TOPIC: SOCIAL INSURANCE office to that effect, did actually issue the policy and did, through its

office to that effect, did actually issue the policy and did, through its agent in Manila, actually write
CASE: ENRIQUEZ V SUN LIFE INSURANCE COMPANY OF CANADA the letter of notification and place it in the usual channels for transmission to the addressee. The
FACTS: fact as to the letter of notification thus fails to concur with the essential elements of the general rule
On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for pertaining to the mailing and delivery of mail matter as announced by the American courts, namely,
life annuity. Two (2) days later, he paid the sum of 6T to the company’s manager in its Manila office when a letter or other mail matter is addressed and mailed with postage prepaid there is a
and was given a receipt. rebuttable presumption of fact that it was received by the addressee as soon as it could have been
On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila. On the transmitted to him in the ordinary course of the mails. But if any one of these elemental facts fails to
same date, the Manila office prepared a letter notifying Herrer that his application has been appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been
accepted and this was placed in the ordinary channels of transmission, but as far as known was received by the addressee unless it is shown that it was deposited in the post-office, properly
never actually mailed and never received by Herrer. Herrer died on Dec. 20, 1917. The plaintiff as addressed and stamped.
administrator of Herrer’s estate brought this action to recover the 6T paid by the deceased.
We hold that the contract for a life annuity in the case at bar was not perfected because it has
ISSUE:
not been proved satisfactorily that the acceptance of the application ever came to the
WON the insurance was perfected?
knowledge of the applicant.
RULING:
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the
methods to be followed in order that there may be a contract of insurance. On the other hand, the
Civil Code, in article 1802, not only describes a contact of life annuity markedly similar to the one
we are considering, but in two other articles, gives strong clues as to the proper disposition of the
case. For instance, article 16 of the Civil Code provides that "In matters which are governed by
special laws, any deficiency of the latter shall be supplied by the provisions of this Code." On the
supposition, therefore, which is incontestable, that the special law on the subject of insurance is
deficient in enunciating the principles governing acceptance, the subject-matter of the Civil code, if
there be any, would be controlling. In the Civil Code is found article 1262 providing that "Consent is
shown by the concurrence of offer and acceptance with respect to the thing and the consideration
which are to constitute the contract. An acceptance made by letter shall not bind the person making
the offer except from the time it came to his knowledge. The contract, in such case, is presumed to
have been entered into at the place where the offer was made." This latter article is in opposition to
the provisions of article 54 of the Code of Commerce.

If no mistake has been made in announcing the successive steps by which we reach a conclusion,
then the only duty remaining is for the court to apply the law as it is found. The legislature in its
wisdom having enacted a new law on insurance, and expressly repealed the provisions in the Code
of Commerce on the same subject, and having thus left a void in the commercial law, it would seem
logical to make use of the only pertinent provision of law found in the Civil code, closely related to
the chapter concerning life annuities.

The Civil Code rule, that an acceptance made by letter shall bind the person making the offer
only from the date it came to his knowledge, may not be the best expression of modern
commercial usage. Still it must be admitted that its enforcement avoids uncertainty and
tends to security. Not only this, but in order that the principle may not be taken too lightly, let it be
noticed that it is identical with the principles announced by a considerable number of respectable
courts in the United States. The courts who take this view have expressly held that an acceptance of
an offer of insurance not actually or constructively communicated to the proposer does not make a
contract. Only the mailing of acceptance, it has been said, completes the contract of insurance, as
the locus poenitentiae is ended when the acceptance has passed beyond the control of the party.

In resume, therefore, the law applicable to the case is found to be the second paragraph of
article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the
person making the offer except from the time it came to his knowledge. The pertinent fact is,
that according to the provisional receipt, three things had to be accomplished by the insurance
company before there was a contract: (1) There had to be a medical examination of the applicant;
(2) there had to be approval of the application by the head office of the company; and (3) this
approval had in some way to be communicated by the company to the applicant. The further
admitted facts are that the head office in Montreal did accept the application, did cable the Manila
TOPIC: SOCIAL INSURANCE
CASE: THE INSULAR LIFE ASSURANCE COMPANY V CARPIONA EBRADO AND VDA. DE EBRADO
FACTS:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a
rider for Accidental Death. He designated Carponia T. Ebrado as the revocable beneficiary in his
policy. He referred to her as his wife.
The underscored clause neatly conveys that no criminal conviction for the offense is a condition
precedent. The law plainly states that the guilt of the party may be proved “in the same acting for
declaration of nullity of donation.” And, it would be sufficient if evidence preponderates.
The insured was married to Pascuala Ebrado with whom she has six legitimate children. He was also
living in with his common-law wife with whom he has two children

Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made liable to pay
the coverage in the total amount of P11,745.73, representing the face value of the policy in the
amount of P5,882.00 plus the additional benefits for accidental death.

Carponia T. Ebrado filed with the insurer a claim for the proceeds as the
designated beneficiary therein, although she admited that she and the insured were merely living as
husband and wife without the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that
she is the one entitled to the insurance proceeds.
Insular commenced an action for Interpleader before the trial court as to who should be given the
proceeds. The court declared Carponia as disqualified.

ISSUE:
WON a common-law wife named as beneficiary in the life insurance policy of a legally
married man can claim the proceeds in case of death of the latter?

RULING:
NO!

Section 50 of the Insurance Act which provides that "the insurance shall be applied
exclusively to the proper interest of the person in whose name it is made"

The word "interest" highly suggests that the provision refers only to the "insured" and not to
the beneficiary, since a contract of insurance is personal in character. Otherwise, the prohibitory
laws against illicit relationships especially on property and descent will be rendered nugatory, as
the same could easily be circumvented by modes of insurance.

When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regulating contracts. And under Article 2012 of the
same Code, any person who is forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a fife insurance policy by the person who cannot make a donation to him.
Common-law spouses are barred from receiving donations from each other.

Article 739 provides that void donations are those made between persons who were guilty of
adultery or concubinage at the time of donation.

There is every reason to hold that the bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life insurance policies since the same are based on
similar consideration. So long as marriage remains the threshold of family laws, reason and morality
dictate that the impediments imposed upon married couple should likewise be imposed upon extra-
marital relationship.

A conviction for adultery or concubinage isn’t required exacted before the disabilities mentioned in
Article 739 may effectuate. The article says that in the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse of the donor or donee; and the guilty of the
donee may be proved by preponderance of evidence in the same action.
TOPIC: SOCIAL INSURANCE
CASE: FILIPINAS COMPANIA DE SEGUROS V AGRICULTURAL FIRE INSURANCE AND SURETY
FACTS:
Respondent Agricultural Fire Insurance and Surety Co. requested the Philippine Rating
Bureau to repeal Article 22 of the Bureau`s Constitution, but the Bureau replied that the removal of
the said provision was still under consideration by their committee. It also advised the respondent
that, being an illegal agreement or combination in restraint of trade, said article should not be given
force and effect. Then later on, the action was commenced.

ISSUE:
Whether or not Article 22 of the Bureau`s Constitution is valid.

RULING:

The purpose of Article 22 is to maintain a high degree or standard of ethical practice, so

that insurance companies may earn and maintain the respect of the public, because the intense
competition between the great number of non-life insurance companies operating in the Philippines
is conducive to unethical practices, oftentimes taking the form of underrating; that to achieve this
purpose it is highly desirable to have cooperative action between said companies in the compilation
of their total experience in the business, so that the Bureau could determine more accurately the
proper rate of premium to be charged from the insured; that, several years ago, the very Insurance
Commissioner had indicated to the Bureau the necessity of doing something to combat underrating,
for, otherwise, he would urge the amendment of the law so that appropriate measures could be
taken therefor by his office; that much of the work of the Bureau has to do with rate-making and
policy-wording; that rate-making is actually dependent very much on statistics; that, unlike life
insurance companies, which have tables of mortality to guide them in the fixing of rates, non-life
insurance companies have, as yet, no such guides; that, accordingly, non-life insurance companies
need an adequate record of losses and premium collections that will enable them to determine the
amount of risk involved in each type of risk and, hence, to determine the rates or premiums that
should be charged in insuring every type of risk; that this information cannot be compiled without
full cooperation on the part of the companies concerned, which cannot be expected from non-
members of the Bureau, over which the latter has no control; and that, in addition to submitting
information about their respective experience, said Bureau members must, likewise, share in the
rather appreciable expenses entailed in compiling the aforementioned data and in analyzing the
same.

We find nothing unlawful, or immoral, or unreasonable, or contrary to public policy

either in the objectives thus sought to be attained by the Bureau, or in the means availed of to
achieve said objectives, or in the consequences of the accomplishment thereof. The purpose of said
Article 22 is not to eliminate competition, but to promote ethical practices among non-life insurance
companies, although, incidentally it may discourage, and hence, eliminate unfair competition,
through underrating, which in itself is eventually injurious to the public

Mr. Estrada's testimony shows that the limitation upon reinsurance contained in the
aforementioned Article 22 does not affect the public at all, for, whether there is reinsurance or not,
the liability of the insurer in favor of the insured is the same. Besides, there are sufficient foreign
reinsurance companies operating in the Philippines from which non-members of the Bureau may
secure reinsurance. What is more, whatever the Bureau may do in the matter of rate-fixing is not
decisive insofar as the public is concerned, for no insurance company in the Philippines may charge a
rate of premium that has not been approved by the Insurance Commissioner.
TOPIC: TEST OF INSURANCE
CASE: WHITE GOLD MARINE SERVICES V PIONEER
FACTS:
White Gold procured a protection and indemnity coverage for its vessels from the
Steamship Mutual Underwriting Association through Pioneer Insurance. Later on, White Gold was
issued a Certificate of Entry and Acceptance and receipts from their payments. When it failed to fully
paid its accounts, Steamship Mutual refused to renew the coverage, and later filed an action for sum
of money against White Gold, which the latter also filed an action before the Insurance Commission
against Steamship Mutual, for violating Sections 186 and 187 of the Insurance Code; and Pioneer for
violating Sections 293-301, in relation to Sections 302 and 303 of the same law. The Insurance
Commission dismissed the complaint, which was affirmed by the CA.
ISSUE:
Whether or not a protection and indemnity in which Steamship Mutual is engaged is a
form of insurance?
RULING:
YES!
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or
"transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 18720 of the Insurance Code. It maintains a resident
agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that
Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment of
the calls. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer,
must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no
insurer or insurance company is allowed to engage in the insurance business without a license or a
certificate of authority from the Insurance Commission. 21
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration22 issued by the Insurance Commission. It has been licensed to do or transact insurance
business by virtue of the certificate of authority23 issued by the same agency. However, a
Certification from the Commission states that Pioneer does not have a separate license to be an
agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the Philippines
or any agent thereof, without first procuring a license so to act from the Commissioner, which must
be renewed annually on the first day of January, or within six months thereafter. . .

The same provision also provides, the fact that no profit is derived from the making of insurance
contracts, agreements or transactions, or that no separate or direct consideration is received
therefor, shall not preclude the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on the nature of the
promise, the act required to be performed, and the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which the performance becomes requisite. It is not
by what it is called.

Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration
to indemnify another against loss, damage or liability arising from an unknown or contingent event.
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such
as the losses incident to a marine adventure.15 Section 9916 of the Insurance Code enumerates the
coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the
insurer and insured. In it, the members all contribute, by a system of premiums or assessments, to
the creation of a fund from which all losses and liabilities are paid, and where the profits are divided
among themselves, in proportion to their interest.17 Additionally, mutual insurance associations, or
clubs, provide three types of coverage, namely, protection and indemnity, war risks, and defense
costs.18

A P & I Club is "a form of insurance against third party liability, where the third party is anyone
other than the P & I Club and the members."19 By definition then, Steamship Mutual as a P & I Club is
a mutual insurance association engaged in the marine insurance business.
TOPIC: TEST OF INSURANCE intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be
CASE: PHILAMCARE V CA actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in
FACTS: such case the intent to deceive the insurer is obvious and amounts to actual fraud.
ErnaniTrinos, the late husband of JulitaTrinos, applied for a health care coverage with
Philamcare and approved it for one year, which was later renewed every year in two instances.
The fraudulent intent on the part of the insured must be established to warrant rescission of the
During the period of his coverage, Ernani suffered a heart attack and was confined to the hospital
insurance contract.16 Concealment as a defense for the health care provider or insurer to avoid
for 1 month. After being discharged, he was attended by a physical therapist. Due to his weakening
liability is an affirmative defense and the duty to establish such defense by satisfactory and
condition, he was rushed again to the hospital where he died on the same day. Julita filed an action
convincing evidence rests upon the provider or insurer. In any case, with or without the authority to
against Philamcare, in which the trial court ruled in her favor and affirmed by the CA.
investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility
under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end,
ISSUE: 
Whether or not there is a perfected contract of insurance.
the liability of the health care provider attaches once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails of the covered benefits which he has
RULING:
prepaid.
Yes.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one contract of insurance." The right to rescind should be exercised previous to the commencement of
undertakes for a consideration to indemnify another against loss, damage or liability arising from an an action on the contract.17 In this case, no rescission was made. Besides, the cancellation of health
unknown or contingent event. An insurance contract exists where the following elements concur: care agreements as in insurance policies require the concurrence of the following conditions:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
1. Prior notice of cancellation to insured;
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 2. Notice must be based on the occurrence after effective date of the policy of one or more of the
5. In consideration of the insurer’s promise, the insured pays a premium. grounds mentioned;

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
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.
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
Section 10 provides: request of insured, to furnish facts on which cancellation is based.18
Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of his
children;
None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract
(2) of any person on whom he depends wholly or in part for education or support, or in whom he
contain limitations on liability, courts should construe them in such a way as to preclude the insurer
has a pecuniary interest;
from non-compliance with his obligation.19 Being a contract of adhesion, the terms of an insurance
(3) of any person under a legal obligation to him for the payment of money, respecting property or
contract are to be construed strictly against the party which prepared the contract – the
service, of which death or illness might delay or prevent the performance; and
insurer.20 By reason of the exclusive control of the insurance company over the terms and
(4) of any person upon whose life any estate or interest vested in him depends.
phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer
and liberally in favor of the insured, especially to avoid forfeiture. 21 This is equally applicable to
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care
Health Care Agreements.
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.

Petitioner argues that respondent’s husband concealed a material fact in his application. It appears
that in the application for health coverage, petitioners required respondent’s husband to sign an
express authorization for any person, organization or entity that has any record or knowledge of his
health to furnish any and all information relative to any hospitalization, consultation, treatment or
any other medical advice or examination.

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the
insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or
its acceptance at a lower rate of premium, and this is likewise the rule although the statement is
material to the risk, if the statement is obviously of the foregoing character, since in such case the
insurer is not justified in relying upon such statement, but is obligated to make further inquiry.
There is a clear distinction between such a case and one in which the insured is fraudulently and
TOPIC: MUTUAL BENEFIT ASSOCIATION
CASE: WHITE GOLD MARINE SERVICES V PIONEER
FACTS:
White Gold procured a protection and indemnity coverage for its vessels from the
Steamship Mutual Underwriting Association through Pioneer Insurance. Later on, White Gold was
issued a Certificate of Entry and Acceptance and receipts from their payments. When it failed to fully
paid its accounts, Steamship Mutual refused to renew the coverage, and later filed an action for sum
of money against White Gold, which the latter also filed an action before the Insurance Commission
against Steamship Mutual, for violating Sections 186 and 187 of the Insurance Code; and Pioneer for
violating Sections 293-301, in relation to Sections 302 and 303 of the same law. The Insurance
Commission dismissed the complaint, which was affirmed by the CA.
ISSUE:
Whether or not a protection and indemnity in which Steamship Mutual is engaged is a
form of insurance?
RULING:
YES!
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or
"transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
The same provision also provides, the fact that no profit is derived from the making of insurance
contracts, agreements or transactions, or that no separate or direct consideration is received
therefor, shall not preclude the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on the nature of the
promise, the act required to be performed, and the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which the performance becomes requisite. It is not
by what it is called.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 18720 of the Insurance Code. It maintains a resident
agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that
Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment of
the calls. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer,
must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no
insurer or insurance company is allowed to engage in the insurance business without a license or a
certificate of authority from the Insurance Commission. 21
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration22 issued by the Insurance Commission. It has been licensed to do or transact insurance
business by virtue of the certificate of authority 23 issued by the same agency. However, a
Certification from the Commission states that Pioneer does not have a separate license to be an
agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the Philippines
or any agent thereof, without first procuring a license so to act from the Commissioner, which must
be renewed annually on the first day of January, or within six months thereafter. . .
NOTE: MUMSH YUNG NAKABOLD YUNG IMPORTANTE DITO. YUNG
RELATED SA TOPIC

Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration
to indemnify another against loss, damage or liability arising from an unknown or contingent event.
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such
as the losses incident to a marine adventure.15 Section 9916 of the Insurance Code enumerates the
coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are
both the insurer and insured. In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and liabilities are paid, and
where the profits are divided among themselves, in proportion to their
interest.17 Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs. 18

A P & I Club is "a form of insurance against third party liability, where the third party is
anyone other than the P & I Club and the members."19 By definition then, Steamship Mutual
as a P & I Club is a mutual insurance association engaged in the marine insurance business.
TOPIC: Characteristics of Insurance; Risk Distributing
CASE: UPCB General Insurance V Masagana Telemart
FACTS: Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s
properties were razed by fire. On July 13, 1992, plaintiff tendered five checks for P225,753.45
as renewal premium payments. A receipt was issued. On July 14, 1992, Masagana made its formal
demand for indemnification for the burned insured properties. UCPB then rejected Masagana’s
claims under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPB’s argument that Masagana’s tender of payment of the
premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond
the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy
period mails or delivers to the assured at the address shown in the policy notice of its intention not
to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages,
the assured shall be entitled to renew the policy upon payment of the premium due on the effective
date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which
had procured insurance coverage from UCPB for a number of years, had been granted a 60 to 90-
day credit term for the renewal of the policies. Such a practice had existed up to the time the claims
were filed. Most of the premiums have been paid for more than 60 days after the issuance. Also, no
timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance
policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22,
1992 had been extended or renewed by an implied credit arrangement though actual payment of
premium was tendered on a later date and after the occurrence of the risk insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-
renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail
was received by Masagana. Also, the premiums were paid within the grace period.
ISSUE: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to
Petitioner’s advantage despite its practice of granting a 60- to 90-day credit term for the payment of
premiums?
RULING: NO!
Section 77 of the Insurance Code of 1978 provides:
SECTION 77. An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against. Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in the case of a life or
an industrial life policy whenever the grace period provision applies.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life
policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
SECTION 78. Any acknowledgment in a policy or contract of insurance of the receipt of
premium is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until premium is
actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of
Appeals, 5 wherein we ruled that Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of
loss. We said therein, thus:
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that the petitioners and private respondent
intended subject insurance policies to be binding and effective notwithstanding the
staggered payment of the premiums. The initial insurance contract entered into in 1982
was renewed in 1983, then in 1984. In those three years, the insurer accepted all the
installment payments. Such acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner. Certainly, basic principles of equity
and fairness would not allow the insurer to continue collecting and accepting the
premiums, although paid on installments, and later deny liability on the lame excuse that
the premiums were not prepaid in full.
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to
the validity of the contract, We are not prepared to rule that the request to make installment
payments duly approved by the insurer would prevent the entire contract of insurance from going
into effect despite payment and acceptance of the initial premium or first installment. Section 78 of
the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making
an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of
payment so far as to make the policy binding despite the fact that premium is actually unpaid.
Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums
are not paid, but does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy (De Leon, The
Insurance Code, p. 175). So is an understanding to allow insured to pay premiums in installments
not so prescribed. At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted.
Tuscany has provided a fourth exception to Section 77, namely, that the insurer may grant
credit extension for the payment of the premium. This simply means that if the insurer has
granted the insured a credit term for the payment of the premium and loss occurs before the
expiration of the term, recovery on the policy should be allowed even though the premium is
paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties. Article 1306
of the Civil Code provides:
ARTICLE 1306. The contracting parties may establish such stipulations clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be
permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for the
payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge
under said Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth
exception to Section 77.
TOPIC: CHARACTERISTICS OF INSURANCE; CONTRACT OF ADHESION
CASE: RIZAL SURETY V CA
FACTS:
Rizal Surety issued a 1 million peso fire insurance policy with Transworld. This was increased to 1.5
million. A four span building was part of the policy. A fire broke out and gutted the building,
together with a two storey building behind it were gaming machines were stored.
The company filed its claims but to no avail. Hence, it brought a suit in court. It aimed to make Rizal
pay for almost 3 million including legal interest and damages. Rizal claimed that the policy only
covered damage on the four span building and not the two storey building. The trial court ruled in
Transworld’s favor and ordered Rizal to pay actual damages only. The court of appeals increased
the damages. The insurance company filed a MFR. The CA answered by modifying the imposition of
interest. Not satisfied, the insurance company petitioned to the Supreme Court.
capital, endowed with overwhelming economic power, manage to impose upon parties dealing with
them cunningly prepared 'agreements' that the weaker party may not change one whit, his
participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since
Raymond Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast to these entered into
by parties bargaining on an equal footing, such contracts (of which policies of insurance and
international bills of lading are prime example) obviously call for greater strictness and vigilance on
the part of courts of justice with a view to protecting the weaker party from abuses and imposition,
and prevent their becoming traps for the unwary

ISSUE:
WON Rizal Surety is liable for loss of the two-storey building considering that the fire insurance
policy sued upon covered only the contents of the four-span building.

RULING: YES!

In the case under consideration, both the trial court and the Court of Appeals found that the so
called "annex " was not an annex building but an integral and inseparable part of the four-span
building described in the policy and consequently, the machines and spare parts stored therein
were covered by the fire insurance in dispute

The two-storey building involved, a permanent structure which adjoins and intercommunicates
with the "first right span of the lofty storey building",17 formed part thereof, and meets the requisites
for compensability under the fire insurance policy sued upon.

So also, considering that the two-storey building aforementioned was already existing when subject
fire insurance policy contract was entered into

Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has created
a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil Code
provides:

"Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity"

Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal
Surety Insurance Company, whose lawyer or managers drafted the fire insurance policy contract
under scrutiny. Citing the aforecited provision of law in point, the Court in Landicho vs. Government
Service Insurance System,19 ruled:

"This is particularly true as regards insurance policies, in respect of which it is settled that the 'terms in
an insurance policy, which are ambiguous, equivocal, or uncertain x x x are to be construed strictly and
most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant
purpose of indemnity or payment to the insured, especially where forfeiture is involved' (29 Am. Jur.,
181), and the reason for this is that the 'insured usually has no voice in the selection or arrangement of
the words employed and that the language of the contract is selected with great care and deliberation
by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance
company.

'This rigid application of the rule on ambiguities has become necessary in view of current business
practices.1âwphi1 The courts cannot ignore that nowadays monopolies, cartels and concentration of
 An insurance contract is a contract of indemnity upon the terms and conditions specified
therein. 19 It is settled that the terms of the policy constitute the measure of the insurer's
liability. 20 In the absence of statutory prohibition to the contrary, insurance companies have the
TOPIC: CHARACTERISTICS OF INSURANCE; CONTRACT OF ADHESION same rights as individuals to limit their liability and to impose whatever conditions they deem best
CASE: FORTUNE INSURANCE AND SURETY V CA upon their obligations not inconsistent with public policy.
FACTS:
Producers Bank was insured by Fortune Insurance.
Producers Bank filed against Fortune Insurance a complaint for recovery of the sum of P725,000.00 It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
under the policy issued by Fortune. The sum was allegedly lost during arobbery of Producer’s protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons
armored vehicle while it was in transit to transfer the money from itsPasay City Branch to its head granted or having unrestricted access to Producers' money or payroll. When it used then the term
office in Makati "employee," it must have had in mind any person who qualifies as such as generally and universally
understood, or jurisprudentially established in the light of the four standards in the determination
The said armored vehicle was robbed by its driver Benjamin Magalong and security guardSaturnino of the employer-employee relationship, 21 or as statutorily declared even in a limited sense as in the
Atiga tasked to man the same. Both of them are not Producers Bank’s“employees” but were merely case of Article 106 of the Labor Code which considers the employees under a "labor-only" contract
assigned by and affiliated with PRC Management Systemsand Unicorn Security Services. as employees of the party employing them and not of the party who supplied them to the employer.

Fortune Insurance refused to pay the amount as the loss, according to it, is excluded fromthe
coverage of the insurance policy. “General Exceptions” provides: The company shallnot be liable
under this policy in report of x x x (b) any loss caused by any dishonest,fraudulent or criminal act of
the insured or any officer, employee, partner, director, trusteeor authorized representative of the
Insured whether acting alone or in conjunction withothers…”
Producers Bank opposed the contention of Fortune Insurance and contends that Atiga andMagalong
are not its officer, employee, trustee, or authorized representative at the time of the robbery.
According to Fortune Insurance, when Producers commissioned a guard and a driver totransfer its
funds from one branch to another, they effectively and necessarily became itsauthorized
representatives in the care and custody of the money. Assuming that theycould not be considered
authorized representatives, they were, nevertheless, employees of Producers.
But even granting for the sake of argument that these contracts were not "labor-only" contracts, and
PRC Management Systems and Unicorn Security Services were truly independent contractors, we
are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its
Pasay City branch to its head office in Makati, its "authorized representatives" who served as such
with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the
specific duty to safely transfer the money to its head office, with Alampay to be responsible for its
custody in transit; Magalong to drive the armored vehicle which would carry the money; and Atiga
to provide the needed security for the money, the vehicle, and his two other companions. In short,
for these particular tasks, the three acted as agents of Producers. A "representative" is defined as
one who represents or stands in the place of another; one who represents others or another in a
special capacity, as an agent, and is interchangeable with "agent."

ISSUE:
Whether the petitioner is liable under the Money, Security, and Payroll Robbery policy it
issued to the private respondent?

RULING:
FORTUNE IS EXEMPT FROM LIABILITY

It should be noted that the insurance policy entered into by the parties is a theft or robbery
insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of insurance such as fire or
marine. It includes, but is not limited to, employer's liability insurance, public
liability insurance, motor vehicle liability insurance, plate glass
insurance, burglary and theft insurance, personal accident and health insurance
as written by non-life insurance companies, and other substantially similar
kinds of insurance.

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved
against the insurer, 15 or it should be construed liberally in favor of the insured and strictly against
the insurer. 16 Limitations of liability should be regarded with extreme jealousy and must be
construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without
saying then that if the terms of the contract are clear and unambiguous, there is no room for
construction and such terms cannot be enlarged or diminished by judicial construction. 18
TOPIC: CHARACTERISTICS OF CONTRACT; CONTRACT OF ADHESION in favor of the insured and strictly against the insurer company which usually prepares it. 31 A
CASE: GULF RESORTS V PHIL CHARTER INSURANCE contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the
FACTS: contract, while the other party merely affixes his signature or his "adhesion" thereto. Through the
Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance Company years, the courts have held that in these type of contracts, the parties do not bargain on equal
which includes loss or damage to shock to any of the property insured by this Policy occasioned by footing, the weaker party's participation being reduced to the alternative to take it or leave it. Thus,
or through or in consequence of earthquake. On July 16, 1990, an earthquake struck Central Luzon these contracts are viewed as traps for the weaker party whom the courts of justice must
and Northern Luzon so the properties and 2 swimming pools in its Agoo Playa Resort were protect.32 Consequently, any ambiguity therein is resolved against the insurer, or construed liberally
damaged. On August 23, 1990, Gulf’s claim was denied on the ground that its insurance policy only in favor of the insured.33
afforded earthquake shock coverage to the two swimming pools of the resort. Petitioner contends
that pursuant to this rider, no qualifications were placed on the scope of the earthquake shock
The case law will show that this Court will only rule out blind adherence to terms where facts and
coverage. Thus, the policy extended earthquake shock coverage to all of the insured properties.The
circumstances will show that they are basically one-sided.34 Thus, we have called on lower courts to
RTC Favored American Home endorsement rider means that only the two swimming pools were
remain careful in scrutinizing the factual circumstances behind each case to determine the efficacy
insured against earthquake shock the CA, affirmed RTC.
of the claims of contending parties. In Development Bank of the Philippines v. National
Merchandising Corporation, et al.,35 the parties, who were acute businessmen of experience, were
ISSUE:
presumed to have assented to the assailed documents with full knowledge.
RULING:
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim
it did not know the provisions of the policy. From the inception of the policy, petitioner had
It is basic that all the provisions of the insurance policy should be examined and interpreted in
required the respondent to copy verbatim the provisions and terms of its latest insurance policy
consonance with each other.25 All its parts are reflective of the true intent of the parties. The policy
from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in securing the
cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control;
insurance policy of petitioner, is reflective of petitioner’s knowledge.
neither do particular words or phrases necessarily determine its character. Petitioner cannot focus
on the earthquake shock endorsement to the exclusion of the other provisions. All the provisions
and riders, taken and interpreted together, indubitably show the intention of the parties to extend
earthquake shock coverage to the two swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent of the
parties to extend earthquake shock coverage only to the two swimming pools. 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. Thus, 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.26 (Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify the
insured against a specified peril.27 In fire, casualty, and marine insurance, the premium payable
becomes a debt as soon as the risk attaches. 28 In the subject policy, no premium payments were
made with regard to earthquake shock coverage, except on the two swimming pools. There is no
mention of any premium payable for the other resort properties with regard to earthquake shock.
This is consistent with the history of petitioner’s previous insurance policies from AHAC-AIU.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the
general rule that insurance contracts are contracts of adhesion which should be liberally construed
TOPIC: CHARACTERISTIC OF INSURANCE; CONTRACT OF ADHESION while the second sentence appears to require Philamlife to approve the insurance contract before
CASE: ETERNAL GARDENS V PHIL AMERICAN LIFE INSURANCE COMPANY the same can become effective.
FACTS: Respondent Philamlife entered into an agreement denominated as Creditor Group Life It must be remembered that an insurance contract is a contract of adhesion which must be
Policy with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the construed liberally in favor of the insured and strictly against the insurer in order to safeguard the
clients of Eternal who purchased burial lots from it on installment basis would be insured by latter’s interest
Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased
burial lots. On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a
The relevant provisions of the policy are: party’s purchase of a memorial lot on installment from Eternal, an insurance contract covering the
ELIGIBILITY. lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife
xx by disapproving the insurance application. The second sentence of the Creditor Group Life Policy on
EVIDENCE OF INSURABILITY. the Effective Date of Benefit is in the nature of a resolutory condition which would lead to the
xx cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insurance
LIFE INSURANCE BENEFIT. application must not work to prejudice the insured; it cannot be interpreted as a termination of the
xx insurance contract. The termination of the insurance contract by the insurer must be explicit and
unambiguous.
EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan
with the Assured. However, there shall be no insurance if the application of the Lot Purchaser
is not approved by the Company.

xx

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
together with a copy of the application of each purchaser, and the amounts of the respective unpaid
balances of all insured lot purchasers. Eternal complied by submitting a letter dated December 29,
1982, containing a list of insurable balances of its lot buyers for October 1982. One of those included
in the list as “new business” was a certain John Chuang. His balance of payments was 100K. on
August 2, 1984, Chuang died.

Eternal sent a letter dated to Philamlife, which served as an insurance claim for Chuang’s death.
Attached to the claim were certain documents. In reply, Philamlife wrote Eternal a letter requiring
Eternal to submit the additional documents relative to its insurance claim for Chuang’s death.
Eternal transmitted the required documents through a letter which was received by Philamlife.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance
claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000.
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter a portion of
which reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal
Gardens Memorial Park in October 1982 for the total maximum insurable amount of P100,000.00
each. No application for Group Insurance was submitted in our office prior to his death on
August 2, 1984

Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in favor of
Eternal, ordering Philamlife to pay the former 100K representing the proceeds of the policy.

CA reversed. Hence this petition.

ISSUE: WON Philamlife should pay the 100K insurance proceeds

HELD: petition granted.

YES

An examination of the provision of the POLICY under effective date of benefit, would show
ambiguity between its two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon contracting a loan with Eternal
TOPIC: CHARACTERISTICS OF CONTRACT; CONTRACT OF ADHESION
CASE: MANILA BANKERS LIFE V CRESENCIA ABAN

Facts: On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers
Life Insurance Corporation (Bankers Life), designating respondent Cresencia P. Aban (Aban), her
niece, as her beneficiary. Petitioner issued Insurance Policy No. 747411 (the policy), with a face
value of P 100,000.00, in Sotero’s favor on August 30, 1993, after the requisite medical examination
and payment of the insurance premium. On April 10, 1996, when the insurance policy had been in
force for more than two years and seven months, Sotero died. Respondent filed a claim for the
insurance proceeds on July 9, 1996. Petitioner conducted an investigation into the claim, and came
out with the following findings: 1. Sotero did not personally apply for insurance coverage, as she
was illiterate; 2. Sotero was sickly since 1990; 3. Sotero did not have the financial capability to pay
the insurance premiums on Insurance Policy No. 747411; 4. Sotero did not sign the July 3, 1993
application for insurance; and 5. Respondent was the one who filed the insurance application, and x
x x designated herself as the beneficiary. For the above reasons, petitioner denied respondent’s
claim on April 16, 1997 and refunded the premiums paid on the policy.

Issue: Whether or not Manila Bankers is barred from denying the insurance claims based on fraud
or concealment.

Held: Yes. The “incontestability clause” is a provision in law that after a policy of life insurance
made payable on the death of the insured shall have been in force during the lifetime of the insured
for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindible by reason of fraudulent concealment or
misrepresentation of the insured or his agent.

The purpose of the law is to give protection to the insured or his beneficiary by limiting the
rescinding of the contract of insurance on the ground of fraudulent concealment or
misrepresentation to a period of only two (2) years from the issuance of the policy or its last
reinstatement.

The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or
misrepresentation within a period of two (2) years. It is not fair for the insurer to collect the
premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover
under the policy.

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured.
Under the provision, an insurer is given two years – from the effectivity of a life insurance contract
and while the insured is alive – to discover or prove that the policy is void ab initio or is rescindible
by reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the
two-year period lapses, or when the insured dies within the period, the insurer must make good on
the policy, even though the policy was obtained by fraud, concealment, or misrepresentation. This is
not to say that insurance fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fide takers of insurance and the public in
general.
TOPIC: CHARACTERISTICS OF CONTRACTS; ALEATORY
CASE: VERANDIA V CA
FACTS: Petitioner Rafael Verendia's residential building was insured with Fidelity and Surety
Insurance Company and two others, Country Bankers Insurance and Development
Insurance, with Monte de Piedad & Savings Bank as beneficiary. The insured building was
completely destroyed by fire. With this, petitioner claim for the insurance on which Fidelity refused
to give depending on its issued Fire Insurance Policy F-1887. Fidelity, among other things, averred
that the policy was avoided by reason of over-insurance, that Verendia maliciously represented that
the building at the time of the fire was leased under a contract executed on 25 June 1980 to a certain
Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.

ISSUE: Whether or not Verendia forfeited all benefits due to his presentation of a false declaration
(contract signed by Roberto, when in fact it was Marcelo Garcia who signed it) to support his claim.

HELD: Yes. Verendia, having presented a false declaration to support his claim for benefits in the
form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the
policy in the absence of proof that Fidelity waived such provision. Worse yet, by presenting a false
lease contract, Verendia, reprehensibly disregarded the principle that insurance contracts are
uberrimae fidae and demand the most abundant good faith

Based on previously decided cases:

Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and
conditions constitute the measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right to recovery from the insurer. As it is also a contract of adhesion, an
insurance contract should be liberally construed in favor of the insured and strictly against the
insurer company which usually prepares it.

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease
contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy
should be strictly construed against the insured. Verendia failed to live by the terms of the policy,
specifically Section 13 thereof which is expressed in terms that are clear and unambiguous, that all
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, or if any fraudulent means or devises are used by
the Insured or anyone acting in his behalf to obtain any benefit under the policy.”
TOPIC: CHARACTERISTICS OF CONTRACTS contract of adhesion, insurance contracts should be construed strictly against the party which
prepared the contract.
CASE: WESTERN GUARANTY V CA

FACTS:
 Private respondent Rodriguez was struck by a De Dios Transportation Co. (DDTC) passenger
bus while crossing a pedestrian lane along Airport Road. The bus driver disregarded the stop
signal of the traffic policeman.
o Priscilla was thrown to the ground and was treated at the San Juan De Dios hospital.
Her face was permanently disfigured, causing her anxiety and stress.
 DDTC was insured with petitioner Western Guaranty Corp., wherein the Master Policy
provided for protection against third party liability.
o “Company will, subject to the Limits of Liability, pay all sums necessary to discharge
liability of the insured in respect of death or bodily injury or damage to property of
any third party caused by or arising out of the use of the vehicle…With respect to
death of or bodily injury to any third party or passenger, the company's payment per
victim in any one accident shall not exceed the limits indicated in the Schedule of
Indemnities provided for in this policy.”
 Rodriguez filed a complaint for damages in the RTC against DDTC, which in turn, filed a third-
party complaint against its insurance carrier Western.
 Trial court ordered DDTC to pay actual and moral damages as well as compensation for loss of
earnings, and attorneys fees. Whatever may be left unpaid by DDTC is to be paid by Western
Guaranty by way of contribution, indemnity or subrogation, to the extent of not more than
P50,000.
 Petitioner Western, in this Petition for Review, contends that it cannot be held liable for loss of
earnings, moral damages and attorney’s fees because these items are not included in the
Schedule of Indemnities set forth in the insurance policy.
o Petitioner Western in effect contends that because the Schedule of Indemnities limits
the amount payable for certain kinds of expenses — "hospital room", "surgical
expenses", "operating room" and "medical expenses" — that Schedule should be read
as excluding liability for any other type of expense or damage or loss even though
actually sustained or incurred by the third party victim.

ISSUE: W/N Western Guaranty is liable beyond the Schedule of Indemnities set forth in the
policy

HELD: Yes. The Schedule of Indemnities does not purport to limit, or to enumerate
exhaustively, the species of bodily injury occurrence of which generate liability for Western.

PETITION DENIED.

RATIO:
 The Schedule doesn’t purport to restrict the kinds of damages that may be awarded against
Western once liability has arisen. All kinds of damages allowable by law—actual or
compensatory, moral, nominal, liquidated, etc.—may be awarded against the insurer. Schedule
of Indemnities was not intended to be an enumeration, much less a closed enumeration, of the
specific kinds of damages which may be awarded under the Master Policy Western has issued.
 The reading urged by Western of the Schedule of Indemnities comes too close to working fraud
upon both the insured and the third party beneficiary. This would limit the otherwise
unlimited and comprehensive scope of liability assumed by Western under Sec. 1: “all sums
necessary to discharge liability of the insured in respect of [bodily injury to a third party].”
This reading will be repugnant to public policy. Western should have then used more precise
language if this is what they had intended, so that the insured may be properly informed.
 Doctrine: It is well-settled that contractual limitations of liability found in insurance contracts
should be regarded by courts with a jaundiced eye and extreme care and should be so
construed as to preclude the insurer from evading compliance with its just obligations. As a