1

WHITE GOLD MARINE SERVICES, INC. vs. PIONEER INSURANCE AND SURETY
CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION
(BERMUDA) LTD., G.R. No. 154514. July 28, 2005
FACTS:
White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual Underwriting
Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and
Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of
Entry and Acceptance. Pioneer also issued receipts evidencing payments for the
coverage. When White Gold failed to fully pay its accounts, Steamship Mutual
refused to renew the coverage. Steamship Mutual thereafter filed a case against
White Gold for collection of sum of money to recover the latters unpaid balance.
White Gold on the other hand, filed a complaint before the Insurance Commission
claiming that Steamship Mutual violated Sections 186 and 187 of the Insurance
Code, while Pioneer violated Sections 299, 300 and 301 in relation to Sections 302
and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no
need for Steamship Mutual to secure a license because it was not engaged in the
insurance business. It explained that Steamship Mutual was a Protection and
Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as
insurance agent and/or a broker for Steamship Mutual because Steamship Mutual
was not engaged in the insurance business. Moreover, Pioneer was already
licensed, hence, a separate license solely as agent/broker of Steamship Mutual was
already superfluous. The Court of Appeals affirmed the decision of the Insurance
Commissioner. In its decision, the appellate court distinguished between P & I
Clubs vis--vis conventional insurance. The appellate court also held that Pioneer
merely acted as a collection agent of Steamship Mutual. Hence, this petition
ISSUE:
1) Whether or not Steamship Mutual is engaged in the insurance business in the
Philippines
2) Whether or not Pioneer needs a license as an insurance agent/broker for
Steamship Mutual?
RULING:
YES.
Section 2(2) of the Insurance Code enumerates what constitutes doing an
insurance business or transacting an insurance business. These are:
(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.
The same provision also provides, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions, or that no separate or

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direct consideration is received therefor, shall not preclude the existence of an
insurance business.
The test to determine if a contract is an insurance contract or not, depends on
the nature of the promise, the act required to be performed, and the exact nature of
the agreement in the light of the occurrence, contingency, or circumstances under
which the performance becomes requisite. It is not by what it is called.[13]
In particular, a marine insurance undertakes to indemnify the assured against
marine losses, such as the losses incident to a marine adventure. Relatedly, a
mutual insurance company is a cooperative enterprise where the members are both
the insurer and insured. In it, the members all contribute, by a system of premiums
or assessments, to the creation of a fund from which all losses and liabilities are
paid, and where the profits are divided among themselves, in proportion to their
interest. Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs. A P & I
Club is a form of insurance against third party liability, where the third party is
anyone other than the P & I Club and the members. By definition then, Steamship
Mutual as a P & I Club is a mutual insurance association engaged in the marine
insurance business.
The records reveal Steamship Mutual is doing business in the country albeit
without the requisite certificate of authority mandated by Section 187of the
Insurance Code. It maintains a resident agent in the Philippines to solicit insurance
and to collect payments in its behalf. We note that Steamship Mutual even renewed
its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to
continue doing business here, Steamship Mutual or through its agent Pioneer, must
secure a license from the Insurance Commission. Since a contract of insurance
involves public interest, regulation by the State is necessary. Thus, no insurer or
insurance company is allowed to engage in the insurance business without a license
or a certificate of authority from the Insurance Commission.
Furthermore, Pioneer is the resident agent of Steamship Mutual as evidenced by the
certificate of registration issued by the Insurance Commission. It has been licensed
to do or transact insurance business by virtue of the certificate of authority issued
by the same agency. However, a Certification from the Commission states that
Pioneer does not have a separate license to be an agent/broker of Steamship
Mutual. Although Pioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for Steamship Mutual. Section 299 of the
Insurance Code clearly states:
SEC. 299 . . .No person shall act as an insurance agent or as an insurance broker in
the solicitation or procurement of applications for insurance, or receive for services
in obtaining insurance, any commission or other compensation from any insurance
company doing business in the Philippines or any agent thereof, without first
procuring a license so to act from the Commissioner, which must be renewed
annually on the first day of January, or within six months thereafter. . .
CENTRAL SHIPPING COMPANY, INC. vs. INSURANCE COMPANY OF NORTH
AMERICA,
G.R. No. 150751. September 20, 2004

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FACTS:
On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its
vessel, the M/V Central Bohol, 376 pieces [of] Philippine Apitong Round Logs and
undertook to transport said shipment to Manila for delivery to Alaska Lumber Co.,
Inc. The cargo was insured for P3,000,000.00 against total loss under [respondents]
Marine Cargo Policy No. MCPB-00170. On July 25, 1990, upon completion of loading
of the cargo, the vessel left Palawan and commenced the voyage to Manila. At
about 0125 hours on July 26, 1990, while enroute to Manila, the vessel listed about
10 degrees starboardside, due to the shifting of logs in the hold. At about 0128
hours, after the listing of the vessel had increased to 15 degrees, the ship captain
ordered his men to abandon ship and at about 0130 hours of the same day the
vessel completely sank. Due to the sinking of the vessel, the cargo was totally lost.
[Respondent] alleged that the total loss of the shipment was caused by the fault
and negligence of the [petitioner] and its captain and as direct consequence thereof
the consignee suffered damage in the sum of P3,000,000.00.
The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the
shipment to the [petitioner] but the latter failed and refused to settle the claim,
hence [respondent], being the insurer, paid said claim and now seeks to be
subrogated to all the rights and actions of the consignee as against the [petitioner].
[Petitioner], while admitting the sinking of the vessel, interposed the defense that
the vessel was fully manned, fully equipped and in all respects seaworthy; that all
the logs were properly loaded and secured; that the vessels master exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of
the storm. It raised as its main defense that the proximate and only cause of the
sinking of its vessel and the loss of its cargo was a natural disaster, a tropical storm
which neither [petitioner] nor the captain of its vessel could have foreseen.
The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by
the weather or any other caso fortuito. Applying the rule of presumptive fault or
negligence against the carrier, the trial court held petitioner liable for the loss of the
cargo. Thus, the RTC deducted the salvage value of the logs in the amount
of P200,000 from the principal claim of respondent and found that the latter was
entitled to be subrogated to the rights of the insured. The CA affirmed the trial
courts finding that the southwestern monsoon encountered by the vessel was not
unforeseeable. Given the season of rains and monsoons, the ship captain and his
crew should have anticipated the perils of the sea. The appellate court further held
that the weather disturbance was not the sole and proximate cause of the sinking of
the vessel, which was also due to the concurrent shifting of the logs in the hold that
could have resulted only from improper stowage. Thus, the carrier was held
responsible for the consequent loss of or damage to the cargo, because its own
negligence had contributed thereto. Hence, this petition.
ISSUES:
1) Whether or not the carrier is liable for the loss of the cargo
2) Whether or not the doctrine of limited liability is applicable
RULING:
YES. From the nature of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence over the goods they transport,
according to all the circumstances of each case. In the event of loss, destruction or

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deterioration of the insured goods, common carriers are responsible; that is, unless
they can prove that such loss, destruction or deterioration was brought about -among others -- by flood, storm, earthquake, lightning or other natural disaster or
calamity. In all other cases not specified under Article 1734 of the Civil Code,
common carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence. n the present case,
petitioner has not given the Court sufficient cogent reasons to disturb the
conclusion of the CA that the weather encountered by the vessel was not a storm
as contemplated by Article 1734(1). Established is the fact that between 10:00 p.m.
on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered a
southwestern monsoon in the course of its voyage. Even if the weather encountered
by the ship is to be deemed a natural disaster under Article 1739 of the Civil Code,
petitioner failed to show that such natural disaster or calamity was the proximate
and only cause of the loss. Human agency must be entirely excluded from the
cause of injury or loss. In other words, the damaging effects blamed on the event or
phenomenon must not have been caused, contributed to, or worsened by the
presence of human participation. The defense of fortuitous event or natural disaster
cannot be successfully made when the injury could have been avoided by human
precaution. Hence, if a common carrier fails to exercise due diligence -- or that
ordinary care that the circumstances of the particular case demand -- to prevent or
minimize the loss before, during and after the occurrence of the natural disaster,
the carrier shall be deemed to have been negligent. The loss or injury is not, in a
legal sense, due to a natural disaster under Article 1734(1).
We also find no reason to disturb the CAs finding that the loss of the vessel was
caused not only by the southwestern monsoon, but also by the shifting of the logs in
the hold. Such shifting could been due only to improper stowage. The evidence
indicated that strong southwest monsoons were common occurrences during the
month of July. Thus, the officers and crew of M/V Central Bohol should have
reasonably anticipated heavy rains, strong winds and rough seas. They should then
have taken extra precaution in stowing the logs in the hold, in consonance with their
duty of observing extraordinary diligence in safeguarding the goods. But the carrier
took a calculated risk in improperly securing the cargo. Having lost that risk, it
cannot now escape responsibility for the loss.
NO. The doctrine of limited liability under Article 587 of the Code of
Commerce is not applicable to the present case. This rule does not apply to
situations in which the loss or the injury is due to the concurrent negligence of the
shipowner and the captain. It has already been established that the sinking of M/V
Central Bohol had been caused by the fault or negligence of the ship captain and
the crew, as shown by the improper stowage of the cargo of logs. Closer
supervision on the part of the shipowner could have prevented this fatal
miscalculation. As such, the shipowner was equally negligent. It cannot escape
liability by virtue of the limited liability rule.

PAN MALAYAN INSURANCE CORPORATION, vs. COURT OF APPEALS,

ERLINDA FABIE AND HER UNKNOWN DRIVER, G.R. No. 81026 April 3, 1990

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FACTS:
On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of
Makati against private respondents Erlinda Fabie and her driver. PANMALAY averred
the following: that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431
and registered in the name of Canlubang Automotive Resources Corporation
[CANLUBANG]; that on May 26, 1985, due to the "carelessness, recklessness, and
imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured
car was hit and suffered damages in the amount of P42,052.00; that PANMALAY
defrayed the cost of repair of the insured car and, therefore, was subrogated to the
rights of CANLUBANG against the driver of the pick-up and his employer, Erlinda
Fabie; and that, despite repeated demands, defendants, failed and refused to pay
the claim of PANMALAY.Private respondents, thereafter, filed a Motion for Bill of
Particulars and a supplemental motion thereto. In compliance therewith, PANMALAY
clarified, among others, that the damage caused to the insured car was settled
under the "own damage", coverage of the insurance policy, and that the driver of
the insured car was, at the time of the accident, an authorized driver duly licensed
to drive the vehicle. PANMALAY also submitted a copy of the insurance policy and
the Release of Claim and Subrogation Receipt executed by CANLUBANG in favor of
PANMALAY.
On February 12, 1986, private respondents filed a Motion to Dismiss alleging that
PANMALAY had no cause of action against them. They argued that payment under
the "own damage" clause of the insurance policy precluded subrogation under
Article 2207 of the Civil Code, since indemnification thereunder was made on the
assumption that there was no wrongdoer or no third party at fault.
After hearings conducted on the motion, opposition thereto, reply and rejoinder, the
RTC issued an order dated June 16, 1986 dismissing PANMALAY's complaint for no
cause of action. On August 19, 1986, the RTC denied PANMALAY's motion for
reconsideration.On appeal taken by PANMALAY, these orders were upheld by the
Court of Appeals on November 27, 1987. Consequently, PANMALAY filed the present
petition for review.

ISSUE:
1) Whether or not the insurer PANMALAY may institute an action to recover the
amount it had paid its assured in settlement of an insurance claim against
private respondents
RULING:
Yes. Deliberating on the various arguments adduced in the pleadings, the
Court finds merit in the petition. PANMALAY alleged in its complaint that, pursuant
to a motor vehicle insurance policy, it had indemnified CANLUBANG for the damage
to the insured car resulting from a traffic accident allegedly caused by the
negligence of the driver of private respondent, Erlinda Fabie. PANMALAY contended,
therefore, that its cause of action against private respondents was anchored upon
Article 2207 of the Civil Code, which reads:
If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out
of the wrong or breach of contract complained of, the insurance

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company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. . . .
PANMALAY is correct. Article 2207 of the Civil Code is founded on the well-settled
principle of subrogation. If the insured property is destroyed or damaged through
the fault or negligence of a party other than the assured, then the insurer, upon
payment to the assured, will be subrogated to the rights of the assured to recover
from the wrongdoer to the extent that the insurer has been obligated to pay.
Payment by the insurer to the assured operates as an equitable assignment to the
former of all remedies which the latter 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 or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the
insurer There are a few recognized exceptions to this rule. For instance, if the
assured by his own act releases the wrongdoer or third party liable for the loss or
damage, from liability, the insurer's right of subrogation is defeated. Similarly,
where the insurer pays the assured the value of the lost goods without notifying the
carrier who has in good faith settled the assured's claim for loss, the settlement is
binding on both the assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation. And where the insurer pays the
assured for a loss which is not a risk covered by the policy, thereby effecting
"voluntary payment", the former has no right of subrogation against the third party
liable for the loss. None of the exceptions are availing in the present case.
It must be emphasized that the lower court's ruling that the "own damage"
coverage under the policy implies damage to the insured car caused by the assured
itself, instead of third parties, proceeds from an incorrect comprehension of the
phrase "own damage" as used by the insurer. When PANMALAY utilized the phrase
"own damage" a phrase which, incidentally, is not found in the insurance policy
to define the basis for its settlement of CANLUBANG's claim under the policy, it
simply meant that it had assumed to reimburse the costs for repairing the damage
to the insured vehicle [See PANMALAY's Compliance with Supplementary Motion for
Bill of Particulars, p. 1; Record, p. 31]. It is in this sense that the so-called "own
damage" coverage under Section III of the insurance policy is differentiated from
Sections I and IV-1 which refer to "Third Party Liability" coverage (liabilities arising
from the death of, or bodily injuries suffered by, third parties) and from Section IV-2
which refer to "Property Damage" coverage (liabilities arising from damage caused
by the insured vehicle to the properties of third parties). Neither is there merit in the
Court of Appeals' ruling that the coverage of insured risks under Section III-1 of the
policy does not include to the insured vehicle arising from collision or overturning
due to the negligent acts of the third party. Not only does it stem from an erroneous
interpretation of the provisions of the section, but it also violates a fundamental rule
on the interpretation of property insurance contracts.
It is a basic rule in the interpretation of contracts that the terms of a contract are to
be construed according to the sense and meaning of the terms which 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. It is only when the terms of
the policy are ambiguous, equivocal or uncertain, such that the parties themselves

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disagree about the meaning of particular provisions, that the courts will intervene.
In such an event, the policy will be construed by the courts liberally in favor of the
assured and strictly against the insurer.
PANMALAY contends that the coverage of insured risks, specifically Section III-1(a),
is comprehensive enough to include damage to the insured vehicle arising from
collision or overturning due to the fault or negligence of a third party. Considering
that the very parties to the policy were not shown to be in disagreement regarding
the meaning and coverage of Section III-1 thereof, it was improper for the appellate
court to indulge in contract construction, to apply the ejusdem generis rule, and to
ascribe meaning contrary to the clear intention and understanding of these parties.
It cannot be said that the meaning given by PANMALAY and CANLUBANG to the
phrase "by accidental collision or overturning" found in the first paint of subparagraph (a) is untenable. Although the terms "accident" or "accidental" as used in
insurance contracts have not acquired a technical meaning, the Court has on
several occasions defined these terms to mean that which takes place "without
one's foresight or expectation, an event that proceeds from an unknown cause, or is
an unusual effect of a known cause and, therefore, not expected". Certainly, it
cannot be inferred from jurisprudence that these terms, without qualification,
exclude events resulting in damage or loss due to the fault, recklessness or
negligence of third parties. The concept "accident" is not necessarily synonymous
with the concept of "no fault". It may be utilized simply to distinguish intentional or
malicious acts from negligent or careless acts of man. Moreover, a perusal of the
provisions of the insurance policy reveals that damage to, or loss of, the insured
vehicle due to negligent or careless acts of third parties is not listed under the
general and specific exceptions to the coverage of insured risks which are
enumerated in detail in the insurance policy itself.
The Court, furthermore. finds it noteworthy that the meaning advanced by
PANMALAY regarding the coverage of Section III-1(a) of the policy is undeniably
more beneficial to CANLUBANG than that insisted upon by respondents herein. By
arguing that this section covers losses or damages due not only to malicious, but
also to negligent acts of third parties, PANMALAY in effect advocates for a more
comprehensive coverage of insured risks. And this, in the final analysis, is more in
keeping with the rationale behind the various rules on the interpretation of
insurance contracts favoring the assured or beneficiary so as to effect the dominant
purpose of indemnity or payment.
Parenthetically, even assuming for the sake of argument that Section III-1(a) of the
insurance policy does not cover damage to the insured vehicle caused by negligent
acts of third parties, and that PANMALAY's settlement of CANLUBANG's claim for
damages allegedly arising from a collision due to private respondents' negligence
would amount to unwarranted or "voluntary payment", dismissal of PANMALAY's
complaint against private respondents for no cause of action would still be a grave
error of law. For even if under the above circumstances PANMALAY could not be
deemed subrogated to the rights of its assured under Article 2207 of the Civil Code,
PANMALAY would still have a cause of action against private respondents. In the
pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, supra.,
the Court ruled that the insurer who may have no rights of subrogation due to

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"voluntary" payment may nevertheless recover from the third party responsible for
the damage to the insured property under Article 1236 of the Civil Code.

THE CAPITAL INSURANCE & SURETY CO., INC., vs.PLASTIC ERA CO., INC.,
AND COURT OF APPEALS, G.R. No. L-22375, July 18, 1975
FACTS:
On December 17, 1960, petitioner Capital Insurance & Surety Co., Inc. delivered to
the respondent Plastic Era Manufacturing Co., Inc., its open Fire Policy No.
22760 1 wherein the former undertook to insure the latter's building, equipments,
raw materials, products and accessories located at Sheridan Street, Mandaluyong,
Rizal. The policy expressly provides that if the property insured would be destroyed
or damaged by fire after the payment of the premiums, at anytime between the
15th day of December 1960 and one o'clock in the afternoon of the 15th day of
December 1961, the insurance company shall make good all such loss or damage in
an amount not exceeding P100,000.00. When the policy was delivered, Plastic Era
failed to pay the corresponding insurance premium. However, through its duly
authorized representative, it executed the following acknowledgment receipt:
This acknowledged receipt of Fire Policy) NO. 22760 Premium
x x x x x) (I promise to pay)
(P2,220.00) (has been paid)
THIRTY DAYS AFTER on effective date --------------------(Date)
On January 8, 1961, in partial payment of the insurance premium, Plastic Era
delivered to Capital Insurance, a check 2 for the amount of P1,000.00 postdated
January 16, 1961 payable to the order of the latter and drawn against the Bank of
America. However, Capital Insurance tried to deposit the check only on February 20,
1961 and the same was dishonored by the bank for lack of funds. The records show
that as of January 19, 1961 Plastic Era had a balance of P1,193.41 with the Bank of
America.
On January 18, 1961 or two days after the insurance premium became due, at about
4:00 to 5:00 o'clock in the morning, the property insured by Plastic Era was
destroyed by fire. In due time, the latter notified Capital Insurance of the loss of the
insured property by fire 3 and accordingly filed its claim for indemnity thru the
Manila Adjustment Company. 4 In less than a month Plastic Era demanded from
Capital Insurance the payment of the sum of P100,000.00 as indemnity for the loss
of the insured property under Policy No. 22760 but the latter refused for the reason
that, among others, Plastic Era failed to pay the insurance premium.On August 25,
1961, Plastic Era filed its complaint against Capital Insurance for the recovery of the
sum of P100,000.00 plus P25,000.00 for attorney's fees and P20,000.00 for
additional expenses. Capital Insurance filed a counterclaim of P25,000.00 as and for
attorney's fees.
On November 15, 1961, the trial court rendered judgment in favor of the plaintiff
and against the defendant for the sum of P88,325.63 with interest at the legal rate
from the filing of the complaint and to pay the costs.From said decision, Capital
Insurance appealed to the Court of Appeals which rendered its decision affirming
that of the trial court. Hence, this petition for review by certiorari.

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ISSUE:
1) Whether or not a contract of insurance has been duly perfected between the
petitioner, Capital Insurance, and respondent Plastic Era
RULING:
YES. In clear and unequivocal terms, the insurance policy provides that it is only
upon payment of the premiums by Plastic Era that Capital Insurance agrees to
insure the properties of the former against loss or damage in an amount not
exceeding P100,000.00. Significantly, Capital Insurance accepted the promise of
Plastic Era to pay the insurance premium within thirty (30) days from the effective
date of policy. By so doing, it has implicitly agreed to modify the tenor of the
insurance policy and in effect, waived the provision therein that it would only pay
for the loss or damage in case the same occurs after the payment of the premium.
Considering that the insurance policy is silent as to the mode of payment, Capital
Insurance is deemed to have accepted the promissory note in payment of the
premium. This rendered the policy immediately operative on the date it was
delivered. The view taken in most cases in the United States:
... is that although one of conditions of an insurance policy is that "it
shall not be valid or binding until the first premium is paid", if it is
silent as to the mode of payment, promissory notes received by the
company must be deemed to have been accepted in payment of the
premium. In other words, a requirement for the payment of the first or
initial premium in advance or actual cash may be waived by
acceptance of a promissory note ...
Precisely, this was what actually happened when the Capital Insurance accepted the
acknowledgment receipt of the Plastic Era promising to pay the insurance premium
within thirty (30) days from December 17, 1960. Hence, when the damage or loss of
the insured property occurred, the insurance policy was in full force and effect. The
fact that the check issued by Plastic Era in partial payment of the promissory note
was later on dishonored did not in any way operate as a forfeiture of its rights under
the policy, there being no express stipulation therein to that effect. By accepting
its promise to pay the insurance premium within thirty (30) days from the
effectivity date of the policy December 17, 1960 Capital Insurance had
in effect extended credit to Plastic Era. The payment of the premium on
the insurance policy therefore became an independent obligation the nonfulfillment of which would entitle Capital Insurance to recover. It could just
deduct the premium due and unpaid upon the satisfaction of the loss
under the policy. It did not have the right to cancel the policy for
nonpayment of the premium except by putting Plastic Era in default and
giving it personal notice to that effect. This Capital Insurance failed to do.
On the contrary Capital Insurance had accepted a check for P1,000.00 from Plastic
Era in partial payment of the premium on the insurance policy. Although the check
was due for payment on January 16, 1961 and Plastic Era had sufficient funds to
cover it as of January 19, 1961, Capital Insurance decided to hold the same for
thirty-five (35) days before presenting it for payment. Having held the check for
such an unreasonable period of time, Capital Insurance was estopped from claiming
a forfeiture of its policy for non-payment even if the check had been dishonored
later.

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Where the check is held for an unreasonable time before presenting it
for payment, the insurer may be held estopped from claiming a
forfeiture if the check is dishonored
MALAYAN INSURANCE CO., INC. (MICO), vs.GREGORIA CRUZ ARNALDO, in
her capacity as the INSURANCE COMMISSIONER, and CORONACION PINCA,
G.R. No. L-67835, October 12, 1987
FACTS:
On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private
respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her
property for the amount of P14,000.00 effective July 22, 1981, until July 22,
1982. On October 15,1981, MICO allegedly cancelled the policy for non-payment, of
the premium and sent the corresponding notice to Pinca. On December 24, 1981,
payment of the premium for Pinca was received by Domingo Adora, agent of
MICO.On January 15, 1982, Adora remitted this payment to MICO,together with
other payments. On January 18, 1982, Pinca's property was completely burned. On
February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground
that her policy had been cancelled earlier. But Adora refused to accept it.In due
time, Pinca made the requisite demands for payment, which MICO rejected. She
then went to the Insurance Commission. It is because she was ultimately sustained
by the public respondent that the petitioner has come to us for relief. The records
show that notice of the decision of the public respondent dated April 5, 1982, was
received by MICO on April 10, 1982. On April 25, 1982, it filed a motion for
reconsideration, which was denied on June 4, 1982. Notice of this denial was
received by MICO on June 13, 1982, as evidenced by Annex "1" duly authenticated
by the Insurance Commission. The instant petition was filed with this Court on July
2, 1982.
ISSUE:
1) Whether or not this petition was filed in time and must be given due course
2) Whether or not there was no payment of premium and that the policy had
been cancelled before the occurence of the loss are not acceptable
RULING:
NO. The position of the petition is that the petition is governed by Section 416 0f
the Insurance Code giving it thirty days wthin which to appeal by certiorari to this
Court. Alternatively, it also invokes Rule 45 of the Rules of Court. For their part, the
public and private respondents insist that the applicable law is B.P. 129, which they
say governs not only courts of justice but also quasi-judicial bodies like the
Insurance Commission. The period for appeal under this law is also fifteen days, as
under Rule 45. Under Section 416 of the Insurance Code, the period for appeal is
thirty days from notice of the decision of the Insurance Commission. The petitioner
filed its motion for reconsideration on April 25, 1981, or fifteen days such notice,
and the reglementary period began to run again after June 13, 1981, date of its
receipt of notice of the denial of the said motion for reconsideration. As the herein
petition was filed on July 2, 1981, or nineteen days later, there is no question that it
is tardy by four days.
Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it
is applicable, would end on June 28, 1982, or also four days from July 2, when the

11
petition was filed. If it was filed under B.P. 129, then, considering that the motion for
reconsideration was filed on the fifteenth day after MICO received notice of the
decision, only one more day would have remained for it to appeal, to wit, June 14,
1982. That would make the petition eighteen days late by July 2. Indeed, even if the
applicable law were still R.A. 5434, governing appeals from administrative bodies,
the petition would still be tardy. The law provides for a fixed period of ten days from
notice of the denial of a seasonable motion for reconsideration within which to
appeal from the decision. Accordingly, that ten-day period, counted from June 13,
1982, would have ended on June 23, 1982, making the petition filed on July 2,
1982, nine days late.
MICO's acknowledgment of Adora as its agent defeats its contention that he was not
authorized to receive the premium payment on its behalf. It is clearly provided in
Section 306 of the Insurance Code that:
SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance agant or insurance broker a
policy or contract of insurance shall be demmed to have authorized such agent or
broker to receive on its behalf payment of any premium which is due on such policy
or contract of insurance at the time of its issuance or delivery or which becomes
due thereon.
And it is a well-known principle under the law of agency that:
Payment to an agent having authority to receive or collect payment is
equivalent to payment to the principal himself; such payment is
complete when the money delivered is into the agent's hands and is a
discharge of the indebtedness owing to the principal.
MICO's view that there was no existing insurance at the time of the loss sustained
by Pinca because her policy never became effective for non-payment of premium is
defective. Payment was in fact made, rendering the policy operative as of June 22,
1981, and removing it from the provisions of Article 77, Thereafter, the policy could
be cancelled on any of the supervening grounds enumerated in Article 64 (except
"nonpayment of premium") provided the cancellation was made in accordance
therewith and with Article 65.
Section 64 reads as follows:
SEC. 64. No policy of insurance other than life shall be cancelled by the
insurer except upon prior notice thereof to the insured, and no notice
of cancellation shall be effective unless it is based on the occurrence,
after the effective date of the policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard
insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the
hazard insured against;
(e) physical changes in the property insured which result in the
property becoming uninsurable;or
(f) a determination by the Commissioner that the continuation of the
policy would violate or would place the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:
SEC. 65. All notices of cancellation mentioned in the preceding section
shall be in writing, mailed or delivered to the named insured at the
address shown in the policy, and shall state (a) which of the grounds

12
set forth in section sixty-four is relied upon and (b) that, upon written
request of the named insured, the insurer will furnish the facts on
which the cancellation is based.
A valid cancellation must, therefore, require concurrence of the following
conditions:
(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the effective date of
the policy, of one or more of the grounds mentioned;
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named
insured, (c) at the address shown in the policy;
(4) It must state (a) which of the grounds mentioned in Section 64 is relied
upon and (b) that upon written request of the insured, the insurer will
furnish the facts on which the cancellation is based.
Considering the strict language of Section 64 that no insurance policy shall be
cancelled except upon prior notice, it behooved MICO's to make sure that the
cancellation was actually sent to and received by the insured. The presumption
cited is unavailing against the positive duty enjoined by Section 64 upon MICO and
the flat denial made by the private respondent that she had received notice of the
claimed cancellation.It stands to reason that if Pinca had really received the said
notice, she would not have made payment on the original policy on December 24,
1981. Instead, she would have asked for a new insurance, effective on that date and
until one year later, and so taken advantage of the extended period. The Court finds
that if she did pay on that date, it was because she honestly believed that the policy
issued on June 7, 1981, was still in effect and she was willing to make her payment
retroact to July 22, 1981, its stipulated commencement date. After all, agent Adora
was very accomodating and had earlier told her "to call him up any time" she was
ready with her payment on the policy earlier issued. She was obviously only
reciprocating in kind when she paid her premium for the period beginning July 22,
1981, and not December 24, 1981. A close study of the proceedings will show that
Pinca meant to renew the policy if it had really been already cancelled but not if it
was still effective. It was all conditional. As it has not been shown that there was a
valid cancellation of the policy, there was consequently no need to renew it but to
pay the premium thereon. Payment was thus legally made on
the original transaction and it could be, and was, validly received on behalf of the
insurer by its agent Adora. Adora incidentally, had not been informed of the
cancellation either and saw no reason not to accept the said payment.
Finally, there is nothing in the Insurance Code that makes the participation of an
adjuster in the assessment of the loss imperative or indispensable, as MICO
suggests. Section 325, which it cites, simply speaks of the licensing and duties of
adjusters.

ISABELA ROQUE, doing busines under the name and style of Isabela Roque
Timber Enterprises and ONG CHIONG, , vs.HON. INTERMEDIATE APPELATE
COURT and PIONEER INSURANCE AND SURETY CORPORATION, G.R. No. L66935 November 11, 1985
FACTS:

13
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a
common carrier, entered into a contract with the petitioners whereby the former
would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs
from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured
the logs against loss for P100,000.00 with respondent Pioneer Insurance and Surety
Corporation (Pioneer). On February 29, 1972, the petitioners loaded on the barge,
811 pieces of logs at Malampaya Sound, Palawan for carriage and delivery to North
Harbor, Port of Manila, but the shipment never reached its destination because
Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on
its way to Manila. As alleged by the petitioners in their complaint and as found by
both the trial and appellate courts, the barge where the logs were loaded was not
seaworthy such that it developed a leak. The appellate court further found that one
of the hatches was left open causing water to enter the barge and because the
barge was not provided with the necessary cover or tarpaulin, the ordinary splash of
sea waves brought more water inside the barge.On March 8, 1972, the petitioners
wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of the
shipment plus P100,000.00 as unrealized profits but the latter ignored the demand.
Another letter was sent to respondent Pioneer claiming the full amount of
P100,000.00 under the insurance policy but respondent refused to pay on the
ground that its hability depended upon the "Total loss by Total Loss of Vessel only".
Hence, petitioners commenced Civil Case No. 86599 against Manila Bay and
respondent Pioneer.
After hearing, the trial court found in favor of the petitioners thereby
(a) Condemning defendants Manila Bay Lighterage Corporation and
Pioneer Insurance and Surety Corporation to pay plaintiffs, jointly and
severally, the sum of P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage Corporation to pay
plaintiff, in addition, the sum of P50,000.00, plus P12,500.00, that the
latter advanced to the former as down payment for transporting the
logs in question;
(c) Ordering the counterclaim of defendant Insurance against plaintiffs,
dismissed, for lack of merit, but as to its cross-claim against its codefendant Manila Bay Lighterage Corporation, the latter is ordered to
reimburse the former for whatever amount it may pay the plaintiffs as
such surety;
(d) Ordering the counterclaim of defendant Lighterage against
plaintiffs, dismissed for lack of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as
exemplary damages are ordered dismissed, for lack of merits;
plaintiffs' claim for attorney's fees in the sum of P10,000.00 is hereby
granted, against both defendants, who are, moreover ordered to pay
the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six
per cent (6%) from March 25, 1975, until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did
not appeal.According to the petitioners, the transportation company is no longer
doing business and is without funds.During the initial stages of the hearing, Manila
Bay informed the trial court that it had salvaged part of the logs. The court ordered
them to be sold to the highest bidder with the funds to be deposited in a bank in the
name of Civil Case No. 86599. On January 30, 1984, the appellate court modified

14
the trial court's decision and absolved Pioneer from liability after finding that there
was a breach of implied warranty of seaworthiness on the part of the petitioners and
that the loss of the insured cargo was caused by the "perils of the ship" and not by
the "perils of the sea". It ruled that the loss is not covered by the marine insurance
policy. Hence, this petition
ISSUES:
1) Whether or not there is a warranty of seaworthiness by the cargo owner
2) Whether or not the loss of the cargo was caused by the perils of the ship
and not by perils of the sea
3) Whether or not the petitioner is entitled to the salvage value of the logs
RULING:
YES. The liability of the insurance company is governed by law. Section 113 of the
Insurance Code provides:
In every marine insurance upon a ship or freight, or freightage, or upon
any thing which is the subject of marine insurance, a warranty is
implied that the ship is seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise, ...
From the above-quoted provisions, there can be no mistaking the fact that the term
"cargo" can be the subject of marine insurance and that once it is so made, the
implied warranty of seaworthiness immediately attaches to whoever is insuring the
cargo whether he be the shipowner or not.
As ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of
Canton (40 Phil. 40):
The same conclusion must be reached if the question be discussed
with reference to the seaworthiness of the ship. It is universally
accepted that in every contract of insurance upon anything which is
the subject of marine insurance, a warranty is implied that the ship
shall be seaworthy at the time of the inception of the voyage. This rule
is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured
is immaterial in ordinary marine insurance and may not be used by him as a
defense in order to recover on the marine insurance policy. Since the law provides
for an implied warranty of seaworthiness in every contract of ordinary marine
insurance, it becomes the obligation of a cargo owner to look for a reliable common
carrier which keeps its vessels in seaworthy condition. The shipper of cargo may
have no control over the vessel but he has full control in the choice of the common
carrier that will transport his goods. Or the cargo owner may enter into a contract of
insurance which specifically provides that the insurer answers not only for the perils
of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this
case. As stated by the private respondents:
In marine cases, the risks insured against are "perils of the sea"
(Chute v. North River Ins. Co., Minn214 NW 472, 55 ALR 933). The purpose of such
insurance is protection against contingencies and against possible damages and

15
such a policy does not cover a loss or injury which must inevitably take place in the
ordinary course of things. There is no doubt that the term 'perils of the sea' extends
only to losses caused by sea damage, or by the violence of the elements, and
does not embrace all losses happening at sea. They insure against losses
from extraordinary occurrences only, such as stress of weather, winds and
waves, lightning, tempests, rocks and the like. These are understood to be
the "perils of the sea" referred in the policy, and not those ordinary perils
which every vessel must encounter. "Perils of the sea" has been said to
include only such losses as are of extraordinary nature, or arise from
some overwhelming power, which cannot be guarded against by the
ordinary exertion of human skill and prudence. Damage done to a vessel by
perils of the sea includes every species of damages done to a vessel at sea, as
distinguished from the ordinary wear and tear of the voyage, anddistinct from
injuries suffered by the vessel in consequence of her not being seaworthy at the
outset of her voyage (as in this case). It is also the general rule that everything
which happens thru the inherent vice of the thing, or by the act of the owners,
master or shipper, shall not be reputed a peril, if not otherwise borne in the policy. It
is quite unmistakable that the loss of the cargo was due to the perils of
the ship rather than the perils of the sea. The facts clearly negate the
petitioners' claim under the insurance policy. In the case of Go Tiaoco y
Hermanos v. Union Ins. Society of Canton, supra, we had occasion to elaborate on
the term "perils of the ship." We ruled:
It must be considered to be settled, furthermore, that a loss which, in
the ordinary course of events, results from the natural and
inevitable action of the sea, from the ordinary wear and tear of
the ship, or from the negligent failure of the ship's owner to
provide the vessel with proper equipment to convey the cargo
under ordinary conditions, is not a peril of the sea. Such a loss
is rather due to what has been aptly called the "peril of the
ship." The insurer undertakes to insure against perils of the
sea and similar perils, not against perils of the ship.. The loss
was therefore more analogous to that which directly results from
simple unseaworthiness than to that which result from the perils of the
sea.
xxx xxx xxx
Suffice it to say that upon the authority of those cases there is no room
to doubt the liability of the shipowner for such a loss as occurred in this
case. By parity of reasoning the insurer is not liable; for generally
speaking, the shipowner excepts the perils of the sea from his
engagement under the bill of lading, while this is the very perils
against which the insurer intends to give protection.
Neither can petitioners allege barratry on the basis of the findings showing
negligence on the part of the vessel's crew. Barratry as defined in American
Insurance Law is "any willful misconduct on the part of master or crew in pursuance
of some unlawful or fraudulent purpose without the consent of the owners, and to
the prejudice of the owner's interest. Barratry necessarily requires a willful and
intentional act in its commission. No honest error of judgment or mere negligence,
unless criminally gross, can be barratry. In the case at bar, there is no finding that
the loss was occasioned by the willful or fraudulent acts of the vessel's crew. There
was only simple negligence or lack of skill. Hence, the second assignment of error

16
must likewise be dismissed. Anent the third assignment of error, the amount of
P8,000.00 representing the amount of the salvaged logs should have been awarded
to the petitioners. However, this should be deducted from the amounts which have
been adjudicated against Manila Bay Lighterage Corporation by the trial court.

MAKATI TUSCANY CONDOMINIUM CORPORATION, vs.THE COURT OF

APPEALS, AMERICAN HOME ASSURANCE CO., represented by American
International Underwriters (Phils.), Inc., G.R. No. 95546, November 6, 1992
FACTS:
Sometime in early 1982, private respondent American Home Assurance Co. (AHAC),
represented by American International Underwriters (Phils.), Inc., issued in favor of
petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy
No. AH-CPP-9210452 on the latter's building and premises, for a period beginning 1
March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The
premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982
and 16 November 1982, all of which were accepted by private respondent.On 10
February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP9210596, which replaced and renewed the previous policy, for a term covering 1
March 1983 to 1 March 1984. The premium in the amount of P466,103.05 was again
paid on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September
1983, and 21 November 1983. All payments were likewise accepted by private
respondent. On 20 January 1984, the policy was again renewed and private
respondent issued to petitioner Insurance Policy No. AH-CPP-9210651 for the period
1 March 1984 to 1 March 1985. On this renewed policy, petitioner made two
installment payments, both accepted by private respondent, the first on 6 February
1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter,
petitioner refused to pay the balance of the premium.
Consequently, private respondent filed an action to recover the unpaid balance of
P314,103.05 for Insurance Policy No. AH-CPP-9210651. In its answer with
counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP9210651. It explained that it discontinued the payment of premiums because the
policy did not contain a credit clause in its favor. Petitioner further claimed that the
policy was never binding and valid, and no risk attached to the policy. It then
pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85,
and in its answer with amended counterclaim, sought the refund of P924,206.10
representing the premium payments for 1982-85. After some incidents, petitioner
and private respondent moved for summary judgment.
On 8 October 1987, the trial court dismissed the complaint and the counterclaim.
Both parties appealed from the judgment of the trial court. Thereafter, the Court of
Appeals rendered a decision 2modifying that of the trial court by ordering herein
petitioner to pay the balance of the premiums due on Policy No. AH-CPP-921-651, or
P314,103.05 plus legal interest until fully paid, and affirming the denial of the
counterclaim. Hence, this petition.
ISSUE:

17
1) Whether or not payment by installment of the premiums due on an insurance
policy invalidates the contract of insurance
RULING:
NO. The subject policies are valid even if the premiums were paid on installments.
Although Section 77 of the Insurance Code provides that An insurer is entitled to
the payment of the premium as soon as the thing is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the
premium thereof has been paid, except in the case of a life or an industrial life
policy whenever the grace period provision applies. The records clearly show that
petitioner and private respondent intended subject insurance policies to be binding
and effective notwithstanding the staggered payment of the premiums. The initial
insurance contract entered into in 1982 was renewed in 1983, then in 1984. In
those three (3) years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurer's intention to honor the
policies it issued to petitioner. Certainly, basic principles of equity and fairness
would not allow the insurer to continue collecting and accepting the premiums,
although paid on installments, and later deny liability on the lame excuse that the
premiums were not prepared in full.
The ruling of the Court of Appeals is thereby sustained that
While the import of Section 77 is that prepayment of premiums is
strictly required as a condition to the validity of the contract, We are
not prepared to rule that the request to make installment payments
duly approved by the insurer, would prevent the entire contract of
insurance from going into effect despite payment and acceptance of
the initial premium or first installment. Section 78 of the Insurance
Code in effect allows waiver by the insurer of the condition of
prepayment by making an acknowledgment in the insurance policy of
receipt of premium as conclusive evidence of payment so far as to
make the policy binding despite the fact that premium is actually
unpaid. Section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are not
paid, but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary to
morals, good customs, public order or public policy (De Leon,
the Insurance Code, at p. 175). So is an understanding to allow
insured to pay premiums in installments not so proscribed. At
the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.
It appearing from the peculiar circumstances that the parties actually intended to
make three (3) insurance contracts valid, effective and binding, petitioner may not
be allowed to renege on its obligation to pay the balance of the premium after the
expiration of the whole term of the third policy (No. AH-CPP-9210651) in March
1985. Moreover, as correctly observed by the appellate court, where the risk is
entire and the contract is indivisible, the insured is not entitled to a refund of the
premiums paid if the insurer was exposed to the risk insured for any period,
however brief or momentary.

18

PHILAMCARE HEALTH SYSTEMS, INC., vs.COURT OF APPEALS and JULITA

TRINOS, G.R. No. 125678, March 18, 2002
FACTS:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health
care coverage with petitioner Philamcare Health Systems, Inc. In the standard
application form, he answered no to the following question:
Have you or any of your family members ever consulted or been treated for
high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer? (If Yes, give details).1
The application was approved for a period of one year from March 1, 1988 to March
1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the
agreement, respondents husband was entitled to avail of hospitalization benefits,
whether ordinary or emergency, listed therein. He was also entitled to avail of "outpatient benefits" such as annual physical examinations, preventive health care and
other out-patient services. Upon the termination of the agreement, the same was
extended for another year from March 1, 1989 to March 1, 1990, then from March 1,
1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of
P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and was confined
at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While
her husband was in the hospital, respondent tried to claim the benefits under the
health care agreement. However, petitioner denied her claim saying that the Health
Care Agreement was void. According to petitioner, there was a concealment
regarding Ernanis medical history. Doctors at the MMC allegedly discovered at the
time of Ernanis confinement that he was hypertensive, diabetic and asthmatic,
contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese General Hospital where he died
on the same day. On July 24, 1990, respondent instituted with the Regional Trial
Court of Manila, Branch 44, an action for damages against petitioner and its
president, Dr. Benito Reverente. She asked for reimbursement of her expenses plus
moral damages and attorneys fees. After trial, the lower court ruled against
petitioners, viz:
1. Defendants to pay and reimburse the medical and hospital coverage of the
late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount
is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to
plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary
damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted
all awards for damages and absolved petitioner Reverente. Petitioners motion for
reconsideration was denied. Hence this petition.

19

ISSUES:
1) Whether or not a health care agreement is not an insurance contract
2) Whether or not the "incontestability clause" under the Insurance Code does
not apply in a healthcare agreement
RULING:
NO. 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 designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium. 8
Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable interest
against him, may be insured against. Every person has an insurable interest in the
life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or
prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him
depends.
In the case at bar, the insurable interest of respondents husband in obtaining the
health care agreement was his own health. The health care agreement was 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.
Furthermore, the answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends on opinion
rather than fact, especially coming from respondents husband who was not a
medical doctor. Where matters of opinion or judgment are called for, answers made
in good faith and without intent to deceive will not avoid a policy even though they
are untrue. Thus,
(A)lthough false, a representation of the expectation, intention,
belief, opinion, or judgment of the insured will not avoid the policy if
there is no actual fraud in inducing the acceptance of the risk, or its
acceptance at a lower rate of premium, and this is likewise the rule
although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer is not

20
justified in relying upon such statement, but is obligated to make further
inquiry. There is a clear distinction between such a case and one in which the
insured is fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his knowledge, since in
such case the intent to deceive the insurer is obvious and amounts to actual
fraud.15(Underscoring ours)
The fraudulent intent on the part of the insured must be established to
warrant rescission of the insurance contract.16 Concealment as a defense
for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer. In any case, with or
without the authority to investigate, petitioner is liable for claims made under the
contract. Having assumed a responsibility under the agreement, petitioner
is bound to answer the same to the extent agreed upon. In the end, the
liability of the health care provider attaches once the member is
hospitalized for the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party
to rescind a contract of insurance." The right to rescind should be exercised
previous to the commencement of an action on the contract. 17In this case,
no rescission was made. Besides, the cancellation of health care
agreements as in insurance policies require the concurrence of the
following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the
policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address
shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on which
cancellation is based.18
None of the above pre-conditions was fulfilled in this case.
Anent the incontestability of the membership of respondents husband, we quote
with approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant
Philamcare Health Systems Inc. had twelve months from the date of
issuance of the Agreement within which to contest the membership
of the patient if he had previous ailment of asthma, and six months
from the issuance of the agreement if the patient was sick of
diabetes or hypertension. The periods having expired, the defense of
concealment or misrepresentation no longer lie.
Finally, petitioner alleges that respondent was not the legal wife of the deceased
member considering that at the time of their marriage, the deceased was previously
married to another woman who was still alive. The health care agreement is in
the nature of a contract of indemnity. Hence, payment should be made to
the party who incurred the expenses. It is not controverted that respondent
paid all the hospital and medical expenses. She is therefore entitled to

21
reimbursement. The records adequately prove the expenses incurred by respondent
for the deceaseds hospitalization, medication and the professional fees of the
attending physicians.

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC., vs. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, G.R.
No. 124520, August 18, 1997
FACTS:
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease
contract with private respondent CKS Development Corporation (hereinafter CKS),
as lessor, on 5 October 1988. One of the stipulations of the one (1) year lease
contract states:
18. . . . The LESSEE shall not insure against fire the chattels, merchandise,
textiles, goods and effects placed at any stall or store or space in the leased
premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of
the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . .
Notwithstanding the above stipulation in the lease contract, the Cha spouses
insured against loss by fire the merchandise inside the leased premises for Five
Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter
United) without the written consent of private respondent CKS. On the day that the
lease contract was to expire, fire broke out inside the leased premises. When CKS
learned of the insurance earlier procured by the Cha spouses (without its consent),
it wrote the insurer (United) a demand letter asking that the proceeds of the
insurance contract (between the Cha spouses and United) be paid directly to CKS,
based on its lease contract with the Cha spouses. United refused to pay CKS. Hence,
the latter filed a complaint against the Cha spouses and United. On 2 June 1992, the
Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein
defendant United to pay CKS the amount of P335,063.11 and defendant Cha
spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorney's fees
and costs of suit. On appeal, respondent Court of Appeals in CA GR CV No. 39328
rendered a decision ** dated 11 January 1996, affirming the trial court decision,
deleting however the awards for exemplary damages and attorney's fees. A motion
for reconsideration by United was denied on 29 March 1996.
ISSUE:
1) Whether or not the stipulation in the lease contract entered into stating that,
any fire insurance policy obtained by the lessee over their merchandise inside
the leased premises is deemed assigned or transferred to the lessor if said
policy is obtained without the prior written consent of the latter, is valid
RULING:

22
NO. It is, of course, basic in the law on contracts that the stipulations
contained in a contract cannot be contrary to law, morals, good customs,
public order or public policy.
Sec. 18 of the Insurance Code provides:
No contract or policy of insurance on property shall be enforceable except for
the benefit of some person having an insurable interest in the property
insured.
A non-life insurance policy such as the fire insurance policy taken by
petitioner-spouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs. The basis of
such requirement of insurable interest in property insured is based on sound public
policy: to prevent a person from taking out an insurance policy on property upon
which he has no insurable interest and collecting the proceeds of said policy in case
of loss of the property. In the present case, it cannot be denied that CKS has
no insurable interest in the goods and merchandise inside the leased
premises under the provisions of Section 17 of the Insurance Code which provide:
The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss of injury thereof.
Therefore, respondent CKS cannot, under the Insurance Code a special law be
validly a beneficiary of the fire insurance policy taken by the petitioner-spouses over
their merchandise. This insurable interest over said merchandise remains with the
insured, the Cha spouses. The automatic assignment of the policy to CKS
under the provision of the lease contract previously quoted is void for
being contrary to law and/or public policy. The proceeds of the fire
insurance policy thus rightfully belong to the spouses Nilo Cha and Stella
Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the
proceeds of the fire insurance policy to a person (CKS) who has no insurable interest
in the property insured. The liability of the Cha spouses to CKS for violating their
lease contract in that the Cha spouses obtained a fire insurance policy over their
own merchandise, without the consent of CKS, is a separate and distinct issue which
cannot be resolved in this case.

GREAT PACIFIC LIFE ASSURANCE CORP., vs.COURT OF APPEALS AND

MEDARDA V. LEUTERIO,
G.R. No. 113899, October 13, 1999
FACTS:
A contract of group life insurance was executed between petitioner Great Pacific Life
Assurance Corporation (Grepalife) and Development Bank of the Philippines (DBP).
Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.On
November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP
applied for membership in the group life insurance plan. In an application form, Dr.
Leuterio answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high
blood pressure,
cancer, diabetes, lung; kidney or stomach disorder or any other
physical impairment?

23
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO.
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance
coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness
amounting to eighty-six thousand, two hundred (P86,200.00) pesos.On August 6,
1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP
submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr.
Leuterio was not physically healthy when he applied for an insurance coverage on
November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose he had
been suffering from hypertension, which caused his death. Allegedly, such nondisclosure constituted concealment that justified the denial of the claim. On October
20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a
complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against
Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando
Mejia, who issued the death certificate, was called to testify. Dr. Mejia's findings,
based partly from the information given by the respondent widow, stated that Dr.
Leuterio complained of headaches presumably due to high blood pressure. The
inference was not conclusive because Dr. Leuterio was not autopsied, hence, other
causes were not ruled out. On February 22, 1988, the trial court rendered a decision
in favor of respondent widow and against Grepalife. On May 17, 1993, the Court of
Appeals sustained the trial court's decision. Hence, the present petition
ISSUE:
1) Whether or not petitioner is liable to DBP as beneficiary in a group life
insurance contract
2) Whether or not Dr. Leuterios concealment of his hypertension thereby
vitiated the insurance contract
3) Whether Grepalife is liable in the amount of eighty six thousand, two hundred
(P86,200.00) pesos without proof of the actual outstanding mortgage payable
by the mortgagor to DBP
RULING:
To resolve the issue, we must consider the insurable interest in mortgaged
properties and the parties to this type of contract. The rationale of a group
insurance policy of mortgagors, otherwise known as the "mortgage
redemption insurance," is a device for the protection of both the
mortgagee and the mortgagor. On the part of the mortgagee, it has to
enter into such form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the mortgage contract,
the proceeds from such insurance will be applied to the payment of the
mortgage debt, thereby relieving the heirs of the mortgagor from paying
the obligation. In a similar vein, ample protection is given to the
mortgagor under such a concept so that in the event of death; the
mortgage obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness. Consequently, where the
mortgagor pays the insurance premium under the group insurance policy,
making the loss payable to the mortgagee, the insurance is on the
mortgagor's interest, and the mortgagor continues to be a party to the
contract. In this type of policy insurance, the mortgagee is simply an

24
appointee of the insurance fund, such loss-payable clause does not make
the mortgagee a party to the contract. (Sec 8, Insurance Code)
In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. 12 we held:
Insured, being the person with whom the contract was made, is
primarily the proper person to bring suit thereon. * * * Subject to some
exceptions, insured may thus sue, although the policy is taken wholly
or in part for the benefit of another person named or unnamed, and
although it is expressly made payable to another as his interest may
appear or otherwise. * * * Although a policy issued to a mortgagor
is taken out for the benefit of the mortgagee and is made
payable to him, yet the mortgagor may sue thereon in his own
name, especially where the mortgagee's interest is less than
the full amount recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the following:
Insured may be regarded as the real party in interest, although
he has assigned the policy for the purpose of collection, or has
assigned as collateral security any judgment he may obtain.
And since a policy of insurance upon life or health may pass by transfer,
will or succession to any person, whether he has an insurable interest or
not, and such person may recover it whatever the insured might have
recovered, the widow of the decedent Dr. Leuterio may file the suit against
the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner
interposed as its defense to annul the insurance contract. Petitioner contends that
Dr. Leuterio failed to disclose that he had hypertension, which might have caused
his death. Concealment exists where the assured had knowledge of a fact
material to the risk, and honesty, good faith, and fair dealing requires that
he should communicate it to the assured, but he designedly and
intentionally withholds the same.
The medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated
that he had no knowledge of Dr. Leuterio's any previous hospital confinement. Dr.
Leuterio's death certificate stated that hypertension was only "the possible cause of
death." The private respondent's statement, as to the medical history of her
husband, was due to her unreliable recollection of events. Hence, the statement of
the physician was properly considered by the trial court as hearsay. The question of
whether there was concealment was aptly answered by the appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance application
that he was in good health and that he had not consulted a doctor or
any of the enumerated ailments, including hypertension; when he died
the attending physician had certified in the death certificate that the
former died of cerebral hemorrhage, probably secondary to
hypertension
Contrary to appellant's allegations, there was no sufficient
proof that the insured had suffered from hypertension. Aside
from the statement of the insured's widow who was not even sure if
the medicines taken by Dr. Leuterio were for hypertension, the
appellant had not proven nor produced any witness who could attest to
Dr. Leuterio's medical history . . .

25
xxx xxx xxx
Appellant insurance company had failed to establish that there
was concealment made by the insured, hence, it cannot refuse
payment of the claim. 17
The fraudulent intent on the part of the insured must be established to
entitle the insurer to rescind the contract. Misrepresentation as a defense of
the insurer to avoid liability is an affirmative defense and the duty to establish such
defense by satisfactory and convincing evidence rests upon the insurer. 19 In the
case at bar, the petitioner failed to clearly and satisfactorily establish its defense,
and is therefore liable to pay the proceeds of the insurance.
Finally, petitioner claims that there was no evidence as to the amount of Dr.
Leuterio's outstanding indebtedness to DBP at the time of the mortgagor's death.
Hence, for private respondent's failure to establish the same, the action for specific
performance should be dismissed. Petitioner's claim is without merit. A life
insurance policy is a valued policy. 20 Unless the interest of a person
insured is susceptible of exact pecuniary measurement, the measure of
indemnity under a policy of insurance upon life or health is the sum fixed
in the policy. The mortgagor paid the premium according to the coverage of his
insurance, which states that:
The policy states that upon receipt of due proof of the Debtor's death
during the terms of this insurance, a death benefit in the amount of
P86,200.00 shall be paid.
In the event of the debtor's death before his indebtedness with the
creditor shall have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the Creditor and the balance of the
Sum Assured, if there is any shall then be paid to the beneficiary/ies
designated by the debtor."
However, we noted that the Court of Appeals' decision was promulgated on May 17,
1993. In private respondent's memorandum, she states that DBP foreclosed in 1995
their residential lot, in satisfaction of mortgagor's outstanding loan. Considering this
supervening event, the insurance proceeds shall inure to the benefit of the heirs of
the deceased person or his beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio
protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed
on the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs
represented by his widow, herein private respondent Medarda Leuterio.

FGU INSURANCE CORPORATION, vs.THE COURT OF APPEALS, SAN MIGUEL

CORPORATION, and ESTATE OF ANG GUI, represented by LUCIO, JULIAN,
and JAIME, all surnamed ANG, and CO TO, G.R. No. 137775, March 31, 2005

26

FACTS:
Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was
engaged in the shipping business. It owned the M/T ANCO tugboat and the D/B Lucio
barge which were operated as common carriers. Since the D/B Lucio had no engine
of its own, it could not maneuver by itself and had to be towed by a tugboat for it to
move from one place to another.On 23 September 1979, San Miguel Corporation
(SMC) shipped from Mandaue City, Cebu, on board the D/B Lucio, for towage by M/T
ANCO, the several cargoes which were cases of beer. The consignee for the cargoes
covered by Bill of Lading No. 1 was SMCs Beer Marketing Division (BMD)-Estancia
Beer Sales Office, Estancia, Iloilo, while the consignee for the cargoes covered by
Bill of Lading No. 2 was SMCs BMD-San Jose Beer Sales Office, San Jose, Antique.
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San
Jose, Antique. The vessels arrived at San Jose, Antique, at about one oclock in the
afternoon of 30 September 1979. The tugboat M/T ANCO left the barge immediately
after reaching San Jose, Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30
September 1979, the clouds over the area were dark and the waves were already
big. The arrastre workers unloading the cargoes of SMC on board the D/B Lucio
began to complain about their difficulty in unloading the cargoes. SMCs District
Sales Supervisor, Fernando Macabuag, requested ANCOs representative to transfer
the barge to a safer place because the vessel might not be able to withstand the big
waves.
ANCOs representative did not heed the request because he was confident that the
barge could withstand the waves. This, notwithstanding the fact that at that time,
only the M/T ANCO was left at the wharf of San Jose, Antique, as all other vessels
already left the wharf to seek shelter. With the waves growing bigger and bigger,
only Ten Thousand Seven Hundred Ninety (10,790) cases of beer were discharged
into the custody of the arrastre operator. At about ten to eleven oclock in the
evening of 01 October 1979, the crew of D/B Lucio abandoned the vessel because
the barges rope attached to the wharf was cut off by the big waves. At around
midnight, the barge run aground and was broken and the cargoes of beer in the
barge were swept away. As a result, ANCO failed to deliver to SMCs consignee
Twenty-Nine Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five
Hundred Fifty (550) cases of Cerveza Negra with the total amounting to One Million
Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos
(P1,346,197.00). As a consequence of the incident, SMC filed a complaint for Breach
of Contract of Carriage and Damages against ANCO for the amount of One Million
Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos
(P1,346,197.00) plus interest, litigation expenses and Twenty-Five Percent (25%) of
the total claim as attorneys fees. Upon Ang Guis death, ANCO, as a partnership,
was dissolved hence, on 26 January 1993, SMC filed a second amended complaint
which was admitted by the Court impleading the surviving partner, Co To and the
Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang. The
substituted defendants adopted the original answer with counterclaim of ANCO
"since the substantial allegations of the original complaint and the amended
complaint are practically the same." ANCO admitted that the cases of beer Pale
Pilsen and Cerveza Negra mentioned in the complaint were indeed loaded on the
vessel belonging to ANCO. It claimed however that it had an agreement with SMC

27
that ANCO would not be liable for any losses or damages resulting to the cargoes by
reason of fortuitous event. Since the cases of beer Pale Pilsen and Cerveza Negra
were lost by reason of a storm, a fortuitous event which battered and sunk the
vessel in which they were loaded, they should not be held liable. ANCO further
asserted that there was an agreement between them and SMC to insure the cargoes
in order to recover indemnity in case of loss. Pursuant to that agreement, the
cargoes to the extent of Twenty Thousand (20,000) cases was insured with FGU
Insurance Corporation (FGU) for the total amount of Eight Hundred Fifty-Eight
Thousand Five Hundred Pesos (P858,500.00) per Marine Insurance Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU,
alleging that before the vessel of ANCO left for San Jose, Antique with the cargoes
owned by SMC, the cargoes, to the extent of Twenty Thousand (20,000) cases, were
insured with FGU for a total amount of Eight Hundred Fifty-Eight Thousand Five
Hundred Pesos (P858,500.00) under Marine Insurance Policy No. 29591. ANCO
further alleged that on or about 02 October 1979, by reason of very strong winds
and heavy waves brought about by a passing typhoon, the vessel run aground near
the vicinity of San Jose, Antique, as a result of which, the vessel was totally wrecked
and its cargoes owned by SMC were lost and/or destroyed. According to ANCO, the
loss of said cargoes occurred as a result of risks insured against in the insurance
policy and during the existence and lifetime of said insurance policy. ANCO went on
to assert that in the remote possibility that the court will order ANCO to pay SMCs
claim, the third-party defendant corporation should be held liable to indemnify or
reimburse ANCO whatever amounts, or damages, it may be required to pay to SMC.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and
asked for actual, moral, and exemplary damages and attorneys fees. The trial court
found that while the cargoes were indeed lost due to fortuitous event, there was
failure on ANCOs part, through their representatives, to observe the degree of
diligence required that would exonerate them from liability. The trial court thus held
the Estate of Ang Gui and Co To liable to SMC for the amount of the lost shipment.
With respect to the Third-Party complaint, the court a quo found FGU liable to bear
Fifty-Three Percent (53%) of the amount of the lost cargoes. According to the trial
court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, runaground and was broken and the beer cargoes on the said barge were swept
away. It is the sense of this Court that the risk insured against was the cause of the
loss.
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00
and the amount of the policy was only for P858,500.00, defendants as assured,
therefore, were considered co-insurers of third-party defendant FGU Insurance
Corporation to the extent of 975,405.00 value of the cargo. Consequently, inasmuch
as there was partial loss of only P1,346,197.00, the assured shall bear 53% of the
loss
The appellate court affirmed in toto the decision of the lower court and denied the
motion for reconsideration and the supplemental motion for reconsideration. Hence,
the petitions.
ISSUE:
Whether or not FGU can be held liable under the insurance policy to reimburse
ANCO for the loss of the cargoes

28

RULING:
NO. One of the purposes for taking out insurance is to protect the insured against
the consequences of his own negligence and that of his agents. Thus, it is a basic
rule in insurance that the carelessness and negligence of the insured or his agents
constitute no defense on the part of the insurer. This rule however presupposes
that the loss has occurred due to causes which could not have been prevented by
the insured, despite the exercise of due diligence. When evidence show that the
insureds negligence or recklessness is so gross as to be sufficient to
constitute a willful act, the insurer must be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,24 the United
States Supreme Court held that:
The ordinary negligence of the insured and his agents has long been held as a part
of the risk which the insurer takes upon himself, and the existence of which, where
it is the proximate cause of the loss, does not absolve the insurer from liability. But
willful exposure, gross negligence, negligence amounting to misconduct, etc., have
often been held to release the insurer from such liability.
The United States Supreme Court has made a distinction between ordinary
negligence and gross negligence or negligence amounting to misconduct
and its effect on the insureds right to recover under the insurance
contract. According to the Court, while mistake and negligence of the
master or crew are incident to navigation and constitute a part of the
perils that the insurer is obliged to incur, such negligence or recklessness
must not be of such gross character as to amount to misconduct or
wrongful acts; otherwise, such negligence shall release the insurer from
liability under the insurance contract. In the case at bar, both the trial court
and the appellate court had concluded from the evidence that the crewmembers of
both the D/B Lucio and the M/T ANCO were blatantly negligent. There was blatant
negligence on the part of the employees of defendants-appellants when the patron
(operator) of the tug boat immediately left the barge at the San Jose, Antique wharf
despite the looming bad weather. Negligence was likewise exhibited by the
defendants-appellants representative who did not heed Macabuags request that
the barge be moved to a more secure place. The prudent thing to do, as was done
by the other sea vessels at San Jose, Antique during the time in question, was to
transfer the vessel to a safer wharf. The negligence of the defendants-appellants is
proved by the fact that on 01 October 1979, the only simple vessel left at the wharf
in San Jose was the D/B Lucio. Thus, taking into account all the circumstances
the court concluded that the blatant negligence of ANCOs employees is of
such gross character that it amounts to a wrongful act which must
exonerate FGU from liability under the insurance contract.