1 Verendia vs. Court of Appeals [GR 76399, 22 January 1993]; also Fidelity & Surety Co. of the Philippines Inc. vs. Verendia [GR 75605] Third Division, Melo (J): 4 concur Facts: Fidelity and Surety Insurance Company of the Philippines issued its Fire Insurance Policy F-18876 effective between 23 June 1980 and 23 June 1981 covering Rafael (Rex) Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank. Verendia also insured the same building with two other companies, namely, The Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on 12 May 1981, and The Development Insurance for P400,000.00 under Policy F-48867 expiring on 30 June 1981. While the three fire insurance policies were in force, the insured property was completely destroyed by fire on the early morning of 28 December 1980. Fidelity was accordingly informed of the loss and despite demands, refused payment under its policy, thus prompting Verendia to file a complaint with the then Court of First Instance of Quezon City, praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and litigation expenses. The complaint was later amended to include Monte de Piedad as an "unwilling defendant." Answering the complaint, 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. On 24 May 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the policy was also violated by Verendia in that the insured failed to inform Fidelity of his other insurance coverages with Country Bankers Insurance and Development Insurance. Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated on 31 March 1986, (CA-GR CV 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court reversed for the following reasons: (a) there was no misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia to give notice to Fidelity of other contracts of insurance was waived by Fidelity as shown by its conduct in attempting to settle the claim of Verendia. Fidelity received a copy of the appellate court's decision on 4 April 1986, but instead of directly filing a motion for reconsideration within 15 days therefrom, Fidelity filed on 21 April 1986, a motion for extension of 3 days within which to file a motion for reconsideration. The motion for extension was not filed on 19 April 1986 which was the 15th day after receipt of the decision because said 15th day was a Saturday and of course, the following day was a Sunday. The motion for extension was granted by the appellate court on 30 April 1986, but Fidelity had in the meantime filed its motion for reconsideration on 24 April 1986. Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground that the motion for extension was filed out of time because the 15th day from receipt of the decision which fell on a Saturday was ignored by Fidelity, for indeed, so Verendia contended, the Intermediate Appellate Court has personnel receiving pleadings even on Saturdays. The motion to expunge was denied on 17 June 1986 and after a motion for reconsideration was similarly brushed aside on 22 July 1986, a petition (GR 75605) was initiated. Subsequently, or more specifically on 21 October 1986, the appellate court denied Fidelity's motion for reconsideration and account thereof. Fidelity filed on 31 March 1986, the petition for review on certiorari (GR 76399). The two petitions, inter-related as they are, were consolidated and thereafter given due course. Issue: Whether Verandia forfeited all benefits due to his presentation of a false declaration to support his claim. Held: The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered into between him and one Robert Garcia, married to Helen Cawinian, on 25 June 1980, a couple of days after the effectivity of the insurance policy. When the rented residential building was razed to the ground on 28 December 1980, it appears that Robert Garcia (or Roberto Garcia) was still within the premises. However, according to the investigation report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building appeared to have "no occupant" and that Mr. Roberto Garcia was "renting on the otherside

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(sic) portion of said compound.". These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia whom he considered as the real lessee, was occupying the building when it was burned. Robert Garcia disappeared after the fire. It was only on 9 October 1981 that an adjuster was able to locate him. Robert Garcia then executed an affidavit before the National Intelligence and Security Authority (NISA) to the effect that he was not the lessee of Verendia's house and that his signature on the contract of lease was a complete forgery. Thus, on the strength of these facts, the adjuster submitted a report dated 4 December 1981 recommending the denial of Verendia's claim. Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract. According to Verendia, it was signed by Marcelo Garcia cousin of Robert, who had been paying the rentals all the while. Verendia, however, failed to explain why Marcelo had to sign his cousin's name when he in fact was paying for the rent and why Verendia himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to have sufficient bases: Verendia concocted the lease contract to deflect responsibility for the fire towards an alleged "lessee", inflated the value of the property by the alleged monthly rental of P6,500 when in fact, the Provincial Assessor of Rizal had assessed the property's fair market value to be only P40,300.00, insured the same property with two other insurance companies for a total coverage of around P900,000, and created a dead-end for the adjuster by the disappearance of Robert Garcia. 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 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". 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. 2 Rizal Surety & Insurance Company vs. Court of Appeals [GR 112360, 18 June 2000] Third Division, Purisima (J): 4 concur Facts: On 13 March 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially for P1,000,000.00 and eventually increased to P1,500,000.00, covering the period from 14 August 1980 to 13 March 1981. The same pieces of property insured with Rizal Insurance were also insured with New India Assurance Company, Ltd., (New India). On 12 January 1981, fire broke out in the compound of Transworld, razing the middle portion of its four-span building and partly gutting the left and right sections thereof. A two-storey building (behind said four-span building) where fun and amusement machines and spare parts were stored, was also destroyed by the fire. Transworld filed its insurance claims with Rizal Insurance and New India but to no avail. On 26 May 1982, TransWorld brought against the said insurance companies an action for collection of sum of money and damages (Civil Case 46106) before Branch 161 of the then Court of First Instance of Rizal; praying for judgment ordering Rizal Insurance and New India to pay the amount of P2,747,867.00 plus legal interest, P400,000.00 as attorney's fees, exemplary damages, expenses of litigation of P50,000.00 and costs of suit. Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span building, which was partly burned, and not the damage caused by the fire on the two-storey annex building. On 4 January 1990, the trial court rendered its decision; dismissing the case as against New India; ordering Rizal Insurance to pay Transworld the amount of P826,500.00 representing the actual value of the losses suffered by it; and with cost against Rizal Insurance. Both Rizal Insurance and TransWorld went to the Court

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of Appeals, which came out with its decision of 15 July 1993, modifying the lower court's decision by requiring New India to pay Transworld the amount of P1,818,604.19; and Rizal Surety to pay Transworld P470,328.67, based on the actual losses sustained by Transworld in the fire, totalling P2,790,376.00 as against the amounts of fire insurance coverages respectively extended by New India in the amount of P5,800,000.00 and Rizal Surety and Insurance Company in the amount of P1,500,000.00. On 20 August 1993, from the aforesaid judgment of the Court of Appeals, New India appealed to the Supreme Court theorizing inter alia that the TransWorld could not be compensated for the loss of the fun and amusement machines and spare parts stored at the two-storey building because it (Transworld) had no insurable interest in said goods or items. On 2 February 1994, the Court denied the appeal with finality in GR L-111118 (New India Assurance Company Ltd. vs. Court of Appeals). Rizal Insurance and TransWorld, on the other hand, interposed a Motion for Reconsideration before the Court of Appeals, and on 22 October 1993, the Court of Appeals reconsidered its decision of 15 July 1993, as regards the imposition of interest on the assessment against New India on the amount of P1,818,604.19 and that against Rizal Insurance on the amount of P470,328.67, commences from 26 May 1982 when the complaint was filed until payment is made. The rest of the said decision was retained in all other respects. Rizal Insurance filed the petition for review on certiorari. Issue [1]: Whether the fire insurance policy litigated upon protected only the contents of the main building (four-span), and did not include those stored in the two-storey annex building; or whether the so called "annex" was not an annex but was actually an integral part of the four-span building and therefore, the goods and items stored therein were covered by the same fire insurance policy. Held [1]: INCLUDES 2-STORY ANNEX BUILDING. The stipulation in subject fire insurance policy regarding its coverage, reads "contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situated within own Compound." Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit its coverage to what were stored in the fourspan building. The two-storey building involved a permanent structure, which adjoins and intercommunicates with the "first right span of the lofty storey building", 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 on 12 January 1981, having been constructed sometime in 1978, Rizal Insurance should have specifically excluded the said two-storey building from the coverage of the fire insurance if minded to exclude the same but it did not, and instead, went on to provide that such fire insurance policy covers the products, raw materials and supplies stored within the premises of Transworld which was an integral part of the four-span building occupied by Transworld, knowing fully well the existence of such building adjoining and intercommunicating with the right section of the four-span building. Issue [2]: Whether the ambiguity in fire insurance policy should be resolved against Rizal Surety. Held [2]: YES. 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 that "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 Rizal Insurance, 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, ruled that "as regards insurance policies, in respect of which it is settled that the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain 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.' (44 C.J.S., p. 1174)." Equally relevant is the following disquisition of the Court in

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Fieldmen's Insurance Company, Inc. vs. Vda. De Songco, where it was held that the "rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of 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." 3 Philamcare Health Systems Inc. vs. Court of Appeals [GR 125678, 18 March 2002] First Division, Ynares-Santiago (J): 3 concur See also case entry 13 Facts: Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question: "Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). " The application was approved for a period of one year from 1 March 1988 to 1 March 1989. Accordingly, he was issued Health Care Agreement P010194. Under the agreement, Trinos' husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from 1 March 1989 to 1 March 1990, then from 1 March 1990 to 1 June 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning 9 March 1990. While her husband was in the hospital, Trinos tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void. According to Philamcare, there was a concealment regarding Ernani's medical history. Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, Trinos paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, Trinos brought her husband home again. In the morning of 13 April 1990, Ernani had fever and was feeling very weak. Trinos was constrained to bring him back to the Chinese General Hospital where he died on the same day. On 24 July 1990, Trinos instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against Philamcare and its president, Dr. Benito Reverente (Civil Case 90 53795). She asked for reimbursement of her expenses plus moral damages and attorney's fees. After trial, the lower court ruled against Philamcare and Reverente, ordering them to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same; the reduced amount of moral damages of P10,000.00 to Trinos; the reduced amount of P10,000.00 as exemplary damages to Trinos; and the attorney's fees of P20,000.00, plus costs of suit. On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved Reverente. Philamcare's motion for reconsideration was denied. Hence, Philamcare brought the petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code does not apply. Issue [1]: Whether a health care agreement between Philamcare and Ernani Trinos is an insurance contract. Held [1]: YES. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby

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one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur: (1) The insured has an insurable interest; (2) The insured is subject to a risk of loss by the happening of the designated peril; (3) The insurer assumes the risk; (4) Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and (5) In consideration of the insurer's promise, the insured pays a premium. Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides that "Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of his children; (2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any person upon whose life any estate or interest vested in him depends." Herein, the insurable interest of Trinos' husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Issue [2]: Whether answers made in good faith, where matters of opinion or judgment are called for, without intent to deceive will avoid a policy when they were untrue. Held [2]: NO. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. Thus, although 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 intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, Philamcare is liable for claims made under the contract. Having assumed a responsibility under the agreement, Philamcare is bound to answer the same to the extent agreed upon. In the end, 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 prepaid. Issue [3]: Whether rescission must be exercised before commencement of an action on the contract. Held [3]: YES. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. Herein, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: (1) Prior notice of cancellation to insured; (2) Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; (3) Must be in writing, mailed or delivered to the insured at the address shown in the policy; (4) Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of 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. Being a contract of adhesion,Commercial Law Insurance Law, 2006 ( 5 )

the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. Issue [4]: Whether the membership of the late Trinos is now incontestable. Held [4]: YES. Under the title Claim procedures of expenses, Philamcare had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. 4 Fortune Insurance and Surety Co. Inc. vs. Court of Appeals [GR 115278, 23 May 1995] First Division, Davide Jr (J): 2 concur, 1 took no part, 1 on leave Facts: Producers Bank of the Philippines was insured by the Fortune Insurance and Surety Co. Inc. and an insurance policy was issued. An armored car of Producers, while in the process of transferring cash in the sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on 29 June 1987, was robbed of the said cash. The robbery took place while the armored car was traveling along Taft Avenue in Pasay City. The said armored car was driven by Benjamin Magalong y de Vera, escorted by Security Guard Saturnino Atiga y Rosete. Driver Magalong was assigned by PRC Management Systems with Producers by virtue of an Agreement executed on 7 August 1983. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with Producers by virtue of a contract of Security Service executed on 25 October 1982. After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of PD 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. The Fiscal of Pasay City then filed an information charging the aforesaid persons with the said crime before Branch 112 of the Regional Trial Court of Pasay City. The case is still being tried as of the date of filing of the present case. Demands were made by Producers upon Fortune to pay the amount of the loss of P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the insurance policy, specifically under page 1 thereof, "General Exceptions" Section (b), and which reads as follows: "GENERAL EXCEPTIONS The company shall not be liable under this policy in respect of xxx (b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others..." Producers opposed the contention of Fortune and contended that Atiga and Magalong are not its "officer, employee, trustee or authorized representative at the time of the robbery. On 26 April 1990, the trial court rendered its decision in favor of Producers. It ordered Fortune to pay Producers the net amount of P540,000.00 as liability under Policy 0207 (as mitigated by the P40,000.00 special clause deduction and by the recovered sum of P145,000.00), with interest thereon at the legal rate, until fully paid; the sum of P30,000.00 as and for attorney's fees; and to pay the costs of suit. Fortune appealed this decision to the Court of Appeals (CA-GR CV 32946). In its decision promulgated on 3 May 1994, it affirmed in toto the appealed decision. On 20 June 1994, Fortune filed the petition for review on certiorari. Issue: Whether Fortune is liable under the Money, Security, and Payroll Robbery policy it issued to the issued to Producers or whether recovery thereunder is precluded under the general exceptions clause thereof. Held: 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 that "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, motorCommercial Law Insurance Law, 2006 ( 6 )

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." Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be determined by the terms of their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer the moral hazard is so great that insurers have found it necessary to fill up their policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured against." Persons frequently excluded under such provisions are those in the insured's service and employment. The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property." In such cases, the terms specifying the excluded classes are to be given their meaning as understood in common speech. The terms "service" and "employment" are generally associated with the idea of selection, control, and compensation. A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, or it should be construed liberally in favor of the insured and strictly against the insurer. 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. It goes without saying then that if the terms of the contract are clear and unambiguous, there is no room construction and such terms cannot be enlarged or diminished by judicial construction. An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It is settled that the terms of the policy constitute the measure of the insurer's liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy. Insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers' money or payroll. When it used then the term "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 of the employer-employee relationship, or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the employees under a "laboronly" contract as employees of the party employing them and not of the party who supplied them to the employer. Still, 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." In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance policy. 5 Enriquez vs. Sun Life Assurance Company of Canada [GR 15895, 29 November 1920] En Banc, Malcolm (J): 4 concur, 1 dissents

Facts: On 24 September 1917, Joaquin Herrer made application to the Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the company's Manila office and was given a receipt. The application was immediately forwarded to the head office of the company at Montreal, Canada. On 26 November 1917, the head office gave notice of acceptance by cable to Manila. (Whether on the same day the cable was received notice was sent by the Manila office to Herrer that the application had been accepted, is a disputed point.) On 4 December 1917, the policy was issued at Montreal. On 18 December 1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that Herrer desired to withdraw his application. The following day the local office replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification of 26Commercial Law Insurance Law, 2006 ( 7 )

November 1917. This letter was received by Mr. Torres on the morning of 21 December 1917. Mr. Herrer died on 20 December 1917. An action was brought by Rafaek Enriquez as administrator of the estate of the late Joaquin Ma. Herrer to recover from Sun Life Assurance Company of Canada the sum of P6,000 paid by the deceased for a life annuity. The trial court gave judgment for Sun Life. Enriquez appealed. Issue: Whether Herrer received notice of acceptance of his application, to hold that the contract for a life annuity was perfected. Held: NO. The letter of 26 November 1917, notifying Mr. Ferrer that his application had been accepted, was prepared and signed in the local office of the insurance company, was placed in the ordinary channels for transmission, but was never actually mailed and thus was never received by the applicant. 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, 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 poienitentise 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 office to that effect, did actually issue the policy and did, through its agent in Manila, actually write the letter of notification and place it in the usual channels for transmission to the addressee. The fact as to the letter of notification thus fails to concur with the essential elements of the general rule pertaining to the mailing and delivery of mail matter as announced by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped. The contract for a life annuity in the case at bar was not perfected because it has not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant. 6 Development Bank of the Philippines vs. Court of Appeals [GR 109937, 21 March 1994] First Division, Quiason (J): 4 concur

Facts: In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool). A loan, in the reduced amount of P300,000.00, was approved by DBP on 4 August 1987 and released on 11 August 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the MRI premium. On 15 August 1987, Dans accomplished and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool." On 20 August 1987, the MRI premium of Dans, less the DBP service fee of 10%, was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit. On 3 September 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On 23 September 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRICommercial Law Insurance Law, 2006 ( 8 )

coverage, being over the acceptance age limit of 60 years at the time of application. On 21 October 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered. On 10 February 1989, the Estate of the Late Juan B. Dans, through Candida Dans as administratrix, filed a complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for collection of Sum of Money with Damages. On 10 March 1990, the trial court rendered a decision in favor of the Estate and against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for MRI and actually collecting the premium and the service fee, despite knowledge of his age ineligibility. The court ordered DBP to return and reimburse the Estate the amount of P139,500.00 plus legal rate of interest as amortization payment paid under protest; to consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans; to pay the Estate the amount of P10,000.00 as attorney's fees; to pay the Estate the amount of P10,000.00 as costs of litigation and other expenses, and other relief just and equitable. The DBP appealed to the Court of Appeals. In a decision dated 7 September 1992, the appellate court affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in a resolution dated 20 April 1993. DBP filed the petition for review on certiorari. Issue [1]: Whether there was a perfected contract of insurance for DBP MRI Pool to be held liable. Held [1]: NO. When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP Pool" with the following declaration: "I hereby declare and agree that all the statements and answers contained herein are true, complete and correct to the best of my knowledge and belief and form part of my application for insurance. It is understood and agreed that no insurance coverage shall be effected unless and until this application is approved and the full premium is paid during my continued good health." Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved by the insurance pool; and (2) when the full premium is paid during the continued good health of the applicant. These two conditions, being joined conjunctively, must concur. Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist. Issue [2]: Whether DBP is liable for the entire value of the insurance policy, as it led Dans to believe that he has fulfilled all the requirements for the MRI and that the issuance of his policy was forthcoming. Held [2]: It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on 11 August 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as his health statement. The DBP later submitted both the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10% of the premium collected by it from Dans. In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be approved. The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance

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companies concerned. The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age. Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the insurance premium, and deducting its agent's commission and service fee. The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP's authority to solicit applications for MRI. If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him. The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another insurance company, and therefore would have been fully insured by the time he died, is highly speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an insurance coverage from another company. It must also be noted that Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of release of his loan. 7 Great Pacific Life Assurance Company vs. Court of Appeals [GR L-31845, 30 April 1979] ; also Mondragon vs. Court of Appeals [GR L-31878] First Division, De Castro (J): 4 concur, 1 took no part See case entry 17 Facts: On 14 March 1957, Ngo Hing filed an application with the Great Pacific Life Assurance Company for a 20-year endowment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Ngo Hing supplied the essential data which Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting . Mondragon finally type-wrote the data on the application form which was signed by Ngo Hing. The latter paid the annual premium, the sum of P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as his commission for being a duly authorized agent of Pacific Life. Upon the payment of the insurance premium, the binding deposit receipt was issued to Ngo Hing. Likewise, Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the approval of the insurance application. Then on 30 April 1957, Mondragon received a letter from Pacific Life disapproving the insurance application. The letter stated that the said life insurance application for 20-year endowment plan is not available for minors below 7 years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the Company. The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by Mondragon to Ngo Hing. Instead, on 6 May 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year endowment life insurance on the ground that Pacific Life is the only insurance company not selling the 20year endowment insurance plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage. It was when things were in such state that on 28 May 1957 Helen Go died of influenza with complication of broncho-pneumonia. Thereupon, Ngo Hing sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the same before the Court of First Instance of Cebu, which rendered a decision against Pacific Life and Mondragon, orderig them to solidarily pay Ngo Hing the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the sum of P10,000.00 as attorney's fees plus costs of suits. On appeal, the Court of Appeals set aside the appealed decision of the Court of First Instance of Cebu, and absolved Pacific Life and Mondragon from liability on the insurance policy, but ordered the reimbursement to Ngo Hing the amount of P1,077.75, without interest. On reconsideration, however, the appellate court affirmed in toto the decision of the Court of First Instance of Cebu, ordering Pacific Life and Mondragon jointly and severally to pay Ngo Hing. Two petitions for certiorari by way of appeal were filed by Pacific Life and Mondragon. The petitons were consolidated by the Supreme Court in a resolution dated 29 April 1970.

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Issue: Whether the binding deposit receipt constituted a temporary contract of the life insurance in question, and thus negate the claim that the insurance contract was perfected. Held: YES. The provisions printed on the binding deposit receipt show that the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant. Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in question had never become in force at any time. Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not insure outright. Where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears repeating that through the intracompany communication of 30 April 1957, Pacific Life disapproved the insurance application in question on the ground that it is not offering the 20-year endowment insurance policy to children less than 7 years of age. What it offered instead is another plan known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the absence of a meeting of the minds between Pacific Life and Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between them. Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life. 8 Spouses Cha vs. Court of Appeals [GR 124520, 18 August 1997] First Division, Padilla (J): 4 concur

Facts: Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS Development Corporation, as lessor, on 5 October 1988. One of the stipulations of the 1 year lease contract states that "The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit" Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire their merchandise inside the leased premises for P500,000.00 with the United Insurance Co., Inc. without the written consent of CKS. On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision ordering United to pay CKS the amount of P335,063.11 and the Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs of suit. On appeal, the Court of Appeals in CA GR CV 39328 rendered a decision dated 11 January 1996, affirming the trial court decision, deleting however the awards for exemplary damages and attorney's fees. A motion for reconsideration by United was denied on 29 March 1996. The spouses Cha and United filed the petition for review on certiorari.Commercial Law Insurance Law, 2006 ( 11 )

Issue: Whether paragraph 18 of the lease contract entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written consent of the latter. Held: NO. It is basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals, good customs, public order or public policy. Section 18 of the Insurance Code provides that "No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured." A non-life insurance policy such as the fire insurance policy taken by the spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides that "Every stipulation in a policy of Insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void." Herein, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provides that"Themeasureofaninsurableinterestinpropertyisthe extenttowhichtheinsuredmight bedamnifiedbylossofinjurythereof." Therefore, CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire insurance policy taken by the spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha. The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured. 9 Geagonia vs. Court of Appeals [GR 114427, 6 February 1995] First Division, Davide Jr. (J): 4 concur

Facts: Armando Geagonia is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On 22 December 1989, he obtained from Country Bankers Insurance Corporation fire insurance policy No. F-14622 2 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and other usual to assured's business." Geagonia declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, Geagonia had in his inventory stocks amounting to P392,130.50, itemized as follows: Zenco Sales, Inc., P55,698.00; F. Legaspi Gen. Merchandise, 86,432.50; and Cebu Tesing Textiles, 250,000.00 (on credit); totalling P392,130.50. The policy contained the following condition, that "the insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless notice be given and the particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan del Sur. Geagonia's insured stocks-in-trade were completely destroyed prompting him to file with Country Bankers a claim under the policy. On 28 December 1990, Country Bankers denied the claim because it found that at the time of the

lossCommercial Law Insurance Law, 2006 ( 12 )

Geagonia's stocks-in-trade were likewise covered by fire insurance policies GA-28146 and GA-28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (PFIC). These policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading ""MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. Phils. First CEB/F-24758" The basis of Country Bankers' denial was Geagonia's alleged violation of Condition 3 of the policy. Geagonia then filed a complaint against Country Bankers with the Insurance Commission (Case 3340) for the recovery of P100,000.00 under fire insurance policy F-14622 and for attorney's fees and costs of litigation. He attached his letter of 18 January 1991 which asked for the reconsideration of the denial. He admitted in the said letter that at the time he obtained Country Bankers's fire insurance policy he knew that the two policies issued by the PFIC were already in existence; however, he had no knowledge of the provision in Country Bankers' policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by Country Bankers' agent; and had it been so mentioned, he would not have withheld such information. He further asserted that the total of the amounts claimed under the three policies was below the actual value of his stocks at the time of loss, which was P1,000,000.00. In its decision of 21 June 1993, the Insurance Commission found that Geagonia did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These findings were based on Geagonia's testimony that he came to know of the PFIC policies only when he filed his claim with Country Bankers and that Cebu Tesing Textile obtained them and paid for their premiums without informing him thereof. The Insurance Commission ordered Country Bankers to pay Geagibua the sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. Its motion for the reconsideration of the decision having been denied by the Insurance Commission in its resolution of 20 August 1993, Country Bankers appealed to the Court of Appeals by way of a petition for review (CA-GR SP 31916). In its decision of 29 December 1993, the Court of Appeals reversed the decision of the Insurance Commission because it found that Geagonia knew of the existence of the two other policies issued by the PFIC. His motion to reconsider the adverse decision having been denied, Geagonia filed the petition for review on certiorari. Issue [1]: Whether the non-disclosure of other insurance policies violate condition 3 of the policy, so as to deny Geagonia from recovering on the policy. Held [1]: Condition 3 of Country Bankers's Policy F-14622 is a condition which is not proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code, Such a condition is a provision which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid the policy. However, in order to constitute a violation, the other insurance must be upon the same subject matter, the same interest therein, and the same risk. The fire insurance policies issued by the PFIC name Geagonia as the assured and contain a mortgage clause which reads: "Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the terms of the policy." This is clearly a simple loss payable clause, not a standard mortgage clause. The Court concludes that (a) the prohibition in Condition 3 of the subject policy applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained. The first conclusion is supported by the portion of the condition referring to other insurance "covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the same person is insured by several insurers separately in respect of the same subject and interest. Since the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and separate; the two policies of the PFIC do not cover the same interest as that coveredCommercial Law Insurance Law, 2006 ( 13 )

by the policy of Country Bankers, no double insurance exists. The non-disclosure then of the former policies was not fatal to Geagonia's right to recover on Country Bankers' policy. Issue [2]: Whether the violation of Condition 3 of the policy renders the policy void. Held [2]: Unlike the "other insurance" clauses involved in General Insurance and Surety Corp. vs. Ng Hua, 106 Phil. 1117 [1960], or in Pioneer Insurance & Surety Corp. vs. Yap, 61 SCRA 426 [1974] which reads "The insured shall give notice to the company of any insurance or insurances already effected, or which may subsequently be effected covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited"; or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co., 55 Phil. 329, 334 [1930], which provided "that any outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by the insured in writing and he must cause the company to add or insert it in the policy, without which such policy shall be null and void, and the insured will not be entitled to indemnity in case of loss," Condition 3 in Country Bankers' policy F-14622 does not absolutely declare void any violation thereof. It expressly provides that the condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." By stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, Country Bankers was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured. 10 Rizal Commercial Banking Corporation (RCBC) vs. Court of Appeals [GR 128833, 20 April 1998]; also RCBC vs. Court of Appeals [GR 128834] Second Division, Melo (J): 4 concur Facts: Goyu & Sons, Inc. (Goyu) applied for credit facilities and accommodations with Rizal Commercial Banking Corporation (RCBC) at its Binondo Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended Goyu's application for approval by RCBC's executive committee. A credit facility in the amount of P30 million was initially granted. Upon Goyu's application and Uy's and Lao's recommendation, RCBC's executive committee increased Goyu's credit facility to P50 million, then to P90 million, and finally to P117 million. As security for its credit facilities with RCBC, Goyu executed two real estate mortgages and two chattel mortgages in favor of RCBC, which were registered with the Registry of Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, Goyu committed itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC. Goyu obtained in its name a total of 10 insurance policies from MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance agent where Goyu obtained the Malayan insurance policies, issued 9 endorsements in favor of RCBC seemingly upon instructions of Goyu. On 27 April 1992, one of Goyu's factory buildings in Valenzuela was gutted by fire. Consequently, Goyu submitted its claim for indemnity on account of the loss insured against. MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other creditors of Goyu alleging better rights to the proceeds than the insured. Goyu filed a complaint for specific performance and damages which was docketed at the Regional Trial Court of the National Capital Judicial Region (Manila, Branch 3) as Civil Case 93-65442. RCBC, one of Goyu's creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that AGCO denied Goyu's claims. In an interlocutory order dated 12 October 1993, the Regional Trial

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Court of Manila (Branch 3), confirmed that Goyu's other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained their respective writs of attachments from various courts, covering an aggregate amount of P14,938,080.23, and ordered that the proceeds of the 10 insurance policies be deposited with the said court minus the aforementioned P14,938,080.23. Accordingly, on 7 January 1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC. In the meantime, another notice of garnishment was handed down by another Manila RTC sala (Branch 28) for the amount of P8,696,838.75. After trial, Branch 3 of the Manila RTC rendered judgment in a favor of Goyu, ordering Malayan to pay Goyu its fire loss claims in the total amount of P74,040,518.58 less the amount of P50,000,000.00 which is deposited with the Court; damages by way of interest for the duration of the delay since 27 July 1992 (90 days after Malayan's receipt of the required proof of loss and notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on the amounts of (1) P50,000,000.00 from 27 July 1992 up to the time said amount was deposited with the Court on 7 January 1994; and (2) P24,040,518.58 from 17 July 1992 up to the time when the writs of attachments were received by Malayan. The court also ordered RCBC to pay Goyu actual and compensatory damages in the amount of P2,000,000.00, and both Malayan and RCBC to solidarily pay Goyu (1) P1,000,000.00 as exemplary damages; (2) P1,000,000.00 as, and for, attorneys fees; and (3) Costs of suit. The Court, on the Counterclaim of RCBC, ordered Goyu to pay its loan obligations with RCBC in the amount of P68,785,069.04, as of 27 April 1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties). From this judgment, all parties interposed their respective appeals. Goyu was unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial court's findings of liability on their part. The Court of Appeals partly granted Goyu's appeal, but sustained the findings of the trial court with respect to MICO and RCBC's liabilities. The appellate court modified the decision by ordering Malayan to pay Goyu its fire loss claim in the total amount of P74,040,518.58 less than the amount of P50,505,549.60 (per O.R. No. 3649285) plus deposited in court and damages by way of interest commencing 27 July 1992 until the time Goyu receives the said amount at the rate of 37% per annum which is twice the ceiling prescribed by the Monetary Board; ordering RCBC to pay Goyu actual and compensatory damages in the amount of P5,000,000.00; and Malayan and RCBC, Uy Chun Bing and Eli Lao to pay Goyu solidarily in the amounts of (1) P1,500,000.00 as exemplary damages; and (2) P1,500,000.00 as and for attorney's fees. The Court, on RCBC's Counterclaim, ordered Goyuto pay its loan obligation with RCBC in the amount of P68,785.069.04 as of 27 April 1992 without any interest, surcharges and penalties. RCBC and Malayan appealed separately but, in view of the common facts and issues involved, their individual petitions were consolidated. Issue [1]: Whether RCBC, as mortgagee, has any right over the insurance policies taken by Goyu, the mortgagor, in case of the occurrence of loss. Held [1]: YES. It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no question that Goyu could insure the mortgaged property for its own exclusive benefit. Herein, although it appears that Goyu obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity. It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that Goyu voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by Goyu itself. Had it not been for Goyu, Alchester would not have known of Goyu's intention of obtaining insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and verify, Alchester would not have endorsed the policies to RCBC had it not been so directed by Goyu. On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. RCBC, in good faith,Commercial Law Insurance Law, 2006 ( 15 )

relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. Such reliance is justified under the circumstances of the case. Goyu failed to seasonably repudiate the authority of the person or persons who prepared such endorsements. Over and above this, Goyu continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late for Goyu to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of Goyu's inaction in this case, Goyu is at the very least estopped from assailing their operative effects. To permit Goyu to capitalize on its non- confirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances, the Court is bound to recognize RCBC's right to the proceeds of the insurance policies if not for the actual endorsement of the policies, at least on the basis of the equitable principle of estoppel. Issue [2]: Whether Goyu can insist that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. Held [2]: NO. Goyu cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken out. Consider thus the following: (1) It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC and Goyu in consideration of and for securing Goyu's credit facilities from RCBC. The mortgage contracts contained common provisions whereby Goyu, as mortgagor, undertook to have the mortgaged property properly covered against any loss by an insurance company acceptable to RCBC. (2) Goyu voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC. (3) Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to Goyu, MICO and RCBC. Goyu did not assail, until of late, the validity of said endorsements. (4) Goyu continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by Goyu to cover the mortgaged properties. The fact that upon receiving its copies of the endorsement documents prepared by Alchester, Goyu, despite the absence written conformity thereto, obviously considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend the benefits of its credit facilities and Goyu continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by Goyu. The intention of the parties will have to be given full force and effect in this particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit the policies were clearly intended. Moreover, the law's evident intention to protect the interests of the mortgagee upon the mortgaged property is expressed in Article 2127 of the Civil Code. The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled to have the force and effect of an endorsement by Goyu itself, these 8 policies can not be attached by Goyu's other creditors up to the extent of the Goyu's outstanding obligation in RCBC's favor. Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of Goyu's obligation with RCBC, the interest of Goyu in the subject policies had been transferred to RCBC effective as of the time of the endorsement. These policies may no longer be attached by the other creditors of Goyu, like Alfredo Sebastian in GR 128834, which may nonethelessCommercial Law Insurance Law, 2006 ( 16 )

forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon by Goyu's other creditors. To the extent of Goyu's outstanding obligation with RCBC, all the rest of the other insurance policies which were endorsed to RCBC, are, therefore, to be released from attachment, garnishment, and levy by the other creditors of Goyu. 11 Great Pacific Life Assurance Corp. vs. Court of Appeals [GR 113899, 13 October 1999] Second Division, Quisumbing (J): 3 concur, 1 on official leave Facts: A contract of group life insurance was executed between Great Pacific Life Assurance Corporation (Grepalife) and Development Bank of the Philippines (DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. On 11 November 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows: "7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment? Answer: No. If so give details . 8. Are you now, to the best of your knowledge, in good health? Answer: [ x ] Yes [ ] No." On 15 November 1983, Grepalife issued Certificate B-18558, as insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to P86,200.00. On 6 August 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage on 15 November 1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such non- disclosure constituted concealment that justified the denial of the claim. On 20 October 1986, the widow of the late Dr. Leuterio, Medarda V. Leuterio, filed a complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejias findings, based partly from the information given by the widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out. On 22 February 1988, the trial court rendered a decision in favor of the widow and against Grepalife. On 17 May 1993, the Court of Appeals sustained the trial courts decision. Grepalife filed the petition for review. Issue: Whether Dr. Leuterio failed to disclose that he had hypertension, which might have caused his death, and thus concealment can be interposed by Grepalife as a defense to annul the insurance contract. Held: Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same. Grepalife merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the information given by the widow of the decedent. Grepalife asserts that Dr. Mejias technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record, and that the widows declaration that her husband had "possible hypertension several years ago" should not be considered as hearsay, but as part of res gestae. On the contrary, the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterios any previous hospital confinement. Dr. Leuterios death certificate stated that hypertension was only "the possible cause of death." The widows statement, as to the medical history of her husband, was due to her unreliable recollection of events. Hence, the statement of the physician was properly considered by the trial court as hearsay. The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not consulted a doctor or any of the enumerated ailments, including hypertension; when he died the attending physician had certified in the death certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. Contrary to Grepalifes allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside

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from the statement of the insureds widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, Grepalife had not proven nor produced any witness who could attest to Dr. Leuterios medical history. Grepalife had failed to establish that there was concealment made by the insured, hence, it cannot refuse payment of the claim. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. Herein, Grepalife failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance. 12 Sunlife Assurance Company of Canada vs. Court of Appeals [GR 105135, 22 June 1995] First Division, Quiason (J): 4 concur Facts: On 15 April 1986, Robert John B. Bacani procured a life insurance contract for himself from Sunlife Assurance Company of Canada. He was issued Policy 3-903-766-X valued P100,000.00, with double indemnity in case of accidental death. The designated beneficiary was his mother, Bernarda Bacani. On 26 June 1987, the insured died in a plane crash. Bernarda Bacani filed a claim with Sunlife, seeking the benefits of the insurance policy taken by her son. Sunlife conducted an investigation and its findings prompted it to reject the claim. In its letter, Sunlife informed Bacani, that the insured did not disclosed material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing the total premiums paid in the amount of P10,172.00 was attached to said letter. Sunlife claimed that the insured gave false statements in his application when he answered the following questions: "5. Within the past 5 years have you: a) consulted any doctor or other health practitioner? b) submitted to: ECG? X-rays? blood tests? other tests? c) attended or been admitted to any hospital or other medical facility? 6. Have you ever had or sought advice for: xxx b) urine, kidney or bladder disorder?" The deceased answered questions No. 5(a) in the affirmative but limited his answer to a consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for cough and flu complications. The other questions were answered in the negative. Sunlife discovered that two weeks prior to his application for insurance, the insured was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests. On 17 November 1988, Bernarda Bacani and her husband, respondent Rolando Bacani, filed an action for specific performance against Sunlife with the Regional Trial Court, Branch 191, Valenzuela, Metro Manila. Sunlife filed its answer with counterclaim and a list off exhibits consisting of medical records furnished by the Lung Center of the Philippines. On 14 January 1990, Bacani filed a "Proposed Stipulation with Prayer for Summary Judgment" where they manifested that they "have no evidence to refute the documentary evidence of concealment/misrepresentation by the decedent of his health condition." Sunlife filed its Request for Admissions relative to the authenticity and due execution of several documents as well as allegations regarding the health of the insured. The Bacanis failed to oppose said request or reply thereto, thereby rendering an admission of the matters alleged. Sunlife then moved for a summary judgment and the trial court decided in favor of the Bacanis, ordering Sunlife to pay the former the amount of P100,000.00 the face value of insured's Insurance Policy 3903766, and the Accidental Death Benefit in the amount of P100,000.00 and further sum of P5,000.00 in the concept of reasonable attorney's fees and the costs of the suit. Sunlife's counterclaim was dismissed. Sunlife appealed to the Court of Appeals, which affirmed the decision of the trial court. Sunlife's motion for reconsideration was denied, hence, Sunlife filed the petition for review on certiorari. Issue [1]: Whether good faith is a defense in concealment. Held [1]: NO. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining. Said Section provides that "a neglect to communicate that which a party knows and ought to communicate, is called

concealment."Commercial Law Insurance Law, 2006 ( 18 )

Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries. The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to his health. The information which the insured failed to disclose were material and relevant to the approval and the issuance of the insurance policy. The matter