INSURANCE POLICY

DLSU Commercial Law Review Digest G02 (2015-2016)
41 Central Shipping Company, Inc. v. Insurance Company of North America

G.R. No. 150751 / 20 September 2004
Topic: Fortuitous Event (Caso Fortuito); Limited Liability
Ponente: Panganiban, J.
DOCTRINES:
The defense of fortuitous event or natural disaster cannot be successfully made when the injury could have
been avoided by human precaution.
The doctrine of limited liability under Article 587 of the Code of Commerce does not apply to situations in which
the loss or the injury is due to the concurrent negligence of the shipowner and the captain.
FACTS:
Central Shipping Company, Inc. (shipowner) received on board its vessel, the M/V ‘Central Bohol’, 376 pieces
of Philippine Apitong Round Logs and undertook to transport said shipment to Manila from Puerto Princesa,
Palawan for delivery to Alaska Lumber Co., Inc (consignee). The cargo was insured for P3,000,000.00
against total loss under a Marine Cargo Policy of Insurance Company of North America (insurance
company). While enroute to Manila, the vessel listed about 10 degrees starboardside until it eventually
reached 15 degrees and sank thereafter. Due to the sinking of the vessel, the cargo was totally lost. The
consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the shipowner but the
latter failed and refused to settle the claim, hence the insurance company paid said claim and now seeks to be
subrogated to all the rights and actions of the consignee as against the shipowner.
The shipowner interposed the defense that the vessel was fully manned, fully equipped and in all respects
seaworthy; that all the logs were properly loaded and secured; that the vessel’s master exercised due diligence
to prevent or minimize the loss before, during and after the occurrence of the storm. It also alleged that the
proximate and only cause of the sinking of its vessel and the loss of its cargo was a natural disaster, a tropical
storm which neither the shipowner nor the captain of its vessel could have foreseen. Both the RTC and the CA
were not convinced that the sinking of M/V Central Bohol had been caused by the weather or any other caso
fortuito since it was a common occurrence during the months of July to December which could have been
foreseen by any ocean-going vessel.
ISSUE/S:
(1) Whether the carrier is liable for the loss of the cargo. YES. It is because: (a) there was no storm when the
ship sank – only a monsoon; and (b) there was improper stowage.
(2) Whether the doctrine of limited liability is applicable. NO.
RULING:
(1)
The shipowner disclaims responsibility for the loss of the cargo by claiming the occurrence of a "storm" under
Article 1734(1). The pieces of evidence with respect to the weather conditions encountered by the vessel
showed that there was a southwestern monsoon at the time. Normally expected on sea voyages, however,
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were such monsoons, during which strong winds were not unusual. Nonetheless, it would not be sufficient to
categorize the weather condition at the time as a "storm" within the absolutory causes enumerated in the law.
Significantly, no typhoon was observed within the Philippine area of responsibility during that period.
Even if the weather encountered by the ship is to be deemed a natural disaster under Article 1739 of the Civil
Code, the shipowner failed to show that such natural disaster or calamity was the proximate and only cause of
the loss. Human agency must be entirely excluded from the cause of injury or loss. In other words, the
damaging effects blamed on the event or phenomenon must not have been caused, contributed to, or
worsened by the presence of human participation. The defense of fortuitous event or natural disaster
cannot be successfully made when the injury could have been avoided by human precaution.
The Court also finds no reason to disturb the CA’s finding that the loss of the vessel was caused not only by
the southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could have been
due only to improper stowage. It is obvious, as a matter of common sense, that the manner of stowage in
the lower hold was not sufficient to secure the logs in the event the ship should roll in heavy weather. Being
clearly prone to shifting, the round logs should not have been stowed with nothing to hold them securely in
place. Each pile of logs should have been lashed together by cable wire, and the wire fastened to the side of
the hold. Considering the strong force of the wind and the roll of the waves, the loose arrangement of the logs
did not rule out the possibility of their shifting. By force of gravity, those on top of the pile would naturally roll
towards the bottom of the ship. The carrier took a calculated risk in improperly securing the cargo. Having lost
that risk, it cannot now escape responsibility for the loss.
(2)
The doctrine of limited liability under Article 587 of the Code of Commerce does not apply to situations
in which the loss or the injury is due to the concurrent negligence of the shipowner and the captain. It
has already been established that the sinking of M/V Central Bohol had been caused by the fault or negligence
of the ship captain and the crew, as shown by the improper stowage of the cargo of logs.
DISPOSITIVE PORTION:
WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED. Costs against
petitioner.
2
[INSURANCE] 042 HYOPSUNG MARITIME CO., LTD., petitioner, vs.THE HONORABLE COURT OF
APPEALS and PIONEER INSURANCE & SURETY CORPORATION, respondents.
G.R. No. 77369 August 3l, 1988
Topic: Insurance Policy executed outside the Philippines
Ponente: SARMIENTO, J.:
DOCTRINE:
On the other hand, the present suit is for the recovery of damages based on a breach of contract which
appears to have been entirely entered into, executed, and consummated in Korea. Indisputably, the Pohang
Korea, by a Korean firm with offices at Seoul, Korea; the corresponding bill of lading was issued in Seoul,
Korea and the freight was prepaid also at Seoul; the above vessel with its cargo never even docked at Manila
or at any other port of entry in the Philippines; lastly, the petitioner did not appoint any ship agent in the
Philippines. Simply put, the petitioner is beyond the reach of our courts.
FACTS:
An admiralty case was filed by Pioneer Insurance & Surety Corp., against Hyopsung Maritime Co., Ltd.
Pioneer Insurance & Surety Corp., as subrogee of the consignee, sought the recovery of the value
(P5,000,537.48) of the lost or undelivered cargo-consisting of steel billets allegedly shipped on board the
vessel MV "Don Aurelio"
Apparently, the above vessel was a member of a Protection & Indemnity Club (P & I Club, for short), which is
"an association composed of ship owners in general who band together for the specific purpose of providing
insurance cover on a mutual basis against liabilities incidental to ship owning that the members incur in favor of
third parties. Thus, the law firm of Teves, Campos, Hernandez & Lim, as one of the designated legal
representatives of the P & I Club concerned, filed an Answer supposedly on behalf of all the defendants.
Subsequently, Atty. Eulalio A. Ventura, as counsel for the herein petitioner, alleged charterer of the vessel,
filed a special appearance, for the sole purpose of questioning the jurisdiction of the court. The Nevertheless,
the law firm of Teves, Campos, Hernandez & Lim continued to represent the defendant Aurelio Navigation
Corp. S.A., the owner of the vessel.
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Thereafter, the petitioner, through counsel, filed a Motion to Dismiss on the ground that the trial court had no
jurisdiction over its person as well as the subject matter of the suit.
In an Order dated March 4, 1983, the trial court dismissed the complaint against all the defendants. On appeal,
however, the CA reversed the RTC’s decision. Hence, this petition.
ISSUE: whether or not there was a voluntary appearance by the petitioner's counsel such that jurisdiction over
the petitioner has been acquired by the trial court (corollary issue: whether or not the petitioner may be sued in
the Philippines) No to both issues.
RULING:
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There was no voluntary appearance thus the court did not acquire jurisdiction.
It is to note that, there is the Certification from the President of the company Mr. B.S. Kim that appellee
Hyopsung Maritime Co. Ltd. has not and has never engaged the services of the Philippine Law Firm of
Teves, Campos, Hernandez & Lim, or particularly, Atty. Jaime Vibar, to represent it in the above
mentioned case, nor has it authorized, allowed or tolerated said law firm and/or individual lawyers to
prepare and file in its behalf the 'Answer" to a complaint dated August 24, 1981, signed by Atty. Jaime
Vibar; that the only authorized counsel in the Philippines whose services have been engaged on October 27,
1981, for the principal purpose of raising the question of jurisdiction of the Philippine courts is Atty. Eulalio
Ventura of the Aquino, Castro & Ventura Law Offices and that Hyopsung Maritime Co. Ltd. has never engaged
nor has it done or conducted any business whatever in the Philippines. Apparently then, appellee Hyopsung
Maritime Co. Lt. is not bound by the pleading or answer mistakenly filed by the law firm of Teves, Campos,
Hernandez & Lim for and in behalf of all the appellees.
Finally laying to rest the question of jurisdiction, we likewise hold that, the civil case below being a personal
action, personal or substituted service of summons on the petitioner, pursuant to Sec. 14, Rule 14 (then Sec.
14, Rule 7) of the Rules of Court, is necessary to confer jurisdiction on the court; however, considering that the
respondent Court of Appeals accepted the explanation of the president of the petitioner company that it is not
doing business in the Philippines, and no proof to the contrary having been adduced below by the private
respondent, ergo, the petitioner is not amenable to process and the jurisdiction of the local courts. For as we
said in Pacific Micronisian Line, Inc., vs. del Rosario and Pelingon:
... But, it should be noted, in order that services may be effected in the manner above stated, said
section also requires that the foreign corporation be one which is doing business in the Philippines. This
is a sine qua non requirement. This fact must first be established in order that summons can be made
and jurisdiction acquired.
Indeed, if a foreign corporation, not engaged in business in the Philippines is not barred from seeking redress
from courts in the Philippines, a fortiori that same corporation cannot claim exemption from being sued in
Philippine courts for acts done against a person or persons in the Philippines.
On the other hand, the present suit is for the recovery of damages based on a breach of contract which
appears to have been entirely entered into, executed, and consummated in Korea. Indisputably, the Pohang
Korea, by a Korean firm with offices at Seoul, Korea; the corresponding bill of lading was issued in Seoul,
Korea and the freight was prepaid also at Seoul; the above vessel with its cargo never even docked at Manila
or at any other port of entry in the Philippines; lastly, the petitioner did not appoint any ship agent in the
Philippines. Simply put, the petitioner is beyond the reach of our courts.
WHEREFORE, the petition is GRANTED. The dispositive portion of the decision of the Court of Appeals is
hereby MODIFIED in that the complaint against the petitioner is hereby ordered DISMISSED, and the case is
remanded to the lower court for trial on the merits as against the two other defendants in Civil Case No.
142115. No costs.
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43 MALAYAN INSURANCE CO., INC., Petitioner, vs. REGIS BROKERAGE CORP., Respondent.
G.R. No. 172156 November 23, 2007
Topic: Existence of Contract of insurance – how proven?
Ponente: Tinga
DOCTRINE:
Malayan’s right of recovery as a subrogee of ABB Koppel cannot be predicated alone on the liability of the
respondent to ABB Koppel, even though such liability will necessarily have to be established at the trial for
Malayan to recover. Because Malayan’s right to recovery derives from contractual subrogation as an incident
to an insurance relationship, and not from any proximate injury to it inflicted by the respondents, it is critical that
Malayan establish the legal basis of such right to subrogation by presenting the contract constitutive of the
insurance relationship between it and ABB Koppel. Without such legal basis, its cause of action cannot survive.
Since the Marine Insurance Policy was constitutive of the insurer-insured relationship from which Malayan
draws its right to subrogation, such document should have been attached to the complaint itself, as provided
for in Section 7, Rule 9 of the 1997 Rules of Civil Procedure.
FACTS:
Around 1 February 1995, Fasco Motors Group loaded 120 pieces of "motors" on board China Airlines bound
for Manila from the United S. The cargo was to be delivered to consignee ABB Koppel.
When the cargo arrived at the NAIA, it was discharged without issues and forwarded to People’s Aircargo &
Warehousing Corp.’s (Paircargo’s) warehouse for temporary storage pending release by the Bureau of
Customs.
Paircargo remained in possession of the cargo until 7 March 1995, at which point respondent Regis Brokerage
Corp. (Regis) withdrew the cargo and delivered the same to ABB Koppel at its warehouse.
When the shipment arrived at ABB Koppel’s warehouse, it was discovered that only 65 of the 120 pieces of
motors were actually delivered and that the remaining 55 motors, valued at US$2,374.35, could not be
accounted for.
The shipment was purportedly insured with Malayan by ABB Koppel. Demand was first made upon Regis and
Paircargo for payment of the value of the missing motors, but both refused to pay. Thus, Malayan paid ABB
Koppel the amount of P156,549.55 apparently pursuant to its insurance agreement, and Malayan was on that
basis subrogated to the rights of ABB Koppel against Regis and Paircargo.
Malayan filed a complaint for damages with the MeTC

MeTC: Regis alone is liable
RTC: affirmed
CA: Vacated decision of the lower courts.
The central finding that formed the Court of Appeals decision was that the Marine Risk Note presented
as proof that the cargo was insured was invalid. It was observed that the Marine Risk Note was
procured from Malayan only on 21 March 1995, when in fact the insured, ABB Koppel, had
learned of the partial loss of the motors as early as 7 March 1995. The appellate court noted that
under Section 3 of the Insurance Code, the past event which may be insured against must be unknown
to the parties and so for that reason the insurance contract in this case violated Section 3.
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Malayan argues that the Marine Risk note dated 21 March 1995 is only a supplement to an Open Insurance
Policy executed between ABB Koppel and Malayan before 1 February 1995 – months before the loss
occurred.
ISSUE:
Whether there existed a contract of insurance between ABB Koppel and Malayan at the time of the loss of the
motors?
HELD: There was none.
The Marine Insurance Policy was never presented in evidence before the trial court or the Court of Appeals
even, there is no legal basis to consider such document in the resolution of this case, reflective as that
document may have been of the pre-existence of an insurance contract between Malayan and ABB Koppel
even prior to the loss of the motors.
In fact, it appears quite plain that Malayan’s theory of the case it pursued before the trial court was that the
perfected insurance contract which it relied upon as basis for its right to subrogation was not the Marine
Insurance Policy but the Marine Risk Note which, unlike the former, was actually presented at the trial and
offered in evidence. Even the very complaint filed by Malayan before the MeTC stated that "[t]he subject
shipment was insured by [Malayan] under Risk Note No. 0001-19832," and not by the Marine Insurance Policy,
which was not adverted to at all in the complaint.
In the absence of any evidentiary consideration of the actual Marine Insurance Policy, the substance of
Malayan’s right to recovery as the subrogee of ABB Koppel is not duly confirmed. There can be no
consideration of the particular terms and conditions in the insurance contract that specifically give rise to
Malayan’s right to be subrogated to ABB Koppel, or to such terms that may have absolved Malayan from the
duty to pay the insurance proceeds to that consignee.
The particular date as to when such insurance contract was constituted cannot be established with certainty
without the contract itself, and that point is crucial since there can be no insurance on a risk that had already
occurred by the time the contract was executed. Since the documents in evidence and testimonies allude to
"marine insurance" or "marine risk note," it also is a legitimate question whether the particular marine
insurance relationship between Malayan and ABB Koppel also covers cargo delivered not by ships at sea but
by airplane flights, as had occurred in this case. Only the actual policy itself could definitively settle such a
question.
WHEREFORE, the petition is DENIED. Costs against petitioner.
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44 INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., Petitioner, vs. FGU INSURANCE

CORPORATION, HAPAG-LLOYD, HAPAG-LLOYD PHILS., INC., and DESMA CARGO HANDLERS,
INC., Respondents.
G.R. No. 161539 June 27, 2008
Topic: Marine open policy
Ponente:Austria-Martinez, J.
DOCTRINE:
 a marine risk note is not an insurance policy. It is only an acknowledgment or declaration of the insurer
confirming the specific shipment covered by its marine open policy, the evaluation of the cargo and the
chargeable premium. It is the marine open policy which is the main insurance contract.
 marine open policy is the blanket insurance to be undertaken by FGU on all goods to be shipped by
RAGC during the existence of the contract, while the marine risk note specifies the particular
goods/shipment insured by FGU on that specific transaction, including the sum insured, the shipment
particulars as well as the premium paid for such shipment.
 In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the presentation of the
insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the
petitioner's vessel, unlike in Home Insurance in which the cargo passed through several stages with
different parties and it could not be determined when the damage to the cargo occurred, such that the
insurer should be liable for it.
FACTS:
Petitioner's liability arose from a lost shipment of "14 Cardboards 400 kgs. of Silver Nitrate" shipped from
Hamburg, Germany with Manila, Philippines as the port of discharge, and Republic Asahi Glass Corporation
(RAGC) as consignee.
Said shipment was insured by FGU Insurance Corporation (FGU)
When RAGC's customs broker, Desma Cargo Handlers, Inc., was claiming the shipment, petitioner, which was
the arrastre contractor, could not find it in its storage area.
At the behest of petitioner, the National Bureau of Investigation (NBI) The AAREMA Marine and Cargo
Surveyors, Inc. conducted an investigation. Both found that the shipment was lost while in the custody and
responsibility of petitioner.
As insurer, FGU paid RAGC the amount of P1,835,068.88
FGU sought reimbursement from petitioner, but the latter refused. This constrained FGU to file with the RTC of
Manila for a sum of money.
ISSUE:
Whether or not the CA erred in upholding the marine open policy? NO

Whether or not the complaint must be dismissed on the ground of respondent's failure to offer the insurance
policy in evidence? NO
RULING:
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Petitioner insists that Marine Open Policy No. MOP-12763 under which the shipment was insured was no
longer in force at the time it was loaded on board the Hannover Express on June 10, 1994, as provided in the
Endorsement portion of the policy, which states: "IT IS HEREBY DECLARED AND AGREED that effective
June 10, 1994, this policy is deemed CANCELLED." FGU, on the other hand, insists that it was under Marine
Risk Note No. 9798, which was executed on May 26, 1994, that said shipment was covered.
It must be emphasized that a marine risk note is not an insurance policy. It is only an acknowledgment or
declaration of the insurer confirming the specific shipment covered by its marine open policy, the evaluation of
the cargo and the chargeable premium. It is the marine open policy which is the main insurance contract. In
other words, the marine open policy is the blanket insurance to be undertaken by FGU on all goods to be
shipped by RAGC during the existence of the contract, while the marine risk note specifies the particular
goods/shipment insured by FGU on that specific transaction, including the sum insured, the shipment
particulars as well as the premium paid for such shipment. In any event, as it stands, it is evident that even
prior to the cancellation by FGU of Marine Open Policy No. MOP-12763 on June 10, 1994, it had already
undertaken to insure the shipment of the 400 kgs. of silver nitrate, specially since RAGC had already paid the
premium on the insurance of said shipment.
Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial
court or even belatedly before the appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,
the Court stated that the presentation of the marine insurance policy was necessary, as the issues raised
therein arose from the very existence of an insurance contract between Malayan Insurance and its consignee,
ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc. v. Prudential
Guarantee and Assurance, Inc., the Court ruled that the insurance contract must be presented in evidence in
order to determine the extent of the coverage. This was also the ruling of the Court in Home Insurance
Corporation v. Court of Appeals.
However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v. Court of
Appeals, the Court stated that the presentation of the insurance policy was not fatal because the loss of the
cargo undoubtedly occurred while on board the petitioner's vessel, unlike in Home Insurance in which the
cargo passed through several stages with different parties and it could not be determined when the damage to
the cargo occurred, such that the insurer should be liable for it.
As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioner's
custody. Moreover, there is no issue as regards the provisions of Marine Open Policy No. MOP-12763, such
that the presentation of the contract itself is necessary for perusal, not to mention that its existence was
already admitted by petitioner in open court. And even though it was not offered in evidence, it still can be
considered by the court as long as they have been properly identified by testimony duly recorded and they
have themselves been incorporated in the records of the case.
DISPOSITIVE PORTION: WHEREFORE, the petition is DENIED. The Decision dated October 22, 2003 and
Resolution dated January 8, 2004 of the Court of Appeals are AFFIRMED, with the modification that the award
in the RTC Decision dated July 1, 1999 should be P1,835,068.88 instead of P1,875,068.88.
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045. Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and Surety Corp.,
G.R. No. . 180880-81 & 180896-97, Sept. 25, 2009
Topic: Total Loss/Subrogation/Co-insurance
Ponente:. NACHURA, J.:
DOCTRINE: The CA held that Section 139 of the Insurance Code is merely permissive on account of the word
may in the provision. This is incorrect. Properly considered, the word may in the provision is intended to grant
the insured (WG&A) the option or discretion to choose the abandonment of the thing insured (M/V Superferry
3), or any particular portion thereof separately valued by the policy, or otherwise separately insured, and
recover for a total loss when the cause of the loss is a peril insured against.
Likewise, Clause 20 is a stipulation that may be considered contrary to public policy. To allow KCSI to limit its
liability to only P50,000,000.00, notwithstanding the fact that there was a constructive total loss in the amount
of P360,000,000.00, would sanction the exercise of a degree of diligence short of what is ordinarily required. It
would not be difficult for a negligent party to escape liability by the simple expedient of paying an amount very
much lower than the actual damage or loss sustained by the other.
FACTS:
On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a Shiprepair
Agreement wherein KCSI would renovate and reconstruct WG&As M/V Superferry 3 using its dry docking
facilities pursuant to its restrictive safety and security rules and regulations. Prior to the execution of the
Shiprepair Agreement, Superferry 3 was already insured by WG&A with Pioneer for US$8,472,581.78.
On February 8, 2000, in the course of its repair, M/V Superferry 3 was gutted by fire. Claiming that the extent
of the damage was pervasive, WG&A declared the vessels damage as a total constructive loss and, hence,
filed an insurance claim with Pioneer.
On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of US$8,472,581.78. WG&A, in
turn, executed a Loss and Subrogation Receip in favor of Pioneer.
Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied any responsibility
for the loss of the subject vessel. As KCSI continuously refused to pay despite repeated demands, Pioneer, on
August 7, 2000, filed a Request for Arbitration before the Construction Industry Arbitration Commission (CIAC).
Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A the full amount of
the insurance coverage and, by operation of law, it was entitled to be subrogated to the rights of WG&A to
claim the amount of the loss. It furthe argues that the limitation of liability clause found in the Shiprepair
Agreement is null and void for being iniquitous and against public policy.
KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that there is no proof
of payment of the insurance proceeds. KCSI insists on the validity of the limited-liability clause up to
P50,000,000.00, because WG&A acceded to the provision when it executed the Shiprepair Agreement. KCSI
also claims that the salvage value of the vessel should be deducted from whatever amount it will be made to
pay to Pioneer.
ISSUE:
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WON KCSI is liable for the claim of “total loss” payable to Pioneer – NO
WON the limited liability inscribed in the shiprepair agreement restraints the Pioneer insurance’s claim
against Keppel Cebu – NO
RULING:
(1) In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section 139 of
the Insurance Code, which provides
Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured,
or any particular portion hereof separately valued by the policy, or otherwise separately insured,
and recover for a total loss thereof, when the cause of the loss is a peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or would have to be
expended to recover it from the peril
(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x
It appears, however, that in the execution of the insurance policies over M/V Superferry 3, WG&A and Pioneer
incorporated by reference the American Institute Hull Clauses 2/6/77, the Total Loss Provision of which reads.
There shall be no recovery for a constructive Total Loss hereunder unless the expense of recovering
and repairing the Vessel would exceed the Agreed Value in policies on Hull and Machinery. x x x.
KCSI denies the liability because, aside from its claim that it cannot be held culpable for negligence resulting in
the destructive fire, there was no constructive total loss, as the amount of damage was only US$3,800,000.00
or P170,611,260.00, the amount of repair expense quoted by Simpson, Spence & Young. In the face of this
apparent conflict, we hold that Section 139 of the Insurance Code should govern, because (1) Philippine law is
deemed incorporated in every locally executed contract; and (2) the marine insurance policies in question
expressly provided the following: “This insurance is subject to English jurisdiction, except in the event that loss
or losses are payable in the Philippines, in which case if the said laws and customs of England shall be in
conflict with the laws of the Republic of the Philippines, then the laws of the Republic of the Philippines shall
govern.”
The CA held that Section 139 of the Insurance Code is merely permissive on account of the word may in the
provision. This is incorrect. Properly considered, the word may in the provision is intended to grant the insured
(WG&A) the option or discretion to choose the abandonment of the thing insured (M/V Superferry 3), or any
particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a
total loss when the cause of the loss is a peril insured against. This option or discretion is expressed as a right
in Section 131 of the same Code, to wit:
Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon
under Section one hundred thirty-nine.
Considering the extent of the damage, WG&A opted to abandon the ship and claimed the value of its policies.
Pioneer, finding the claim compensable, paid the claim, with WG&A issuing a Loss and Subrogation Receipt
evidencing receipt of the payment of the insurance proceeds from Pioneer. On this note, we find as
unacceptable the claim of KCSI that there was no ample proof of payment simply because the person who
signed the Receipt appeared to be an employee of Aboitiz Shipping Corporation. The Loss and Subrogation
Receipt issued by WG&A to Pioneer is the best evidence of payment of the insurance proceeds to the former,
and no controverting evidence was presented by KCSI to rebut the presumed authority of the signatory to
receive such payment.
10
On the matter of subrogation, Article 2207 of the Civil Code provides

Art. 2207. If the plaintiffs property has been insured and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he
who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or
securities. The principle covers a situation wherein an insurer has paid a loss under an insurance policy is
entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes of
the creditor, and he may use all means that the creditor could employ to enforce payment.
(2) We cannot accept KCSIs insistence on upholding the validity Clause 20, which provides that the limit of its
liability is only up to P50,000,000.00; nor of Clause 22(a), that KCSI stands as a co-assured in the insurance
policies, as found in the Shiprepair Agreement.
Likewise, Clause 20 is a stipulation that may be considered contrary to public policy. To allow KCSI to limit its
liability to only P50,000,000.00, notwithstanding the fact that there was a constructive total loss in the amount
of P360,000,000.00, would sanction the exercise of a degree of diligence short of what is ordinarily required. It
would not be difficult for a negligent party to escape liability by the simple expedient of paying an amount very
much lower than the actual damage or loss sustained by the other.
Along the same vein, Clause 22(a) cannot be upheld. The intention of the parties to make each other a co-
assured under an insurance policy is to be gleaned principally from the insurance contract or policy itself and
not from any other contract or agreement, because the insurance policy denominates the assured and the
beneficiaries of the insurance contract. Undeniably, the hull and machinery insurance procured by WG&A from
Pioneer named only the former as the assured. There was no manifest intention on the part of WG&A to
constitute KCSI as a co-assured under the policies. To have deemed KCSI as a co-assured under the policies
would have had the effect of nullifying any claim of WG&A from Pioneer for any loss or damage caused by the
negligence of KCSI. No ship owner would agree to make a ship repairer a co-assured under such insurance
policy. Otherwise, any claim for loss or damage under the policy would be rendered nugatory. WG&A could not
have intended such a result
.
. WHEREFORE, the Petition of Pioneer Insurance and Surety Corporation in G.R. No. 180896-97 and the
Petition of Keppel Cebu Shipyard, Inc. in G.R. No. 180880-81 are PARTIALLY GRANTED and the Amended
Decision dated December 20, 2007 of the Court of Appeals is MODIFIED. Accordingly, KCSI is ordered to pay
Pioneer the amount of P360,000,000.00 less P30,252,648.09, equivalent to the salvage value recovered by
Pioneer from M/V Superferry 3, or the net total amount of P329,747,351.91, with six percent (6%) interest per
annum reckoned from the time the Request for Arbitration was filed until this Decision becomes final and
executory, plus twelve percent (12%) interest per annum on the said amount or any balance thereof from the
finality of the Decision until the same will have been fully paid. The arbitration costs shall be borne by both
parties on a pro rata basis. Costs against KCSI.
11
[Type text]
[46] Malayan Insurance Co., Inc. vs. Rodelio Alberto and Enrico Alberto Reyes,
G.R. No. 194320, February 1, 2012
Topic:
Ponente: VELASCO, JR., J.:
DOCTRINE:
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so
that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its
remedies or securities
FACTS:
An accident occurred at the corner of EDSA and Ayala Avenue, Makati City, involving four (4) vehicles, to wit:
(1) a Nissan Bus operated by Aladdin Transit (2) an Isuzu Tanker (3) a Fuzo Cargo Truck; and (4) a Mitsubishi
Galant w
Based on the Police Report the Isuzu Tanker was in front of the Mitsubishi Galant with the Nissan Bus on their
right side shortly before the vehicular incident. All three (3) vehicles were at a halt along EDSA facing the south
direction when the Fuzo Cargo Truck simultaneously bumped the rear portion of the Mitsubishi Galant and the
rear left portion of the Nissan Bus. Due to the strong impact, these two vehicles were shoved forward and the
front left portion of the Mitsubishi Galant rammed into the rear right portion of the Isuzu Tanker.
Malayan Insurance issued Car Insurance in favor of First Malayan Leasing and Finance Corporation (the
assured), insuring the aforementioned Mitsubishi Galant against third party liability, own damage and theft,
among others. Having insured the vehicle against such risks, Malayan Insurance claimed in its Complaint
dated October 18, 1999 that it paid the damages sustained by the assured amounting to PhP 700,000.
Maintaining that it has been subrogated to the rights and interests of the assured by operation of law upon its
payment to the latter, Malayan Insurance sent several demand letters to respondents Rodelio Alberto (Alberto)
and Enrico Alberto Reyes (Reyes), the registered owner and the driver, respectively, of the Fuzo Cargo Truck,
requiring them to pay the amount it had paid to the assured. When respondents refused to settle their liability,
Malayan Insurance was constrained to file a complaint for damages for gross negligence against respondents.
Respondents asserted that they cannot be held liable for the vehicular accident, since its proximate cause was
the reckless driving of the Nissan Bus driver.The trial court ruled in favor of Malayan Insurance and declared
respondents liable for damages.
On appeal, the CA held that the evidence on record has failed to establish not only negligence on the part of
respondents, but also compliance with the other requisites and the consequent right of Malayan Insurance to
subrogation.
Malayan Insurance contends that there was a valid subrogation in the instant case, as evidenced by the claim
check voucher and the Release of Claim and Subrogation Receipt presented by it before the trial court.
Respondents, however, claim that the documents presented by Malayan Insurance do not indicate certain
important details that would show proper subrogation.
.
ISSUE: WON there was a valid subrogation
RULING: Yes
12
As noted by Malayan Insurance, respondents had all the opportunity, but failed to object to the presentation of
its evidence. Thus, and as We have mentioned earlier, respondents are deemed to have waived their right to
make an objection.
Bearing in mind that the claim check voucher and the Release of Claim and Subrogation Receipt presented by
Malayan Insurance are already part of the evidence on record, and since it is not disputed that the insurance
company, indeed, paid PhP 700,000 to the assured, then there is a valid subrogation in the case at bar.
As explained in Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and Surety Corporation:
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he
who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or
securities. The principle covers a situation wherein an insurer has paid a loss under an insurance policy is
entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss
covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes of
the creditor, and he may use all means that the creditor could employ to enforce payment.
We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of
all the remedies that the insured may have against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues
simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its
roots in equity. It is designed to promote and to accomplish justice; and is the mode that equity adopts to
compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay.[33]
Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to the rights
of the assured.
DISPOSITIVE PORTION: WHEREFORE, the petition is hereby GRANTED. The CAs July 28, 2010 Decision
and October 29, 2010 Resolution in CA-G.R. CV No. 93112 are hereby REVERSED and SET ASIDE. The
Decision dated February 2, 2009 issued by the trial court in Civil Case No. 99-95885 is hereby
REINSTATED.
13
[Type text]
047 Uy Hu & Co. v. The Prudential Assurance Co., Ltd.

GR no. and Date: G.R. No. 27778. December 16, 1927
Topic: WHEN PROOF OF CLAIM IS BAR TO RECOVERY.
Ponente: JOHNS, J.
DOCTRINE:
Where a fire insurance policy provides that "If the claim be in any respect fraudulent, or if any false declaration
be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone
acting on his behalf to obtain any benefit under this Policy," and the evidence is conclusive that the proof of
claim which the insured submitted was false and fraudulent both as to the kind, quality and amount of the
goods and their value destroyed by the fire, such a proof of claim is a bar against the insured to recover on the
policy even for the amount of his actual loss.
FACTS:
Plaintiff is a general mercantile co partnership and defendant is a foreign insurance company duly licensed to
do business in the Philippines. That on April 20, 1926, the defendant undertook to and did insure against loss
and damage by fire the property, goods, wares and merchandise of the plaintiff for the sum of P30,000,-all of
which is evidenced by its policy No. 90119. That on May 10, 1926, and while the policy was in full force and
effect, the property therein described was destroyed by fire without the fault or negligence of the plaintiff.
Plaintiff notified the defendant of the fire and of its loss, and requested payment of the P30, 000 but the latter
refused. Wherefore, plaintiff prays for a corresponding judgment against the defendant.
Defendant alleges that in the policy in question, it was agreed that in the event of loss, should the plaintiff make
a fraudulent claim or any false declaration or use any fraudulent means or devices to obtain payment for its
loss, the policy should become null and void. That after the fire plaintiff did present a claim under oath of its
manager for P30, 000, the alleged amount of its loss. That said claim was false and fraudulent, in that it was
therein represented that the value of merchandise at the time of the fire was P32,523.30, whereas in truth and
in fact a large part of the merchandise claimed and represented in plaintiff’s proof of loss was not in the
building at the time of the fire, and that the value of the merchandise which was actually consumed or
damaged by the fire was a very small part of the claim made by the plaintiff, "and by reason of such fraudulent
claim and false declaration made and used in support thereof, all benefit under said policy has been forfeited."
Defendant prays that plaintiff’s complaint be dismissed, and that it have judgment for costs.
TC rendered judgment for the plaintiff.
ISSUE:
WON trial court erred in finding that the reasonable amount of the loss suffered by the plaintiff in this case by
reason of the fire in question was P16,000, instead of the sum of P4,823.20, as claimed by the defendant.
RULING: NO.
It appears from the inventory that was made after the fire, the merchandise and effects in plaintiff’s bodegas
after the fire was of the value of P4,823.20. It shows the different estimates as to articles that may have been
mutilated or destroyed by the fire, and under the heading of "Total Loss” with a total of P4,823.20, as
compared with the total of "P32,523.30," as claimed by the plaintiff.
14
For example, in plaintiff’s proof of loss, claim is made for 100 cases of sardines of the value of P915, and
under this heading in the inventory of Glegg and Zulueta, Exhibit 8, appears 15 full cases, 2 broken cases and
loose tins 25 cases of the value of P228.75. Plaintiff claims 60 cases of salmon of the value of P630. There is
no salmon at all in Exhibit 8.
Such is a fair comparison between the two statements as to the articles destroyed by the fire, from which it is
very apparent that either plaintiff’s claim or the inventory made after the fire is false and fraudulent.
It further appears that immediately after the fire four different photographs were taken of the merchandise as it
appeared after the fire, all of which corroborate the inventory known as Exhibit 8 as to the amount, kind and
quality of the merchandise in the bodegas at the time of the fire, and are conclusive proof that plaintiff’s claim
for P30,000 is both false and fraudulent.
Although much latitude should be given to the insured in presenting his proof of claim as to the value of his
loss, in particular as to the price, kind and quality of the property destroyed, yet where the proof is conclusive,
as in this case, that the insured made a claim for a large amount of property which was never in the bodegas at
the time of the fire and for a much larger amount of property than was actually in the bodegas, it makes the
whole claim false and fraudulent, the legal effect of which is to bar plaintiff from the recovery of the amount of
its actual loss.
The judgment of the lower court is reversed and the complaint dismissed, with costs. So ordered.
15
[Type text]
Insurance Case #048 Malayan Insurance Co. Inc. vs. PAP Ltd. Co. (Phil. Br.)
G.R. No. 200784, 7 August 2013
Topic: Concealment, Rescission of Insurance Contract, Alteration in the use of the thing insured
Ponente: Mendoza, J.
Doctrine: Under the Insurance Code of the Philippines:
“Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.
Sec. 27.A concealment whether intentional or unintentional entitles the injured party to rescind a
contract of insurance. (As amended by BatasangPambansaBlg. 874)
Sec. 168. An alteration in the use or condition of a thing insured from that to which it is limited by the
policy made without the consent of the insurer, by means within the control of the insured, and
increasing the risks, entitles an insurer to rescind a contract of fire insurance.”
Facts:
13 May 1996- Malayan Insurance Company (Malayan) issued Fire Insurance Policy to PAP Co., Ltd. (PAP Co)
for the latter’s machineries and equipment located at Sanyo Precision Phils, Bldg., Phase III, Lot 4, Block 15,
PEZA, Rosario, Cavite (Sanyo Building).
Insurance was worth P15M and effective for 1 year. It was procured by PAP Co for RCBC, the mortgagee of
the insured machineries and equipment.
Prior to expiration of the insurance coverage, PAP Co. renewed policy on an “as is” basis. This was for 13 May
1997 to 13 May 1998.
12 October 1997 and during the subsistence of the renewal policy, the insured machineries and equipment
were totally lost by fire.
PAP Co. filed a fire insurance claim with Malayan in the amount insured.
15 December 1997- Malayan denied since at the time of loss, the insured machineries and equipment were
transferred by PAP Co. to a location different from that indicated in the policy.
PAP Co. argued that Malayan cannot avoid liability since it was informed of the transfer by RCBC, the
mortgage and the party duty-bound to relay such information.
17 September 2009- RTC ordered Malayan to pay PAP an indemnity for the loss.
27 October 2011- CA affirmed RTC decision. Hence this case.
Issue: Is Malayan liable under the insurance contract?

Ruling: No. Evidently, by the clear and express condition in the renewal policy, the removal of the insured
property to any building or place required the consent of Malayan. Any transfer effected by the insured, without
the insurer’s consent, would free the latter from any liability.
16
The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal
What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the
entity which made the referral and the named beneficiary in the policy. Malayan and RCBC might have been
sister companies, but such fact did not make one an agent of the other. The fact that RCBC referred PAP to
Malayan did not clothe it with authority to represent and bind the said insurance company. After the referral,
PAP dealt directly with Malayan.
Granting that any notice to RCBC was binding on Malayan, PAP’s claim that it notified RCBC and Malayan
was not indubitably established.
The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to a hazardous
environment and negatively affected the fire rating stated in the renewal policy. The increase in tariff rate from
0.449% to 0.657% put the subject properties at a greater risk of loss. Such increase in risk would necessarily
entail an increase in the premium payment on the fire policy.
Malayan is entitled to rescind the insurance contract
It can also be said that with the transfer of the location of the subject properties, without notice and without
Malayan’s consent, after the renewal of the policy, PAP clearly committed concealment, misrepresentation and
a breach of a material warranty. Section 26 of the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in
case of an alteration in the use or condition of the thing insured. Section 168 of the Insurance Code provides,
as follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the policy
made without the consent of the insurer, by means within the control of the insured, and increasing the risks,
entitles an insurer to rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are
present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.
Dispositive: WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and
SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby declared NOT liable for the loss of the
insured machineries and equipment suffered by PAP Co., Ltd.
17
[Type text]
049 United Merchants Corporation vs. Country Bankers Insurance Corporation

GR no. and Date: G.R. No. 198588, July 11, 2012
Topic: Insurance Contracts; Burden of Proof
Ponente: Carpio, J.
DOCTRINE: As to the allegation of fraud, arson and fraud are two separate grounds based on two different
sets of evidence, either of which can void the insurance claim of UMC. The absence of one does not
necessarily result in the absence of the other.
FACTS: Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and
manufacturing Christmas lights. UMC leased a warehouse in Quezon City, where UMC assembled and stored
its products. UMCs General Manager Alfredo Tan insured UMCs stocks in trade of Christmas lights against fire
with defendant Country Bankers Insurance Corporation (CBIC) for P15,000,000.00. The Fire Insurance Policy
is valid until 6 September 1996, which states: PROPERTY INSURED: On stocks in trade only, consisting of
Christmas Lights, the properties of the Assured or held by them in trust, on commissions, or on joint account
with others and/or for which they are responsible in the event of loss and/or damage during the currency of this
policy, whilst contained in the building of one lofty storey in height, constructed of concrete and/or hollow
blocks with portion of galvanized iron sheets, under galvanized iron rood, occupied as Christmas lights
storage.
UMC and CBIC executed Endorsement and Fire Invoice No. to form part of the Insurance Policy. It provides
that UMCs stocks in trade were insured against additional perils, to wit: typhoon, flood, ext. cover, and full
earthquake. The sum insured was also increased to P50,000,000.00. A fire gutted the warehouse rented by
UMC. UMC demanded for at least fifty percent (50%) payment of its claim from CBIC. UMC received CBICs
letter, dated 10 January 1997, rejecting UMCs claim due to breach of Condition No. 15 of the Insurance Policy.
Condition No. 15 states: If the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting in his behalf to
obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or with the
connivance of the Insured, all the benefits under this Policy shall be forfeited.
ISSUE: whether UMC is entitled to claim from CBIC the full coverage of its fire insurance policy.
RULING: No. In insurance cases, once an insured makes out a prima facie case in its favor, the burden of
evidence shifts to the insurer to controvert the insureds prima facie case. In the present case, UMC established
a prima facie case against CBIC. CBIC does not dispute that UMCs stocks in trade were insured against fire
under the Insurance Policy and that the warehouse, where UMCs stocks in trade were stored, was gutted by
fire, within the duration of the fire insurance. However, since CBIC alleged an excepted risk, then the burden of
evidence shifted to CBIC to prove such exception.
An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of
establishing that the loss comes within the purview of the exception or limitation. If loss is proved apparently
within a contract of insurance, the burden is upon the insurer to establish that the loss arose from a cause of
loss which is excepted or for which it is not liable, or from a cause which limits its liability. In the present case,
CBIC failed to discharge its primordial burden of establishing that the damage or loss was caused by arson, a
limitation in the policy.
However, contrary to UMCs allegation, CBICs failure to prove arson does not mean that it also failed to prove
fraud. Qua Chee Gan v. Law Union does not apply in the present case. In Qua Chee Gan, the Court dismissed
the allegation of fraud based on the dismissal of the arson case against the insured, because the evidence was
identical in both cases.
18
In the present case, arson and fraud are two separate grounds based on two different sets of evidence, either
of which can void the insurance claim of UMC. The absence of one does not necessarily result in the absence
of the other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals (that there is fraud).
Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be forfeited, if the
claim be in any respect fraudulent, or if any false declaration be made or used in support thereof.
In the present case, as proof of its loss of stocks in trade amounting to P50,000,000.00, UMC submitted its
Sworn Statement of Formal Claim together with the following documents: (1) letters of credit and invoices for
raw materials, Christmas lights and cartons purchased; (2) charges for assembling the Christmas lights; and
(3) delivery receipts of the raw materials.
The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for
1996 amounts to P20,000,000.00 which were purchased in one month. Thus, UMC needs to prove purchases
amounting to P30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in the Statement of
Inventory it submitted to the BIR, which is considered an entry in official records, UMC stated that it had no
stocks in trade as of 31 December 1995. In its defense, UMC alleged that it did not include as stocks in trade
the raw materials to be assembled as Christmas lights, which it had on 31 December 1995. However, as proof
of its loss, UMC submitted invoices for raw materials, knowing that the insurance covers only stocks in trade.
Equally important, the invoices from Fuze Industries Manufacturer Phils. were suspicious. The purchases,
based on the invoices and without any supporting contract, amounted to P19,550,400.00 worth of Christmas
lights from 20 January 1996 to 23 February 1996. Either amount in UMCs Income Statement or Financial
Reports is twenty-five times the claim UMC seeks to enforce.
Furthermore, UMCs Income Statement indicated that the purchases or costs of sales are P827,670.00 for
1995 and P1,109,190.00 for 1996 or a total of P1,936,860.00.
In its 1996 Financial Report, which UMC admitted as existing, authentic and duly executed during the 4
December 2002 hearing, it had P1,050,862.71 as total assets and P167,058.47 as total liabilities.
Thus, either amount in UMCs Income Statement or Financial Reports is twenty-five times the claim UMC seeks
to enforce. The RTC itself recognized that UMC padded its claim when it only allowed P43,930,230.00 as
insurance claim. UMC supported its claim of P50,000,000.00 with the Certification from the Bureau of Fire
Protection stating that x x x a fire broke out at United Merchants Corporation located at 19-B Dag[o]t Street,
Brgy. Manresa, Quezon City incurring an estimated damage of Fifty- Five Million Pesos (P55,000,000.00) to
the building and contents x x x. However, this Certification only proved that the estimated damage
of P55,000,000.00 is shared by both the building and the stocks in trade.
It has long been settled that a false and material statement made with an intent to deceive or defraud voids an
insurance policy. In Yu Cua v. South British Insurance Co., the claim was fourteen times bigger than the real
loss; in Go Lu v. Yorkshire Insurance Co, eight times; and in Tuason v. North China Insurance Co., six times.
In the present case, the claim is twenty five times the actual claim proved.
19
[Type text]
050 PARAMOUNT INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS and DAGUPAN
ELECTRIC CORPORATION, respondents.
Topic: Insurance company’s liability as surety
[G.R. No. 110086. July 19, 1999]
FACTS:
McADORE and DECORP entered into a contract whereby DECORP shall provide electric power to
McADOREs Hotel. Later, DECORP discovered that the terminal in the transformers connected to the meter
had been interchanged resulting in the slow rotation of the meter. Consequently, DECORP issued a corrected
bill but McADORE refused to pay. As a result of McADOREs failure and continued refusal to pay the corrected
electric bills, DECORP disconnected power supply to the hotel.
Aggrieved, McADORE commenced a suit against DECORP for damages with prayer for a writ of preliminary
injunction. While this case was under litigation, the court issued a number of restraining orders or
injunctions. During these incidents, McAdore filed the following bonds: Policy No. 8022709 by Paramount
Insurance Corporation for P500,000.00; No. 00007 and No. 00008 by Sentinel Insurance Company, Inc. for
P100,000.00 and P50,000.00; and No. 1213 by the Travelers Multi-Indemnity Corporation for P225,000.00.
After due hearing, the RTC rendered judgment in favor of DECORP and held the plaintiff liable for pay actual
damages, moral damages, exemplary damages, attorney’s fees and costs of the suit. Also, the court held that
said bonding companies are jointly and severally liable with McAdore, to the extent of the value of their bonds,
to pay the damages adjudged to Decorp.
McADORE did not appeal the above decision. PARAMOUNT, however, appealed to the Court of Appeals
contending that it was not given its day in court because it was not notified by DECORP of its intention to
present evidence of damages against its injunction bond, as mandated by Sec. 9 of Rule 58, in relation to Sec.
20 of Rule 57 of the Revised Rules of Court. Not convinced, CA affirmed the decision of the trial court.
Hence, this petition.
ISSUE:
Issue:
(1) Whether or not petitioner Paramount Insurance Corporation was denied due process when the trial court
found the injunction bond it issued in favor of McADORE liable to DECORP
(2) Whether or not petitioner’s liability should be limited only to the amount of damages accruing from the time
the injunction bond was issued until the termination of the case, and not from the time the suit was commenced
(3) Whether or not petitioner’s liability is limited only to actual damages
RULING:
One. Rule 57, Section 20, of the 1997 Rules of Civil Procedure, which is similarly applicable to preliminary
injunction, pertinently provides: Sec. 20. Claim for damages on account of improper, irregular or excessive
attachment. – (omitted)
The above rule comes into play when the plaintiff-applicant for injunction fails to sustain his action, and the
defendant is thereby granted the right to proceed against the bond posted by the former.
In order for the injunction bond to become answerable for the above-described damages, the following
requisites must concur:
1. The application for damages must be filed in the same case where the bond was issued;
20
2. Such application for damages must be filed before the entry of judgment; and
3. After hearing with notice to the surety.
The records of this case reveal that during its pendency in the trial court, DECORP filed its Answer raising
compulsory counterclaims for rescission of contract, moral damages, exemplary damages, attorney’s fees and
litigation expenses. During the trial, Atty. Nonito Cordero appeared as counsel for petitioner. PARAMOUNT as
well as the other sureties were properly notified of the hearing and given their day in court. Specifically, notice
was sent to Atty. Cordero of the hearing on April 27, 1985, which was set for the purpose of determining the
liability of the sureties. The counterclaims for damages of DECORP were proven at the trial and yet
PARAMOUNT did not exert any effort to controvert the evidence presented by DECORP. Given these
circumstances, PARAMOUNT cannot hide under the cloak of non-liability on its injunction bond on the mere
expediency that it was deprived of due process. It bears stressing that what the law abhors is not the absence
of previous notice but rather the absolute lack of opportunity to ventilate a partys side.
It is neither mandatory nor fatal that there should be a separate hearing in order that damages upon the bond
can be claimed, ascertained and awarded, as can be gleaned from a cursory reading of the provisions of Rule
57, Section 20. This Court agrees with the appellate court’s ruling that: ‘Withal, the fact that the matter of
damages was among the issues tried during the hearings on the merits will not render unnecessary or
superfluous a summary hearing to determine the extent of a suretys liability unless of course, the surety had
been impleaded as a party, or otherwise earlier notified and given opportunity to be present and
ventilate its side on the matter during the trial.’
The exception under the doctrinal ruling abovenoted is extant in the case at bar. What is necessary
only is for the attaching party and his surety or sureties to be duly notified and given the opportunity to be
heard
Two. This Court does not agree. It is designed to cover all damages which the party enjoined can possibly
suffer. Its principal purpose is to protect the enjoined party against loss or damage by reason of an injunction.
No distinction was made as to when the damages should have been incurred.
Three. Rule 58, Section 4(b), clearly provides that the injunction bond is answerable for all damages.
Consequently, the bond may obligate the bondsmen to account to the defendant in the injunction suit for all: (1)
such damages; (2) costs and damages; (3) costs, damages and reasonable attorneys fees as shall be incurred
or sustained by the person enjoined in case it is determined that the injunction was wrongfully issued.
Be that as it may, a scrutiny of petitioners Indemnity Agreement with McADORE shows that the former agreed
to become surety for the stated amount in favor of Dagupan Electric Corp. It should be noted that McADORE
was already in arrears starting from June 1979 up to the time it entered into an Indemnity Agreement with
PARAMOUNT on July 17, 1980.
WHEREFORE, based on the foregoing, the instant petition is DENIED. The decision of the Court of Appeals
dated April 30, 1993 in CA-G.R. CV No. 11970 is AFFIRMED. With costs.
SO ORDERED.
21
[Type text]
051 SPOUSES NOE and CLARITA QUIAMCO v CAPITAL INSURANCE & SURETY CO., INC.
Topic: Surety Agreement / Perfection of Contract
Ponente: Corona, J.
DOCTRINE: Contracts (surety) are perfected by mere consent. This is manifested by the meeting of the offer
and the acceptance upon the object and cause which are to constitute the contract
FACTS:
A decision (received on May 7) in a labor case was rendered against Clarita (for Sto. Nio Ferry Boat Services)
The spouses applied for a supersedeas bond with respondent Capital Insurance & Surety Co., Inc., to perfect
their appeal to the NLRC. On May 24, the bond was issued after the spouses complied with the requirements
set by Capital Insurance. On May 24, spouses filed it with the NLRC. NLRC dismissed appeal because bond
was posted more than 10 days from receipt of decision. A writ of execution was served to Capital Insurance.
Capital Insurance paid to the NLRC but was dishonored, the account was already closed. Capital Insurance
filed a collection for sum of money and damages. RTC and CA for Capital Insurance.
ISSUE: whether the surety agreement was perfected and whether petitioners are liable to respondent
RULING: YES. The surety agreement was perfected and the spouses are liable to Capital Insurance. There is
no dispute that the parties entered into a contract of suretyship wherein respondent as surety bound itself
solidarily with petitioners (the principal debtors) to fulfill an obligation. The obligation was to pay the monetary
award in the labor case should the decision become final and executory against petitioners.
Contracts are perfected by mere consent. This is manifested by the meeting of the offer and the
acceptance upon the object and cause which are to constitute the contract. Here, the object of the contract
was the issuance of the bond. The cause or consideration consisted of the premiums paid. The bond was
issued after petitioners complied with the requirements. At this point, the contract of suretyship was perfected.
From the moment the contract is perfected, the parties are bound to comply with what is expressly
stipulated as well as with what is required by the nature of the obligation in keeping with good faith, usage and
the law. A surety is considered in law to be on the same footing as the principal debtor in relation to whatever
is adjudged against the latter. Accordingly, as surety of petitioners, respondent was obliged to pay on the bond
when a writ of execution was served on it. Consequently, it now has the right to seek full reimbursement from
petitioners for the amount paid.
Moreover, the spouses signed an indemnity agreement which undoubtedly obligated the spouses to
reimburse respondent. SC also noted that it was the spouses’ responsibility to file the bond on time not Capital
Insurance.
DISPOSITIVE PORTION: WHEREFORE, the petition is hereby DENIED.
22
052 STRONGHOLD INSURANCE COMPANY, INCORPORATED, Petitioner, vs. TOKYU CONSTRUCTION

COMPANY, LTD., Respondent. G.R. Nos. 158820-21 June 5, 2009
Topic: INSURANCE; Suretyship
Ponente: NACHURA, J
DOCTRINE: A surety is released from its obligation when there is a material alteration of the principal contract
in connection with which the bond is given, such as a change which imposes a new obligation on the promising
party, or which takes away some obligation already imposed, or one which changes the legal effect of the
original contract and not merely its form. However, a surety is not released by a change in the contract, which
does not have the effect of making its obligation more onerous.
FACTS: Tokyu Construction Company, Ltd., entered into a Subcontract Agreement with G.A. Gabriel
Enterprises, for the construction of the NAIA terminal 2 project’s Storm Drainage System (SDS) Sewage
Treatment Plant (STP)
In accordance with the terms of the agreement, respondent paid Gabriel 15% of the contract price, as advance
payment, for which the latter obtained from petitioner Stronghold Insurance Company, Inc. Surety Bonds dated
February 26, 1996 and April 15, 1996, to guarantee its repayment. Gabriel also obtained from petitioner
Performance Bonds to guarantee to respondent due and timely performance of the work. Both bonds were
valid for a period of one year from date of issue.
Gabriel defaulted in the performance of her obligations. On February 10, 1997, in a letter sent to Gabriel,
respondent manifested its intention to terminate the subcontract agreement. Respondent also demanded that
petitioner comply with its undertaking under its bonds. Both parties agreed to revise the scope of work,
reducing the contract price for the SDS and the STP. Gabriel thereafter obtained from Tico Insurance
Company, Inc. (Tico) Surety and Performance Bonds to guarantee the repayment of the advance payment
given by respondent to Gabriel and the completion of the work for the SDS, respectively.
Still, Gabriel failed to accomplish the works within the agreed completion period. Respondent demanded the
payment of the additional amount that it incurred in completing the project. Finally, respondent made formal
demands against petitioner and Tico to make good their obligations under their respective performance and
surety bonds. However, all of them failed to heed respondent’s demand. Hence, respondent filed a complaint
against petitioner, Tico, and Gabriel, before the Construction Industry Arbitration Commission (CIAC).
In the complaint, respondent prayed that Gabriel, Tico, and petitioner be held jointly and severally liable for the
payment of the additional costs it incurred in completing the project covered by the subcontract agreement.
ISSUE: Whether or not petitioner is liable under its bonds. (Whether the bonds were invalidated by the
modification of the subcontract agreement without notice to the surety)
ARGUMENT: Petitioner contends that the principal contract (original subcontract agreement) was novated by
the revised scope of work and contract schedule, without notice to the surety, thereby rendering the bonds
invalid and ineffective.
RULING: YES. (NO.) Petitioner’s liability was not affected by the revision of the contract price, scope of work,
and contract schedule. Neither was it extinguished because of the issuance of new bonds procured from Tico.
23
[Type text]
As early as February 10, 1997, respondent already sent a letter to Gabriel informing the latter of the delay
incurred in the performance of the work, and of the former’s intention to terminate the subcontract agreement
to prevent further losses. Apparently, Gabriel had already been in default even prior to the aforesaid letter; and
demands had been previously made but to no avail. By reason of said default, Gabriel’s liability had
arisen; as a consequence, so also did the liability of petitioner as a surety arise.
Confusion, however, transpired when Gabriel and respondent agreed, on February 26, 1997, to reduce the
scope of work and, consequently, the contract price. Petitioner viewed such revision as novation of the original
subcontract agreement; and since no notice was given to it as a surety, it resulted in the extinguishment of its
obligation.
the nature of suretyship, which actually involves two types of relationship --- the underlying principal
relationship between the creditor (respondent) and the debtor (Gabriel), and the accessory surety relationship
between the principal (Gabriel) and the surety (petitioner).The creditor accepts the surety’s solidary
undertaking to pay if the debtor does not pay. Such acceptance, however, does not change in any material
way the creditor’s relationship with the principal debtor nor does it make the surety an active party to the
principal creditor-debtor relationship. In other words, the acceptance does not give the surety the right to
intervene in the principal contract. The surety’s role arises only upon the debtor’s default, at which time, it can
be directly held liable by the creditor for payment as a solidary obligor.
A surety is released from its obligation when there is a material alteration of the principal contract in connection
with which the bond is given, such as a change which imposes a new obligation on the promising party, or
which takes away some obligation already imposed, or one which changes the legal effect of the original
contract and not merely its form. However, a surety is not released by a change in the contract, which does not
have the effect of making its obligation more onerous.
In the instant case, the revision of the subcontract agreement did not in any way make the obligations of both
the principal and the surety more onerous. To be sure, petitioner never assumed added obligations, nor were
there any additional obligations imposed, due to the modification of the terms of the contract. Failure to receive
any notice of such change did not, therefore, exonerate petitioner from its liabilities as surety.
The petitioner cannot be exonerated from liability simply because the bonds it issued were replaced by
those issued by Tico. Notwithstanding the issuance of the new bonds, the fact remains that the event insured
against, which is the default in the performance of Gabriel’s obligations set forth in the subcontract agreement,
already took place. By such default, petitioner’s liability set in. Thus, petitioner remains solidarily liable with
Gabriel, subject only to the limitations on the amount of its liability as provided for in the Bonds themselves.
Considering that the performance bonds issued by petitioner were valid only for a period of one year, its
liabilities should further be limited to the period prior to the expiration date of said bonds
DISPOSITIVE: WHEREFORE, premises considered, the petition is DENIED.
24
053. First Lepanto-Taisho Ins. Corp. vs. Chevron Phils

DOCTRINE: The law is clear that a surety contract should be read and interpreted together with the contract
entered into between the creditor and the principal.
Having accepted the bond, respondent as creditor must be held bound by the recital in the surety bond that the
terms and conditions of its distributorship contract be reduced in writing or at the very least communicated in
writing to the surety. Such non-compliance by the creditor (respondent) impacts not on the validity or
legality of the surety contract but on the creditors right to demand performance.
FACTS: Respondent Chevron Philippines, Inc., formerly Caltex Philippines, Inc., sued petitioner First Lepanto-
Taisho Insurance Corporation (now known as FLT Prime Insurance Corporation) for the payment of unpaid oil
and petroleum purchases made by its distributor Fumitechniks Corporation (Fumitechniks).
Fumitechniks, represented by Ma. Lourdes Apostol, had applied for and was issued Surety Bond by
petitioner for the amount of P15,700,000.00. As stated in the attached rider, the bond was in compliance with
the requirement for the grant of a credit line with the respondent to guarantee payment/remittance of the cost
of fuel products withdrawn within the stipulated time in accordance with the terms and conditions of the
agreement.
Fumitechniks defaulted on its obligation. The check it issued to respondent in the amount
of P11,461,773.10, when presented for payment, was dishonored for reason of Account Closed. In a letter,
respondent notified petitioner of Fumitechniks unpaid purchases in the total amount ofP15,084,030.30. In its
letter-reply, petitioner through its counsel, requested that it be furnished copies of the documents such as
delivery receipts. Respondent complied by sending copies of invoices showing deliveries of fuel and petroleum
products.
In itsletter, Fumitechniks through its counsel wrote petitioners counsel informing that it cannot submit
the requested agreement since no such agreement was executed between Fumitechniks and
respondent. Consequently, petitioner advised respondent of the non-existence of the principal agreement as
confirmed by Fumitechniks. Petitioner explained that being an accessory contract, the bond cannot exist
without a principal agreement as it is essential that the copy of the basic contract be submitted to the
proposed surety for the appreciation of the extent of the obligation to be covered by the bond applied
for.
Alleging that petitioner unjustifiably refused to heed its demand for payment, respondent prayed for
judgment ordering petitioner to pay the sum of P15,080,030.30, plus interest.
Respondent contends that the surety bond had been delivered by petitioner to Fumitechniks
which paid the premiums and delivered the bond to respondent, who in turn, opened the credit line
which Fumitechniks availed of to purchase its merchandise from respondent on credit. Respondent
points out that a careful reading of the surety contract shows that there is no such requirement of
submission of the written credit agreement for the bonds effectivity.
ISSUE: whether a surety is liable to the creditor in the absence of a written contract with the principal
HELD: The extent of a suretys liability is determined by the language of the suretyship contract or
bond itself. It cannot be extended by implication, beyond the terms of the contract. Thus, to determine
whether petitioner is liable to respondent under the surety bond, it becomes necessary to examine the
terms of the contract itself.
A reading of Surety Bond shows that it secures the payment of purchases on credit by Fumitechniks in
accordance with the terms and conditions of the agreement it entered into with respondent. The word
agreement has reference to the distributorship agreement, the principal contract and by implication included
the credit agreement mentioned in the rider. However, it turned out that respondent has
25
[Type text]
executed written agreements only with its direct customers but not distributors like Fumitechniks and
it also never relayed the terms and conditions of its distributorship agreement to the petitioner after
the delivery of the bond.
The law is clear that a surety contract should be read and interpreted together with the contract entered
into between the creditor and the principal. Section 176 of the Insurance Code states:
Sec. 176. The liability of the surety or sureties shall be joint and several with the obligor
and shall be limited to the amount of the bond. It is determined strictly by the terms of the
contract of suretyship in relation to the principal contract between the obligor and the
obligee. (Emphasis supplied.)
A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it
secures. Necessarily, the stipulations in such principal agreement must at least be communicated or
made known to the surety particularly in this case where the bond expressly guarantees the payment of
respondents fuel products withdrawn by Fumitechniks in accordance with the terms and conditions of their
agreement. The bond specifically makes reference to a written agreement. It is basic that if the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.[ Moreover, being an onerous undertaking, a surety agreement is strictly construed
against the creditor, and every doubt is resolved in favor of the solidary debtor. [23] Having accepted the bond,
respondent as creditor must be held bound by the recital in the surety bond that the terms and conditions of its
distributorship contract be reduced in writing or at the very least communicated in writing to the surety. Such
non-compliance by the creditor (respondent) impacts not on the validity or legality of the surety
contract but on the creditors right to demand performance.
26
054. Intra-Strata Ass. Corp. v. Republic

G.R. No. 156571, July 9, 2008, 557 SCRA 363, 375-376 July 9, 2008
Topic: Suretyship; Sec 175 Insurance Code
Ponente: BRION, J.
DOCTRINE:
A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of another party, called the
obligee. By its very nature, under the laws regulating suretyship, the liability of the surety is joint and several
but is limited to the amount of the bond, and its terms are determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the obligor and the obligee.
Suretyship, in essence, contains two types of relationship – the principal relationship between the obligee
(petitioner) and the obligor, and the accessory surety relationship between the principal and the surety. In this
arrangement, the obligee accepts the surety’s solidary undertaking to pay if the obligor does not pay. Such
acceptance, however, does not change in any material way the obligee’s relationship with the principal
obligor. Neither does it make the surety an active party to the principal obligee-obligor relationship.
Thus, the acceptance does not give the surety the right to intervene in the principal contract. The
surety’s role arises only upon the obligor’s default, at which time, it can be directly held liable by the obligee for
payment as a solidary obligor
FACTS:
Grand Textile is a local manufacturing corporation. In 1974, it imported from different countries various articles
such as dyestuffs, spare parts for textile machinery, polyester filament yarn, textile auxiliary chemicals, trans
open type reciprocating compressor, and trevira filament. Subsequent to the importation, these articles were
transferred to Customs Bonded Warehouse No. 462. As computed by the Bureau of Customs, the customs
duties, internal revenue taxes, and other charges due on the importations amounted to P2,363,147.00. To
secure the payment of these obligations pursuant to Section 1904 of the Tariff and Customs Code (Code),
Intra-Strata and PhilHome each issued general warehousing bonds in favor of the Bureau of Customs. These
bonds, the terms of which are fully quoted below, commonly provide that the goods shall be withdrawn from
the bonded warehouse "on payment of the legal customs duties, internal revenue, and other charges to which
they shall then be subject."
Without payment of the taxes, customs duties, and charges due and for purposes of domestic consumption,
Grand Textile withdrew the imported goods from storage. The Bureau of Customs demanded payment of the
amounts due from Grand Textile as importer, and from Intra-Strata and PhilHome as sureties. All three failed to
pay. The government responded on January 14, 1983 by filing a collection suit against the parties with the
RTC of Manila.
The Bureau of Customs demanded payment from Grand Textile and the insurers, however, all three failed to
pay. This urged the bureau to file a collection suit against the parties.
The trial court ruled against Grand Textile and the insurers, which decision the CA fully affirmed. The insurers
come before the Court and assert that the withdrawal of the stored goods without notice to them as sureties
released them from any liability.
27
[Type text]
ISSUE:
Whether the withdrawal of the stored goods, wares and merchandise, without notice to them as
sureties released Intra-Strata and PhilHome from any liability.
RULING: NO. The surety does not, by reason of the surety agreement, earn the right to intervene in the
principal creditor-debtor relationship; its role becomes alive only upon the debtor’s default, at which time it can
be directly held liable by the creditor for payment as a solidary obligor. A surety contract is made principally for
the benefit of the creditor-obligee and this is ensured by the solidary nature of the sureties’ undertaking. Under
these terms, the surety is not entitled as a rule to a separate notice of default,nor to the benefit of excussion,
and may be sued separately or together with the principal debtor.
The definition and characteristics of a suretyship bring into focus the fact that a surety agreement is an
accessory contract that introduces a third party element in the fulfillment of the principal obligation that an
obligor owes an obligee. In short, there are effectively two (2) contracts involved when a surety agreement
comes into play – a principal contract and an accessory contract of suretyship. Under the accessory
contract, the surety becomes directly, primarily, and equally bound with the principal as the original promissor
although he possesses no direct or personal interest over the latter’s obligations and does not receive any
benefit therefrom
The petitioners’ lack of consent to the withdrawal of the goods, if this is their complaint, is a matter between
them and the principal Grand Textile; it is a matter outside the concern of government whose interest as
creditor-obligee in the importation transaction is the payment by the importer-obligor of the duties, taxes, and
charges due before the importation process is concluded. With respect to the sureties who are there as third
parties to ensure that the amounts due are paid, the creditor-obligee's active concern is to enforce the sureties’
solidary obligation that has become due and demandable. This matter is further and more fully explored below.
The surety does not, by reason of the surety agreement, earn the right to intervene in the principal creditor-
debtor relationship; its role becomes alive only upon the debtor’s default, at which time it can be directly held
liable by the creditor for payment as a solidary obligor. A surety contract is made principally for the benefit of
the creditor-obligee and this is ensured by the solidary nature of the sureties’ undertaking. Under these terms,
the surety is not entitled as a rule to a separate notice of default, nor to the benefit of excussion, and may be
sued separately or together with the principal debtor.
We see no reason to deviate from this rule and we shall not do so now. WHEREFORE, premises considered,
we hereby DENY the petition and AFFIRM the Decision of the Court of Appeals. Costs against the petitioners.
28
055 GREAT PACIFIC LIFE ASSURANCE CORP., petitioner, vs.

COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.
G.R. No. 113899 October 13, 1999
Topic: Life Insurance
Ponente: QUISUMBING, J.:
DOCTRINE:
FACTS:
A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation
(hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure
the lives of eligible housing loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for
membership in the group life insurance plan. In an application form, Dr. Leuterio answered questions
concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer,
diabetes, lung; kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO.
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to
the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00)
pesos.
On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a
death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when
he applied for an insurance coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not
disclose he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure
constituted concealment that justified the denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint
with the Regional Trial Court.
ISSUE:
1. Did the Court of Appeals err in holding petitioner liable to DBP as beneficiary in a group life insurance
contract from a complaint filed by the widow of the decedent/mortgagor? No
2. Did the Court of Appeals err in not finding that Dr. Leuterio concealed that he had hypertension, which would
vitiate the insurance contract? No
3. Can DBP claim from the insurance? No.
RULING:
1. Respondent Leuterio is the real party in interest
29
[Type text]
To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this
type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage
redemption insurance," is a device for the protection of both the mortgagee and the mortgagor. On the part of
the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the
mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied
to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the
obligation. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the
event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the
mortgage indebtedness. Consequently, where the mortgagor pays the insurance premium under the group
insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagor's interest, and
the mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee is simply
an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a party to the
contract. (See Sec 8)
The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the
policy stating that: "In the event of the debtor's death before his indebtedness with the Creditor [DBP] shall
have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the creditor and the
balance of sum assured, if there is any, shall then be paid to the beneficiary/ies designated by the debtor."
Insured, being the person with whom the contract was made, is primarily the proper person to bring suit
thereon. * * * Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part
for the benefit of another person named or unnamed. (Insurance Code provision)
And since a policy of insurance upon life or health may pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such person may recover it whatever the insured might have
recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
2. Concealment was not proved
Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith,
and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally
withholds the same.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the
body of the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterio's
any previous hospital confinement. 16 Dr. Leuterio's death certificate stated that hypertension was only "the
possible cause of death." The private respondent's statement, as to the medical history of her husband, was
due to her unreliable recollection of events. Hence, the statement of the physician was properly considered by
the trial court as hearsay.
the 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
3. The recovery on the claim does not depend on respondents indebtedness to DBP
A life insurance policy is a valued policy. Unless the interest of a person insured is susceptible of exact
pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum
30
fixed in the policy. The mortgagor paid the premium according to the coverage of his insurance, which states
that:
The policy states that upon receipt of due proof of the Debtor's death during the terms of this insurance,
a death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtor's death before his indebtedness with the creditor shall have been fully paid,
an amount to pay the outstanding indebtedness shall first be paid to the Creditor and the balance of the
Sum Assured, if there is any shall then be paid to the beneficiary/ies designated by the
debtor." 22(Emphasis omitted)
However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private
respondent's memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of
mortgagor's outstanding loan. Considering this supervening event, the insurance proceeds shall inure to the
benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not unjustly
enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the
insurance proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to Dr.
Leuterio's heirs represented by his widow, herein private respondent Medarda Leuterio.
31
[Type text]
[INSURANCE 56] PERLA COMPANIA DE SEGUROS, INC. vs.

THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.
G.R. No. 96452 May 7, 1992
FCP CREDIT CORPORATION vs.

THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN LIM
G.R. No. 96493 May 7, 1992
Topics: Comprehensive motor car insurance policy; Authorized driver clause vs. Theft clause
Ponente: Nocon, J.
DOCTRINE:
An insurance company may not escape liability under the insurance policy by citing restrictions which
are not applicable or germane to the claim.
FACTS:
On 24 December 1981, Spouses Herminio and Evelyn Lim executed a promissory note in favor
Supercars, Inc. in the sum of P77,940. This was secured by a chattel mortgage over a brand new Ford Laser
registered under Herminio’s name and insured with petitioner Perla Compania de Seguros, Inc. for
comprehensive coverage.
On the same date, Supercars, Inc., with notice to Spouses Lim, assigned to petitioner FCP Credit
Corporation (FCP) its rights, title and interest on said promissory note and chattel mortgage.
On 9 November 1982, the vehicle was carnapped.
On 11 November 1982, Spouses Lim filed a claim for loss with petitioner Perla. However, Perla denied
the claim on the ground that Evelyn Lim, who was using the vehicle before it was carnapped, was in
possession of an expired driver's license at the time of the loss of the vehicle, which is in violation of
the authorized driver clause of the insurance policy. The clause states that only the following are
considered authorized drivers of the vehicle: “(a) The Insured (b) Any person driving on the Insured's order, or
with his permission. Provided that the person driving is permitted, in accordance with the licensing or other
laws or regulations, to drive the Scheduled Vehicle, or has been permitted and is not disqualified by order of a
Court of Law or by reason of any enactment or regulation in that behalf.”
Spouses Lim made requests from FCP to suspend payment on the monthly amortization due to the
loss of the vehicle. They likewise contended that, since the carnapped vehicle was insured with Perla, it is
Perla who should be made to pay the remaining balance of the promissory note and the chattel mortgage
contract.
Since Perla claimed non-liability under the insurance policy and since Spouses Lim neither paid the
whole balance of the promissory note nor returned the vehicle, FCP filed a complaint against Spouses Lim,
who in turn filed an amended third party complaint against petitioner Perla.
ISSUE: Whether or not petitioner Perla is liable under the insurance policy, considering that there was a
violation of the authorized driver clause of the insurance policy, but the loss of the insured vehicle was due to
theft
RULING: Yes, it is.

32
The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the
private respondents against loss or damage to the car (a) by accidental collision or overturning, or collision or
overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire, external
explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act.
Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's consent
or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, and not the
"AUTHORIZED DRIVER" clause that should apply.
Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the
intent to gain or with the concurrence of the doer's will. On the other hand, accident, although it may proceed
or result from negligence, is the happening of an event without the concurrence of the will of the person by
whose agency it was caused.
The "authorized driver clause" in a typical insurance policy is in contemplation or anticipation of

accident in the legal sense in which it should be understood, and not in contemplation or anticipation of an
event such as theft. The distinction — often seized upon by insurance companies in resisting claims from their
assureds — between death occurring as a result of accident and death occurring as a result of intent may, by
analogy, apply to the case at bar. Thus, if the insured vehicle had figured in an accident at the time she drove it
with an expired license, Perla could properly resist appellants' claim for indemnification for the loss or
destruction of the vehicle resulting from the accident. But in the present case, the loss of the insured vehicle
did not result from an accident where intent was involved; the loss in the present case was caused by theft, the
commission of which was attended by intent.
It is worthy to note that there is no causal connection between the possession of a valid driver's license
and the loss of a vehicle. To rule otherwise would render car insurance practically a sham since an insurance
company can easily escape liability by citing restrictions which are not applicable or germane to the claim,
thereby reducing indemnity to a shadow.
WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to require private
respondents to pay petitioner FCP the amount of P55,055.93, with legal interest from July 2, 1983 until fully
paid. The decision appealed from is hereby affirmed as to all other respects. No pronouncement as to costs.
33
[Type text]
057 PARAMOUNT INSURANCE CORPORATION vs SPOUSES YVES and MARIA TERESA

REMONDEULAZ
GR No 173773 November 28, 2012
Topic: Theft clause
Ponente: Peralta, J.
DOCTRINE:
There may be theft even if the accused has possession of the property. If he was entrusted only with the
material or physical (natural) or de facto possession of the thing, his misappropriation of the same constitutes
theft.
When theft is committed through misappropriation the insurer is still liable to the insured under the theft clause.
FACTS:
On May 26, 1994, respondents insured with petitioner their 1994 Toyota Corolla sedan under a comprehensive
motor vehicle insurance policy for one year. During the effectivity of said insurance, respondents’ car was
unlawfully taken. Hence, they immediately reported the theft to the Traffic Management Command of the PNP
who made them accomplish a complaint sheet. In said complaint sheet, respondents alleged that a certain
Ricardo Sales (Sales) took possession of the subject vehicle to add accessories and improvements
thereon, however, Sales failed to return the subject vehicle within the agreed three-day period. As a
result, respondents notified petitioner to claim for the reimbursement of their lost vehicle. However, petitioner
refused to pay.
Petitioner argues that the loss of respondents’ vehicle is not a peril covered by the policy. It maintains that it is
not liable for the loss, since the car cannot be classified as stolen as respondents entrusted the possession
thereof to another person.
ISSUE:
Whether petitioner is liable under the insurance policy for the loss of respondents’ vehicle
Sub issue: whether the loss of respondents’ vehicle falls within the concept of the “theft clause” under the
insurance policy.
RULING:
Yes, the insurer is liable.
The case of Santos v. People is worthy of note. Similarly in Santos, the owner of a car entrusted his vehicle to
therein petitioner Lauro Santos who owns a repair shop for carburetor repair and repainting. However, when
the owner tried to retrieve her car, she was not able to do so since Santos had abandoned his shop. In the said
case, the crime that was actually committed was Qualified Theft. However, the Court held that because of the
fact that it was not alleged in the information that the object of the crime was a car, which is a qualifying
circumstance, the Court found that Santos was only guilty of the crime of Theft and merely considered the
qualifying circumstance as an aggravating circumstance in the imposition of the appropriate penalty. The Court
therein clarified the distinction between the crime of Estafa and Theft, to wit:
34
“x x x The principal distinction between the two crimes is that in theft the thing is taken while in estafa the
accused receives the property and converts it to his own use or benefit. However, there may be theft even if
the accused has possession of the property. If he was entrusted only with the material or physical
(natural) or de facto possession of the thing, his misappropriation of the same constitutes theft, but if
he has the juridical possession of the thing, his conversion of the same constitutes embezzlement or estafa.”
In the instant case, Sales did not have juridical possession over the vehicle. Here, it is apparent that the taking
of respondents' vehicle by Sales is without any consent or authority from the former.
Since, Theft can also be committed through misappropriation, the fact that Sales failed to return the subject
vehicle to respondents constitutes Qualiified Theft. Hence, since respondents' car is undeniably covered by a
Comprehensive Motor Vehicle Insurance Policy that allows for recovery in cases of theft, petitioner is liable
under the policy for the loss of respondents' vehicle under the "theft clause."
WHEREFORE, the instant petition is DENIED. The Decision dated April 12, 2005 and Resolution dated July
20, 2006 of the Court of Appeals are hereby AFFIRMED in toto.
35
[Type text]
058 Alpha Insurance and Surety Co. vs. Arsenia Sonia Castor
G.R. No. 198174, Sept. 2, 2013
Topic: Interpretation of Insurance Contracts; Exceptions in the Insurance Policy
Ponente: PERALTA, J.
DOCTRINE:
In property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the assured,
determine the import of the various terms and provisions embodied in the policy. However, when the terms of
the insurance policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about
the meaning of particular provisions, the policy will be construed by the courts liberally in favor of the assured
and strictly against the insurer.
FACTS:
Respondent entered into a contract of insurance (Motor Car Policy) with petitioner for her Toyota Revo. The
contract obligated the petitioner to pay P630K in case of loss or damage during the period covered (2-26-
2007–2-26-2008). On April 2007, respondent instructed her driver Lanuza to bring the vehicle to an auto-shop
for a tune-up. However, Lanuza no longer returned the vehicle to respondent and despite diligent efforts, it
proved futile. Respondent reported the incident to the police and notified petitioner and demanded payment of
the insurance proceeds. Petitioner denied the insurance claim (stating among others:…that the culprit, who
stole the vehicle was employed by resp. Stating a provision in the contract: Exceptions to Section-III: 1.) The
Company shall not be liable for: x x x x (4) Any malicious damage caused by the Insured, any member of his
family or by “A PERSON IN THE INSURED’S SERVICE.”) Respondent reiterated her claim and argued that
the exception refers to damage of the motor vehicle and not to its loss. However, petitioner’s denial remained
firm. Thus, respondent filed a Complaint for Sum of Money with Damages before the RTC of QC. The RTC
ruled in favor of respondent. On appeal, the CA affirmed the RTC.
ISSUE:
Whether or not the loss of respondent’s vehicle is excluded under the insurance policy.
RULING: No. Even if the same is committed by the driver of the insured, there being no categorical declaration
of exception, the same must be covered.
Significant portions of Section III of the Insurance Policy states:
SECTION III – LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to
the Schedule Vehicle and its accessories and spare parts whilst thereon: (a) by accidental collision
or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon
wear and tear; (b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or
theft; (c) by malicious act; (d)whilst in transit (including the processes of loading and unloading)
incidental to such transit by road, rail, inland waterway, lift or elevator. X x x x
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for: Loss or Damage in respect of any claim or series of claims
arising out of one event, the first amount of each and every loss for each and every vehicle insured by
this Policy, such amount being equal to one percent (1.00%) of the Insured’s estimate of Fair Market
Value as shown in the Policy Schedule with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or
breakages; Damage to tires, unless the Schedule Vehicle is damaged at the same time; Any malicious
damage caused by the Insured, any member of his family or by a person in the Insured’s service.
36
Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy
subject of this case. This is evident from the very provision of Section III – “Loss or Damage.” The insurance
company, subject to the limits of liability, is obligated to indemnify the insured against theft. Said provision does
not qualify as to who would commit the theft.
The defendant would argue that if the person employed by the insured would commit the theft and the insurer
would be held liable, then this would result to an absurd situation where the insurer would also be held liable if
the insured would commit the theft. This argument is certainly flawed. If the theft would be committed by the
insured, the same would be an exception since there would be fraud on the part of the insured or breach of
material warranty under Sec. 69 of the Insurance Code.
Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and meaning
of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be
taken and understood in their plain, ordinary and popular sense. Accordingly, in interpreting the exclusions in
an insurance contract, the terms used specifying the excluded classes therein are to be given their meaning as
understood in common speech.
Adverse to petitioner’s claim, the words “loss” and “damage” mean different things in common ordinary usage.
The word “loss” refers to the act or fact of losing, or failure to keep possession, while the word “damage”
means deterioration or injury to property. Therefore, petitioner cannot exclude the loss of respondent’s vehicle
under the insurance policy under paragraph 4 of “Exceptions to Section III,” since the same refers only to
“malicious damage,” or more specifically, “injury” to the motor vehicle caused by a person under the insured’s
service. Par. 4 clearly does not contemplate “loss of property,” as what happened in the case. Further,
“malicious damage,” as provided for in the subject policy as one of the exceptions from coverage, is the
damage that is the direct result from the deliberate or willful act of the insured, members of his family, and any
person in the insured’s service, whose clear plan or purpose was to cause damage to the insured vehicle for
purposes of defrauding the insurer.
It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to
the sense and meaning of the terms which the parties used. Also, a contract of insurance is a contract of
adhesion. So, when the terms of the insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from non-compliance with his obligation. By reason of the
exclusive control of the insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid
forfeiture.
DISPOSATIVE PORTION:
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the
Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of Appeals are hereby
AFFIRMED.
37
[Type text]
059 Malayan Insurance vs. Philippines First Insurance and Reputable Forwarder Services
G.R. No. 184300; July 11, 2012
Topic: Double Insurance, Overinsurance, Solidary Liability;
Ponente: REYES, J.
DOCTRINES:
The requisites in order for double insurance to arise are as follows: (1) The person insured is the same; (2)
Two or more insurers insuring separately; (3) There is identity of subject matter; (4) There is identity of interest
insured; and (5) There is identity of the risk or peril insured against.
Even though the two concerned insurance policies were issued over the same goods and cover the same risk,
there arises no double insurance since they were issued to two different persons/entities having distinct
insurable interests. Necessarily, over insurance by double insurance cannot likewise exist.
FACTS:
On November 18, 1993, Wyeth procured Marine Policy from respondent Philippines First Insurance Co., Inc. to
secure its interest over its own products. The policy covers all risks of direct physical loss or damage from any
external cause. On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It
turned out that the contract was not signed by Wyeth’s representative/s. Nevertheless, the terms thereof
faithfully observed by the parties and the same contract of carriage had been annually executed by the parties
every year since 1989.
Under the contract, Reputable undertook to answer for "all risks with respect to the goods and shall be liable to
Wyeth, for the loss, destruction, or damage of the goods/products due to any and all causes whatsoever. The
contract also required Reputable to secure an insurance policy on Wyeth’s goods. Thus, on February 11, 1994,
Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of
P1,000,000.00.
On October 6, 1994, Reputable received from Wyeth boxes of infant formula to be delivered by Reputable to
Mercury Drug Corporation in Quezon City. Unfortunately, the truck carrying Wyeth’s products was hijacked.
The hijackers threatened to kill the truck driver and two of his helpers should they refuse to turn over the truck
and its contents to the said highway robbers. The hijacked truck was recovered two weeks later without its
cargo. Philippines First paid Wyeth P2,133,257.00 as indemnity and then demanded reimbursement from
Reputable, having been subrogated to the rights of Wyeth by virtue of the payment. The latter, however,
ignored the demand.
Philippines First instituted an action for sum of money against Reputable. Reputable claimed that it cannot be
made liable under the contract of carriage with Wyeth since the contract was not signed by Wyeth’s
representative and that the cause of the loss was force majeure, i.e., the hijacking incident. Reputable then
impleaded Malayan as third-party defendant to collect the amount covered in the SR Policy. Disclaiming any
liability, Malayan argued that the insurance does not cover any loss or damage to property which at the time of
the happening of such loss or damage is insured by any marine policy and that the SR Policy expressly
excluded third-party liability.
ISSUES:
(1) Whether or not there is double insurance. >>>> NO
(2) Whether or not Reputable is solidarily liable with Malayan. >>>> NO
RULING:
First Issue: Double insurance exists where the same person is insured by several insurers separately in
respect to the same subject and interest. The requisites in order for double insurance to arise are as follows:
1. The person insured is the same;
2. Two or more insurers insuring separately;
38
3. There is identity of subject matter;

4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.
In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same
subject matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, it is, however,
beyond cavil that the said policies were issued to two different persons or entities. It is undisputed that Wyeth
is the recognized insured of Philippines First under its Marine Policy, while Reputable is the recognized insured
of Malayan under the SR Policy. The fact that Reputable procured Malayan’s SR Policy over the goods of
Wyeth pursuant merely to the stipulated requirement under its contract of carriage with the latter does not
make Reputable a mere agent of Wyeth in obtaining the said SR Policy.
The interest of Wyeth over the property subject matter of both insurance contracts is also different and distinct
from that of Reputable’s. The policy issued by Philippines First was in consideration of the legal and/or
equitable interest of Wyeth over its own goods. On the other hand, what was issued by Malayan to Reputable
was over the latter’s insurable interest over the safety of the goods, which may become the basis of the latter’s
liability in case of loss or damage to the property and falls within the contemplation of Section 15 of the
Insurance Code.
Therefore, even though the two concerned insurance policies were issued over the same goods and
cover the same risk, there arises no double insurance since they were issued to two different
persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance
cannot likewise exist.
Second Issue: There is solidary liability only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires.
Where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer
is direct and such third persons can directly sue the insurer. The direct liability of the insurer under indemnity
contracts against third party[- ]liability does not mean, however, that the insurer can be held solidarily liable
with the insured and/or the other parties found at fault, since they are being held liable under different
obligations. The liability of the insured carrier or vehicle owner is based on tort, in accordance with the
provisions of the Civil Code; while that of the insurer arises from contract, particularly, the insurance policy.
Suffice it to say that Malayan's and Reputable's respective liabilities arose from different obligations-
Malayan's is based on the SR Policy while Reputable's is based on the contract of carriage.
WHEREFORE, premises considered, the petition is DENIED. The Decision dated February 29, 2008 and
Resolution dated August 28, 2008 of the Court of Appeals in CA-G.R. CV No. 71204 are hereby AFFIRMED.
39
[Type text]
060 Nora Cansing SERRANO v. CA and Social Security Commission

GR no. L-35529 and July 16, 1984
Topic: Eligibility to SSS Group Mortgage Redemption Policy
Ponente: MAKASIAR, J.
DOCTRINE: Sec. 2 of Art. II of the Group Mortgage Redemption Insurance Policy provides that insurance
coverage shall be "automatic" and limited only by the amount of insurance and age requirement. As to the
effective date of coverage, Sec. 3 can be interpreted to mean that the insurance contract takes effect "from
the beginning of the amortization period of such Mortgage Loan" or "partial release of Mortgage Loan."
Applying Arti. 1374 of the NCC, the mortgagor in the instant case was already covered by the insurance upon
the partial release of the loan. Art. 1374, NCC, reads thus: The various stipulations of a contract shall be
interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.
FACTS: On January 1, 1965 - Upon application of the Social Security System (SSS), Private Life Insurance
Companies in the Philippines issued Group Mortgage Redemption (GMR) Policy No. GMR-1 on the lives of
housing loan mortgagors of the SSS. Under this GMR scheme, a housing loan grantee of the system is
required to mortgage the house constructed out of the loan, and the lot it stands on. The SSS takes a life
insurance on the eligible mortgagor to the extent of the amount of mortgage indebtedness. What happens is,
when the mortgagor dies, the proceeds of the life insurance under the GMR Policy will be used to pay his
indebtedness to the SSS, and the heirs will be relieved of the burden of paying for the amortization of the
deceased's still unpaid loan to the SSS.
Petitioner NORA SERRANO is the widow of the late BERNARDO, who was a pilot of Air Manila at the time of
his death, and was a Member of SSS. On 10 NOV ’67, SSS approved the real estate mortgage loan of
BERNARDO for P37.4kfor the construction of his house. A partial release in the amount of P35.4k was
effected on 26 DEC ‘67 and devoted to the construction of the house.
Capt. BERNARDO died in a plane crash on 8 MAR ’68, and because of this, SSS closed his housing loan
account to the released amount of P35.4K. On 2 DEC ’68, NORA sent a letter to the Chairman of the Social
Security Commission (SSC) requesting that the benefits of the GMR Insurance be extended to her. NORA’s
letter was referred to the Administrator of SSS, who recommended its disapproval, l on the ground that late
Capt. BERNARDO was not yet covered by the GMR Insurance policy at the time of his death.
ISSUE: Whether BERNARDO is under the coverage of the Mortgage Redemption Insurance Plan. YES.
RULING: SC reverses CA decision.
Article II (Insurance Coverage) of the Group Mortgage Redemption Police No. GMR-1 provides:
Section 1. Eligibility.— Every mortgagor who is not over age 65 nearest birthday at the time the
Mortgage Loan is granted (or, in the case of a Mortgagor applying for insurance coverage on a
Mortgage Loan granted before the Date of Issue, at the time he makes such application) and who
would not be over 75 nearest birthday on the date on which the original term of the Mortgage
Loan expires shall be eligible for insurance coverage under this Policy, . . .
Section 2. Mode of Acceptance. — Any Mortgagor who is eligible for coverage on or after the
Date of Issue shall be automatically insured, subject to the amount of insurance limit in Section 1
hereof, without proof of insurability provided that he is not more than age 60 nearest birthday at the
time the Mortgage Loan is granted. Such a mortgagor who is over age 60 nearest birthday at the
time the Mortgage Loan is granted may be accepted for insurance only subject to the submission of
evidence of insurability satisfactory to the Subscribing Companies. Any eligible Mortgagor who was
already a Mortgagor before the Date of Issue shall be automatically insured, subject to the amount
of insurance limit in Section 1 hereof, without proof of insurability provided that he is not more than age
40
60 nearest birthday on the Date of Issue and that he makes written application to the Creditor for
coverage within ninety (90) days from the Date of Issue. If such a Mortgagor applies for coverage after
ninety (90) days from the Date of Issue. he may be accepted for insurance upon written application
therefor, subject to the submission of evidence of insurability to the Subscribing Companies.
Section 3. Effective Date of Insurance. — The insurance on the life of each eligible Mortgagor Loan
or partial release of Mortgage Loan accepted for coverage who becomes a Mortgagor on or after the
Date of Issue shall take effect from the beginning of the amortization period of such Mortgage
Loan or partial release of Mortgage Loan. || The beginning of the amortization period as used herein
shall mean the first day of the month preceding the month in which the first monthly amortization
payment falls due. || It is hereby understood that before any release on any approved Mortgage Loan is
made by the Creditor, the requisites binding the Mortgagor and the Creditor as regards to said
Mortgage Loan shall have been completed xxx xxx xxx
There can be no doubt as to the eligibility of the late Captain Serrano for coverage under Section 1 of
Article II of the Group Mortgage Redemption Insurance Policy as he was a mortgagor of the Social Security
System not over the age of 65 nearest his birthday at the time when the mortgage loan was granted to
him (p. 26, rec.).
The problem manifests itself in Sections 2 and 3 of the same article of the Group Mortgage Redemption
Insurance Policy. Section 2 provides that "any mortgagor who is eligible for coverage on or after the Date of
Issue shall be automatically insured, ..." (emphasis supplied); while Section 3 provides that the insurance "shall
take effect from the beginning of the amortization period of such Mortgage loan or partial release of Mortgage
Loan " (emphasis supplied).
Under said Section 2, mortgage redemption insurance is not just automatic; it is compulsory for all
qualified borrowers.
However, Section 3 of Article II presents an ambiguity. The effective date of coverage can be interpreted to
mean that the insurance contract takes effect "from the beginning of the amortization period of such Mortgage
Loan" or "partial release of Mortgage Loan." Applying Article 1374 of the new Civil Code, the mortgagor in
the instant case was already covered by the insurance upon the partial release of the loan. Article
1374, NCC, reads thus: The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly.
The ambiguity in Section 3 of Article II should be resolved in favor of the petitioner. "The interpretation of
obscure words or stipulations in a contract shall not favor the party who caused the obscurity" (Article 1377,
Civil Code). While the issuance of the GMR is a contract between the SSS and the Private Life Insurance
Companies, the fact is that the SSS entered into such a contract to afford protection not only to itself should
the mortgagor die before fully paying the loan but also to afford protection to the mortgagor.
It is imperative to dissect the rationale of the insurance scheme envisioned by the Social Security System. The
Mortgage Redemption Insurance device is not only for the protection of the SYSTEM but also for the benefit of
the mortgagor. On the part of the SSS, it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such
insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor
from paying the obligation. The SSS insures the payment to itself of the loan with the insurance proceeds. It
also negates any future problem that can crop up should the heirs be not in a position to pay the mortgage
loan. In short, the process of amortization is hastened and possible litigation in the future is avoided. In a
similar vein, ample protection is given to the mortgagor under such a concept so that in the event of his death;
41
[Type text]
the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness.
The interpretation of the Social Security Commission goes against the very rationale of the insurance scheme.
It cannot unjustly enrich itself at the expense of another (Nemo cum alterius detrimento protest). Simply put,
the SSS cannot be allowed to have the advantage of collecting the insurance benefits from the private life
insurance companies and at the same time avoid its responsibility of giving the benefits of the Mortgage
Redemption Insurance plan to the mortgagor. The very reason for the existence of the Social Security System
is to extend social benefits. For SSS to be allowed to deny benefits to its members, is certainly not in keeping
with its policy "... to establish, develop, promote and perfect a sound and viable tax-exempt social security
service suitable to the needs of the people throughout the Philippines, which shall provide to covered
employees and their families protection against the hazards of disability, sickness, old age, and death with a
view to promote their well-being in the spirit of social justice" (The Social Security Law, R.A. No. 1161, as
amended).
To sustain the position of the SSS is to allow it to collect twice the same amount — first from the insurance
companies which paid to it the amount of the MRI and then from the heirs of the deceased mortgagor. This
result is unconscionable as it is iniquitous.
Usually, among the items to be deducted by the SYSTEM from the first release of the loan is the premium
corresponding to the mortgage redemption insurance (MRI). However, if the premium corresponding to the
amount to be deducted from the first release of the loan was not paid by the borrower, the deceased
mortgagor, the said unpaid premium should be refunded by the heirs of the borrower.
DISPOSITIVE PORTION: Wherefore, the decision of the CA, affirming Reso. No. 1365 of SSC is hereby set
aside.
[SUPRA 55] 61 GREAT PACIFIC LIFE ASSURANCE CORP., petitioner, vs. COURT OF APPEALS AND
MEDARDA V. LEUTERIO, respondents.
G.R. No. 113899 October 13, 1999
TOPIC: Insurance
[SUPRA 39] 62. FGU Insurance Corp. vs. The Court of Appeals, et. al., G.R. No. 137775, March 31, 2005
42

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DLSU Commercial Law Review Digest G02 (2015-2016)

41 Central Shipping Company, Inc. v. Insurance Company of North America

(2) Whether the doctrine of limited liability is applicable. NO.

Malayan filed a complaint for damages with the MeTC

CA: Vacated decision of the lower courts.

HELD: There was none.

WHEREFORE, the petition is DENIED. Costs against petitioner.

44 INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., Petitioner, vs. FGU INSURANCE

Said shipment was insured by FGU Insurance Corporation (FGU)

As insurer, FGU paid RAGC the amount of P1,835,068.88

Whether or not the CA erred in upholding the marine open policy? NO

On the matter of subrogation, Article 2207 of the Civil Code provides

047 Uy Hu & Co. v. The Prudential Assurance Co., Ltd.

27 October 2011- CA affirmed RTC decision. Hence this case.

Issue: Is Malayan liable under the insurance contract?

049 United Merchants Corporation vs. Country Bankers Insurance Corporation

Hence, this petition.

DISPOSITIVE PORTION: WHEREFORE, the petition is hereby DENIED.

052 STRONGHOLD INSURANCE COMPANY, INCORPORATED, Petitioner, vs. TOKYU CONSTRUCTION

DISPOSITIVE: WHEREFORE, premises considered, the petition is DENIED.

053. First Lepanto-Taisho Ins. Corp. vs. Chevron Phils

054. Intra-Strata Ass. Corp. v. Republic

055 GREAT PACIFIC LIFE ASSURANCE CORP., petitioner, vs.

2. Concealment was not proved

[INSURANCE 56] PERLA COMPANIA DE SEGUROS, INC. vs.

FCP CREDIT CORPORATION vs.

On 9 November 1982, the vehicle was carnapped.

RULING: Yes, it is.

The "authorized driver clause" in a typical insurance policy is in contemplation or anticipation of

057 PARAMOUNT INSURANCE CORPORATION vs SPOUSES YVES and MARIA TERESA

3. There is identity of subject matter;

060 Nora Cansing SERRANO v. CA and Social Security Commission

RULING: SC reverses CA decision.

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