs in foreign territory, Fortune Care will be obligated to reimburse or
pay eighty (80%) percent of the approved standard charges which shall cover the hospitalization costs and professional fees. x x x23 (Emphasis
supplied)

The point of dispute now concerns the proper interpretation of the phrase "approved standard charges", which shall be the base for the allowable 80%
benefit. The trial court ruled that the phrase should be interpreted in light of the provisions of Section 3(A), i.e., to the extent that may be allowed for
treatments performed by accredited physicians in accredited hospitals. As the appellate court however held, this must be interpreted in its literal sense,
guided by the rule that any ambiguity shall be strictly construed against Fortune Care, and liberally in favor of Amorin.

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the parties thereto contemplated the possibility of emergency care in
a foreign country. As the contract recognized Fortune Care’s liability for emergency treatments even in foreign territories, it expressly limited its liability
only insofar as the percentage of hospitalization and professional fees that must be paid or reimbursed was concerned, pegged at a mere 80% of the
approved standard charges.
The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptible of different meanings. Plainly, the term
"standard charges" could be read as referring to the "hospitalization costs and professional fees" which were specifically cited as compensable even
when incurred in a foreign country. Contrary to Fortune Care’s argument, from nowhere in the Health Care Contract could it be reasonably deduced that
these "standard charges" referred to the "Philippine standard", or that cost which would have been incurred if the medical services were performed in an
accredited hospital situated in the Philippines. The RTC ruling that the use of the "Philippine standard" could be inferred from the provisions of Section
3(A), which covered emergency care in an accredited hospital, was misplaced. Evidently, the parties to the Health Care Contract made a clear
distinction between emergency care in an accredited hospital, and that obtained from a non-accredited hospital.1âwphi1 The limitation on payment
based on "Philippine standard" for services of accredited physicians was expressly made applicable only in the case of an emergency care in an
accredited hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated with and reasonably inferred from the other provisions of Section
3(B), considering that Amorin’s case fell under the second case, i.e., emergency care in a non-accredited hospital. Rather than a determination of
Philippine or American standards, the first part of the provision speaks of the full reimbursement of "the total hospitalization cost including the
professional fee (based on the total approved charges) to a member who receives emergency care in a non-accredited hospital" within the Philippines.
Thus, for emergency care in non-accredited hospitals, this cited clause declared the standard in the determination of the amount to be paid, without any
reference to and regardless of the amounts that would have been payable if the treatment was done by an affiliated physician or in an affiliated hospital.
For treatments in foreign territories, the only qualification was only as to the percentage, or 80% of that payable for treatments performed in non-
accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that are applicable in the Philippines, the amount
payable by Fortune Care should not be limited to the cost of treatment in the Philippines, as to do so would result in the clear disadvantage of its
member. If, as Fortune Care argued, the premium and other charges in the Health Care Contract were merely computed on assumption and risk under
Philippine cost and, that the American cost standard or any foreign country's cost was never considered, such limitations should have been distinctly
specified and clearly reflected in the extent of coverage which the company voluntarily assumed. This was what Fortune Care found appropriate when in
its new health care agreement with the House of Representatives, particularly in their 2006 agreement, the provision on emergency care in non-
accredited hospitals was modified to read as follows:

However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated to reimburse or pay one hundred (100%) percent
under approved Philippine Standard covered charges for hospitalization costs and professional fees but not to exceed maximum allowable coverage,
payable in pesos at prevailing currency exchange rate at the time of availment in said territory where he/she is confined. x x x 24

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the ambiguity. "Any ambiguity in a contract whose terms are
susceptible of different interpretations must be read against the party who drafted it." 25

WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and Resolution dated February 24, 2011 of the Court of Appeals in
CA-G.R. CV No. 87255 are AFFIRMED.

SO ORDERED.

5.Eastern Shipping Lines v. BPI/MS Insurance Corp and Mitsui Sum Tomo, GR No. 193986, 15 Jan 2014

Before this Court is a petition1 for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, seeking the reversal of the
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 88361, which affirmed with modification the Decision3 of the Regional Trial Court (RTC), of
Makati City, Branch 138 in Civil Case No. 04-1005.

The facts follow:

On August 29, 2003, Sumitomo Corporation (Sumitomo) shipped through MV Eastern Challenger V-9-S, a vessel owned by petitioner Eastern Shipping
Lines, Inc. (petitioner), 31 various steel sheets in coil weighing 271,828 kilograms from Yokohama, Japan for delivery in favor of the consignee Calamba
Steel Center Inc. (Calamba Steel).4The cargo had a declared value of US$125,417.26 and was insured against all risk by Sumitomo with respondent
Mitsui Sumitomo Insurance Co., Ltd. (Mitsui).

On or about September 6 2003, the shipment arrived at the port of Manila.

Upon unloading from the vessel, nine coils were observed to be in bad condition as evidenced by the Turn Over Survey of Bad Order Cargo No. 67327.
The cargo was then turned over to Asian Terminals, Inc. (ATI) for stevedoring, storage and safekeeping pending Calamba Steel’s withdrawal of the
goods. When ATI delivered the cargo to Calamba Steel, the latter rejected its damaged portion, valued at US$7,751.15, for being unfit for its intended
purpose.5

Subsequently, on September 13, 2003, a second shipment of 28 steel sheets in coil, weighing 215,817 kilograms, was made by Sumitomo through
petitioner’s MV Eastern Challenger V-10-S for transport and delivery again to Calamba Steel.6 Insured by Sumitomo against all risk with Mitsui,7 the
shipment had a declared value of US$121,362.59. This second shipment arrived at the port of Manila on or about September 23, 2003.

However, upon unloading of the cargo from the said vessel, 11 coils were found damaged as evidenced by the Turn Over Survey of Bad Order Cargo
No. 67393. The possession of the said cargo was then transferred to ATI for stevedoring, storage and safekeeping pending withdrawal thereof by
Calamba Steel. When ATI delivered the goods, Calamba Steel rejected the damaged portion thereof, valued at US$7,677.12, the same being unfit for its
intended purpose.8

Lastly, on September 29, 2003, Sumitomo again shipped 117 various steel sheets in coil weighing 930,718 kilograms through petitioner’s vessel, MV
Eastern Venus V-17-S, again in favor of Calamba Steel.9 This third shipment had a declared value of US$476,416.90 and was also insured by Sumitomo
with Mitsui. The same arrived at the port of Manila on or about October 11, 2003. Upon its discharge, six coils were observed to be in bad condition.
Thereafter, the possession of the cargo was turned over to ATI for stevedoring, storage and safekeeping pending withdrawal thereof by Calamba Steel.
The damaged portion of the goods being unfit for its intended purpose, Calamba Steel rejected the damaged portion, valued at US$14,782.05, upon
ATI’s delivery of the third shipment.10

Calamba Steel filed an insurance claim with Mitsui through the latter’s settling agent, respondent BPI/MS Insurance Corporation (BPI/MS), and the
former was paid the sums of US$7,677.12, US$14,782.05 and US$7,751.15 for the damage suffered by all three shipments or for the total amount of
US$30,210.32. Correlatively, on August 31, 2004, as insurer and subrogee of Calamba Steel, Mitsui and BPI/MS filed a Complaint for Damages against
petitioner and ATI.11
As synthesized by the RTC in its decision, during the pre-trial conference of the case, the following facts were established, viz:

1. The fact that there were shipments made on or about August 29, 2003, September 13, 2003 and September 29, 2003 by Sumitomo to
Calamba Steel through petitioner’s vessels;
2. The declared value of the said shipments and the fact that the shipments were insured by respondents;
3. The shipments arrived at the port of Manila on or about September 6, 2003, September 23, 2003 and October 11, 2003 respectively;
4. Respondents paid Calamba Steel’s total claim in the amount of US$30,210.32. 12

Trial on the merits ensued.

On September 17, 2006, the RTC rendered its Decision,13 the dispositive portion of which provides:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendants Eastern Shipping Lines, Inc. and Asian Terminals,
Inc., jointly and severally, ordering the latter to pay plaintiffs the following:

1. Actual damages amounting to US$30,210.32 plus 6% legal interest thereon commencing from the filing of this complaint, until the same is
fully paid;
2. Attorney’s fees in a sum equivalent to 25% of the amount claimed;
3. Costs of suit. The defendants’ counterclaims and ATI’s crossclaim are DISMISSED for lack of merit.

SO ORDERED.14

Aggrieved, petitioner and ATI appealed to the CA. On July 9, 2010, the CA in its assailed Decision affirmed with modification the RTC’s findings and
ruling, holding, among others, that both petitioner and ATI were very negligent in the handling of the subject cargoes. Pointing to the affidavit of Mario
Manuel, Cargo Surveyor, the CA found that "during the unloading operations, the steel coils were lifted from the vessel but were not carefully laid on the
ground. Some were even ‘dropped’ while still several inches from the ground while other coils bumped or hit one another at the pier while being
arranged by the stevedores and forklift operators of ATI and [petitioner]." The CA added that such finding coincides with the factual findings of the RTC
that both petitioner and ATI were both negligent in handling the goods. However, for failure of the RTC to state the justification for the award of attorney’s
fees in the body of its decision, the CA accordingly deleted the same.15 Petitioner filed its Motion for Reconsideration16 which the CA, however, denied in
its Resolution17 dated October 6, 2010.

Both petitioner and ATI filed their respective separate petitions for review on certiorari before this Court.1âwphi1 However, ATI’s petition, docketed as
G.R. No. 192905, was denied by this Court in our Resolution18 dated October 6, 2010 for failure of ATI to show any reversible error in the assailed CA
decision and for failure of ATI to submit proper verification. Said resolution had become final and executory on March 22, 2011.19 Nevertheless, this
Court in its Resolution20 dated September 3, 2012, gave due course to this petition and directed the parties to file their respective memoranda.

In its Memorandum,21 petitioner essentially avers that the CA erred in affirming the decision of the RTC because the survey reports submitted by
respondents themselves as their own evidence and the pieces of evidence submitted by petitioner clearly show that the cause of the damage was the
rough handling of the goods by ATI during the discharging operations. Petitioner attests that it had no participation whatsoever in the discharging
operations and that petitioner did not have a choice in selecting the stevedore since ATI is the only arrastre operator mandated to conduct discharging
operations in the South Harbor. Thus, petitioner prays that it be absolved from any liability relative to the damage incurred by the goods.

On the other hand, respondents counter, among others, that as found by both the RTC and the CA, the goods suffered damage while still in the
possession of petitioner as evidenced by various Turn Over Surveys of Bad Order Cargoes which were unqualifiedly executed by petitioner’s own
surveyor, Rodrigo Victoria, together with the representative of ATI. Respondents assert that petitioner would not have executed such documents if the
goods, as it claims, did not suffer any damage prior to their turn-over to ATI. Lastly, respondents aver that petitioner, being a common carrier is required
by law to observe extraordinary diligence in the vigilance over the goods it carries. 22

Simply put, the core issue in this case is whether the CA committed any reversible error in finding that petitioner is solidarily liable with ATI on account of
the damage incurred by the goods.

The Court resolves the issue in the negative.

Well entrenched in this jurisdiction is the rule that factual questions may not be raised before this Court in a petition for review on certiorari as this Court
is not a trier of facts. This is clearly stated in Section 1, Rule 45 of the 1997 Rules of Civil Procedure, as amended, which provides:
SECTION 1. Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court
of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition
for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth.

Thus, it is settled that in petitions for review on certiorari, only questions of law may be put in issue. Questions of fact cannot be entertained.23

A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence to a certain set of facts, or when the
issue does not call for an examination of the probative value of the evidence presented, the truth or falsehood of facts being admitted. A question of fact
exists when the doubt or difference arises as to the truth or falsehood of facts or when the query invites calibration of the whole evidence considering
mainly the credibility of the witnesses, the existence and relevancy of specific surrounding circumstances as well as their relation to each other and to
the whole, and the probability of the situation.24

In this petition, the resolution of the question as to who between petitioner and ATI should be liable for the damage to the goods is indubitably factual,
and would clearly impose upon this Court the task of reviewing, examining and evaluating or weighing all over again the probative value of the evidence
presented25 – something which is not, as a rule, within the functions of this Court and within the office of a petition for review on certiorari.

While it is true that the aforementioned rule admits of certain exceptions, 26 this Court finds that none are applicable in this case. This Court finds no
cogent reason to disturb the factual findings of the RTC which were duly affirmed by the CA. Unanimous with the CA, this Court gives credence and
accords respect to the factual findings of the RTC – a special commercial court27 which has expertise and specialized knowledge on the subject
matter28 of maritime and admiralty – highlighting the solidary liability of both petitioner and ATI. The RTC judiciously found:
x x x The Turn Over Survey of Bad Order Cargoes (TOSBOC, for brevity) No. 67393 and Request for Bad Order Survey No. 57692 show that prior to the
turn over of the first shipment to the custody of ATI, eleven (11) of the twenty-eight (28) coils were already found in bad order condition. Eight (8) of the
said eleven coils were already "partly dented/crumpled " and the remaining three (3) were found "partly dented, scratches on inner hole, crumple (sic)".
On the other hand, the TOSBOC No. 67457 and Request for Bad Order Survey No. 57777 also show that prior to the turn over of the second shipment
to the custody of ATI, a total of six (6) coils thereof were already "partly dented on one side, crumpled/cover detach (sic)". These documents were issued
by ATI. The said TOSBOC’s were jointly executed by ATI, vessel’s representative and surveyor while the Requests for Bad Order Survey were jointly
executed by ATI, consignee’s representative and the Shed Supervisor. The aforementioned documents were corroborated by the Damage Report dated
23 September 2003 and Turn Over Survey No. 15765 for the first shipment, Damage Report dated 13 October 2003 and Turn Over Survey No. 15772
for the second shipment and, two Damage Reports dated 6 September 2003 and Turn Over Survey No. 15753 for the third shipment.

It was shown to this Court that a Request for Bad Order Survey is a document which is requested by an interested party that incorporates therein the
details of the damage, if any, suffered by a shipped commodity. Also, a TOSBOC, usually issued by the arrastre contractor (ATI in this case), is a form of
certification that states therein the bad order condition of a particular cargo, as found prior to its turn over to the custody or possession of the said
arrastre contractor.

The said Damage Reports, Turn Over Survey Reports and Requests for Bad Order Survey led the Court to conclude that before the subject shipments
were turned over to ATI, the said cargo were already in bad order condition due to damage sustained during the sea voyage. Nevertheless, this Court
cannot turn a blind eye to the fact that there was also negligence on the part of the employees of ATI and [Eastern Shipping Lines, Inc.] in the
discharging of the cargo as observed by plaintiff’s witness, Mario Manuel, and [Eastern Shipping Lines, Inc.’s] witness, Rodrigo Victoria.

In ascertaining the cause of the damage to the subject shipments, Mario Manuel stated that the "coils were roughly handled during their discharging
from the vessel to the pier of (sic) ASIAN TERMINALS, INC. and even during the loading operations of these coils from the pier to the trucks that will
transport the coils to the consignee’s warehouse. During the aforesaid operations, the employees and forklift operators of EASTERN SHIPPING LINES
and ASIAN TERMINALS, INC. were very negligent in the handling of the subject cargoes. Specifically, "during unloading, the steel coils were lifted from
the vessel and not carefully laid on the ground, sometimes were even ‘dropped’ while still several inches from the ground. The tine (forklift blade) or the
portion that carries the coils used for the forklift is improper because it is pointed and sharp and the centering of the tine to the coils were negligently
done such that the pointed and sharp tine touched and caused scratches, tears and dents to the coils. Some of the coils were also dragged by the forklift
instead of being carefully lifted from one place to another. Some coils bump/hit one another at the pier while being arranged by the stevedores/forklift
operators of ASIAN TERMINALS, INC. and EASTERN SHIPPING LINES.29 (Emphasis supplied.)

Verily, it is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the carrier.30 As hereinbefore
found by the RTC and affirmed by the CA based on the evidence presented, the goods were damaged even before they were turned over to ATI. Such
damage was even compounded by the negligent acts of petitioner and ATI which both mishandled the goods during the discharging operations. Thus, it
bears stressing unto petitioner that common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods transported by them. Subject to certain exceptions enumerated under Article 173431 of the Civil
Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier
lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them. 32 Owing to this high degree of diligence
required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods they transported deteriorated or got
lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the goods. In order to avoid responsibility for any
loss or damage, therefore, they have the burden of proving that they observed such high level of diligence.33 In this case, petitioner failed to hurdle such
burden.

In sum, petitioner failed to show any reversible error on the part of the CA in affirming the ruling of the RTC as to warrant the modification, much less the
reversal of its assailed decision.

WHEREFORE, the petition is DENIED. The Decision dated July 9, 2010 of the Court of Appeals in CA-G.R. CV No. 88361 is hereby AFFIRMED.
With costs against the petitioner.

SO ORDERED.

6. Alpha Insurance and Surety Co v. Castor, GR No. 198174, 2 September 2013

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision 1 dated May 31, 2011 and Resolution2 dated
August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.
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 (₱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 ₱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 Insure[d] unit,
is employed with you. We would like to invite you on the provision of the Policy under Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE INSURED’S SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the exception refers to damage of the motor vehicle
and not to its loss. However, petitioner’s denial of respondent’s insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the Regional Trial Court (RTC) of Quezon City on
September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter as follows:
To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum from the time of demand up to the time the amount is fully settled;
To pay attorney’s fees in the sum of ₱65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual basis. 3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated December 19, 2008, of Branch 215 of the Regional
Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds for the allowance of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT
ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER
LOSS BUT ONLY DAMAGE BECAUSE 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.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT
[AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under the insurance policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:
SECTION III – LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Schedule Vehicle and its accessories and
spare parts whilst thereon:
(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;
(c)
by malicious act;
(d)
whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and every loss for each and every vehicle
insured by this Policy, such amount being equal to one percent (1.00%) of the Insured’s estimate of Fair Market Value as shown in the Policy Schedule
with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service. 6
In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of "Exceptions to Section III," means
loss due to injury or harm to person, property or reputation, and should be construed to cover malicious "loss" as in "theft." Thus, it asserts that the loss
of respondent’s vehicle as a result of it being stolen by the latter’s driver is excluded from the policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that 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. Thus:
Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy subject of this case. This is evident from the
very provision of Section III – "Loss or Damage." The insurance company, subject to the limits of liability, is obligated to indemnify the insured against
theft. Said provision does not qualify as to who would commit the theft. Thus, even if the same is committed by the driver of the insured, there being no
categorical declaration of exception, the same must be covered. As correctly pointed out by the plaintiff, "(A)n insurance contract should be interpreted
as to carry out the purpose for which the parties entered into the contract which is to insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable meaning of language in the policy. Where restrictive provisions are open to two
interpretations, that which is most favorable to the insured is adopted." The defendant would argue that if the person employed by the insured would
commit the theft and the insurer would be held liable, then this would result to an absurd situation where the insurer would also be held liable if the
insured would commit the theft. This argument is certainly flawed. Of course, if the theft would be committed by the insured himself, the same would be
an exception to the coverage since in that case there would be fraud on the part of the insured or breach of material warranty under Section 69 of the
Insurance Code.7
Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular
sense.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying the excluded classes therein are to be given their
meaning as understood in common speech.9
Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary usage. The word "loss" refers to the act or fact of
losing, or failure to keep possession, while the word "damage" means deterioration or injury to property.1âwphi1
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.
Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the exceptions from coverage, is the damage that is
the direct result from the deliberate or willful act of the insured, members of his family, and any person in the insured’s service, whose clear plan or
purpose was to cause damage to the insured vehicle for purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly delineate between the terms "loss" and
"damage" by using both terms throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then logic dictates that it should have used the term
"damage" alone in the entire policy or otherwise included a clear definition of the said term as part of the provisions of the said insurance contract. Which
is why the Court finds it puzzling that in the said policy’s provision detailing the exceptions to the policy’s coverage in Section III thereof, which is one of
the crucial parts in the insurance contract, the insurer, after liberally using the words "loss" and "damage" in the entire policy, suddenly went specific by
using the word "damage" only in the policy’s exception regarding "malicious damage." Now, the defendant-appellant would like this Court to believe that
it really intended the word "damage" in the term "malicious damage" to include the theft of the insured vehicle.
The Court does not find the particular contention to be well taken.
True, 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. 10
Lastly, 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. Thus, in Eternal Gardens Memorial Park Corporation v.
Philippine American Life Insurance Company,11 this Court ruled –
It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein
should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations
of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from non-compliance with its
obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the Decision dated May 31, 2011 and
Resolution dated August 10, 2011 of the Court of Appeals are hereby AFFIRMED.
SO ORDERED.

7. Malayan Insurance Co v. PAP Co (Phil Branch), GR No. 200784, 7 Aug 2013

Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the October 27, 2011 Decision 1 of the Court of Appeals (CA),
which affirmed with modification the September 17, 2009 Decision2 of the Regional Trial Court, Branch 15, Manila (RTC), and its February 24, 2012
Resolution3 denying the motion for reconsideration filed by petitioner Malayan Insurance Company., Inc. (Malayan).
The Facts
The undisputed factual antecedents were succinctly summarized by the CA as follows:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the latter’s
machineries and equipment located at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The insurance,
which was for Fifteen Million Pesos (?15,000,000.00) and effective for a period of one (1) year, was procured by PAP Co. for Rizal Commercial Banking
Corporation (RCBC), the mortgagee of the insured machineries and equipment.
After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co. renewed the policy on an "as is" basis. Pursuant
thereto, a renewal policy, Fire Insurance Policy No. F-00227-000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998.
On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries and equipment were totally lost by fire. Hence, PAP Co.
filed a fire insurance claim with Malayan in the amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the time of the loss, the insured machineries and equipment
were transferred by PAP Co. to a location different from that indicated in the policy. Specifically, that the insured machineries were transferred in
September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the
denial, PAP Co. argued that Malayan cannot avoid liability as it was informed of the transfer by RCBC, the party duty-bound to relay such information.
However, Malayan reiterated its denial of PAP Co.’s claim. Distraught, PAP Co. filed the complaint below against Malayan. 4
Ruling of the RTC
On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP Company Ltd (PAP) an indemnity for the loss under the fire
insurance policy as well as for attorney’s fees. The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff. Defendant is hereby ordered:
a)
To pay plaintiff the sum of FIFTEEN MILLION PESOS (₱15,000,000.00) as and for indemnity for the loss under the fire insurance policy, plus interest
thereon at the rate of 12% per annum from the time of loss on October 12, 1997 until fully paid;
b)
To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (Ph₱500,000.00) as and by way of attorney’s fees; [and,]
c)
To pay the costs of suit.
SO ORDERED.5
The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire insurance policy because, although there was a change in
the condition of the thing insured as a result of the transfer of the subject machineries to another location, said insurance company failed to show proof
that such transfer resulted in the increase of the risk insured against. In the absence of proof that the alteration of the thing insured increased the risk,
the contract of fire insurance is not affected per Article 169 of the Insurance Code.
The RTC further stated that PAP’s notice to Rizal Commercial Banking Corporation (RCBC) sufficiently complied with the notice requirement under the
policy considering that it was RCBC which procured the insurance. PAP acted in good faith in notifying RCBC about the transfer and the latter even
conducted an inspection of the machinery in its new location.
Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial court erred in ordering it to indemnify PAP for the loss of the
subject machineries since the latter, without notice and/or consent, transferred the same to a location different from that indicated in the fire insurance
policy.
Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision but deleted the attorney’s fees. The decretal portion of the
CA decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance Company must indemnify PAP Co. Ltd the amount of Fifteen
Million Pesos (Ph₱15,000,000.00) for the loss under the fire insurance policy, plus interest thereon at the rate of 12% per annum from the time of loss on
October 12, 1997 until fully paid. However, the Five Hundred Thousand Pesos (Ph₱500,000.00) awarded to PAP Co., Ltd. as attorney’s fees is
DELETED. With costs.
SO ORDERED.6
The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of the insured properties during the efficacy of the insurance
policy. Malayan also failed to show that its contractual consent was needed before carrying out a transfer of the insured properties. Despite its bare
claim that the original and the renewed insurance policies contained provisions on transfer limitations of the insured properties, Malayan never cited the
specific provisions.
The CA further stated that even if there was such a provision on transfer restrictions of the insured properties, still Malayan could not escape liability
because the transfer was made during the subsistence of the original policy, not the renewal policy. PAP transferred the insured properties from the
Sanyo Factory to the Pace Pacific Building (Pace Factory) sometime in September 1996. Therefore, Malayan was aware or should have been aware of
such transfer when it issued the renewal policy on May 14, 1997. The CA opined that since an insurance policy was a contract of adhesion, any
ambiguity must be resolved against the party that prepared the contract, which, in this case, was Malayan.
Finally, the CA added that Malayan failed to show that the transfer of the insured properties increased the risk of the loss. It, thus, could not use such
transfer as an excuse for not paying the indemnity to PAP. Although the insurance proceeds were payable to RCBC, PAP could still sue Malayan to
enforce its rights on the policy because it remained a party to the insurance contract.
Not in conformity with the CA decision, Malayan filed this petition for review anchored on the following
GROUNDS
I
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF
THE HONORABLE COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT AND THUS RULING IN THE QUESTIONED DECISION
AND RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER THE INSURANCE CONTRACT BECAUSE:
CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER MALAYAN WAS ABLE TO PROVE AND IT IS NOT DENIED,
THAT ON THE FACE OF THE RENEWAL POLICY ISSUED TO RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR A
REPRESENTATION MADE BY THE INSURED THAT THE "LOCATION OF THE RISK" WAS AT THE SANYO BUILDING. IT IS LIKEWISE
UNDISPUTED THAT WHEN THE RENEWAL POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED PROPERTIES WERE NOT AT
THE SANYO BUILDING BUT WERE AT A DIFFERENT LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS DIFFERENT
LOCATION WHEN THE LOSS INSURED AGAINST OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES
PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW, BECAUSE OF CONCEALMENT,
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31 OF
THE INSURANCE CODE, RESPECTIVELY.
RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT CONCEALMENT, MISREPRESENTATION OR BREACH OF AN
AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT THE INSURED PROPERTIES HAD
BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM WHAT WAS INDICATED IN THE INSURANCE POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE CONDITIONS AND LIMITATIONS TO THE RENEWAL POLICY
WHICH ARE THE REASONS WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST PROOF THAT RESPONDENT PAP CO.
RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL ASSERTION
THAT IT SUPPOSEDLY NOTIFIED PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY THE INSURANCE POLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN INCREASE IN RISK BECAUSE OF THE UNILATERAL
TRANSFER OF THE INSURED PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY RESPONDENT PAP CO.
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND ESTABLISHED DECISIONS OF THE HONORABLE COURT
WHEN IT IMPOSED INTEREST AT THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS UNTIL FULLY PAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A LOAN OR FORBEARANCE OF MONEY FROM WHICH
A BREACH ENTITLES A PLAINTIFF TO AN AWARD OF INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD NOT HAVE BEEN APPLIED BY THE COURT OF APPEALS
BECAUSE THERE WAS NEVER ANY FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD THE PROCEEDS OF
THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER
RESPONDENT PAP CO. COMMITTED CONCEALMENT, MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY WHICH
ENTITLES PETITIONER MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO CONSIDER THE CLAIM AS VOIDED.
III
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF
THE HONORABLE COURT WHEN IT AGREED WITH THE TRIAL COURT AND HELD IN THE QUESTIONED DECISION THAT THE PROCEEDS OF
THE INSURANCE CONTRACT IS PAYABLE TO RESPONDENT PAP CO. DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE
INSURANCE POLICY.
IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED
DECISION AND RESOLUTION THAT THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE ADOPTED.7
Malayan basically argues that it cannot be held liable under the insurance contract because PAP committed concealment, misrepresentation and breach
of an affirmative warranty under the renewal policy when it transferred the location of the insured properties without informing it. Such transfer affected
the correct estimation of the risk which should have enabled Malayan to decide whether it was willing to assume such risk and, if so, at what rate of
premium. The transfer also affected Malayan’s ability to control the risk by guarding against the increase of the risk brought about by the change in
conditions, specifically the change in the location of the risk.
Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance Code 8 when it did not inform Malayan of the actual and
new location of the insured properties. In fact, before the issuance of the renewal policy on May 14, 1997, PAP even informed it that there would be no
changes in the renewal policy. Malayan also argues that PAP is guilty of breach of warranty under the renewal policy in violation of Section 74 of the
Insurance Code9 when, contrary to its affirmation in the renewal policy that the insured properties were located at the Sanyo Factory, these were already
transferred to the Pace Factory. Malayan adds that PAP is guilty of misrepresentation upon a material fact in violation of Section 45 of the Insurance
Code10 when it informed Malayan that there would be no changes in the original policy, and that the original policy would be renewed on an "as is" basis.
Malayan further argues that PAP failed to discharge the burden of proving that the transfer of the insured properties under the insurance policy was with
its knowledge and consent. Granting that PAP informed RCBC of the transfer or change of location of the insured properties, the same is irrelevant and
does not bind Malayan considering that RCBC is a corporation vested with separate and distinct juridical personality. Malayan did not consent to be the
principal of RCBC. RCBC did not also act as Malayan’s representative.
With regard to the alleged increase of risk, Malayan insists that there is evidence of an increase in risk as a result of the unilateral transfer of the insured
properties. According to Malayan, the Sanyo Factory was occupied as a factory of automotive/computer parts by the assured and factory of zinc &
aluminum die cast and plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A, while Pace Factory was
occupied as factory that repacked silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.
PAP’s position
On the other hand, PAP counters that there is no evidence of any misrepresentation, concealment or deception on its part and that its claim is not
fraudulent. It insists that it can still sue to protect its rights and interest on the policy notwithstanding the fact that the proceeds of the same was payable
to RCBC, and that it can collect interest at the rate of 12% per annum on the proceeds of the policy because its claim for indemnity was unduly delayed
without legal justification.
The Court’s Ruling
The Court agrees with the position of Malayan that it cannot be held liable for the loss of the insured properties under the fire insurance policy.
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a ?15,000,000.00 fire insurance policy from Malayan
covering its machineries and equipment effective for one (1) year or until May 13, 1997; that the policy expressly stated that the insured properties were
located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite"; that before its expiration, the policy was
renewed11 on an "as is" basis for another year or until May 13, 1998; that the subject properties were later transferred to the Pace Factory also in PEZA;
and that on October 12, 1997, during the effectivity of the renewal policy, a fire broke out at the Pace Factory which totally burned the insured properties.
The policy forbade the removal of the insured properties unless sanctioned by Malayan
Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to attach as regards the property affected unless the insured, before the occurrence of
any loss or damage, obtains the sanction of the company signified by endorsement upon the policy, by or on behalf of the Company:
xxx xxx xxx
(c) If property insured be removed to any building or place other than in that which is herein stated to be insured. 12
Evidently, by the clear and express condition in the renewal policy, the removal of the insured property to any building or place required the consent of
Malayan. Any transfer effected by the insured, without the insurer’s consent, would free the latter from any liability.
The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal
The records are bereft of any convincing and concrete evidence that Malayan was notified of the transfer of the insured properties from the Sanyo
factory to the Pace factory. The Court has combed the records and found nothing that would show that Malayan was duly notified of the transfer of the
insured properties.
What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the entity which made the referral and the
named beneficiary in the policy. Malayan and RCBC might have been sister companies, but such fact did not make one an agent of the other. The fact
that RCBC referred PAP to Malayan did not clothe it with authority to represent and bind the said insurance company. After the referral, PAP dealt
directly with Malayan.
The respondent overlooked the fact that during the November 9, 2006 hearing, 13 its counsel stipulated in open court that it was Malayan’s authorized
insurance agent, Rodolfo Talusan, who procured the original policy from Malayan, not RCBC. This was the reason why Talusan’s testimony was
dispensed with.
Moreover, in the previous hearing held on November 17, 2005,14 PAP’s hostile witness, Alexander Barrera, Administrative Assistant of Malayan, testified
that he was the one who procured Malayan’s renewal policy, not RCBC, and that RCBC merely referred fire insurance clients to Malayan. He stressed,
however, that no written referral agreement exists between RCBC and Malayan. He also denied that PAP notified Malayan about the transfer before the
renewal policy was issued. He added that PAP, through Maricar Jardiniano (Jardiniano), informed him that the fire insurance would be renewed on an
"as is basis."15
Granting that any notice to RCBC was binding on Malayan, PAP’s claim that it notified RCBC and Malayan was not indubitably established. At best, PAP
could only come up with the hearsay testimony of its principal witness, Branch Manager Katsumi Yoneda (Mr. Yoneda), who testified as follows:
Q
What did you do as Branch Manager of Pap Co. Ltd.?
A
What I did I instructed my Secretary, because these equipment was bank loan and because of the insurance I told my secretary to notify.
Q
To notify whom?
A
I told my Secretary to inform the bank.
Q
You are referring to RCBC?
A
Yes, sir.
xxxx
Q
After the RCBC was informed in the manner you stated, what did you do regarding the new location of these properties at Pace Pacific Bldg. insofar as
Malayan Insurance Company is concerned?
A
After that transfer, we informed the RCBC about the transfer of the equipment and also Malayan Insurance but we were not able to contact Malayan
Insurance so I instructed again my secretary to inform Malayan about the transfer.
Q
Who was the secretary you instructed to contact Malayan Insurance, the defendant in this case?
A
Dory Ramos.
Q
How many secretaries do you have at that time in your office?
A
Only one, sir.
Q
Do you know a certain Maricar Jardiniano?
A
Yes, sir.
Q
Why do you know her?
A
Because she is my secretary.
Q
So how many secretaries did you have at that time?
A
Two, sir.
Q
What happened with the instruction that you gave to your secretary Dory Ramos about the matter of informing the defendant Malayan Insurance Co of
the new location of the insured properties?
A
She informed me that the notification was already given to Malayan Insurance.
Q
Aside from what she told you how did you know that the information was properly relayed by the said secretary, Dory Ramos, to Malayan Insurance?
A
I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.
Q
Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan Insurance Company about the transfer of the properties
insured to the new location, do you know what happened insofar this information was given to the defendant Malayan Insurance?
A
I heard that someone from Malayan Insurance came over to our company.
Q
Did you come to know who was that person who came to your place at Pace Pacific?
A
I do not know, sir.
Q
How did you know that this person from Malayan Insurance came to your place?
A
It is according to the report given to me.
Q
Who gave that report to you?
A
Dory Ramos.
Q
Was that report in writing or verbally done?
A
Verbal.16 [Emphases supplied]
The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal knowledge of the notice to either Malayan or RCBC. PAP
should have presented his secretaries, Dory Ramos and Maricar Jardiniano, at the witness stand. His testimony alone was unreliable.
Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured properties were transferred to a different location only after the
renewal of the fire insurance policy.
COURT
Q
When did you transfer the machineries and equipments before the renewal or after the renewal of the insurance?
A
After the renewal.
COURT
Q
You understand my question?
A
Yes, Your Honor.17 [Emphasis supplied]
This enfeebles PAP’s position that the subject properties were already transferred to the Pace factory before the policy was renewed.
The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of the insured properties to the Pace Factory was insignificant as it did
not increase the risk.
Malayan argues that the change of location of the subject properties from the Sanyo Factory to the Pace Factory increased the hazard to which the
insured properties were exposed. Malayan wrote:
With regards to the exposure of the risk under the old location, this was occupied as factory of automotive/computer parts by the assured, and factory of
zinc & aluminum die cast, plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But under Pace Pacific Mfg.
Corporation this was occupied as factory that repacks silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A. Hence, there was an
increase in the hazard as indicated by the increase in rate. 18
The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to a hazardous environment and negatively affected the fire
rating stated in the renewal policy. The increase in tariff rate from 0.449% to 0.657% put the subject properties at a greater risk of loss. Such increase in
risk would necessarily entail an increase in the premium payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the importance of the issue, PAP failed to refute Malayan’s
argument on the increased risk.
Malayan is entitled to rescind the insurance contract
Considering that the original policy was renewed on an "as is basis," it follows that the renewal policy carried with it the same stipulations and limitations.
The terms and conditions in the renewal policy provided, among others, that the location of the risk insured against is at the Sanyo factory in PEZA. The
subject insured properties, however, were totally burned at the Pace Factory. Although it was also located in PEZA, Pace Factory was not the location
stipulated in the renewal policy. There being an unconsented removal, the transfer was at PAP’s own risk. Consequently, it must suffer the
consequences of the fire. Thus, the Court agrees with the report of Cunningham Toplis Philippines, Inc., an international loss adjuster which investigated
the fire incident at the Pace Factory, which opined that "[g]iven that the location of risk covered under the policy is not the location affected, the policy
will, therefore, not respond to this loss/claim."19
It can also be said that with the transfer of the location of the subject properties, without notice and without Malayan’s consent, after the renewal of the
policy, PAP clearly committed concealment, misrepresentation and a breach of a material warranty. Section 26 of the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in case of an alteration in the use or
condition of the thing insured. Section 168 of the Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the insurer, by
means within the control of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.20
In the case at bench, all these circumstances are present. It was clearly established that the renewal policy stipulated that the insured properties were
located at the Sanyo factory; that PAP removed the properties without the consent of Malayan; and that the alteration of the location increased the risk of
loss.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. Petitioner Malayan Insurance Company,
Inc. is hereby declared NOT liable for the loss of the insured machineries and equipment suffered by PAP Co., Ltd.
SO ORDERED

8. Manila Bankers Life Insurance Co v. Aban, GR No. 175666, 29 July 2013

The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit business from or provide insurance coverage only to legitimate and
bona fide clients, by requiring them to thoroughly investigate those they insure within two years from effectivity of the policy and while the insured is still
alive. If they do not, they will be obligated to honor claims on the policies they issue, regardless of fraud, concealment or misrepresentation. The law
assumes that they will do just that and not sit on their laurels, indiscriminately soliciting and accepting insurance business from any Tom, Dick and Harry.
Assailed in this Petition for Review on Certiorari1 are the September 28, 2005 Decision2 of the Court of Appeals' (CA) in CA-G.R. CV No. 62286 and its
November 9, 2006 Resolution3 denying the petitioner’s Motion for Reconsideration.4
Factual Antecedents
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers Life Insurance Corporation (Bankers Life), designating
respondent Cresencia P. Aban (Aban), her niece,5 as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of ₱100,000.00, in Sotero’s favor on August 30, 1993, after the requisite
medical examination and payment of the insurance premium. 6
On April 10, 1996,7 when the insurance policy had been in force for more than two years and seven months, Sotero died. Respondent filed a claim for
the insurance proceeds on July 9, 1996. Petitioner conducted an investigation into the claim,8 and came out with the following findings:
1. Sotero did not personally apply for insurance coverage, as she was illiterate;
2. Sotero was sickly since 1990;
3. Sotero did not have the financial capability to pay the insurance premiums on Insurance Policy No. 747411;
4. Sotero did not sign the July 3, 1993 application for insurance; 9 and
5. Respondent was the one who filed the insurance application, and x x x designated herself as the beneficiary. 10
For the above reasons, petitioner denied respondent’s claim on April 16, 1997 and refunded the premiums paid on the policy. 11
On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of the policy, which was docketed as Civil Case No. 97-867 and assigned
to Branch 134 of the Makati Regional Trial Court. The main thesis of the Complaint was that the policy was obtained by fraud, concealment and/or
misrepresentation under the Insurance Code,12 which thus renders it voidable under Article 139013 of the Civil Code.
Respondent filed a Motion to Dismiss14 claiming that petitioner’s cause of action was barred by prescription pursuant to Section 48 of the Insurance
Code, which provides as follows:
Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two
years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the insured or his agent.
During the proceedings on the Motion to Dismiss, petitioner’s investigator testified in court, stating among others that the insurance underwriter who
solicited the insurance is a cousin of respondent’s husband, Dindo Aban, 15 and that it was the respondent who paid the annual premiums on the policy.16
Ruling of the Regional Trial Court
On December 9, 1997, the trial court issued an Order17 granting respondent’s Motion to Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABAN’s Motion to Dismiss is hereby granted. Civil Case No. 97-867 is hereby dismissed.
SO ORDERED.18
In dismissing the case, the trial court found that Sotero, and not respondent, was the one who procured the insurance; thus, Sotero could legally take out
insurance on her own life and validly designate – as she did – respondent as the beneficiary. It held further that under Section 48, petitioner had only two
years from the effectivity of the policy to question the same; since the policy had been in force for more than two years, petitioner is now barred from
contesting the same or seeking a rescission or annulment thereof.
Petitioner moved for reconsideration, but in another Order19 dated October 20, 1998, the trial court stood its ground.
Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286. Petitioner questioned the dismissal of Civil Case No. 97-867, arguing
that the trial court erred in applying Section 48 and declaring that prescription has set in. It contended that since it was respondent – and not Sotero –
who obtained the insurance, the policy issued was rendered void ab initio for want of insurable interest.
Ruling of the Court of Appeals
On September 28, 2005, the CA issued the assailed Decision, which contained the following decretal portion:
WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED for lack of merit.
SO ORDERED.20
The CA thus sustained the trial court. Applying Section 48 to petitioner’s case, the CA held that petitioner may no longer prove that the subject policy
was void ab initio or rescindible by reason of fraudulent concealment or misrepresentation after the lapse of more than two years from its issuance. It
ratiocinated that petitioner was equipped with ample means to determine, within the first two years of the policy, whether fraud, concealment or
misrepresentation was present when the insurance coverage was obtained. If it failed to do so within the statutory two-year period, then the insured must
be protected and allowed to claim upon the policy.
Petitioner moved for reconsideration,21 but the CA denied the same in its November 9, 2006 Resolution. 22 Hence, the present Petition.
Issues
Petitioner raises the following issues for resolution:
I
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE TRIAL COURT DISMISSING THE COMPLAINT ON THE
GROUND OF PRESCRIPTION IN CONTRAVENTION (OF) PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.
II
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION OF THE INCONTESTABILITY PROVISION IN THE
INSURANCE CODE BY THE TRIAL COURT.
III
WHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S MOTION FOR RECONSIDERATION.23
Petitioner’s Arguments
In praying that the CA Decision be reversed and that the case be remanded to the trial court for the conduct of further proceedings, petitioner argues in
its Petition and Reply24 that Section 48 cannot apply to a case where the beneficiary under the insurance contract posed as the insured and obtained the
policy under fraudulent circumstances. It adds that respondent, who was merely Sotero’s niece, had no insurable interest in the life of her aunt.
Relying on the results of the investigation that it conducted after the claim for the insurance proceeds was filed, petitioner insists that respondent’s claim
was spurious, as it appeared that Sotero did not actually apply for insurance coverage, was unlettered, sickly, and had no visible source of income to
pay for the insurance premiums; and that respondent was an impostor, posing as Sotero and fraudulently obtaining insurance in the latter’s name
without her knowledge and consent.
Petitioner adds that Insurance Policy No. 747411 was void ab initio and could not have given rise to rights and obligations; as such, the action for the
declaration of its nullity or inexistence does not prescribe. 25
 Respondent’s Arguments
Respondent, on the other hand, essentially argues in her Comment26 that the CA is correct in applying Section 48. She adds that petitioner’s new
allegation in its Petition that the policy is void ab initio merits no attention, having failed to raise the same below, as it had claimed originally that the
policy was merely voidable.
On the issue of insurable interest, respondent echoes the CA’s pronouncement that since it was Sotero who obtained the insurance, insurable interest
was present. Under Section 10 of the Insurance Code, Sotero had insurable interest in her own life, and could validly designate anyone as her
beneficiary. Respondent submits that the CA’s findings of fact leading to such conclusion should be respected.
Our Ruling
The Court denies the Petition.
The Court will not depart from the trial and appellate courts’ finding that it was Sotero who obtained the insurance for herself, designating respondent as
her beneficiary. Both courts are in accord in this respect, and the Court is loath to disturb this. While petitioner insists that its independent investigation
on the claim reveals that it was respondent, posing as Sotero, who obtained the insurance, this claim is no longer feasible in the wake of the courts’
finding that it was Sotero who obtained the insurance for herself. This finding of fact binds the Court.
With the above crucial finding of fact – that it was Sotero who obtained the insurance for herself – petitioner’s case is severely weakened, if not totally
disproved. Allegations of fraud, which are predicated on respondent’s alleged posing as Sotero and forgery of her signature in the insurance application,
are at once belied by the trial and appellate courts’ finding that Sotero herself took out the insurance for herself. "Fraudulent intent on the part of the
insured must be established to entitle the insurer to rescind the contract." 27 In the absence of proof of such fraudulent intent, no right to rescind arises.
Moreover, the results and conclusions arrived at during the investigation conducted unilaterally by petitioner after the claim was filed may simply be
dismissed as self-serving and may not form the basis of a cause of action given the existence and application of Section 48, as will be discussed at
length below.
Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the provision, an insurer is given two years –
from the effectivity of a life insurance contract and while the insured is alive – to discover or prove that the policy is void ab initio or is rescindible by
reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period lapses, or when the insured dies within
the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or misrepresentation. This is not to
say that insurance fraud must be rewarded, but that insurers who recklessly and indiscriminately solicit and obtain business must be penalized, for such
recklessness and lack of discrimination ultimately work to the detriment of bona fide takers of insurance and the public in general.
Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers enough time to inquire whether the policy
was obtained by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at insurance fraud
would be timely uncovered – thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate policy holders are absolutely
protected from unwarranted denial of their claims or delay in the collection of insurance proceeds occasioned by allegations of fraud, concealment, or
misrepresentation by insurers, claims which may no longer be set up after the two-year period expires as ordained under the law.
Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and the insured are given the assurance that any dishonest scheme to
obtain life insurance would be exposed, and attempts at unduly denying a claim would be struck down. Life insurance policies that pass the statutory
two-year period are essentially treated as legitimate and beyond question, and the individuals who wield them are made secure by the thought that they
will be paid promptly upon claim. In this manner, Section 48 contributes to the stability of the insurance industry.
Section 48 prevents a situation where the insurer knowingly continues to accept annual premium payments on life insurance, only to later on deny a
claim on the policy on specious claims of fraudulent concealment and misrepresentation, such as what obtains in the instant case. Thus, instead of
conducting at the first instance an investigation into the circumstances surrounding the issuance of Insurance Policy No. 747411 which would have
timely exposed the supposed flaws and irregularities attending it as it now professes, petitioner appears to have turned a blind eye and opted instead to
continue collecting the premiums on the policy. For nearly three years, petitioner collected the premiums and devoted the same to its own profit. It
cannot now deny the claim when it is called to account. Section 48 must be applied to it with full force and effect.
The Court therefore agrees fully with the appellate court’s pronouncement that –
the "incontestability clause" is a provision in law that after a policy of life insurance made payable on the death of the insured shall have been in force
during the lifetime of the insured for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy
is void ab initio or is rescindible by reason of fraudulent concealment or misrepresentation of the insured or his agent.
The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of the contract of insurance on the ground of
fraudulent concealment or misrepresentation to a period of only two (2) years from the issuance of the policy or its last reinstatement.
The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or misrepresentation within a period of two (2) years. It is
not fair for the insurer to collect the premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation
when the insured dies in order to defeat the right of the beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the stability to recover under the policy when the
insured dies. The provision also makes clear when the two-year period should commence in case the policy should lapse and is reinstated, that is, from
the date of the last reinstatement.
After two years, the defenses of concealment or misrepresentation, no matter how patent or well-founded, will no longer lie.
Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability.
The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations or concealment of material facts insofar
as health and previous diseases are concerned if the insurance has been in force for at least two years during the insured’s lifetime. The phrase "during
the lifetime" found in Section 48 simply means that the policy is no longer considered in force after the insured has died. The key phrase in the second
paragraph of Section 48 is "for a period of two years."
As borne by the records, the policy was issued on August 30, 1993, the insured died on April 10, 1996, and the claim was denied on April 16, 1997. The
insurance policy was thus in force for a period of 3 years, 7 months, and 24 days. Considering that the insured died after the two-year period, the
plaintiff-appellant is, therefore, barred from proving that the policy is void ab initio by reason of the insured’s fraudulent concealment or misrepresentation
or want of insurable interest on the part of the beneficiary, herein defendant-appellee.
Well-settled is the rule that it is the plaintiff-appellant’s burden to show that the factual findings of the trial court are not based on substantial evidence or
that its conclusions are contrary to applicable law and jurisprudence. The plaintiff-appellant failed to discharge that burden.28
Petitioner claims that its insurance agent, who solicited the Sotero account, happens to be the cousin of respondent’s husband, and thus insinuates that
both connived to commit insurance fraud. If this were truly the case, then petitioner would have discovered the scheme earlier if it had in earnest
conducted an investigation into the circumstances surrounding the Sotero policy. But because it did not and it investigated the Sotero account only after
a claim was filed thereon more than two years later, naturally it was unable to detect the scheme. For its negligence and inaction, the Court cannot
sympathize with its plight. Instead, its case precisely provides the strong argument for requiring insurers to diligently conduct investigations on each
policy they issue within the two-year period mandated under Section 48, and not after claims for insurance proceeds are filed with them.
Besides, if insurers cannot vouch for the integrity and honesty of their insurance agents/salesmen and the insurance policies they issue, then they
should cease doing business. If they could not properly screen their agents or salesmen before taking them in to market their products, or if they do not
thoroughly investigate the insurance contracts they enter into with their clients, then they have only themselves to blame. Otherwise said, insurers
cannot be allowed to collect premiums on insurance policies, use these amounts collected and invest the same through the years, generating profits and
returns therefrom for their own benefit, and thereafter conveniently deny insurance claims by questioning the authority or integrity of their own agents or
the insurance policies they issued to their premium-paying clients. This is exactly one of the schemes which Section 48 aims to prevent.
Insurers may not be allowed to delay the payment of claims by filing frivolous cases in court, hoping that the inevitable may be put off for years – or even
decades – by the pendency of these unnecessary court cases. In the meantime, they benefit from collecting the interest and/or returns on both the
premiums previously paid by the insured and the insurance proceeds which should otherwise go to their beneficiaries. The business of insurance is a
highly regulated commercial activity in the country,29 and is imbued with public interest.30 "An insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard the former’s interest."31
WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision and the November 9, 2006 Resolution of the Court of Appeals in CA-
G.R. CV No. 62286 are AFFIRMED.
SO ORDERED.

9. Mitsubishi Motors Philippines Salaried Employees Union v. Mitsubishi Motors Corp, GR No. 175773, 17 June 2013
The Collective Bargaining Agreement (CBA) of the parties in this case provides that the company shoulder the hospitalization expenses of the
dependents of covered employees subject to certain limitations and restrictions. Accordingly, covered employees pay part of the hospitalization
insurance premium through monthly salary deduction while the company, upon hospitalization of the covered employees' dependents, shall pay the
hospitalization expenses incurred for the same. The conflict arose when a portion of the hospitalization expenses of the covered employees'
dependents were paid/shouldered by the dependent's own health insurance. While the company refused to pay the portion of the hospital expenses
already shouldered by the dependents' own health insurance, the union insists that the covered employees are entitled to the whole and undiminished
amount of said hospital expenses.

By this Petition for Review on Certiorari,[1] petitioner Mitsubishi Motors Philippines Salaried Employees Union (MMPSEU) assails the March 31, 2006
Decision[2] and December 5, 2006 Resolution[3] of the Court of Appeals (CA) in CA-G.R. SP No. 75630, which reversed and set aside the Voluntary
Arbitrator's December 3, 2002 Decision[4] and declared respondent Mitsubishi Motors Philippines Corporation (MMPC) to be under no legal obligation to
pay its covered employees' dependents' hospitalization expenses which were already shouldered by other health insurance companies.

Factual Antecedents

The parties' CBA[5] covering the period August 1, 1996 to July 31, 1999 provides for the hospitalization insurance benefits for the covered dependents,
thus:

SECTION 4. DEPENDENTS' GROUP HOSPITALIZATION INSURANCE The COMPANY shall obtain group hospitalization insurance coverage or
assume under a self-insurance basis hospitalization for the dependents of regular employees up to a maximum amount of forty thousand pesos
(P40,000.00) per confinement subject to the following:

a. The room and board must not exceed three hundred pesos (P300.00) per day up to a maximum of thirty-one (31) days. Similarly, Doctor's
Call fees must not exceed three hundred pesos (P300.00) per day for a maximum of thirty-one (31) days. Any excess of this amount shall be
borne by the employee.

b. Confinement must be in a hospital designated by the COMPANY. For this purpose, the COMPANY shall designate hospitals in different
convenient places to be availed of by the dependents of employees. In cases of emergency where the dependent is confined without the
recommendation of the company doctor or in a hospital not designated by the COMPANY, the COMPANY shall look into the circumstances of
such confinement and arrange for the payment of the amount to the extent of the hospitalization benefit.

c. The limitations and restrictions listed in Annex "B" must be observed.

d. Payment shall be direct to the hospital and doctor and must be covered by actual billings.
Each employee shall pay one hundred pesos (P100.00) per month through salary deduction as his share in the payment of the insurance premium for
the above coverage with the balance of the premium to be paid by the COMPANY. If the COMPANY is self-insured the one hundred pesos (P100.00)
per employee monthly contribution shall be given to the COMPANY which shall shoulder the expenses subject to the above level of benefits and subject
to the same limitations and restrictions provided for in Annex "B" hereof.

The hospitalization expenses must be covered by actual hospital and doctor's bills and any amount in excess of the above mentioned level of benefits
will be for the account of the employee.

For purposes of this provision, eligible dependents are the covered employees' natural parents, legal spouse and legitimate or legally adopted or step
children who are unmarried, unemployed who have not attained twenty-one (21) years of age and wholly dependent upon the employee for support.

This provision applies only in cases of actual confinement in the hospital for at least six (6) hours.

Maternity cases are not covered by this section but will be under the next succeeding section on maternity benefits. [6]

When the CBA expired on July 31, 1999, the parties executed another CBA[7] effective August 1, 1999 to July 31, 2002 incorporating the same
provisions on dependents' hospitalization insurance benefits but in the increased amount of P50,000.00. The room and board expenses, as well as the
doctor's call fees, were also increased to P375.00.

On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida), Hermie Juan Oabel (Oabel) and Jocelyn Martin (Martin), filed
claims for reimbursement of hospitalization expenses of their dependents.

MMPC paid only a portion of their hospitalization insurance claims, not the full amount. In the case of Calida, his wife, Lanie, was confined at Sto.
Tomas University Hospital from September 4 to 9, 1998 due to Thyroidectomy. The medical expenses incurred totalled P29,967.10. Of this amount,
P9,000.00 representing professional fees was paid by MEDICard Philippines, Inc. (MEDICard) which provides health maintenance to Lanie.[8] MMPC
only paid P12,148.63.[9] It did not pay the P9,000.00 already paid by MEDICard and the P6,278.47 not covered by official receipts. It refused to give to
Calida the difference between the amount of medical expenses of P27,427.10[10] which he claimed to be entitled to under the CBA and the P12,148.63
which MMPC directly paid to the hospital.

As regards Oabel's claim, his wife Jovita Nemia (Jovita) was confined at The Medical City from March 8 to 11, 1999 due to Tonsillopharyngitis, incurring
medical expenses totalling P8,489.35.[11] Of this amount, P7,811.00 was paid by Jovita's personal health insurance, Prosper Insurance Company
(Prosper).[12] MMPC paid the hospital the amount of P630.87,[13] after deducting from the total medical expenses the amount paid by Prosper and the
P47.48 discount given by the hospital.

In the case of Martin, his father, Jose, was admitted at The Medical City from March 26 to 27, 2000 due to Acid Peptic Disease and incurred medical
expenses amounting to P9,101.30.[14] MEDICard paid P8,496.00.[15] Consequently, MMPC only paid P288.40,[16]after deducting from the total medical
expenses the amount paid by MEDICard and the P316.90 discount given by the hospital.

Claiming that under the CBA, they are entitled to hospital benefits amounting to P27,427.10, P6,769.35 and P8,123.80, respectively, which should not
be reduced by the amounts paid by MEDICard and by Prosper, Calida, Oabel and Martin asked for reimbursement from MMPC. However, MMPC
denied the claims contending that double insurance would result if the said employees would receive from the company the full amount of hospitalization
expenses despite having already received payment of portions thereof from other health insurance providers.

This prompted the MMPSEU President to write the MMPC President[17] demanding full payment of the hospitalization benefits. Alleging discrimination
against MMPSEU union members, she pointed out that full reimbursement was given in a similar claim filed by Luisito Cruz (Cruz), a member of the
Hourly Union. In a letter-reply,[18] MMPC, through its Vice-President for Industrial Relations Division, clarified that the claims of the said MMPSEU
members have already been paid on the basis of official receipts submitted. It also denied the charge of discrimination and explained that the case of
Cruz involved an entirely different matter since it concerned the admissibility of certified true copies of documents for reimbursement purposes, which
case had been settled through voluntary arbitration.

On August 28, 2000, MMPSEU referred the dispute to the National Conciliation and Mediation Board and requested for preventive mediation. [19]

Proceedings before the Voluntary Arbitrator

On October 3, 2000, the case was referred to Voluntary Arbitrator Rolando Capocyan for resolution of the issue involving the interpretation of the subject
CBA provision.[20]

MMPSEU alleged that there is nothing in the CBA which prohibits an employee from obtaining other insurance or declares that medical expenses can be
reimbursed only upon presentation of original official receipts. It stressed that the hospitalization benefits should be computed based on the formula
indicated in the CBA without deducting the benefits derived from other insurance providers. Besides, if reduction is permitted, MMPC would be unjustly
benefitted from the monthly premium contributed by the employees through salary deduction. MMPSEU added that its members had legitimate claims
under the CBA and that any doubt as to any of its provisions should be resolved in favor of its members. Moreover, any ambiguity should be resolved in
favor of labor.[21]

On the other hand, MMPC argued that the reimbursement of the entire amounts being claimed by the covered employees, including those already paid
by other insurance companies, would constitute double indemnity or double insurance, which is circumscribed under the Insurance Code. Moreover, a
contract of insurance is a contract of indemnity and the employees cannot be allowed to profit from their dependents' loss. [22]

Meanwhile, the parties separately sought for a legal opinion from the Insurance Commission relative to the issue at hand. In its letter[23]to the Insurance
Commission, MMPC requested for confirmation of its position that the covered employees cannot claim insurance benefits for a loss that had already
been covered or paid by another insurance company. However, the Office of the Insurance Commission opted not to render an opinion on the matter as
the same may become the subject of a formal complaint before it. [24] On the other hand, when queried by MMPSEU,[25] the Insurance Commission,
through Atty. Richard David C. Funk II (Atty. Funk) of the Claims Adjudication Division, rendered an opinion contained in a letter,[26] viz:

January 8, 2002

Ms. Cecilia L. Paras

President Mitsubishi Motors Phils.
[Salaried] Employees Union
Ortigas Avenue Extension,
Cainta, Rizal

Madam:

We acknowledge receipt of your letter which, to our impression, basically poses the question of whether or not recovery of medical expenses from a
Health Maintenance Organization bars recovery of the same reimbursable amount of medical expenses under a contract of health or medical insurance.

We wish to opine that in cases of claims for reimbursement of medical expenses where there are two contracts providing benefits to that effect, recovery
may be had on both simultaneously. In the absence of an Other Insurance provision in these coverages, the courts have uniformly held that an insured
is entitled to receive the insurance benefits without regard to the amount of total benefits provided by other insurance. (INSURANCE LAW, A Guide to
Fundamental Principles, Legal Doctrines, and Commercial Practices; Robert E. Keeton, Alau I. Widiss, p. 261). The result is consistent with the public
policy underlying the collateral source rule that is, x x x the courts have usually concluded that the liability of a health or accident insurer is not reduced
by other possible sources of indemnification or compensation. (ibid).

Very truly yours,

(SGD.)
RICHARD DAVID C. FUNK II
Attorney IV
Officer-in-Charge
Claims Adjudication Division

On December 3, 2002, the Voluntary Arbitrator rendered a Decision[27] finding MMPC liable to pay or reimburse the amount of hospitalization expenses
already paid by other health insurance companies. The Voluntary Arbitrator held that the employees may demand simultaneous payment from both the
CBA and their dependents' separate health insurance without resulting to double insurance, since separate premiums were paid for each contract. He
also noted that the CBA does not prohibit reimbursement in case there are other health insurers.

Proceedings before the Court of Appeals

MMPC filed a Petition for Review with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction[28] before the
CA. It claimed that the Voluntary Arbitrator committed grave abuse of discretion in not finding that recovery under both insurance policies constitutes
double insurance as both had the same subject matter, interest insured and risk or peril insured against; in relying solely on the unauthorized legal
opinion of Atty. Funk; and in not finding that the employees will be benefitted twice for the same loss. In its Comment,[29] MMPSEU countered that
MMPC will unjustly enrich itself and profit from the monthly premiums paid if full reimbursement is not made.

On March 31, 2006, the CA found merit in MMPC's Petition. It ruled that despite the lack of a provision which bars recovery in case of payment by other
insurers, the wordings of the subject provision of the CBA showed that the parties intended to make MMPC liable only for expenses actually incurred by
an employee's qualified dependent. In particular, the provision stipulates that payment should be made directly to the hospital and that the claim should
be supported by actual hospital and doctor's bills. These mean that the employees shall only be paid amounts not covered by other health insurance
and is more in keeping with the principle of indemnity in insurance contracts. Besides, a contrary interpretation would "allow unscrupulous employees to
unduly profit from the x x x benefits" and shall "open the floodgates to questionable claims x x x." [30]

The dispositive portion of the CA Decision[31] reads:

WHEREFORE, the instant petition is GRANTED. The decision of the voluntary arbitrator dated December 3, 2002 is REVERSED and SET ASIDE and
judgment is rendered declaring that under Art. XI, Sec. 4 of the Collective Bargaining Agreement between petitioner and respondent effective August 1,
1999 to July 31, 2002, the former's obligation to reimburse the Union members for the hospitalization expenses incurred by their dependents is exclusive
of those paid by the Union members to the hospital.

SO ORDERED.[32]

In its Motion for Reconsideration,[33] MMPSEU pointed out that the alleged oppression that may be committed by abusive employees is a mere possibility
whereas the resulting losses to the employees are real. MMPSEU cited Samsel v. Allstate Insurance Co.,[34] wherein the Arizona Supreme Court
explicitly ruled that an insured may recover from separate health insurance providers, regardless of whether one of them has already paid the medical
expenses incurred. On the other hand, MMPC argued in its Comment[35] that the cited foreign case involves a different set of facts. The CA, in its
Resolution[36] dated December 5, 2006, denied MMPSEU's motion.

Hence, this Petition.

Issues

MMPSEU presented the following grounds in support of its Petition:

A.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE DECISION DATED 03 [DECEMBER] 2002 OF THE VOLUNTARY
ARBITRATOR BELOW WHEN THE SAME WAS SUPPORTED BY SUBSTANTIAL EVIDENCE, INCLUDING THE OPINION OF THE INSURANCE
COMMISSION THAT RECOVERY FROM BOTH THE CBA AND SEPARATE HEALTH CARDS IS NOT PROHIBITED IN THE ABSENCE OF ANY
SPECIFIC PROVISION IN THE CBA.

B.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN OVERTURNING THE DECISION OF THE VOLUNTARY ARBITRATOR WITHOUT
EVEN GIVING ANY LEGAL OR JUSTIFIABLE BASIS FOR SUCH REVERSAL.

C.

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN REFUSING TO CONSIDER OR EVEN MENTION ANYTHING ABOUT THE AMERICAN
AUTHORITIES CITED IN THE RECORDS THAT DO NOT PROHIBIT, BUT IN FACT ALLOW, RECOVERY FROM TWO SEPARATE HEALTH PLANS.

D.

THE COURT OF APPEALS GRAVELY ERRED IN GIVING MORE IMPORTANCE TO A POSSIBLE, HENCE MERELY SPECULATIVE, ABUSE BY
EMPLOYEES OF THE BENEFITS IF DOUBLE RECOVERY WERE ALLOWED INSTEAD OF THE REAL INJURY TO THE EMPLOYEES WHO ARE
PAYING FOR THE CBA HOSPITALIZATION BENEFITS THROUGH MONTHLY SALARY DEDUCTIONS BUT WHO MAY NOT BE ABLE TO AVAIL OF
THE SAME IF THEY OR THEIR DEPENDENTS HAVE OTHER HEALTH INSURANCE.[37]

MMPSEU avers that the Decision of the Voluntary Arbitrator deserves utmost respect and finality because it is supported by substantial evidence and is
in accordance with the opinion rendered by the Insurance Commission, an agency equipped with vast knowledge concerning insurance contracts. It
maintains that under the CBA, member-employees are entitled to full reimbursement of medical expenses incurred by their dependents regardless of
any amounts paid by the latter's health insurance provider. Otherwise, non-recovery will constitute unjust enrichment on the part of MMPC. It avers that
recovery from both the CBA and other insurance companies is allowed under their CBA and not prohibited by law nor by jurisprudence.

Our Ruling

The Petition has no merit.

Atty. Funk erred in applying the

collateral source rule.

The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that the employees may recover benefits from different insurance providers without
regard to the amount of benefits paid by each. According to him, this view is consistent with the theory of the collateral source rule.

As part of American personal injury law, the collateral source rule was originally applied to tort cases wherein the defendant is prevented from benefitting
from the plaintiff's receipt of money from other sources. [38] Under this rule, if an injured person receives compensation for his injuries from a source
wholly independent of the tortfeasor, the payment should not be deducted from the damages which he would otherwise collect from the tortfeasor.[39] In
a recent Decision[40] by the Illinois Supreme Court, the rule has been described as "an established exception to the general rule that damages in
negligence actions must be compensatory." The Court went on to explain that although the rule appears to allow a double recovery, the collateral
source will have a lien or subrogation right to prevent such a double recovery.[41] In Mitchell v. Haldar,[42] the collateral source rule was rationalized by
the Supreme Court of Delaware:

The collateral source rule is 'predicated on the theory that a tortfeasor has no interest in, and therefore no right to benefit from monies received by the
injured person from sources unconnected with the defendant'. According to the collateral source rule, 'a tortfeasor has no right to any mitigation of
damages because of payments or compensation received by the injured person from an independent source.' The rationale for the collateral source rule
is based upon the quasi-punitive nature of tort law liability. It has been explained as follows:

The collateral source rule is designed to strike a balance between two competing principles of tort law: (1) a plaintiff is entitled to compensation sufficient
to make him whole, but no more; and (2) a defendant is liable for all damages that proximately result from his wrong. A plaintiff who receives a double
recovery for a single tort enjoys a windfall; a defendant who escapes, in whole or in part, liability for his wrong enjoys a windfall. Because the law must
sanction one windfall and deny the other, it favors the victim of the wrong rather than the wrongdoer.
Thus, the tortfeasor is required to bear the cost for the full value of his or her negligent conduct even if it results in a windfall for the innocent
plaintiff. (Citations omitted)

As seen, the collateral source rule applies in order to place the responsibility for losses on the party causing them.[43] Its application is justified so that
"'the wrongdoer should not benefit from the expenditures made by the injured party or take advantage of contracts or other relations that may exist
between the injured party and third persons."[44] Thus, it finds no application to cases involving no-fault insurances under which the insured is
indemnified for losses by insurance companies, regardless of who was at fault in the incident generating the losses. [45] Here, it is clear that MMPC is a
no-fault insurer. Hence, it cannot be obliged to pay the hospitalization expenses of the dependents of its employees which had already been paid by
separate health insurance providers of said dependents.

The Voluntary Arbitrator therefore erred in adopting Atty. Funk's view that the covered employees are entitled to full payment of the hospital expenses
incurred by their dependents, including the amounts already paid by other health insurance companies based on the theory of collateral source rule.

The conditions set forth in the CBA provision

indicate an intention to limit MMPC's liability
only to actual expenses incurred by the employees'
dependents, that is, excluding the amounts paid
by dependents' other health insurance providers.

The Voluntary Arbitrator ruled that the CBA has no express provision barring claims for hospitalization expenses already paid by other insurers. Hence,
the covered employees can recover from both. The CA did not agree, saying that the conditions set forth in the CBA implied an intention of the parties
to limit MMPC's liability only to the extent of the expenses actually incurred by their dependents which excludes the amounts shouldered by other health
insurance companies.

We agree with the CA. The condition that payment should be direct to the hospital and doctor implies that MMPC is only liable to pay medical expenses
actually shouldered by the employees' dependents. It follows that MMPC's liability is limited, that is, it does not include the amounts paid by other health
insurance providers. This condition is obviously intended to thwart not only fraudulent claims but also double claims for the same loss of the dependents
of covered employees.

It is well to note at this point that the CBA constitutes a contract between the parties and as such, it should be strictly construed for the purpose of
limiting the amount of the employer's liability.[46] The terms of the subject provision are clear and provide no room for any other interpretation. As there
is no ambiguity, the terms must be taken in their plain, ordinary and popular sense. [47] Consequently, MMPSEU cannot rely on the rule that a contract of
insurance is to be liberally construed in favor of the insured. Neither can it rely on the theory that any doubt must be resolved in favor of labor.

Samsel v. Allstate Insurance Co. is not

on all fours with the case at bar.

MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the Supreme Court of Arizona allowed the insured to enjoy medical benefits under an
automobile policy insurance despite being able to also recover from a separate health insurer. In that case, the Allstate automobile policy does not
contain any clause restricting medical payment coverage to expenses actually paid by the insured nor does it specifically provide for reduction of medical
payments benefits by a coordination of benefits.[48] However, in the case before us, the dependents' group hospitalization insurance provision in the
CBA specifically contains a condition which limits MMPC's liability only up to the extent of the expenses that should be paid by the covered employee's
dependent to the hospital and doctor. This is evident from the portion which states that "payment [by MMPC] shall be direct to the hospital and
doctor."[49] In contrast, the Allstate automobile policy expressly gives Allstate the authority to pay directly to the insured person or on the latter's behalf all
reasonable expenses actually incurred. Therefore, reliance on [Samsel] is unavailing because the facts therein are different and not decisive of the
issues in the present case.

To allow reimbursement of amounts paid

under other insurance policies shall constitute
double recovery which is not sanctioned by law.

MMPSEU insists that MMPC is also liable for the amounts covered under other insurance policies; otherwise, MMPC will unjustly profit from the
premiums the employees contribute through monthly salary deductions.
This contention is unmeritorious.

To constitute unjust enrichment, it must be shown that a party was unjustly enriched in the sense that the term unjustly could mean illegally or
unlawfully.[50] A claim for unjust enrichment fails when the person who will benefit has a valid claim to such benefit.[51]

The CBA has provided for MMPC's limited liability which extends only up to the amount to be paid to the hospital and doctor by the employees'
dependents, excluding those paid by other insurers. Consequently, the covered employees will not receive more than what is due them; neither is
MMPC under any obligation to give more than what is due under the CBA.

Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the parties must be determined in accordance with the
general principles of insurance law.[52] Being in the nature of a non-life insurance contract and essentially a contract of indemnity, the CBA provision
obligates MMPC to indemnify the covered employees' medical expenses incurred by their dependents but only up to the extent of the expenses actually
incurred.[53] This is consistent with the principle of indemnity which proscribes the insured from recovering greater than the loss. [54] Indeed, to profit from
a loss will lead to unjust enrichment and therefore should not be countenanced. As aptly ruled by the CA, to grant the claims of MMPSEU will permit
possible abuse by employees.

WHEREFORE, the Petition is DENIED. The Decision dated March 31, 2006 and Resolution dated December 5, 2006 of the Court of Appeals in CA-
G.R. SP No. 75630, are AFFIRMED.

SO ORDERED.

10. Paramount Insurance Co v. Spouses Remondeulaz, GR No. 173773, 28 Nov 2012

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the reversal and setting aside of the Decision[1] dated April
12, 2005 and Resolution[2] dated July 20, 2006 of the Court of Appeals in CA-G.R. CV No. 61490.

The undisputed facts follow.

On May 26, 1994, respondents insured with petitioner their 1994 Toyota Corolla sedan under a comprehensive motor vehicle insurance policy for one
year.

During the effectivity of said insurance, respondents' car was unlawfully taken. Hence, they immediately reported the theft to the Traffic Management
Command of the PNP who made them accomplish a complaint sheet. In said complaint sheet, respondents alleged that a certain Ricardo Sales (Sales)
took possession of the subject vehicle to add accessories and improvements thereon, however, Sales failed to return the subject vehicle within the
agreed three-day period.

As a result, respondents notified petitioner to claim for the reimbursement of their lost vehicle. However, petitioner refused to pay.

Accordingly, respondents lodged a complaint for a sum of money against petitioner before the Regional Trial Court of Makati City (trial court) praying for
the payment of the insured value of their car plus damages on April 21, 1995.

After presentation of respondents' evidence, petitioner filed a Demurrer to Evidence.

Acting thereon, the trial court dismissed the complaint filed by respondents. The full text of said Order [3] reads:

Before the Court is an action filed by the plaintiffs, spouses Yves and Maria Teresa Remondeulaz against the defendant, Paramount Insurance
Corporation, to recover from the defendant the insured value of [the] motor vehicle.

It appears that on 26 May 1994, plaintiffs insured their vehicle, a 1994 Toyota Corolla XL with chassis number EE-100-9524505, with defendant under
Private Car Policy No. PC-37396 for Own Damage, Theft, Third-Party Property Damage and Third-Party Personal Injury, for the period commencing 26
May 1994 to 26 May 1995. Then on 1 December 1994, defendants received from plaintiff a demand letter asking for the payment of the proceeds in the
amount of PhP409,000.00 under their policy. They alleged the loss of the vehicle and claimed the same to be covered by the policy's provision on
"Theft." Defendant disagreed and refused to pay.

It appears, however, that plaintiff had successfully prosecuted and had been awarded the amount claimed in this action, in another action (Civil Case
No. 95-1524 entitled Sps. Yves and Maria Teresa Remondeulaz versus Standard Insurance Company, Inc.), which involved the loss of the same vehicle
under the same circumstances although under a different policy and insurance company. This, considered with the principle that an insured may not
recover more than its interest in any property subject of an insurance, leads the court to dismiss this action.

SO ORDERED.[4]

Not in conformity with the trial court's Order, respondents interposed an appeal to the Court of Appeals (appellate court).

In its Decision dated April 12, 2005, the appellate court reversed and set aside the Order issued by the trial court, to wit:

Indeed, the trial court erred when it dismissed the action on the ground of double recovery since it is clear that the subject car is different from the one
insured with another insurance company, the Standard Insurance Company. In this case, defendant-appellee [herein petitioner] denied the
reimbursement for the lost vehicle on the ground that the said loss could not fall within the concept of the "theft clause" under the insurance policy x x x

x x x x

WHEREFORE, the October 7, 1998 Order of the Regional Trial Court of Makati City, Branch 63, is hereby REVERSED and SET ASIDE

x x x.
SO ORDERED.[5]

Petitioner, thereafter, filed a motion for reconsideration against said Decision, but the same was denied by the appellate court in a Resolution dated July
20, 2006.

Consequently, petitioner filed a petition for review on certiorari before this Court praying that the appellate court's Decision and Resolution be reversed
and set aside.

In its petition, petitioner raises this issue for our resolution:

Whether or not the Court of Appeals decided the case a quo in a way not in accord with law and/or applicable jurisprudence when it promulgated in favor
of the respondents Remondeulaz, making Paramount liable for the alleged "theft" of respondents' vehicle.[6]

Essentially, the issue is whether or not petitioner is liable under the insurance policy for the loss of respondents' vehicle.

Petitioner argues that the loss of respondents' vehicle is not a peril covered by the policy. It maintains that it is not liable for the loss, since the car cannot
be classified as stolen as respondents entrusted the possession thereof to another person.

We do not agree.

Adverse to petitioner's claim, respondents' policy clearly undertook to indemnify the insured against loss of or damage to the scheduled vehicle when
caused by theft, to wit:

SECTION III LOSS OR DAMAGE

1. The Company will, subject to the Limits of Liability, indemnify the insured against loss of or damage to the Scheduled Vehicle and its
accessories and spare parts whilst thereon:

(a) by accidental collision or overturning, or collision or 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;
(c) by malicious act;
(d) whilst in transit (including the [process] of loading and unloading) incidental to such transit by road, rail, inland waterway, lift or elevator.[7]

Apropos, we now resolve the issue of whether the loss of respondents' vehicle falls within the concept of the "theft clause" under the insurance policy.

In People v. Bustinera,[8] this Court had the occasion to interpret the "theft clause" of an insurance policy. In this case, the Court explained that when one
takes the motor vehicle of another without the latter's consent even if the motor vehicle is later returned, there is theft there being intent to gain as the
use of the thing unlawfully taken constitutes gain.

Also, in Malayan Insurance Co., Inc. v. Court of Appeals,[9] this Court held that the taking of a vehicle by another person without the permission or
authority from the owner thereof is sufficient to place it within the ambit of the word theft as contemplated in the policy, and is therefore, compensable.

Moreover, the case of Santos v. People[10] is worthy of note. Similarly in Santos, the owner of a car entrusted his vehicle to therein petitioner Lauro
Santos who owns a repair shop for carburetor repair and repainting. However, when the owner tried to retrieve her car, she was not able to do so since
Santos had abandoned his shop. In the said case, the crime that was actually committed was Qualified Theft. However, the Court held that because of
the fact that it was not alleged in the information that the object of the crime was a car, which is a qualifying circumstance, the Court found that Santos
was only guilty of the crime of Theft and merely considered the qualifying circumstance as an aggravating circumstance in the imposition of the
appropriate penalty. The Court therein clarified the distinction between the crime of Estafa and Theft, to wit:

x x x The principal distinction between the two crimes is that in theft the thing is taken while in estafa the accused receives the property and converts it to
his own use or benefit. However, there may be theft even if the accused has possession of the property. If he was entrusted only with the material or
physical (natural) or de facto possession of the thing, his misappropriation of the same constitutes theft, but if he has the juridical possession of the
thing, his conversion of the same constitutes embezzlement or estafa. [11]

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

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

All told, Sales' act of depriving respondents of their motor vehicle at, or soon after the transfer of physical possession of the movable property,
constitutes theft under the insurance policy, which is compensable. [12]

WHEREFORE, the instant petition is DENIED. The Decision dated April 12, 2005 and Resolution dated July 20, 2006 of the Court of Appeals are
hereby AFFIRMED in toto.

SO ORDERED.

11. United Merchants Corp v. Country Bankers Insurance Corp, GR No. 198588, 11 July 2012
 The Case
This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals’ Decision2 dated 16 June 2011 and its Resolution3 dated 8 September 2011
4
in CA-G.R. CV No. 85777. The Court of Appeals reversed the Decision of the Regional Trial Court (RTC) of Manila, Branch 3, and ruled that the claim
on the Insurance Policy is void.
The Facts
The facts, as culled from the records, are as follows:
Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and manufacturing Christmas lights. UMC leased a
warehouse at 19-B Dagot Street, San Jose Subdivision, Barrio Manresa, Quezon City, where UMC assembled and stored its products.
On 6 September 1995, UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade of Christmas lights against fire with defendant Country
Bankers Insurance Corporation (CBIC) for ₱15,000,000.00. The Fire Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice No. 12959A,
valid until 6 September 1996, states:
AMOUNT OF INSURANCE: FIFTEEN
MILLION PESOS
PHILIPPINE
CURRENCY
xxx
PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the properties of the Assured or held by them in trust, on commissions,
or on joint account with others and/or for which they are responsible in the event of loss and/or damage during the currency of this policy, whilst
contained in the building of one lofty storey in height, constructed of concrete and/or hollow blocks with portion of galvanized iron sheets, under
galvanized iron rood, occupied as Christmas lights storage. 5
On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to form part of the Insurance Policy. Endorsement F/96-
154 provides that UMC’s stocks in trade were insured against additional perils, to wit: "typhoon, flood, ext. cover, and full earthquake." The sum insured
was also increased to ₱50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996, CBIC issued Endorsement F/96-157 where the name
of the assured was changed from Alfredo Tan to UMC.
On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment Corporation (CRM) to investigate and evaluate UMC’s
loss by reason of the fire. CBIC’s reinsurer, Central Surety, likewise requested the National Bureau of Investigation (NBI) to conduct a parallel
investigation. On 6 July 1996, UMC, through CRM, submitted to CBIC its Sworn Statement of Formal Claim, with proofs of its loss.
On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim from CBIC. On 25 February 1997, UMC received CBIC’s
letter, dated 10 January 1997, rejecting UMC’s claim due to breach of Condition No. 15 of the Insurance Policy. Condition No. 15 states:
If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by
the Insured or anyone acting in his behalf to obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or with the
connivance of the Insured, all the benefits under this Policy shall be forfeited.6
On 19 February 1998, UMC filed a Complaint7 against CBIC with the RTC of Manila. UMC anchored its insurance claim on the Insurance Policy, the
Sworn Statement of Formal Claim earlier submitted, and the Certification dated 24 July 1996 made by Deputy Fire Chief/Senior Superintendent
Bonifacio J. Garcia of the Bureau of Fire Protection. The Certification dated 24 July 1996 provides that:
This is to certify that according to available records of this office, on or about 6:10 P.M. of July 3, 1996, a fire broke out at United Merchants Corporation
located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated damage of Fifty-Five Million Pesos (₱55,000,000.00) to the building
and contents, while the reported insurance coverage amounted to Fifty Million Pesos (₱50,000,000.00) with Country Bankers Insurance Corporation.
The Bureau further certifies that no evidence was gathered to prove that the establishment was willfully, feloniously and intentionally set on fire.
That the investigation of the fire incident is already closed being ACCIDENTAL in nature. 8
In its Answer with Compulsory Counterclaim 9 dated 4 March 1998, CBIC admitted the issuance of the Insurance Policy to UMC but raised the following
defenses: (1) that the Complaint states no cause of action; (2) that UMC’s claim has already prescribed; and (3) that UMC’s fire claim is tainted with
fraud. CBIC alleged that UMC’s claim was fraudulent because UMC’s Statement of Inventory showed that it had no stocks in trade as of 31 December
1995, and that UMC’s suspicious purchases for the year 1996 did not even amount to ₱25,000,000.00. UMC’s GIS and Financial Reports further
revealed that it had insufficient capital, which meant UMC could not afford the alleged ₱50,000,000.00 worth of stocks in trade.
In its Reply10 dated 20 March 1998, UMC denied violation of Condition No. 15 of the Insurance Policy. UMC claimed that it did not make any false
declaration because the invoices were genuine and the Statement of Inventory was for internal revenue purposes only, not for its insurance claim.
During trial, UMC presented five witnesses. The first witness was Josie Ebora (Ebora), UMC’s disbursing officer. Ebora testified that UMC’s stocks in
trade, at the time of the fire, consisted of: (1) raw materials for its Christmas lights; (2) Christmas lights already assembled; and (3) Christmas lights
purchased from local suppliers. These stocks in trade were delivered from August 1995 to May 1996. She stated that Straight Cargo Commercial
Forwarders delivered the imported materials to the warehouse, evidenced by delivery receipts. However, for the year 1996, UMC had no importations
and only bought from its local suppliers. Ebora identified the suppliers as Fiber Technology Corporation from which UMC bought stocks worth
₱1,800,000.00 on 20 May 1996; Fuze Industries Manufacturer Philippines from which UMC bought stocks worth ₱19,500,000.00 from 20 January 1996
to 23 February 1996; and Tomco Commercial Press from which UMC bought several Christmas boxes. Ebora testified that all these deliveries were not
yet paid. Ebora also presented UMC’s Balance Sheet, Income Statement and Statement of Cash Flow. Per her testimony, UMC’s purchases amounted
to ₱608,986.00 in 1994; ₱827,670.00 in 1995; and ₱20,000,000.00 in 1996. Ebora also claimed that UMC had sales only from its fruits business but no
sales from its Christmas lights for the year 1995.
The next witness, Annie Pabustan (Pabustan), testified that her company provided about 25 workers to assemble and pack Christmas lights for UMC
from 28 March 1996 to 3 July 1996. The third witness, Metropolitan Bank and Trust Company (MBTC) Officer Cesar Martinez, stated that UMC opened
letters of credit with MBTC for the year 1995 only. The fourth witness presented was Ernesto Luna (Luna), the delivery checker of Straight Commercial
Cargo Forwarders. Luna affirmed the delivery of UMC’s goods to its warehouse on 13 August 1995, 6 September 1995, 8 September 1995, 24 October
1995, 27 October 1995, 9 November 1995, and 19 December 1995. Lastly, CRM’s adjuster Dominador Victorio testified that he inspected UMC’s
warehouse and prepared preliminary reports in this connection.
On the other hand, CBIC presented the claims manager Edgar Caguindagan (Caguindagan), a Securities and Exchange Commission (SEC)
representative, Atty. Ernesto Cabrera (Cabrera), and NBI Investigator Arnold Lazaro (Lazaro). Caguindagan testified that he inspected the burned
warehouse on 5 July 1996, took pictures of it and referred the claim to an independent adjuster. The SEC representative’s testimony was dispensed
with, since the parties stipulated on the existence of certain documents, to wit: (1) UMC’s GIS for 1994-1997; (2) UMC’s Financial Report as of 31
December 1996; (3) SEC Certificate that UMC did not file GIS or Financial Reports for certain years; and (4) UMC’s Statement of Inventory as of 31
December 1995 filed with the BIR.
Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMC’s claim. On 19 November 1996, they concluded that arson was
committed based from their interview with barangay officials and the pictures showing that blackened surfaces were present at different parts of the
warehouse. On cross-examination, Lazaro admitted that they did not conduct a forensic investigation of the warehouse, nor did they file a case for
arson.
For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the documents of UCPB General Insurance, the insurer of Perfect Investment
Company, Inc., the warehouse owner. When asked to bring documents related to the insurance of Perfect Investment Company, Inc., Batallones
brought the papers of Perpetual Investment, Inc.
 The Ruling of the Regional Trial Court
On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering defendant to pay plaintiff:
a) the sum of ₱43,930,230.00 as indemnity with interest thereon at 6% per annum from November 2003 until fully paid;
b) the sum of ₱100,000.00 for exemplary damages;
c) the sum of ₱100,000.00 for attorney’s fees; and
d) the costs of suit.
Defendant’s counterclaim is denied for lack of merit.
SO ORDERED.11
The RTC found no dispute as to UMC’s fire insurance contract with CBIC. Thus, the RTC ruled for UMC’s entitlement to the insurance proceeds, as
follows:
Fraud is never presumed but must be proved by clear and convincing evidence. (see Alonso v. Cebu Country Club, 417 SCRA 115 [2003]) Defendant
failed to establish by clear and convincing evidence that the documents submitted to the SEC and BIR were true. It is common business practice for
corporations to have 2 sets of reports/statements for tax purposes. The stipulated documents of plaintiff (Exhs. 2 – 8) may not have been accurate.
The conflicting findings of defendant’s adjuster, CRM Adjustment [with stress] and that made by Atty. Cabrera & Mr. Lazaro for Central Surety shall be
resolved in favor of the former. Definitely the former’s finding is more credible as it was made soon after the fire while that of the latter was done 4
months later. Certainly it would be a different situation as the site was no longer the same after the clearing up operation which is normal after a fire
incident. The Christmas lights and parts could have been swept away. Hence the finding of the latter appears to be speculative to benefit the reinsurer
and which defendant wants to adopt to avoid liability.
The CRM Adjustment report found no arson and confirmed substantial stocks in the burned warehouse (Exhs. QQQ) [underscoring supplied]. This is
bolstered by the BFP certification that there was no proof of arson and the fire was accidental (Exhs. PPP). The certification by a government agency
like BFP is presumed to be a regular performance of official duty. "Absent convincing evidence to the contrary, the presumption of regularity in the
performance of official functions has to be upheld." (People vs. Lapira, 255 SCRA 85) The report of UCPB General Insurance’s adjuster also found no
arson so that the burned warehouse owner PIC was indemnified. 12
Hence, CBIC filed an appeal with the Court of Appeals (CA).
The Ruling of the Court of Appeals
On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and the Decision of the Regional Trial Court, of the National Judicial
Capital Region, Branch 3 of the City of Manila dated June 16, 2005 in Civil Case No. 98-87370 is REVERSED and SET ASIDE. The plaintiff-appellee’s
claim upon its insurance policy is deemed avoided.
SO ORDERED.13
The CA ruled that UMC’s claim under the Insurance Policy is void. The CA found that the fire was intentional in origin, considering the array of evidence
submitted by CBIC, particularly the pictures taken and the reports of Cabrera and Lazaro, as opposed to UMC’s failure to explain the details of the
alleged fire accident. In addition, it found that UMC’s claim was overvalued through fraudulent transactions. The CA ruled:
We have meticulously gone over the entirety of the evidence submitted by the parties and have come up with a conclusion that the claim of the plaintiff-
appellee was indeed overvalued by transactions which were fraudulently concocted so that the full coverage of the insurance policy will have to be fully
awarded to the plaintiff-appellee.
First, We turn to the backdrop of the plaintiff-appellee’s case, thus, [o]n September 6, 1995 its stocks-in-trade were insured for Fifteen Million Pesos and
on May 7, 1996 the same was increased to 50 Million Pesos. Two months thereafter, a fire gutted the plaintiff-appellee’s warehouse.
Second, We consider the reported purchases of the plaintiff-appellee as shown in its financial report dated December 31, 1996 vis-à-vis the testimony of
Ms. Ebora thus:
1994 - ₱608,986.00
1995 - ₱827,670.00
1996 - ₱20,000,000.00 (more or less) which were purchased for a period of one month.
Third, We shall also direct our attention to the alleged true and complete purchases of the plaintiff-appellee as well as the value of all stock-in-trade it
had at the time that the fire occurred. Thus:
Amount
Exhibit Source Dates Covered
(pesos)

Exhs. "P"-"DD", Fuze Industries 19,550,400.00 January 20, 1996

inclusive Manufacturer Phils. January 31, 1996
February 12, 1996
February 20, 1996
February 23, 1996

Exhs. "EE"-"HH", Tomco Commercial Press 1,712,000.00 December 19,

inclusive 1995
January 24, 1996
February 21, 1996
November 24,
1995

Exhs. "II"-"QQ", Precious Belen 2,720,400.00 January 13, 1996

inclusive Trading January 19, 1996
January 26, 1996
February 3, 1996
February 13, 1996
February 20, 1996
February 27, 1996

Exhs. "RR"- Wisdom Manpower 361,966.00 April 3, 1996

"EEE", inclusive Services April 12, 1996
April 19, 1996
April 26, 1996
May 3, 1996
May 10, 1996
May 17, 1996
 May 24, 1996
June 7, 1996
June 14, 1996
June 21, 1996
June 28, 1996
July 5, 1996

Exhs. "GGG"- Costs of Letters of 15,159,144.71 May 29, 1995

"NNN", inclusive Credit for June 15, 1995
imported raw July 5, 1995
materials September 4,
1995
October 2, 1995
October 27, 1995
January 8, 1996
March 19, 1996

Exhs. "GGG-11" SCCFI statements of 384,794.38 June 15, 1995

- "GGG-24", account June 28, 1995
"HHH-12", "HHH-22", "III-11", August 1, 1995
"III-14", September 4,
"JJJ-13", "KKK-11", "LLL-5" 1995
September 8,
1995
September 11,
1995
October 30, 199[5]
November 10,
1995
December 21,
1995

TOTAL 44,315,024.31
Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly looking through the pieces of evidence that it adduced during the trial.
The latter alleged that fraud is present in the case at bar as shown by the discrepancy of the alleged purchases from that of the reported purchases
made by plaintiff-appellee. It had also averred that fraud is present when upon verification of the address of Fuze Industries, its office is nowhere to be
found. Also, the defendant-appellant expressed grave doubts as to the purchases of the plaintiff-appellee sometime in 1996 when such purchases
escalated to a high 19.5 Million Pesos without any contract to back it up. 14
On 7 July 2011, UMC filed a Motion for Reconsideration, 15 which the CA denied in its Resolution dated 8 September 2011. Hence, this petition.
The Issues
UMC seeks a reversal and raises the following issues for resolution:
I.
WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH LAW, APPLICABLE JURISPRUDENCE AND EVIDENCE
AS TO THE EXISTENCE OF ARSON AND FRAUD IN THE ABSENCE OF "MATERIALLY CONVINCING EVIDENCE."
II.
WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW, APPLICABLE JURISPRUDENCE AND EVIDENCE
WHEN IT FOUND THAT PETITIONER BREACHED ITS WARRANTY.16
The Ruling of the Court
At the outset, CBIC assails this petition as defective since what UMC ultimately wants this Court to review are questions of fact. However, UMC argues
that where the findings of the CA are in conflict with those of the trial court, a review of the facts may be made. On this procedural issue, we find UMC’s
claim meritorious.
A petition for review under Rule 45 of the Rules of Court specifically provides that only questions of law may be raised. The findings of fact of the CA are
final and conclusive and this Court will not review them on appeal, 17 subject to exceptions as when the findings of the appellate court conflict with the
findings of the trial court.18 Clearly, the present case falls under the exception. Since UMC properly raised the conflicting findings of the lower courts, it is
proper for this Court to resolve such contradiction.
Having settled the procedural issue, we proceed to the primordial issue which boils down to whether UMC is entitled to claim from CBIC the full
coverage of its fire insurance policy.
UMC contends that because it had already established a prima facie case against CBIC which failed to prove its defense, UMC is entitled to claim the
full coverage under the Insurance Policy. On the other hand, CBIC contends that because arson and fraud attended the claim, UMC is not entitled to
recover under Condition No. 15 of the Insurance Policy.
Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidence required by law,19 which is
preponderance of evidence in civil cases.20 The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to
obtain a favorable judgment.21Particularly, in insurance cases, once an insured makes out a prima facie case in its favor, the burden of evidence shifts to
the insurer to controvert the insured’s prima facie case. 22 In the present case, UMC established a prima facie case against CBIC. CBIC does not dispute
that UMC’s stocks in trade were insured against fire under the Insurance Policy and that the warehouse, where UMC’s stocks in trade were stored, was
gutted by fire on 3 July 1996, within the duration of the fire insurance. However, since CBIC alleged an excepted risk, then the burden of evidence
shifted to CBIC to prove such exception.1âwphi1
An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing that the loss comes within the
purview of the exception or limitation.23 If loss is proved apparently within a contract of insurance, the burden is upon the insurer to establish 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. 24 In the present case, CBIC failed to
discharge its primordial burden of establishing that the damage or loss was caused by arson, a limitation in the policy.
In prosecutions for arson, proof of the crime charged is complete where the evidence establishes: (1) the corpus delicti, that is, a fire caused by a
criminal act; and (2) the identity of the defendants as the one responsible for the crime. 25 Corpus delicti means the substance of the crime, the fact that a
crime has actually been committed.26 This is satisfied by proof of the bare occurrence of the fire and of its having been intentionally caused.27
In the present case, CBIC’s evidence did not prove that the fire was intentionally caused by the insured. First, the findings of CBIC’s witnesses, Cabrera
and Lazaro, were based on an investigation conducted more than four months after the fire. The testimonies of Cabrera and Lazaro, as to the boxes
doused with kerosene as told to them by barangay officials, are hearsay because the barangay officials were not presented in court. Cabrera and Lazaro
even admitted that they did not conduct a forensic investigation of the warehouse nor did they file a case for arson. 28Second, the Sworn Statement of
Formal Claim submitted by UMC, through CRM, states that the cause of the fire was "faulty electrical wiring/accidental in nature." CBIC is bound by this
evidence because in its Answer, it admitted that it designated CRM to evaluate UMC’s loss. Third, the Certification by the Bureau of Fire Protection
states that the fire was accidental in origin. This Certification enjoys the presumption of regularity, which CBIC failed to rebut.
Contrary to UMC’s allegation, CBIC’s failure to prove arson does not mean that it also failed to prove fraud. Qua Chee Gan v. Law Union29 does not
apply in the present case. In Qua Chee Gan,30 the Court dismissed the allegation of fraud based on the dismissal of the arson case against the insured,
because the evidence was identical in both cases, thus:
While the acquittal of the insured in the arson case is not res judicata on the present civil action, the insurer’s evidence, to judge from the decision in the
criminal case, is practically identical in both cases and must lead to the same result, since the proof to establish the defense of connivance at the fire in
order to defraud the insurer "cannot be materially less convincing than that required in order to convict the insured of the crime of arson" (Bachrach vs.
British American Assurance Co., 17 Phil. 536). 31
In the present case, arson and fraud are two separate grounds based on two different sets of evidence, either of which can void the insurance claim of
UMC. The absence of one does not necessarily result in the absence of the
other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals.
Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be forfeited, if the claim be in any respect fraudulent, or if
any false declaration be made or used in support thereof, to wit:
15. If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are
used by the Insured or anyone acting in his behalf to obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or
with the connivance of the Insured, all the benefits under this Policy shall be forfeited.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32 the Court held that where a fire insurance policy provides that "if the claim be in any respect
fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting
on his behalf to obtain any benefit under this Policy," and the evidence is conclusive that the proof of claim which the insured submitted was false and
fraudulent both as to the kind, quality and amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against the insured
from recovering on the policy even for the amount of his actual loss.
In the present case, as proof of its loss of stocks in trade amounting to ₱50,000,000.00, UMC submitted its Sworn Statement of Formal Claim together
with the following documents: (1) letters of credit and invoices for raw materials, Christmas lights and cartons purchased; (2) charges for assembling the
Christmas lights; and (3) delivery receipts of the raw materials. However, the charges for assembling the Christmas lights and delivery receipts could not
support its insurance claim. The Insurance Policy provides that CBIC agreed to insure UMC’s stocks in trade. UMC defined stock in trade as tangible
personal property kept for sale or traffic.33 Applying UMC’s definition, only the letters of credit and invoices for raw materials, Christmas lights and
cartons may be considered.
The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for 1996 amounts to ₱20,000,000.00 which
were purchased in one month. Thus, UMC needs to prove purchases amounting to ₱30,000,000.00 worth of stocks in trade for 1995 and prior years.
However, in the Statement of Inventory it submitted to the BIR, which is considered an entry in official records, 34 UMC stated that it had no stocks in
trade as of 31 December 1995. In its defense, UMC alleged that it did not include as stocks in trade the raw materials to be assembled as Christmas
lights, which it had on 31 December 1995. However, as proof of its loss, UMC submitted invoices for raw materials, knowing that the insurance covers
only stocks in trade.
Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries Manufacturer Phils. were suspicious. The purchases, based on the invoices and
without any supporting contract, amounted to ₱19,550,400.00 worth of Christmas lights from 20 January 1996 to 23 February 1996. The uncontroverted
testimony of Cabrera revealed that there was no Fuze Industries Manufacturer Phils. located at "55 Mahinhin St., Teacher’s Village, Quezon City," the
business address appearing in the invoices and the records of the Department of Trade & Industry. Cabrera testified that:
A: Then we went personally to the address as I stated a while ago appearing in the record furnished by the United Merchants Corporation to the
adjuster, and the adjuster in turn now, gave us our basis in conducting investigation, so we went to this place which according to the records, the
address of this company but there was no office of this company.
Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover the address indicated by the United Merchants as the place of
business of Fuze Industries Manufacturer, Phils. was a residential place, what then did you do after determining that it was a residential place?
A: We went to the owner of the alleged company as appearing in the Department of Trade & Industry record, and as appearing a certain Chinese name
Mr. Huang, and the address as appearing there is somewhere in Binondo. We went personally there together with the NBI Agent and I am with them
when the subpoena was served to them, but a male person approached us and according to him, there was no Fuze Industries Manufacturer, Phils.,
company in that building sir.35
In Yu Ban Chuan v. Fieldmen’s Insurance, Co., Inc.,36 the Court ruled that the submission of false invoices to the adjusters establishes a clear case of
fraud and misrepresentation which voids the insurer’s liability as per condition of the policy. Their falsity is the best evidence of the fraudulent character
of plaintiff’s claim.37 In Verendia v. Court of Appeals,38 where the insured presented a fraudulent lease contract to support his claim for insurance
benefits, the Court held that by its false declaration, the insured forfeited all benefits under the policy provision similar to Condition No. 15 of the
Insurance Policy in this case.
Furthermore, UMC’s Income Statement indicated that the purchases or costs of sales are ₱827,670.00 for 1995 and ₱1,109,190.00 for 1996 or a total of
₱1,936,860.00.39 To corroborate this fact, Ebora testified that:
Q: Based on your 1995 purchases, how much were the purchases made in 1995?
A: The purchases made by United Merchants Corporation for the last year 1995 is ₱827,670.[00] sir
Q: And how about in 1994?
A: In 1994, it’s ₱608,986.00 sir.
Q: These purchases were made for the entire year of 1995 and 1994 respectively, am I correct?
A: Yes sir, for the year 1994 and 1995.40 (Emphasis supplied)
In its 1996 Financial Report, which UMC admitted as existing, authentic and duly executed during the 4 December 2002 hearing, it had ₱1,050,862.71
as total assets and ₱167,058.47 as total liabilities. 41
Thus, either amount in UMC’s Income Statement or Financial Reports is twenty-five times the claim UMC seeks to enforce. The RTC itself recognized
that UMC padded its claim when it only allowed ₱43,930,230.00 as insurance claim. UMC supported its claim of ₱50,000,000.00 with the Certification
from the Bureau of Fire Protection stating that "x x x a fire broke out at United Merchants Corporation located at 19-B Dag[o]t Street, Brgy. Manresa,
Quezon City incurring an estimated damage of Fifty- Five Million Pesos (₱55,000,000.00) to the building and contents x x x." However, this Certification
only proved that the estimated damage of ₱55,000,000.00 is shared by both the building and the stocks in trade.
It has long been settled that a false and material statement made with an intent to deceive or defraud voids an insurance policy. 42 In Yu Cua v. South
British Insurance Co.,43 the claim was fourteen times bigger than the real loss; in Go Lu v. Yorkshire Insurance Co,44 eight times; and in Tuason v. North
China Insurance Co.,45 six times. In the present case, the claim is twenty five times the actual claim proved.
The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or counting but to a deliberate intent to demand
from insurance companies payment for indemnity of goods not existing at the time of the fire.46 This constitutes the so-called "fraudulent claim" which, by
express agreement between the insurers and the insured, is a ground for the exemption of insurers from civil liability.47
In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in its statements were not covered by the warranty such that any
discrepancy in the declaration in other instruments or documents as to matters that may have some relation to the insurance coverage voids the
policy."48
On UMC’s allegation that it did not breach any warranty, it may be argued that the discrepancies do not, by themselves, amount to a breach of warranty.
However, the Insurance Code provides that "a policy may declare that a violation of specified provisions thereof shall avoid it."49 Thus, in fire insurance
policies, which contain provisions such as Condition No. 15 of the Insurance Policy, a fraudulent discrepancy between the actual loss and that claimed in
the proof of loss voids the insurance policy. Mere filing of such a claim will exonerate the insurer. 50
Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was guilty of fraud, UMC violated Condition No.
15 of the Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled under the Insurance Policy, including its insurance claim.
While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of the insured and strictly against the
insurer company,51 contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties
themselves have used.52 If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Courts
are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made. 53
WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision and the 8 September 2011 Resolution of the Court of Appeals in
CA-G.R. CV No. 85777.
SO ORDERED.

12.Malayan Insurance Co v. Philippine First Insurance Co. GR No. 184300, 11 July 2012

Before the Court is a petitiOn for review on certiorari filed by petitioner Malayan Insurance Co., lnc. (Malayan) assailing the Decision1 dated February 29,
2008 and Resolution2 dated August 28, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 71204 which affirmed with modification the decision of the
Regional Trial Court (RTC), Branch 38 of Manila.
Antecedent Facts
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc. (Reputable) had been annually executing a contract of
carriage, whereby the latter undertook to transport and deliver the former’s products to its customers, dealers or salesmen.3
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines First Insurance Co., Inc.
(Philippines First) to secure its interest over its own products. Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and other products
usual or incidental to the insured’s business while the same were being transported or shipped in the Philippines. The policy covers all risks of direct
physical loss or damage from any external cause, if by land, and provides a limit of P6,000,000.00 per any one land vehicle.
On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned out, however, that the contract was not signed by
Wyeth’s representative/s.4 Nevertheless, it was admittedly signed by Reputable’s representatives, the terms thereof faithfully observed by the parties
and, as previously stated, the same contract of carriage had been annually executed by the parties every year since 1989. 5
Under the contract, Reputable undertook to answer for "all risks with respect to the goods and shall be liable to the COMPANY (Wyeth), for the loss,
destruction, or damage of the goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and
other force majeure while the goods/products are in transit and until actual delivery to the customers, salesmen, and dealers of the COMPANY".6
The contract also required Reputable to secure an insurance policy on Wyeth’s goods. 7 Thus, on February 11, 1994, Reputable signed a Special Risk
Insurance Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.
On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of Promil infant formula worth
P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same date, the truck carrying
Wyeth’s products was hijacked by about 10 armed men. They threatened to kill the truck driver and two of his helpers should they refuse to turn over the
truck and its contents to the said highway robbers. The hijacked truck was recovered two weeks later without its cargo.
On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity.
Philippines First then demanded reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of the payment. The latter,
however, ignored the demand.
Consequently, Philippines First instituted an action for sum of money against Reputable on August 12, 1996. 8 In its complaint, Philippines First stated
that Reputable is a "private corporation engaged in the business of a common carrier." In its answer, 9 Reputable claimed that it is a private carrier. It also
claimed that it cannot be made liable under the contract of carriage with Wyeth since the contract was not signed by Wyeth’s representative and that the
cause of the loss was force majeure, i.e., the hijacking incident.
Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the amount covered in the SR Policy. According to
Reputable, "it was validly insured with Malayan for P1,000,000.00 with respect to the lost products under the latter’s Insurance Policy No. SR-0001-
02577 effective February 1, 1994 to February 1, 1995" and that the SR Policy covered the risk of robbery or hijacking. 10
Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy, the insurance does not cover any loss or damage to
property which at the time of the happening of such loss or damage is insured by any marine policy and that the SR Policy expressly excluded third-party
liability.
After trial, the RTC rendered its Decision11 finding Reputable liable to Philippines First for the amount of indemnity it paid to Wyeth, among others. In
turn, Malayan was found by the RTC to be liable to Reputable to the extent of the policy coverage. The dispositive portion of the RTC decision provides:
WHEREFORE, on the main Complaint, judgment is hereby rendered finding [Reputable] liable for the loss of the Wyeth products and orders it to pay
Philippines First the following:
1. the amount of P2,133,257.00 representing the amount paid by Philippines First to Wyeth for the loss of the products in question;
2. the amount of P15,650.00 representing the adjustment fees paid by Philippines First to hired adjusters/surveyors;
3. the amount of P50,000.00 as attorney’s fees; and
4. the costs of suit.
On the third-party Complaint, judgment is hereby rendered finding
Malayan liable to indemnify [Reputable] the following:
1. the amount of P1,000,000.00 representing the proceeds of the insurance policy;
2. the amount of P50,000.00 as attorney’s fees; and
3. the costs of suit.
SO ORDERED.12
Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC decision.
Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was binding despite Wyeth’s failure to sign the same.
Reputable further contended that the provisions of the contract are unreasonable, unjust, and contrary to law and public policy.
For its part, Malayan invoked Section 5 of its SR Policy, which provides:
Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or damage to property which at the time of the happening
of such loss or damage is insured by or would but for the existence of this policy, be insured by any Fire or Marine policy or policies except in respect of
any excess beyond the amount which would have been payable under the Fire or Marine policy or policies had this insurance not been effected.
Malayan argued that inasmuch as there was already a marine policy issued by Philippines First securing the same subject matter against loss and that
since the monetary coverage/value of the Marine Policy is more than enough to indemnify the hijacked cargo, Philippines First alone must bear the loss.
Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed that it be held liable for no more than P468,766.70, its
alleged pro-rata share of the loss based on the amount covered by the policy, subject to the provision of Section 12 of the SR Policy, which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any property hereby insured, there be any other subsisting
insurance or insurances, whether effected by the insured or by any other person or persons, covering the same property, the company shall not be liable
to pay or contribute more than its ratable proportion of such loss or damage.
On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the RTC, the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the assailed Decision dated 29 September 2000, as modified in the Order dated 21 July 2001, is AFFIRMED
with MODIFICATION in that the award of attorney’s fees in favor of Reputable is DELETED.
SO ORDERED.13
The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of the contract of carriage on the ground of lack of signature of
Wyeth’s representative/s; (2) Reputable is liable under the contract for the value of the goods even if the same was lost due to fortuitous event; and (3)
Section 12 of the SR Policy prevails over Section 5, it being the latter provision; however, since the ratable proportion provision of Section 12 applies
only in case of double insurance, which is not present, then it should not be applied and Malayan should be held liable for the full amount of the policy
coverage, that is, P1,000,000.00.14
On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was denied by the CA in its Resolution dated August 28, 2008.15
Hence, this petition.
Malayan insists that the CA failed to properly resolve the issue on the "statutory limitations on the liability of common carriers" and the "difference
between an ‘other insurance clause’ and an ‘over insurance clause’."
Malayan also contends that the CA erred when it held that Reputable is a private carrier and should be bound by the contractual stipulations in the
contract of carriage. This argument is based on its assertion that Philippines First judicially admitted in its complaint that Reputable is a common carrier
and as such, Reputable should not be held liable pursuant to Article 1745(6) of the Civil Code. 16 Necessarily, if Reputable is not liable for the loss, then
there is no reason to hold Malayan liable to Reputable.
Further, Malayan posits that there resulted in an impairment of contract when the CA failed to apply the express provisions of Section 5 (referred to by
Malayan as over insurance clause) and Section 12 (referred to by Malayan as other insurance clause) of its SR Policy as these provisions could have
been read together there being no actual conflict between them.
Reputable, meanwhile, contends that it is exempt from liability for acts committed by thieves/robbers who act with grave or irresistible threat whether it is
a common carrier or a private/special carrier. It, however, maintains the correctness of the CA ruling that Malayan is liable to Philippines First for the full
amount of its policy coverage and not merely a ratable portion thereof under Section 12 of the SR Policy.
Finally, Philippines First contends that the factual finding that Reputable is a private carrier should be accorded the highest degree of respect and must
be considered conclusive between the parties, and that a review of such finding by the Court is not warranted under the circumstances. As to its alleged
judicial admission that Reputable is a common carrier, Philippines First proffered the declaration made by Reputable that it is a private carrier. Said
declaration was allegedly reiterated by Reputable in its third party complaint, which in turn was duly admitted by Malayan in its answer to the said third-
party complaint. In addition, Reputable even presented evidence to prove that it is a private carrier.
As to the applicability of Sections 5 and 12 in the SR Policy, Philippines First reiterated the ruling of the CA. Philippines First, however, prayed for a
slight modification of the assailed decision, praying that Reputable and Malayan be rendered solidarily liable to it in the amount of P998,000.00, which
represents the balance from the P1,000.000.00 coverage of the SR Policy after deducting P2,000.00 under Section 10 of the said SR Policy.17
Issues
The liability of Malayan under the SR Policy hinges on the following issues for resolution:
1) Whether Reputable is a private carrier;
2) Whether Reputable is strictly bound by the stipulations in its contract of carriage with Wyeth, such that it should be liable for any risk of loss
or damage, for any cause whatsoever, including that due to theft or robbery and other force majeure;
3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the SR Policy; and
4) Whether Reputable should be held solidarily liable with Malayan for the amount of P998,000.00 due to Philippines First.
The Court’s Ruling
On the first issue – Reputable is a private carrier.
The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched in jurisprudence is the rule that factual findings of the trial
court, especially when affirmed by the appellate court, are accorded the highest degree of respect and considered conclusive between the parties, save
for certain exceptional and meritorious circumstances, none of which are present in this case. 18
Malayan relies on the alleged judicial admission of Philippines First in its complaint that Reputable is a common carrier. 19 Invoking Section 4, Rule 129 of
the Rules on Evidence that "an admission verbal or written, made by a party in the course of the proceeding in the same case, does not require proof," it
is Malayan’s position that the RTC and CA should have ruled that
Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code, the liability of Reputable for the loss of Wyeth’s goods
should be dispensed with, or at least diminished.
It is true that judicial admissions, such as matters alleged in the pleadings do not require proof, and need not be offered to be considered by the court.
"The court, for the proper decision of the case, may and should consider, without the introduction of evidence, the facts admitted by the parties."20 The
rule on judicial admission, however, also states that such allegation, statement, or admission is conclusive as against the pleader,21 and that the facts
alleged in the complaint are deemed admissions of the plaintiff and binding upon him. 22 In this case, the pleader or the plaintiff who alleged that
Reputable is a common carrier was Philippines First. It cannot, by any stretch of imagination, be made conclusive as against Reputable whose nature of
business is in question.
It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and Reputable; rather, it is a mere subrogee to the right of Wyeth
to collect from Reputable under the terms of the contract of carriage. Philippines First is not in any position to make any admission, much more a
definitive pronouncement, as to the nature of Reputable’s business and there appears no other connection between Philippines First and Reputable
which suggests mutual familiarity between them.
Moreover, records show that the alleged judicial admission of Philippines First was essentially disputed by Reputable when it stated in paragraphs 2, 4,
and 11 of its answer that it is actually a private or special carrier. 23 In addition, Reputable stated in paragraph 2 of its third-party complaint that it is "a
private carrier engaged in the carriage of goods."24 Such allegation was, in turn, admitted by Malayan in paragraph 2 of its answer to the third-party
complaint.25 There is also nothing in the records which show that Philippines First persistently maintained its stance that Reputable is a common carrier
or that it even contested or proved otherwise Reputable’s position that it is a private or special carrier.
Hence, in the face of Reputable’s contrary admission as to the nature of its own business, what was stated by Philippines First in its complaint is
reduced to nothing more than mere allegation, which must be proved for it to be given any weight or value. The settled rule is that mere allegation is not
proof.26
More importantly, the finding of the RTC and CA that Reputable is a special or private carrier is warranted by the evidence on record, primarily, the
unrebutted testimony of Reputable’s Vice President and General Manager, Mr. William Ang Lian Suan, who expressly stated in open court that
Reputable serves only one customer, Wyeth.27
Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or
transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public. On the other hand, a private carrier
is one wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public.28 A
common carrier becomes a private carrier when it undertakes to carry a special cargo or chartered to a special person only. 29 For all intents and
purposes, therefore, Reputable operated as a private/special carrier with regard to its contract of carriage with Wyeth.
On the second issue – Reputable is bound by the terms of the contract of carriage.
The extent of a private carrier’s obligation is dictated by the stipulations of a contract it entered into, provided its stipulations, clauses, terms and
conditions are not contrary to law, morals, good customs, public order, or public policy. "The Civil Code provisions on common carriers should not be
applied where the carrier is not acting as such but as a private carrier. Public policy governing common carriers has no force where the public at large is
not involved."30
Thus, being a private carrier, the extent of Reputable’s liability is fully governed by the stipulations of the contract of carriage, one of which is that it shall
be liable to Wyeth for the loss of the goods/products due to any and all causes whatsoever, including theft, robbery and other force majeure while the
goods/products are in transit and until actual delivery to Wyeth’s customers, salesmen and dealers. 31
On the third issue – other insurance vis-à-vis over insurance.
Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12 as a "modified ‘other insurance’ clause".32 In rendering
inapplicable said provisions in the SR Policy, the CA ruled in this wise:
Since Sec. 5 calls for Malayan’s complete absolution in case the other insurance would be sufficient to cover the entire amount of the loss, it is in direct
conflict with Sec. 12 which provides only for a pro-rated contribution between the two insurers. Being the later provision, and pursuant to the rules on
interpretation of contracts, Sec. 12 should therefore prevail.
xxxx
x x x The intention of both Reputable and Malayan should be given effect as against the wordings of Sec. 12 of their contract, as it was intended by the
parties to operate only in case of double insurance, or where the benefits of the policies of both plaintiff-appellee and Malayan should pertain to
Reputable alone. But since the court a quo correctly ruled that there is no double insurance in this case inasmuch as Reputable was not privy thereto,
and therefore did not stand to benefit from the policy issued by plaintiff-appellee in favor of Wyeth, then Malayan’s stand should be rejected.
To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying premiums for a
P1,000,000.00 insurance coverage, would not be entitled to recover said amount for the simple reason that the same property is covered by another
insurance policy, a policy to which it was not a party to and much less, from which it did not stand to benefit. Plainly, this unfair situation could not have
been the intention of both Reputable and Malayan in signing the insurance contract in question. 33
In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions applicable under distinct circumstances. Malayan argues that
"it will not be completely absolved under Section 5 of its policy if it were the assured itself who obtained additional insurance coverage on the same
property and the loss incurred by Wyeth’s cargo was more than that insured by Philippines First’s marine policy. On the other hand, Section 12 will not
completely absolve Malayan if additional insurance coverage on the same cargo were obtained by someone besides Reputable, in which case
Malayan’s SR policy will contribute or share ratable proportion of a covered cargo loss." 34
Malayan’s position cannot be countenanced.
Section 5 is actually the other insurance clause (also called "additional insurance" and "double insurance"), one akin to Condition No. 3 in issue in
Geagonia v. CA,35 which validity was upheld by the Court as a warranty that no other insurance exists. The Court ruled that Condition No. 3 36 is a
condition which is not proscribed by law as its incorporation in the policy is allowed by Section 75 of the Insurance Code. It was also the Court’s finding
that unlike the other insurance clauses, Condition No. 3 does not absolutely declare void any violation thereof but 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."
In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR Policy but simply limits the liability of Malayan
only up to the excess of the amount that was not covered by the other insurance policy. In interpreting the "other insurance clause" in Geagonia, the
Court ruled that the prohibition applies only in case of double insurance. The Court ruled that in order to constitute a violation of the clause, the other
insurance must be upon same subject matter, the same interest therein, and the same risk. Thus, even though the multiple insurance policies involved
were all issued in the name of the same assured, over the same subject matter and covering the same risk, it was ruled that there was no violation of the
"other insurance clause" since there was no double insurance.
Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers the situation where there is over insurance due
to double insurance. In such case, Section 15 provides that Malayan shall "not be liable to pay or contribute more than its ratable proportion of such loss
or damage." This is in accord with the principle of contribution provided under Section 94(e) of the Insurance Code, 37 which states that "where the
insured is over insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under his contract."
Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question that now arises is whether there is double
insurance in this case such that either Section 5 or Section 12 of the SR Policy may be applied.
By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person is insured by several insurers separately
in respect to the same subject and interest. The requisites in order for double insurance to arise are as follows:38
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same subject matter, i.e. goods belonging to
Wyeth, and both covered the same peril insured against, it is, however, beyond cavil that the said policies were issued to two different persons or
entities. It is undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy, while Reputable is the recognized insured of
Malayan under the SR Policy. The fact that Reputable procured Malayan’s SR Policy over the goods of Wyeth pursuant merely to the stipulated
requirement under its contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the said SR Policy.
The interest of Wyeth over the property subject matter of both insurance contracts is also different and distinct from that of Reputable’s. The policy
issued by Philippines First was in consideration of the legal and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued
by Malayan to Reputable was over the latter’s insurable interest over the safety of the goods, which may become the basis of the latter’s liability in case
of loss or damage to the property and falls within the contemplation of Section 15 of the Insurance Code. 39
Therefore, even though the two concerned insurance policies were issued over the same goods and cover the same risk, there arises no double
insurance since they were issued to two different persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance
cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy can be applied.
Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions of the SR Policy against Malayan.1âwphi1 This is in
keeping with the rule that:
"Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein
should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations
of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its
obligations."40
Moreover, the CA correctly ruled that:
To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying premiums for a
P1,000,000.00 insurance coverage, would not be entitled to recover said amount for the simple reason that the same property is covered by another
insurance policy, a policy to which it was not a party to and much less, from which it did not stand to benefit. x x x41
On the fourth issue – Reputable is not solidarily liable with Malayan.
There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires.
In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc., 42 the Court ruled that:
Where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is direct and such third persons can
directly sue the insurer. The direct liability of the insurer under indemnity contracts against third party[- ]liability does not mean, however, that the insurer
can be held solidarily liable with the insured and/or the other parties found at fault, since they are being held liable under different obligations. The
liability of the insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of the insurer arises from
contract, particularly, the insurance policy:43 (Citation omitted and emphasis supplied)
Suffice it to say that Malayan's and Reputable's respective liabilities arose from different obligations- Malayan's is based on the SR Policy while
Reputable's is based on the contract of carriage.
All told, the Court finds no reversible error in the judgment sought to be reviewed.
WHEREFORE, premises considered, the petition is DENIED. The Decision dated February 29, 2008 and Resolution dated August 28, 2008 of the Court
of Appeals in CA-G.R. CV No. 71204 are hereby AFFIRMED.
Cost against petitioner Malayan Insurance Co., Inc.
SO ORDERED.

13. Florendo v. Philam Plans, GR No. 186983, 22 February 2012

his case is about an insured’s alleged concealment in his pension plan application of his true state of health and its effect on the life insurance portion of
that plan in case of death.
The Facts and the Case
On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam Plans, Inc. (Philam Plans) after
some convincing by respondent Perla Abcede. The plan had a pre-need price of ₱997,050.00, payable in 10 years, and had a maturity value of
₱2,890,000.00 after 20 years.1 Manuel signed the application and left to Perla the task of supplying the information needed in the
application.2 Respondent Ma. Celeste Abcede, Perla’s daughter, signed the application as sales counselor.3
Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to Florendo. 4This was covered by a Group Master
Policy that Philippine American Life Insurance Company (Philam Life) issued to Philam Plans. 5 Under the master policy, Philam Life was to automatically
provide life insurance coverage, including accidental death, to all who signed up for Philam Plans’ comprehensive pension plan.6 If the plan holder died
before the maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance, equivalent to the pre-need price. Further, the life
insurance was to take care of any unpaid premium until the pension plan matured, entitling the beneficiary to the maturity value of the pension plan.7
On October 30, 1997 Philam Plans issued Pension Plan Agreement PP430055848 to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as
beneficiary. In time, Manuel paid his quarterly premiums.9
Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment
of the benefits under her husband’s plan.10 Because Manuel died before his pension plan matured and his wife was to get only the benefits of his life
insurance, Philam Plans forwarded her claim to Philam Life. 11
On May 3, 1999 Philam Plans wrote Lourdes a letter,12 declining her claim. Philam Life found that Manuel was on maintenance medicine for his heart
and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for payment under
the plan13 but Philam Plans rejected it,14prompting her to file the present action against the pension plan company before the Regional Trial Court (RTC)
of Quezon City.15
On March 30, 2006 the RTC rendered judgment,16 ordering Philam Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her
husband’s pension plan, namely: ₱997,050.00, the proceeds of his term insurance, and ₱2,890,000.00 lump sum pension benefit upon maturity of his
plan; ₱100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that Manuel was not guilty of concealing the state of his health
from his pension plan application.
On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision, 17 holding that insurance policies are traditionally contracts uberrimae fidae
or contracts of utmost good faith. As such, it required Manuel to disclose to Philam Plans conditions affecting the risk of which he was aware or material
facts that he knew or ought to know.18
Issues Presented
The issues presented in this case are:
1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept blank and did not answer questions in his
pension plan application regarding the ailments he suffered from;
2. Whether or not the CA erred in holding that Manuel was bound by the failure of respondents Perla and Ma. Celeste to declare the condition
of Manuel’s health in the pension plan application; and
3. Whether or not the CA erred in finding that Philam Plans’ approval of Manuel’s pension plan application and acceptance of his premium
payments precluded it from denying Lourdes’ claim.
Rulings of the Court
One. Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan application relating to his medical history, Philam Plans should have
returned it to him for completion. Since Philam Plans chose to approve the application just as it was, it cannot cry concealment on Manuel’s part.
Further, Lourdes adds that Philam Plans never queried Manuel directly regarding the state of his health. Consequently, it could not blame him for not
mentioning it.19
But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of Manuel’s health. She forgets that since
Philam Plans waived medical examination for Manuel, it had to rely largely on his stating the truth regarding his health in his application. For, after all, he
knew more than anyone that he had been under treatment for heart condition and diabetes for more than five years preceding his submission of that
application. But he kept those crucial facts from Philam Plans.
Besides, when Manuel signed the pension plan application, he adopted as his own the written representations and declarations embodied in it. It is clear
from these representations that he concealed his chronic heart ailment and diabetes from Philam Plans. The pertinent portion of his representations and
declarations read as follows:
I hereby represent and declare to the best of my knowledge that:
xxxx
(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical
impairment in the last five years.
(d) I am in good health and physical condition.
If your answer to any of the statements above reveal otherwise, please give details in the space provided for:
Date of confinement : ____________________________
Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________
x x x x.20 (Emphasis supplied)
Since Manuel signed the application without filling in the details regarding his continuing treatments for heart condition and diabetes, the assumption is
that he has never been treated for the said illnesses in the last five years preceding his application. This is implicit from the phrase "If your answer to any
of the statements above (specifically, the statement: I have never been treated for heart condition or diabetes) reveal otherwise, please give details in
the space provided for." But this is untrue since he had been on "Coumadin," a treatment for venous thrombosis, 21 and insulin, a drug used in the
treatment of diabetes mellitus, at that time.22
Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a pacemaker implanted on his chest in the
70s or about 20 years before he signed up for the pension plan.23 But by its tenor, the responsibility for preparing the application belonged to Manuel.
Nothing in it implies that someone else may provide the information that Philam Plans needed. Manuel cannot sign the application and disown the
responsibility for having it filled up. If he furnished Perla the needed information and delegated to her the filling up of the application, then she acted on
his instruction, not on Philam Plans’ instruction.
Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a pacemaker implant in the early 70s since this did not
fall within the five-year timeframe that the disclosure contemplated.24 But a pacemaker is an electronic device implanted into the body and connected to
the wall of the heart, designed to provide regular, mild, electric shock that stimulates the contraction of the heart muscles and restores normalcy to the
heartbeat.25 That Manuel still had his pacemaker when he applied for a pension plan in October 1997 is an admission that he remained under treatment
for irregular heartbeat within five years preceding that application.
Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when he submitted his pension plan application.
These clearly fell within the five-year period. More, even if Perla’s knowledge of Manuel’s pacemaker may be applied to Philam Plans under the theory of
imputed knowledge,26 it is not claimed that Perla was aware of his two other afflictions that needed medical treatments. Pursuant to Section 27 27 of the
Insurance Code, Manuel’s concealment entitles Philam Plans to rescind its contract of insurance with him.
Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the required details did not make her his agent
and bind him to her concealment of his true state of health. Since there is no evidence of collusion between them, Perla’s fault must be considered solely
her own and cannot prejudice Manuel.28
But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated in it or had someone do it under his
direction. Thus:
APPLICATION FOR PENSION PLAN
(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in accordance with the General Provisions set forth in
this application and hereby certify that the date and other information stated herein are written by me or under my direction. x x x.29 (Emphasis supplied)
Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains since he certified that he authorized her action.
Philam Plans had every right to act on the faith of that certification.
Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health would not hinder the approval of his application
and that what is written on his application made no difference to the insurance company. But, indubitably, Manuel was made aware when he signed the
pension plan application that, in granting the same, Philam Plans and Philam Life were acting on the truth of the representations contained in that
application. Thus:
DECLARATIONS AND REPRESENTATIONS
xxxx
I agree that the insurance coverage of this application is based on the truth of the foregoing representations and is subject to the provisions of the Group
Life Insurance Policy issued by THE PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC. 30 (Emphasis supplied)
As the Court said in New Life Enterprises v. Court of Appeals:31
It may be true that x x x insured persons may accept policies without reading them, and that this is not negligence per se. But, this is not without any
exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering that he
has been a businessman since 1965 and the contract concerns indemnity in case of loss in his money-making trade of which important consideration he
could not have been unaware as it was precisely the reason for his procuring the same. 32
The same may be said of Manuel, a civil engineer and manager of a construction company. 33 He could be expected to know that one must read every
document, especially if it creates rights and obligations affecting him, before signing the same. Manuel is not unschooled that the Court must come to his
succor. It could reasonably be expected that he would not trifle with something that would provide additional financial security to him and to his wife in
his twilight years.
Three. In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes points out that any defect or insufficiency in the
information provided by his pension plan application should be deemed waived after the same has been approved, the policy has been issued, and the
premiums have been collected. 34
The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we can no longer contest for health reasons any claim for insurance under this Agreement,
except for the reason that installment has not been paid (lapsed), or that you are not insurable at the time you bought this pension program by reason of
age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start again on the date of approval of your request
for reinstatement.35 1âwphi1
The above incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment or
misrepresentation regarding the health of the insured after a year of its issuance.
Since Manuel died on the eleventh month following the issuance of his plan, 36 the one year incontestability period has not yet set in. Consequently,
Philam Plans was not barred from questioning Lourdes’ entitlement to the benefits of her husband’s pension plan.
WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. CV 87085 dated December 18, 2007.
SO ORDERED.

14.Malayan Insurance Co v. Alberto, GR No. 194320, 1 February 2012

The Case
Before Us is a Petition for Review on Certiorari under Rule 45, seeking to reverse and set aside the July 28, 2010 Decision 1 of the Court of Appeals (CA)
and its October 29, 2010 Resolution2 denying the motion for reconsideration filed by petitioner Malayan Insurance Co., Inc. (Malayan Insurance). The
July 28, 2010 CA Decision reversed and set aside the Decision3 dated February 2, 2009 of the Regional Trial Court, Branch 51 in Manila.
The Facts
At around 5 o’clock in the morning of December 17, 1995, an accident occurred at the corner of EDSA and Ayala Avenue, Makati City, involving four (4)
vehicles, to wit: (1) a Nissan Bus operated by Aladdin Transit with plate number NYS 381; (2) an Isuzu Tanker with plate number PLR 684; (3) a Fuzo
Cargo Truck with plate number PDL 297; and (4) a Mitsubishi Galant with plate number TLM 732. 4
Based on the Police Report issued by the on-the-spot investigator, Senior Police Officer 1 Alfredo M. Dungga (SPO1 Dungga), the Isuzu Tanker was in
front of the Mitsubishi Galant with the Nissan Bus on their right side shortly before the vehicular incident. All three (3) vehicles were at a halt along EDSA
facing the south direction when the Fuzo Cargo Truck simultaneously bumped the rear portion of the Mitsubishi Galant and the rear left portion of the
Nissan Bus. Due to the strong impact, these two vehicles were shoved forward and the front left portion of the Mitsubishi Galant rammed into the rear
right portion of the Isuzu Tanker.5
Previously, particularly on December 15, 1994, Malayan Insurance issued Car Insurance Policy No. PV-025-00220 in favor of First Malayan Leasing and
Finance Corporation (the assured), insuring the aforementioned Mitsubishi Galant against third party liability, own damage and theft, among others.
Having insured the vehicle against such risks, Malayan Insurance claimed in its Complaint dated October 18, 1999 that it paid the damages sustained by
the assured amounting to PhP 700,000.6
Maintaining that it has been subrogated to the rights and interests of the assured by operation of law upon its payment to the latter, Malayan Insurance
sent several demand letters to respondents Rodelio Alberto (Alberto) and Enrico Alberto Reyes (Reyes), the registered owner and the driver,
respectively, of the Fuzo Cargo Truck, requiring them to pay the amount it had paid to the assured. When respondents refused to settle their liability,
Malayan Insurance was constrained to file a complaint for damages for gross negligence against respondents. 7
In their Answer, respondents asserted that they cannot be held liable for the vehicular accident, since its proximate cause was the reckless driving of the
Nissan Bus driver. They alleged that the speeding bus, coming from the service road of EDSA, maneuvered its way towards the middle lane without due
regard to Reyes’ right of way. When the Nissan Bus abruptly stopped, Reyes stepped hard on the brakes but the braking action could not cope with the
inertia and failed to gain sufficient traction. As a consequence, the Fuzo Cargo Truck hit the rear end of the Mitsubishi Galant, which, in turn, hit the rear
end of the vehicle in front of it. The Nissan Bus, on the other hand, sideswiped the Fuzo Cargo Truck, causing damage to the latter in the amount of PhP
20,000. Respondents also controverted the results of the Police Report, asserting that it was based solely on the biased narration of the Nissan Bus
driver.8
After the termination of the pre-trial proceedings, trial ensued. Malayan Insurance presented the testimony of its lone witness, a motor car claim adjuster,
who attested that he processed the insurance claim of the assured and verified the documents submitted to him. Respondents, on the other hand, failed
to present any evidence.
In its Decision dated February 2, 2009, the trial court, in Civil Case No. 99-95885, ruled in favor of Malayan Insurance and declared respondents liable
for damages. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff against defendants jointly and severally to pay plaintiff the following:
1. The amount of P700,000.00 with legal interest from the time of the filing of the complaint;
2. Attorney’s fees of P10,000.00 and;
3. Cost of suit.
SO ORDERED.9
Dissatisfied, respondents filed an appeal with the CA, docketed as CA-G.R. CV No. 93112. In its Decision dated July 28, 2010, the CA reversed and set
aside the Decision of the trial court and ruled in favor of respondents, disposing:
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the assailed Decision dated 2 February 2009 REVERSED and
SET ASIDE. The Complaint dated 18 October 1999 is hereby DISMISSED for lack of merit. No costs.
SO ORDERED.10
The CA held that the evidence on record has failed to establish not only negligence on the part of respondents, but also compliance with the other
requisites and the consequent right of Malayan Insurance to subrogation. 11 It noted that the police report, which has been made part of the records of the
trial court, was not properly identified by the police officer who conducted the on-the-spot investigation of the subject collision. It, thus, held that an
appellate court, as a reviewing body, cannot rightly appreciate firsthand the genuineness of an unverified and unidentified document, much less accord it
evidentiary value.12
Subsequently, Malayan Insurance filed its Motion for Reconsideration, arguing that a police report is a prima facie evidence of the facts stated in it. And
inasmuch as they never questioned the presentation of the report in evidence, respondents are deemed to have waived their right to question its
authenticity and due execution.13
In its Resolution dated October 29, 2010, the CA denied the motion for reconsideration. Hence, Malayan Insurance filed the instant petition.
The Issues
In its Memorandum14 dated June 27, 2011, Malayan Insurance raises the following issues for Our consideration:
I
WHETHER THE CA ERRED IN REFUSING ADMISSIBILITY OF THE POLICE REPORT SINCE THE POLICE INVESTIGATOR WHO
PREPARED THE SAME DID NOT ACTUALLY TESTIFY IN COURT THEREON.
II
WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS IMPAIRED AND/OR DEFICIENT.
On the other hand, respondents submit the following issues in its Memorandum 15 dated July 7, 2011:
I
WHETHER THE CA IS CORRECT IN DISMISSING THE COMPLAINT FOR FAILURE OF MALAYAN INSURANCE TO OVERCOME THE
BURDEN OF PROOF REQUIRED TO ESTABLISH THE NEGLIGENCE OF RESPONDENTS.
II
WHETHER THE PIECES OF EVIDENCE PRESENTED BY MALAYAN INSURANCE ARE SUFFICIENT TO CLAIM FOR THE AMOUNT OF
DAMAGES.
III
WHETHER THE SUBROGATION OF MALAYAN INSURANCE HAS PASSED COMPLIANCE AND REQUISITES AS PROVIDED UNDER
PERTINENT LAWS.
Essentially, the issues boil down to the following: (1) the admissibility of the police report; (2) the sufficiency of the evidence to support a claim for gross
negligence; and (3) the validity of subrogation in the instant case.
Our Ruling
The petition has merit.
Admissibility of the Police Report
Malayan Insurance contends that, even without the presentation of the police investigator who prepared the police report, said report is still admissible in
evidence, especially since respondents failed to make a timely objection to its presentation in evidence. 16 Respondents counter that since the police
report was never confirmed by the investigating police officer, it cannot be considered as part of the evidence on record. 17
Indeed, under the rules of evidence, a witness can testify only to those facts which the witness knows of his or her personal knowledge, that is, which
are derived from the witness’ own perception.18 Concomitantly, a witness may not testify on matters which he or she merely learned from others either
because said witness was told or read or heard those matters. 19 Such testimony is considered hearsay and may not be received as proof of the truth of
what the witness has learned. This is known as the hearsay rule. 20
As discussed in D.M. Consunji, Inc. v. CA,21 "Hearsay is not limited to oral testimony or statements; the general rule that excludes hearsay as evidence
applies to written, as well as oral statements."
There are several exceptions to the hearsay rule under the Rules of Court, among which are entries in official records.22 Section 44, Rule 130 provides:
Entries in official records made in the performance of his duty by a public officer of the Philippines, or by a person in the performance of a duty specially
enjoined by law are prima facie evidence of the facts therein stated.
In Alvarez v. PICOP Resources,23 this Court reiterated the requisites for the admissibility in evidence, as an exception to the hearsay rule of entries in
official records, thus: (a) that the entry was made by a public officer or by another person specially enjoined by law to do so; (b) that it was made by the
public officer in the performance of his or her duties, or by such other person in the performance of a duty specially enjoined by law; and (c) that the
public officer or other person had sufficient knowledge of the facts by him or her stated, which must have been acquired by the public officer or other
person personally or through official information.
Notably, the presentation of the police report itself is admissible as an exception to the hearsay rule even if the police investigator who prepared it was
not presented in court, as long as the above requisites could be adequately proved. 24
Here, there is no dispute that SPO1 Dungga, the on-the-spot investigator, prepared the report, and he did so in the performance of his duty. However,
what is not clear is whether SPO1 Dungga had sufficient personal knowledge of the facts contained in his report. Thus, the third requisite is lacking.
Respondents failed to make a timely objection to the police report’s presentation in evidence; thus, they are deemed to have waived their right to do
so.25 As a result, the police report is still admissible in evidence.
Sufficiency of Evidence
Malayan Insurance contends that since Reyes, the driver of the Fuzo Cargo truck, bumped the rear of the Mitsubishi Galant, he is presumed to be
negligent unless proved otherwise. It further contends that respondents failed to present any evidence to overturn the presumption of
negligence.26 Contrarily, respondents claim that since Malayan Insurance did not present any witness who shall affirm any negligent act of Reyes in
driving the Fuzo Cargo truck before and after the incident, there is no evidence which would show negligence on the part of respondents.27
We agree with Malayan Insurance. Even if We consider the inadmissibility of the police report in evidence, still, respondents cannot evade liability by
virtue of the res ipsa loquitur doctrine. The D.M. Consunji, Inc. case is quite elucidating:
Petitioner’s contention, however, loses relevance in the face of the application of res ipsa loquitur by the CA. The effect of the doctrine is to warrant a
presumption or inference that the mere fall of the elevator was a result of the person having charge of the instrumentality was negligent. As a rule of
evidence, the doctrine of res ipsa loquitur is peculiar to the law of negligence which recognizes that prima facie negligence may be established without
direct proof and furnishes a substitute for specific proof of negligence.
The concept of res ipsa loquitur has been explained in this wise:
While negligence is not ordinarily inferred or presumed, and while the mere happening of an accident or injury will not generally give rise to an inference
or presumption that it was due to negligence on defendant’s part, under the doctrine of res ipsa loquitur, which means, literally, the thing or transaction
speaks for itself, or in one jurisdiction, that the thing or instrumentality speaks for itself, the facts or circumstances accompanying an injury may be such
as to raise a presumption, or at least permit an inference of negligence on the part of the defendant, or some other person who is charged with
negligence.
x x x where it is shown that the thing or instrumentality which caused the injury complained of was under the control or management of the defendant,
and that the occurrence resulting in the injury was such as in the ordinary course of things would not happen if those who had its control or management
used proper care, there is sufficient evidence, or, as sometimes stated, reasonable evidence, in the absence of explanation by the defendant, that the
injury arose from or was caused by the defendant’s want of care.
One of the theoretical bases for the doctrine is its necessity, i.e., that necessary evidence is absent or not available.
The res ipsa loquitur doctrine is based in part upon the theory that the defendant in charge of the instrumentality which causes the injury either knows
the cause of the accident or has the best opportunity of ascertaining it and that the plaintiff has no such knowledge, and therefore is compelled to allege
negligence in general terms and to rely upon the proof of the happening of the accident in order to establish negligence. The inference which the
doctrine permits is grounded upon the fact that the chief evidence of the true cause, whether culpable or innocent, is practically accessible to the
defendant but inaccessible to the injured person.
It has been said that the doctrine of res ipsa loquitur furnishes a bridge by which a plaintiff, without knowledge of the cause, reaches over to defendant
who knows or should know the cause, for any explanation of care exercised by the defendant in respect of the matter of which the plaintiff complains.
The res ipsa loquitur doctrine, another court has said, is a rule of necessity, in that it proceeds on the theory that under the peculiar circumstances in
which the doctrine is applicable, it is within the power of the defendant to show that there was no negligence on his part, and direct proof of defendant’s
negligence is beyond plaintiff’s power. Accordingly, some courts add to the three prerequisites for the application of the res ipsa loquitur doctrine the
further requirement that for the res ipsa loquitur doctrine to apply, it must appear that the injured party had no knowledge or means of knowledge as to
the cause of the accident, or that the party to be charged with negligence has superior knowledge or opportunity for explanation of the accident.
The CA held that all the requisites of res ipsa loquitur are present in the case at bar:
There is no dispute that appellee’s husband fell down from the 14th floor of a building to the basement while he was working with appellant’s
construction project, resulting to his death. The construction site is within the exclusive control and management of appellant. It has a safety engineer, a
project superintendent, a carpenter leadman and others who are in complete control of the situation therein. The circumstances of any accident that
would occur therein are peculiarly within the knowledge of the appellant or its employees. On the other hand, the appellee is not in a position to know
what caused the accident. Res ipsa loquitur is a rule of necessity and it applies where evidence is absent or not readily available, provided the following
requisites are present: (1) the accident was of a kind which does not ordinarily occur unless someone is negligent; (2) the instrumentality or agency
which caused the injury was under the exclusive control of the person charged with negligence; and (3) the injury suffered must not have been due to
any voluntary action or contribution on the part of the person injured. x x x.
No worker is going to fall from the 14th floor of a building to the basement while performing work in a construction site unless someone is negligent[;]
thus, the first requisite for the application of the rule of res ipsa loquitur is present. As explained earlier, the construction site with all its paraphernalia and
human resources that likely caused the injury is under the exclusive control and management of appellant[;] thus[,] the second requisite is also present.
No contributory negligence was attributed to the appellee’s deceased husband[;] thus[,] the last requisite is also present. All the requisites for the
application of the rule of res ipsa loquitur are present, thus a reasonable presumption or inference of appellant’s negligence arises. x x x.
Petitioner does not dispute the existence of the requisites for the application of res ipsa loquitur, but argues that the presumption or inference that it was
negligent did not arise since it "proved that it exercised due care to avoid the accident which befell respondent’s husband."
Petitioner apparently misapprehends the procedural effect of the doctrine. As stated earlier, the defendant’s negligence is presumed or inferred when the
plaintiff establishes the requisites for the application of res ipsa loquitur. Once the plaintiff makes out a prima facie case of all the elements, the burden
then shifts to defendant to explain. The presumption or inference may be rebutted or overcome by other evidence and, under appropriate circumstances
a disputable presumption, such as that of due care or innocence, may outweigh the inference. It is not for the defendant to explain or prove its defense
to prevent the presumption or inference from arising. Evidence by the defendant of say, due care, comes into play only after the circumstances for the
application of the doctrine has been established.28
In the case at bar, aside from the statement in the police report, none of the parties disputes the fact that the Fuzo Cargo Truck hit the rear end of the
Mitsubishi Galant, which, in turn, hit the rear end of the vehicle in front of it. Respondents, however, point to the reckless driving of the Nissan Bus driver
as the proximate cause of the collision, which allegation is totally unsupported by any evidence on record. And assuming that this allegation is, indeed,
true, it is astonishing that respondents never even bothered to file a cross-claim against the owner or driver of the Nissan Bus.
What is at once evident from the instant case, however, is the presence of all the requisites for the application of the rule of res ipsa loquitur. To
reiterate, res ipsa loquitur is a rule of necessity which applies where evidence is absent or not readily available. As explained in D.M. Consunji, Inc., it is
partly based upon the theory that the defendant in charge of the instrumentality which causes the injury either knows the cause of the accident or has
the best opportunity of ascertaining it and that the plaintiff has no such knowledge, and, therefore, is compelled to allege negligence in general terms
and to rely upon the proof of the happening of the accident in order to establish negligence.
As mentioned above, the requisites for the application of the res ipsa loquitur rule are the following: (1) the accident was of a kind which does not
ordinarily occur unless someone is negligent; (2) the instrumentality or agency which caused the injury was under the exclusive control of the person
charged with negligence; and (3) the injury suffered must not have been due to any voluntary action or contribution on the part of the person injured.29
In the instant case, the Fuzo Cargo Truck would not have had hit the rear end of the Mitsubishi Galant unless someone is negligent. Also, the Fuzo
Cargo Truck was under the exclusive control of its driver, Reyes. Even if respondents avert liability by putting the blame on the Nissan Bus driver, still,
this allegation was self-serving and totally unfounded. Finally, no contributory negligence was attributed to the driver of the Mitsubishi Galant.
Consequently, all the requisites for the application of the doctrine of res ipsa loquitur are present, thereby creating a reasonable presumption of
negligence on the part of respondents.
It is worth mentioning that just like any other disputable presumptions or inferences, the presumption of negligence may be rebutted or overcome by
other evidence to the contrary. It is unfortunate, however, that respondents failed to present any evidence before the trial court. Thus, the presumption of
negligence remains. Consequently, the CA erred in dismissing the complaint for Malayan Insurance’s adverted failure to prove negligence on the part of
respondents.
Validity of Subrogation
Malayan Insurance contends that there was a valid subrogation in the instant case, as evidenced by the claim check voucher 30 and the Release of Claim
and Subrogation Receipt31 presented by it before the trial court. Respondents, however, claim that the documents presented by Malayan Insurance do
not indicate certain important details that would show proper subrogation.
As noted by Malayan Insurance, respondents had all the opportunity, but failed to object to the presentation of its evidence. Thus, and as We have
mentioned earlier, respondents are deemed to have waived their right to make an objection. As this Court held in Asian Construction and Development
Corporation v. COMFAC Corporation:
The rule is that failure to object to the offered evidence renders it admissible, and the court cannot, on its own, disregard such evidence. We
note that ASIAKONSTRUCT’s counsel of record before the trial court, Atty. Bernard Dy, who actively participated in the initial stages of the case stopped
attending the hearings when COMFAC was about to end its presentation. Thus, ASIAKONSTRUCT could not object to COMFAC’s offer of evidence nor
present evidence in its defense; ASIAKONSTRUCT was deemed by the trial court to have waived its chance to do so.
Note also that when a party desires the court to reject the evidence offered, it must so state in the form of a timely objection and it cannot
raise the objection to the evidence for the first time on appeal. Because of a party’s failure to timely object, the evidence becomes part of the
evidence in the case. Thereafter, all the parties are considered bound by any outcome arising from the offer of evidence properly
presented.32(Emphasis supplied.)
Bearing in mind that the claim check voucher and the Release of Claim and Subrogation Receipt presented by Malayan Insurance are already part of
the evidence on record, and since it is not disputed that the insurance company, indeed, paid PhP 700,000 to the assured, then there is a valid
subrogation in the case at bar. As explained in Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and Surety Corporation:
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of
the other in relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein an insurer has paid a loss under an
insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means that the creditor could
employ to enforce payment.1âwphi1
We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the insured may
have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of,
any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in
equity. It is designed to promote and to accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt by one who, in
justice, equity, and good conscience, ought to pay.33
Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to the rights of the assured.
WHEREFORE, the petition is hereby GRANTED. The CA’s July 28, 2010 Decision and October 29, 2010 Resolution in CA-G.R. CV No. 93112 are
hereby REVERSED and SET ASIDE. The Decision dated February 2, 2009 issued by the trial court in Civil Case No. 99-95885 is hereby REINSTATED.
No pronouncement as to cost.
SO ORDERED.
15.First Lepanto-Taisho Insurance Corp v. Chevron Philippines, GR No. 177839, 18 January 2012

Before this Court is a Rule 45 Petition assailing the Decision1 dated November 20, 2006 and Resolution2 dated May 8, 2007 of the Court of Appeals (CA)
in CA-G.R. CV No. 86623, which reversed the Decision3 dated August 5, 2005 of the Regional Trial Court (RTC) of Makati City, Branch 59 in Civil Case
No 02-857.
Respondent Chevron Philippines, Inc., formerly Caltex Philippines, Inc., sued petitioner First Lepanto-Taisho Insurance Corporation (now known as FLT
Prime Insurance Corporation) for the payment of unpaid oil and petroleum purchases made by its distributor Fumitechniks Corporation (Fumitechniks).
Fumitechniks, represented by Ma. Lourdes Apostol, had applied for and was issued Surety Bond FLTICG (16) No. 01012 by petitioner for the amount of
₱15,700,000.00. As stated in the attached rider, the bond was in compliance with the requirement for the grant of a credit line with the respondent "to
guarantee payment/remittance of the cost of fuel products withdrawn within the stipulated time in accordance with the terms and conditions of the
agreement." The surety bond was executed on October 15, 2001 and will expire on October 15, 2002.4
Fumitechniks defaulted on its obligation. The check dated December 14, 2001 it issued to respondent in the amount of ₱11,461,773.10, when presented
for payment, was dishonored for reason of "Account Closed." In a letter dated February 6, 2002, respondent notified petitioner of Fumitechniks’ unpaid
purchases in the total amount of ₱15,084,030.30. In its letter-reply dated February 13, 2002, petitioner through its counsel, requested that it be furnished
copies of the documents such as delivery receipts.5 Respondent complied by sending copies of invoices showing deliveries of fuel and petroleum
products between November 11, 2001 and December 1, 2001.
Simultaneously, a letter6 was sent to Fumitechniks demanding that the latter submit to petitioner the following: (1) its comment on respondent’s February
6, 2002 letter; (2) copy of the agreement secured by the Bond, together with copies of documents such as delivery receipts; and (3) information on the
particulars, including "the terms and conditions, of any arrangement that [Fumitechniks] might have made or any ongoing negotiation with Caltex in
connection with the settlement of the obligations subject of the Caltex letter."
In its letter dated March 1, 2002, Fumitechniks through its counsel wrote petitioner’s counsel informing that it cannot submit the requested agreement
since no such agreement was executed between Fumitechniks and respondent. Fumitechniks also enclosed a copy of another surety bond issued by
CICI General Insurance Corporation in favor of respondent to secure the obligation of Fumitechniks and/or Prime Asia Sales and Services, Inc. in the
amount of ₱15,000,000.00.7 Consequently, petitioner advised respondent of the non-existence of the principal agreement as confirmed by Fumitechniks.
Petitioner explained that being an accessory contract, the bond cannot exist without a principal agreement as it is essential that the copy of the basic
contract be submitted to the proposed surety for the appreciation of the extent of the obligation to be covered by the bond applied for.8
On April 9, 2002, respondent formally demanded from petitioner the payment of its claim under the surety bond. However, petitioner reiterated its
position that without the basic contract subject of the bond, it cannot act on respondent’s claim; petitioner also contested the amount of Fumitechniks’
supposed obligation.9
Alleging that petitioner unjustifiably refused to heed its demand for payment, respondent prayed for judgment ordering petitioner to pay the sum of
₱15,080,030.30, plus interest, costs and attorney’s fees equivalent to ten percent of the total obligation. 10
Petitioner, in its Answer with Counterclaim,11 asserted that the Surety Bond was issued for the purpose of securing the performance of the obligations
embodied in the Principal Agreement stated therein, which contract should have been attached and made part thereof.
After trial, the RTC rendered judgment dismissing the complaint as well as petitioner’s counterclaim. Said court found that the terms and conditions of
the oral credit line agreement between respondent and Fumitechniks have not been relayed to petitioner and neither were the same conveyed even
during trial. Since the surety bond is a mere accessory contract, the RTC concluded that the bond cannot stand in the absence of the written agreement
secured thereby. In holding that petitioner cannot be held liable under the bond it issued to Fumitechniks, the RTC noted the practice of petitioner, as
testified on by its witnesses, to attach a copy of the written agreement (principal contract) whenever it issues a surety bond, or to be submitted later if not
yet in the possession of the assured, and in case of failure to submit the said written agreement, the surety contract will not be binding despite payment
of the premium.
Respondent filed a motion for reconsideration while petitioner filed a motion for partial reconsideration as to the dismissal of its counterclaim. With the
denial of their motions, both parties filed their respective notice of appeal.
The CA ruled in favor of respondent, the dispositive portion of its decision reads:
WHEREFORE, the appealed Decision is REVERSED and SET ASIDE. A new judgment is hereby entered ORDERING defendant-appellant First
Lepanto-Taisho Insurance Corporation to pay plaintiff-appellant Caltex (Philippines) Inc. now Chevron Philippines, Inc. the sum of P15,084,030.00.
SO ORDERED.12
According to the appellate court, petitioner cannot insist on the submission of a written agreement to be attached to the surety bond considering that
respondent was not aware of such requirement and unwritten company policy. It also declared that petitioner is estopped from assailing the oral credit
line agreement, having consented to the same upon presentation by Fumitechniks of the surety bond it issued. Considering that such oral contract
between Fumitechniks and respondent has been partially executed, the CA ruled that the provisions of the Statute of Frauds do not apply.
With the denial of its motion for reconsideration, petitioner appealed to this Court raising the following issues:
I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ITS INTERPRETATION OF THE PROVISIONS OF THE SURETY BOND
WHEN IT HELD THAT THE SURETY BOND SECURED AN ORAL CREDIT LINE AGREEMENT NOTWITHSTANDING THE STIPULATIONS THEREIN
CLEARLY SHOWING BEYOND DOUBT THAT WHAT WAS BEING SECURED WAS A WRITTEN AGREEMENT, PARTICULARLY, THE WRITTEN
AGREEMENT A COPY OF WHICH WAS EVEN REQUIRED TO BE ATTACHED TO THE SURETY BOND AND MADE A PART THEREOF.
II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING OUT THE QUESTIONED RESPONDENT’S EVIDENCE
FOR BEING CONTRARY TO THE PAROL EVIDENCE RULE, IMMATERIAL AND IRRELEVANT AND CONTRARY TO THE STATUTE OF FRAUDS.
III. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT STRIKING OUT THE RESPONDENT’S MOTION FOR
RECONSIDERATION OF THE RTC DECISION FOR BEING A MERE SCRAP OF PAPER AND PRO FORMA AND, CONSEQUENTLY, IN NOT
DECLARING THE RTC DECISION AS FINAL AND EXECUTORY IN SO FAR AS IT DISMISSED THE COMPLAINT.
IV. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE RTC DECISION AND IN NOT GRANTING
PETITIONER’S COUNTERCLAIM.13
The main issue to be resolved is one of first impression: whether a surety is liable to the creditor in the absence of a written contract with the principal.
Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances,
stipulations, bonds or undertakings issued under Act 536,14 as amended. Suretyship arises upon the solidary binding of a person – deemed the surety –
with the principal debtor, for the purpose of fulfilling an obligation.15 Such undertaking makes a surety agreement an ancillary contract as it presupposes
the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes
liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom.
And notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the
undertaking.16
The extent of a surety’s liability is determined by the language of the suretyship contract or bond itself. It cannot be extended by implication, beyond the
terms of the contract.17 Thus, to determine whether petitioner is liable to respondent under the surety bond, it becomes necessary to examine the terms
of the contract itself.
Surety Bond FLTICG (16) No. 01012 is a standard form used by petitioner, which states:
That we, FUMITECHNIKS CORP. OF THE PHILS. of #154 Anahaw St., Project 7, Quezon City as principal and First Lepanto-Taisho Insurance
Corporation a corporation duly organized and existing under and by virtue of the laws of the Philippines as Surety, are held firmly bound unto CALTEX
PHILIPPINES, INC. of ______ in the sum of FIFTEEN MILLION SEVEN HUNDRED THOUSAND ONLY PESOS (P15,700,000.00), Philippine Currency,
for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors, and assigns, jointly and
severally, firmly by these presents:
The conditions of this obligation are as follows:
WHEREAS, the above-bounden principal, on 15th day of October, 2001 entered into [an] agreement with CALTEX PHILIPPINES, INC. of
________________ to fully and faithfully
a copy of which is attached hereto and made a part hereof:
WHEREAS, said Obligee__ requires said principal to give a good and sufficient bond in the above stated sum to secure the full and faithful performance
on his part of said agreement__.
NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions, and agreements stipulated
in said agreement__ then this obligation shall be null and void; otherwise it shall remain in full force and effect.
The liability of First Lepanto-Taisho Insurance Corporation under this bond will expire on October 15, 2002__.
x x x x18 (Emphasis supplied.)
The rider attached to the bond sets forth the following:
WHEREAS, the Principal has applied for a Credit Line in the amount of PESOS: Fifteen Million Seven Hundred thousand only (₱15,700,000.00),
Philippine Currency with the Obligee for the purchase of Fuel Products;
WHEREAS, the obligee requires the Principal to post a bond to guarantee payment/remittance of the cost of fuel products withdrawn within the
stipulated time in accordance with terms and conditions of the agreement;
IN NO CASE, however, shall the liability of the Surety hereunder exceed the sum of PESOS: Fifteen million seven hundred thousand only
(₱15,700,000.00), Philippine Currency.
NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms and conditions and agreements
stipulated in said undertakings, then this obligation shall be null and void; otherwise, it shall remain in full force and effect.
The liability of FIRST LEPANTO-TAISHO INSURANCE CORPORATION, under this Bond will expire on 10.15.01_. Furthermore, it is hereby understood
that FIRST LEPANTO-TAISHO INSURANCE CORPORATION will not be liable for any claim not presented to it in writing within fifteen (15) days from
the expiration of this bond, and that the Obligee hereby waives its right to claim or file any court action against the Surety after the termination of fifteen
(15) days from the time its cause of action accrues. 19
Petitioner posits that non-compliance with the submission of the written agreement, which by the express terms of the surety bond, should be attached
and made part thereof, rendered the bond ineffective. Since all stipulations and provisions of the surety contract should be taken and interpreted
together, in this case, the unmistakable intention of the parties was to secure only those terms and conditions of the written agreement. Thus, by deleting
the required submission and attachment of the written agreement to the surety bond and replacing it with the oral credit agreement, the obligations of the
surety have been extended beyond the limits of the surety contract.
On the other hand, respondent contends that the surety bond had been delivered by petitioner to Fumitechniks which paid the premiums and delivered
the bond to respondent, who in turn, opened the credit line which Fumitechniks availed of to purchase its merchandise from respondent on credit.
Respondent points out that a careful reading of the surety contract shows that there is no such requirement of submission of the written credit agreement
for the bond’s effectivity. Moreover, respondent’s witnesses had already explained that distributorship accounts are not covered by written distribution
agreements. Supplying the details of these agreements is allowed as an exception to the parol evidence rule even if it is proof of an oral agreement.
Respondent argues that by introducing documents that petitioner sought to exclude, it never intended to change or modify the contents of the surety
bond but merely to establish the actual terms of the distribution agreement between Fumitechniks and respondent, a separate agreement that was
executed shortly after the issuance of the surety bond. Because petitioner still issued the bond and allowed it to be delivered to respondent despite the
fact that a copy of the written distribution agreement was never attached thereto, respondent avers that clearly, such attaching of the copy of the
principal agreement, was for evidentiary purposes only. The real intention of the bond was to secure the payment of all the purchases of Fumitechniks
from respondent up to the maximum amount allowed under the bond.
A reading of Surety Bond FLTICG (16) No. 01012 shows that it secures the payment of purchases on credit by Fumitechniks in accordance with the
terms and conditions of the "agreement" it entered into with respondent. The word "agreement" has reference to the distributorship agreement, the
principal contract and by implication included the credit agreement mentioned in the rider. However, it turned out that respondent has executed written
agreements only with its direct customers but not distributors like Fumitechniks and it also never relayed the terms and conditions of its distributorship
agreement to the petitioner after the delivery of the bond. This was clearly admitted by respondent’s Marketing Coordinator, Alden Casas Fajardo, who
testified as follows:
Atty. Selim:
Q : Mr. Fajardo[,] you mentioned during your cross-examination that the surety bond as part of the requirements of [Fumitechniks] before the
Distributorship Agreement was approved?
A : Yes Sir.
xxxx
Q : Is it the practice or procedure at Caltex to reduce distributorship account into writing?
xxxx
A : No, its not a practice to make an agreement.
xxxx
Atty. Quiroz:
Q : What was the reason why you are not reducing your agreement with your client into writing?
A : Well, of course as I said, there is no fix pricing in terms of distributorship agreement, its usually with regards to direct service to the
customers which have direct fixed price.
xxxx
Q : These supposed terms and conditions that you agreed with [Fumitechniks], did you relay to the defendant…
A : Yes Sir.
xxxx
Q : How did you relay that, how did you relay the terms and conditions to the defendant?
A : I don’t know, it was during the time for collection because I collected them and explain the terms and conditions.
Q : You testified awhile ago that you did not talk to the defendant First Lepanto-Taisho Insurance Corporation?
A : I was confused with the question. I’m talking about Malou Apostol.
Q : So, in your answer, you have not relayed those terms and conditions to the defendant First Lepanto, you have not?
A : Yes Sir.
Q : And as of this present, you have not yet relayed the terms and conditions?
A : Yes Sir.
x x x x 20
Respondent, however, maintains that the delivery of the bond and acceptance of premium payment by petitioner binds the latter as surety,
notwithstanding the non-submission of the oral distributorship and credit agreement which understandably cannot be attached to the bond.
The contention has no merit.
The law is clear that a surety contract should be read and interpreted together with the contract entered into between the creditor and the principal.
Section 176 of the Insurance Code states:
Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined
strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (Emphasis supplied.)
A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it secures. 21Necessarily, the stipulations in such
principal agreement must at least be communicated or made known to the surety particularly in this case where the bond expressly guarantees the
payment of respondent’s fuel products withdrawn by Fumitechniks in accordance with the terms and conditions of their agreement. The bond specifically
makes reference to a written agreement. It is basic that if the terms of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control.22 Moreover, being an onerous undertaking, a surety agreement is strictly construed against the
creditor, and every doubt is resolved in favor of the solidary debtor.23 Having accepted the bond, respondent as creditor must be held bound by the
recital in the surety bond that the terms and conditions of its distributorship contract be reduced in writing or at the very least communicated in writing to
the surety. Such non-compliance by the creditor (respondent) impacts not on the validity or legality of the surety contract but on the creditor’s right to
demand performance.
It bears stressing that the contract of suretyship imports entire good faith and confidence between the parties in regard to the whole transaction,
although it has been said that the creditor does not stand as a fiduciary in his relation to the surety. The creditor is generally held bound to a faithful
observance of the rights of the surety and to the performance of every duty necessary for the protection of those rights. 24 Moreover, in this jurisdiction,
obligations arising from contracts have the force of law between the parties and should be complied with in good faith. 25Respondent is charged with
notice of the specified form of the agreement or at least the disclosure of basic terms and conditions of its distributorship and credit agreements with its
client Fumitechniks after its acceptance of the bond delivered by the latter. However, it never made any effort to relay those terms and conditions of its
contract with Fumitechniks upon the commencement of its transactions with said client, which obligations are covered by the surety bond issued by
petitioner. Contrary to respondent’s assertion, there is no indication in the records that petitioner had actual knowledge of its alleged business practice of
not having written contracts with distributors; and even assuming petitioner was aware of such practice, the bond issued to Fumitechniks and accepted
by respondent specifically referred to a "written agreement."
As to the contention of petitioner that respondent’s motion for reconsideration filed before the trial court should have been deemed not filed for being pro
forma, the Court finds it to be without merit. The mere fact that a motion for reconsideration reiterates issues already passed upon by the court does not,
by itself, make it a pro forma motion. Among the ends to which a motion for reconsideration is addressed is precisely to convince the court that its ruling
is erroneous and improper, contrary to the law or evidence; the movant has to dwell of necessity on issues already passed upon.26 1avvphi1
Finally, we hold that the trial court correctly dismissed petitioner’s counterclaim for moral damages and attorney’s fees. The filing alone of a civil action
should not be a ground for an award of moral damages in the same way that a clearly unfounded civil action is not among the grounds for moral
damages.27 Besides, a juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. 28 Although in some recent cases we have held that
the Court may allow the grant of moral damages to corporations, it is not automatically granted; there must still be proof of the existence of the factual
basis of the damage and its causal relation to the defendant’s acts. This is so because moral damages, though incapable of pecuniary estimation, are in
the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.29There is no
evidence presented to establish the factual basis of petitioner’s claim for moral damages.
Petitioner is likewise not entitled to attorney’s fees. The settled rule is that no premium should be placed on the right to litigate and that not every winning
party is entitled to an automatic grant of attorney’s fees.30 In pursuing its claim on the surety bond, respondent was acting on the belief that it can collect
on the obligation of Fumitechniks notwithstanding the non-submission of the written principal contract.
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The Decision dated November 20, 2006 and Resolution dated May 8, 2007 of
the Court of Appeals in CA-G.R. CV No. 86623, are REVERSED and SET ASIDE. The Decision dated August 5, 2005 of the Regional Trial Court of
Makati City, Branch 59 in Civil Case No. 02-857 dismissing respondent’s complaint as well as petitioner’s counterclaim, is hereby REINSTATED and
UPHELD.
No pronouncement as to costs.
SO ORDERED.

16. New World International Devt Philippines v. NYK-FILJAPAN Shipping Corp, GR No. 1714468, 24 August 2011
These consolidated petitions involve a cargo owner’s right to recover damages from the loss of insured goods under the Carriage of Goods by Sea Act
and the Insurance Code.
The Facts and the Case
Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT Corporation (DMT) through its agent, Advatech Industries,
Inc. (Advatech) three emergency generator sets worth US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From there, the
shipment went by train to Oakland, California, where it was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping
Corporation (NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading, declaring that it received the goods in good condition.
NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned and operated. On its journey to Manila,
however, ACX Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993
respecting the loss and damage that the goods on board his vessel suffered.
Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator, received the shipment on October 7, 1993. Upon
inspection of the three container vans separately carrying the generator sets, two vans bore signs of external damage while the third van appeared
unscathed. The shipment remained at Pier 3’s Container Yard under Marina’s care pending clearance from the Bureau of Customs. Eventually, on
October 20, 1993 customs authorities allowed petitioner’s customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and deliver
the same to petitioner New World’s job site in Makati City.
An examination of the three generator sets in the presence of petitioner New World’s representatives, Federal Builders (the project contractor) and
surveyors of petitioner New World’s insurer, Seaboard–Eastern Insurance Company (Seaboard), revealed that all three sets suffered extensive damage
and could no longer be repaired. For these reasons, New World demanded recompense for its loss from respondents NYK, DMT, Advatech, LEP Profit,
LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt of the demand, both denied liability for the
loss.
Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal claim dated November 16, 1993. Replying on
February 14, 1994, Seaboard required petitioner New World to submit to it an itemized list of the damaged units, parts, and accessories, with
corresponding values, for the processing of the claim. But petitioner New World did not submit what was required of it, insisting that the insurance policy
did not include the submission of such a list in connection with an insurance claim. Reacting to this, Seaboard refused to process the claim.
On October 11, 1994 petitioner New World filed an action for specific performance and damages against all the respondents before the Regional Trial
Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770.
On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability with the exception of NYK. The RTC found that the
generator sets were damaged during transit while in the care of NYK’s vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the degree
of diligence required of it in the face of a foretold raging typhoon in its path.
The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond the one year provided under the Carriage of
Goods by Sea Act (COGSA). New World filed its complaint on October 11, 1994 when the deadline for filing the action (on or before October 7, 1994)
had already lapsed. The RTC held that the one-year period should be counted from the date the goods were delivered to the arrastre operator and not
from the date they were delivered to petitioner’s job site.1
As regards petitioner New World’s claim against Seaboard, its insurer, the RTC held that the latter cannot be faulted for denying the claim against it
since New World refused to submit the itemized list that Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing of the
complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006, 2 affirming the RTC’s rulings except with respect to Seaboard’s liability.
The CA held that petitioner New World can still recoup its loss from Seaboard’s marine insurance policy, considering a) that the submission of the
itemized listing is an unreasonable imposition and b) that the one-year prescriptive period under the COGSA did not affect New World’s right under the
insurance policy since it was the Insurance Code that governed the relation between the insurer and the insured.
Although petitioner New World promptly filed a petition for review of the CA decision before the Court in G.R. 171468, Seaboard chose to file a motion
for reconsideration of that decision. On August 17, 2006 the CA rendered an amended decision, reversing itself as regards the claim against Seaboard.
The CA held that the submission of the itemized listing was a reasonable requirement that Seaboard asked of New World. Further, the CA held that the
one-year prescriptive period for maritime claims applied to Seaboard, as insurer and subrogee of New World’s right against the vessel owner. New
World’s failure to comply promptly with what was required of it prejudiced such right.
Instead of filing a motion for reconsideration, petitioner instituted a second petition for review before the Court in G.R. 174241, assailing the CA’s
amended decision.
The Issues Presented
The issues presented in this case are as follows:
a) In G.R. 171468, whether or not the CA erred in affirming the RTC’s release from liability of respondents DMT, Advatech, LEP, LEP Profit,
Marina, and Serbros who were at one time or another involved in handling the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboard’s request from petitioner New World for an itemized list is a
reasonable imposition and did not violate the insurance contract between them; and 2) whether or not the CA erred in failing to rule that the
one-year COGSA prescriptive period for marine claims does not apply to petitioner New World’s prosecution of its claim against Seaboard, its
insurer.
The Court’s Rulings
In G.R. 171468 --
Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina and Serbros in handling and transporting its
shipment from Wisconsin to Manila collectively resulted in the damage to the same, rendering such respondents solidarily liable with NYK, the vessel
owner.
But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a proper subject of a petition for review on certiorari.
And petitioner New World has been unable to make out an exception to this rule. 3Consequently, the Court will not disturb the finding of the RTC,
affirmed by the CA, that the generator sets were totally damaged during the typhoon which beset the vessel’s voyage from Hong Kong to Manila and
that it was her negligence in continuing with that journey despite the adverse condition which caused petitioner New World’s loss.
That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code, does not automatically relieve the common carrier
of liability. The latter had the burden of proving that the typhoon was the proximate and only cause of loss and that it exercised due diligence to prevent
or minimize such loss before, during, and after the disastrous typhoon. 4 As found by the RTC and the CA, NYK failed to discharge this burden.
In G.R. 174241 --
One. The Court does not regard as substantial the question of reasonableness of Seaboard’s additional requirement of an itemized listing of the damage
that the generator sets suffered. The record shows that petitioner New World complied with the documentary requirements evidencing damage to its
generator sets.
The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured against all causes of conceivable loss or
damage except when otherwise excluded or when the loss or damage was due to fraud or intentional misconduct committed by the insured. The policy
covered all losses during the voyage whether or not arising from a marine peril. 5
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage, or vessels unseaworthiness, among
others.6 But Seaboard had been unable to show that petitioner New World’s loss or damage fell within some or one of the enumerated exceptions.
What is more, Seaboard had been unable to explain how it could not verify the damage that New World’s goods suffered going by the documents that it
already submitted, namely, (1) copy of the Supplier’s Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading 01130E93004458; (4)
the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine Insurance Policy MA-HO-000266; (6) copies of Damage Report from
Supplier and Insurance Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies of Received Formal Claim from the following: a)
LEP International Philippines, Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier Corporation. 7 Notably, Seaboard’s own marine surveyor
attended the inspection of the generator sets.
Seaboard cannot pretend that the above documents are inadequate since they were precisely the documents listed in its insurance policy.8 Being a
contract of adhesion, an insurance policy is construed strongly against the insurer who prepared it. The Court cannot read a requirement in the policy
that was not there.
Further, it appears from the exchanges of communications between Seaboard and Advatech that submission of the requested itemized listing was
incumbent on the latter as the seller DMT’s local agent. Petitioner New World should not be made to suffer for Advatech’s shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the ship shall be discharged from all liability in case of
loss or damage unless the suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.
But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time? The last day for filing such a suit fell on October
7, 1994. The record shows that petitioner New World filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early
as November 16, 1993 or about 11 months before the suit against NYK would have fallen due.
In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have been subrogated to petitioner New World’s right
to recover from NYK. And it could have then filed the suit as a subrogee. But, as discussed above, Seaboard made an unreasonable demand on
February 14, 1994 for an itemized list of the damaged units, parts, and accessories, with corresponding values when it appeared settled that New
World’s loss was total and when the insurance policy did not require the production of such a list in the event of a claim.
Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against whom a formal claim was pending should not
have remained obstinate in refusing to process that claim. It should have examined the same, found it unsubstantiated by documents if that were the
case, and formally rejected it. That would have at least given petitioner New World a clear signal that it needed to promptly file its suit directly against
NYK and the others. Ultimately, the fault for the delayed court suit could be brought to Seaboard’s doorstep.
Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines shall refuse without just cause to pay or settle
claims arising under coverages provided by its policies. And, under Section 243, the insurer has 30 days after proof of loss is received and
ascertainment of the loss or damage within which to pay the claim. If such ascertainment is not had within 60 days from receipt of evidence of loss, the
insurer has 90 days to pay or settle the claim. And, in case the insurer refuses or fails to pay within the prescribed time, the insured shall be entitled to
interest on the proceeds of the policy for the duration of delay at the rate of twice the ceiling prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s claim as Section 243 required. Under Section 244, a prima facie
evidence of unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in Section 243.
Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay until the claim is fully satisfied at the rate of twice
the ceiling prescribed by the Monetary Board. The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of 12% per annum
provided in Central Bank Circular 416, pursuant to Presidential Decree 116. 9 Section 244 of the Insurance Code also provides for an award of attorney’s
fees and other expenses incurred by the assured due to the unreasonable withholding of payment of his claim.
In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,10 the Court regarded as proper an award of 10% of the insurance
proceeds as attorney’s fees. Such amount is fair considering the length of time that has passed in prosecuting the claim. 11 Pursuant to the Court’s ruling
in Eastern Shipping Lines, Inc. v. Court of Appeals,12 a 12% interest per annum from the finality of judgment until full satisfaction of the claim should
likewise be imposed, the interim period equivalent to a forbearance of credit.1avvphi1
Petitioner New World is entitled to the value stated in the policy which is commensurate to the value of the three emergency generator sets or
US$721,500.00 with double interest plus attorney’s fees as discussed above.
WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals decision of January 31, 2006 insofar as petitioner
New World International Development (Phils.), Inc. is not allowed to recover against respondents DMT Corporation, Advatech Industries, Inc., LEP
International Philippines, Inc., LEP Profit International, Inc., Marina Port Services, Inc. and Serbros Carrier Corporation.
With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the Court of Appeals Amended Decision of August 17,
2006. The Court DIRECTS Seaboard-Eastern Insurance Company, Inc. to pay petitioner New World International Development (Phils.), Inc.
US$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for the duration of delay in accordance with Sections 243 and 244 of the
Insurance Code and attorney’s fees equivalent to 10% of the insurance proceeds. Seaboard shall also pay, from finality of judgment, a 12% interest per
annum on the total amount due to petitioner until its full satisfaction.
SO ORDERED.

17.Country Bankers Insurance Corporation v. Lagman, GR No. 165487, 13 July 2011

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Decision 1and Resolution2 of the Court of
Appeals dated 21 June 2004 and 24 September 2004, respectively.
These are the undisputed facts.
Nelson Santos (Santos) applied for a license with the National Food Authority (NFA) to engage in the business of storing not more than 30,000 sacks of
palay valued at ₱5,250,000.00 in his warehouse at Barangay Malacampa, Camiling, Tarlac. Under Act No. 3893 or the General Bonded Warehouse Act,
as amended, 3 the approval for said license was conditioned upon posting of a cash bond, a bond secured by real estate, or a bond signed by a duly
authorized bonding company, the amount of which shall be fixed by the NFA Administrator at not less than thirty-three and one third percent (33 1/3%) of
the market value of the maximum quantity of rice to be received.
Accordingly, Country Bankers Insurance Corporation (Country Bankers) issued Warehouse Bond No. 03304 4 for ₱1,749,825.00 on 5 November 1989
and Warehouse Bond No. 023555 for ₱749,925.00 on 13 December 1989 (1989 Bonds) through its agent, Antonio Lagman (Lagman). Santos was the
bond principal, Lagman was the surety and the Republic of the Philippines, through the NFA was the obligee. In consideration of these issuances,
corresponding Indemnity Agreements6 were executed by Santos, as bond principal, together with Ban Lee Lim Santos (Ban Lee Lim), Rhosemelita
Reguine (Reguine) and Lagman, as co-signors. The latter bound themselves jointly and severally liable to Country Bankers for any damages, prejudice,
losses, costs, payments, advances and expenses of whatever kind and nature, including attorney’s fees and legal costs, which it may sustain as a
consequence of the said bond; to reimburse Country Bankers of whatever amount it may pay or cause to be paid or become liable to pay thereunder;
and to pay interest at the rate of 12% per annum computed and compounded monthly, as well as to pay attorney’s fees of 20% of the amount due it.7
Santos then secured a loan using his warehouse receipts as collateral. 8 When the loan matured, Santos defaulted in his payment. The sacks of palay
covered by the warehouse receipts were no longer found in the bonded warehouse. 9 By virtue of the surety bonds, Country Bankers was compelled to
pay ₱1,166,750.37.10
Consequently, Country Bankers filed a complaint for a sum of money docketed as Civil Case No. 95-73048 before the Regional Trial Court (RTC) of
Manila. In his Answer, Lagman alleged that the 1989 Bonds were valid only for 1 year from the date of their issuance, as evidenced by receipts; that the
bonds were never renewed and revived by payment of premiums; that on 5 November 1990, Country Bankers issued Warehouse Bond No. 03515 (1990
Bond) which was also valid for one year and that no Indemnity Agreement was executed for the purpose; and that the 1990 Bond supersedes, cancels,
and renders no force and effect the 1989 Bonds. 11
The bond principals, Santos and Ban Lee Lim, were not served with summons because they could no longer be found. 12 The case was eventually
dismissed against them without prejudice.13 The other co-signor, Reguine, was declared in default for failure to file her answer.14
On 21 September 1998, the trial court rendered judgment declaring Reguine and Lagman jointly and severally liable to pay Country Bankers the amount
of ₱2,400,499.87.15 The dispositive portion of the RTC Decision16 reads:
WHEREFORE, premises considered, judgment is hereby rendered, ordering defendants Rhomesita [sic] Reguine and Antonio Lagman, jointly and
severally liable to pay plaintiff, Country Bankers Assurance Corporation, the amount of ₱2,400,499.87, with 12% interest from the date the complaint
was filed until fully satisfied plus 20% of the amount due plaintiff as and for attorney’s fees and to pay the costs.
As the Court did not acquire jurisdiction over the persons of defendants Nelson Santos and Ban Lee Lim Santos, let the case against them be
DISMISSED. Defendant Antonio Lagman’s counterclaim is likewise DISMISSED, for lack of merit. 17
In holding Lagman and Reguine solidarily liable to Country Bankers, the trial court relied on the express terms of the Indemnity Agreement that they
jointly and severally bound themselves to indemnify and make good to Country Bankers any liability which the latter may incur on account of or arising
from the execution of the bonds.18
The trial court rationalized that the bonds remain in force unless cancelled by the Administrator of the NFA and cannot be unilaterally cancelled by
Lagman. The trial court emphasized that for the failure of Lagman to comply with his obligation under the Indemnity Agreements, he is likewise liable for
damages as a consequence of the breach.
Lagman filed an appeal to the Court of Appeals, docketed as CA G.R. CV No. 61797. He insisted that the lifetime of the 1989 Bonds, as well as the
corresponding Indemnity Agreements was only 12 months. According to Lagman, the 1990 Bond was not pleaded in the complaint because it was not
covered by an Indemnity Agreement and it superseded the two prior bonds. 19
On 21 June 2004, the Court of Appeals rendered the assailed Decision reversing and setting aside the Decision of the RTC and ordering the dismissal
of the complaint filed against Lagman.20
The appellate court held that the 1990 Bond superseded the 1989 Bonds. The appellate court observed that the 1990 Bond covers 33.3% of the market
value of the palay, thereby manifesting the intention of the parties to make the latter bond more comprehensive. Lagman was also exonerated by the
appellate court from liability because he was not a signatory to the alleged Indemnity Agreement of 5 November 1990 covering the 1990 Bond. The
appellate court rejected the argument of Country Bankers that the 1989 bonds were continuing, finding, as reason therefor, that the receipts issued for
the bonds indicate that they were effective for only one-year.
Country Bankers sought reconsideration which was denied in a Resolution dated 24 September 2004. 21
Expectedly, Country Bankers filed the instant petition attributing two (2) errors to the Court of Appeals, to wit:
A.
THE HONORABLE COURT OF APPEALS seriously erred in disregarding the express provisions of Section 177 of the insurance code when it
held that the subject surety bonds were superseded by a subsequent bond notwithstanding the non-cancellation thereof by the bond obligee.
B.
The honorable court of appeals seriously erred in holding that receipts for the payment of premiums prevail over the express provision of the
surety bond that fixes the term thereof.22
Country Bankers maintains that by the express terms of the 1989 Bonds, they shall remain in full force until cancelled by the Administrator of the NFA.
As continuing bonds, Country Bankers avers that Section 177 of the Insurance Code applies, in that the bond may only be cancelled by the obligee, by
the Insurance Commissioner or by a competent court.
Country Bankers questions the existence of a third bond, the 1990 Bond, which allegedly cancelled the 1989 Bonds on the following grounds: First,
Lagman failed to produce the original of the 1990 Bond and no basis has been laid for the presentation of secondary evidence; Second, the issuance of
the 1990 Bond was not approved and processed by Country Bankers; Third, the NFA as bond obligee was not in possession of the 1990 Bond. Country
Bankers stresses that the cancellation of the 1989 Bonds requires the participation of the bond obligee. Ergo, the bonds remain subsisting until
cancelled by the bond obligee. Country Bankers further assert that Lagman also failed to prove that the NFA accepted the 1990 Bond in replacement of
the 1989 Bonds.
Country Bankers notes that the receipts issued for the 1989 Bonds are mere evidence of premium payments and should not be relied on to determine
the period of effectivity of the bonds. Country Bankers explains that the receipts only represent the transactions between the bond principal and the
surety, and does not involve the NFA as bond obligee.
Country Bankers calls this Court’s attention to the incontestability clause contained in the Indemnity Agreements which prohibits Lagman from
questioning his liability therein.
In his Comment, Lagman raises the issue of novation by asserting that the 1989 Bonds were superseded by the 1990 Bond, which did not include
Lagman as party. Therefore, Lagman argues, Country Bankers has no cause of action against him. Lagman also reiterates that because of novation, the
1989 bonds are neither perpetual nor continuing.
Lagman anchors his defense on two (2) arguments: 1) the 1989 Bonds have expired and 2) the 1990 Bond novates the 1989 Bonds.
The Court of Appeals held that the 1989 bonds were effective only for one (1) year, as evidenced by the receipts on the payment of premiums.
We do not agree.
The official receipts in question serve as proof of payment of the premium for one year on each surety bond. It does not, however, automatically mean
that the surety bond is effective for only one (1) year. In fact, the effectivity of the bond is not wholly dependent on the payment of premium. Section 177
of the Insurance Code expresses:
Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No
contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has
accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the
obligor to the surety: Provided, That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only
reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the
issuance of the contract or bond: Provided, however, That if the non-acceptance of the bond be due to the fault or negligence of the surety, no such
service fee, stamps or taxes shall be collected. (Emphasis supplied)
The 1989 Bonds have identical provisions and they state in very clear terms the effectivity of these bonds, viz:
NOW, THEREFORE, if the above-bounded Principal shall well and truly deliver to the depositors PALAY received by him for STORAGE at any time that
demand therefore is made, or shall pay the market value therefore in case he is unable to return the same, then this obligation shall be null and void;
otherwise it shall remain in full force and effect and may be enforced in the manner provided by said Act No. 3893 as amended by Republic Act No. 247
and P.D. No. 4. This bond shall remain in force until cancelled by the Administrator of National Food Authority. 23
This provision in the bonds is but in compliance with the second paragraph of Section 177 of the Insurance Code, which specifies that a continuing bond,
as in this case where there is no fixed expiration date, may be cancelled only by the obligee, which is the NFA, by the Insurance Commissioner, and by
the court. Thus:
In case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the
obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be.
By law and by the specific contract involved in this case, the effectivity of the bond required for the obtention of a license to engage in the business of
receiving rice for storage is determined not alone by the payment of premiums but principally by the Administrator of the NFA. From beginning to end,
the Administrator’s brief is the enabling or disabling document.
The clear import of these provisions is that the surety bonds in question cannot be unilaterally cancelled by Lagman. The same conclusion was reached
by the trial court and we quote:
As there appears no record of cancellation of the Warehouse Bonds No. 03304 and No. 02355 either by the administrator of the NFA or by the
Insurance Commissioner or by the Court, the Warehouse Bonds are valid and binding and cannot be unilaterally cancelled by defendant Lagman as
general agent of the plaintiff.24
While the trial court did not directly rule on the existence and validity of the 1990 Bond, it upheld the 1989 Bonds as valid and binding, which could not
be unilaterally cancelled by Lagman. The Court of Appeals, on the other hand, acknowledged the 1990 Bond as having cancelled the two previous
bonds by novation. Both courts however failed to discuss their basis for rejecting or admitting the 1990 Bond, which, as we indicated, is bone to pick in
this case.
Lagman’s insistence on novation depends on the validity, nay, existence of the allegedly novating 1990 Bond. Country Bankers understandably impugns
both. We see the point. Lagman presented a mere photocopy of the 1990 Bond. We rule as inadmissible such copy.
Under the best evidence rule, the original document must be produced whenever its contents are the subject of inquiry.25 The rule is encapsulated in
Section 3, Rule 130 of the Rules of Court, as follow:
Sec. 3. Original document must be produced; exceptions. — When the subject of inquiry is the contents of a documents, no evidence shall be
admissible other than the original document itself, except in the following cases:
(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the part of the offeror;
(b) When the original is in the custody or under the control of the party against whom the evidence is offered, and the latter fails to produce it
after reasonable notice;
(c) When the original consists of numerous accounts or other documents which cannot be examined in court without great loss of time and the
fact sought to be established from them is only the general result of the whole; and
(d) When the original is a public record in the custody of a public officer or is recorded in a public office.26
A photocopy, being a mere secondary evidence, is not admissible unless it is shown that the original is unavailable.27 Section 5, Rule 130 of the Rules of
Court states:
SEC.5 When original document is unavailable. — When the original document has been lost or destroyed, or cannot be produced in court, the offeror,
upon proof of its execution or existence and the cause of its unavailability without bad faith on his part, may prove its contents by a copy, or by a recital
of its contents in some authentic document, or by the testimony of witnesses in the order stated.
Before a party is allowed to adduce secondary evidence to prove the contents of the original, the offeror must prove the following: (1) the existence or
due execution of the original; (2) the loss and destruction of the original or the reason for its non-production in court; and (3) on the part of the offeror, the
absence of bad faith to which the unavailability of the original can be attributed. The correct order of proof is as follows: existence, execution, loss, and
contents.28
In the case at bar, Lagman mentioned during the direct examination that there are actually four (4) duplicate originals of the 1990 Bond: the first is kept
by the NFA, the second is with the Loan Officer of the NFA in Tarlac, the third is with Country Bankers and the fourth was in his possession.29 A party
must first present to the court proof of loss or other satisfactory explanation for the non-production of the original instrument.30 When more than one
original copy exists, it must appear that all of them have been lost, destroyed, or cannot be produced in court before secondary evidence can be given of
any one. A photocopy may not be used without accounting for the other originals. 31
Despite knowledge of the existence and whereabouts of these duplicate originals, Lagman merely presented a photocopy. He admitted that he kept a
copy of the 1990 Bond but he could no longer produce it because he had already severed his ties with Country Bankers. However, he did not explain
why severance of ties is by itself reason enough for the non-availability of his copy of the bond considering that, as it appears from the 1989 Bonds,
Lagman himself is a bondsman. Neither did Lagman explain why he failed to secure the original from any of the three other custodians he mentioned in
his testimony. While he apparently was able to find the original with the NFA Loan Officer, he was merely contented with producing its photocopy.
Clearly, Lagman failed to exert diligent efforts to produce the original.
Fueling further suspicion regarding the existence of the 1990 Bond is the absence of an Indemnity Agreement. While Lagman argued that a 1990 Bond
novates the 1989 Bonds, he raises the defense of "non-existence of an indemnity agreement" which would conveniently exempt him from liability. The
trial court deemed this defense as indicia of bad faith, thus:
To the observation of the Court, defendant Lagman contended that being a general agent (which requires a much higher qualification than an ordinary
agent), he is expected to have attended seminars and workshops on general insurance wherein he is supposed to have acquired sufficient knowledge of
the general principles of insurance which he had fully practised or implemented from experience. It somehow appears to the Court’s assessment of his
reneging liability of the bonds in question, that he is still short of having really understood the principle of suretyship with reference to the transaction of
indemnity in which he is a signatory. If, as he alleged, that he is well-versed in insurance, the Court finds no excuse for him to stand firm in denying his
liability over the claim against the bonds with indemnity provision. If he insists in not recognizing that liability, the more that this Court is convinced that
his knowledge that insurance operates under the principle of good faith is inadequate. He missed the exception provided by Section 177 of the
Insurance Code, as amended, wherein non-payment of premium would not have the same essence in his mind that the agreements entered into would
not have full force or effect. It could be glimpsed, therefore, that the mere fact of cancelling bonds with indemnity agreements and replacing them
(absence of the same) to escape liability clearly manifests bad faith on his part. 32 (Emphasis supplied.)
Having discounted the existence and/or validity of the 1990 Bond, there can be no novation to speak of. Novation is the extinguishment of an obligation
by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. For novation to take place, the
following requisites must concur: 1) There must be a previous valid obligation; 2) The parties concerned must agree to a new contract; 3) The old
contract must be extinguished; and 4) There must be a valid new contract. 33
In this case, only the first element of novation exists. Indeed, there is a previous valid obligation, i.e., the 1989 Bonds. There is however neither a valid
new contract nor a clear agreement between the parties to a new contract since the very existence of the 1990 Bond has been rendered dubious.
Without the new contract, the old contract is not extinguished.
Implied novation necessitates a new obligation with which the old is in total incompatibility such that the old obligation is completely superseded by the
new one.34 Quite obviously, neither can there be implied novation. In this case, there is no new obligation.
The liability of Lagman is expressed in Indemnity Agreements executed in consideration of the 1989 Bonds which we have considered as continuing
contracts. Under both Indemnity Agreements, Lagman, as co-signor, together with Santos, Ban Lee Lim and Reguine, bound themselves jointly and
severally to Country Bankers to indemnify it for any damage or loss sustained on the account of the execution of the bond, among others. The pertinent
identical stipulations of the Indemnity Agreements state:
INDEMNITY: ─ To indemnify and make good to the COMPANY jointly and severally, any damages, prejudice, loss, costs, payments advances and
expenses of whatever kind and nature, including attorney’s fees and legal costs, which the COMPANY may, at any time, sustain or incur, as well as to
reimburse to said COMPANY all sums and amounts of money which the COMPANY or its representatives shall or may pay or cause to be paid or
become liable to pay, on account of or arising from the execution of the above-mentioned BOND or any extension, renewal, alteration or substitution
thereof made at the instance of the undersigned or anyone of them. 35
Moreover, the Indemnity Agreements also contained identical Incontestability Clauses which provide:
INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: ─ Any payment or disbursement made by the COMPANY on account of the above-
mentioned Bond, its renewals, extensions, alterations or substitutions either in the belief that the COMPANY was obligated to make such payment or in
the belief that said payment was necessary or expedient in order to avoid greater losses or obligations for which the COMPANY might be liable by virtue
of the terms of the above-mentioned Bond, its renewals, extensions, alterations, or substitutions, shall be final and shall not be disputed by the
undersigned, who hereby jointly and severally bind themselves to indemnify [Country Bankers] of any and all such payments, as stated in the preceding
clauses.
In case the COMPANY shall have paid[,] settled or compromised any liability, loss, costs, damages, attorney’s fees, expenses, claims[,] demands, suits,
or judgments as above-stated, arising out of or in connection with said bond, an itemized statement thereof, signed by an officer of the COMPANY and
other evidence to show said payment, settlement or compromise, shall be prima facie evidence of said payment, settlement or compromise, as well as
the liability of the undersigned in any and all suits and claims against the undersigned arising out of said bond or this bond application.361awphil
Lagman is bound by these Indemnity Agreements. Payments made by Country Bankers by virtue of the 1989 Bonds gave rise to Lagman’s obligation to
reimburse it under the Indemnity Agreements. Lagman, being a solidary debtor, is liable for the entire obligation.
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 61797 are SET ASIDE and
the Decision dated 21 September 1998 of the RTC is hereby REINSTATED.
SO ORDERED.

18.Asian Terminals v. Malayan Insurance, GR No. 171406, 4 April 2011

Once the insurer pays the insured, equity demands reimbursement as no one should benefit at the expense of another.
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the July 14, 2005 Decision2 and the February 14, 2006 Resolution3 of
the Court of Appeals (CA) in CA G.R. CV No. 61798.
Factual Antecedents
On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on board the vessel MV "Jinlian I" 60,000 plastic bags of soda ash dense (each
bag weighing 50 kilograms) from China to Manila.4 The shipment, with an invoice value of US$456,000.00, was insured with respondent Malayan
Insurance Company, Inc. under Marine Risk Note No. RN-0001-21430, and covered by a Bill of Lading issued by Tianjin Navigation Company with
Philippine Banking Corporation as the consignee and Chemphil Albright and Wilson Corporation as the notify party. 5
On November 21, 1995, upon arrival of the vessel at Pier 9, South Harbor, Manila, 6 the stevedores of petitioner Asian Terminals, Inc., a duly registered
domestic corporation engaged in providing arrastre and stevedoring services, 7 unloaded the 60,000 bags of soda ash dense from the vessel and
brought them to the open storage area of petitioner for temporary storage and safekeeping, pending clearance from the Bureau of Customs and delivery
to the consignee.8 When the unloading of the bags was completed on November 28, 1995, 2,702 bags were found to be in bad order condition. 9
On November 29, 1995, the stevedores of petitioner began loading the bags in the trucks of MEC Customs Brokerage for transport and delivery to the
consignee.10 On December 28, 1995, after all the bags were unloaded in the warehouses of the consignee, a total of 2,881 bags were in bad order
condition due to spillage, caking, and hardening of the contents. 11
On April 19, 1996, respondent, as insurer, paid the value of the lost/ damaged cargoes to the consignee in the amount of ₱643,600.25.12
Ruling of the Regional Trial Court
On November 20, 1996, respondent, as subrogee of the consignee, filed before the Regional Trial Court (RTC) of Manila, Branch 35, a Complaint13 for
damages against petitioner, the shipper Inchcape Shipping Services, and the cargo broker MEC Customs Brokerage. 14
After the filing of the Answers,15 trial ensued.
On June 26, 1998, the RTC rendered a Decision16 finding petitioner liable for the damage/loss sustained by the shipment but absolving the other
defendants. The RTC found that the proximate cause of the damage/loss was the negligence of petitioner’s stevedores who handled the unloading of
the cargoes from the vessel.17 The RTC emphasized that despite the admonitions of Marine Cargo Surveyors Edgar Liceralde and Redentor Antonio not
to use steel hooks in retrieving and picking-up the bags, petitioner’s stevedores continued to use such tools, which pierced the bags and caused the
spillage.18 The RTC, thus, ruled that petitioner, as employer, is liable for the acts and omissions of its stevedores under Articles 2176 19 and 2180
paragraph (4)20 of the Civil Code.21 Hence, the dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant Asian Terminal, Inc. to pay plaintiff Malayan Insurance Company, Inc. the sum of ₱643,600.25
plus interest thereon at legal rate computed from November 20, 1996, the date the Complaint was filed, until the principal obligation is fully paid, and the
costs.
The complaint of the plaintiff against defendants Inchcape Shipping Services and MEC Customs Brokerage, and the counterclaims of said defendants
against the plaintiff are dismissed.
SO ORDERED.22
Ruling of the Court of Appeals
Aggrieved, petitioner appealed23 to the CA but the appeal was denied. In its July 14, 2005 Decision, the CA agreed with the RTC that the damage/loss
was caused by the negligence of petitioner’s stevedores in handling and storing the subject shipment. 24 The CA likewise rejected petitioner’s assertion
that it received the subject shipment in bad order condition as this was belied by Marine Cargo Surveyors Redentor Antonio and Edgar Liceralde, who
both testified that the actual counting of bad order bags was done only after all the bags were unloaded from the vessel and that the Turn Over Survey of
Bad Order Cargoes (TOSBOC) upon which petitioner anchors its defense was prepared only on November 28, 1995 or after the unloading of the bags
was completed.25 Thus, the CA disposed of the appeal as follows:
WHEREFORE, premises considered, the appeal is DENIED. The assailed Decision dated June 26, 1998 of the Regional Trial Court of Manila, Branch
35, in Civil Case No. 96-80945 is hereby AFFIRMED in all respects.
SO ORDERED.26
Petitioner moved for reconsideration27 but the CA denied the same in a Resolution28 dated February 14, 2006 for lack of merit.
Issues
Hence, the present recourse, petitioner contending that:
1. RESPONDENT-INSURER IS NOT ENTITLED TO THE RELIEF GRANTED AS IT FAILED TO ESTABLISH ITS CAUSE OF ACTION
AGAINST HEREIN PETITIONER SINCE, AS THE ALLEGED SUBROGEE, IT NEVER PRESENTED ANY VALID, EXISTING,
ENFORCEABLE INSURANCE POLICY OR ANY COPY THEREOF IN COURT.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT OVERLOOKED THE FACT THAT THE TOSBOC & RESBOC WERE
ADOPTED AS COMMON EXHIBITS BY BOTH PETITIONER AND RESPONDENT.
3. CONTRARY TO TESTIMONIAL EVIDENCE ON RECORD, VARIOUS DOCUMENTATIONS WOULD POINT TO THE VESSEL’S
LIABILITY AS THERE IS, IN THIS INSTANT CASE, AN OVERWHELMING DOCUMENTARY EVIDENCE TO PROVE THAT THE DAMAGE
IN QUESTION WERE SUSTAINED WHEN THE SHIPMENT WAS IN THE CUSTODY OF THE VESSEL.
4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED HEREIN DEFENDANT LIABLE DUE TO [THE] FACT THAT
THE TURN OVER SURVEY OF BAD ORDER CARGOES (TOSBOC) WAS PREPARED ONLY AFTER THE COMPLETION OF THE
DISCHARGING OPERATIONS OR ON NOVEMBER 28, 1995. THUS, CONCLUDING THAT DAMAGE TO THE CARGOES WAS DUE TO
THE IMPROPER HANDLING THEREOF BY ATI STEVEDORES.
5. THE HONORABLE COURT OF APPEALS ERRED IN NOT TAKING JUDICIAL NOTICE OF THE CONTRACT FOR CARGO HANDLING
SERVICES BETWEEN PPA AND ATI AND APPLYING THE PERTINENT PROVISIONS THEREOF AS REGARDS ATI’S LIABILITY. 29
 In sum, the issues are: (1) whether the non-presentation of the insurance contract or policy is fatal to respondent’s cause of action; (2) whether
the proximate cause of the damage/loss to the shipment was the negligence of petitioner’s stevedores; and (3) whether the court can take
judicial notice of the Management Contract between petitioner and the Philippine Ports Authority (PPA) in determining petitioner’s liability.
Petitioner’s Arguments
Petitioner contends that respondent has no cause of action because it failed to present the insurance contract or policy covering the subject
shipment.30 Petitioner argues that the Subrogation Receipt presented by respondent is not sufficient to prove that the subject shipment was insured and
that respondent was validly subrogated to the rights of the consignee. 31 Thus, petitioner submits that without proof of a valid subrogation, respondent is
not entitled to any reimbursement.32
Petitioner likewise puts in issue the finding of the RTC, which was affirmed by the CA, that the proximate cause of the damage/loss to the shipment was
the negligence of petitioner’s stevedores.33 Petitioner avers that such finding is contrary to the documentary evidence, i.e., the TOSBOC, the Request for
Bad Order Survey (RESBOC) and the Report of Survey.34 According to petitioner, these documents prove that it received the subject shipment in bad
order condition and that no additional damage was sustained by the subject shipment under its custody. 35 Petitioner asserts that although the TOSBOC
was prepared only after all the bags were unloaded by petitioner’s stevedores, this does not mean that the damage/loss was caused by its stevedores.36
Petitioner also claims that the amount of damages should not be more than ₱5,000.00, pursuant to its Management Contract for cargo handling services
with the PPA.37 Petitioner contends that the CA should have taken judicial notice of the said contract since it is an official act of an executive department
subject to judicial cognizance.38
Respondent’s Arguments
Respondent, on the other hand, argues that the non-presentation of the insurance contract or policy was not raised in the trial court. Thus, it cannot be
raised for the first time on appeal.39 Respondent likewise contends that under prevailing jurisprudence, presentation of the insurance policy is not
indispensable.40 Moreover, with or without the insurance contract or policy, respondent claims that it should be allowed to recover under Article 123641 of
the Civil Code.42 Respondent further avers that "the right of subrogation has its roots in equity - it is designed to promote and to accomplish justice and is
the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay."43
Respondent likewise maintains that the RTC and the CA correctly found that the damage/loss sustained by the subject shipment was caused by the
negligent acts of petitioner’s stevedores.44 Such factual findings of the RTC, affirmed by the CA, are conclusive and should no longer be disturbed. 45 In
fact, under Section 146 of Rule 45 of the Rules of Court, only questions of law may be raised in a petition for review on certiorari. 47
As to the Management Contract for cargo handling services, respondent contends that this is outside the operation of judicial notice.48 And even if it is
not, petitioner’s liability cannot be limited by it since it is a contract of adhesion. 49
Our Ruling
The petition is bereft of merit.
Non-presentation of the insurance contract or policy is not fatal in the instant case
Petitioner claims that respondent’s non-presentation of the insurance contract or policy between the respondent and the consignee is fatal to its cause of
action.
We do not agree.
First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues agreed upon by the parties to be resolved during the pre-
trial.50 As we have said, "the determination of issues during the pre-trial conference bars the consideration of other questions, whether during trial or on
appeal."51 Thus, "[t]he parties must disclose during pre-trial all issues they intend to raise during the trial, except those involving privileged or impeaching
matters. x x x The basis of the rule is simple. Petitioners are bound by the delimitation of the issues during the pre-trial because they themselves agreed
to the same."52
Neither was this issue raised on appeal.53 Basic is the rule that "issues or grounds not raised below cannot be resolved on review by the Supreme Court,
for to allow the parties to raise new issues is antithetical to the sporting idea of fair play, justice and due process." 54
Besides, non-presentation of the insurance contract or policy is not
necessarily fatal.55 In Delsan Transport Lines, Inc. v. Court of Appeals,56 we ruled that:
Anent the second issue, it is our view and so hold that the presentation in evidence of the marine insurance policy is not indispensable in this case
before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation
receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost
cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim.
The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA (a case cited by petitioner) because the
shipment therein (hydraulic engines) passed through several stages with different parties involved in each stage. First, from the shipper to the port of
departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth,
from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler,
Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the absence
of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally
delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before it actually received it. The insurance contract,
which was not presented in evidence in that case would have indicated the scope of the insurer’s liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to the cargo was sustained.57 (Emphasis supplied.)
In International Container Terminal Services, Inc. v. FGU Insurance Corporation, 58 we used the same line of reasoning in upholding the Decision of the
CA finding the arrastre contractor liable for the lost shipment despite the failure of the insurance company to offer in evidence the insurance contract or
policy. We explained:
Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial court or even belatedly before the
appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of the marine insurance policy was
necessary, as the issues raised therein arose from the very existence of an insurance contract between Malayan Insurance and its consignee, ABB
Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court ruled that the
insurance contract must be presented in evidence in order to determine the extent of the coverage. This was also the ruling of the Court in Home
Insurance Corporation v. Court of Appeals.
However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the
presentation of the insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the petitioner’s vessel, unlike in
Home Insurance in which the cargo passed through several stages with different parties and it could not be determined when the damage to the cargo
occurred, such that the insurer should be liable for it.
As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioner’s custody. Moreover, there is no issue as
regards the provisions of Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to mention
that its existence was already admitted by petitioner in open court. And even though it was not offered in evidence, it still can be considered by the court
as long as they have been properly identified by testimony duly recorded and they have themselves been incorporated in the records of the case.59
Similarly, in this case, the presentation of the insurance contract or policy was not necessary. Although petitioner objected to the admission of the
Subrogation Receipt in its Comment to respondent’s formal offer of evidence on the ground that respondent failed to present the insurance contract or
policy,60 a perusal of petitioner’s Answer61 and Pre-Trial Brief62 shows that petitioner never questioned respondent’s right to subrogation, nor did it
dispute the coverage of the insurance contract or policy. Since there was no issue regarding the validity of the insurance contract or policy, or any
provision thereof, respondent had no reason to present the insurance contract or policy as evidence during the trial.
Factual findings of the CA, affirming the RTC, are conclusive and binding
Petitioner’s attempt to absolve itself from liability must likewise fail.
Only questions of law are allowed in petitions for review on certiorari under Rule 45 of the Rules of Court. Thus, it is not our duty "to review, examine,
and evaluate or weigh all over again the probative value of the evidence presented," 63 especially where the findings of both the trial court and the
appellate court coincide on the matter.64As we have often said, factual findings of the CA affirming those of the RTC are conclusive and binding, except
in the following cases: "(1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of discretion; (3) when
the findings are grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the [CA] is based on misapprehension of facts; (5)
when the [CA], in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (6)
when the findings of fact are conclusions without citation of specific evidence on which they are based; (7) when the [CA] manifestly overlooked certain
relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (8) when the findings of fact of the
[CA] are premised on the absence of evidence and are contradicted by the evidence on record." 65 None of these are availing in the present case.
Both the RTC and the CA found the negligence of petitioner’s stevedores to be the proximate cause of the damage/loss to the shipment. In disregarding
the contention of petitioner that such finding is contrary to the documentary evidence, the CA had this to say:
ATI, however, contends that the finding of the trial court was contrary to the documentary evidence of record, particularly, the Turn Over Survey of Bad
Order Cargoes dated November 28, 1995, which was executed prior to the turn-over of the cargo by the carrier to the arrastre operator ATI, and which
showed that the shipment already contained 2,702 damaged bags.
We are not persuaded.
Contrary to ATI’s assertion, witness Redentor Antonio, marine cargo surveyor of Inchcape for the vessel Jinlian I which arrived on November 21, 1995
and up to completion of discharging on November 28, 1995, testified that it was only after all the bags were unloaded from the vessel that the
actual counting of bad order bags was made, thus:
xxxx
The above testimony of Redentor Antonio was corroborated by Edgar Liceralde, marine cargo surveyor connected with SMS Average Surveyors
and Adjusters, Inc., the company requested by consignee Chemphil Albright and Wilson Corporation to provide superintendence, report the condition
and determine the final outturn of quantity/weight of the subject shipment. x x x
xxxx
Defendant-appellant ATI, for its part, presented its claim officer as witness who testified that a survey was conducted by the shipping company and ATI
before the shipment was turned over to the possession of ATI and that the Turn Over Survey of Bad Order Cargoes was prepared by ATI’s Bad Order
(BO) Inspector.
Considering that the shipment arrived on November 21, 1998 and the unloading operation commenced on said date and was completed on
November 26, 1998, while the Turn Over Survey of Bad Order Cargoes, reflecting a figure of 2,702 damaged bags, was prepared and signed
on November 28, 1998 by ATI’s BO Inspector and co-signed by a representative of the shipping company, the trial court’s finding that the damage
to the cargoes was due to the improper handling thereof by ATI’s stevedores cannot be said to be without substantial support from the
records.
We thus see no cogent reason to depart from the ruling of the trial court that ATI should be made liable for the 2,702 bags of damaged shipment.
Needless to state, it is hornbook doctrine that the assessment of witnesses and their testimonies is a matter best undertaken by the trial court, which had
the opportunity to observe the demeanor, conduct or attitude of the witnesses. The findings of the trial court on this point are accorded great respect and
will not be reversed on appeal, unless it overlooked substantial facts and circumstances which, if considered, would materially affect the result of the
case.
We also find ATI liable for the additional 179 damaged bags discovered upon delivery of the shipment at the consignee’s warehouse in Pasig. The final
Report of Survey executed by SMS Average Surveyors & Adjusters, Inc., and independent surveyor hired by the consignee, shows that the subject
shipment incurred a total of 2881 damaged bags.
The Report states that the withdrawal and delivery of the shipment took about ninety-five (95) trips from November 29, 1995 to December 28, 1995 and
it was upon completion of the delivery to consignee’s warehouse where the final count of 2881 damaged bags was made. The damage consisted of
torn/bad order condition of the bags due to spillages and caked/hardened portions.
We agree with the trial court that the damage to the shipment was caused by the negligence of ATI’s stevedores and for which ATI is liable under
Articles 2180 and 2176 of the Civil Code. The proximate cause of the damage (i.e., torn bags, spillage of contents and caked/hardened portions of the
contents) was the improper handling of the cargoes by ATI’s stevedores, x x x
xxxx
ATI has not satisfactorily rebutted plaintiff-appellee’s evidence on the negligence of ATI’s stevedores in the handling and safekeeping of the cargoes. x x
x
xxxx
We find no reason to disagree with the trial court’s conclusion. Indeed, from the nature of the [damage] caused to the shipment, i.e., torn bags, spillage
of contents and hardened or caked portions of the contents, it is not difficult to see that the damage caused was due to the negligence of ATI’s
stevedores who used steel hooks to retrieve the bags from the higher portions of the piles thereby piercing the bags and spilling their contents, and who
piled the bags in the open storage area of ATI with insufficient cover thereby exposing them to the elements and [causing] the contents to cake or
harden.66
Clearly, the finding of negligence on the part of petitioner’s stevedores is supported by both testimonial and documentary evidence. Hence, we see no
reason to disturb the same.
Judicial notice does not apply
Finally, petitioner implores us to take judicial notice of Section 7.01, 67 Article VII of the Management Contract for cargo handling services it entered with
the PPA, which limits petitioner’s liability to ₱5,000.00 per package.
Unfortunately for the petitioner, it cannot avail of judicial notice.
Sections 1 and 2 of Rule 129 of the Rules of Court provide that:
SECTION 1. Judicial notice, when mandatory. — A court shall take judicial notice, without the introduction of evidence, of the existence and territorial
extent of states, their political history, forms of government and symbols of nationality, the law of nations, the admiralty and maritime courts of the world
and their seals, the political constitution and history of the Philippines, the official acts of the legislative, executive and judicial departments of the
Philippines, the laws of nature, the measure of time, and the geographical divisions.1avvphi1
SEC. 2. Judicial notice, when discretionary. — A court may take judicial notice of matters which are of public knowledge, or are capable of
unquestionable demonstration or ought to be known to judges because of their judicial functions.
The Management Contract entered into by petitioner and the PPA is clearly not among the matters which the courts can take judicial notice of. It cannot
be considered an official act of the executive department. The PPA, which was created by virtue of Presidential Decree No. 857, as amended,68 is a
government-owned and controlled corporation in charge of administering the ports in the country. 69 Obviously, the PPA was only performing a
proprietary function when it entered into a Management Contract with petitioner. As such, judicial notice cannot be applied.
WHEREFORE, the petition is hereby DENIED. The assailed July 14, 2005 Decision and the February 14, 2006 Resolution of the Court of
Appeals in CA-G.R. CV No. 61798 are hereby AFFIRMED.
SO ORDERED.
19.Philippine Health Care Providers v. CIR, GR No. 167330, 18 Sept 2009

ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the people and instill health consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health development which shall endeavor to make essential goods,
health and other social services available to all the people at affordable cost. There shall be priority for the needs of the underprivileged sick, elderly,
disabled, women, and children. The State shall endeavor to provide free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10, 2008 and July 14, 2008, respectively, filed by
petitioner Philippine Health Care Providers, Inc.2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and operate a prepaid group practice health care
delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization." Individuals enrolled in its health care programs pay an annual membership fee
and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and other
professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it.
xxx xxx xxx
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the corresponding assessment
notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of
₱224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement with the members of its health care
program pursuant to Section 185 of the 1997 Tax Code xxxx
xxx xxx xxx
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition for review in
the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency
VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT deficiency and
₱31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT
Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.
SO ORDERED.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. He claimed that petitioner’s health
care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care agreement was in the nature of a non-life insurance contract
subject to DST.
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and set aside the 1996 and 1997
deficiency documentary stamp tax assessment and ordered petitioner to desist from collecting the same is REVERSED and SET ASIDE.
Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax
Code, until the same shall have been fully paid.
SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
xxx xxx xxx
In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA’s decision. We held that petitioner’s health care agreement during
the pertinent period was in the nature of non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares3 and Philamcare Health Systems, Inc. v. CA.4We also ruled that petitioner’s contention that it is a health maintenance organization (HMO) and
not an insurance company is irrelevant because contracts between companies like petitioner and the beneficiaries under their plans are treated as
insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity or facility offered at exchanges for
the transaction of the business.
Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental motion for reconsideration, asserting the following
arguments:
(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company engaged in the business of fidelity
bonds and other insurance policies. Petitioner, as an HMO, is a service provider, not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the CA’s disposition that health care services are
not in the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is clear, especially in the light of the amendments made in
the DST law in 2002.
(e) Assuming arguendo that petitioner’s agreements are contracts of indemnity, they are not those contemplated under Section 185.
(f) Assuming arguendo that petitioner’s agreements are akin to health insurance, health insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005 and all prior years. Therefore, the questioned
assessments on the DST are now rendered moot and academic. 6
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on June 8, 2009.
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under RA 94807(also known as the "Tax Amnesty Act
of 2007") by fully paying the amount of ₱5,127,149.08 representing 5% of its net worth as of the year ending December 31, 2005.8
We find merit in petitioner’s motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June 30, 1987.9 It is engaged in the dispensation
of the following medical services to individuals who enter into health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning counseling, consultation and advices on diet, exercise and
other healthy habits, and immunization;
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete blood count, and the like and
Curative medical services which pertain to the performing of other remedial and therapeutic processes in the event of an injury or sickness on the part
of the enrolled member.10
Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-to-year basis. The medical services are
dispensed to enrolled members in a hospital or clinic owned, operated or accredited by petitioner, through physicians, medical and dental practitioners
under contract with it. It negotiates with such health care practitioners regarding payment schemes, financing and other procedures for the delivery of
health services. Except in cases of emergency, the professional services are to be provided only by petitioner's physicians, i.e. those directly employed
by it11 or whose services are contracted by it.12 Petitioner also provides hospital services such as room and board accommodation, laboratory services,
operating rooms, x-ray facilities and general nursing care.13 If and when a member avails of the benefits under the agreement, petitioner pays the
participating physicians and other health care providers for the services rendered, at pre-agreed rates.14
To avail of petitioner’s health care programs, the individual members are required to sign and execute a standard health care agreement embodying the
terms and conditions for the provision of the health care services. The same agreement contains the various health care services that can be engaged
by the enrolled member, i.e., preventive, diagnostic and curative medical services. Except for the curative aspect of the medical service offered, the
enrolled member may actually make use of the health care services being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its agreements are treated as insurance
contracts and the DST is not a tax on the business but an excise on the privilege, opportunity or facility used in the transaction of the business.15
Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is, to determine whether it is an HMO or an
insurance company, as this distinction is indispensable in turn to the issue of whether or not it is liable for DST on its health care agreements.16
A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business
of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life,
marine, inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or
position, for the doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of any bond or other
obligations issued by any province, city, municipality, or other public body or organization, and on all obligations guaranteeing the title to any real estate,
or guaranteeing any mercantile credits, which may be made or renewed by any such person, company or corporation, there shall be collected a
documentary stamp tax of fifty centavos (₱0.50) on each four pesos (₱4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be considered surplusage or superfluous,
meaningless, void and insignificant. To this end, a construction which renders every word operative is preferred over that which makes some words idle
and nugatory.17 This principle is expressed in the maxim Ut magis valeat quam pereat, that is, we choose the interpretation which gives effect to the
whole of the statute – its every word.18
From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely: (1) the document must be a policy
of insurance or an obligation in the nature of indemnity and (2) the maker should be transacting the business of accident, fidelity, employer’s
liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an HMO is "an entity that provides, offers or arranges
for coverage of designated health services needed by plan members for a fixed prepaid premium." 19 The payments do not vary with the extent,
frequency or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years? We rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an insurance business" or "transacting an
insurance business:"
a) making or proposing to make, as insurer, any insurance contract;
b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate
business or activity of the surety;
c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business
within the meaning of this Code;
d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this
Code.
In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts, agreements or transactions or
that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the making thereof does not constitute the
doing or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions, 21 have determined that HMOs are not in the
insurance business. One test that they have applied is whether the assumption of risk and indemnification of loss (which are elements of an insurance
business) are the principal object and purpose of the organization or whether they are merely incidental to its business. If these are the principal
objectives, the business is that of insurance. But if they are merely incidental and service is the principal purpose, then the business is not insurance.
Applying the "principal object and purpose test,"22 there is significant American case law supporting the argument that a corporation (such as an HMO,
whether or not organized for profit), whose main object is to provide the members of a group with health services, is not engaged in the insurance
business.
The rule was enunciated in Jordan v. Group Health Association23 wherein the Court of Appeals of the District of Columbia Circuit held that Group Health
Association should not be considered as engaged in insurance activities since it was created primarily for the distribution of health care services rather
than the assumption of insurance risk.
xxx Although Group Health’s activities may be considered in one aspect as creating security against loss from illness or accident more truly they
constitute the quantity purchase of well-rounded, continuous medical service by its members. xxx The functions of such an organization are not
identical with those of insurance or indemnity companies. The latter are concerned primarily, if not exclusively, with risk and the consequences of
its descent, not with service, or its extension in kind, quantity or distribution; with the unusual occurrence, not the daily routine of living. Hazard is
predominant. On the other hand, the cooperative is concerned principally with getting service rendered to its members and doing so at lower
prices made possible by quantity purchasing and economies in operation. Its primary purpose is to reduce the cost rather than the risk of
medical care; to broaden the service to the individual in kind and quantity; to enlarge the number receiving it; to regularize it as an everyday
incident of living, like purchasing food and clothing or oil and gas, rather than merely protecting against the financial loss caused by
extraordinary and unusual occurrences, such as death, disaster at sea, fire and tornado. It is, in this instance, to take care of colds, ordinary
aches and pains, minor ills and all the temporary bodily discomforts as well as the more serious and unusual illness. To summarize, the distinctive
features of the cooperative are the rendering of service, its extension, the bringing of physician and patient together, the preventive features,
the regularization of service as well as payment, the substantial reduction in cost by quantity purchasing in short, getting the medical job
done and paid for; not, except incidentally to these features, the indemnification for cost after the services is rendered. Except the last, these
are not distinctive or generally characteristic of the insurance arrangement. There is, therefore, a substantial difference between contracting in this
way for the rendering of service, even on the contingency that it be needed, and contracting merely to stand its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be present should not outweigh all other factors. If attention is focused only on that
feature, the line between insurance or indemnity and other types of legal arrangement and economic function becomes faint, if not extinct. This is
especially true when the contract is for the sale of goods or services on contingency. But obviously it was not the purpose of the insurance statutes to
regulate all arrangements for assumption or distribution of risk. That view would cause them to engulf practically all contracts, particularly conditional
sales and contingent service agreements. The fallacy is in looking only at the risk element, to the exclusion of all others present or their
subordination to it. The question turns, not on whether risk is involved or assumed, but on whether that or something else to which it is
related in the particular plan is its principal object purpose.24 (Emphasis supplied)
In California Physicians’ Service v. Garrison,25 the California court felt that, after scrutinizing the plan of operation as a whole of the corporation, it was
service rather than indemnity which stood as its principal purpose.
There is another and more compelling reason for holding that the service is not engaged in the insurance business. Absence or presence of
assumption of risk or peril is not the sole test to be applied in determining its status. The question, more broadly, is whether, looking at the
plan of operation as a whole, ‘service’ rather than ‘indemnity’ is its principal object and purpose. Certainly the objects and purposes of the
corporation organized and maintained by the California physicians have a wide scope in the field of social service. Probably there is no more
impelling need than that of adequate medical care on a voluntary, low-cost basis for persons of small income. The medical profession
unitedly is endeavoring to meet that need. Unquestionably this is ‘service’ of a high order and not ‘indemnity.’ 26 (Emphasis supplied)
American courts have pointed out that the main difference between an HMO and an insurance company is that HMOs undertake to provide or arrange
for the provision of medical services through participating physicians while insurance companies simply undertake to indemnify the insured for medical
expenses incurred up to a pre-agreed limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue Shield of New Jersey27 is clear on
this point:
The basic distinction between medical service corporations and ordinary health and accident insurers is that the former undertake to provide prepaid
medical services through participating physicians, thus relieving subscribers of any further financial burden, while the latter only undertake to
indemnify an insured for medical expenses up to, but not beyond, the schedule of rates contained in the policy.
xxx xxx xxx
The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who will render services to subscribers on a
prepaid basis. Hence, if there are no physicians participating in the medical service corporation’s plan, not only will the subscribers be
deprived of the protection which they might reasonably have expected would be provided, but the corporation will, in effect, be doing
business solely as a health and accident indemnity insurer without having qualified as such and rendering itself subject to the more stringent
financial requirements of the General Insurance Laws….
A participating provider of health care services is one who agrees in writing to render health care services to or for persons covered by a contract issued
by health service corporation in return for which the health service corporation agrees to make payment directly to the participating
provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override the primary purpose of the business to provide medical services as needed,
with payment made directly to the provider of these services.29 In short, even if petitioner assumes the risk of paying the cost of these services even if
significantly more than what the member has prepaid, it nevertheless cannot be considered as being engaged in the insurance business.
By the same token, any indemnification resulting from the payment for services rendered in case of emergency by non-participating health providers
would still be incidental to petitioner’s purpose of providing and arranging for health care services and does not transform it into an insurer. To fulfill its
obligations to its members under the agreements, petitioner is required to set up a system and the facilities for the delivery of such medical services.
This indubitably shows that indemnification is not its sole object.
In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical services intended to keep members from developing
medical conditions or diseases.30 As an HMO, it is its obligation to maintain the good health of its members. Accordingly, its health care programs are
designed to prevent or to minimize thepossibility of any assumption of risk on its part. Thus, its undertaking under its agreements is not to
indemnify its members against any loss or damage arising from a medical condition but, on the contrary, to provide the health and medical services
needed to prevent such loss or damage.31
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services), but these are incidental to
the principal activity of providing them medical care. The "insurance-like" aspect of petitioner’s business is miniscule compared to its noninsurance
activities. Therefore, since it substantially provides health care services rather than insurance services, it cannot be considered as being in the insurance
business.
It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted U.S. cases, we are not saying that petitioner’s
operations are identical in every respect to those of the HMOs or health providers which were parties to those cases. What we are stating is that, for the
purpose of determining what "doing an insurance business" means, we have to scrutinize the operations of the business as a whole and not its mere
components. This is of course only prudent and appropriate, taking into account the burdensome and strict laws, rules and regulations applicable to
insurers and other entities engaged in the insurance business. Moreover, we are also not unmindful that there are other American authorities who have
found particular HMOs to be actually engaged in insurance activities.32
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that it is not supervised by the
Insurance Commission but by the Department of Health. 33 In fact, in a letter dated September 3, 2000, the Insurance Commissioner confirmed that
petitioner is not engaged in the insurance business. This determination of the commissioner must be accorded great weight. It is well-settled that the
interpretation of an administrative agency which is tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of
laws by the courts. The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of Appeals:34
The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of
diverse administrative agencies for addressing and satisfying those needs; it also relates to the accumulation of experience and growth of specialized
capabilities by the administrative agency charged with implementing a particular statute. In Asturias Sugar Central, Inc. vs. Commissioner of
Customs,35 the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning
and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The courts give much weight to the
government agency officials charged with the implementation of the law, their competence, expertness, experience and informed judgment, and the fact
that they frequently are the drafters of the law they interpret. 36
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The NIRC of 1997
Section 185 states that DST is imposed on "all policies of insurance… or obligations of the nature of indemnity for loss, damage, or liability…." In our
decision dated June 12, 2008, we ruled that petitioner’s health care agreements are contracts of indemnity and are therefore insurance contracts:
It is … incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the
liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). The term "loss or damage" is
broad enough to cover the monetary expense or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of sickness, injury or emergency or
his availment of so-called "out-patient services" (including physical examination, x-ray and laboratory tests, medical consultations, vaccine administration
and family planning counseling) is the contingent event which gives rise to liability on the part of the member. In case of exposure of the member to
liability, he would be entitled to indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated contingencies belies its
claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if they can be predicted at all.
Petitioner assumes the risk of paying for the costs of the services even if they are significantly and substantially more than what the member has
"prepaid." Petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk, that is,
among all the other members of the health care program. This is insurance. 37
We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or bonds or obligations of the nature of
indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting the business of accident,
fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and
fire insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly construed against the taxing authority.38 This is because
taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the
support of the government.39 Hence, tax laws may not be extended by implication beyond the clear import of their language, nor their operation enlarged
so as to embrace matters not specifically provided. 40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature of non-life insurance, which is
primarily a contract of indemnity. However, those cases did not involve the interpretation of a tax provision. Instead, they dealt with the liability of a health
service provider to a member under the terms of their health care agreement. Such contracts, as contracts of adhesion, are liberally interpreted in favor
of the member and strictly against the HMO. For this reason, we reconsider our ruling that Blue Cross and Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium. 41
Do the agreements between petitioner and its members possess all these elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract contains all the elements of an insurance contract,
if its primary purpose is the rendering of service, it is not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements mentioned above would be an insurance contract. The primary
purpose of the parties in making the contract may negate the existence of an insurance contract. For example, a law firm which enters into
contracts with clients whereby in consideration of periodical payments, it promises to represent such clients in all suits for or against them, is not
engaged in the insurance business. Its contracts are simply for the purpose of rendering personal services. On the other hand, a contract by which a
corporation, in consideration of a stipulated amount, agrees at its own expense to defend a physician against all suits for damages for malpractice is one
of insurance, and the corporation will be deemed as engaged in the business of insurance. Unlike the lawyer’s retainer contract, the essential purpose of
such a contract is not to render personal services, but to indemnify against loss and damage resulting from the defense of actions for
malpractice.42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioner’s agreements. To begin with, there is no loss, damage or
liability on the part of the member that should be indemnified by petitioner as an HMO. Under the agreement, the member pays petitioner a
predetermined consideration in exchange for the hospital, medical and professional services rendered by the petitioner’s physician or affiliated physician
to him. In case of availment by a member of the benefits under the agreement, petitioner does not reimburse or indemnify the member as the latter does
not pay any third party. Instead, it is the petitioner who pays the participating physicians and other health care providers for the services rendered at pre-
agreed rates. The member does not make any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the part of the member to any third party-provider of
medical services which might in turn necessitate indemnification from petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or claim
has already been incurred. There is no indemnity precisely because the member merely avails of medical services to be paid or already paid in advance
at a pre-agreed price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits anytime, e.g. laboratory services, x-ray, routine annual
physical examination and consultations, vaccine administration as well as family planning counseling, even in the absence of any peril, loss or damage
on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non-participating physician or hospital. However,
this is only a very minor part of the list of services available. The assumption of the expense by petitioner is not confined to the happening of a
contingency but includes incidents even in the absence of illness or injury.
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health care contracts called for the defendant to partially
reimburse a subscriber for treatment received from a non-designated doctor, this did not make defendant an insurer. Citing Jordan, the Court determined
that "the primary activity of the defendant (was) the provision of podiatric services to subscribers in consideration of prepayment for such
services."44 Since indemnity of the insured was not the focal point of the agreement but the extension of medical services to the member at an affordable
cost, it did not partake of the nature of a contract of insurance.
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk alone is sufficient to establish it. Almost anyone who
undertakes a contractual obligation always bears a certain degree of financial risk. Consequently, there is a need to distinguish prepaid service contracts
(like those of petitioner) from the usual insurance contracts.
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the risk that it might fail to earn a reasonable return
on its investment. But it is not the risk of the type peculiar only to insurance companies. Insurance risk, also known as actuarial risk, is the risk that the
cost of insurance claims might be higher than the premiums paid. The amount of premium is calculated on the basis of assumptions made relative to the
insured.45
However, assuming that petitioner’s commitment to provide medical services to its members can be construed as an acceptance of the risk that it will
shell out more than the prepaid fees, it still will not qualify as an insurance contract because petitioner’s objective is to provide medical services at
reduced cost, not to distribute risk like an insurer.
In sum, an examination of petitioner’s agreements with its members leads us to conclude that it is not an insurance contract within the context of our
Insurance Code.
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs
Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s health care agreements under Section 185 of the NIRC of
1997 is the provision’s legislative history. The text of Section 185 came into U.S. law as early as 1904 when HMOs and health care agreements were not
even in existence in this jurisdiction. It was imposed under Section 116, Article XI of Act No. 1189 (otherwise known as the "Internal Revenue Law of
1904")46enacted on July 2, 1904 and became effective on August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim
reproduction of the pertinent portion of Section 116, to wit:
ARTICLE XI
Stamp Taxes on Specified Objects
Section 116. There shall be levied, collected, and paid for and in respect to the several bonds, debentures, or certificates of stock and indebtedness, and
other documents, instruments, matters, and things mentioned and described in this section, or for or in respect to the vellum, parchment, or paper upon
which such instrument, matters, or things or any of them shall be written or printed by any person or persons who shall make, sign, or issue the same,
on and after January first, nineteen hundred and five, the several taxes following:
xxx xxx xxx
Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss, damage, or liability made or renewed by any
person, association, company, or corporation transacting the business of accident, fidelity, employer’s liability, plate glass, steam boiler,
burglar, elevator, automatic sprinkle, or other branch of insurance (except life, marine, inland, and fire insurance) xxxx (Emphasis supplied)
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and consolidating the laws relating to internal revenue.
The aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III of Act No. 2339. The
very detailed and exclusive enumeration of items subject to DST was thus retained.
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l), Article IV of Act No. 2657 (Administrative
Code). Upon its amendment on March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act No. 2711, otherwise known as the
Administrative Code of 1917.
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which codified all the internal revenue laws of the
Philippines. In an amendment introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision remained substantially the same.
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC of 1977) as Section 234. Under PDs 1457
and 1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST rate was again increased.1avvphi1
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was renumbered as Section 198. And under Section 23
of EO47 273 dated July 25, 1987, it was again renumbered and became Section 185.
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate of tax.
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997), the subject legal provision was retained as the
present Section 185. In 2004, amendments to the DST provisions were introduced by RA 9243 48 but Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the formation of Bancom Health Care Corporation in 1974. The same
pioneer HMO was later reorganized and renamed Integrated Health Care Services, Inc. (or Intercare). However, there are those who claim that Health
Maintenance, Inc. is the HMO industry pioneer, having set foot in the Philippines as early as 1965 and having been formally incorporated in 1991.
Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs with a total enrollment of more than 2 million.49
We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the law imposing the DST was first passed,
HMOs were yet unknown in the Philippines. However, when the various amendments to the DST law were enacted, they were already in existence in
the Philippines and the term had in fact already been defined by RA 7875. If it had been the intent of the legislature to impose DST on health care
agreements, it could have done so in clear and categorical terms. It had many opportunities to do so. But it did not. The fact that the NIRC contained no
specific provision on the DST liability of health care agreements of HMOs at a time they were already known as such, belies any legislative intent to
impose it on them. As a matter of fact, petitioner was assessed its DST liability only on January 27, 2000, after more than a decade in the
business as an HMO.50
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to say that health care agreements were never, at
any time, recognized as insurance contracts or deemed engaged in the business of insurance within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security
against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who is to pay it.51 So potent indeed
is the power that it was once opined that "the power to tax involves the power to destroy." 52
Petitioner claims that the assessed DST to date which amounts to ₱376 million53 is way beyond its net worth of ₱259 million.54 Respondent never
disputed these assertions. Given the realities on the ground, imposing the DST on petitioner would be highly oppressive. It is not the purpose of the
government to throttle private business. On the contrary, the government ought to encourage private enterprise. 55 Petitioner, just like any concern
organized for a lawful economic activity, has a right to maintain a legitimate business.56 As aptly held in Roxas, et al. v. CTA, et al.:57
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary
rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg."58
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses because of a tax imposition may be an
acceptable consequence but killing the business of an entity is another matter and should not be allowed. It is counter-productive and ultimately
subversive of the nation’s thrust towards a better economy which will ultimately benefit the majority of our people. 59
Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997 became moot and academic 60 when it
availed of the tax amnesty under RA 9480 on December 10, 2007. It paid ₱5,127,149.08 representing 5% of its net worth as of the year ended
December 31, 2005 and complied with all requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is entitled to immunity from payment of
taxes as well as additions thereto, and the appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable year 2005 and prior years. 61
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from payment of the tax involved, including the civil,
criminal, or administrative penalties provided under the 1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.
In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the merits of this case as discussed above, respondent concedes
that such tax amnesty extinguishes the tax liabilities of petitioner. This admission, however, is not meant to preclude a revocation of the amnesty
granted in case it is found to have been granted under circumstances amounting to tax fraud under Section 10 of said amnesty law. 62 (Emphasis
supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program under RA 9480. 63 There is no other conclusion
to draw than that petitioner’s liability for DST for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax amnesty under RA
9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by the ruling of the CA64 in CIR v. Philippine
National Bank65 that a health care agreement of Philamcare Health Systems is not an insurance contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing the appeal in Philippine National Bank (G.R.
No. 148680).66 Petitioner argues that the dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence, the Court should
apply the CA ruling there that a health care agreement is not an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the case. When we dismissed the
petition, we effectively affirmed the CA ruling being questioned. As a result, our ruling in that case has already become final.67 When a minute resolution
denies or dismisses a petition for failure to comply with formal and substantive requirements, the challenged decision, together with its findings of fact
and legal conclusions, are deemed sustained.68 But what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata.69 However, if other parties or
another subject matter (even with the same parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-
Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71 involving the same parties and the same issues, was previously disposed of by
the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case "ha(d)
no bearing" on the latter case because the two cases involved different subject matters as they were concerned with the taxable income of different
taxable years.72
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The constitutional requirement under the first
paragraph of Section 14, Article VIII of the Constitution that the facts and the law on which the judgment is based must be expressed clearly and
distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only by the clerk of court by authority of the justices, unlike a
decision. It does not require the certification of the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the Philippine
Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision. 73Indeed, as a rule, this Court lays down doctrines or principles of law
which constitute binding precedent in a decision duly signed by the members of the Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability for DST on its health care agreement was not the subject
matter of G.R. No. 148680, petitioner cannot successfully invoke the minute resolution in that case (which is not even binding precedent) in its favor.
Nonetheless, in view of the reasons already discussed, this does not detract in any way from the fact that petitioner’s health care agreements are not
subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and there was never any legislative intent to
impose the same on HMOs like petitioner, the same should not be arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical services at a cost which the average wage earner can afford.
HMOs arrange, organize and manage health care treatment in the furtherance of the goal of providing a more efficient and inexpensive health care
system made possible by quantity purchasing of services and economies of scale. They offer advantages over the pay-for-service system (wherein
individuals are charged a fee each time they receive medical services), including the ability to control costs. They protect their members from exposure
to the high cost of hospitalization and other medical expenses brought about by a fluctuating economy. Accordingly, they play an important role in
society as partners of the State in achieving its constitutional mandate of providing its citizens with affordable health services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged. 74 Its imposition will elevate the cost of health care services. This will
in turn necessitate an increase in the membership fees, resulting in either placing health services beyond the reach of the ordinary wage earner or
driving the industry to the ground. At the end of the day, neither side wins, considering the indispensability of the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED and SET
ASIDE. Respondent is ordered to desist from collecting the said tax.
No costs.
SO ORDERED.

20.Eastern Shipping Lines v. Prudential Guarantee and Assurance Inc., GR No. 174116, 1 September 2009

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to set aside the April 26, 2006 Decision2 and August
15, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 68165.
The facts of the case:
On November 8, 1995, fifty-six cases of completely knock-down auto parts of Nissan motor vehicle (cargoes) were loaded on board M/V Apollo Tujuh
(carrier) at Nagoya, Japan, to be shipped to Manila. The shipment was consigned to Nissan Motor Philippines, Inc. (Nissan) and was covered by Bill of
Lading No. NMA-1.4 The carrier was owned and operated by petitioner Eastern Shipping Lines, Inc.
On November 16, 1995, the carrier arrived at the port of Manila. On November 22, 1995, the shipment was then discharged from the vessel onto the
custody of the arrastre operator, Asian Terminals, Inc. (ATI), complete and in good condition, except for four cases. 5
On November 24 to 28, 1995, the shipment was withdrawn by Seafront Customs and Brokerage from the pier and delivered to the warehouse of Nissan
in Quezon City.6
A survey of the shipment was then conducted by Tan-Gaute Adjustment Company, Inc. (surveyor) at Nissan’s warehouse. On January 16, 1996, the
surveyor submitted its report7 with a finding that there were "short (missing)" items in Cases Nos. 10/A26/T3K and 10/A26/7K and "broken/scratched"
and "broken" items in Case No. 10/A26/70K"; and that "(i)n (its) opinion, the "shortage and damage sustained by the shipment were due to pilferage and
improper handling, respectively while in the custody of the vessel and/or Arrastre Contractors." 8
As a result, Nissan demanded the sum of ₱1,047,298.349 representing the cost of the damages sustained by the shipment from petitioner, the owner of
the vessel, and ATI, the arrastre operator. However, the demands were not heeded.10
On August 21, 1996, as insurer of the shipment against all risks per Marine Open Policy No. 86-168 and Marine Cargo Risk Note No. 3921/95,
respondent Prudential Guarantee and Assurance Inc. paid Nissan the sum of ₱1,047,298.34.
On October 1, 1996, respondent sued petitioner and ATI for reimbursement of the amount it paid to Nissan before the Regional Trial Court (RTC) of
Makati City, Branch 148, docketed as Civil Case No. 96-1665, entitled Prudential Guarantee and Assurance, Inc. v. Eastern Shipping Lines,
Inc. Respondent claimed that it was subrogated to the rights of Nissan by virtue of said payment.11
On June 21, 1999, the RTC rendered a Decision,12 the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendants Eastern Shipping Lines, Inc. and
ATI, and said defendants are hereby ordered to pay jointly and solidarily plaintiff the following:
1) The claim of ₱1,047,298.34 with legal interest thereon of 6% per annum from the date of the filing of this complaint until the same is fully
paid;
2) [Twenty-five (25%)] percent of the principal claim, as and for attorney’s fees;
3) Plus costs of suit.
Both the counterclaims and crossclaims are without legal basis. The counterclaims and crossclaims are based on the assumption that the other
defendant is the one solely liable. However, inasmuch as the solidary liability of the defendants have been established, the counterclaims and
crossclaims must be denied.
Equal costs against Eastern Shipping Lines, Inc. and Asian Terminals, Inc.
SO ORDERED.13
Both petitioner and ATI appealed to the CA.
On April 26, 2006, the CA rendered a Decision the dispositive portion of which reads:
WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS, in that (i) defendant-appellant Eastern Shipping Lines, Inc. is ordered to pay
appellee (a) the amount of ₱904,293.75 plus interest thereon at the rate of 6% per annum from the filing of the complaint up to the finality of this
judgment, when the interest shall become 12% per annum until fully paid, and (b) the costs of suit; (ii) the award of attorney’s fees is DELETED; and (iii)
the complaint against defendant-appellant Asian Terminals, Inc. is DISMISSED.
SO ORDERED.14
The CA exonerated ATI and ruled that petitioner was solely responsible for the damages caused to the cargoes. Moreover, the CA relying on Delsan
Transport Lines, Inc. vs. Court of Appeals,15 ruled that the right of subrogation accrues upon payment by the insurance company of the insurance claim
and that the presentation of the insurance policy is not indispensable before the appellee may recover in the exercise of its subrogatory right. 16
Petitioner then filed a motion for reconsideration, which was, however, denied by the CA in a Resolution dated August 15, 2006.
Hence, herein petition, with petitioner raising the following assignment of errors to wit:
I.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE LOWER COURT FINDING HEREIN PETITIONER
LIABLE DESPITE THE FACT THAT RESPONDENT FAILED TO SUBMIT ANY INSURANCE POLICY.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT APPLYING THE US$500.00/PACKAGE/CASE PACKAGE LIMITATION OF
LIABILITY IN ACCORDANCE WITH THE CARRIAGE OF GOODS BY SEA ACT.17
The petition is meritorious.
The rule in our jurisdiction is that only questions of law may be entertained by this Court in a petition for review on certiorari. This rule, however, is not
iron-clad and admits of certain exceptions, one of which is when the CA manifestly overlooked certain relevant and undisputed facts that, if properly
considered, would justify a different conclusion.18 In the case at bar, the records of the case contain evidence which justify the application of the
exception.
Anent the first error, petitioner argues that respondent was not properly subrogated because of the non-presentation of the marine insurance policy. In
the case at bar, in order to prove its claim, respondent presented a marine cargo risk note and a subrogation receipt. Thus, the question to be resolved
is whether the two documents, without the Marine Insurance Policy, are sufficient to prove respondent’s right of subrogation.
Before anything else, it must be emphasized that a marine risk note is not an insurance policy. It is only an acknowledgment or declaration of the insurer
confirming the specific shipment covered by its marine open policy, the evaluation of the cargo and the chargeable premium. 19 In International Container
Terminal Services, Inc. v. FGU Insurance Corporation (International),20 the nature of a marine cargo risk note was explained, thus:
x x x It is the marine open policy which is the main insurance contract. In other words, the marine open policy is the blanket insurance to be undertaken
by FGU on all goods to be shipped by RAGC during the existence of the contract, while the marine risk note specifies the particular goods/shipment
insured by FGU on that specific transaction, including the sum insured, the shipment particulars as well as the premium paid for such shipment. x x x.21
For clarity, the pertinent portions of the Marine Cargo Risk Note, 22 relied upon by respondent, are hereunder reproduced, to wit:
RN NO 39821/95
Date: Nov. 16, 1995
NISSAN MOTOR PHILS., INC.
xxx
Gentlemen:
We have this day noted a Risk in your favor subject to all clauses and condition of the Company’s printed form of Marine Open Policy No. 86-168
For PHILIPINE PESOS FOURTEEN MILLION ONE HUNDRED SEVENTY-THREE THOUSAND FORTY-TWO & 91/100 ONLY (P14, 173,042.91) xxx
CARGO: 56 CASES NISSAN MOTOR VEHICLE CKD (GC22)
CONDITIONS: INSTITUTE CARGO CLAUSES "A"
OTHER TERMS AND CONDITIONS PER
MOP-86-168
From: NAGOYA
To: MANILA, PHILS.
ETD: NOV. 8, 1995 ETA: NOV. 17, 1995
CARRIER: "APOLLO TUJUH"
B/L NO: NMA-1
BANK: BANK OF THE PHILLIPINE ISLANDS
L/C NO: 026010051971
Shipper/ Consignee: MARUBENI CORPORATION
It is undisputed that the cargoes were already on board the carrier as early as November 8, 1995 and that the same arrived at the port of Manila on
November 16, 1995. It is, however, very apparent that the Marine Cargo Risk Note was issued only on November 16, 1995. The same, therefore, should
have raised a red flag, as it would be impossible to know whether said goods were actually insured while the same were in transit from Japan to Manila.
On this score, this Court is guided by Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,23 where this Court ruled:
Thus, we can only consider the Marine Risk Note in determining whether there existed a contract of insurance between ABB Koppel and Malayan at the
time of the loss of the motors. However, the very terms of the Marine Risk Note itself are quite damning. It is dated 21 March 1995, or after the
occurrence of the loss, and specifically states that Malayan "ha[d] this day noted the above-mentioned risk in your favor and hereby guarantee[s] that
this document has all the force and effect of the terms and conditions in the Corporation’s printed form of the standard Marine Cargo Policy and the
Company’s Marine Open Policy."24
Likewise, the date of the issuance of the Marine Risk Note also caught the attention of petitioner. In petitioner’s Comment/Opposition25 to the formal offer
of evidence before the RTC, petitioner made the following manifestations, to wit:
Exhibit "B," Marine Cargo Risk Note No. 39821 dated November 16, 1995 is being objected to for being irrelevant and immaterial as it was
executed on November 16, 1995. The cargoes arrived in Manila on November 16, 1995. This means that the cargoes are not specifically
covered by any particular insurance at the time of transit. The alleged Marine Open Policy was not presented. Marine Open Policy may be subject
to Institute Cargo Clauses which may require arbitration prior to the filing of an action in court. 26
In addition, petitioner also contended that the Marine Cargo Risk Note referred to "Institute Cargo Clauses A and other terms and conditions per Marine
Open Policy-86-168."
Based on the forgoing, it is already evident why herein petition is meritorious. The Marine Risk Note relied upon by respondent as the basis for its claim
for subrogation is insufficient to prove said claim.
As previously stated, the Marine Risk Note was issued only on November 16, 1995; hence, without a copy of the marine insurance policy, it would be
impossible and simply guesswork to know whether the cargo was insured during the voyage which started on November 8, 1995. Again, without the
marine insurance policy, it would be impossible for this Court to know the following: first, the specifics of the "Institute Cargo Clauses A and other terms
and conditions per Marine Open Policy-86-168" as alluded to in the Marine Risk Note; second, if the said terms and conditions were actually complied
with before respondent paid Nissan’s claim.
Furthermore, a reading of the transcript of the records clearly show that, at the RTC, petitioner had already objected to the non-presentation of the
marine insurance policy, to wit:
Q. Are you also the one preparing the Marine Insurance Contract?
A. No, sir.
Q. Who is the one?
A. Our Marine Cargo Underwriting Department.
Q. And do you know anybody in that department?
A. Yes, sir.
Q. And you were aware that this particular cargo of the shipment was insured?
A. Yes, sir, per policy issued.
Q. And that you are referring to Exhibit?
A. The Marine Cargo Risk.
Q. Is this the only contract of Insurance between Prudential Guarantee and Nissan?
A. Sir, there is a Marine Open Policy.
Q. Do you have any copy of that?
A. It is in the office.
Atty. Alojado Can you produce that copy?
 Atty. Zapa May we know the request of counsel for producing this Marine Open Policy?
Atty. Alojado The basis of the question is the answer of the witness which says that there is another contract of insurance.
COURT Yes, that is a Marine Open Policy.
Are you familiar with Marine Open Policy?
Atty. Alojado Yes, Your Honor.
But we would also like to be familiarize with that contract.
COURT But you know already a Marine Open Policy
Atty. Alojado Yes, Your Honor.
COURT I do not know if you work as a lawyer for several Insurance Company?
Atty. Alojado No, Your Honor. Honestly, Your Honor I worked as
a Maritime lawyer.
COURT Then you should know what is Marine Open Policy.
Atty. Alojado I would like to know the specification of the
Marine Open Policy in this regard.
Atty. Zapa I think your Honor, between the plaintiff and the defendant there is no issue against the insurance.
COURT Yes because this witness it not testifying on the Marine Open Policy.
Atty. Alojado We submit.
COURT Proceed.
Atty. Alojado
Q. But there is a Marine Open Policy
A. Yes, sir.27
xxxx
COURT
Q. Is the policy a standing policy, a continuing policy or is it going only for only a year or for a particular shipment or what?
A. For this particular consignee, they have Marine Open Policy.
Atty. Alojado That was not presented.
COURT That’s why I’m asking. So the policy is not only for a particular shipment, but all other shipments that may come?
A. Yes, Your Honor.
Q. Are covered?
A. Yes, Your Honor.
Q. Without any specifications?
A. Yes, Your Honor.28
Clearly, petitioner was not remiss when it openly objected to the non-presentation of the Marine Insurance Policy. As testified to by respondent’s
witness, they had a copy of the marine insurance policy in their office. Thus, respondent was already apprised of the possible importance of the said
document to their cause.
In addition, this Court takes notice that notwithstanding that the RTC may have denied the repeated manifestation of petitioner of the non-presentation of
the marine insurance policy, the same by itself does not exonerate respondent. As plaintiff, it was respondent’s burden to present the evidence
necessary to substantiate its claim.
In its Complaint,29 respondent alleged: "That the above-described shipment was insured for ₱14,173,042.91 against all risks under plaintiff’s Marine
Cargo Risk Note No. 39821/Marine Open Policy No. 86-168."30 Therefore, other than the marine cargo risk note, respondent should have also
presented the marine insurance policy, as the same also served as the basis for its complaint. Section 7, Rule 9 of the 1997 Rules of Civil Procedure,
provide:
SECTION 7. Action or defense based on document.—Whenever an action or defense is based upon a written instrument or document, the substance of
such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which
shall be deemed to be a part of the pleading, or said copy may, with like effect, be set forth in the pleading.
On this score, Malayan is instructive:
Malayan’s right of recovery as a subrogee of ABB Koppel cannot be predicated alone on the liability of the respondent to ABB Koppel, even though such
liability will necessarily have to be established at the trial for Malayan to recover. Because Malayan’s right to recovery derives from contractual
subrogation as an incident to an insurance relationship, and not from any proximate injury to it inflicted by the respondents, it is critical that Malayan
establish the legal basis of such right to subrogation by presenting the contract constitutive of the insurance relationship between it and ABB Koppel.
Without such legal basis, its cause of action cannot survive.
Our procedural rules make plain how easily Malayan could have adduced the Marine Insurance Policy. Ideally, this should have been accomplished from
the moment it filed the complaint. Since the Marine Insurance Policy was constitutive of the insurer-insured relationship from which Malayan draws its
right to subrogation, such document should have been attached to the complaint itself, as provided for in Section 7, Rule 9 of the 1997 Rules of Civil
Procedure: x x x31
Therefore, since respondent alluded to an actionable document in its complaint, the contract of insurance between it and Nissan, as integral to its cause
of action against petitioner, the Marine Insurance Policy should have been attached to the Complaint. Even in its formal offer of evidence, respondent
alluded to the marine insurance policy which can stand independent of the Marine Cargo Risk Note, to wit:
EXH "B" = Marine Cargo Risk Note No. 39821/95 Dated November 16, 1995.
Purpose: As proof that the subject shipment was covered by insurance for ₱14,173, 042.91 under Marine Open Policy No. 86-168.32
It is significant that the date when the alleged insurance contract was constituted cannot be established with certainty without the contract itself. Said
point is crucial because there can be no insurance on a risk that had already occurred by the time the contract was executed.33 Surely, the Marine Risk
Note on its face does not specify when the insurance was constituted.
The importance of the presentation of the Marine Insurance Policy was also emphasized in Wallem Philippines Shipping, Inc. v. Prudential Guarantee &
Assurance, Inc.,34 where this Court ruled:
x x x Wallem still cannot be held liable because of the failure of Prudential to present the contract of insurance or a copy thereof. Prudential claims that it
is subrogated to the rights of GMC pursuant to their insurance contract. For this purpose, it submitted a subrogation receipt (Exh. J) and a marine cargo
risk note (Exh. D). However, as the trial court pointed out, this is not sufficient. As GMC’s subrogee, Prudential can exercise only those rights granted to
GMC under the insurance contract. The contract of insurance must be presented in evidence to indicate the extent of its coverage. As there was no
determination of rights under the insurance contract, this Court’s ruling in Home Insurance Corporation v. Court of Appeals is applicable:
The insurance contract has not been presented. It may be assumed for the sake of argument that the subrogation receipt may nevertheless be used to
establish the relationship between the petitioner [Home Insurance Corporation] and the consignee [Nestlé Phil.] and the amount paid to settle the claim.
But that is all the document can do. By itself alone, the subrogation receipt is not sufficient to prove the petitioner’s claim holding the respondent
[Mabuhay Brokerage Co., Inc.] liable for the damage to the engine.
....
It is curious that the petitioner disregarded this rule, knowing that the best evidence of the insurance contract was its original copy, which was
presumably in the possession of Home itself. Failure to present this original (or even a copy of it), for reasons the Court cannot comprehend, must prove
fatal to this petition.35
Finally, there have been cases where this Court ruled that the non-presentation of the marine insurance policy is not fatal, as can be gleaned in
International, where this Court held:
Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial court or even belatedly before the
appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of the marine insurance policy was
necessary, as the issues raised therein arose from the very existence of an insurance contract between Malayan Insurance and its consignee, ABB
Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court ruled that the
insurance contract must be presented in evidence in order to determine the extent of the coverage. This was also the ruling of the Court in Home
Insurance Corporation v. Court of Appeals.
However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the
presentation of the insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the petitioner's vessel, unlike
in Home Insurance in which the cargo passed through several stages with different parties and it could not be determined when the damage to the cargo
occurred, such that the insurer should be liable for it.
As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioner's custody. Moreover, there is no issue as
regards the provisions of Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to mention
that its existence was already admitted by petitioner in open court. And even though it was not offered in evidence, it still can be considered by the court
as long as they have been properly identified by testimony duly recorded and they have themselves been incorporated in the records of the case.36
Although the CA may have ruled that the damage to the cargo occurred while the same was in petitioner’s custody, this Court cannot apply the ruling
in International to the case at bar. In contrast, unlike in International where there was no issue as regards the provisions of the marine insurance policy,
such that the presentation of the contract itself is necessary for perusal, herein petitioner had repeatedly objected to the non-presentation of the marine
insurance policy and had manifested its desire to know the specific provisions thereof. Moreover, and the same is critical, the marine risk note in the
case at bar is questionable because: first, it is dated on the same day the cargoes arrived at the port of Manila and not during the duration of the
voyage; second, without the Marine Insurance Policy to elucidate on the specifics of the terms and conditions alluded to in the marine risk note, it would
be simply guesswork to know if the same were complied with.
Lastly, to cast all doubt on the merits of herein petition, this Court is guided by the ruling in Malayan, to wit:
It cannot be denied from the only established facts that Malayan and ABB Koppel comported as if there was an insurance relationship between them
and documents exist that evince the presence of such legal relationship. But, under these premises, the very insurance contract emerges as the white
elephant in the room – an obdurate presence which everybody reacts to, yet, legally invisible as a matter of evidence since no attempt had been made
to prove its corporeal existence in the court of law. It may seem commonsensical to conclude anyway that there was a contract of insurance between
Malayan and ABB Koppel since they obviously behaved in a manner that indicates such relationship, yet the same conclusion could be had even if, for
example, those parties staged an elaborate charade to impress on the world the existence of an insurance contract when there actually was none. While
there is absolutely no indication of any bad faith of such import by Malayan or ABB Koppel, the fact that the "commonsensical" conclusion can be drawn
even if there was bad faith that convinces us to reject such line of thinking.1avvphi1
The Court further recognizes the danger as precedent should we sustain Malayan’s position, and not only because such a ruling would formally violate
the rule on actionable documents. Malayan would have us effectuate an insurance contract without having to consider its particular terms and
conditions, and on a blind leap of faith that such contract is indeed valid and subsisting. The conclusion further works to the utter prejudice of defendants
such as Regis or Paircargo since they would be deprived the opportunity to examine the document that gives rise to the plaintiff’s right to recover against
them, or to raise arguments or objections against the validity or admissibility of such document. If a legal claim is irrefragably sourced from an actionable
document, the defendants cannot be deprived of the right to examine or utilize such document in order to intelligently raise a defense. The inability or
refusal of the plaintiff to submit such document into evidence constitutes an effective denial of that right of the defendant which is ultimately rooted in due
process of law, to say nothing on how such failure fatally diminishes the plaintiff’s substantiation of its own cause of action. 37
In conclusion, this Court rules that based on the applicable jurisprudence, because of the inadequacy of the Marine Cargo Risk Note for the reasons
already stated, it was incumbent on respondent to present in evidence the Marine Insurance Policy, and having failed in doing so, its claim of
subrogation must necessarily fail.
Because of the foregoing, it would be unnecessary to discuss the second error raised by petitioner.
WHEREFORE, premises considered, the petition is GRANTED. The April 26, 2006 Decision and August 15, 2006 Resolution of the Court of Appeals in
CA-G.R. CV No. 68165 are hereby REVERSED and SET ASIDE. The Complaint in Civil Case No. 96-1665 is DISMISSED.
SO ORDERED.

21. Heirs of Maramag v. Maramag, GR No. 181132, 5 June 2009

This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution 2 dated January 8, 2008 of the
Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners’ appeal for lack of jurisdiction.
The case stems from a petition3 filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or reduction of insurance
proceeds for being void and/or inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary injunction.
The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loreto’s illegitimate
family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified to receive any
proceeds from his insurance policies from Insular Life Assurance Company, Ltd. (Insular) 4 and Great Pacific Life Assurance Corporation (Grepalife); 5 (3)
the illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of the legitime of the legitimate children, thus,
the proceeds released to Odessa and those to be released to Karl Brian and Trisha Angelie were inofficious and should be reduced; and (4) petitioners
could not be deprived of their legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, that part of the insurance proceeds had already
been released in favor of Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors, upon the
appointment of their legal guardian. Petitioners also prayed for the total amount of ₱320,000.00 as actual litigation expenses and attorney’s fees.
In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate children,
and that they filed their claims for the insurance proceeds of the insurance policies; that when it ascertained that Eva was not the legal wife of Loreto, it
disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries;
and that it released Odessa’s share as she was of age, but withheld the release of the shares of minors Karl Brian and Trisha Angelie pending
submission of letters of guardianship. Insular alleged that the complaint or petition failed to state a cause of action insofar as it sought to declare as void
the designation of Eva as beneficiary, because Loreto revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy No.
A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of
Loreto’s estate had been filed nor had the respective shares of the heirs been determined. Insular further claimed that it was bound to honor the
insurance policies designating the children of Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance Code.
In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not designated as an insurance policy beneficiary; that the claims filed
by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for insurance due to a misrepresentation in his application form
that he was born on December 10, 1936 and, thus, not more than 65 years old when he signed it in September 2001; that the case was premature, there
being no claim filed by the legitimate family of Loreto; and that the law on succession does not apply where the designation of insurance beneficiaries is
clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners, summons by publication was resorted to. Still, the
illegitimate family of Loreto failed to file their answer. Hence, the trial court, upon motion of petitioners, declared them in default in its Order dated May 7,
2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their respective answers be resolved first. The trial court
ordered petitioners to comment within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal – whether the complaint itself was proper or not –
and that the designation of a beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of Articles 752 8 and 7729 of the Civil
Code.
In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiaries in the policies, not to the
estate or to the heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary when it ascertained that Loreto was legally
married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads –
WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and Grepalife is granted with respect to defendants Odessa,
Karl Brian and Trisha Maramag. The action shall proceed with respect to the other defendants Eva Verna de Guzman, Insular Life and Grepalife.
SO ORDERED.10
In so ruling, the trial court ratiocinated thus –
Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special laws. Matters not expressly provided for in such
special laws shall be regulated by this Code. The principal law on insurance is the Insurance Code, as amended. Only in case of deficiency in the
Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds shall be paid. It is very clear under Sec. 53 thereof
that the insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made, unless
otherwise specified in the policy. Since the defendants are the ones named as the primary beneficiary (sic) in the insurances (sic) taken by the deceased
Loreto C. Maramag and there is no showing that herein plaintiffs were also included as beneficiary (sic) therein the insurance proceeds shall exclusively
be paid to them. This is because the beneficiary has a vested right to the indemnity, unless the insured reserves the right to change the beneficiary.
(Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary succession in order to defeat the right of herein defendants to
collect the insurance indemnity. The beneficiary in a contract of insurance is not the donee spoken in the law of donation. The rules on testamentary
succession cannot apply here, for the insurance indemnity does not partake of a donation. As such, the insurance indemnity cannot be considered as an
advance of the inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon Employees’ Association v.
Juanita Golpeo, et al., the Honorable Supreme Court made the following pronouncements[:]
"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively to the defendant as his individual and separate
property, we agree that the proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life was
insured, and that such proceeds are the separate and individual property of the beneficiary and not of the heirs of the person whose life was insured, is
the doctrine in America. We believe that the same doctrine obtains in these Islands by virtue of Section 428 of the Code of Commerce x x x."
In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient cause of action against defendants Odessa, Karl Brian
and Trisha Angelie Maramag for the reduction and/or declaration of inofficiousness of donation as primary beneficiary (sic) in the insurances (sic) of the
late Loreto C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary (sic) in the insurances (sic) taken by the late Loreto
C. Maramag is his concubine Eva Verna De Guzman. Any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy of the person who cannot make any donation to him, according to said article (Art. 2012, Civil Code). If a concubine
is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not to the
concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper beneficiary. In such case, the action for the declaration of
nullity may be brought by the spouse of the donor or donee, and the guilt of the donor and donee may be proved by preponderance of evidence in the
same action (Comment of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva Verna de Guzman as one
of the primary beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance
indemnity that should be paid to her must go to the legal heirs of the deceased which this court may properly take cognizance as the action for the
declaration for the nullity of a void donation falls within the general jurisdiction of this Court. 11
Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the main, that the petition failed to state a cause of action. Insular
further averred that the proceeds were divided among the three children as the remaining named beneficiaries. Grepalife, for its part, also alleged that
the premiums paid had already been refunded.
Petitioners, in their comment, reiterated their earlier arguments and posited that whether the complaint may be dismissed for failure to state a cause of
action must be determined solely on the basis of the allegations in the complaint, such that the defenses of Insular and Grepalife would be better
threshed out during trial.1avvphi1
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by defendants Grepalife and Insular Life are hereby
GRANTED. Accordingly, the portion of the Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case against
defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and the case against them is hereby ordered DISMISSED.
SO ORDERED.14
In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations of Insular that Loreto revoked the
designation of Eva in one policy and that Insular disqualified her as a beneficiary in the other policy such that the entire proceeds would be paid to the
illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It ruled that it is only in cases where there are no beneficiaries
designated, or when the only designated beneficiary is disqualified, that the proceeds should be paid to the estate of the insured. As to the claim that the
proceeds to be paid to Loreto’s illegitimate children should be reduced based on the rules on legitime, the trial court held that the distribution of the
insurance proceeds is governed primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and inapplicable. With respect to the
Grepalife policy, the trial court noted that Eva was never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the
dismissal of the case as to the illegitimate children. It further held that the matter of Loreto’s misrepresentation was premature; the appropriate action
may be filed only upon denial of the claim of the named beneficiaries for the insurance proceeds by Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction, holding that the decision of the trial court
dismissing the complaint for failure to state a cause of action involved a pure question of law. The appellate court also noted that petitioners did not file
within the reglementary period a motion for reconsideration of the trial court’s Resolution, dated September 21, 2004, dismissing the complaint as
against Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had already attained finality.
Hence, this petition raising the following issues:
a. In determining the merits of a motion to dismiss for failure to state a cause of action, may the Court consider matters which were not alleged
in the Complaint, particularly the defenses put up by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause of action, did not the Regional Trial Court engage
in the examination and determination of what were the facts and their probative value, or the truth thereof, when it premised the dismissal on
allegations of the defendants in their answer – which had not been proven?
c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance for the concubine? 15
In essence, petitioners posit that their petition before the trial court should not have been dismissed for failure to state a cause of action because the
finding that Eva was either disqualified as a beneficiary by the insurance companies or that her designation was revoked by Loreto, hypothetically
admitted as true, was raised only in the answers and motions for reconsideration of both Insular and Grepalife. They argue that for a motion to dismiss to
prosper on that ground, only the allegations in the complaint should be considered. They further contend that, even assuming Insular disqualified Eva as
a beneficiary, her share should not have been distributed to her children with Loreto but, instead, awarded to them, being the legitimate heirs of the
insured deceased, in accordance with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial court’s finding that the petition failed to state a cause of action, as provided in Rule 16, Section
1(g), of the Rules of Court, which reads –
SECTION 1. Grounds. – Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be made
on any of the following grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of another. 16 A complaint states a cause of action when it contains the three (3)
elements of a cause of action—(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and (3) the act or omission of the
defendant in violation of the legal right. If any of these elements is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of
failure to state a cause of action.17
When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in the complaint. The court must
resolve the issue on the strength of such allegations, assuming them to be true. The test of sufficiency of a cause of action rests on whether,
hypothetically admitting the facts alleged in the complaint to be true, the court can render a valid judgment upon the same, in accordance with the prayer
in the complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity of the allegations if:
1. the falsity of the allegations is subject to judicial notice;
2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations appear unfounded; or
5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the hearings related to the case.18
In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of Loreto, they were not named as
beneficiaries in the insurance policies issued by Insular and Grepalife. The basis of petitioners’ claim is that Eva, being a concubine of Loreto and a
suspect in his murder, is disqualified from being designated as beneficiary of the insurance policies, and that Eva’s children with Loreto, being
illegitimate children, are entitled to a lesser share of the proceeds of the policies. They also argued that pursuant to Section 12 of the Insurance
Code,19 Eva’s share in the proceeds should be forfeited in their favor, the former having brought about the death of Loreto. Thus, they prayed that the
share of Eva and portions of the shares of Loreto’s illegitimate children should be awarded to them, being the legitimate heirs of Loreto entitled to their
respective legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011 of the Civil Code which
expressly provides that insurance contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states—
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made
unless otherwise specified in the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the
insured is already deceased, upon the maturation of the policy.20 The exception to this rule is a situation where the insurance contract was intended to
benefit third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case, third parties may directly sue and
claim from the insurer.21
Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly,
respondents Insular and Grepalife have no legal obligation to turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary in
one policy and her disqualification as such in another are of no moment considering that the designation of the illegitimate children as beneficiaries in
Loreto’s insurance policies remains valid. Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by the
insured,22 the shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on donations under Article 739 of the Civil
Code or by the insurers themselves for reasons based on the insurance contracts, must be awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not designated any beneficiary, 23 or when the designated
beneficiary is disqualified by law to receive the proceeds, 24 that the insurance policy proceeds shall redound to the benefit of the estate of the insured.
In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same light, the Decision of the CA dated January 8, 2008
should be sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure to state a cause of action is a
question of law and not of fact, there being no findings of fact in the first place.25
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.
SO ORDERED.