Insurance Case #048 Malayan Insurance Co. Inc. vs. PAP Ltd. Co. (Phil. Br.

)
G.R. No. 200784, 7 August 2013
Topic: Concealment, Rescission of Insurance Contract, Alteration in the use of the
thing insured
Ponente: Mendoza, J.
Doctrine: Under the Insurance Code of the Philippines:

“Sec. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.

Sec. 27. A concealment whether intentional or unintentional entitles the injured party
to rescind a contract of insurance. (As amended by Batasang Pambansa Blg. 874)

Sec. 168. An alteration in the use or condition of a thing insured from that to which it is
limited by the policy made without the consent of the insurer, by means within the
control of the insured, and increasing the risks, entitles an insurer to rescind a
contract of fire insurance.”

Facts:
1. 13 May 1996- Malayan Insurance Company (Malayan) issued Fire Insurance Policy
to PAP Co., Ltd. (PAP Co) for the latter’s machineries and equipment located at Sanyo
Precision Phils, Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo
Building).
2. Insurance was worth P15M and effective for 1 year. It was procured by PAP Co for
RCBC, the mortgagee of the insured machineries and equipment.
3. Prior to expiration of the insurance coverage, PAP Co. renewed policy on an “as is”
basis. This was for 13 May 1997 to 13 May 1998.
4. 12 October 1997 and during the subsistence of the renewal policy, the insured
machineries and equipment were totally lost by fir.
5. PAP Co. filed a fire insurance claim with Malayan in the amount insured.
6. 15 December 1997- Malayan denied since at the time of loss, the insured
machineries and equipment were transferred by PAP Co. to a location different from
that indicated in the policy.
7. PAP Co. argued that Malayan cannot avoid liability since it was informed of the
transfer by RCBC, the mortgage and the party duty-bound to relay such information.
8. 17 September 2009- RTC ordered Malayan to pay PAP an indemnity for the loss.
9. 27 October 2011- CA affirmed RTC decision. Hence this case.
Issue: Is Malayan liable under the insurance contract?
Ruling: No. Under the policy and when it was renewed, it forbade the removal of the
insured properties unless sanctioned/consented by Malayan. PAP failed to notify and to
obtain consent of Malayan regarding the removal. The transfer also increased the risk. With
the transfer of location of the subject properties, without notice to and consent of Malayan,
PAP committed concealment, misrepresentation and breach of a material warranty. Under
the Insurance Code, Malayan can rescind the insurance contract.
Dispositive: WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby
REVERSED and SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby declared
NOT liable for the loss of the insured machineries and equipment suffered by PAP Co., Ltd.

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- MANILA BANKERS VS ABAN (G.R. NO. 175666 JULY
29, 2013)
Manila Bankers Life Insurance Corporation vs Aban
G.R. No. 175666 July 29, 2013

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.

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EASTERN SHIPPING LINES INC., Petitioner,

vs.

BPI/MS INSURANCE CORP. and MITSUI SUM TOMO INSURANCE CO.

LTD., Respondents.

G.R. No. 193986 January 15, 2014

PONENTE: Villarama Jr., J.

TOPIC: Negligence

FACTS:

Sumitomo Corporation shipped through vessels of Eastern Shipping Lines

various steel sheets in coil in favor of the consignee Calamba Steel. In each of the three
shipments, several coils were observed to be in bad condition as evidenced by the Turn
Over Survey of Bad Order Cargo. The cargoes were then turned over to Asian
Terminals, Inc. (ATI) for stevedoring, storage and safekeeping pending Calamba Steel’s
withdrawal of the goods. When ATI delivered the cargo to Calamba Steel, the latter
rejected its damaged portion for being unfit for its intended purpose.

Calamba Steel filed an insurance claim with Mitsui through the latter’s settling
agent, respondent BPI/MS Insurance Corporation (BPI/MS), and the former was paid
the sums of US$7,677.12, US$14,782.05 and US$7,751.15 for the damage suffered by all
three shipments. Correlatively, on August 31, 2004, as insurer and subrogee of Calamba
Steel, Mitsui and BPI/MS filed a Complaint for Damages against petitioner and ATI.

ISSUE:

Whether or not Eastern Shipping was solidarily liable with ATI on account of
the damage incurred by the goods.
HELD:

YES. The Court held that both Eastern Shipping and ATI were negligent in
handling and transporting the goods.

Verily, it is settled in maritime law jurisprudence that cargoes while being

unloaded generally remain under the custody of the carrier. As hereinbefore found by
the RTC and affirmed by the CA based on the evidence presented, the goods were
damaged even before they were turned over to ATI. Such damage was even compounded
by the negligent acts of petitioner and ATI which both mishandled the goods during the
discharging operations. Thus, it bears stressing unto petitioner that common carriers,
from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods transported by them.

Subject to certain exceptions enumerated under Article 1734 of the Civil Code,
common carriers are responsible for the loss, destruction, or deterioration of the goods.
The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to
the consignee, or to the person who has a right to receive them.

Owing to this high degree of diligence required of them, common carriers, as a

general rule, are presumed to have been at fault or negligent if the goods they
transported deteriorated or got lost or destroyed. That is, unless they prove that they
exercised extraordinary diligence in transporting the goods. In order to avoid
responsibility for any loss or damage, therefore, they have the burden of proving that
they observed such high level of diligence. In this case, petitioner failed to hurdle such
burden.

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FACTS:

Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for her Toyota Revo DLX DSL with Alpha
Insurance and Surety Co (Alpha). The contract of insurance obligates the petitioner to pay the respondent
the amount of P630,000 in case of loss or damage to said vehicle during the period covered.

On April 16, 2007, respondent instructed her driver, Jose Joel Salazar Lanuza to bring the vehicle to
nearby auto-shop for a tune up. However, Lanuza no longer returned the motor vehicle and despite
diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly reported
the incident to the police and concomitantly notified petitioner of the said loss and demanded payment of
the insurance proceeds.

Alpha, however, denied the demand of Castor claiming that they are not liable since the culprit who stole
the vehicle is employed with Castor. Under the Exceptions to Section III of the Policy, the Company shall
not be liable for (4) any malicious damage caused by the insured, any member of his family or by “A
PERSON IN THE INSURED’S SERVICE”.

Castor filed a Complaint for Sum of Money with Damages against Alpha before the Regional Trial Court of
Quezon City. The trial court rendered its decision in favor of Castor which decision is affirmed in toto by
the Court of Appeals. Hence, this Petition for Review on Certiorari.

ISSUE:

Whether or not the loss of respondent’s vehicle is excluded under the insurance policy

HELD:

NO. The words “loss” and “damage” mean different things in common ordinary usage. The word “loss”
refers to the act or fact of losing, or failure to keep possession, while the word “damage” means
deterioration or injury to property. Therefore, petitioner cannot exclude the loss of Castor’s vehicle under
the insurance policy under paragraph 4 of “Exceptions to Section III”, since the same refers only to
“malicious damage”, or more specifically, “injury” to the motor vehicle caused by a person under the
insured’s service. Paragraph 4 clearly does not contemplate “loss of property”.

A contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain
limitations on liability, courts should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Thus, in Eternal Gardens Memorial Park Corporation vs. Philippine
American Life Insurance Company, this Court ruled that it must be remembered that an insurance contract
is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the
insurer in order to safeguard the latter’s interest.