Insurance – August 2, 2019

1. SPS. NILO AND STELLA CHA VS. CA

FACTS: Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS
Development Corporation, as lessor, on 5 October 1988. One of the stipulations of the 1 year
lease contract states that “The LESSEE shall not insure against fire the chattels, merchandise,
textiles, goods and effects placed at any stall
or store or space in the leased premises without first obtaining the written consent and
approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of
the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own
benefit” Notwithstanding the above stipulation in the lease contract, the Cha spouses insured
against loss by fire their merchandise inside the leased premises for P500,000.00 with the
United Insurance Co., Inc. without the written consent of CKS. On the day that the lease
contract was to expire, fire broke out inside the leased premises. When CKS learned of the
insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer
(United) a demand letter asking
that the proceeds of the insurance contract (between the Cha spouses and United) be paid
directly to CKS, based on its lease contract with the Cha spouses. United refused to pay CKS.
Hence, the latter filed a complaint against the Cha spouses and United. On 2 June 1992, the
Regional Trial Court, Branch 6, Manila, rendered a decision ordering United to pay CKS the
amount of P335,063.11 and the Cha spouses to pay P50,000.00 as exemplary damages,
P20,000.00 as attorney’s fees and costs of suit. On appeal, the Court of Appeals in CA GR CV
39328 rendered a decision dated 11 January 1996, affirming the trial court decision, deleting
however the awards for exemplary damages and attorney’s fees. A motion for reconsideration
by
United was denied on 29 March 1996. The spouses Cha and United filed the petition for
review on certiorari.

ISSUE: Whether or not the CKS has insurable interest because the spouses Cha violated the
stipulation on the lease contract.

RULING: NO.

Awarding the proceeds to spouses Cha.

Under Sec. 18 of the Insurance Code of the Philippines which provides that “No contract or
policy of insurance on property shall be enforceable except for the benefit of some person
having an insurable interest in the property insured”.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over
their merchandise is primarily a contract of indemnity. Insurable interest in the property
insured must exist a t the time the insurance takes effect and at the time the loss occurs. The
basis of such requirement of insurable interest in property insured is based on sound public
policy: to prevent a person from taking out an insurance policy on property upon which he has
no insurable interest and collecting the proceeds of said policy in case of loss of the property.
In such a case, the contract of insurance is a mere wager which is void under Section 25 of the
Insurance Code.

In Sec. 25 of the same Code states, “Every stipulation in a policy of Insurance for the payment
of loss, whether the person insured has or has not any interest in the property insured, or that
the policy shall be received as proof of such interest, and every policy executed by way of
gaming or wagering, is void”.

Also under Sec. 17 of the same Code provides that the measure of an insurable interest in
property is the extent to which the insured might be damnified by loss of injury thereof.

Hence, the automatic assignment of the policy to CKS under the provision of the lease contract
previously quoted is void for being contrary to law and/or public policy. The proceeds of the
fire insurance policy thus rightfully belong to the spouses. The liability of the Cha spouses to
CKS for violating their lease contract in that Cha spouses obtained a fire insurance policy over
their own merchandise, without the consent of CKS, is a separate and distinct issue which we
do not resolve in this case.

2. Great Pacific Life Insurance v. CA

FACTS: There was an existing group life insurance executed between Great Pacific Life
Assurance (Grepalife) and the Development Bank of the Philippines (DBP). Grepalife agreed to
insure the lives of eligible housing loan mortgagors of DBP. In November 1983, Wilfredo
Leuterio, mortgagor of DBP applied to be a member of the group life insurance. He filled out a
form where he indicated he never consulted any physician regarding any illness (heart
condition etc) and that he is in good health. He was eventually included in the group life
insurance and he was covered for the amount of his indebtedness (P86,200.00).
In August 1984, Wilfredo died. DBP submitted a death claim but it was denied by Grepalife as
it insisted that Wilfredo actually concealed that he was suffering from hypertension at the
time of his insurance application. Grepalife relied on the statement made by the doctor who
issued Wilfredo’s death certificate wherein it was stated that Wilfredo’s immediate cause of
death was massive cerebral hemorrhage secondary to hypertension or hypertension as a
“possible cause of death”.
Since Grepalife refused to pay the insurance claim filed by DBP, Medarda Leuterio (widow)
sued Grepalife. Grepalife assailed the suit and insisted that Medarda is not a proper party in
interest. The lower court ruled in favor of Medarda and the court ordered Grepalife to pay the
amount of the insurance to DBP. The Court of Appeals affirmed this decision in 1993. Grepalife
appealed to the Supreme Court. In 1995, pending resolution of the case in the SC, DBP
foreclosed the property of Medarda.

ISSUES and RULINGS:

A.) Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a
group life insurance contract from a complaint filed by the widow of the decedent/mortgagor?
No. The rationale of a group insurance policy of mortgagors, otherwise known as the
"mortgage redemption insurance," is a device for the protection of both the mortgagee and
the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that
in the event of the unexpected demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance will be applied to the payment of the
mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. In a
similar vein, ample protection is given to the mortgagor under such a concept so that in the
event of death; the mortgage obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness. Consequently, where the mortgagor pays
the insurance premium under the group insurance policy, making the loss payable to the
mortgagee, the insurance is on the mortgagor's interest, and the mortgagor continues to be a
party to the contract. In this type of policy insurance, the mortgagee is simply an appointee of
the insurance fund, such loss-payable clause does not make the mortgagee a party to the
contract. And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such person may
recover it whatever the insured might have recovered, the widow of the decedent Dr.
Leuterio may file the suit against the insurer, Grepalife.
B.) Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had
hypertension, which would vitiate the insurance contract?
No. Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which
might have caused his death. Concealment exists where the assured had knowledge of a fact
material to the risk, and honesty, good faith, and fair dealing requires that he should
communicate it to the assured, but he designedly and intentionally withholds the same.
Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent. On the contrary the
medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the
body of the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge
of Dr. Leuterio's any previous hospital confinement. Dr. Leuterio's death certificate stated that
hypertension was only "the possible cause of death." The private respondent's statement, as
to the medical history of her husband, was due to her unreliable recollection of events. Hence,
the statement of the physician was properly considered by the trial court as hearsay. The
fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the proceeds of the
insurance.
C.) Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six
thousand, two hundred (P86,200.00) pesos without proof of the actual outstanding mortgage
payable by the mortgagor to DBP.
No. A life insurance policy is a valued policy. Unless the interest of a person insured is
susceptible of exact pecuniary measurement, the measure of indemnity under a policy of
insurance upon life or health is the sum fixed in the policy. The mortgagor paid the premium
according to the coverage of his insurance. In private respondent's memorandum, she states
that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding
loan. Considering this supervening event, the insurance proceeds shall inure to the benefit of
the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence,
it cannot collect the insurance proceeds, after it already foreclosed on the mortgage. The
proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow, herein private
respondent Medarda Leuterio.

3 – MISSING CASE - AGUISANDA

4. REGINA EDILLON v. MANILA BANKERS LIFE, COURT OF APPEALS and the CFI of RIZAL
G.R. No. L-34200, 30 September 1982, 117 SCRA 187

FACTS: In April 1969, Carmen Lapuz filled out an application form for insurance under Manila
Banker Life Assurance Corporation. She stated that her date of birth was July 11, 1904. Upon
payment of the Php 20.00 premium, she was issued the insurance policy in April 1969. In May
1969, Carmen Lapuz died in a vehicular accident. Regina Edillon, who was named a beneficiary
in the insurance policy sought to collect the insurance proceeds but Manila Banker denied the
claim. Apparently, it is a rule of the insurance company that they were not to issue insurance
policies to “persons who are under the age of sixteen (16) years of age or over the age of sixty
(60) years …” Note, that Lapuz was already 65 years old when she was applying for the
insurance policy.

ISSUE: Whether or not Edillon is entitled to the insurance claim as a beneficiary.

HELD: Yes. The age of the insured Carmen O. Lapuz was not concealed to the insurance
company. Her application for insurance coverage which was on a printed form furnished by
private respondent and which contained very few items of information clearly indicated her
age at the time of filing the same to be almost 65 years of age. Despite such information which
could hardly be overlooked in the application form, considering its prominence thereon and its
materiality to the coverage applied for, the respondent insurance corporation received her
payment of premium and issued the corresponding certificate of insurance without question.
The accident which resulted in the death of the insured, a risk covered by the policy, occurred
on May 31, 1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied for. There
was sufficient time for the private respondent to process the application and to notice that the
application was over 60 years of age and thereby cancel the policy on that ground if it was
minded to do so. If the private respondent failed to act, it is either because it was willing to
waive such disqualification; or, through the negligence or incompetence of its employees for
which it has only itself to blame, it simply overlooked such fact. Under the circumstances, the
insurance corporation is already deemed in estoppel. Its inaction to revoke the policy despite a
departure from the exclusionary condition contained in the said policy constituted a waiver of
such condition.

5. INSULAR LIFE ASSURANCE vs SERAFIN D. FELICIANO G.R. No. L-47593 September 13, 1941
FACTS:
One Evaristo Feliciano filed an application for insurance with the herein petitioner upon
the solicitation of one of its agents. Two insurance policies to the aggregate amount of
P25,000 were issued to him. Feliciano died on September 29, 1935. The defendant company
refused to pay on the ground that the policies were fraudulently obtained, the insured having
given false answers and statements in the application as well as in the medical report. The
present action was brought to recover on said policies. The lower court rendered judgment in
favor of the plaintiffs. The lower court found that at the time Feliciano filed his application and
at the time he was subjected to physical examination by the medical examiner of the herein
petitioner, he was already suffering from tuberculosis. This fact appears in the negative both in
the application and in the medical report. The lower court, after an exhaustive examination of
the conflicting testimonies, also found that Feliciano was made to sign the application and the
examiner's report in blank, and that afterwards the blank spaces therein were filled in by the
agent and the medical examiner, who made it appear therein that Feliciano was a fit subject
for insurance. The lower court also held that neither the insured nor any member of his family
concealed the real state of health of the insured. That as a matter of fact the insured, as well
as the members of his family, told the agent and the medical examiner that the applicant had
been sick and coughing for sometime and that he had also gone three times to the Santol
Sanatarium. On appeal, this finding of facts of the lower court was sustained by the Court of
Appeals. This concludes the controversy over the facts in so far as this Court is concerned.

ISSUE: WON the CA is correct in holding that an insurance company has no right to avoid a
policy where its agent knowingly and intentionally wrote down the answers in the application
differing from those made by the insured, in disregard of the exception that when the agent,
instead of serving the interests of his principal, acts in his own or another's interest and
adversely to that of his principal, the said principal is not bound by said acts of the agent?

HELD: YES! The phenomenal growth of insurance from almost nothing a hundred years
ago to its present gigantic proportion is not of the outstanding marvels of present-day
business life. It is of common knowledge that the selling of insurance today is subjected to the
whilrlwind pressure of modern salesmanship. Insurance companies send detailed instructions
to their agents to solicit and procure applications. The agents, in short, do what the company
set them to do. In the present case, the agent knew all the time the true state of health of the
insured. The insurer's medical examiner approve the application knowing full well that the
applicant was sick. The situation is one in which one of two innocent parties must bear a loss
for his reliance upon a third person. In this case, it was the insurer who gave the agent
authority to deal with the applicant. It was the one who selected the agent, thus implying that
the insured could put his trust on him. It was the one who drafted and accepted the policy and
consummated the contract. It seems reasonable that as between the two of them, the one
who employed and gave character to the third person as its agent should be the one to bear
the loss. The company received the money of the applicant as the price of the risk to be taken
by it. If the policy should be avoided, it must be because it was void from the very beginning,
and the result would be that the insurer, while it received the money, never assumed any risk.
The weight of authority is that if an agent of the insurer, after obtaining from an applicant for
insurance a correct and truthful answer to interrogatories contained in the application for
insurance, without knowledge of the applicant fills in false answers, either fraudulently or
otherwise, the insurer cannot assert the falsity of such answers as a defense to liability on the
policy, and this is true generally without regard to the subject matter of the answers or the
nature of the agent's duties or limitations on his authority, at least if not brought to the
attention of the applicant.

We have not been insensible to the appeal that the course we have followed may lead
to fraud and work hardship on insurance companies, for it would be easy for insurance agents
and applicants to insert false answers in their applicants to insert false answers in their
applications for insurance. This means that it is to the particular interest of these companies to
exercise greater care in the selection of their agents and examiners. Their protection is still in
their own hands and which may be achieved by other means. Withal, the attainment of a
common good may involve impairment and even sacrifice of beneficial interests of a particular
group, but in life, compromise is inevitable until the hour of doom strikes.

6. SUNLIFE ASSURANCE COMPANY OF CANADA vs. COURT OF APPEALS G.R. No. 105135, 22
June 1995

FACTS: Robert John Bacani procured a life insurance contract for himself from petitioner-
company, designating his mother Bernarda Bacani, herein private respondent, as the
beneficiary. He was issued a policy valued at P100,000.00 with double indemnity in case of
accidental death. Sometime after, the insured died in a plane crash. Bernarda filed a claim
with petitioner, seeking the benefits of the insurance policy taken by her son. However, said
insurance company rejected the claim on the ground that the insured did not disclose material
facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable.
Petitioner discovered that two weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was diagnosed for
renal failure. The RTC, as affirmed by the CA, this fact was concealed, as alleged by the
petitioner. But the fact that was concealed was not the cause of death of the insured and that
matters relating to the medical history of the insured is deemed to be irrelevant since
petitioner waived the medical examination prior to the approval and issuance of the insurance
policy.

ISSUE: Whether or not the concealment of such material fact, despite it not being the cause of
death of the insured, is sufficient to render the insurance contract voidable
 HELD: YES. Section 26 of the Insurance Code is explicit in requiring a party to a contract of
insurance to communicate to the other, in good faith, all facts within his knowledge which are
material to the contract and as to which he makes no warranty, and which the other has no
means of ascertaining. Anent the finding that the facts concealed had no bearing to the cause
of death of the insured, it is well settled that the insured need not die of the disease he had
failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in
forming his estimates of the risks of the proposed insurance policy or in making inquiries. The
SC, therefore, ruled that petitioner properly exercised its right to rescind the contract of
insurance by reason of the concealment employed by the insured. It must be emphasized that
rescission was exercised within the two-year contestability period as recognized in Section 48
of The Insurance Code. WHEREFORE, the petition is GRANTED and the Decision of the Court of
Appeals is REVERSED and SET ASIDE.

7. Thelma Vda. De Canilang v. CA

Facts: Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus tachycardia."
Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was found to
have "acute bronchitis."

On the next day, 4 August 1982, Canilang applied for a "non-medical" insurance policy
with Grepalife naming his wife, as his beneficiary. Canilang was issued ordinary life insurance
with the face value of P19,700.

On 5 August 1983, Canilang died of "congestive heart failure," "anemia," and "chronic
anemia." The wife as beneficiary, filed a claim with Grepalife which the insurer denied on the
ground that the insured had concealed material information from it.

Vda Canilang filed a complaint with the Insurance Commissioner against Grepalife
contending that as far as she knows her husband was not suffering from any disorder and that
he died of kidney disorder.

Grepalife was ordered to pay the widow by the Insurance Commissioner holding that
there was no intentional concealment on the Part of Canilang and that Grepalife had waived
its right to inquire into the health condition of the applicant by the issuance of the policy
despite the lack of answers to "some of the pertinent questions" in the insurance application.
CA reversed.

Issue: WON Grepalife is liable.

Held: SC took note of the fact that Canilang failed to disclose that hat he had twice consulted
Dr. Wilfredo B. Claudio who had found him to be suffering from "sinus tachycardia" and "acute
bronchitis. Under the relevant provisions of the Insurance Code, the information concealed
must be information which the concealing party knew and "ought to [have] communicate[d],"
that is to say, information which was "material to the contract.

The information which Canilang failed to disclose was material to the ability of Grepalife
to estimate the probable risk he presented as a subject of life insurance. Had Canilang
disclosed his visits to his doctor, the diagnosis made and the medicines prescribed by such
doctor, in the insurance application, it may be reasonably assumed that Grepalife would have
made further inquiries and would have probably refused to issue a non-medical insurance
policy or, at the very least, required a higher premium for the same coverage.

The materiality of the information withheld by Canilang from Grepalife did not depend
upon the state of mind of Jaime Canilang. A man's state of mind or subjective belief is not
capable of proof in our judicial process, except through proof of external acts or failure to act
from which inferences as to his subjective belief may be reasonably drawn. Neither does
materiality depend upon the actual or physical events which ensue. Materiality relates rather
to the "probable and reasonable influence of the facts" upon the party to whom the
communication should have been made, in assessing the risk involved in making or omitting to
make further inquiries and in accepting the application for insurance; that "probable and
reasonable influence of the facts" concealed must, of course, be determined objectively, by
the judge ultimately.

SC found it difficult to take seriously the argument that Grepalife had waived inquiry
into the concealment by issuing the insurance policy notwithstanding Canilang's failure to set
out answers to some of the questions in the insurance application. Such failure precisely
constituted concealment on the part of Canilang. Petitioner's argument, if accepted, would
obviously erase Section 27 from the Insurance Code of 1978.

8. PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA
TRINOS, respondents.

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. Under the agreement, respondent’s
husband was entitled to avail of hospitalization benefits. He answered no to the following
question in the application: Have you or any of your family members ever consulted or been
treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic
ulcer? Upon the termination of the agreement, the same was extended. During the period of
his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center
(MMC). Respondent tried to claim the benefits under the health care agreement. However,
petitioner denied her claim saying that the Health Care Agreement was void. According to
petitioner, there was a concealment regarding Ernani’s medical history. Doctors at the MMC
allegedly discovered at the time of Ernani’s confinement that he was hypertensive, diabetic
and asthmatic, contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself for P76,000.00. After being discharged he was again admitted
at the Chinese General Hospital. Due to financial difficulties, respondent brought her husband
home again. However, Respondent was constrained to bring him back to the Chinese General
Hospital where he died.

Respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for
reimbursement of her expenses against petitioner and its president, Dr. Beneto Reverente.
Lower court ruled against petitioners to pay P76,000.00 plus interest. CA affirmed the
decision. Petitioner argues that the agreement grants "living benefits, ie hospitalization which
a member may immediately enjoy so long as he is alive upon effectivity of the agreement until
its expiration. Petitioner also points out that only medical and hospitalization benefits are
given under the agreement without any indemnification, unlike in an insurance contract where
the insured is indemnified for his loss. Petitioner alleges that respondent was not the legal
wife of the deceased member considering that at the time of their marriage, the deceased was
previously married to another woman who was still alive.

Issue: Whether or not the respondent is entitled to the claimed reimbursement

Ruling: Yes. Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable interest against him,
may be insured against. Every person has an insurable interest in the life and health of
himself. Section 10 provides: Every person has an insurable interest in the life and health: (1)
of himself, of his spouse and of his children; (2) of any person on whom he depends wholly or
in part for education or support, or in whom he has a pecuniary interest; (3) of any person
under a legal obligation to him for the payment of money, respecting property or service, of
which death or illness might delay or prevent the performance; and (4) of any person upon
whose life any estate or interest vested in him depends. In the case at bar, the insurable
interest of respondent’s husband in obtaining the health care agreement was his own health.
The health care agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity. Once the member incurs hospital, medical or any other expense arising
from sickness, injury or other stipulated contingent, the health care provider must pay for the
same to the extent agreed upon under the contract.

With regard the alleged concealment of a material fact in his application. Where matters of
opinion are called for, answers made in good faith and without intent to deceive will not avoid
a policy even though they are untrue. In such case the insurer is not justified in relying upon
such statement, but is obligated to make further inquiry. This largely depends on opinion
rather than fact, especially coming from respondent’s husband who was not a medical doctor.

The fraudulent intent on the part of the insured must be established to warrant rescission of
the insurance contract. Concealment as a defense for the health care provider or insurer to
avoid liability is an affirmative defense and the duty to establish such defense by satisfactory
and convincing evidence rests upon the provider or insurer

Rescission in insurance Under Section 27 of the Insurance Code, “a concealment entitles the
injured party to rescind a contract of insurance.” The right to rescind should be exercised
previous to the commencement of an action on the contract. In this case, no rescission was
made. Elements: 1. Prior notice of cancellation to insured; 2. Notice must be based on the
occurrence after effective date of the policy of one or more of the grounds mentioned; 3.
Must be in writing, mailed or delivered to the insured at the address shown in the policy; 4.
Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based.

With regard the issue of not being the legal wife of the deceased. Since a health care
agreement is in the nature of a contract of indemnity, payment should be made to the party
who incurred the expenses. The records adequately prove the expenses incurred by
respondent for the deceased’s hospitalization. It is not controverted that respondent paid all
the hospital and medical expenses. She is therefore entitled to reimbursement.

Construction. The rule that by reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted
against the insurer and liberally in favor of the insured, especially to avoid forfeiture, is equally
applicable to Health Care Agreements.

Insurance and its elements Section 2 (1) of the Insurance Code defines a contract of insurance
as an agreement whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. An insurance contract
exists where the following elements concur: 1. The insured has an insurable interest; 2. The
insured is subject to a risk of loss by the happening of the designated peril; 3. The insurer
assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and 5. In consideration of the
insurer’s promise, the insured pays a premium.

(Sorry guys ang haba, nilagay ko na lahat about insurance since di xa under specific topic and
particular si doc sa facts.)

9. Pacific Banking Corporation vs. CA & Oriental Assurance

Facts: An open Fire Policy issued to Paramount Shirt Manufacturing for Php61,000 on the
following: stocks, materils, supplies, furniture, fixture, machinery, equipment contained on the
1st to 3rd floors. Insurance is for a year starting 21 OCTOBER 1964.

Paramount Shirt is debtor of Pacific Banking amounting to Php800,000. Goods in policy were
held in trust by Paramount for Pacific under thrust receipts. Fire broke out on 4 January 1964.

Pacific sent letter of demand to Oriental. Insurance Adjuster of Oriental notified Pacific to
submit proof of loss pursuant to Policy Condition 11. Pacific did not accede but asked
Insurance Adjuster to verify records form Bureau of Customs.

Pacific filed for sum of money against Oriental. Oriental alleged that Pacific prematurely filed a
suit, for neither filing a formal claim over loss pursuant to policy nor submitting any proof of
loss.

Trial court decided in favor of Pacific. Decision based on technicality. The defense of lack of
proof of loss and defects were raised for the 1st time. (On presentation of evidences by Pacific,
it was revealed there was violation of Condition No.3, there were undeclared co-insurances
under same property –Wellington, Empire, Asian. The only declared co-insurances were
Malayan, South Sea, and Victory)

CA reversed decision. Concealment of other co-insurances is a misrepresentation and can

easily be fraud.

Issues: (1) Whether or not unrevealed con-insurances is a violation of Policy Condition No.3
(2) Whether or not there was premature filing of action
Ruling: (1) Yes. Policy Condition 3 provides that the insured must give notice of any insurance
already in effect or subsequently be in effect covering same property being insured. Failure to
do so, the policy shall be forfeited.

Failure to reveal before the loss of the 3 other insurances is a clear misrepresentation or a
false declaration. The material fact was asked for but was not revealed. Representations of
facts are the foundations of the contract. Pacific itself provided for the evidences in trial court
that proved existence of misrepresentation.

(2) Yes. Policy Condition 11 is a sine qua non requirement for maintaining action. It requires
that documents necessary to prove and estimate the loss should be included with notice of
loss. Pacific failed to submit formal claim of loss with supporting documents but shifted the
burden to the insurance company. Failing to submit claim is failure for insurance company to
reject claim. Thus, a lack of cause of action to file suit.

Furthermore, the mortgage clause in the policy specifically provides that the policy is
invalidated by reasons of FRAUD, MISREPRESENTATION and FRAUD. Concealment can easily
be fraud or misrepresentation.

The insured – PARAMOUNT is not entitled to proceeds. Moreso, Pacific as indorsee of policy is
not entitled.

10. Guingon vs. Capital Insurance

Julio Aguilar owned and operated several jeepneys in the City of Manila among which was one
with plate number PUJ-206-Manila, 1961. He entered into a contract with the Capital
Insurance & Surety Co., Inc. insuring the operation of his jeepneys against accidents with third-
party liability. As a consequence thereof an insurance policy was executed, the pertinent
provisions of which in so far as this case is concerned contains the following:

Section II —LIABILITY TO THE PUBLIC

1. The Company, will, subject to the limits of liability, indemnify the Insured in the event of
accident caused by or arising out of the use of the Motor Vehicle/s or in connection with the
loading or unloading of the Motor Vehicle/s, against all sums including claimant's costs and
expenses which the Insured shall become legally liable to pay in respect of:
a. death of or bodily injury to any person
b. damage to property
During the effectivity of such insurance policy, Iluminado del Monte, one of the drivers of the
jeepneys operated by Aguilar, bumped with the jeepney abovementioned one Gervacio
Guingon who had just alighted from another jeepney and as a consequence the latter died
some days thereafter.
A corresponding information for homicide thru reckless imprudence was filed against
Iluminado del Monte, who pleaded guilty. (4months imprisonment)

The heirs of Gervacio Guingon filed an action for damages praying that the sum of P82,771.80
be paid to them jointly and severally by the defendants, driver Iluminado del Monte, owner
and operator Julio Aguilar, and the Capital Insurance & Surety Co., Inc. Capital Insurance &
Surety Co., Inc. answered, alleging that the plaintiff has no cause of action against it.

Appellant contends that the "no action" clause in the policy closes the avenue to any third
party which may be injured in an accident wherein the jeepney of the insured might have been
the cause of the injury of third persons, alleging the freedom of contracts.

Issue: W/N Capital Insurance is liable to pay the heirs of Guingon

Ruling: Yes.

Insurance; Right of injured person to sue insurer of party at fault; Condition.—The right of the
person injured to sue the insurer of the party at fault (insured) depends on whether the
contract of insurance is intended to benefit third persons also or only the insured. The test
applied is this: Where the contract provides for indemnity against liability to third persons,
then third persons to whom the insured is liable. can sue the insurer. Where the contract is for
indemnity against actual loss or payment, then third persons cannot proceed against the
insurer, the contract being solely to reimburse the insured for liability actually discharged by
him through payment to third persons, said third persons' recourse being thus limited to the
insured alone.

Same; Pleading and Practice; Joinder of parties; When "no action" clause in insurance policy
cannot prevail over procedural rule as to joinder of parties.—Where the insurer agreed to
indemnify the insured "against all sums x x x which the Insured shall become legally liable to
pay in respect of: a death of or bodily injury to any person", the insurance is one for indemnity
against liability, From the fact then that the insured is liable to the third-person, such third-
person is entitled to sue the insurer. The "no action" clause in the policy of insurance cannot
prevail over the Rules of Court provision aimed at avoiding multiplicity of suits.

11. CAPITAL INSURANCE & SURETY CO. v PLASTIC ERA CO.

FACTS: On December 17, 1960, petitioner delivered to the respondent its open Fire Policy
wherein the former undertook to insure the latter’s building, equipments, raw materials,
products and accessories located at Mandaluyong, Rizal. The policy expressly provides that; 1)
if the property insured would be destroyed or damaged by fire after the payment of the
premiums, at any time between the 15th day of December 1960 and one o’clock in the
afternoon of the 15th day of December 1961, the insurance company shall make good all such
loss or damage in an amount not exceeding P100,000.00; and 2), it is only upon payment of
the premiums by Plastic Era that Capital Insurance agrees to insure the properties of the
former against loss or damage in an amount not exceeding P100,000.00.

When the policy was delivered, Plastic Era failed to pay the corresponding insurance premium.
However, through its duly authorized representative, it executed an acknowledgment receipt.
On January 8, 1961, in partial payment of the insurance premium, Plastic Era delivered to
Capital Insurance, a check for the amount of P1,000.00 postdated January 16, 1961 payable to
the order of the latter and drawn against the Bank of America. However, Capital Insurance
tried to deposit the check only on February 20, 1961 and the same was dishonored by the
bank for lack of funds.

Two days after the insurance premium became due, at about 4:00 to 5:00 o’clock in the
morning, the property insured by Plastic Era was destroyed by fire. In due time, the latter
notified Capital Insurance of the loss of the insured property by fire and accordingly filed its
claim for indemnity thru the Manila Adjustment Company. The loss and/or damage suffered
by Plastic Era was estimated by the Manila Adjustment Company to be P283,875.

Plastic Era demanded from Capital Insurance the payment of the sum of P100,000.00 as
indemnity for the loss of the insured property under Policy, but the latter refused for the
reason that, among others, Plastic Era failed to pay the insurance premium.

On August 25, 1961, Plastic Era filed its complaint against Capital Insurance for the recovery of
the sum of P100,000.00.

ISSUE: W/N a contract of insurance has been duly perfected between the petitioner and
respondent
RULING: YES. It appears on record that on the day the insurance policy was delivered, Plastic
Era did not pay Capital Insurance, but instead executed an acknowledgment receipt of Policy.
In said receipt Plastic Era promised to pay the premium within 30 days from the effectivity
date of the policy on December 17, 1960 and Capital Insurance accepted it.

(What then is the effect of accepting such acknowledgment receipt from the Plastic Era? Did
the Capital Insurance mean to agree to make good its undertaking under the policy if the
premium could be paid on or before January 16, 1961? And what would be the effect of the
delivery to Capital Insurance on January 8, 1961 of a postdated check (January 16, 1961) in the
amount of P1,000.00, payable to the order of the latter? Could not this have been considered a
valid payment of the insurance premium? )

The mere delivery of a bill of exchange in payment of a debt does not immediately effect
payment. It simply suspends the action arising from the original obligation in satisfaction of
which it was delivered, until payment is accomplished either actually or presumptively. Tender
of draft or check in order to effect payment that would extinguish the debtor’s liability should
be actually cashed.

In this case, Capital Insurance accepted the promise of Plastic Era to pay the insurance
premium within 30 days from the effective date of policy. By so doing, it has implicitly agreed
to modify the tenor of the insurance policy and in effect, waived the provision therein that it
would only pay for the loss or damage in case the same occurs after the payment of the
premium. Considering that the insurance policy is silent as to the mode of payment, Capital
Insurance is deemed to have accepted the promissory note in payment of the premium. This
rendered the policy immediately operative on the date it was delivered.

Hence, when the damage or loss of the insured property occurred, the insurance policy was in
full force and effect. The fact that the check issued by Plastic Era in partial payment of the
promissory note was later on dishonored did not in any way operate as a forfeiture of its rights
under the policy, there being no express stipulation therein to that effect.

By accepting its promise to pay the insurance premium within 30 days from the effectivity
date of the policy—December 17, 1960 Capital Insurance had in effect extended credit to
Plastic Era. The payment of the premium on the insurance policy therefore became an
independent obligation the non-fulfillment of which would entitle Capital Insurance to
recover. It could just deduct the premium due and unpaid upon the satisfaction of the loss
under the policy. It did not have the right to cancel the policy for nonpayment of the premium
except by putting Plastic Era in default and giving it personal notice to that effect. This Capital
Insurance failed to do.
12. Makati Tuscany v. CA, G.R. No. 95546
Facts: Early 1982: American Home Assurance Co. (AHAC), represented by American
International Underwriters (Phils.), Inc., issued in favor of Makati Tuscany Condominium
Corporation (Tuscany) on the latter's building and premises, for a period beginning 1 March
1982 and ending 1 March 1983, with a total premium of P466,103.05. Premium were paid on
installments on: March 12 1982, May 20 1982, June 21 1982, November 16 1982.

February 10 1983: AHAC replaced and renewed the previous policy, for a term covering 1
March 1983 to 1 March 1984 premium of P466,103.05 was again paid on installments on: April
13 1983, July 13 1983, August 3 1983, September 9 1983, November 21 1983.

January 20 1984: Policy was again renewed for the period March 1 1984 to March 1 1985.
Tuscany only paid two installment payments: February 6 1984 for P52k, June 6 1984 for P100k.

AHAC filed an action to recover the unpaid balance of P314,103.05. RTC dismissed the
complaint. While it is true that the receipts issued to the defendant contained the
aforementioned reservations, it is equally true that payment of the premiums of the three
aforementioned policies (being sought to be refunded) were made during the lifetime or term
of said policies, hence, it could not be said, despite of the reservations, that no risk attached
under the policies counterclaim for refund is not justified.

CA ordered Tuscany to pay premiums when due is ordinarily as indivisible obligation to pay the
entire premium; insurance contract became valid and binding upon payment of the first
premium.

Issue:: WON payment by installment of the premiums due on an insurance policy invalidates
the contract of insurance on the basis of Sec. 77 of the Insurance Code.

Ruling: Waiver of the condition of prepayment of premium

No. While the import of Section 77 is that prepayment of premiums is strictly required as a
condition to the validity of the contract, Section 78 of the Insurance Code in effect allows
waiver by the insurer of the condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of payment so far as to make
the policy binding despite the fact that premium is actually unpaid. Section 77 merely
precludes the parties from stipulating that the policy is valid even if premiums are not paid,
but does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy. At the very
least, both parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted. It paid the initial installment and thereafter made staggered payments
resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy,
petitioner paid 2 installments although it refused to pay the balance.

13. YOUNG vs. Midland Textile Insurance Co.

FACTS: The purpose of the present action is to recover the sum of P3,000 upon an insurance
policy. The lower court rendered a judgment in favor of the plaintiff and against the defendant
for the sum of P2,708.78, and costs. From that judgment the defendant appealed to this court.
The plaintiff occupied a building at ‘321 Calle Claveria, as a residence and bodega
(storehouse).On the 29th of May, 1912, the defendant, in consideration of the payment of a
premium of P60, entered into a contract of insurance with the plaintiff promising to pay to the
plaintiff the sum of P3,000, in case said residence and bodega and contents should be
destroyed by fire. One of the conditions of said contract was that no hazardous goods
be stored or kept in the building. On the 4th or 5th of February, 1913, the plaintiff placed in
said residence and bodega three boxes which belonged to him and which were filled with
fireworks for the celebration of the Chinese new year. On the 18th day of March, 1913, said
residence and bodega and the contents thereof were partially destroyed. Fireworks were
found in a part of the building not destroyed by the fire; that they in no way contributed to the
fire, or to the loss occasioned thereby.
Issue:
Whether or not the placing of said fireworks in the building insured, under the conditions
above enumerated, they being “hazardous goods,” is a violation of the terms of the contract of
insurance.

Ruling: Yes. The word “stored” has been defined to be a deposit in a store or warehouse
for preservation or safe keeping; to put away for future use, especially for future consumption;
to place in a warehouse or other place of deposit for safe keeping. Said definition does not
include a deposit in a store, in small quantities, for daily use. “Daily use” precludes the idea of
deposit for preservation or safe keeping, as well as a deposit for future consumption or safe
keeping. A violation of the terms of a contract of insurance, by either party, will constitute the
basis for a termination of the contractual relations, at the election of the other. The right to
terminate the contractual relations exists even though the violation was not the direct cause
of the loss. In the present case, the deposit of the “hazardous goods,” in the building insured,
was a violation of the terms of the contract. Although the hazardous goods did not contribute
to the loss, the insurer, at his election, was relieved from liability Said deposit created a new
risk, not included in the terms of the contract. The insurer had neither been paid, nor had he
entered into a contract, to cover the increased risk.
14. Phil Pryce Assurance vs. Ca

Facts: Petitioner issued 2 surety bonds in favor of Gregoco Inc to guarantee the payment of
the purchases of Sagum General Merchandise. Gregoco accepted the bonds and delivered the
parts purchased by Sagum. Sagum was unable to pay the purchases. When sued, Phil Pryce
claied that the checks issued by its principal, Sagum, which were supposed to pay for the
premiums bounced hence there was no contranct of Surety to speak of.

Issue: Was the defense tenable

Ruling: NO. Because Gregoco, the obligee has already accepted the bonds and thus the said
bonds became valid and enforceable irrespective of whether or not the premium had been
paid by Sagum to Phil Pryce.

15. Arce v Capital Surety and Insurance Co., Inc., 117 SCRA 63

FACTS:
The INSURED was the owner of a residential house in Tondo, Manila, which had been
insured with the COMPANY since 1961.In1965, the COMPANY sent to the INSURED Renewal to
cover the period December 5, 1965 to December 5, 1966. The COMPANY also requested
payment of the corresponding premium in the amount of P 38.10. Anticipating that the
premium could not be paid on time, the INSURED, thru his wife, promised to pay it on January
4, 1966 but the premium was still not paid. Thereafter, the house of the INSURED was totally
destroyed by fire.

The INSURED's wife presented a claim for indemnity but was told that no indemnity was
due because the premium on the policy was not paid. Nonetheless the COMPANY tendered a
check for P300.00 as financial aid which was received by the INSURED's daughter, Evelina R.
Arce. The voucher for the check which Evelina signed stated that it was "in full settlement (ex
gratia) of the fire loss. Thereafter the INSURED and his wife went to the office of the
COMPANY to have his signature on the check Identified preparatory to encashment. At that
time the COMPANY reiterated that the check was given "not as an obligation, but as a
concession" because the renewal premium had not been paid, The INSURED cashed the check
but then sued the COMPANY on the policy.

The court a quo held that since the COMPANY could have demanded payment of the
premium, mutuality of obligation requires that it should also be liable on its policy. The court a
quo also held that the INSURED was not bound by the signature of Evelina on the check
voucher because he did not authorize her to sign the waiver.
ISSUE: Whether or not the Company can be held on its policy?

RULING: No. Sec. 72 of the Insurance Act, as amended by R.A. No. 3540 reads:
SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is
exposed to the perils insured against, unless there is clear agreement to grant credit extension
for the premium due. No policy issued by an insurance company is valid and binding unless and
until the premium thereof has been paid " .

It is obvious from both the Insurance Act, as amended, and the stipulation of the parties
that time is of the essence in respect of the payment of the insurance premium so that if it is
not paid the contract does not take effect unless there is still another stipulation to the
contrary. In the instant case, the INSURED was given a grace period to pay the premium but
the period having expired with no payment made, he cannot insist that the COMPANY is
nonetheless obligated to him.

It is not necessary to dwell that the INSURED had not authorized his daughter Evelina to
make a waiver because the INSURED had nothing to waive; his policy ceased to have effect
when he failed to pay the premium.

16. James Mcguire v. Manufacturers life insurance co

Facts: Manufacturers life insurance co issued an insurance policy on the life of Jaime McGuire
for the sum of $5,000, and an additional sum of $5,000 as double indemnity accident benefit,
payable to the plaintiff as beneficiary. The insured paid the premiums on said policy up to and
including that due on July 19, 1940. On June 22, 1940, the insured secured from the defendant
a loan of $760 on said insurance policy.

upon the default of the insured to pay the premiums due on July 19, 1941, and subsequent
ones, the defendant insurance company applied the stipulation contained in clause 8
(Automatic Premium Loan) the policy was carried on under said non forfeiture clause of the
policy up to and including March 1, 1942, the date said policy lapsed, as shown in the letter of
the defendant company of January 17, 1946

Jaime McGuire died on August 4, 1943, in a motorcycle accident at Borongan, Samar,

Philippines
That during the interim period between March 1, 1942, the date the policy lapsed, to August
4, 1943, the date of the death of the insured, the insured attempted to reinstate the policy but
his attempts failed because of his inability to communicate with defendant's branch office at
Manila due to the then existence of war and the occupation of the Philippines by enemy forces
from January 1, 1942, to February, 1945.

trial court ordered the defendant to pay McGuire the sum of P20,000, minus the premiums
due and unpaid up to the date of the death of the insured. the trial court being of the opinion
that the war legally suspended the obligation of the insured to pay the premiums up to the
time of the death of the. Insured.

Issues: WON the non-payment of premium during the period of war is a valid ground to
suspend the obligation of the insured to pay the premiums due.

Ruling: No. The trial court’s judgment is erroneous. According to the complaint, plaintiff's
theory is that, although the policy lapsed on March 1, 1942, the insured had the privilege of
reinstating it so as to keep it in force up to the time of his death upon a written application
within three years from the date of lapse and upon production of evidence of insurability, but
that the insured was unable to exercise that privilege because of the war. The trial court held
that it was unnecessary for the plaintiff to invoke the reinstatement clause of the policy
because it had not lapsed inasmuch as the failure to pay the premiums was due to the war.

The Supreme Court adopted the United States rule which declares that the contract is not
merely suspended, but is abrogated by reason of nonpayment of premiums, since the time of
the payments is peculiarly of the essence of the contract. The incontestability of the insurance
policy is rebutted by the defense of nonpayment of premium. Thus the fundamental character
of the undertaking to pay premiums and high importance of the defense of nonpayment
thereof was specifically recognized regardless of the existence of war.

Scra: LIFE INSURANCE; REINSTATEMENT OF POLICY.—The stipulation in a life insurance policy

giving' the insured the privilege to reinstate it upon written application within three years
from the date it lapses and upon production of evidence of insurability satisfactory to the
insurance company and the payment of all overdue premiums and any other indebtedness to
the company, does not give the insured absolute right to such reinstatement by the mere filing
of an application therefor. The company has the right to deny the reinstatement if it is not
satisfied as to the insurability of the insured and if the latter does not pay all overdue
premiums and all other indebtedness to the company. After the death of the insured the
insurance company cannot be compelled to entertain an application for reinstatement of the
policy because the conditions precedent to reinstatement can no longer be determined and
satisfied.

NONPAYMENT OF PREMIUMS TERMINATES CONTRACT OF INSURANCE.—As held in Lopez de

Constantino vs. Asia Life Insurance Company, and Peralta vs. Asia Life Insurance Company, G.
R. Nos. L-1669 and L-1670, the payment of premiums on a life insurance policy is not
suspended by war. The United States rule which declares that the contract of insurance is not
merely suspended, but is abrogated by reason of nonpayment of premiums, since the time of
the payments is peculiarly of the essence of the contract, is adopted in this jurisdiction.
McGuire vs. Manufacturers Life Ins. Co., 87 Phil. 370, No. L-3581 September 21, 1950

17. Phil Phoenix Surety and Insurance v Woodworks Inc.

Facts: On April 1, 1960, plaintiff Philippine Phoenix Surety & Insurance Co., Inc issued to
defendant Woodworks, Inc Fire Policy No. 9652 for the amount of P300,000.00. Plaintiff
commenced an action in the Municipal Court of Manila to recover from defendant the sum of
P3,522.09, representing the unpaid balance of the premiums on the said insurance policy for a
term of one year from April 1, 1960 to April 1, 1961. MTC favored plaintiff. Defendant
Woodworks, Inc. appealed to the Court of First Instance of Manila contending that no contract
was made when it only made partial payment and that their nonpayment of premium
cancelled the policy.

Issues: Whether there was a perfected contract of insurance notwithstanding partial payment
was only made

Whether nonpayment of premium due cancels the contract of insurance

Rulings: Yes. After the Fire Insurance Policy No. 9652 was issued by plaintiff and delivered to
defendant, on September 22 of the same year, the latter paid to the former the sum of
P3,000.00 on account of the total premium of P6,051.95 due thereon. There is, consequently,
no doubt at all that, as between the insurer and the insured, there was not only a perfected
contract of insurance but a partially performed one as far as the payment of the agreed
premium was concerned. Thereafter the obligation of the insurer to pay the insured the
amount for which the policy was issued in case the conditions therefor had been complied
with, arose and became binding upon it, while the obligation of the insured to pay the
remainder of the total amount of the premium due became demandable.
No. Nonpayment of the premium due does not produce the cancellation of the contract of
insurance. Such theory would place exclusively in the hands of one of the contracting parties
the right to decide whether the contract should stand or not. Rather the correct view would
seem to be this: as the contract had become perfected, the parties. could demand from each
other the performance of whatever obligations they had assumed. In the case of the insurer, it
is obvious that it had the right to demand from the insured the completion of the payment of
the premium due or sue for the rescission of the contract. As it chose to demand specific
performance of the insured's obligation to pay the balance of the premium, the latter's duty to
pay is indubitable.