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April 18, 2016

G.R. No. 195176

THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner,


vs.
PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU, Respondents.

DECISION

DEL CASTILLO, J.:

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 found15 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 June

22, 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 theinsurance 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. As such, the subject insurance
1âw phi 1

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.

MARIANO C. DEL CASTILLO


Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION JOSE CATRAL MENDOZA


Associate Justice Associate Justice

MARVIC M.V.F. LEONEN


Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had· been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO


Chief Justice

SECOND DIVISION

G.R. No. 204736, November 28, 2016

MANULIFE PHILIPPINES, INC.,1 Petitioners, v. HERMENEGILDA YBAÑEZ, Respondent.

DECISION

DEL CASTILLO, J.:

Assailed in this Petition for Review on Certiorari2 are the April 26, 2012 Decision3 of the Court of Appeals
(CA) in CA-G.R. CV No. 95561 and its December 10, 2012 Resolution4 which affirmed the April 22, 2008
Decision5 and the June 15, 2009 Order6 of the Regional Trial Court (RTC), Branch 57, Makati City in Civil
Case No. 04-1119.

Factual Antecedents

Before the RTC of Makati City, Manulife Philippines, Inc. (Manulife) instituted a Complaint7 for Rescission of
Insurance Contracts against Hermenegilda Ybañez (Hermenegilda) and the BPI Family Savings Bank (BPI
Family). This was docketed as Civil Case No. 04-1119.

It is alleged in the Complaint that Insurance Policy Nos. 6066517-18 and 6300532-69 (subject insurance
policies) which Manulife issued on October 25, 2002 and on July 25, 2003, respectively, both in favor of Dr.
Gumersindo Solidum Ybañez (insured), were void due to concealment or misrepresentation of material facts
in the latter's applications for life insurance, particularly the forms entitled Non-Medical Evidence dated
August 28, 2002 (NME),10 Medical Evidence Exam dated September 10, 2002 (MEE),11 and the Declaration
of Insurability in the Application for Life Insurance (DOI) dated July 9, 2003;12 that Hermenegilda, wife of
the said insured, was revocably designated as beneficiary in the subject insurance policies; that on
November 17, 2003, when one of the subject insurance policies had been in force for only one year and
three months, while the other for only four months, the insured died; that on December 10, 2003,
Hermenegilda, now widow to the said insured, filed a Claimant's Statement-Death Claim13 with respect to
the subject insurance policies; that the Death Certificate dated November 17, 200314 stated that the insured
had "Hepatocellular CA., Crd Stage 4, secondary to Uric Acid Nephropathy; SAM Nephropathy recurrent
malignant pleural effusion; NASCVC"; that Manulife conducted an investigation into the circumstances
leading to the said insured's death, in view of the aforementioned entries in the said insured's Death
Certificate; that Manulife thereafter concluded that the insured misrepresented or concealed material facts
at the time the subject insurance policies were applied for; and that for this reason Manulife accordingly
denied Hermenegilda's death claims and refunded the premiums that the insured paid on the subject
insurance policies.15

Manulife also set forth in said Complaint the details of the insured's supposed misrepresentation/s or
concealment/s, to wit:

2.6. On the basis of the authority granted by [Hermenegilda] in her Claimant's Statement (Annex "H"),
[Manulife] conducted an investigation [into] the Insured's medical records and history, and discovered that
the Insured concealed material facts which the law, good faith, and fair dealing required him to reveal when
he answered the [NME] (Annex "C"), [the MEE] (Annex "D"), and [the DOI] (Annex "E"), as follows:
(1) Insured's confinement at the Cebu Doctors' Hospital [CDH] from 27 December 2000 to 31 December
2000, wherein he underwent total parotidectomy on 28 December 2000 due to the swelling of his right
parotid gland and the presence of a tumor, and was found to have had a history of being hypertensive, and
his kidneys have become atretic or shrunken. A copy of each of the Admission and Discharge Record and
PGIS' Interns' Progress Notes and Operative Record of the [CDH] is attached hereto and made an integral
part hereof as Annex "K", "K-1", and "K-2", respectively.

(2) Insured’s confinement at the CDH from 9 May 2002 to 14 May 2002, wherein he was diagnosed to have
acute pancreatitis, in addition to being hypertensive. A copy [of] each of the Insured's Admission and
Discharge Record and Doctor's History/Progress Notes is attached hereto and made an integral part hereof
as Annex "L" and "L-1", respectively.

(3) Insured's diagnosis for leptospirosis in 2000. A copy [of] each of the Insured's Admission and Discharge
Record and History Sheet is attached hereto and made an integral part hereof as Annex "M" and "M-1",
respectively.

xxxx
2.8. Due to the Insured's concealment of material facts at the time the subject insurance policies were
applied for and issued, [Manulife] exercised its right to rescind the subject insurance contracts and denied
the claims on those policies.

x x x x16
Manulife thus prayed that judgment be rendered finding its act of rescinding the subject insurance policies
proper; declaring these subject insurance policies null and void; and discharging. it from any obligation
whatsoever under these policies.17

In her Answer, Hermenegilda countered that:


6. [Manulife's own insurance agent, Ms. Elvira Monteclaros herself] assured [the insured,] that there would
be no problem regarding the application for the insurance policy. In tact, it was Monteclaros who filled up
everything in the questionnaire (Annex "C" of the [C]omplaint), so that [all that the insured needed to do
was sign it,] and it's done. [It was also Ms. Monteclaros who herself] checked in advance all the boxes in
Annex "C," [that the insured himself was required to answer or check].

xxxx

10. The four grounds for denial as enumerated in Annex "N" of the complaint are refuted as follows:
1) [The insured's] hospital confinement on 27 December 2000 at [the CDH was] due to right parotid
swelling secondary to tumor [for which he] underwent Parotidectomy on 28 December 2000. (There is an
obvious scar and disfigurement in the right side of [the insured's] face, in front, and below his ear. This
[ought to] have been easily noticed by [Manulife's company] physician, Dr. [Winifredo] Lumapas.

2) [The insured's] history of Hypertension [has been] noted 03 years prior to [the insured's] admission on
27 December 2000. (This is not something serious or fatal)

3) [The insured's] history of Leptospirosis in 2000. (This is not confirmed)

4) [The insured's] hospital confinement [at the CDH] on 09 May 2002 with findings of Agute Pancreatitis
(This is related to the gallstones of [the insured]. When the gallbladder is diseased, distention is impossible
and its pressure regulating function is lost - a fact that may explain high incidence of pancreatitis in patient
with cholecystic disease. [The insured] had cholecystitis, so his acute pancreatitis is related to the
cholecystitis and chol[e]lithiasis (gallstones).

xxxx
11. [Manulife] accepted [the insured's] application, and now that a claim for the benefits [is] made,
[Manulife now] says that [the insured] misrepresented and concealed his past illnesses[!] In the form filled
up by [Dr. Winifredo F. Lumapas,] Manulife's [company] physician, dated 9/10/02, [the insured] checked
the column which says ''yes" (to] the following questions:
 Have you had electrocardiograms, when, why, result? ([Manulife's company
physician] wrote the answer which stated that result was normal.)

 Have you seen a doctor, or had treatment operation on hospital case during the
last five years?

12. x x x It is rather strange that [the insured's] parotidectomy was not included in the report when the scar
of that operation can not be concealed because it caused a disfigurement in the right side of his face in front
and below his ear. This is just too obvious to be overlooked by [Manulife's company physician] who
examined and interviewed [the insured] before accepting the policy. x x x

13. x x x [Undoubtedly, Manulife] had the option to inquire further [into the insured's physical condition,
because the insured had given it authority to do so] based on the authority given by [the insured. And how
come that Manulife] was able to gather all [these] information now and not before [the insured] was
ensured? x x x

xxxx

16. Moreover, in the comments of [the said] Dr. Lumapas, (Annex "D" of the Complaint), he said the
physical condition of [the] then prospective insurance policy holder, [the insured, was] "below average". x x
x [Estoppel now bars Manulife from claiming the contrary.]

17. [Especially] worth noting are the [following] comments of [the said Dr. Lumapas, on the insured's
answer to the questionnaires] - (Annex "D" of the Complaint), [to wit:]
"4. d. Have you had any electrocardiograms, when, why, result. "Yes"

- on June 2002 at CDH, Cebu City

= Cardiac clearance for surgery

= Result normal

16. Have you seen a doctor, or had treatment, operation or hospital care during the last 5 years? "Yes"
admitted at [CDH,] Cebu City by Dr. Lamberto Garcia and Dr. Jorge Ang for Chronic Calculous
Chol[e]cystitis

= Cholecystectomy done [J]une 7[,] 2002 by Dr. Ang

= Biopsy: Gallbladder Chronic Calculous Cholecystitis

= CBC, Hepatitis Panel done - all negative results except hepatitis antigen (+)

18. Do you. consume alcohol beverages? If so, how much? Yes, consumes 12 shots of whisky during
socials.

25. The abdomen - Abnormality of any viscus, genitalia or evidence of hernia or operation - post
cholecystectomy scar.

26. The head and neck - vision, optic, fundi, hearing, speech, thyroid etc.Yes wears eyeglasses for reading.
(This is where [Manulife's company physician] should have written the scar of [the insured's] parotidectomy
as shown in the picture).

32. From your knowledge of this person would you consider his/ her health to be Average [ ] Below
average [/] Poor [ ]

(Underscoring ours)
18. It is interesting to note that the answers in the insurance agent's form for [the insured] (Annex "C" of
the Complaint) did not jibe with the answers [made by] Dr. Lumapas in Annex "D" of the Complaint. This
only boosts Hermenegilda's claim that x x x indeed, it was the Manulife's agent herself, (Ms. Montesclaros)
who checked all the items in the said form to speed up the insurance application and its approval, [so she
could] get her commission as soon as possible.
19. In fine, at the time when both insurance policies in question were submitted for approval to [Manulife,
the latter had had all the forewarnings that should have put it on guard or on notice that things were not
what it wanted them to be, reason enough to bestir it into exercising greater prudence and caution to
further inquire into) the health or medical history of [the insured]. In particular, Manulife ought to have
noted the fact that the insured was at that time already 65 years old, x x x that he had a previous
operation, and x x x that his health was "below average. x x x18
On November 25, 2005, BPI Family filed a Manifestation19 praying that either it be dropped from the case or
that the case be dismissed with respect to it (BPI Family), because it no longer had any interest in the
subject insurance policies as asssignee because the insureds obligation with it (BPI Family) had already been
settled or paid. Since no objection was interposed to this prayer by either Manulife or Hermenegilda, the
RTC granted this prayer in its Order of November 25, 2005.20

Then in the Second Order dated November 25, 2005,21 the RTC considered the pre-trial as terminated. Trial
then ensued.

Manulife presented its sole witness in the person of Ms. Jessiebelle Victoriano (Victoriano), the Senior
Manager of its Claims and Settlements Department.22 The oral testimony of this witness chiefly involved
identifying herself as the Senior Manager of Manulife's Claims and Settlements Department and also
identifying the following pieces of evidence;23 the subject insurance policies; NME, MEE, DOI; the
Assignment of Policy No. 6066517-1 to BPI Family as collateral, dated July 9, 2003; its Letter dated July 10,
2003 re: assignment of said Policy; death claim filed by Hermenegilda on December 10, 2003; the insured's
Death Certificate; the Marriage Contract between the insured and Hermenegilda; copies of CDH's Admission
and Discharge Records of the insured for December 2000 re: parotidectomy; copies of CDH's PGIS' Interns'
Notes and CDH Operative Record dated December 28, 2000 re: hypertension; copies of CDH's Admission
and Discharge Record of the insured for May 2002, and the Doctor's History/Progress Notes re: acute
pancreatitis and hypertension; copies of CDH's Admission and Discharge Record of the insured for October
2003 re: leptospirosis; letters dated March 24, 2004 to Hermenegilda and BPI Family; and BPI Checks
deposited on April 10, 2004 and May 14, 2004 to the bank accounts of BPI Family and Hermenegilda,
respectively, representing the premium refund.

In its Order of October 2, 2006,24 the RTC admitted all these exhibits.

Like Manulife, Hermenegilda, in an1plication of her case, also called only one witness to the witness stand:
her counsel of record, Atty. Edgardo Mayol (Atty. Mayol), whose testimony focused on his professional
engagement with Hermenegilda and the monetary expenses he incurred in attending to the hearings in this
case.25 Hermenegilda thereafter filed her Formal Offer of Evidence26 wherein she proffered the following:
cralawred

NME, MEE, DOI, the insured's driver's license, her letter dated May 8, 2004 protesting the denial by Manulife
of her insurance claim, the contract of services between her and Atty. Mayol, the official receipts for plane
tickets, terminal fees, and boarding passes, attesting to Atty. Mayol's plane travels to and from Cebu City to
attend to this case. These were all admitted by the RTC.27

Ruling of the Regional Trial Court

After due proceedings, the RTC dismissed Manulife's Complaint, thus:


WHEREFORE, premises duly considered, judgment is hereby rendered DISMISSING the instant case for
insufficiency of evidence.

[Manulife] is hereby ordered to pay [Hermenegilda] actual expenses in the sum of P40,050.00 and
attorney's fees in the sum of P100,000.

[Hermenegilda's] claim for moral and exemplary damages is denied for lack of evidence.

SO ORDERED.28
The RTC found no merit at all in Manulife's Complaint for rescission of the subject insurance policies because
it utterly failed to prove that the insured had committed the alleged misrepresentation/s or concealment/s.
In fact, Victoriano, the one and only witness that Manulife called to the witness stand, gave no firsthand,
direct evidence at all relative to the particulars of the alleged misrepresentation/s or concealment/s that the
insured allegedly practiced or committed against it. This witness did not testify at all in respect to the
circumstances under which these documentary exhibits were executed, nor yet about what these
documentary exhibits purported to embody. The RTC stressed that the CDH medical records that might or
could have established the insured's misrepresentation/s or concealment/s were inadmissible for being
hearsay, because Manulife did not present the physician or doctor, or any responsible official of the CDH,
who could confirm the due execution and authenticity of its medical records; that if anything, Manulife itself
admitted in its Reply29 that its very own company physician, Dr. Winifredo Lumapas, had duly noted the
insured's scar, even as the same company physician also categorized in the MEE the insured's health as
"below average"; and that in short, it is evident that Manulife thus had had ample opportunity to verify and
to inquire further into the insured's medical history commencing from the date of the MEE but opted not to
do so; and that if things did not come up to its standards or expectations, it was totally at liberty to reject
the insured's applications altogether, or it could have demanded a higher premium for the insurance
coverage.

The RTC further ruled that Hermenegilda was entitled to attorney's fees in the sum of P100,000.00 and
actual expenses in the amount of P40,050.00, because she was compelled to litigate to defend her interest
against Manulife's patently unjustified act in rejecting her clearly valid and lawful claim. The RTC also found
merit in Hermenegilda's claims relative to the expenses she paid her Cebu-based counsel.

In its Order of June 15, 2009,30 the RTC denied tor lack of merit Manulife's motion for reconsideration31 and
Hermenegilda's motion for partial reconsideration.32

From the RTC's Decision, Manulife filed a Notice of Appeal33 which was given due course by the RTC in its
Order of June 11, 2010.34

Ruling of the Court of Appeals

In its appellate review, the CA virtually adopted en toto the findings of facts made by, and the conclusions of
law arrived at, by the RTC. Thus, the CA decreed:
WHEREFORE, the instant appeal is DENIED. TI1e assailed Decision dated April 22, 2008 and Order dated
Jtn1e 15, 2009 of the Regional Trial Court of Makati, Branch 57, are hereby AFFIRMED.

SO ORDERED.35
The CA, like the RTC, found Manulife's Complaint bereft of legal and factual bases. The CA ruled that it is
settled that misrepresentation or concealment in insurance is an affirmative defense, which the insurer must
establish by convincing evidence if it is to avoid liability; and that in this case the one and only witness
presented by Manulife utterly failed to prove the basic elements of the alleged misrepresentation/s or
concealment/s of material facts imputed by Manulife against the now deceased insured. The CA held that
there is no basis for Manulife's claim that it is exempted from the duty of proving the insured's supposed
misrepresentation/s or concealment/s, as these had allegedly been admitted already in Hermenegilda's
Answer; that in the absence of authentication by a competent witness, the purported CDH medical records
of the insured are deemed hearsay hence, inadmissible, and devoid of probative value; and that the medical
certificate, even if admitted in evidence as an exception to the hearsay rule, was still without probative
value because the physician or doctor or the hospital's official who issued it, was not called to the witness
stand to validate it or to attest to it.

Manulife moved for reconsideration36 of the CA's Decision, but this was denied by the CA in its Resolution of
December 10, 2012;37 hence, the present recourse.

Issue

Whether the CA committed any reversible error in affirming the RTC Decision dismissing Manulife's
Complaint for rescission of insurance contracts for failure to prove concealment on the part of the insured.

Our Ruling

The present recourse essentially challenges anew the findings of fact by both the RTC and the CA that the
Complaint for rescission of the insurance policies in question will not prosper because Manulife failed to
prove concealment on the part of the insured. This is not allowed. It is horn-book law that in appeal
by certiorari to this Court under Rule 45 of the Revised Rules of Court, the findings of fact by the CA
especially where such findings of fact are affirmatory or confirmatory of the findings of fact of the RTC, as in
this case, are conclusive upon this Court. The reason is simple: this Court not being a trial court, it does not
embark upon the task of dissecting, analyzing, evaluating, calibrating or weighing all over again the
evidence, testimonial or documentary, that the parties adduced during trial. Of course, there are exceptions
to this rule, such as (1) when the conclusion is grounded upon speculations, surmises or conjectures; (2)
when the inference is manifestly mistaken, absurd or impossible; (3) when there is a grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when there is no citation of specific evidence on which the factual findings are based; (7)
when the findings of absence of facts is contradicted by the presence of evidence on record; (8) when the
findings of the CA are contrary to the findings of the RTC; (9) when the CA manifestly overlooked certain
relevant and undisputed facts that, if properly considered, would justify a different conclusion; (10) when
the findings of the CA are beyond the issues of the case; and, (11) when the CA's findings are contrary to
the admission of both parties.38 We are satisfied that none of these exceptions obtains in the Petition at
bench. Thus, this Court must defer to the findings of fact of the RTC - as affirmed or confirmed by the CA -
that Manulife's Complaint for rescission of the insurance policies in question was totally bereft of factual and
legal bases because it had utterly failed to prove that the insured had committed the alleged
misrepresentation/s or concealment/s of material facts imputed against him. The RTC correctly held that the
CDH's medical records that might have established the insured's purported misrepresentation/s or
concealment/s was inadmissible for being hearsay, given the fact that Manulife failed to present the
physician or any responsible official of the CDH who could confirm or attest to the due execution and
authenticity of the alleged medical records. Manulife had utterly failed to prove by convincing evidence that
it had been beguiled, inveigled, or cajoled into selling the insurance to the insured who purportedly with
malice and deceit passed himself off as thoroughly sound and healthy, and thus a fit and proper applicant
for life insurance. Manulife's sole witness gave no evidence at all relative to the particulars of the purported
concealment or misrepresentation allegedly perpetrated by the insured. In fact, Victoriano merely
perfunctorily identified the documentary exhibits adduced by Manulife; she never testified in regard to the
circumstances attending the execution of these documentary exhibits much less in regard to its contents. Of
course, the mere mechanical act of identifying these documentary exhibits, without the testimonies of the
actual participating parties thereto, adds up to nothing. These documentary exhibits did not automatically
validate or explain themselves. "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."39 For failure of Manulife to prove intent to defraud on the part of the insured, it cannot
validly sue for rescission of insurance contracts.

WHEREFORE, the Petition is DENIED. The assailed Decision of the Court of Appeals dated April 26, 2012 in
CA-G.R. CV No. 95561 and its December 10, 2012 Resolution, are AFFIRMED.

SO ORDERED. cralawlawlibra ry

Carpio, (Chairperson), Brion, Mendoza, and Leonen, JJ., concur.

N, Respondent.

SECOND DIVISION

G.R. No. 201822, August 12, 2015

MARINA PORT SERVICES, INC.*, Petitioner, v. AMERICAN HOME ASSURANCE


CORPORATION,Respondent.

DECISION

DEL CASTILLO, J.:

This Petition for Review on Certiorari1 filed pursuant to Rule 45 of the Rules of Court assails the December
29, 2011 Decision2 and May 8, 2012 Resolution3 of the Court of Appeals (CA) in CA GR. CV No. 88321, which
granted the appeal filed therein by respondent American Home Assurance Corporation (AHAC) and reversed
and set aside the October 17, 2006 Decision4 of the Regional Trial Court (RTC), Pasig City, Branch 271
dismissing AHAC's Complaint5 for Damages against petitioner Marina Port Services, Inc. (MPSI).

Factual Antecedents

On September 21, 1989, Countercorp Trading PTE., Ltd. shipped from Singapore to the Philippines 10
container vans of soft wheat flour with seals intact on board the vessel M/V Uni Fortune. The shipment was
insured against all risks by AHAC and consigned to MSC Distributor (MSC).

Upon arrival at the Manila South Harbor on September 25, 1989, the shipment was discharged in good and
complete order condition and with safety seals in place to the custody of the arrastre operator, MPSI. After
unloading and prior to hauling, agents of the Bureau of Customs officially broke the seals, opened the
container vans, and examined the shipment for tax evaluation in the presence of MSC's broker and checker.
Thereafter, the customs inspector closed the container vans and refastened them with safety wire seals
while MSC's broker padlocked the same. MPSI then placed the said container vans in a back-to-back
arrangement at the delivery area of the harbor's container yard where they were watched over by the
security guards of MPSI and of the Philippine Ports Authority.

On October 10, 1989, MSC's representative, AD's Customs Services (ACS), took out five container vans for
delivery to MSC. At the compound's exit, MPSI issued to ACS the corresponding gate passes for the vans
indicating its turnover of the subject shipment to MSC. However, upon receipt of the container vans at its
warehouse, MSC discovered substantial shortages in the number of bags of flour delivered. Hence, it filed a
formal claim for loss with MPSI.

From October 12 to 14, 1989 and pursuant to the gate passes issued by MPSI, ACS took out the remaining
five container vans from the container yard and delivered them to MSC. Upon receipt, MSC once more
discovered substantial shortages. Thus, MSC filed another claim with MPSI.

Per MSC, the total number of the missing bags of flour was 1,650 with a value of £257,083.00.

MPSI denied both claims of MSC. As a result, MSC sought insurance indemnity for the lost cargoes from
AHAC. AHAC paid MSC the value of the missing bags of flour after finding the tetter's claim in order. In turn,
MSC issued a subrogation receipt in favor of AHAC.

Thereafter, AHAC filed a Complaint6 for damages against MPSI before the RTC.

Ruling of the Regional Trial Court

AHAC averred in its Complaint that the partial loss of the bags of flour was due to the fault or negligence of
MPSI since the loss happened while the shipment was still in MPSI's custody.

MPSL, on the other hand, disclaimed any liability. It essentally maintained in its Answer7 that the bags of
flour were inside sealed container vans when it received the same; that it handled the subject shipment with
the diligence required of it; and, mat the container vans were turned over by it to MSC in the same condition
that they were in at the time of their discharge from the vessel. MPSI likewise countered that the failure of
MSC to request for a bad order survey belied the latter's claim for loss.

Trial then ensued.

On October 17, 2006, the RTC rendered a Decision8 dismissing AHAC's Complaint. It held that while there
was indeed a shortage of 1,650 sacks of soft wheat flour, AHAC's evidence failed to clearly show that the
loss happened while the subject shipment was still under MPSI's responsibility. Hence, the dispositive
portion of the RTC Decision:Lawlibra ryofCRAlaw

WHEREFORE, premises considered, the complaint is hereby DISMISSED.

SO ORDERED.9

Ruling of the Court of Appeals

Aggrieved, AHAC appealed to the CA.


In its Decision10 dated December 29, 2011, the CA stressed that in a claim for loss filed by a consignee, the
burden of proof to show due compliance with the obligation to deliver the goods to the appropriate party
devolves upon the arrastre operator. In consonance with this, a presumption of fault or negligence for the
loss of the goods arises against the arrastre operator pursuant to Articles 126511and 198112 of the Civil
Code. In this case, the CA found that MPSI failed to discharge such burden and to rebut the aforementioned
presumption. Thus, it was held liable to AHAC for the value of the missing bags of flour, viz.: Lawlib ra ryofCRAlaw

We conclude that x x x MPSI was negligent in the handling and safekeeping of the subject shipment. It did
not create and implement a more defined, concrete and effective measure to detect, curb and prevent the
loss or pilferage of cargoes in its custody. This is manifested by the fact that [MPSI] never took any action to
address such complaint even after it received the formal claim of loss in the first five (5) vans. As a
consequence, more bags of flour were eventually lost or pilfered in the remaining container vans that were
still in [MPSI's] custody at that time. Case law tells us that negligence is that conduct which creates undue
risk of harm to another, the failure to observe that degree of care, precaution and vigilance which the
circumstance[s] justly demand, whereby that other person suffers injury. Clearly, [MPSI] breached its
arrastre obligations to the consignee for it failed to deliver said bags in good and complete condition.

In view of MPSI's failure to exercise that degree of diligence, precaution and care the law [requires] of
arrastre operators in the performance of their duties to the consignee, [MPSI] is legally bound to reimburse
[AHAC] for the value of the missing bags of flour that it paid to MSC pursuant to the insurance policy.13

In view of the same, the said court disposed of the appeal in this wise: Lawl ib raryofCRAlaw

WHEREFORE, premises considered, the appeal is GRANTED. The Decision of the Regional Trial Court of Pasig
City, Branch 271 dated 17 October 2006 is REVERSED and SET ASIDE. Appellee Marina Port Services, Inc. is
ORDERED to pay appellant, American Home Assurance Corporation, the sum of Two Hundred Fifty Seven
Thousand and Eighty Three Pesos (PhP257,083.00) with interest thereon at Six percent (6%) [per annum]
from the filing of this complaint on 24 September 1990 until the decision becomes final and executory, and
thereafter, at the rate of twelve (12) percent [per annum] until fully paid, and additionally, to pay the x x x
sum of Fifty Thousand Pesos (PhP50,000.00) as attorney's fees.

SO ORDERED.14

MPSI moved for reconsideration but the CA denied the same in its Resolution15 dated May 8, 2012.

Hence, the present recourse.

Issue

The core issue to be resolved in this case is whether MPSI is liable for the loss of the bags of flour.

Our Ruling

There is merit in the Petition.

Albeit involving factual questions, the


Court shall proceed to resolve this case
since it falls under several exceptions to
the rule that only questions of law are
proper in a petition for review on
certiorari.

At the outset, it is evident that the resolution of the instant case requires the scrutiny of factual issues which
are, however, outside the scope of the present petition filed pursuant to Rule 45 of the Rules of Court.
However, the Court held in Asian Terminals, Inc. v. Philam Insurance Co., Inc.16 that: Lawlib raryofCR Alaw

But while it is not our duty to review, examine and evaluate or weigh all over again the probative value of
the evidence presented, the Court may nonetheless resolve questions of fact when the case falls under any
of the following exceptions: Lawli bra ryofCRAlaw
(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion;
(4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply
briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record.17

The Court finds that the instant case falls under the aforementioned second, fourth, fifth, and seventh
exceptions. Hence, it shall proceed to delve into factual matters essential to the proper determination of the
merits of this case.

Several well-entrenched legal principles


govern the relationship of an arrastre
operator and a consignee.

The relationship between an arrastre operator and a consignee is similar to that between a warehouseman
and a depositor, or to that between a common carrier and the consignee and/or the owner of the shipped
goods.18 Thus, an arrastre operator should adhere to the same degree of diligence as that legally expected
of a warehouseman or a common carrier19 as set forth in Section 3[b] of the Warehouse Receipts [Act]20 and
Article 1733 of the Civil Code.21 As custodian of the shipment discharged from the vessel, the arrastre
operator must take good care of the same and turn it over to the party entitled to its possession.22 redarclaw

In case of claim for loss filed by a consignee or the insurer as subrogee,23 it is the arrastre operator that
carries the burden of proving compliance with the obligation to deliver the goods to the appropriate
party.24 It must show that the losses were not due to its negligence or that of its employees.25 It must
establish that it observed the required diligence in handling the shipment.26Otherwise, it shall be presumed
that the loss was due to its fault.27 In the same manner, an arrastre operator shall be liable for damages if
the seal and lock of the goods deposited and delivered to it as closed and sealed, be broken through its
fault.28 Such fault on the part of the arrastre operator is likewise presumed unless there is proof to the
contrary.29
redarc law

MPSI was able to prove delivery of the


shipment to MSC in good and complete
condition and with locks and seals intact.

It is significant to note that MPSI, in order to prove that it properly delivered the subject shipment consigned
to MSC, presented 10 gate passes marked as Exhibits 4 to 13.30 Each of these gate passes bore the duly
identified signature31 of MSC's representative which serves, among others, as an acknowledgement that: Lawlib raryofCR Alaw

Issuance of [the] Gate Pass constitutes delivery to and receipt by consignee of the goods as described above
in good order and condition, unless an accompanying B.O. certificate duly issued and noted on the face of
[the] Gate Pass appears.32
As held in International Container Terminal Services, Inc. v. Prudential Guarantee & Assurance Co.,
Inc.,33 the signature of the consignee's representative on the gate pass is evidence of receipt of the
shipment in good order and condition.34 reda rclaw

Also, that MPSI delivered the subject shipment to MSC's representative in good and complete condition and
with lock and seals intact is established by the testimonies of MPSFs employees who were directly involved
in the processing of the subject shipment. Mr. Ponciano De Leon testified that as MPSI's delivery checker, he
personally examined the subject container vans and issued the corresponding gate passes that were, in
turn, countersigned by the consignee's representative. MPSI's other witness, Chief Claims Officer Sergio
Icasiano (Icasiano), testified that the broker, as the consignee's representative, neither registered any
complaints nor requested for an inspection, to wit: Lawlib raryofCR Alaw

RE-DIRECT EXAMINATION:
Atty. Laurente
xxxx
Q [A]fter receipt by the broker of the container van containing the
cargo, do you require the broker to issue you a report or certification
as to the appearance of the container van?
A [W]e only rely on the gate pass.
Q [A]nd you don't place there "the padlock is still intact or the wirings
still intact"?
A [I]t is stated in the gate pass, your Honor.
xxxx
Q [A]nd the findings [are counter-signed] by the representative of the
broker also on the same date?
A [Y]es, your honor.35
xxxx

RE-CROSS EXAMINATION
Atty. Laino
q [B]ut did you not say that in the gate pass it is stated there as to the
external appearance of the container van?
a [I]here was no indication of any inspection of the container van x x x
meaning the container vans were all in good condition, sir.
q [Y]ou said a [while] ago that you did not receive any complaint for
broken seals, is it not?
a [Y]es, sir.
q [B]ut the complaint that you received indicates that there were
losses,
a [W]e did not receive any complaint from the broker, sir.
q [I]f the broker will complain they have to file a request for inspection
of the cargo so that they will know if there [are] shortages x x x.
a [Y]es, sir.
[C]ourt
q [A]nd if the broker would notice or detect [something] peculiar, the
way the door of the container van appears whether close[d] or not,
they have to request for an inspection[?]
a [Y]es, your honor.
q [O]r in the absence of the padlock or wirings, the broker will request
for an inspection[?]
a [Y]es,your honor[;] they can require for the examination of the
cargo.
q [B]ut there was no request at all by the broker?
a [T]here was none, your Honor.36

Verily, the testimonies of the aforementioned employees of MPSI confirm that the container vans, together
with their padlocks and wirings, were in order at the time the gate passes were issued up to the time the
said container vans were turned over to ACS.

AHAC justifies the failure of ACS to immediately protest the alleged loss or pilferage upon initial pick-up of
the first batch of container vans. According to it, ACS could not have discovered the loss at that moment
since the stripping of container vans in the pier area is not allowed. The Court cannot, however, accept such
excuse. For one, AHAC's claim that stripping of the container vans is not allowed in the pier area is a mere
allegation without proof. It is settled that "[m]ere allegations do not suffice; they must be substantiated by
clear and convincing proof."37 For another, even assuming that stripping of the container vans is indeed not
allowed at the pier area, it is hard to believe that MSC or its representative ACS has no precautionary
measures to protect itself from any eventuality of loss or pilferage. To recall, ACS's representative signed
the gate passes without any qualifications. This is despite the fact that such signature serves as an
acknowledgment of ACS's receipt of the goods in good order and condition. If MSC was keen enough in
protecting its interest, it (through ACS) should have at least qualified the receipt of the goods as subject to
inspection, and thereafter arrange for such an inspection in an area where the same is allowed to be done.
However, no such action or other similar measure was shown to have been undertaken by MSC. What is
clear is that ACS accepted the container vans on its behalf without any qualification. As aptly observed by
the RTC: Lawlibra ryofCRAlaw

During [the] period of tum-over of goods from the arrastre to [ACS], there had been no protest on anything
on the part of consignee's representative x x x. Otherwise, the complaint would have been shown [on] the
gate passes. In fact, each gate pass showed the date of delivery, the location of delivery, the truck number
of the truck used in the delivery, the actual quantity of goods delivered, the numbers of the safety wires and
padlocks of the vans and the signatures of the receiver. More importantly, the gate passes bared the fact
that the shipments were turned-over by [MPSI] to [ACS] on the same dates of customs inspections and
turnovers.38
There being no exception as to bad order, the subject shipment, therefore, appears to have been accepted
by MSC, through ACS, in good order.39 "It logically follows [then] that the case at bar presents no occasion
for the necessity of discussing the diligence required of an [arrastre operator] or of the theory of [its] prima
facie liability x x x, for from all indications, the shipment did not suffer loss or damage while it was under
the care x x x of the arrastre operator x x x."40 redarclaw

Even in the light of Article 1981, no


presumption of fault on the part of MPSI
arises since it was not sufficiently shown
that the container vans were re-opened
or that their locks and seals were broken
for the second time.

Indeed, Article 1981 of the Civil Code also mandates a presumption of fault on the part of the arrastre
operator as follows: Lawli bra ryofCRAlaw

Article 1981. When the thing deposited is delivered closed and sealed, the depositary must return it in the
same condition, and he shall be liable for damages should the seal or lock be broken through his fault.

Fault on the part of the depositary is presumed, unless there is proof to the contrary.

As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the
forcible opening is imputable to the depositary, should there be no proof to the contrary. However, the
courts may pass upon the credibility of the depositor with respect to the value claimed by him.

When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the
deposit.

However, no such presumption arises in this case considering that it was not sufficiently shown that the
container vans were re-opened or that their locks and seals were broken for the second time. As may be
recalled, the container vans were opened by a customs official for examination of the subject shipment and
were thereafter resealed with safety wires. While this fact is not disputed by both parties, AHAC alleges that
the container vans were re-opened and this gave way to the alleged pilferage. The Court notes, however,
that AHAC based such allegation solely on the survey report of the Manila Adjuster & Surveyors Company
(MASCO). As observed by the RTC: Lawlibra ryofCRAlaw

AHAC x x x claim[s] that there were two instances when the seals were broken. [First], when the customs
officer examined the shipment and had it resealed with safety wires. [Second], when the surveyor and
consignee's broker visually inspected the shipment and allegedly found the safety wires of the customs
officer to have been detached and missing which they then replaced. This second instance is only upon their
say so as there is no x x x documentary or testimonial proof on the matter [other] than the [MASCO] survey
report.41

However, the person who prepared the said report was not presented in court to testify on the same. Thus,
the said survey report has no probative value for being hearsay. "It is a basic rule that evidence, whether
oral or documentary, is hearsay, if its probative value is not based on the personal knowledge of the witness
but on the knowledge of another person who is not on the witness stand."42Moreover, "an unverified and
unidentified private document cannot be accorded probative value. It is precluded because the party against
whom it is presented is deprived of the right and opportunity to cross-examine the person to whom the
statements or writings are attributed. Its executor or author should be presented as a witness to provide the
other party to the litigation the opportunity to question its contents. Being mere hearsay evidence, failure to
present the author of the letter renders its contents suspect and of no probative value."43redarc law

There being no other competent evidence that the container vans were reopened or that their locks and
seals were broken for the second time, MPSI cannot be held liable for damages due to the alleged loss of the
bags of flour pursuant to Article 1981 of the Civil Code.

At any rate, the goods were shipped


under "Shipper's Load and Count"
arrangement. Thus, protection against
pilferage of the subject shipment was
the consignees lookout.

At any rate, MPSI cannot just the same be held liable for the missing bags of flour since the consigned
goods were shipped under "Shipper's Load and Count" arrangement. "This means that the shipper was
solely responsible for the loading of the container, while the carrier was oblivious to the contents of the
shipment. Protection against pilferage of the shipment was the consignee's lookout. The arrastre operator
was, like any ordinary depositary, duty-bound to take good care of the goods received from the vessel and
to turn the same over to the party entitled to their possession, subject to such qualifications as may have
validly been imposed in the contract between the parties. The arrastre operator was not required to verify
the contents of the container received and to compare them with those declared by the shipper because, as
earlier stated, the cargo was at the shipper's load and count. The arrastre operator was expected to deliver
to the consignee only the container received from the carrier."44 re darclaw

All told, the Court holds that MPSI is not liable for the loss of the bags of flour.

WHEREFORE, the Petition is GRANTED. The Decision dated December 29, 2011 and Resolution dated May
8, 2012 of the Court of Appeals in CA-GR. CV No. 88321 are REVERSED AND SET ASIDE. The Decision
dated October 17, 2006 of the Regional Trial Court, Branch 271, Pasig City in Civil Case No. 90-54517
is REINSTATED and the Complaint in the said case is DISMISSED.

SO ORDERED. cralawlawlibra ry

Carpio, (Chairperson), Brion, Mendoza, and Leonen, JJ., concur.


SECOND DIVISION

G.R. No. 175773 June 17, 2013

MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION (MMPSEU), Petitioner,


vs.
MITSUBISHI MOTORS PHILIPPINES CORPORATION, Respondent.

DECISION

DEL CASTILLO, J.:

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 Decision2 and December 5, 2006
Resolution3 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 Decision4 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’ CBA5 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 (₱40,000.00) per confinement subject to the following:

a. The room and board must not exceed three hundred pesos (₱300.00) per day up to a
maximum of thirty-one (31) days. Similarly, Doctor’s Call fees must not exceed three
hundred pesos (₱300.00) 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 (₱100.00) 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
(₱100.00) 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 CBA7 effective August 1,
1999 to July 31, 2002 incorporating the same provisions on dependents’ hospitalization insurance
benefits but in the increased amount of ₱50,000.00. The room and board expenses, as well as the
doctor’s call fees, were also increased to ₱375.00.

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 ₱29,967.10. Of this amount,
₱9,000.00 representing professional fees was paid by MEDICard Philippines, Inc. (MEDICard) which
provides health maintenance to Lanie.8 MMPC only paid ₱12,148.63.9 It did not pay the ₱9,000.00
already paid by MEDICard and the ₱6,278.47 not covered by official receipts. It refused to give to
Calida the difference between the amount of medical expenses of ₱27,427.1010 which he claimed to
be entitled to under the CBA and the ₱12,148.63 which MMPC directly paid to 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 ₱9,101.30.14 MEDICard
paid ₱8,496.00.15Consequently, MMPC only paid ₱288.40,16 after deducting from the total medical
expenses the amount paid by MEDICard and the ₱316.90 discount given by the hospital.

Claiming that under the CBA, they are entitled to hospital benefits amounting to ₱27,427.10,
₱6,769.35 and ₱8,123.80, 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 President17 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 benefited 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 letter23 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:

Ms. Cecilia L. ParasPresident


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,

RICHARD DAVID C. FUNK II


Officer-in-Charge
Claims Adjudication Division

(SGD.)
Attorney IV

On December 3, 2002, the Voluntary Arbitrator rendered a Decision27 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 Injunction28 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 benefited 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 Decision31 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 Comment35 that the cited foreign case involves a different set of
facts.

The CA, in its Resolution36 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 benefiting 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 Decision40 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.

MARIANO C. DEL CASTILLO


Associate Justice
SECOND DIVISION

G.R. No. 175666 July 29, 2013

MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner.


vs.
CRESENCIA P. ABAN, Respondent.

DECISION

DEL CASTILLO, J.:

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,15and 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.22Hence, the present Petition.

Issues

Petitioner raises the following issues for resolution:

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.

MARIANO C. DEL CASTILLO


Associate Justice
Republic of the Philippines
Supreme Court
Baguio City

FIRST DIVISION

ASIAN TERMINALS, INC., G.R. No. 171406


Petitioner,

Present:

CORONA, C. J., Chairperson,


- versus- VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

MALAYAN INSURANCE, CO., INC., Promulgated:


Respondent. April 4, 2011
x--------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

Once the insurer pays the insured, equity demands reimbursement as no one should
benefit at the expense of another.

This Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court assails
the July 14, 2005 Decision[2] and the February 14, 2006 Resolution[3] 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) fromChina 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 P643,600.25.[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 Complaint[13] 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 Decision[16] 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 petitioners 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, petitioners 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 P643,600.25 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 appealed[23] 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 petitioners stevedores in handling and storing the subject shipment.[24] The
CA likewise rejected petitioners 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 herebyAFFIRMED in all respects.

SO ORDERED.[26]

Petitioner moved for reconsideration[27] but the CA denied the same in a


Resolution[28] 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 VESSELS
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 ATIS
LIABILITY.[29]

In sum, the issues are: (1) whether the non-presentation of the insurance contract or policy
is fatal to respondents cause of action; (2) whether the proximate cause of the damage/loss
to the shipment was the negligence of petitioners stevedores; and (3) whether the court can
take judicial notice of the Management Contract between petitioner and the Philippine
Ports Authority (PPA) in determining petitioners liability.
Petitioners 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
petitioners 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 petitioners 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 P5,000.00, 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]
Respondents 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 1236[41] 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
petitioners 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 1[46] 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, petitioners
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 respondents 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 insurers 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 petitioners 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 petitioners 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 respondents formal offer of evidence on the ground that respondent failed to
present the insurance contract or policy,[60] a perusal of petitioners Answer[61] and Pre-Trial
Brief[62] shows that petitioner never questioned respondents 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

Petitioners 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.[64] As 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 petitioners 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 ATIs 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 ATIs 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 ATIs BO Inspector and co-signed by a representative
of the shipping company, the trial courts finding that the damage to the
cargoes was due to the improper handling thereof by ATIs 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 consignees 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 consignees 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 ATIs 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 ATIs stevedores, x x x

xxxx

ATI has not satisfactorily rebutted plaintiff-appellees evidence on the


negligence of ATIs stevedores in the handling and safekeeping of the cargoes.
xxx

xxxx
We find no reason to disagree with the trial courts
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 ATIs
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 petitioners 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
petitioners liability to P5,000.00 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.

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.

MARIANO C. DEL CASTILLO


Associate Justice