Republic of the Philippines On October 12, 1997 and during the subsistence of the renewal policy, the insured
SUPREME COURT machineries and equipment were totally lost by fire. Hence, PAP Co. filed a fire
Manila
THIRD DIVISION
G.R. No. 200784 August 7, 2013
MALAYAN INSURANCE COMPANY, INC., PETITIONER,
vs.
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
DECISION
MENDOZA, J.:
Challenged in this petition for review on certiorari under Rule 45 of the Rules of
Court is the October 27, 2011 Decision1 of the Court of Appeals (CA), which
affirmed with modification the September 17, 2009 Decision2 of the Regional Trial
Court, Branch 15, Manila (RTC), and its February 24, 2012 Resolution3 denying
the motion for reconsideration filed by petitioner Malayan Insurance Company.,
Inc. (Malayan).
The Facts
The undisputed factual antecedents were succinctly summarized by the CA as
follows:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance
Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the latter’s machineries
and equipment located at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15,
PEZA, Rosario, Cavite (Sanyo Building). The insurance, which was for Fifteen
Million Pesos (?15,000,000.00) and effective for a period of one (1) year, was
procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the
mortgagee of the insured machineries and equipment.
After the passage of almost a year but prior to the expiration of the insurance
coverage, PAP Co. renewed the policy on an "as is" basis. Pursuant thereto, a
renewal policy, Fire Insurance Policy No. F-00227-000079, was issued by Malayan
to PAP Co. for the period May 13, 1997 to May 13, 1998.
insurance claim with Malayan in the amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the ground
that, at the time of the loss, the insured machineries and equipment were
transferred by PAP Co. to a location different from that indicated in the policy.
Specifically, that the insured machineries were transferred in September 1996 from
the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA,
Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co. argued that
Malayan cannot avoid liability as it was informed of the transfer by RCBC, the party
duty-bound to relay such information. However, Malayan reiterated its denial of
PAP Co.’s claim. Distraught, PAP Co. filed the complaint below against Malayan. 4
Ruling of the RTC
On September 17, 2009, the RTC handed down its decision, ordering Malayan to
pay PAP Company Ltd (PAP) an indemnity for the loss under the fire insurance
policy as well as for attorney’s fees. The dispositive portion of the RTC decision
reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff. Defendant is hereby ordered:
a)
To pay plaintiff the sum of FIFTEEN MILLION PESOS (₱15,000,000.00) as and for
indemnity for the loss under the fire insurance policy, plus interest thereon at the
rate of 12% per annum from the time of loss on October 12, 1997 until fully paid;
b)
To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (Ph₱500,000.00)
as and by way of attorney’s fees; [and,]
c)
To pay the costs of suit.
SO ORDERED.5
The RTC explained that Malayan is liable to indemnify PAP for the loss under the
subject fire insurance policy because, although there was a change in the
condition of the thing insured as a result of the transfer of the subject machineries
to another location, said insurance company failed to show proof that such transfer
resulted in the increase of the risk insured against. In the absence of proof that the
alteration of the thing insured increased the risk, the contract of fire insurance is
not affected per Article 169 of the Insurance Code.
The RTC further stated that PAP’s notice to Rizal Commercial Banking
Corporation (RCBC) sufficiently complied with the notice requirement under the
policy considering that it was RCBC which procured the insurance. PAP acted in
good faith in notifying RCBC about the transfer and the latter even conducted an
inspection of the machinery in its new location.
Not contented, Malayan appealed the RTC decision to the CA basically arguing
that the trial court erred in ordering it to indemnify PAP for the loss of the subject
machineries since the latter, without notice and/or consent, transferred the same to
a location different from that indicated in the fire insurance policy.
Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which affirmed the
RTC decision but deleted the attorney’s fees. The decretal portion of the CA
decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan
Insurance Company must indemnify PAP Co. Ltd the amount of Fifteen Million
Pesos (Ph₱15,000,000.00) for the loss under the fire insurance policy, plus
interest thereon at the rate of 12% per annum from the time of loss on October 12,
1997 until fully paid. However, the Five Hundred Thousand Pesos
(Ph₱500,000.00) awarded to PAP Co., Ltd. as attorney’s fees is DELETED. With
costs.
SO ORDERED.6
The CA wrote that Malayan failed to show proof that there was a prohibition on the
transfer of the insured properties during the efficacy of the insurance policy.
Malayan also failed to show that its contractual consent was needed before
carrying out a transfer of the insured properties. Despite its bare claim that the
original and the renewed insurance policies contained provisions on transfer
limitations of the insured properties, Malayan never cited the specific provisions.
The CA further stated that even if there was such a provision on transfer
restrictions of the insured properties, still Malayan could not escape liability
because the transfer was made during the subsistence of the original policy, not
the renewal policy. PAP transferred the insured properties from the Sanyo Factory
to the Pace Pacific Building (Pace Factory) sometime in September 1996.
Therefore, Malayan was aware or should have been aware of such transfer when it
issued the renewal policy on May 14, 1997. The CA opined that since an insurance
policy was a contract of adhesion, any ambiguity must be resolved against the
party that prepared the contract, which, in this case, was Malayan.
Finally, the CA added that Malayan failed to show that the transfer of the insured
properties increased the risk of the loss. It, thus, could not use such transfer as an
excuse for not paying the indemnity to PAP. Although the insurance proceeds
were payable to RCBC, PAP could still sue Malayan to enforce its rights on the
policy because it remained a party to the insurance contract.
Not in conformity with the CA decision, Malayan filed this petition for review
anchored on the following
GROUNDS
I
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE
HONORABLE COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT AND THUS RULING IN THE QUESTIONED DECISION AND
RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER THE
INSURANCE CONTRACT BECAUSE:
CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS,
PETITIONER MALAYAN WAS ABLE TO PROVE AND IT IS NOT DENIED, THAT
ON THE FACE OF THE RENEWAL POLICY ISSUED TO RESPONDENT PAP
CO., THERE IS AN AFFIRMATIVE WARRANTY OR A REPRESENTATION
MADE BY THE INSURED THAT THE "LOCATION OF THE RISK" WAS AT THE
SANYO BUILDING. IT IS LIKEWISE UNDISPUTED THAT WHEN THE RENEWAL
POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED
PROPERTIES WERE NOT AT THE SANYO BUILDING BUT WERE AT A
DIFFERENT LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN
THIS DIFFERENT LOCATION WHEN THE LOSS INSURED AGAINST
OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF ALREADY
ENTITLES PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS
AVOIDED OR RESCINDED BY LAW, BECAUSE OF CONCEALMENT,
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY
UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31 OF THE
INSURANCE CODE, RESPECTIVELY.
RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT
COMMIT CONCEALMENT, MISREPRESENTATION OR BREACH OF AN
AFFIRMATIVE WARRANTY WHEN IT FAILED TO PROVE THAT IT INFORMED
PETITIONER MALAYAN THAT THE INSURED PROPERTIES HAD BEEN
TRANSFERRED TO A LOCATION DIFFERENT FROM WHAT WAS INDICATED
IN THE INSURANCE POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE
ARE CONDITIONS AND LIMITATIONS TO THE RENEWAL POLICY WHICH ARE
THE REASONS WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT,
THE BEST PROOF THAT RESPONDENT PAP CO. RECOGNIZES THESE
CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE
FOCUSED ON ITS FACTUAL ASSERTION THAT IT SUPPOSEDLY NOTIFIED
PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY THE
INSURANCE POLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE
WAS AN INCREASE IN RISK BECAUSE OF THE UNILATERAL TRANSFER OF
THE INSURED PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS
UNREBUTTED BY RESPONDENT PAP CO.
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE
LAW AND ESTABLISHED DECISIONS OF THE HONORABLE COURT WHEN IT
IMPOSED INTEREST AT THE RATE OF TWELVE PERCENT (12%) INTEREST
FROM THE TIME OF THE LOSS UNTIL FULLY PAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE
POLICY IS NOT A LOAN OR FORBEARANCE OF MONEY FROM WHICH A
BREACH ENTITLES A PLAINTIFF TO AN AWARD OF INTEREST AT THE RATE
OF TWELVE PERCENT (12%) PER ANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE
SHOULD NOT HAVE BEEN APPLIED BY THE COURT OF APPEALS BECAUSE
THERE WAS NEVER ANY FINDING THAT PETITIONER MALAYAN
UNJUSTIFIABLY REFUSED OR WITHHELD THE PROCEEDS OF THE
INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A
LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER
RESPONDENT PAP CO. COMMITTED CONCEALMENT,
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY
WHICH ENTITLES PETITIONER MALAYAN TO RESCIND THE INSURANCE
POLICY AND/OR TO CONSIDER THE CLAIM AS VOIDED.
III
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE
HONORABLE COURT WHEN IT AGREED WITH THE TRIAL COURT AND HELD
IN THE QUESTIONED DECISION THAT THE PROCEEDS OF THE INSURANCE
CONTRACT IS PAYABLE TO RESPONDENT PAP CO. DESPITE THE
EXISTENCE OF A MORTGAGEE CLAUSE IN THE INSURANCE POLICY.
IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED
LAW AND JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED DECISION
AND RESOLUTION THAT THE INTERPRETATION MOST FAVORABLE TO THE
INSURED SHALL BE ADOPTED.7
Malayan basically argues that it cannot be held liable under the insurance contract
because PAP committed concealment, misrepresentation and breach of an
affirmative warranty under the renewal policy when it transferred the location of the
insured properties without informing it. Such transfer affected the correct
estimation of the risk which should have enabled Malayan to decide whether it was
willing to assume such risk and, if so, at what rate of premium. The transfer also
affected Malayan’s ability to control the risk by guarding against the increase of the
risk brought about by the change in conditions, specifically the change in the
location of the risk.
Malayan claims that PAP concealed a material fact in violation of Section 27 of the
Insurance Code8 when it did not inform Malayan of the actual and new location of
the insured properties. In fact, before the issuance of the renewal policy on May
14, 1997, PAP even informed it that there would be no changes in the renewal
policy. Malayan also argues that PAP is guilty of breach of warranty under the
renewal policy in violation of Section 74 of the Insurance Code 9 when, contrary to
its affirmation in the renewal policy that the insured properties were located at the
Sanyo Factory, these were already transferred to the Pace Factory. Malayan adds
that PAP is guilty of misrepresentation upon a material fact in violation of Section
45 of the Insurance Code10 when it informed Malayan that there would be no
changes in the original policy, and that the original policy would be renewed on an
"as is" basis.
Malayan further argues that PAP failed to discharge the burden of proving that the
transfer of the insured properties under the insurance policy was with its
knowledge and consent. Granting that PAP informed RCBC of the transfer or
change of location of the insured properties, the same is irrelevant and does not
bind Malayan considering that RCBC is a corporation vested with separate and
distinct juridical personality. Malayan did not consent to be the principal of RCBC.
RCBC did not also act as Malayan’s representative.
With regard to the alleged increase of risk, Malayan insists that there is evidence
of an increase in risk as a result of the unilateral transfer of the insured properties.
According to Malayan, the Sanyo Factory was occupied as a factory of
automotive/computer parts by the assured and factory of zinc & aluminum die cast
and plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of
0.449% under 6.1.2 A, while Pace Factory was occupied as factory that repacked
silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A.
PAP’s position
On the other hand, PAP counters that there is no evidence of any
misrepresentation, concealment or deception on its part and that its claim is not
fraudulent. It insists that it can still sue to protect its rights and interest on the policy
notwithstanding the fact that the proceeds of the same was payable to RCBC, and
that it can collect interest at the rate of 12% per annum on the proceeds of the
policy because its claim for indemnity was unduly delayed without legal
justification.
The Court’s Ruling
The Court agrees with the position of Malayan that it cannot be held liable for the
loss of the insured properties under the fire insurance policy.
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996,
PAP obtained a ?15,000,000.00 fire insurance policy from Malayan covering its
machineries and equipment effective for one (1) year or until May 13, 1997; that
the policy expressly stated that the insured properties were located at "Sanyo
Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite";
that before its expiration, the policy was renewed11 on an "as is" basis for another
year or until May 13, 1998; that the subject properties were later transferred to the
Pace Factory also in PEZA; and that on October 12, 1997, during the effectivity of
the renewal policy, a fire broke out at the Pace Factory which totally burned the
insured properties.
The policy forbade the removal of the insured properties unless sanctioned by
Malayan
Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to attach as
regards the property affected unless the insured, before the occurrence of any loss
or damage, obtains the sanction of the company signified by endorsement upon
the policy, by or on behalf of the Company:
xxx xxx xxx
(c) If property insured be removed to any building or place other than in that which
is herein stated to be insured.12
Evidently, by the clear and express condition in the renewal policy, the removal of
the insured property to any building or place required the consent of Malayan. Any
transfer effected by the insured, without the insurer’s consent, would free the latter
from any liability.
The respondent failed to notify, and to obtain the consent of, Malayan regarding
the removal
The records are bereft of any convincing and concrete evidence that Malayan was
notified of the transfer of the insured properties from the Sanyo factory to the Pace
factory. The Court has combed the records and found nothing that would show that
Malayan was duly notified of the transfer of the insured properties.
What PAP did to prove that Malayan was notified was to show that it relayed the
fact of transfer to RCBC, the entity which made the referral and the named
beneficiary in the policy. Malayan and RCBC might have been sister companies,
but such fact did not make one an agent of the other. The fact that RCBC referred
PAP to Malayan did not clothe it with authority to represent and bind the said
insurance company. After the referral, PAP dealt directly with Malayan.
The respondent overlooked the fact that during the November 9, 2006
hearing,13 its counsel stipulated in open court that it was Malayan’s authorized
insurance agent, Rodolfo Talusan, who procured the original policy from Malayan,
not RCBC. This was the reason why Talusan’s testimony was dispensed with.
Moreover, in the previous hearing held on November 17, 2005,14 PAP’s hostile
witness, Alexander Barrera, Administrative Assistant of Malayan, testified that he
was the one who procured Malayan’s renewal policy, not RCBC, and that RCBC
merely referred fire insurance clients to Malayan. He stressed, however, that no
written referral agreement exists between RCBC and Malayan. He also denied that
PAP notified Malayan about the transfer before the renewal policy was issued. He
added that PAP, through Maricar Jardiniano (Jardiniano), informed him that the fire
insurance would be renewed on an "as is basis."15
After the RCBC was informed in the manner you stated, what did you do regarding
the new location of these properties at Pace Pacific Bldg. insofar as Malayan
Insurance Company is concerned?
A

Granting that any notice to RCBC was binding on Malayan, PAP’s claim that it
notified RCBC and Malayan was not indubitably established. At best, PAP could
only come up with the hearsay testimony of its principal witness, Branch Manager
Katsumi Yoneda (Mr. Yoneda), who testified as follows:
Q
What did you do as Branch Manager of Pap Co. Ltd.?
After that transfer, we informed the RCBC about the transfer of the equipment and
also Malayan Insurance but we were not able to contact Malayan Insurance so I
instructed again my secretary to inform Malayan about the transfer.
Q
Who was the secretary you instructed to contact Malayan Insurance, the defendant
in this case?

A A

What I did I instructed my Secretary, because these equipment was bank loan and Dory Ramos.
because of the insurance I told my secretary to notify.
Q
Q
How many secretaries do you have at that time in your office?
To notify whom?
A
A
Only one, sir.
I told my Secretary to inform the bank.
Q
Q
Do you know a certain Maricar Jardiniano?
You are referring to RCBC?
A
A
Yes, sir.
Yes, sir.
Q
xxxx
Why do you know her?
Q
A
Because she is my secretary. Did you come to know who was that person who came to your place at Pace
Pacific?
Q
A
So how many secretaries did you have at that time?
I do not know, sir.
A
Q
Two, sir.
How did you know that this person from Malayan Insurance came to your place?
Q
A
What happened with the instruction that you gave to your secretary Dory Ramos
about the matter of informing the defendant Malayan Insurance Co of the new It is according to the report given to me.
location of the insured properties?
Q
A
Who gave that report to you?
She informed me that the notification was already given to Malayan Insurance.
A
Q
Dory Ramos.
Aside from what she told you how did you know that the information was properly
relayed by the said secretary, Dory Ramos, to Malayan Insurance? Q

A Was that report in writing or verbally done?

I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir. A

Q Verbal.16 [Emphases supplied]

Now after you were told by your secretary, Dory Ramos, that she was able to The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no
inform Malayan Insurance Company about the transfer of the properties insured to personal knowledge of the notice to either Malayan or RCBC. PAP should have
the new location, do you know what happened insofar this information was given to presented his secretaries, Dory Ramos and Maricar Jardiniano, at the witness
the defendant Malayan Insurance? stand. His testimony alone was unreliable.

A Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the
insured properties were transferred to a different location only after the renewal of
I heard that someone from Malayan Insurance came over to our company. the fire insurance policy.

Q COURT
Q stated in the renewal policy. The increase in tariff rate from 0.449% to 0.657% put
When did you transfer the machineries and equipments before the renewal or after
the renewal of the insurance?
A Despite the importance of the issue, PAP failed to refute Malayan’s argument on
After the renewal.
COURT
Q
You understand my question?
A policy. There being an unconsented removal, the transfer was at PAP’s own risk.
Yes, Your Honor.17 [Emphasis supplied]
This enfeebles PAP’s position that the subject properties were already transferred
to the Pace factory before the policy was renewed.
The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of
the insured properties to the Pace Factory was insignificant as it did not increase
the risk.
Malayan argues that the change of location of the subject properties from the
Sanyo Factory to the Pace Factory increased the hazard to which the insured
properties were exposed. Malayan wrote:
With regards to the exposure of the risk under the old location, this was occupied
as factory of automotive/computer parts by the assured, and factory of zinc &
aluminum die cast, plastic gear for copy machine by Sanyo Precision Phils., Inc.
with a rate of 0.449% under 6.1.2 A. But under Pace Pacific Mfg. Corporation this
was occupied as factory that repacks silicone sealant to plastic cylinders with a
rate of 0.657% under 6.1.2 A. Hence, there was an increase in the hazard as
indicated by the increase in rate.18
The Court agrees with Malayan that the transfer to the Pace Factory exposed the
properties to a hazardous environment and negatively affected the fire rating
the subject properties at a greater risk of loss. Such increase in risk would
necessarily entail an increase in the premium payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very crucial point.
the increased risk.
Malayan is entitled to rescind the insurance contract
Considering that the original policy was renewed on an "as is basis," it follows that
the renewal policy carried with it the same stipulations and limitations. The terms
and conditions in the renewal policy provided, among others, that the location of
the risk insured against is at the Sanyo factory in PEZA. The subject insured
properties, however, were totally burned at the Pace Factory. Although it was also
located in PEZA, Pace Factory was not the location stipulated in the renewal
Consequently, it must suffer the consequences of the fire. Thus, the Court agrees
with the report of Cunningham Toplis Philippines, Inc., an international loss
adjuster which investigated the fire incident at the Pace Factory, which opined that
"[g]iven that the location of risk covered under the policy is not the location
affected, the policy will, therefore, not respond to this loss/claim."19
It can also be said that with the transfer of the location of the subject properties,
without notice and without Malayan’s consent, after the renewal of the policy, PAP
clearly committed concealment, misrepresentation and a breach of a material
warranty. Section 26 of the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party
to rescind a contract of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to
rescind the insurance contract in case of an alteration in the use or condition of the
thing insured. Section 168 of the Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured from that to
which it is limited by the policy made without the consent of the insurer, by means
within the control of the insured, and increasing the risks, entitles an insurer to
rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when
the following conditions are present, to wit:

1) the policy limits the use or condition of the thing insured;

2) there is an alteration in said use or condition;

3) the alteration is without the consent of the insurer;

4) the alteration is made by means within the insured’s control; and

5) the alteration increases the risk of loss.20

In the case at bench, all these circumstances are present. It was clearly
established that the renewal policy stipulated that the insured properties were
located at the Sanyo factory; that PAP removed the properties without the consent
of Malayan; and that the alteration of the location increased the risk of loss.

WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby
REVERSED and SET ASIDE. Petitioner Malayan Insurance Company, Inc. is
hereby declared NOT liable for the loss of the insured machineries and equipment
suffered by PAP Co., Ltd.

SO ORDERED.
 SECOND DIVISION
19-B Dagot Street, San Jose Subdivision, Barrio Manresa, Quezon City, where
UMC assembled and stored its products.
UNITED MERCHANTS G.R. No. 198588
CORPORATION,
Petitioner, Present: On 6 September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks
in trade of Christmas lights against fire with defendant Country Bankers Insurance
CARPIO, J., Chairperson,
BRION, Corporation (CBIC) for P15,000,000.00. The Fire Insurance Policy No. F-HO/95-
PEREZ, 576 (Insurance Policy) and Fire Invoice No. 12959A, valid until 6 September 1996,
- versus - SERENO, and
states:
REYES, JJ.

AMOUNT OF INSURANCE: FIFTEEN

Promulgated: MILLION PESOS
COUNTRY BANKERS INSURANCE July 11, 2012 PHILIPPINE
CORPORATION, CURRENCY
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x xxx

PROPERTY INSURED: On stocks in trade only, consisting of

DECISION 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
CARPIO, J.: 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
The Case iron rood, occupied as Christmas lights storage.[5]
On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice
This Petition for Review on Certiorari[1] seeks to reverse the Court of Appeals No. 16583A to form part of the Insurance Policy. Endorsement F/96-154 provides
Decision[2] dated 16 June 2011 and its Resolution[3] dated 8 September 2011 in that UMCs stocks in trade were insured against additional perils, to wit: typhoon,
CA-G.R. CV No. 85777. The Court of Appeals reversed the Decision [4] of the flood, ext. cover, and full earthquake. The sum insured was also increased
Regional Trial Court (RTC) of Manila, Branch 3, and ruled that the claim on the to P50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996,
Insurance Policy is void. CBIC issued Endorsement F/96-157 where the name of the assured was changed
The Facts from Alfredo Tan to UMC.

The facts, as culled from the records, are as follows: On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated
CRM Adjustment Corporation (CRM) to investigate and evaluate UMCs loss by
Petitioner United Merchants Corporation (UMC) is engaged in the business of reason of the fire. CBICs reinsurer, Central Surety, likewise requested the National
buying, selling, and manufacturing Christmas lights. UMC leased a warehouse at Bureau of Investigation (NBI) to conduct a parallel investigation. On 6 July 1996,
UMC, through CRM, submitted to CBIC its Sworn Statement of Formal Claim, with
proofs of its loss.
On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of
its claim from CBIC. On 25 February 1997, UMC received 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.[6]
On 19 February 1998, UMC filed a Complaint[7] against CBIC with the RTC of
Manila. UMC anchored its insurance claim on the Insurance Policy, the Sworn
Statement of Formal Claim earlier submitted, and the Certification dated 24 July
1996 made by Deputy Fire Chief/Senior Superintendent Bonifacio J. Garcia of the
Bureau of Fire Protection. The Certification dated 24 July 1996 provides that:
This is to certify that according to available records of this office,
on or about 6:10 P.M. of July 3, 1996, a fire broke out at United
Merchants Corporation located at 19-B Dag[o]t Street, Brgy.
Manresa, Quezon City incurring an estimated damage of Fifty-
Five Million Pesos (P55,000,000.00) to the building and contents,
while the reported insurance coverage amounted to Fifty Million
Pesos (P50,000,000.00) with Country Bankers Insurance
Corporation.
The Bureau further certifies that no evidence was gathered to
prove that the establishment was willfully, feloniously and
intentionally set on fire.
That the investigation of the fire incident is already closed being
ACCIDENTAL in nature.[8]
In its Answer with Compulsory Counterclaim[9] dated 4 March 1998, CBIC admitted
the issuance of the Insurance Policy to UMC but raised the following defenses: (1)
that the Complaint states no cause of action; (2) that UMCs claim has already
prescribed; and (3) that UMCs fire claim is tainted with fraud. CBIC alleged that
UMCs claim was fraudulent because UMCs Statement of Inventory showed that it
had no stocks in trade as of 31 December 1995, and that UMCs suspicious
purchases for the year 1996 did not even amount to P25,000,000.00. UMCs GIS
and Financial Reports further revealed that it had insufficient capital, which meant
UMC could not afford the alleged P50,000,000.00 worth of stocks in trade.
In its Reply[10] dated 20 March 1998, UMC denied violation of Condition No. 15 of
the Insurance Policy. UMC claimed that it did not make any false declaration
because the invoices were genuine and the Statement of Inventory was for internal
revenue purposes only, not for its insurance claim.
During trial, UMC presented five witnesses. The first witness was Josie Ebora
(Ebora), UMCs disbursing officer. Ebora testified that UMCs stocks in trade, at the
time of the fire, consisted of: (1) raw materials for its Christmas lights;
(2) Christmas lights already assembled; and (3) Christmas lights purchased from
local suppliers. These stocks in trade were delivered from August 1995 to May
1996. She stated that Straight Cargo Commercial Forwarders delivered the
imported materials to the warehouse, evidenced by delivery receipts. However, for
the year 1996, UMC had no importations and only bought from its local suppliers.
Ebora identified the suppliers as Fiber Technology Corporation from which UMC
bought stocks worth P1,800,000.00 on 20 May 1996; Fuze Industries Manufacturer
Philippines from which UMC bought stocks worth P19,500,000.00 from 20 January
1996 to 23 February 1996; and Tomco Commercial Press from which UMC bought
several Christmas boxes. Ebora testified that all these deliveries were not yet paid.
Ebora also presented UMCs Balance Sheet, Income Statement and Statement of
Cash Flow. Per her testimony, UMCs purchases amounted to P608,986.00 in
1994; P827,670.00 in 1995; and P20,000,000.00 in 1996. Ebora also claimed that
UMC had sales only from its fruits business but no sales from its Christmas lights
for the year 1995.
The next witness, Annie Pabustan (Pabustan), testified that her company provided
about 25 workers to assemble and pack Christmas lights for UMC from 28 March
1996 to 3 July 1996. The third witness, Metropolitan Bank and Trust Company
(MBTC) Officer Cesar Martinez, stated that UMC opened letters of credit with
MBTC for the year 1995 only. The fourth witness presented was Ernesto Luna
(Luna), the delivery checker of Straight Commercial Cargo Forwarders. Luna
affirmed the delivery of UMCs goods to its warehouse on 13 August 1995, 6
September 1995, 8 September 1995, 24 October 1995, 27 October 1995, 9
November 1995, and 19 December 1995. Lastly, CRMs adjuster Dominador
Victorio testified that he inspected UMCs warehouse and prepared preliminary
reports in this connection.
On the other hand, CBIC presented the claims manager Edgar Caguindagan
(Caguindagan), a Securities and Exchange Commission (SEC) representative,
Atty. Ernesto Cabrera (Cabrera), and NBI Investigator Arnold Lazaro (Lazaro).
Caguindagan testified that he inspected the burned warehouse on 5 July 1996,
took pictures of it and referred the claim to an independent adjuster. The SEC
representatives testimony was dispensed with, since the parties stipulated on the
existence of certain documents, to wit: (1) UMCs GIS for 1994-1997; (2) UMCs
Financial Report as of 31 December 1996; (3) SEC Certificate that UMC did not
file GIS or Financial Reports for certain years; and (4) UMCs Statement of
Inventory as of 31 December 1995 filed with the BIR.
Cabrera and Lazaro testified that they were hired by Central Surety to investigate
UMCs claim. On 19 November 1996, they concluded that arson was committed
based from their interview with barangay officials and the pictures showing that
blackened surfaces were present at different parts of the warehouse. On cross-
examination, Lazaro admitted that they did not conduct a forensic investigation of
the warehouse, nor did they file a case for arson.
For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of
the documents of UCPB General Insurance, the insurer of Perfect Investment
Company, Inc., the warehouse owner. When asked to bring documents related to
the insurance of Perfect Investment Company, Inc., Batallones brought the papers
of Perpetual Investment, Inc.
The Ruling of the Regional Trial Court
On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of
UMC, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff
and ordering defendant to pay plaintiff:
a) the sum of P43,930,230.00 as indemnity with interest thereon at
6% per annum from November 2003 until fully paid;
b) the sum of P100,000.00 for exemplary damages;
c) the sum of P100,000.00 for attorneys fees; and
d) the costs of suit.
Defendants counterclaim is denied for lack of merit.
SO ORDERED.[11]
The RTC found no dispute as to UMCs fire insurance contract with CBIC. Thus,
the RTC ruled for UMCs entitlement to the insurance proceeds, as follows:
Fraud is never presumed but must be proved by clear and
convincing evidence. (see Alonso v. Cebu Country Club, 417
SCRA 115 [2003]) Defendant failed to establish by clear and
convincing evidence that the documents submitted to the SEC
and BIR were true. It is common business practice for
corporations to have 2 sets of reports/statements for tax
purposes. The stipulated documents of plaintiff (Exhs. 2 8) may
not have been accurate.
The conflicting findings of defendants adjuster, CRM
Adjustment [with stress] and that made by Atty. Cabrera & Mr.
 Lazaro for Central Surety shall be resolved in favor of the former.
Definitely the formers finding is more credible as it was made soon
after the fire while that of the latter was done 4 months later.
Certainly it would be a different situation as the site was no longer
the same after the clearing up operation which is normal after a
fire incident. The Christmas lights and parts could have been
swept away. Hence the finding of the latter appears to be
speculative to benefit the reinsurer and which defendant wants to
adopt to avoid liability.
The CRM Adjustment report found no arson and confirmed
substantial stocks in the burned warehouse (Exhs. QQQ)
[underscoring supplied]. This is bolstered by the BFP certification
that there was no proof of arson and the fire was accidental (Exhs.
PPP). The certification by a government agency like BFP is
presumed to be a regular performance of official duty. Absent
convincing evidence to the contrary, the presumption of regularity
in the performance of official functions has to be upheld. (People
vs. Lapira, 255 SCRA 85) The report of UCPB General Insurances
adjuster also found no arson so that the burned warehouse owner
PIC was indemnified.[12]
Hence, CBIC filed an appeal with the Court of Appeals (CA).
addition, it found that UMCs claim was overvalued through fraudulent transactions.
The CA ruled:
We have meticulously gone over the entirety of the evidence
submitted by the parties and have come up with a conclusion that
the claim of the plaintiff-appellee was indeed overvalued by
transactions which were fraudulently concocted so that the full
coverage of the insurance policy will have to be fully awarded to
the plaintiff-appellee.
First, We turn to the backdrop of the plaintiff-appellees case, thus,
[o]n September 6, 1995 its stocks-in-trade were insured for Fifteen
Million Pesos and on May 7, 1996 the same was increased to 50
Million Pesos. Two months thereafter, a fire gutted the plaintiff-
appellees warehouse.
Second, We consider the reported purchases of the plaintiff-
appellee as shown in its financial report dated December 31, 1996
vis--vis the testimony of Ms. Ebora thus:
1994- P608,986.00
1995- P827,670.00
1996- P20,000,000.00 (more or less) which were
purchased for a period of one month.

The Ruling of the Court of Appeals Third, We shall also direct our attention to the alleged true and
complete purchases of the plaintiff-appellee as well as the value of
all stock-in-trade it had at the time that the fire occurred. Thus:
On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The Exhibit Source Amount (pesos) Dates Covered
Exhs. P-DD, Fuze Industries 19,550,400.00 January 20, 1996
dispositive portion of the Decision reads:
inclusive Manufacturer January 31, 1996
WHEREFORE, in view of the foregoing premises, the instant
Phils. February 12, 1996
appeal is GRANTED and the Decision of the Regional Trial Court, February 20, 1996
of the National Judicial Capital Region, Branch 3 of the City of February 23, 1996
Manila dated June 16, 2005 in Civil Case No. 98-87370 is
Exhs. EE-HH, Tomco 1,712,000.00 December 19, 1995
REVERSED and SET ASIDE. The plaintiff-appellees claim upon
inclusive Commercial Press January 24, 1996
its insurance policy is deemed avoided.
February 21, 1996
November 24, 1995
SO ORDERED.[13]
Exhs. II-QQ, Precious Belen 2,720,400.00 January 13, 1996
The CA ruled that UMCs claim under the Insurance Policy is void. The CA found inclusive Trading January 19, 1996
that the fire was intentional in origin, considering the array of evidence submitted January 26, 1996
February 3, 1996
by CBIC, particularly the pictures taken and the reports of Cabrera and Lazaro, as February 13, 1996
opposed to UMCs failure to explain the details of the alleged fire accident. In February 20, 1996
 February 27, 1996 plaintiff-appellee. It had also averred that fraud is present when
Exhs. RR- Wisdom 361,966.00 April 3, 1996 upon verification of the address of Fuze Industries, its office is
EEE, inclusive Manpower April 12, 1996 nowhere to be found. Also, the defendant-appellant expressed
Services April 19, 1996 grave doubts as to the purchases of the plaintiff-appellee
April 26, 1996 sometime in 1996 when such purchases escalated to a high 19.5
May 3, 1996 Million Pesos without any contract to back it up.[14]
May 10, 1996
May 17, 1996
May 24, 1996 On 7 July 2011, UMC filed a Motion for Reconsideration, [15] which the CA
June 7, 1996 denied in its Resolution dated 8 September 2011. Hence, this petition.
June 14, 1996
June 21, 1996 The Issues
June 28, 1996
July 5, 1996 UMC seeks a reversal and raises the following issues for resolution:
Exhs. GGG- Costs of Letters of 15,159,144.71 May 29, 1995
NNN, inclusive Credit for June 15, 1995 I.
imported raw July 5, 1995 WHETHER THE COURT OF APPEALS MADE A RULING
materials September 4, 1995 INCO[N]SISTENT WITH LAW, APPLICABLE JURISPRUDENCE
October 2, 1995 AND EVIDENCE AS TO THE EXISTENCE OF ARSON AND
October 27, 1995 FRAUD IN THE ABSENCE OF MATERIALLY CONVINCING
January 8, 1996 EVIDENCE.
March 19, 1996 II.
Exhs. GGG-11 SCCFI statements 384,794.38 June 15, 1995 WHETHER THE COURT OF APPEALS MADE A RULING
- GGG-24, of account June 28, 1995 INCONSISTENT WITH LAW, APPLICABLE JURISPRUDENCE
HHH-12, HHH- August 1, 1995 AND EVIDENCE WHEN IT FOUND THAT PETITIONER
22, III-11, III-14, September 4, 1995 BREACHED ITS WARRANTY.[16]
JJJ-13, KKK-11, September 8, 1995
LLL-5 September 11,
The Ruling of the Court
1995
October 30, 199[5]
November 10, 1995 At the outset, CBIC assails this petition as defective since what UMC ultimately
December 21, 1995
wants this Court to review are questions of fact. However, UMC argues that where
the findings of the CA are in conflict with those of the trial court, a review of the
facts may be made. On this procedural issue, we find UMCs claim meritorious.

TOTAL 44,315,024.31
Fourth, We turn to the allegation of fraud by the defendant-
appellant by thoroughly looking through the pieces of evidence
that it adduced during the trial. The latter alleged that fraud is
present in the case at bar as shown by the discrepancy of the
alleged purchases from that of the reported purchases made by
A petition for review under Rule 45 of the Rules of Court specifically provides that
only questions of law may be raised. The findings of fact of the CA are final and
conclusive and this Court will not review them on appeal, [17] subject to exceptions
as when the findings of the appellate court conflict with the findings of the trial
court.[18] Clearly, the present case falls under the exception. Since UMC properly
raised the conflicting findings of the lower courts, it is proper for this Court to
resolve such contradiction.
Having settled the procedural issue, we proceed to the primordial issue which boils
down to whether UMC is entitled to claim from CBIC the full coverage of its fire
insurance policy.
UMC contends that because it had already established a prima facie case against
CBIC which failed to prove its defense, UMC is entitled to claim the full coverage
under the Insurance Policy. On the other hand, CBIC contends that because arson
and fraud attended the claim, UMC is not entitled to recover under Condition No.
15 of the Insurance Policy.
Burden of proof is the duty of any party to present evidence to establish his claim
or defense by the amount of evidence required by law, [19] which is preponderance
of evidence in civil cases.[20] The party, whether plaintiff or defendant, who asserts
the affirmative of the issue has the burden of proof to obtain a favorable
judgment.[21] Particularly, 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.[22] 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 on 3 July 1996, within the
duration of the fire insurance. However, since CBIC alleged an excepted risk, then
the burden of evidence shifted to CBIC to prove such exception.
An insurer who seeks to defeat a claim because of an exception or limitation in the
policy has the burden of establishing that the loss comes within the purview of the
exception or limitation.[23] If loss is proved apparently within a contract of insurance,
the burden is upon the insurer to establish that the loss arose from a cause of loss
which is excepted or for which it is not liable, or from a cause which limits its
liability.[24] In the present case, CBIC failed to discharge its primordial burden of
establishing that the damage or loss was caused by arson, a limitation in the
policy.
In prosecutions for arson, proof of the crime charged is complete where the
evidence establishes: (1) the corpus delicti, that is, a fire caused by a criminal act;
and (2) the identity of the defendants as the one responsible for the
crime.[25] Corpus delicti means the substance of the crime, the fact that a crime has
actually been committed.[26] This is satisfied by proof of the bare occurrence of the
fire and of its having been intentionally caused.[27]
In the present case, CBICs evidence did not prove that the fire was intentionally
caused by the insured. First, the findings of CBICs witnesses, Cabrera and Lazaro,
were based on an investigation conducted more than four months after the fire.
The testimonies of Cabrera and Lazaro, as to the boxes doused with kerosene as
told to them by barangayofficials, are hearsay because the barangay officials were
not presented in court. Cabrera and Lazaro even admitted that they did not
conduct a forensic investigation of the warehouse nor did they file a case for
arson.[28] Second, the Sworn Statement of Formal Claim submitted by UMC,
through CRM, states that the cause of the fire was faulty electrical
wiring/accidental in nature. CBIC is bound by this evidence because in its Answer,
it admitted that it designated CRM to evaluate UMCs loss. Third, the Certification
by the Bureau of Fire Protection states that the fire was accidental in origin. This
Certification enjoys the presumption of regularity, which CBIC failed to rebut.
Contrary to UMCs allegation, CBICs failure to prove arson does not mean that it
also failed to prove fraud. Qua Chee Gan v. Law Union[29] does not apply in the
present case. In Qua Chee Gan,[30] the Court dismissed the allegation of fraud
based on the dismissal of the arson case against the insured, because the
evidence was identical in both cases, thus:
While the acquittal of the insured in the arson case is not res
judicata on the present civil action, the insurers evidence, to judge
 from the decision in the criminal case, is practically identical in
both cases and must lead to the same result, since the proof to
establish the defense of connivance at the fire in order to defraud
the insurer cannot be materially less convincing than that required
in order to convict the insured of the crime of arson (Bachrach vs.
British American Assurance Co., 17 Phil. 536). [31]
In the present case, arson and fraud are two separate grounds based on two
different sets of evidence, either of which can void the insurance claim of UMC.
The absence of one does not necessarily result in the absence of the
other. Thus, on the allegation of fraud, we affirm the findings of the Court of
Appeals.
Condition No. 15 of the Insurance Policy provides that all the benefits under the
policy shall be forfeited, if the claim be in any respect fraudulent, or if any false
declaration be made or used in support thereof, to wit:
15. If the claim be in any respect fraudulent, or if any false
declaration be made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or anyone
acting in his behalf to obtain any benefit under this Policy; or if the
loss or damage be occasioned by the willful act, or with the
connivance of the Insured, all the benefits under this Policy shall
be forfeited.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,[32] the Court held that where
a fire insurance policy provides that if the claim be in any respect fraudulent, or if
any false declaration be made or used in support thereof, or if any fraudulent
means or devices are used by the Insured or anyone acting on his behalf to obtain
any benefit under this Policy, and the evidence is conclusive that the proof of claim
which the insured submitted was false and fraudulent both as to the kind, quality
and amount of the goods and their value destroyed by the fire, such a proof of
claim is a bar against the insured from recovering on the policy even for the
amount of his actual loss.
In the present case, as proof of its loss of stocks in trade amounting
to 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. However, the charges for
assembling the Christmas lights and delivery receipts could not support its
insurance claim. The Insurance Policy provides that CBIC agreed to insure UMCs
stocks in trade. UMC defined stock in trade as tangible personal property kept for
sale or traffic.[33] Applying UMCs definition, only the letters of credit and invoices for
raw materials, Christmas lights and cartons may be considered.
The invoices, however, cannot be taken as genuine. The invoices reveal
that the stocks in trade purchased for 1996 amounts to 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,[34] UMC stated that it had no stocks in trade as of 31 December
1995. In its defense, UMC alleged that it did not include as stocks in trade the raw
materials to be assembled as Christmas lights, which it had on 31 December 1995.
However, as proof of its loss, UMC submitted invoices for raw materials, knowing
that the insurance covers only stocks in trade.
Equally important, the invoices (Exhibits P-DD) from Fuze Industries Manufacturer
Phils. were suspicious. The purchases, based on the invoices and without any
supporting contract, amounted to P19,550,400.00 worth of Christmas lights from
20 January 1996 to 23 February 1996. The uncontroverted testimony of Cabrera
revealed that there was no Fuze Industries Manufacturer Phils. located at 55
Mahinhin St., Teachers Village, Quezon City, the business address appearing in
the invoices and the records of the Department of Trade & Industry. Cabrera
testified that:
 A: Then we went personally to the address as I stated a while ago
appearing in the record furnished by the United Merchants
Corporation to the adjuster, and the adjuster in turn now, gave us
our basis in conducting investigation, so we went to this place
which according to the records, the address of this company but
there was no office of this company.
Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon
City and discover the address indicated by the United Merchants
as the place of business of Fuze Industries Manufacturer, Phils.
was a residential place, what then did you do after determining
that it was a residential place?
A: We went to the owner of the alleged company as appearing in
the Department of Trade & Industry record, and as appearing a
certain Chinese name Mr. Huang, and the address as appearing
there is somewhere in Binondo. We went personally there together
with the NBI Agent and I am with them when the subpoena was
served to them, but a male person approached us and according
to him, there was no Fuze Industries Manufacturer, Phils.,
company in that building sir.[35]
In Yu Ban Chuan v. Fieldmens Insurance, Co., Inc.,[36] the Court ruled that the
submission of false invoices to the adjusters establishes a clear case of fraud and
misrepresentation which voids the insurers liability as per condition of the policy.
Their falsity is the best evidence of the fraudulent character of plaintiffs
claim.[37] In Verendia v. Court of Appeals,[38] where the insured presented a
fraudulent lease contract to support his claim for insurance benefits, the Court held
that by its false declaration, the insured forfeited all benefits under the policy
provision similar to Condition No. 15 of the Insurance Policy in this case.
Furthermore, 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.[39] To corroborate this fact, Ebora testified that:
Q: Based on your 1995 purchases, how much were the purchases
made in 1995?
A: The purchases made by United Merchants Corporation for
the last year 1995 is P827,670.[00] sir
Q: And how about in 1994?
A: In 1994, its P608,986.00 sir.
Q: These purchases were made for the entire year of 1995
and 1994 respectively, am I correct?
A: Yes sir, for the year 1994 and 1995.[40] (Emphasis
supplied)
In its 1996 Financial Report, which UMC admitted as existing, authentic and duly
executed during the 4 December 2002 hearing, it had P1,050,862.71 as total
assets and P167,058.47 as total liabilities.[41]
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.[42] In Yu Cua v. South British
Insurance Co.,[43]the claim was fourteen times bigger than the real loss; in Go Lu v.
Yorkshire Insurance Co,[44] eight times; and in Tuason v. North China Insurance
Co.,[45] six times. In the present case, the claim is twenty five times the actual claim
proved.
The most liberal human judgment cannot attribute such difference to mere
innocent error in estimating or counting but to a deliberate intent to demand from
insurance companies payment for indemnity of goods not existing at the time of
the fire.[46] This constitutes the so-called fraudulent claim which, by express
agreement between the insurers and the insured, is a ground for the exemption of WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision
insurers from civil liability.[47] and the 8 September 2011 Resolution of the Court of Appeals in CA-G.R. CV No.
85777.
In its Reply, UMC admitted the discrepancies when it stated that discrepancies in
SO ORDERED.
its statements were not covered by the warranty such that any discrepancy in the
declaration in other instruments or documents as to matters that may have some
relation to the insurance coverage voids the policy.[48]

On UMCs allegation that it did not breach any warranty, it may be argued that the
discrepancies do not, by themselves, amount to a breach of warranty. However,
the Insurance Code provides that a policy may declare that a violation of specified
provisions thereof shall avoid it.[49] Thus, in fire insurance policies, which contain
provisions such as Condition No. 15 of the Insurance Policy, a fraudulent
discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer.[50]
Considering that all the circumstances point to the inevitable conclusion that UMC
padded its claim and was guilty of fraud, UMC violated Condition No. 15 of the
Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled under
the Insurance Policy, including its insurance claim.

While it is a cardinal principle of insurance law that a contract of insurance is to be

construed liberally in favor of the insured and strictly against the insurer
company,[51]contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties themselves
have used.[52] If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense. Courts are not permitted to
make contracts for the parties; the function and duty of the courts is simply to
enforce and carry out the contracts actually made.[53]
 SECOND DIVISION The Case

G.R. No. 193629 is a petition for review1 assailing the Decision2 promulgated on
RCJ BUS LINES, INCORPORATED, G.R. No. 193629 11 March 2010 as well as the Resolution3 promulgated on 3 September 2010 by
Petitioner, the Court of Appeals (appellate court) in CA-G.R. SP No. 105338. The appellate
court affirmed with modification the 27 May 2008 Decision4 of Branch 37 of the
Present: Regional Trial Court of Manila (RTC) in Civil Case No. 00-99410. The RTC
dismissed RCJ Bus Lines appeal from the 12 July 2000 Decision5 of the
Metropolitan Trial Court of Manila (MeTC) in Civil Case No. 153566.
CARPIO, J., Chairperson, The MeTC rendered judgment in favor of Standard Insurance Company,
LEONARDO-DE CASTRO,* Incorporated (Standard) and ordered Flor Bola Mangoba (Mangoba) and RCJ Bus
Lines, Incorporated (RCJ) to pay damages.
- versus - BRION,

PERALTA,** and
The Facts
SERENO, JJ.

The appellate court narrated the facts as follows:

STANDARD INSURANCE COMPANY, Promulgated:
INCORPORATED,

Respondent.
On 01 December 2000, respondent Standard Insurance Co., Inc. (STANDARD)
August 17, 2011 filed an amended complaint against the petitioners Flor Bola Mangoba and RCJ
Bus Lines, Inc. (docketed as Civil Case No. 153566-CV before the Metropolitan
x--------------------------------------------------x Trial Court of Manila, Branch 29). Said amended complaint alleged, among others:

2. On June 19, 1994 along the National Highway at Brgy. Amlang,

Rosario, La Union, defendant Flor B. Mangoba while driving [sic]
DECISION an RCJ HINO BLUE RIBBON PASSENGER BUS bearing Plate
No. NYG-363 in a reckless and imprudent manner, bumped and
hit a 1991 Mitsubishi Lancer GLX bearing Plate No. TAJ-796, a
photocopy of the police report is attached hereto and made an
integral part hereof as Annex A.
CARPIO, J.:
3. The subject Mitsubishi Lancer which is owned
by Rodelene Valentino was insured for loss and damage with
plaintiff [Standard Insurance Co. Inc.] for P450,000.00, a
photocopy of the insurance policy is attached hereto and made an
integral part hereof as Annex B.
9. As a consequence, plaintiff [Standard Insurance Co. Inc.] has
been compelled to resort to court action and thereby hire the
services of counsel as well as incur expenses of litigation for all of
which it should be indemnified by the defendant in the amount of
at least P30,000.00.

4. Defendant RCJ Bus Lines, Inc. is the registered owner of the 10. In order that it may serve as a deterrent for others and by way
Passenger Bus bearing Plate No. NYG-363 while of example for the public good, defendants should be adjudged to
defendant Flor Mangoba was the driver of the subject Passenger pay plaintiff [Standard Insurance Co. Inc.] exemplary damages in
Bus when the accident took place. the amount of P20,000.00.

5. As a direct and proximate cause of the vehicular accident, the Thus, STANDARD prayed:
Mitsubishi Lancer was extensively damaged, the costs of repairs
of which were borne by the plaintiff [Standard Insurance Co. Inc.]
at a cost of P162,151.22.
WHEREFORE, plaintiff respectfully prays that after due trial on the
issues, this court render judgment against the defendants
adjudging them jointly and severally liable to pay plaintiff the
6. By virtue of the insurance contract, plaintiff [Standard Insurance following amounts:
Co. Inc.] paid Rodelene Valentino the amount of P162,151.22 for
the repair of the Mitsubishi Lancer car.

1. The principal claim of P162,151.22 with interest at 12% per

annum from September 1, 1995 until fully paid.
7. After plaintiff [Standard Insurance Co. Inc.] has complied with its
obligation under the policy mentioned above, plaintiffs assured
executed in plaintiffs favor a Release of Claim thereby subrogating
the latter to all his rights of recovery on all claims, demands and
2. P30,000.00 as and by way of indemnification for attorneys fees.
rights of action on account of loss, damage or injury as a
consequence of the accident from any person liable therefor.

3. P25,000.00 as exemplary damages.

8. Despite demands, defendants have failed and refused and still
continue to fail and refuse to reimburse plaintiff the sum
of P162,151.22. A photocopy of the demand letter is attached
hereto and made an integral part hereof as Annex C. Plaintiff prays for such further or other reliefs as may be deemed
just and equitable under the premises.

In its answer, RCJ Bus Lines, Inc. maintained:
1. That the complaint states no cause of action against it;
2. That venue was improperly laid; and,
3. That the direct, immediate and proximate cause of the accident
was the negligence of the driver of the Mitsubishi Lancer when, for
no reason at all, it made a sudden stop along the National
Highway, as if to initiate and/or create an accident.
Flor Bola Mangoba, in his own answer to the complaint, also pointed his finger at
the driver of the Mitsubishi Lancer as the one who caused the vehicular accident
on the time, date and place in question.
For his failure to appear at the pre-trial despite notice, Flor Bola Mangoba was
declared in default on 14 November 1997. Accordingly, trial proceeded sans his
participation.
At the trial, the evidence adduced by the parties established the following facts:
In the evening of 19 June 1994, at around 7:00 oclock, a Toyota
Corolla with Plate No. PHU-185 driven by Rodel Chua, cruised
along the National Highway at Barangay Amlang, Rosario, La
Union, heading towards the general direction of Bauan, La Union.
The Toyota Corolla travelled at a speed of 50 kilometers per hour
as it traversed the downward slope of the road, which curved
towards the right.
The Mitsubishi Lancer GLX with Plate No. TAJ-796, driven
by Teodoro Goki, and owned by Rodelene Valentino, was then
following the Toyota Corolla along the said highway. Behind the
Mitsubishi Lancer GLX was the passenger bus with Plate
No. NYG-363, driven by Flor Bola Mangoba and owned by RCJ
Bus Lines, Inc. The bus followed the Mitsubishi Lancer GLX at a
distance of ten (10) meters and traveled at the speed of 60 to 75
kilometers per hour.
Upon seeing a pile of gravel and sand on the road, the Toyota
Corolla stopped on its tracks. The Mitsubishi Lancer followed suit
and also halted. At this point, the bus hit and bumped the rear
portion of the Mitsubishi Lancer causing it to move forward and hit
the Toyota Corolla in front of it.
As a result of the incident, the Mitsubishi Lancer sustained
damages amounting to P162,151.22, representing the costs of its
repairs. Under the comprehensive insurance policy secured
by Rodelene Valentino, owner of the Mitsubishi Lancer,
STANDARD reimbursed to the former the amount she expended
for the repairs of her vehicle. Rodelene then executed a Release
of Claim and Subrogation Receipt, subrogating STANDARD to all
rights, claims and actions she may have against RCJ Bus Lines,
Inc. and its driver, Flor Bola Mangoba.6
The MeTCs Ruling
On 12 July 2000, the MeTC rendered its decision in favor of Standard, the
dispositive portion of which reads:
WHEREFORE, consistent with Section 1, Rule 131 and Section 1, Rule 133 of the
Revised Rules on Evidence, judgment is hereby rendered in favor of the plaintiff,
ordering defendants Flor Bola Mangoba and RCJ Bus Lines, Inc.:
1. To pay the principal sum of ONE HUNDRED SIXTY TWO THOUSAND ONE
HUNDRED FIFTY ONE PESOS and 22/100 (P162,151.22), with legal rate of
interest at 12% per annum from September 1, 1995 until full payment;
2. To pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as exemplary
damages;
3. To pay the sum of TWENTY THOUSAND PESOS (P20,000.00) as reasonable
attorneys fees; and
4. To pay the costs of suit.
For want of merit, the separate Counterclaim is hereby DISMISSED.7
In an Order8 dated 2 May 2002, the RTC dismissed Mangoba and RCJs appeal for
filing their pleading beyond the reglementary period. The appellate court, however,
in a Decision9 in CA-G.R. SP No. 77598 dated 23 April 2004, granted RCJs
petition and remanded the case to the RTC for further proceedings.
The RTCs Ruling
In its Decision dated 27 May 2008, the RTC affirmed with modification
the MeTCs Decision dated 12 July 2000. The RTC deleted the award for
exemplary damages.
RCJ failed to convince the RTC that it observed the diligence of a good father of a
family to prevent damages sustained by the Mitsubishi Lancer. The RTC ruled that
the testimony of Conrado Magno, RCJs Operations Manager, who declared that all
applicants for employment in RCJ were required to submit clearances from
the barangay, the courts and the National Bureau of Investigation, is insufficient to
show that RCJ exercised due diligence in the selection and supervision of its
drivers. The allegation of the conduct of seminars and training for RCJs drivers is
not proof that RCJ examined Mangobas qualifications, experience and driving
history. Moreover, the testimony of Noel Oalog, the bus conductor, confirmed that
the bus was travelling at a speed of 60 to 75 kilometers per hour, which was
beyond the maximum allowable speed of 50 kilometers per hour for a bus on an
open country road. The RTC, however, deleted the award of exemplary damages
because it found no evidence that Mangoba acted with gross negligence.
In an Order10 dated 27 August 2008, the RTC partially reconsidered its 27 May
2008 Decision and modified the MeTCs Decision to read as follows:
WHEREFORE, the Decision dated May 27, 2008 is partially reconsidered and the
Decision of the court a quo dated July 12, 2000 is MODIFIED. Appellant RCJ Bus
Lines, Inc. and defendant Flor Bola Mangoba are ordered to pay jointly and
severally the appellee [Standard Insurance Co., Inc.] the following:
 imposed on the actual damages awarded in favor of respondent Standard
Insurance, Co., Inc. should be at the rate of 6% per annum computed from the
time of extra judicial demand until the finality of the 12 July 2000 Decision of
the MeTC and thereafter, the legal interest shall be at the rate of 12% per annum
until the full payment of the actual damages. The award of attorneys fees is
1. ONE HUNDRED SIXTY TWO THOUSAND ONE FIFTY ONE PESOS and
DELETED.
22/100 (P162,151.22), with legal rate of interest at 6% per annum from September
1, 1995 until full payment;

SO ORDERED.12
2. TWENTY THOUSAND PESOS (P20,000.00) as reasonable attorneys fees; and

3. Cost of suit.
The appellate court denied RCJs Motion for Reconsideration 13 for lack of merit.14

The Issues
SO ORDERED.11

The Appellate Courts Ruling

RCJ assigns the following as errors of the appellate court:

Mangoba and RCJ filed a petition for review before the appellate court. The
appellate court found that the RTC committed no reversible error in affirming RCJs
liability as registered owner of the bus and employer of Mangoba, as well
as Mangobas negligence in driving the passenger bus. The appellate court,
however, deleted the award for attorneys fees and modified the legal interest
imposed by the MeTC.
1. The Court of Appeals erroneously awarded the amount
of P162,151.22 representing actual damages based merely on the proof of
payment of policy/insurance claim and not on an official receipt of payment of
actual cost of repair;

2. The Court of Appeals erroneously disregarded the point that petitioner RCJs
The dispositive portion of the appellate courts decision reads: defense of extraordinary diligence in the selection and supervision of its driver was
made as an alternative defense;

WHEREFORE, the instant petition for review is DENIED. The assailed Decision of
the Regional Trial Court of Manila, Branch 37, in Civil Case No. 00-99410 is
hereby AFFIRMED with MODIFICATION that the legal interest that should be
3. The Court of Appeals erroneously disregarded the legal principle that the
supposed violation of Sec. 35 of R.A. 4136 merely results in
a disputable presumption; and
4. The Court of Appeals erroneously held that petitioner RCJ is vicariously liable
for the claim of supposed actual damages incurred by respondent Standard
Insurance.15
The Courts Ruling
The petition has no merit. We see no reason to overturn the findings of the lower
courts. We affirm the ruling of the appellate court.
RCJs Liability
RCJ argues that its defense of extraordinary diligence in the selection and
supervision of its employees is a mere alternative defense. RCJs initial claim was
that Standards complaint failed to state a cause of action against RCJ.
Standard may hold RCJ liable for two reasons, both of which rely upon facts
uncontroverted by RCJ. One, RCJ is the registered owner of the bus driven
by Mangoba. Two, RCJ is Mangobas employer.
Standards allegation in its amended complaint that RCJ is the registered owner of
the passenger bus with plate number NYG 363 was sufficient to state a cause of
action against RCJ. The registered owner of a vehicle should be primarily
responsible to the public for injuries caused while the vehicle is in use. 16 The main
aim of motor vehicle registration is to identify the owner so that if any accident
happens, or that any damage or injury is caused by the vehicle on the public
highways, responsibility therefor can be fixed on a definite individual, the
registered owner.17
Moreover, in its efforts to extricate itself from liability, RCJ proffered the defense of
the exercise of the diligence of a good father of a family. The MeTC characterized
RCJs defense against negligence in this manner:
To repel the idea of negligence, defendant [RCJ] bus companys operations
manager at the Laoag City Terminal was presented on the witness stand on
January 5, 2000 in regard to the companys seminars and dialogues with respect to
its employees, and the absence of any record of a vehicular accident involving the
co-defendant driver [Mangoba] (TSN, January 5, 2000, pp. 2-17; TSN, February
16, 2000, pp. 2-9). As the last witness of defendant [RCJ] bus company,
Noel Oalog, bus conductor who was allegedly seated to the right side of the bus
driver during the incident, was presented on March 22, 2000 (TSN, March 22,
2000, page 2). He confirmed on direct examination and cross examination that it
was defendants bus, then running at 60-75 [kph] and at a distance of 10 meters,
which bumped a Mitsubishi Lancer without a tail light. According to him, the
incident occurred when the driver of the Toyota Corolla, which was ahead of the
Lancer, stepped on the brakes due to the pile of gravel and sand in sight
(TSN, Vide at pp. 3-11). Subsequent to the proffer of exhibits (TSN, Vide, at page
14), and in default of any rebuttal, the parties were directed to file the Memoranda
within thirty days from March 23, 2000.18
RCJ, by presenting witnesses to testify on its exercise of diligence of a good father
of a family in the selection and supervision of its bus drivers, admitted
that Mangoba is its employee. Article 218019 of the Civil Code, in relation to Article
2176,20 makes the employer vicariously liable for the acts of its employees. When
the employee causes damage due to his own negligence while performing his own
duties, there arises the juris tantum presumption that the employer is negligent,
rebuttable only by proof of observance of the diligence of a good father of a
family. For failure to rebut such legal presumption of negligence in the selection
and supervision of employees, the employer is likewise responsible for damages,
the basis of the liability being the relationship of pater familias or on the employers
own negligence.21 Article 2207 of the Civil Code reads:

Mangoba, per testimony of his conductor, was ten meters away from the Mitsubishi
Lancer before the collision and was driving 60 to 75 kilometers per hour when the
speed limit was 50 kilometers per hour.22 The presumption under Article 218523 of
the Civil Code was thus proven true: Mangoba, as driver of the bus which collided
with the Mitsubishi Lancer, was negligent since he violated a traffic regulation at
the time of the mishap. We see no reason to depart from the findings of the MeTC,
RTC and appellate court that Mangoba was negligent. The appellate court stated:
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.

To be sure, had not the passenger bus been speeding while traversing the
downward sloping road, it would not have hit and bumped the Mitsubishi Lancer in
front of it, causing the latter vehicle to move forward and hit and bump, in turn, the
Toyota Corolla. Had the bus been moving at a reasonable speed, it could have
avoided hitting and bumping the Mitsubishi Lancer upon spotting the same, taking
into account that the distance between the two vehicles was ten (10) meters. As
fittingly opined by the MeTC, the driver of the passenger bus, being the rear
vehicle, had full control of the situation as he was in a position to observe the
vehicle in front of him. Had he observed the diligence required under the
circumstances, the accident would not have occurred. 24
Subrogation is the substitution of one person by another with reference to a lawful
claim or right, so that he who substitutes another 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 who 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.26
WHEREFORE, we DENY the petition. We AFFIRM the Decision of the Court of
Appeals in CA-G.R. SP No. 105338 promulgated on 11 March 2010 as well as the
Resolution promulgated on 3 September 2010.

Subrogation

SO ORDERED.

In the present case, it cannot be denied that the Mitsubishi Lancer sustained
damages. Moreover, it cannot also be denied that Standard
paid Rodelene Valentino P162,151.22 for the repair of the Mitsubishi Lancer
pursuant to a Release of Claim and Subrogation Receipt. Neither RCJ
nor Mangoba cross-examined Standards claims evaluator when he testified on his
duties, the insurance contract between Rodelene Valentino and Standard,
Standards payment of insurance proceeds, and RCJ and Mangobas refusal to pay
despite demands. After being lackadaisical during trial, RCJ cannot escape liability
now. Standards right of subrogation accrues simply upon its payment of the
insurance claim.25
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.
Aquino and Associates for petitioner.
Public Attorney's Office for private respondent.
NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a restraining order
and preliminary mandatory injunction to annul and set aside the decision of the
Court of Appeals dated July 11, 1991, 1 affirming the decision dated March 20,
1990 of the Insurance Commission 2 in ordering petitioner Finman General
Assurance Corporation to pay private respondent Julia Surposa the proceeds of
the personal accident Insurance policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie Surposa was
insured with petitioner Finman General Assurance Corporation under Finman
General Teachers Protection Plan Master Policy No. 2005 and Individual Policy
No. 08924 with his parents, spouses Julia and Carlos Surposa, and brothers
Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as
beneficiaries. 3
While said insurance policy was in full force and effect, the insured, Carlie
Surposa, died on October 18, 1988 as a result of a stab wound inflicted by one of
the three (3) unidentified men without provocation and warning on the part of the
former as he and his cousin, Winston Surposa, were waiting for a ride on their way
home along Rizal-Locsin Streets, Bacolod City after attending the celebration of
the "Maskarra Annual Festival."
Thereafter, private respondent and the other beneficiaries of said insurance policy
filed a written notice of claim with the petitioner insurance company which denied
said claim contending that murder and assault are not within the scope of the
coverage of the insurance policy.
On February 24, 1989, private respondent filed a complaint with the Insurance
Commission which subsequently rendered a decision, the pertinent portion of
which reads:
In the light of the foregoing. we find respondent liable to pay
complainant the sum of P15,000.00 representing the proceeds of
the policy with interest. As no evidence was submitted to prove the
claim for mortuary aid in the sum of P1,000.00, the same cannot
be entertained.
WHEREFORE, judgment is hereby rendered ordering respondent
to pay complainant the sum of P15,000.00 with legal interest from
the date of the filing of the complaint until fully satisfied. With
costs. 4
On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion on the part of
the appellate court in applying the principle of "expresso unius exclusio alterius" in
a personal accident insurance policy since death resulting from murder and/or
assault are impliedly excluded in said insurance policy considering that the cause
of death of the insured was not accidental but rather a deliberate and intentional
act of the assailant in killing the former as indicated by the location of the lone stab
wound on the insured. Therefore, said death was committed with deliberate intent
which, by the very nature of a personal accident insurance policy, cannot be
indemnified.
We do not agree.
The terms "accident" and "accidental" as used in insurance
contracts have not acquired any technical meaning, and are
construed by the courts in their ordinary and common acceptation.
Thus, the terms have been taken to mean that which happen by
chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event
that takes place without one's foresight or expectation — an event
that proceeds from an unknown cause, or is an unusual effect of a
known cause and, therefore, not expected.
 . . . The generally accepted rule is that, death or injury does not inevitably to the conclusion that it did not intend to limit or exempt itself from
result from accident or accidental means within the terms of an liability for such death.
accident-policy if it is the natural result of the insured's voluntary
act, unaccompanied by anything unforeseen except the death or Article 1377 of the Civil Code of the Philippines provides that:
injury. There is no accident when a deliberate act is performed
unless some additional, unexpected, independent, and unforeseen
The interpretation of obscure words or stipulations in a contract
happening occurs which produces or brings about the result of
shall not favor the party who caused the obscurity.
injury or death. In other words, where the death or injury is not the
natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which Moreover,
produces the injury, the resulting death is within the protection of
the policies insuring against death or injury from accident. 5 it is well settled that contracts of insurance are to be construed
liberally in favor of the insured and strictly against the insurer.
As correctly pointed out by the respondent appellate court in its decision: Thus ambiguity in the words of an insurance contract should be
interpreted in favor of its beneficiary. 7
In the case at bar, it cannot be pretended that Carlie Surposa died
in the course of an assault or murder as a result of his voluntary WHEREFORE, finding no irreversible error in the decision of the respondent Court
act considering the very nature of these crimes. In the first place, of Appeals, the petition for certiorari with restraining order and preliminary
the insured and his companion were on their way home from injunction is hereby DENIED for lack of merit.
attending a festival. They were confronted by unidentified persons.
The record is barren of any circumstance showing how the stab SO ORDERED.
wound was inflicted. Nor can it be pretended that the malefactor
aimed at the insured precisely because the killer wanted to take Narvasa, C.J., Padilla, Regalado and Melo, JJ., concur.
his life. In any event, while the act may not exempt the unknown
perpetrator from criminal liability, the fact remains that the
happening was a pure accident on the part of the victim. The
insured died from an event that took place without his foresight or
expectation, an event that proceeded from an unusual effect of a
known cause and, therefore, not expected. Neither can it be said
that where was a capricious desire on the part of the accused to
expose his life to danger considering that he was just going home
after attending a festival. 6

Furthermore, the personal accident insurance policy involved herein specifically

enumerated only ten (10) circumstances wherein no liability attaches to petitioner
insurance company for any injury, disability or loss suffered by the insured as a
result of any of the stimulated causes. The principle of " expresso unius exclusio
alterius" — the mention of one thing implies the exclusion of another thing — is
therefore applicable in the instant case since murder and assault, not having been
expressly included in the enumeration of the circumstances that would negate
liability in said insurance policy cannot be considered by implication to discharge
the petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance company to
include death resulting from murder or assault among the prohibited risks leads
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 78848 November 14, 1988
SHERMAN SHAFER, petitioner,
vs.
HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY, BRANCH 75,
and MAKATI INSURANCE COMPANY, INC., respondents.
R.M. Blanco for petitioner.
Camacho and Associates for respondents.
PADILLA, J.:
This is a petition for review on certiorari of the Order * of the Regional Trial Court,
Olongapo City, Branch 75, dated 24 April 1986 dismissing petitioner's third party
complaint filed in Criminal Case No. 381-85, a prosecution for reckless imprudence
resulting in damage to property and serious physical injuries.1
On 2 January 1985, petitioner Sherman Shafer obtained a private car policy, GA
No. 0889, 2 over his Ford Laser car with Plate No. CFN-361 from Makati Insurance
Company, Inc., for third party liability (TPL).<äre||anº•1àw> During the effectivity of
the policy, an information 3 for reckless imprudence resulting in damage to property
and serious physical injuries was filed against petitioner. The information reads as
follows:
That on or about the seventeeth (17th) day of May 1985, in the
City of Olongapo, Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused, being then the driver
and in actual physical control of a Ford Laser car bearing Plate
No. CFN-361, did then and there wilfully, unlawfully and criminally
drive, operate and manage the said Ford Laser car in a careless,
reckless and imprudent manner without exercising reasonable
caution, diligence and due care to avoid accident to persons and
damage to property and in disregard of existing traffic rules and
regulations, causing by such carelessness, recklessness and
imprudence the said Ford Laser car to hit and bump a Volkswagen
car bearing Plate No. NJE-338 owned and driven by Felino llano y
Legaspi, thereby causing damage in the total amount of
P12,345.00 Pesos, Philippine Currency, and as a result thereof
one Jovencio Poblete, Sr. who was on board of the said
Volkswagen car sustained physical injuries, to wit:
1. 2 cm. laceration of left side of tongue.
2. 6 cm. laceration with partial transection of muscle (almost full
thickness) left side of face.
3. Full thickness laceration of lower lip and adjacent skin.
which injuries causing [sic] deformity on the face. 4
The owner of the damaged Volkswagen car filed a separate civil action against
petitioner for damages, while Jovencio Poblete, Sr., who was a passenger in the
Volkswagen car when allegedly hit and bumped by the car driven by petitioner, did
not reserve his right to file a separate civil action for damages. Instead, in the
course of the trial in the criminal case, Poblete, Sr. testified on his claim for
damages for the serious physical injuries which he claimed to have sustained as a
result of the accident.
Upon motion, petitioner was granted leave by the former presiding judge of the trail
court to file a third party complaint against the herein private respondent, Makati
Insurance Company, Inc. Said insurance company, however, moved to vacate the
order granting leave to petitioner to file a third party complaint against it and/or to
dismiss the same. 5
On 24 April 1987, the court a quo issued an order dismissing the third party
complaint on the ground that it was premature, based on the premise that unless
the accused (herein petitioner) is found guilty and sentenced to pay the offended
party (Poblete Sr.) indemnity or damages, the third party complaint is without
cause of action. The court further stated that the better procedure is for the
accused (petitioner) to wait for the outcome of the criminal aspect of the case to
determine whether or not the accused, also the third party plaintiff, has a cause of
action against the third party defendant for the enforcement of its third party liability
(TPL) under the insurance contract.6Petitioner moved for reconsideration of said
order, but the motion was denied; 7 hence, this petition.
It is the contention of herein petitioner that the dismissal of the third party
complaint amounts to a denial or curtailment of his right to defend himself in the
civil aspect of the case. Petitioner further raises the legal question of whether the
accused in a criminal action for reckless imprudence, where the civil action is
jointly prosecuted, can legally implead the insurance company as third party
defendant under its private car insurance policy, as one of his modes of defense in
the civil aspect of said proceedings.
On the other hand, the insurance company submits that a third party complaint is,
under the rules, available only if the defendant has a right to demand contribution,
indemnity, subrogation or any other relief in respect of plaintiff's claim, to minimize
the number of lawsuits and avoid the necessity of bringing two (2) or more suits
involving the same subject matter. The insurance company further contends that
the contract of motor vehicle insurance, the damages and attorney's fees claimed
by accused/third party plaintiff are matters entirely different from his criminal
liability in the reckless imprudence case, and that petitioner has no cause of action
against the insurer until petitioner's liability shall have been determined by final
judgment, as stipulated in the contract of insurance. 8
Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is
primarily intended to provide compensation for the death or bodily injuries suffered
by innocent third parties or passengers as a result of a negligent operation and use
of motor vehicles.9 The victims and/or their dependents are assured of immediate
financial assistance, regardless of the financial capacity of motor vehicle owners.
The liability of the insurance company under the Compulsory Motor Vehicle
Liability Insurance is for loss or damage. Where an insurance policy insures
directly against liability, the insurer's liability accrues immediately upon the
occurrence of the injury or event upon which the liability depends, and does not
depend on the recovery of judgment by the injured party against the insured. 10
The injured for whom the contract of insurance is intended can sue directly the
insurer. The general purpose of statutes enabling an injured person to proceed
directly against the insurer is to protect injured persons against the insolvency of
the insured who causes such injury, and to give such injured person a certain
beneficial interest in the proceeds of the policy, and statutes are to be liberally
construed so that their intended purpose may be accomplished. It has even been
held that such a provision creates a contractual relation which inures to the benefit
of any and every person who may be negligently injured by the named insured as
if such injured person were specifically named in the policy. 11
In the event that the injured fails or refuses to include the insurer as party
defendant in his claim for indemnity against the insured, the latter is not prevented
by law to avail of the procedural rules intended to avoid multiplicity of suits. Not
even a "no action" clause under the policy-which requires that a final judgment be
first obtained against the insured and that only thereafter can the person insured
recover on the policy can prevail over the Rules of Court provisions aimed at
avoiding multiplicity of suits. 12
In the instant case, the court a quo erred in dismissing petitioner's third party
complaint on the ground that petitioner had no cause of action yet against the
insurance company (third party defendant). There is no need on the part of the
insured to wait for the decision of the trial court finding him guilty of reckless
imprudence. The occurrence of the injury to the third party immediately gave rise
to the liability of the insurer under its policy.
A third party complaint is a device allowed by the rules of procedure by which the
defendant can bring into the original suit a party against whom he will have a claim
for indemnity or remuneration as a result of a liability established against him in the
original suit.13 Third party complaints are allowed to minimize the number of
lawsuits and avoid the necessity of bringing two (2) or more actions involving the
same subject matter. They are predicated on the need for expediency and the
avoidance of unnecessary lawsuits. If it appears probable that a second action will
result if the plaintiff prevails, and that this result can be avoided by allowing the
third party complaint to remain, then the motion to dismiss the third party complaint
should be denied. 14
Respondent insurance company's contention that the third party complaint involves
extraneous matter which will only clutter, complicate and delay the criminal case is
without merit. An offense causes two (2) classes of injuries the first is the social
injury produced by the criminal act which is sought to be repaired thru the
imposition of the corresponding penalty, and the second is the personal injury
caused to the victim of the crime, which injury is sought to be compensated thru
indemnity, which is civil in nature. 15
In the instant case, the civil aspect of the offense charged, i.e., serious physical
injuries allegedly suffered by Jovencio Poblete, Sr., was impliedly instituted with
the criminal case. Petitioner may thus raise all defenses available to him insofar as
the criminal and civil aspects of the case are concerned. The claim of petitioner for
payment of indemnity to the injured third party, under the insurance policy, for the
alleged bodily injuries caused to said third party, arose from the offense charged in
the criminal case, from which the injured (Jovencio Poblete, Sr.) has sought to
recover civil damages. Hence, such claim of petitioner against the insurance
company cannot be regarded as not related to the criminal action.
WHEREFORE, the instant petition is GRANTED. The questioned order dated 24
April 1987 is SET ASIDE and a new one entered admitting petitioner's third party
complaint against the private respondent Makati Insurance Company, Inc.
SO ORDERED.
Lessons Applicable: Authority to Receive Payment/Effect of Payment
(Insurance)
Laws Applicable: Article 64, Article 65, Section 77, Section 306 of the
Insurance Code
FACTS:
 June 7, 1981: Malayan insurance co., inc. (MICO) issued to Coronacion
Pinca, Fire Insurance Policy for her property effective July 22, 1981, until
July 22, 1982
 October 15,1981: MICO allegedly cancelled the policy for non-payment, of
the premium and sent the corresponding notice to Pinca
 December 24, 1981: payment of the premium for Pinca was received by
Domingo Adora, agent of MICO
 January 15, 1982: Adora remitted this payment to MICO,together with
other payments
 January 18, 1982: Pinca's property was completely burned
 February 5, 1982: Pinca's payment was returned by MICO to Adora on the
ground that her policy had been cancelled earlier but Adora refused to
accept it and instead demanded for payment
 Under Section 416 of the Insurance Code, the period for appeal is thirty
days from notice of the decision of the Insurance Commission. The
petitioner filed its motion for reconsideration on April 25, 1981, or fifteen
days such notice, and the reglementary period began to run again after
June 13, 1981, date of its receipt of notice of the denial of the said motion
for reconsideration. As the herein petition was filed on July 2, 1981, or
nineteen days later, there is no question that it is tardy by four days.
 Insurance Commission: favored Pinca
 MICO appealed
ISSUE: W/N MICO should be liable because its agent Adora was authorized to
receive it
HELD: YES. petition is DENIED
 SEC. 77. An insurer is entitled to payment of the premium as soon as the
thing is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.
 SEC. 306. xxx xxx xxx
Any insurance company which delivers to an insurance agant or insurance
broker a policy or contract of insurance shall be demmed to have authorized
such agent or broker to receive on its behalf payment of any premium which is
due on such policy or contract of insurance at the time of its issuance or
delivery or which becomes due thereon.
 Payment to an agent having authority to receive or collect payment is
equivalent to payment to the principal himself; such payment is complete
when the money delivered is into the agent's hands and is a discharge of
the indebtedness owing to the principal.
 SEC. 64. No policy of insurance other than life shall be cancelled by the
insurer except upon prior notice thereof to the insured, and no notice of
cancellation shall be effective unless it is based on the occurrence, after
the effective date of the policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured
against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the hazard
insured against;
(e) physical changes in the property insured which result in the property
becoming uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy
would violate or would place the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:
 SEC. 65. All notices of cancellation mentioned in the preceding section
shall be in writing, mailed or delivered to the named insured at the address
shown in the policy, and shall state (a) which of the grounds set forth in
section sixty-four is relied upon and (b) that, upon written request of the
named insured, the insurer will furnish the facts on which the cancellation
is based.
 A valid cancellation must, therefore, require concurrence of the following
conditions:
(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the effective date of
the policy, of one or more of the grounds mentioned;

(3) The notice must be (a) in writing, (b) mailed, or delivered to the named
insured, (c) at the address shown in the policy;

(4) It must state (a) which of the grounds mentioned in Section 64 is relied
upon and (b) that upon written request of the insured, the insurer will furnish
the facts on which the cancellation is based.
 All MICO's offers to show that the cancellation was communicated to the
insured is its employee's testimony that the said cancellation was sent "by
mail through our mailing section." without more
 It stands to reason that if Pinca had really received the said notice, she
would not have made payment on the original policy on December 24,
1981. Instead, she would have asked for a new insurance, effective on that
date and until one year later, and so taken advantage of the extended
period.
 Incidentally, Adora had not been informed of the cancellation either and
saw no reason not to accept the said payment
 Although Pinca's payment was remitted to MICO's by its agent on January
15, 1982, MICO sought to return it to Adora only on February 5, 1982, after
it presumably had learned of the occurrence of the loss insured against on
January 18, 1982 make the motives of MICO highly suspicious