cases on insurance

8/10/2019 Cases on Insurance

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DELSAN TRANSPORT LINES, INC. VS. CA ET.AL.

G.R. No.127897, November 15, 2001

Facts: Caltex Phil. entered into a contract of affreightment with the petitioner, Delsan Transport Lines,

Inc. for a period of one year whereby the petitioner agreed to transport Caltex industrial fuel oil from

Batangas refinery to different parts of the country. On August 14, 1986, MT Maysun set sail for

Zamboanga City but unfortunately the vessel in the early morning of August 16, 1986 near Panay Gulf.

The shipment was insured with the private respondent, American Home Assurance Corporation.

Subsequently, private respondent paid Caltex the sum of Php.5,096,635.57. Exercising its right of

subrogation under Art. 2207, NCC, the private respondent demanded from the petitioner the same

amount paid to Caltex. Due to its failure to collect from the petitioner, private respondent filed a

complaint with the RTC of Makati City but the trial court dismissed the complaint, finding the vessel to be

seaworthy and that the incident was due to a force majeure, thus exempting the petitioner from liability.

However, the decision of the trial court was reversed by the CA, giving credence to the report of PAGASA

that the weather was normal and that it was impossible for the vessel to sink.

Issue: Whether or not the payment made by private respondent for the insured value of the lost cargo

amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery against

the petitioner.

Held: The payment by the private respondent for the insured value of the lost cargo operates as waiver of

its right to enforce the term of the implied warranty against Caltex under the marine insurance policy.

However, the same cannot be validly interpreted as an automatic admission of the vessels seaworthiness

by the private respondent as to foreclose recourse against the petitioner for any liability under its

contractual obligation as common carrier. The fact of payment grants the private respondent subrogatory

right which enables it to exercise legal remedies that otherwise be available to Caltex as owner of the lost

cargo against the petitioner common carrier.

SECOND DIVISION

[G.R. No. 127897. November 15, 2001]

DELSAN TRANSPORT LINES, INC., petitioner, vs.THE HON. COURT OF

APPEALS and AMERICAN HOME ASSURANCE

CORPORATION, respondents.

D E C I S I O N

DE LEON, JR., J.:

Before us is a petition for review on certiorariof the Decision[1]of the Court of Appeals in

CA-G.R. CV No. 39836 promulgated on June 17, 1996, reversing the decision of the RegionalTrial Court of Makati City, Branch 137, ordering petitioner to pay private respondent the sum of
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Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos

(P5,096,635.57) and costs and the Resolution[2]dated January 21, 1997 which denied the

subsequent motion for reconsideration.

The facts show that Caltex Philippines (Caltex for brevity) entered into a contract ofaffreightment with the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby

the said common carrier agreed to transport Caltexs industrial fuel oil from the Batangas-BataanRefinery to different parts of the country. Under the contract, petitioner took on board its vessel,MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil

Terminal in Zamboanga City. The shipment was insured with the private respondent, American

Home Assurance Corporation.

On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga

City. Unfortunately, the vessel sank in the early morning of August 16, 1986 near Panay Gulf in

the Visayas taking with it the entire cargo of fuel oil.

Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand

Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) representing the

insured value of the lost cargo. Exercising its right of subrogation under Article 2207 of the NewCivil Code, the private respondent demanded of the petitioner the same amount it paid to Caltex.

Due to its failure to collect from the petitioner despite prior demand, private respondent fileda complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of

money. After the trial and upon analyzing the evidence adduced, the trial court rendered a

decision on November 29, 1990 dismissing the complaint against herein petitioner withoutpronouncement as to cost. The trial court found that the vessel, MT Maysun, was seaworthy to

undertake the voyage as determined by the Philippine Coast Guard per Survey Certificate Report

No. M5-016-MH upon inspection during its annual dry-docking and that the incident was caused

by unexpected inclement weather condition orforce majeure, thus exempting the common

carrier (herein petitioner) from liability for the loss of its cargo.

[3]

The decision of the trial court, however, was reversed, on appeal, by the Court of

Appeals. The appellate court gave credence to the weather report issued by the Philippine

Atmospheric, Geophysical and Astronomical Services Administration (PAGASA for brevity)which showed that from 2:00 oclock to 8:00 oclock in the morning on August 16, 1986, the

wind speed remained at 10 to 20 knots per hour while the waves measured from .7 to two (2)

meters in height only in the vicinity of the Panay Gulf where the subject vessel sank, in contrastto herein petitioners allegation that the waves were twenty (20) feet high. In the absence of any

explanation as to what may have caused the sinking of the vessel coupled with the finding that

the same was improperly manned, the appellate court ruled that the petitioner is liable on its

obligation as common carrier[4]to herein private respondent insurance company as subrogee of

Caltex. The subsequent motion for reconsideration of herein petitioner was denied by theappellate court.

Petitioner raised the following assignments of error in support of the instant petition ,[5]towit:

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THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE

REGIONAL TRIAL COURT.

II

THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED INREBUTTING THE LEGAL PRESUMPTION THAT THE VESSEL MT

MAYSUN WAS SEAWORTHY.

III

THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF

THE SUPREME COURT IN THE CASE OF HOME INSURANCE

CORPORATION V. COURT OF APPEALS.

Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance

Code of the Philippines, which states that in every marine insurance upon a ship or freight, orfreightage, or upon any thing which is the subject of marine insurance there is an impliedwarranty by the shipper that the ship is seaworthy. Consequently, the insurer will not be liable to

the assured for any loss under the policy in case the vessel would later on be found as not

seaworthy at the inception of the insurance. It theorized that when private respondent paidCaltex the value of its lost cargo, the act of the private respondent is equivalent to a tacit

recognition that the ill-fated vessel was seaworthy; otherwise, private respondent was not legally

liable to Caltex due to the latters breach of implied warranty under the marine insurance policy

that the vessel was seaworthy.

The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not

seaworthy on the ground that the marine officer who served as the chief mate of the vessel,Francisco Berina, was allegedly not qualified. Under Section 116 of the Insurance Code of thePhilippines, the implied warranty of seaworthiness of the vessel, which the private respondent

admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost

cargo, extends to the vessels complement. Besides, petitioner avers that although Berina had

merely a 2ndofficers license, he was qualified to act as the vessels chief officer under ChapterIV(403), Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and Regulations. In

fact, all the crew and officers of MT Maysun were exonerated in the administrative investigation

conducted by the Board of Marine Inquiry after the subject accident.[6]

In any event, petitioner further avers that private respondent failed, for unknown reason, topresent in evidence during the trial of the instant case the subject marine cargo insurance policy

it entered into with Caltex. By virtue of the doctrine laid down in the case ofHome InsuranceCorporation vs. CA,[7]the failure of the private respondent to present the insurance policy inevidence is allegedly fatal to its claim inasmuch as there is no way to determine the rights of the

parties thereto.

Hence, the legal issues posed before the Court are:

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Whether or not the payment made by the private respondent to Caltex for the insured

value of the lost cargo amounted to an admission that the vessel was seaworthy, thus

precluding any action for recovery against the petitioner.

II

Whether or not the non-presentation of the marine insurance policy bars the complaint

for recovery of sum of money for lack of cause of action.

We rule in the negative on both issues.

The payment made by the private respondent for the insured value of the lost cargo operatesas waiver of its (private respondent) right to enforce the term of the implied warranty against

Caltex under the marine insurance policy. However, the same cannot be validly interpreted as an

automatic admission of the vessels seaworthiness by the private respondent as to foreclose

recourse against the petitioner for any liability under its contractual obligation as a common

carrier. The fact of payment grants the private respondent subrogatory right which enables it toexercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo

against the petitioner common carrier.[8]Article 2207 of the New Civil Code provides that:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity

from the insurance company for the injury or loss arising out of the wrong or breach

of contract complained of, the insurance company shall be subrogated to the rights of

the insured against the wrongdoer or the person who has violated the contract. If the

amount paid by the insurance company does not fully cover the injury or loss, the

aggrieved party shall be entitled to recover the deficiency from the person causing the

loss or injury.

The right of subrogation has its roots in equity. It is designed to promote and to accomplish

justice and is the mode which equity adopts to compel the ultimate payment of a debt by onewho in justice and good conscience ought to pay.[9]It is not dependent upon, nor does it grow out

of, any privity of contract or upon written assignment of claim. It accrues simply upon payment

by the insurance company of the insurance claim.[10]Consequently, the payment made by theprivate respondent (insurer) to Caltex (assured) operates as an equitable assignment to the former

of all the remedies which the latter may have against the petitioner.

From the nature of their business and for reasons of public policy, common carriers are

bound to observe extraordinary diligence in the vigilance over the goods and for the safety of

passengers transported by them, according to all the circumstances of each case.[11]

In the eventof loss, destruction or deterioration of the insured goods, common carriers shall be responsible

unless the same is brought about, among others, by flood, storm, earthquake, lightning or other

natural disaster or calamity.[12]In all other cases, if the goods are lost, destroyed or deteriorated,common carriers are presumed to have been at fault or to have acted negligently, unless they

prove that they observed extraordinary diligence.[13]
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In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex,

petitioner attributes the sinking of MT Maysun to fortuitous event orforce majeure. From the

testimonies of Jaime Jarabe and Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it appears that a sudden and unexpected change of weather condition occurred in the

early morning of August 16, 1986; that at around 3:15 oclock in the morning a squall (unos)

carrying strong winds with an approximate velocity of 30 knots per hour and big wavesaveraging eighteen (18) to twenty (20) feet high, repeatedly buffeted MT Maysun causing it totilt, take in water and eventually sink with its cargo.[14]This tale of strong winds and big waves

by the said officers of the petitioner however, was effectively rebutted and belied by the weather

report[15]from the Philippine Atmospheric, Geophysical and Astronomical ServicesAdministration (PAGASA), the independent government agency charged with monitoring

weather and sea conditions, showing that from 2:00 oclock to 8:00 oclock in the morning on

August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots per hour while the

height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass andPanay Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled,

petitioners vessel, MT Maysun, sank with its entire cargo for the reason that it was not

seaworthy. There was no squall or bad weather or extremely poor sea condition in the vicinitywhen the said vessel sank.

The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe and

Francisco Berina, ship captain and chief mate, respectively, of the said vessel, could not be

expected to testify against the interest of their employer, the herein petitioner common carrier.

Neither may petitioner escape liability by presenting in evidence certificates[16]that tend to

show that at the time of dry-docking and inspection by the Philippine Coast Guard, the vessel

MT Maysun, was fit for voyage. These pieces of evidence do not necessarily take into account

the actual condition of the vessel at the time of the commencement of the voyage. As correctlyobserved by the Court of appeals:

At the time of dry-docking and inspection, the ship may have appeared fit. The

certificates issued, however, do not negate the presumption of unseaworthiness

triggered by an unexplained sinking. Of certificates issued in this regard, authorities

are likewise clear as to their probative value, (thus):

Seaworthiness relates to a vessels actual condition. Neither the granting of

classification or the issuance of certificates establishes seaworthiness. (2-A Benedict

on Admiralty, 7-3, Sec. 62)

And also:

Authorities are clear that diligence in securing certificates of seaworthiness does not

satisfy the vessel owners obligation. Also securing the approval of the shipper of the

cargo, or his surveyor, of the condition of the vessel or her stowage does not establish

due diligence if the vessel was in fact unseaworthy, for the cargo owner has no

obligation in relation to seaworthiness. (Ibid.)[17]
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Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine

Inquiry merely concerns their respective administrative liabilities. It does not in any way operate

to absolve the petitioner common carrier from its civil liability arising from its failure to observeextraordinary diligence in the vigilance over the goods it was transporting and for the negligent

acts or omissions of its employees, the determination of which properly belongs to the

courts.

[18]

In the case at bar, petitioner is liable for the insured value of the lost cargo of industrialfuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence ascommon carrier[19]occasioned by the unexplained sinking of its vessel, MT Maysun, while in

transit.

Anent the second issue, it is our view and so hold that the presentation in evidence of themarine insurance policy is not indispensable in this case before the insurer may recover from the

common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The

subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private

respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil,but also the amount paid to settle the insurance claim. The right of subrogation accrues simply

upon payment by the insurance company of the insurance claim.[20]

The presentation of the insurance policy was necessary in the case ofHome Insurance

Corporation v. CA[21](a case cited by petitioner)because the shipment therein (hydraulicengines) passed through several stages with different parties involved in each stage. First, from

the shipper to the port of departure; second, from the port of departure to the M/S Oriental

Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from theM/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator;

sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent

therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the

absence of proof of stipulations to the contrary, the hauler can be liable only for any damage thatoccurred from the time it received the cargo until it finally delivered it to the

consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before itactually received it. The insurance contract, which was not presented in evidence in that casewould have indicated the scope of the insurers liability, if any, since no evidence was adduced

indicating at what stage in the handling process the damage to the cargo was sustained.

Hence, our ruling on the presentation of the insurance policy in the said case of Home

Insurance Corporation is not applicable to the case at bar. In contrast, there is no doubt that thecargo of industrial fuel oil belonging to Caltex, in the case at bar, was lost while on board

petitioners vessel, MT Maysun, which sank while in transit in the vicinity of Panay Gulf and

Cuyo East Pass in the early morning of August 16, 1986.

WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of theCourt of Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing, andBuena, JJ., concur.
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Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 85296 May 14, 1990

ZENITH INSURANCE CORPORATION, petitioner,vs.COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.

Vicente R. Layawen for petitioner.

Lawrence L. Fernandez & Associates for private respondent.

MEDIALDEA, J .:

Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled,"Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance Corp., defendant-appellant" whichaffirmed in totothe decision of the Regional Trial Court of Cebu, Branch XX in Civil Case No. CEB-1215 and the denial of petitioner's Motion for Reconsideration.

The antecedent facts are as follows:

On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own damage"

under private car Policy No. 50459 with petitioner Zenith Insurance Corporation. On July 6, 1983, thecar figured in an accident and suffered actual damages in the amount of P3,640.00. After allegedlybeing given a run around by Zenith for two (2) months, Fernandez filed a complaint with theRegional Trial Court of Cebu for sum of money and damages resulting from the refusal of Zenith topay the amount claimed. The complaint was docketed as Civil Case No. CEB-1215. Aside fromactual damages and interests, Fernandez also prayed for moral damages in the amount ofP10,000.00, exemplary damages of P5,000.00, attorney's fees of P3,000.00 and litigation expensesof P3,000.00.

On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of Fernandezpursuant to the terms and conditions of the contract which, the private respondent rejected. After theissues had been joined, the pre-trial was scheduled on October 17, 1983 but the same was moved

to November 4, 1983 upon petitioner's motion, allegedly to explore ways to settle the case althoughat an amount lower than private respondent's claim. On November 14, 1983, the trial courtterminated the pre-trial. Subsequently, Fernandez presented his evidence. Petitioner Zenith,however, failed to present its evidence in view of its failure to appear in court, without justifiablereason, on the day scheduled for the purpose. The trial court issued an order on August 23, 1984submitting the case for decision without Zenith's evidence (pp. 10-11, Rollo). Petitioner filed apetition for certiorariwith the Court of Appeals assailing the order of the trial court submitting thecase for decision without petitioner's evidence. The petition was docketed as C.A.-G.R. No. 04644.However, the petition was denied due course on April 29, 1986 (p. 56, Rollo).


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On June 4, 1986, a decision was rendered by the trial court in favor of private respondentFernandez. The dispositive portion of the trial court's decision provides:

WHEREFORE, defendant is hereby ordered to pay to the plaintiff:

1. The amount of P3,640.00 representing the damage incurred plus interest at the

rate of twice the prevailing interest rates;

2. The amount of P20,000.00 by way of moral damages;

3. The amount of P20,000.00 by way of exemplary damages;

4. The amount of P5,000.00 as attorney's fees;

5. The amount of P3,000.00 as litigation expenses; and

6. Costs. (p. 9, Rollo)

Upon motion of Fernandez and before the expiration of the period to appeal, the trial court, on June20, 1986, ordered the execution of the decision pending appeal. The order was assailed bypetitioner in a petition forcertiorariwith the Court of Appeals on October 23, 1986 in C.A. G.R. No.10420 but which petition was also dismissed on December 24, 1986 (p. 69, Rollo).

On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of appeal wasgranted in the same order granting private respondent's motion for execution pending appeal. Theappeal to respondent court assigned the following errors:

I. The lower court erred in denying defendant appellant to adduce evidence in itsbehalf.

II. The lower court erred in ordering Zenith Insurance Corporation to pay the amountof P3,640.00 in its decision.

III. The lower court erred in awarding moral damages, attorneys fees and exemplarydamages, the worst is that, the court awarded damages more than what are prayedfor in the complaint. (p. 12,Rollo)

On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the decision of thetrial court. It also ruled that the matter of the trial court's denial of Fernandez's right to adduceevidence is a closed matter in view of its (CA) ruling in AC-G.R. 04644 wherein Zenith's petitionquestioning the trial court's order submitting the case for decision without Zenith's evidence, wasdismissed.

The Motion for Reconsideration of the decision of the Court of Appeals dated August 17, 1988 wasdenied on September 29, 1988, for lack of merit. Hence, the instant petition was filed by Zenith onOctober 18, 1988 on the allegation that respondent Court of Appeals' decision and resolution rancounter to applicable decisions of this Court and that they were rendered without or in excess of

jurisdiction. The issues raised by petitioners in this petition are:


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a) The legal basis of respondent Court of Appeals in awarding moral damages,exemplary damages and attomey's fees in an amount more than that prayed for inthe complaint.

b) The award of actual damages of P3,460.00 instead of only P1,927.50 which wasarrived at after deducting P250.00 and P274.00 as deductible franchise and 20%

depreciation on parts as agreed upon in the contract of insurance.

Petitioner contends that while the complaint of private respondent prayed for P10,000.00 moraldamages, the lower court awarded twice the amount, or P20,000.00 without factual or legal basis;while private respondent prayed for P5,000.00 exemplary damages, the trial court awardedP20,000.00; and while private respondent prayed for P3,000.00 attorney's fees, the trial courtawarded P5,000.00.

The propriety of the award of moral damages, exemplary damages and attorney's fees is the mainissue raised herein by petitioner.

The award of damages in case of unreasonable delay in the payment of insurance claims is

governed by the Philippine Insurance Code, which provides:

Sec. 244. In case of any litigation for the enforcement of any policy or contract ofinsurance, it shall be the duty of the Commissioner or the Court, as the case may be,to make a finding as to whether the payment of the claim of the insured has beenunreasonably denied or withheld; and in the affirmative case, the insurance companyshall be adjudged to pay damages which shall consist of attomey's fees and otherexpenses incurred by the insured person by reason of such unreasonable denial orwithholding of payment plus interest of twice the ceiling prescribed by the MonetaryBoard of the amount of the claim due the insured, from the date following the timeprescribed in section two hundred forty-two or in section two hundred forty-three, asthe case may be, until the claim is fully satisfied; Provided, That the failure to pay anysuch claim within the time prescribed in said sections shall be consideredprima

facieevidence of unreasonable delay in payment.

It is clear that under the Insurance Code, in case of unreasonable delay in the payment of theproceeds of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) otherexpenses incurred by the insured person by reason of such unreasonable denial or withholding ofpayment; 3) interest at twice the ceiling prescribed by the Monetary Board of the amount of the claimdue the injured; and 4) the amount of the claim.

As regards the award of moral and exemplary damages, the rules under the Civil Code of thePhilippines shall govern.

"The purpose of moral damages is essentially indemnity or reparation, not punishment or correction.

Moral damages are emphatically not intended to enrich a complainant at the expense of adefendant, they are awarded only to enable the injured party to obtain means, diversions oramusements that will serve to alleviate the moral suffering he has undergone by reason of thedefendant's culpable action." (J. Cezar S. Sangco, Philippine Law on Torts and Damages, RevisedEdition, p. 539) (See also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No. 64515, June 22,1984; 129 SCRA 745). While it is true that no proof of pecuniary loss is necessary in order that moraldamages may be adjudicated, the assessment of which is left to the discretion of the court accordingto the circumstances of each case (Art. 2216, New Civil Code), it is equally true that in awardingmoral damages in case of breach of contract, there must be a showing that the breach was wanton


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and deliberately injurious or the one responsible acted fraudently or in bad faith (Perez v. Court ofAppeals, G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L-17022,August 14, 1965; 14 SCRA 887). In the instant case, there was a finding that private respondent wasgiven a "run-around" for two months, which is the basis for the award of the damages granted underthe Insurance Code for unreasonable delay in the payment of the claim. However, the act ofpetitioner of delaying payment for two months cannot be considered as so wanton or malevolent to

justify an award of P20,000.00 as moral damages, taking into consideration also the fact that theactual damage on the car was only P3,460. In the pre-trial of the case, it was shown that there wasno total disclaimer by respondent. The reason for petitioner's failure to indemnify private respondentwithin the two-month period was that the parties could not come to an agreement as regards theamount of the actual damage on the car. The amount of P10,000.00 prayed for by privaterespondent as moral damages is equitable.

On the other hand, exemplary or corrective damages are imposed by way of example or correctionfor the public good (Art. 2229, New Civil Code of the Philippines). In the case of Noda v. Cruz-

Arnaldo, G.R. No. 57322, June 22,1987; 151 SCRA 227, exemplary damages were not awarded asthe insurance company had not acted in wanton, oppressive or malevolent manner. The same istrue in the case at bar.

The amount of P5,000.00 awarded as attomey's fees is justified under the circumstances of thiscase considering that there were other petitions filed and defended by private respondent inconnection with this case.

As regards the actual damages incurred by private respondent, the amount of P3,640.00 had beenestablished before the trial court and affirmed by the appellate court. Respondent appellate courtcorrectly ruled that the deductions of P250.00 and P274.00 as deductible franchise and 20%depreciation on parts, respectively claimed by petitioners as agreed upon in the contract, had nobasis. Respondent court ruled:

Under its second assigned error, defendant-appellant puts forward two arguments,both of which are entirely without merit. It is contented that the amount recoverable

under the insurance policy defendant-appellant issued over the car of plaintiff-appellee is subject to deductible franchise, and . . . .

The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible franchise,. . .(p. 13, Rollo)

Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplarydamages is hereby deleted. The awards due to private respondent Fernandez are as follows:

1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by theMonetary Board computed from the time of submission of proof of loss;

2) P10,000.00 as moral damages;

3) P5,000.00 as attorney's fees;

4) P3,000.00 as litigation expenses; and

5) Costs.


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ACCORDINGLY, the appealed decision is MODIFIED as above stated.

SO ORDERED.

epublic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. NO. 147039 January 27, 2006

DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner,vs.RADIO MINDANAO NETWORK, INC.,Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J .:

This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking the review of theDecision1dated November 16, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 56351, thedispositive portion of which reads:

Wherefore, premises considered, the appealed Decision of the Regional Trial Court of Makati City,Branch 138 in Civil Case No. 90-602 is hereby AFFIRMED with MODIFICATION in that the interestrate is hereby reduced to 6% per annum.

Costs against the defendants-appellants.

SO ORDERED.2

The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao Network, Inc.(respondent) against DBP Pool of Accredited Insurance Companies (petitioner) and ProvidentInsurance Corporation (Provident) for recovery of insurance benefits. Respondent owns severalbroadcasting stations all over the country. Provident covered respondents transmitter equipmentand generating set for the amount ofP13,550,000.00 under Fire Insurance Policy No. 30354, whilepetitioner covered respondents transmitter, furniture, fixture and other transmitter facilities for theamount of P5,883,650.00 under Fire Insurance Policy No. F-66860.

In the evening of July 27, 1988, respondents radio station located in SSS Building, Bacolod City,was razed by fire causing damage in the amount of P1,044,040.00. Respondent sought recovery

under the two insurance policies but the claims were denied on the ground that the cause of losswas an excepted risk excluded under condition no. 6 (c) and (d), to wit:

6. This insurance does not cover any loss or damage occasioned by or through or in consequence,directly or indirectly, of any of the following consequences, namely:

(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be declared ornot), civil war.
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(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurpedpower.3

The insurance companies maintained that the evidence showed that the fire was caused bymembers of the Communist Party of the Philippines/New Peoples Army (CPP/NPA); andconsequently, denied the claims. Hence, respondent was constrained to file Civil Case No. 90-602

against petitioner and Provident.

After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a decision in favorof respondent. The dispositive portion of the decision reads:

IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant Provident InsuranceCorporation is directed to pay plaintiff the amount of P450,000.00 representing the value of thedestroyed property insured under its Fire Insurance Policy plus 12% legal interest from March 2,1990 the date of the filing of the Complaint. Defendant DBP Pool Accredited Insurance Companiesis likewise ordered to pay plaintiff the sum of P602,600.00 representing the value of the destroyedproperty under its Fire Insurance Policy plus 12% legal interest from March 2, 1990.

SO ORDERED.4

Both insurance companies appealed from the trial courts decision but the CA affirmed the decision,with the modification that the applicable interest rate was reduced to 6% per annum. A motion forreconsideration was filed by petitioner DBP which was denied by the CA per its Resolution datedJanuary 30, 2001.5

Hence, herein petition by DBP Pool of Accredited Insurance Companies,6with the followingassignment of errors:

Assignment of Errors

THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE NOSUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY [sic] (20) ARMED MENWHO CUSED [sic] THE FIRE AT RESPONDENTS RMN PROPERTY AT BACOLOD CITY WEREMEMBERS OF THE CPP-NPA.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT RESPONDENTRMN CANNOT BEHELD [sic] FOR DAMAGES AND ATTORNEYS FEES FOR INSTITUTING THEPRESENT ACTION AGAINST THE PETITIONER UNDER ARTICLES 21, 2208, 2229 AND 2232 OFTHE CIVIL CODE OF THE PHILIPPINES.7

Petitioner assails the factual finding of both the trial court and the CA that its evidence failed tosupport its allegation that the loss was caused by an excepted risk, i.e., members of the CPP/NPAcaused the fire. In upholding respondents claim for indemnity, the trial court found that:

The only evidence which the Court can consider to determine if the fire was due to the intentional actcommitted by the members of the New Peoples Army (NPA), are the testimony [sic] of witnesses Lt.Col. Nicolas Torres and SPO3 Leonardo Rochar who were admittedly not present when the fireoccurred. Their testimony [sic] was [sic] limited to the fact that an investigation was conducted and inthe course of the investigation they were informed by bystanders that "heavily armed men enteredthe transmitter house, poured gasoline in (sic) it and then lighted it. After that, they went out shouting"Mabuhay ang NPA" (TSN, p. 12., August 2, 1995). The persons whom they investigated and
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actually saw the burning of the station were not presented as witnesses. The documentary evidenceparticularly Exhibits "5" and "5-C" do not satisfactorily prove that the author of the burning weremembers of the NPA. Exhibit "5-B" which is a letter released by the NPA merely mentions somedissatisfaction with the activities of some people in the media in Bacolod. There was no mentionthere of any threat on media facilities.8

The CA went over the evidence on record and sustained the findings of the trial court, to wit:

To recapitulate, defendants-appellants presented the following to support its claim, to wit: policeblotter of the burning of DYHB, certification of the Negros Occidental Integrated National Police,Bacolod City regarding the incident, letter of alleged NPA members Celso Magsilang claimingresponsibility for the burning of DYHB, fire investigation report dated July 29, 1988, and thetestimonies of Lt. Col. Nicolas Torres and SFO III Leonardo Rochas. We examined carefully thereport on the police blotter of the burning of DYHB, the certification issued by the Integrated NationalPolice of Bacolod City and the fire investigation report prepared by SFO III Rochas and there Wefound that none of them categorically stated that the twenty (20) armed men which burned DYHBwere members of the CPP/NPA. The said documents simply stated that the said armed men werebelieved to be or suspected of being members of the said group. Even SFO III Rochas admittedthat he was not sure that the said armed men were members of the CPP-NPA, thus:

In fact the only person who seems to be so sure that that the CPP-NPA had a hand in the burning ofDYHB was Lt. Col. Nicolas Torres. However, though We found him to be persuasive in his testimonyregarding how he came to arrive at his opinion, We cannot nevertheless admit his testimony asconclusive proof that the CPP-NPA was really involved in the incident considering that he admittedthat he did not personally see the armed men even as he tried to pursue them. Note that when Lt.Col. Torres was presented as witness, he was presented as an ordinary witness only and not anexpert witness. Hence, his opinion on the identity or membership of the armed men with the CPP-NPA is not admissible in evidence.

Anent the letter of a certain Celso Magsilang, who claims to be a member of NPA-NIROC, being anadmission of person which is not a party to the present action, is likewise inadmissible in evidenceunder Section 22, Rule 130 of the Rules of Court. The reason being that an admission is competentonly when the declarant, or someone identified in legal interest with him, is a party to the action.9

The Court will not disturb these factual findings absent compelling or exceptional reasons. It shouldbe stressed that a review by certiorari under Rule 45 is a matter of discretion. Under this mode ofreview, the jurisdiction of the Court is limited to reviewing only errors of law, not of fact.10

Moreover, when supported by substantial evidence, findings of fact of the trial court as affirmed bythe CA are conclusive and binding on the parties,11which this Court will not review unless there areexceptional circumstances. There are no exceptional circumstances in this case that would have

impelled the Court to depart from the factual findings of both the trial court and the CA.

Both the trial court and the CA were correct in ruling that petitioner failed to prove that the loss wascaused by an excepted risk.

Petitioner argues that private respondent is responsible for proving that the cause of thedamage/loss is covered by the insurance policy, as stipulated in the insurance policy, to wit:
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Any loss or damage happening during the existence of abnormal conditions (whether physical orotherwise) which are occasioned by or through in consequence directly or indirectly, of any of thesaid occurrences shall be deemed to be loss or damage which is not covered by the insurance,except to the extent that the Insured shall prove that such loss or damage happened independentlyof the existence of such abnormal conditions.

In any action, suit or other proceeding where the Companies allege that by reason of the provisionsof this condition any loss or damage is not covered by this insurance, the burden of proving thatsuch loss or damage is covered shall be upon the Insured.12

An insurance contract, being a contract of adhesion, should be so interpreted as to carry out thepurpose for which the parties entered into the contract which is to insure against risks of loss ordamage to the goods. Limitations of liability should be regarded with extreme jealousy and must beconstrued in such a way as to preclude the insurer from noncompliance with its obligations.13

The "burden of proof" contemplated by the aforesaid provision actually refers to the "burden ofevidence" (burden of going forward).14As applied in this case, it refers to the duty of the insured toshow that the loss or damage is covered by the policy. The foregoing clause notwithstanding, the

burden of proof still rests upon petitioner to prove that the damage or loss was caused by anexcepted risk in order to escape any liability under the contract.

Burden of proof is the duty of any party to present evidence to establish his claim or defense by theamount of evidence required by law, which is preponderance of evidence in civil cases. The party,whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof toobtain a favorable judgment. For the plaintiff, the burden of proof never parts.15For the defendant, anaffirmative defense is one which is not a denial of an essential ingredient in the plaintiffs cause ofaction, but one which, if established, will be a good defensei.e. an "avoidance" of the claim.16

Particularly, in insurance cases, where a risk is excepted by the terms of a policy which insuresagainst other perils or hazards, loss from such a risk constitutes a defense which the insurer mayurge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a

claim because of an exception or limitation in the policy has the burden of proving that theloss comes within the purview of the exception or limitation set up. If a proof is made of a lossapparently within a contract of insurance, the burden is upon the insurer to prove that the loss arosefrom a cause of loss which is excepted or for which it is not liable, or from a cause which limits itsliability.17

Consequently, it is sufficient for private respondent to prove the fact of damage or loss. Oncerespondent makes out a prima facie case in its favor, the duty or the burden of evidence shifts topetitioner to controvert respondents prima facie case.18In this case, since petitioner alleged anexcepted risk, then the burden of evidence shifted to petitioner to prove such exception. It is onlywhen petitioner has sufficiently proven that the damage or loss was caused by an excepted riskdoes the burden of evidence shift back to respondent who is then under a duty of producing

evidence to show why such excepted risk does not release petitioner from any liability. Unfortunatelyfor petitioner, it failed to discharge its primordial burden of proving that the damage or loss wascaused by an excepted risk.

Petitioner however, insists that the evidence on record established the identity of the author of thedamage. It argues that the trial court and the CA erred in not appreciating the reports of witnessesLt. Col Torres and SFO II Rochar that the bystanders they interviewed claimed that the perpetratorswere members of the CPP/NPA as an exception to the hearsay rule as part of res gestae.
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A witness can testify only to those facts which he knows of his personal knowledge, which meansthose facts which are derived from his perception.19A witness may not testify as to what he merelylearned from others either because he was told or read or heard the same. Such testimony isconsidered hearsay and may not be received as proof of the truth of what he has learned. Thehearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsayevidence inasmuch as such evidence are not given under oath or solemn affirmation and, more

importantly, have not been subjected to cross-examination by opposing counsel to test theperception, memory, veracity and articulateness of the out-of-court declarant or actor upon whosereliability on which the worth of the out-of-court statement depends.20

Res gestae, as an exception to the hearsay rule, refers to those exclamations and statements madeby either the participants, victims, or spectators to a crime immediately before, during, or after thecommission of the crime, when the circumstances are such that the statements were made as aspontaneous reaction or utterance inspired by the excitement of the occasion and there was noopportunity for the declarant to deliberate and to fabricate a false statement. The rule in res gestaeapplies when the declarant himself did not testify and provided that the testimony of the witness whoheard the declarant complies with the following requisites: (1) that the principal act, the res gestae,be a startling occurrence; (2) the statements were made before the declarant had the time tocontrive or devise a falsehood; and (3) that the statements must concern the occurrence in questionand its immediate attending circumstances.21

The Court is not convinced to accept the declarations as part of res gestae. While it may concedethat these statements were made by the bystanders during a startling occurrence, it cannot be saidhowever, that these utterances were made spontaneouslyby the bystanders and before they hadthe time to contrive or devise a falsehood . Both SFO III Rochar and Lt. Col. Torres received thebystanders statements whilethey were making their investigations during and after the fire. It isreasonable to assume that when these statements were noted down, the bystanders already hadenough time and opportunity to mill around, talk to one another and exchange information, not tomention theories and speculations, as is the usual experience in disquieting situations wherehysteria is likely to take place. It cannot therefore be ascertained whether these utterances were theproducts of truth. That the utterances may be mere idle talk is not remote.

At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these statements were made maybe considered as independently relevant statements gathered in the course of their investigation,and are admissible not as to the veracity thereof but to the fact that they had been thus uttered .22

Furthermore, admissibility of evidence should not be equated with its weight andsufficiency.23Admissibility of evidence depends on its relevance and competence, while the weightof evidence pertains to evidence already admitted and its tendency to convince andpersuade.24Even assuming that the declaration of the bystanders that it was the members of theCPP/NPA who caused the fire may be admitted as evidence, it does not follow that suchdeclarations are sufficient proof. These declarations should be calibrated vis--vis the otherevidence on record. And the trial court aptly noted that there is a need for additional convincingproof, viz.:

The Court finds the foregoing to be insufficient to establish that the cause of the fire was theintentional burning of the radio facilities by the rebels or an act of insurrection, rebellion or usurpedpower. Evidence that persons who burned the radio facilities shouted "Mabuhay ang NPA" does notfurnish logical conclusion that they are member [sic] of the NPA or that their act was an act ofrebellion or insurrection. Additional convincing proof need be submitted. Defendants failed todischarge their responsibility to present adequate proof that the loss was due to a risk excluded.25
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While the documentary evidence presented by petitioner, i.e., (1) the police blotter; (2) thecertification from the Bacolod Police Station; and (3) the Fire Investigation Report may beconsidered exceptions to the hearsay rule, being entries in official records, nevertheless, as noted bythe CA, none of these documents categorically stated that the perpetrators were members of theCPP/NPA.26Rather, it was stated in the police blotter that: "a group of persons accompanied by one(1) woman all believedto be CPP/NPA more or less 20 persons suspected to be

CPP/NPA,"27

while the certification from the Bacolod Police station stated that " some 20 or morearmed menbelievedto be members of the New Peoples Army NPA,"28and the fire investigationreport concluded that "(I)t is therefore believedby this Investigating Team that the cause of the fireis intentional, and the armed mensuspectedto be members of the CPP/NPA where (sic) the onesresponsible "29All these documents show that indeed, the "suspected" executor of the fire werebelieved to be members of the CPP/NPA. But suspicion alone is not sufficient, preponderance ofevidence being the quantum of proof.

All told, the Court finds no reason to grant the present petition.

WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated November 16,2000 and Resolution dated January 30, 2001 rendered in CA-G.R. CV No. 56351 are AFFIRMED intoto.

SO ORDERED.

D E C I S I O N

CORONA, J.:

This is a petition for review on certiorari[1]

of a decision[2]

and resolution[3]

of

the Court of Appeals (CA) dated July 29, 2005 and September 21, 2005,

respectively, in CA-G.R. SP No. 84163 which affirmed the decision of the

Regional Trial Court (RTC), Makati City, Branch 61 dated February 2, 2004 in

Civil Case No. 03-1153,[4]which in turn reversed the decision of the Metropolitan

Trial Court (MeTC), Makati City, Branch 66 dated August 5, 2003 in Civil Case

No. 80867.[5]

Respondent Neomi T. Olivares applied for a health care program with

petitioner Blue Cross Health Care, Inc., a health maintenance firm. For the period

October 16, 2002 to October 15, 2003,[6]she paid the amount of P11,117. For the
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same period, she also availed of the additional service of limitless consultations for

an additional amount of P1,000. She paid these amounts in full on October 17,

2002. The application was approved on October 22, 2002. In the health care

agreement, ailments due to pre-existing conditions were excluded from the

coverage.[7]

On November 30, 2002, or barely 38 days from the effectivity of her health

insurance, respondent Neomi suffered a stroke and was admitted at the Medical

City which was one of the hospitals accredited by petitioner. During her

confinement, she underwent several laboratory tests. On December 2, 2002, her

attending physician, Dr. Edmundo Saniel,[8]informed her that she could be

discharged from the hospital. She incurred hospital expenses amounting

to P34,217.20. Consequently, she requested from the representative of petitioner at

Medical City a letter of authorization in order to settle her medical bills. But

petitioner refused to issue the letter and suspended payment pending the

submission of a certification from her attending physician that the stroke she

suffered was not caused by a pre-existing condition.[9]

She was discharged from the hospital on December 3, 2002. On December

5, 2002, she demanded that petitioner pay her medical bill. When petitioner still

refused, she and her husband, respondent Danilo Olivares, were constrained to

settle the bill.[10]They thereafter filed a complaint for collection of sum of money

against petitioner in the MeTC on January 8, 2003.[11]In its answer dated January

24, 2003, petitioner maintained that it had not yet denied respondents' claim as it

was still awaiting Dr. Saniel's report.

In a letter to petitioner dated February 14, 2003, Dr. Saniel stated that:
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This is in response to your letter dated February 13, 2003. [Respondent]

Neomi T. Olivares called by phone on January 29, 2003. She stated that

she is invoking patient-physician confidentiality. That she no longer has

any relationship with [petitioner]. And that I should not release any

medical information concerning her neurologic status to anyone without

her approval. Hence, the same day I instructed my secretary to informyour office thru Ms. Bernie regarding [respondent's] wishes.

xxx xxx xxx[12]

In a decision dated August 5, 2003, the MeTC dismissed the complaint for

lack of cause of action. It held:

xxx the best person to determine whether or not the stroke she suffered

was not caused by pre-existing conditions is her attending physician

Dr. Saniel who treated her and conducted the test during her

confinement. xxx But since the evidence on record reveals that it was no

less than [respondent Neomi] herself who prevented her attending

physician from issuing the required certification, petitioner cannot be

faulted from suspending payment of her claim, for until and unless it can

be shown from the findings made by her attending physician that the

stroke she suffered was not due to pre-existing conditions could she

demand entitlement to the benefits of her policy.[13]

On appeal, the RTC, in a decision dated February 2, 2004, reversed the

ruling of the MeTC and ordered petitioner to pay respondents the following

amounts: (1) P34,217.20 representing the medical bill in Medical City and P1,000

as reimbursement for consultation fees, with legal interest from the filing of the

complaint until fully paid; (2) P20,000 as moral damages; (3) P20,000 as

exemplary damages; (4) P20,000 as attorney's fees and (5) costs of suit.[14] The

RTC held that it was the burden of petitioner to prove that the stroke of respondent

Neomi was excluded from the coverage of the health care program for being

caused by a pre-existing condition. It was not able to discharge that burden.[15]
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Aggrieved, petitioner filed a petition for review under Rule 42 of the Rules

of Court in the CA. In a decision promulgated on July 29, 2005, the CA affirmed

the decision of the RTC. It denied reconsideration in a resolution promulgated on

September 21, 2005. Hence this petition which raises the following issues: (1)

whether petitioner was able to prove that respondent Neomi's stroke was caused by

a pre-existing condition and therefore was excluded from the coverage of the

health care agreement and (2) whether it was liable for moral and exemplary

damages and attorney's fees.

The health care agreement defined a pre-existing condition as:

x x x a disability which existed before the commencement date of

membership whose natural history can be clinically determined, whether

or not the Member was aware of such illness or condition. Such

conditions also include disabilities existing prior to reinstatement date in

the case of lapse of an Agreement. Notwithstanding, the following

disabilities but not to the exclusion of others are considered pre-existing

conditions including their complications when occurring during the first

year of a Members coverage:

I. Tumor of Internal Organs

II. Hemorrhoids/Anal Fistula

III. Diseased tonsils and sinus conditions requiring surgery

IV. Cataract/Glaucoma

V. Pathological Abnormalities of nasal septum or turbinates

VI. Goiter and other thyroid disorders

VII. Hernia/Benign prostatic hypertrophy

VIII. Endometriosis

IX. Asthma/Chronic Obstructive Lung diseaseX. Epilepsy

XI. Scholiosis/Herniated disc and other Spinal column

abnormalities

XII. Tuberculosis

XIII. Cholecysitis

XIV. Gastric or Duodenal ulcer


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XV. Hallux valgus

XVI. Hypertension and other Cardiovascular diseases

XVII. Calculi

XVIII. Tumors of skin, muscular tissue, bone or any form of

blood dyscracias

XIX. Diabetes MellitusXX. Collagen/Auto-Immune disease

After the Member has been continuously covered for 12 months, this

pre-existing provision shall no longer be applicable except for illnesses

specifically excluded by an endorsement and made part of this

Agreement.[16]

Under this provision, disabilities which existed before the commencement of

the agreement are excluded from its coverage if they become manifest within one

year from its effectivity. Stated otherwise, petitioner is not liable for pre-existing

conditions if they occur within one year from the time the agreement takes effect.

Petitioner argues that respondents prevented Dr. Saniel from submitting his

report regarding the medical condition of Neomi. Hence, it contends that the

presumption that evidence willfully suppressed would be adverse if produced

should apply in its favor.[17]

Respondents counter that the burden was on petitioner to prove that Neomi's

stroke was excluded from the coverage of their agreement because it was due to a

pre-existing condition. It failed to prove this.[18]

We agree with respondents.

InPhilamcare Health Systems, Inc. v. CA,[19]we ruled that a health care

agreement is in the nature of a non-life insurance.[20]It is an established rule in

insurance contracts that when their terms contain limitations on liability, they
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should be construed strictly against the insurer. These are contracts of adhesion the

terms of which must be interpreted and enforced stringently against the insurer

which prepared the contract. This doctrine is equally applicable to health care

agreements.[21]

Petitioner never presented any evidence to prove that respondent Neomi's

stroke was due to a pre-existing condition. It merely speculated that Dr. Saniel's

report would be adverse to Neomi, based on her invocation of the doctor-patient

privilege. This was a disputable presumption at best.

Section 3 (e), Rule 131 of the Rules of Court states:

Sec. 3. Disputable presumptions. The following presumptions are

satisfactory if uncontradicted, but may be contradicted and overcome by

other evidence:

xxx xxx xxx

(e) That evidence willfully suppressed would be adverse if produced.

Suffice it to say that this presumption does not apply if (a) the evidence is at the

disposal of both parties; (b) the suppression was not willful; (c) it is merely

corroborative or cumulative and (d) the suppression is an exercise of a

privilege.[22] Here, respondents' refusal to present or allow the presentation of Dr.

Saniel's report was justified. It was privileged communication between physician

and patient.

Furthermore, as already stated, limitations of liability on the part of the

insurer or health care provider must be construed in such a way as to preclude it

from evading its obligations. Accordingly, they should be scrutinized by the courts
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with extreme jealousy[23]andcare and with a jaundiced eye.[24]Since

petitioner had the burden of proving exception to liability, it should have made its

own assessment of whether respondent Neomi had a pre-existing condition when it

failed to obtain the attending physician's report. It could not just passively wait for

Dr. Saniel's report to bail it out. The mere reliance on a disputable presumption

does not meet the strict standard required under our jurisprudence.

Next, petitioner argues that it should not be held liable for moral and

exemplary damages, and attorney's fees since it did not act in bad faith in denying

respondent Neomi's claim. It insists that it waited in good faith for Dr. Saniel's

report and that, based on general medical findings, it had reasonable ground to

believe that her stroke was due to a pre-existing condition, considering it occurred

only 38 days after the coverage took effect.[25]

We disagree.

The RTC and CA found that there was a factual basis for the damages

adjudged against petitioner. They found that it was guilty of bad faith in denying a

claim based merely on its own perception that there was a pre-existing condition:

[Respondents] have sufficiently shown that [they] were forced to

engage in a dispute with [petitioner] over a legitimate claim while

[respondent Neomi was] still experiencing the effects of a stroke and

forced to pay for her medical bills during and after her hospitalization

despite being covered by [petitioners] health care program, thereby

suffering in the process extreme mental anguish, shock, serious anxietyand great stress. [They] have shown that because of the refusal of

[petitioner] to issue a letter of authorization and to pay [respondent

Neomi's] hospital bills, [they had] to engage the services of counsel for a

fee of P20,000.00. Finally, the refusal of petitioner to pay respondent

Neomi's bills smacks of bad faith,as its refusal [was] merely based on
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its own perception that a stroke is a pre-existing condition. (emphasis

supplied)

This is a factual matter binding and conclusive on this Court.[26]

We see no

reason to disturb these findings.

WHEREFORE, the petition is hereby DENIED.The July 29, 2005

decision and September 21, 2005 resolution of the Court of Appeals in CA-G.R.

SP No. 84163 are AFFIRMED.

Treble costs against petitioner.

SO ORDERED.

Blue Cross v Olivares G.R. No. 169737, February12, 2008J. Corona

Facts:

Neomi Olivares applied for a health care program with Blue Cross for the amount of 12,000 pesos.

38 days after she applied, she suffered from a stroke. Ailments due to pre-existing conditions were

excluded from the coverage. She was confined in Medical City and discharged with a bill of Php34,000. Blue Cross refused to pay unless she had her physicians certification that she was suffering

from a pre-existing condition. When Blue Cross still refused to pay, she filed suit in the MTC. The

health care company rebutted by saying that the physician didnt disclose the condition due to the

patients invocation of the doctor-client privilege. The MTC dismissed for a lack of cause of action

because the physician didnt disclose the condition. In the RTC, the spouses were awarded the

amount of the hospital bills plus 60,000 in damages. This was under the ratio that the burden to
http://sc.judiciary.gov.ph/jurisprudence/2008/feb2008/169737.htm#_ftn27http://sc.judiciary.gov.ph/jurisprudence/2008/feb2008/169737.htm#_ftn27http://sc.judiciary.gov.ph/jurisprudence/2008/feb2008/169737.htm#_ftn27http://sc.judiciary.gov.ph/jurisprudence/2008/feb2008/169737.htm#_ftn27


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prove that Neomi had a pre-existing condition was under Blue Cross. The CA denied the motion for

reconsideration of the health care company.

Issues:

1. Whether petitioner was able to prove that respondent Neomi's stroke was caused by a pre-

existing condition and therefore was excluded from the coverage of the health care agreement.

2. Whether it was liable for moral and exemplary damages and attorney's fees.

Held: No. Yes. Petition dismissed.

Ratio:

1. Philamcare Health Systems, Inc. v. CA- a health care agreement is in the nature of a non-life

insurance. It is an established rule in insurance contracts that when their terms contain limitations on

liability, they should be construed strictly against the insurer. These are contracts of adhesion the

terms of which must be interpreted and enforced stringently against the insurer which prepared the

contract. This doctrine is equally applicable to health care agreements.

The agreement defined a pre-existing condition as:

a disability which existed before the commencement date of membership whose natural history can

be clinically determined, whether or not the Member was aware of such illness or condition. Suchconditions also include disabilities existing prior to reinstatement date in the case of lapse of an

Agreement.

Under this provision, disabilities which existed before the commencement of the agreement are

excluded from its coverage if they become manifest within one year from its effectivity.

Petitioners still averred that the non-disclosure of the pre-existing condition made a presumption in

its favor. Respondents still maintained that the petitioner had the duty to prove its accusation.

Petitioner never presented evidence to prove its presumption that the Doctors report would work

against Neomi. They only perceived that the invocation of the privilege made the report adverse to

Neomi and such was a disreputable presumption. They should have made an independent

assessment of Neomis condition when it failed to obtain the report. They shouldnt have waited for

the attending physicians report to come out.

Section 3 (e), Rule 131 of the Rules of Court states:

Under the rules of court, Rule 131, Sec. 3.


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Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but may

be contradicted and overcome by other evidence:

(e) That evidence willfully suppressed would be adverse if produced.

The exception on presenting evidence applies when the suppression is an exercise of a privilege.

Hence, Neomi had the privilege not to present the Doctors report under the doctor-client privilege.

2. The court quoted the CA and RTC decision stating that the refusal of petitioner to pay

respondent Neomi's bills smacks of bad faith, as its refusal [was] merely based on its own perception

that a stroke is a pre-existing condition. Also, there was factual bases in the RTC and CA for the

award of the damages.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

MALAYAN INSURANCE CO., INC.,

Petitioner,

- versus -

RODELIO ALBERTO and

G.R. No. 194320

Present:

VELASCO, JR.,J., Chairperson,

PERALTA,

MENDOZA,


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ENRICO ALBERTO REYES,

Respondents.

REYES,*and

PERLAS-BERNABE,JJ.

Promulgated:

February 1, 2012

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