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Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 200784

August 7, 2013

MALAYAN INSURANCE COMPANY, INC., PETITIONER,


vs.
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
DECISION
MENDOZA, J.:
Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the October
27, 2011 Decision1 of the Court of Appeals (CA), which affirmed with modification the September 17,
2009 Decision2 of the Regional Trial Court, Branch 15, Manila (RTC), and its February 24, 2012
Resolution3 denying the motion for reconsideration filed by petitioner Malayan Insurance Company.,
Inc. (Malayan).
The Facts
The undisputed factual antecedents were succinctly summarized by the CA as follows:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F00227-000073 to PAP Co., Ltd. (PAP Co.) for the latters machineries and equipment located at
Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building).
The insurance, which was for Fifteen Million Pesos (?15,000,000.00) and effective for a period of
one (1) year, was procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the
mortgagee of the insured machineries and equipment.
After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co.
renewed the policy on an "as is" basis. Pursuant thereto, a renewal policy, Fire Insurance Policy No.
F-00227-000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998.
On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries and
equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the
amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the time of
the loss, the insured machineries and equipment were transferred by PAP Co. to a location different
from that indicated in the policy. Specifically, that the insured machineries were transferred in
September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III,
PEZA, Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co. argued that Malayan cannot

avoid liability as it was informed of the transfer by RCBC, the party duty-bound to relay such
information. However, Malayan reiterated its denial of PAP Co.s claim. Distraught, PAP Co. filed the
complaint below against Malayan.4
Ruling of the RTC
On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP Company
Ltd (PAP) an indemnity for the loss under the fire insurance policy as well as for attorneys fees. The
dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff. Defendant
is hereby ordered:
a)
To pay plaintiff the sum of FIFTEEN MILLION PESOS (P15,000,000.00) as and for indemnity for the
loss under the fire insurance policy, plus interest thereon at the rate of 12% per annum from the time
of loss on October 12, 1997 until fully paid;
b)
To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (PhP500,000.00) as and by way of
attorneys fees; [and,]
c)
To pay the costs of suit.
SO ORDERED.5
The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire
insurance policy because, although there was a change in the condition of the thing insured as a
result of the transfer of the subject machineries to another location, said insurance company failed to
show proof that such transfer resulted in the increase of the risk insured against. In the absence of
proof that the alteration of the thing insured increased the risk, the contract of fire insurance is not
affected per Article 169 of the Insurance Code.
The RTC further stated that PAPs notice to Rizal Commercial Banking Corporation (RCBC)
sufficiently complied with the notice requirement under the policy considering that it was RCBC
which procured the insurance. PAP acted in good faith in notifying RCBC about the transfer and the
latter even conducted an inspection of the machinery in its new location.
Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial court
erred in ordering it to indemnify PAP for the loss of the subject machineries since the latter, without
notice and/or consent, transferred the same to a location different from that indicated in the fire
insurance policy.

Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision but
deleted the attorneys fees. The decretal portion of the CA decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance Company
must indemnify PAP Co. Ltd the amount of Fifteen Million Pesos (PhP15,000,000.00) for the loss
under the fire insurance policy, plus interest thereon at the rate of 12% per annum from the time of
loss on October 12, 1997 until fully paid. However, the Five Hundred Thousand Pesos
(PhP500,000.00) awarded to PAP Co., Ltd. as attorneys fees is DELETED. With costs.
SO ORDERED.6
The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of the
insured properties during the efficacy of the insurance policy. Malayan also failed to show that its
contractual consent was needed before carrying out a transfer of the insured properties. Despite its
bare claim that the original and the renewed insurance policies contained provisions on transfer
limitations of the insured properties, Malayan never cited the specific provisions.
The CA further stated that even if there was such a provision on transfer restrictions of the insured
properties, still Malayan could not escape liability because the transfer was made during the
subsistence of the original policy, not the renewal policy. PAP transferred the insured properties from
the Sanyo Factory to the Pace Pacific Building (Pace Factory) sometime in September 1996.
Therefore, Malayan was aware or should have been aware of such transfer when it issued the
renewal policy on May 14, 1997. The CA opined that since an insurance policy was a contract of
adhesion, any ambiguity must be resolved against the party that prepared the contract, which, in this
case, was Malayan.
Finally, the CA added that Malayan failed to show that the transfer of the insured properties
increased the risk of the loss. It, thus, could not use such transfer as an excuse for not paying the
indemnity to PAP. Although the insurance proceeds were payable to RCBC, PAP could still sue
Malayan to enforce its rights on the policy because it remained a party to the insurance contract.
Not in conformity with the CA decision, Malayan filed this petition for review anchored on the
following
GROUNDS
I
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE
WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT AND THUS RULING IN THE QUESTIONED
DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS LIABLE UNDER THE
INSURANCE CONTRACT BECAUSE:

CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER MALAYAN WAS


ABLE TO PROVE AND IT IS NOT DENIED, THAT ON THE FACE OF THE RENEWAL POLICY
ISSUED TO RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR A
REPRESENTATION MADE BY THE INSURED THAT THE "LOCATION OF THE RISK" WAS AT
THE SANYO BUILDING. IT IS LIKEWISE UNDISPUTED THAT WHEN THE RENEWAL POLICY
WAS ISSUED TO RESPONDENT PAP CO., THE INSURED PROPERTIES WERE NOT AT THE
SANYO BUILDING BUT WERE AT A DIFFERENT LOCATION, THAT IS, AT THE PACE FACTORY
AND IT WAS IN THIS DIFFERENT LOCATION WHEN THE LOSS INSURED AGAINST
OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES
PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS AVOIDED OR RESCINDED
BY LAW, BECAUSE OF CONCEALMENT, MISREPRESENTATION AND BREACH OF AN
AFFIRMATIVE WARRANTY UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31 OF
THE INSURANCE CODE, RESPECTIVELY.
RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT
CONCEALMENT, MISREPRESENTATION OR BREACH OF AN AFFIRMATIVE WARRANTY WHEN
IT FAILED TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT THE INSURED
PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM WHAT WAS
INDICATED IN THE INSURANCE POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE CONDITIONS
AND LIMITATIONS TO THE RENEWAL POLICY WHICH ARE THE REASONS WHY ITS CLAIM
WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST PROOF THAT RESPONDENT PAP CO.
RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE FACT THAT ITS ENTIRE
EVIDENCE FOCUSED ON ITS FACTUAL ASSERTION THAT IT SUPPOSEDLY NOTIFIED
PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY THE INSURANCE POLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN
INCREASE IN RISK BECAUSE OF THE UNILATERAL TRANSFER OF THE INSURED
PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY RESPONDENT PAP
CO.
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND
ESTABLISHED DECISIONS OF THE HONORABLE COURT WHEN IT IMPOSED INTEREST AT
THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS UNTIL
FULLY PAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A LOAN
OR FORBEARANCE OF MONEY FROM WHICH A BREACH ENTITLES A PLAINTIFF TO AN
AWARD OF INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD NOT
HAVE BEEN APPLIED BY THE COURT OF APPEALS BECAUSE THERE WAS NEVER ANY
FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD THE

PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A
LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER RESPONDENT PAP CO.
COMMITTED CONCEALMENT, MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE
WARRANTY WHICH ENTITLES PETITIONER MALAYAN TO RESCIND THE INSURANCE POLICY
AND/OR TO CONSIDER THE CLAIM AS VOIDED.
III
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE
WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT
AGREED WITH THE TRIAL COURT AND HELD IN THE QUESTIONED DECISION THAT THE
PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE TO RESPONDENT PAP CO.
DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE INSURANCE POLICY.
IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED DECISION AND RESOLUTION THAT
THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE ADOPTED. 7
Malayan basically argues that it cannot be held liable under the insurance contract because PAP
committed concealment, misrepresentation and breach of an affirmative warranty under the renewal
policy when it transferred the location of the insured properties without informing it. Such transfer
affected the correct estimation of the risk which should have enabled Malayan to decide whether it
was willing to assume such risk and, if so, at what rate of premium. The transfer also affected
Malayans ability to control the risk by guarding against the increase of the risk brought about by the
change in conditions, specifically the change in the location of the risk.
Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance
Code8 when it did not inform Malayan of the actual and new location of the insured properties. In
fact, before the issuance of the renewal policy on May 14, 1997, PAP even informed it that there
would be no changes in the renewal policy. Malayan also argues that PAP is guilty of breach of
warranty under the renewal policy in violation of Section 74 of the Insurance Code 9 when, contrary to
its affirmation in the renewal policy that the insured properties were located at the Sanyo Factory,
these were already transferred to the Pace Factory. Malayan adds that PAP is guilty of
misrepresentation upon a material fact in violation of Section 45 of the Insurance Code 10 when it
informed Malayan that there would be no changes in the original policy, and that the original policy
would be renewed on an "as is" basis.
Malayan further argues that PAP failed to discharge the burden of proving that the transfer of the
insured properties under the insurance policy was with its knowledge and consent. Granting that
PAP informed RCBC of the transfer or change of location of the insured properties, the same is
irrelevant and does not bind Malayan considering that RCBC is a corporation vested with separate
and distinct juridical personality. Malayan did not consent to be the principal of RCBC. RCBC did not
also act as Malayans representative.

With regard to the alleged increase of risk, Malayan insists that there is evidence of an increase in
risk as a result of the unilateral transfer of the insured properties. According to Malayan, the Sanyo
Factory was occupied as a factory of automotive/computer parts by the assured and factory of zinc &
aluminum die cast and plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of
0.449% under 6.1.2 A, while Pace Factory was occupied as factory that repacked silicone sealant to
plastic cylinders with a rate of 0.657% under 6.1.2 A.
PAPs position
On the other hand, PAP counters that there is no evidence of any misrepresentation, concealment or
deception on its part and that its claim is not fraudulent. It insists that it can still sue to protect its
rights and interest on the policy notwithstanding the fact that the proceeds of the same was payable
to RCBC, and that it can collect interest at the rate of 12% per annum on the proceeds of the policy
because its claim for indemnity was unduly delayed without legal justification.
The Courts Ruling
The Court agrees with the position of Malayan that it cannot be held liable for the loss of the insured
properties under the fire insurance policy.
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a ?
15,000,000.00 fire insurance policy from Malayan covering its machineries and equipment effective
for one (1) year or until May 13, 1997; that the policy expressly stated that the insured properties
were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario,
Cavite"; that before its expiration, the policy was renewed11 on an "as is" basis for another year or
until May 13, 1998; that the subject properties were later transferred to the Pace Factory also in
PEZA; and that on October 12, 1997, during the effectivity of the renewal policy, a fire broke out at
the Pace Factory which totally burned the insured properties.
The policy forbade the removal of the insured properties unless sanctioned by Malayan
Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to attach as regards the property
affected unless the insured, before the occurrence of any loss or damage, obtains the sanction of
the company signified by endorsement upon the policy, by or on behalf of the Company:
xxx

xxx

xxx

(c) If property insured be removed to any building or place other than in that which is herein stated to
be insured.12
Evidently, by the clear and express condition in the renewal policy, the removal of the insured
property to any building or place required the consent of Malayan. Any transfer effected by the
insured, without the insurers consent, would free the latter from any liability.

The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal
The records are bereft of any convincing and concrete evidence that Malayan was notified of the
transfer of the insured properties from the Sanyo factory to the Pace factory. The Court has combed
the records and found nothing that would show that Malayan was duly notified of the transfer of the
insured properties.
What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to
RCBC, the entity which made the referral and the named beneficiary in the policy. Malayan and
RCBC might have been sister companies, but such fact did not make one an agent of the other. The
fact that RCBC referred PAP to Malayan did not clothe it with authority to represent and bind the said
insurance company. After the referral, PAP dealt directly with Malayan.
The respondent overlooked the fact that during the November 9, 2006 hearing, 13 its counsel
stipulated in open court that it was Malayans authorized insurance agent, Rodolfo Talusan, who
procured the original policy from Malayan, not RCBC. This was the reason why Talusans testimony
was dispensed with.
Moreover, in the previous hearing held on November 17, 2005, 14 PAPs hostile witness, Alexander
Barrera, Administrative Assistant of Malayan, testified that he was the one who procured Malayans
renewal policy, not RCBC, and that RCBC merely referred fire insurance clients to Malayan. He
stressed, however, that no written referral agreement exists between RCBC and Malayan. He also
denied that PAP notified Malayan about the transfer before the renewal policy was issued. He added
that PAP, through Maricar Jardiniano (Jardiniano), informed him that the fire insurance would be
renewed on an "as is basis."15
Granting that any notice to RCBC was binding on Malayan, PAPs claim that it notified RCBC and
Malayan was not indubitably established. At best, PAP could only come up with the hearsay
testimony of its principal witness, Branch Manager Katsumi Yoneda (Mr. Yoneda), who testified as
follows:
Q
What did you do as Branch Manager of Pap Co. Ltd.?
A
What I did I instructed my Secretary, because these equipment was bank loan and because of the
insurance I told my secretary to notify.
Q
To notify whom?
A

I told my Secretary to inform the bank.


Q
You are referring to RCBC?
A
Yes, sir.
xxxx
Q
After the RCBC was informed in the manner you stated, what did you do regarding the new location
of these properties at Pace Pacific Bldg. insofar as Malayan Insurance Company is concerned?
A
After that transfer, we informed the RCBC about the transfer of the equipment and also Malayan
Insurance but we were not able to contact Malayan Insurance so I instructed again my secretary to
inform Malayan about the transfer.
Q
Who was the secretary you instructed to contact Malayan Insurance, the defendant in this case?
A
Dory Ramos.
Q
How many secretaries do you have at that time in your office?
A
Only one, sir.
Q
Do you know a certain Maricar Jardiniano?
A
Yes, sir.

Q
Why do you know her?
A
Because she is my secretary.
Q
So how many secretaries did you have at that time?
A
Two, sir.
Q
What happened with the instruction that you gave to your secretary Dory Ramos about the matter of
informing the defendant Malayan Insurance Co of the new location of the insured properties?
A
She informed me that the notification was already given to Malayan Insurance.
Q
Aside from what she told you how did you know that the information was properly relayed by the said
secretary, Dory Ramos, to Malayan Insurance?
A
I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.
Q
Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan
Insurance Company about the transfer of the properties insured to the new location, do you know
what happened insofar this information was given to the defendant Malayan Insurance?
A
I heard that someone from Malayan Insurance came over to our company.
Q

Did you come to know who was that person who came to your place at Pace Pacific?
A
I do not know, sir.
Q
How did you know that this person from Malayan Insurance came to your place?
A
It is according to the report given to me.
Q
Who gave that report to you?
A
Dory Ramos.
Q
Was that report in writing or verbally done?
A
Verbal.16 [Emphases supplied]
The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal knowledge
of the notice to either Malayan or RCBC. PAP should have presented his secretaries, Dory Ramos
and Maricar Jardiniano, at the witness stand. His testimony alone was unreliable.
Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured properties were
transferred to a different location only after the renewal of the fire insurance policy.
COURT
Q
When did you transfer the machineries and equipments before the renewal or after the renewal of
the insurance?
A

After the renewal.


COURT
Q
You understand my question?
A
Yes, Your Honor.17 [Emphasis supplied]
This enfeebles PAPs position that the subject properties were already transferred to the Pace
factory before the policy was renewed.
The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of the insured
properties to the Pace Factory was insignificant as it did not increase the risk.
Malayan argues that the change of location of the subject properties from the Sanyo Factory to the
Pace Factory increased the hazard to which the insured properties were exposed. Malayan wrote:
With regards to the exposure of the risk under the old location, this was occupied as factory of
automotive/computer parts by the assured, and factory of zinc & aluminum die cast, plastic gear for
copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But under Pace
Pacific Mfg. Corporation this was occupied as factory that repacks silicone sealant to plastic
cylinders with a rate of 0.657% under 6.1.2 A. Hence, there was an increase in the hazard as
indicated by the increase in rate.18
The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to a
hazardous environment and negatively affected the fire rating stated in the renewal policy. The
increase in tariff rate from 0.449% to 0.657% put the subject properties at a greater risk of loss. Such
increase in risk would necessarily entail an increase in the premium payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the
importance of the issue, PAP failed to refute Malayans argument on the increased risk.
Malayan is entitled to rescind the insurance contract
Considering that the original policy was renewed on an "as is basis," it follows that the renewal policy
carried with it the same stipulations and limitations. The terms and conditions in the renewal policy
provided, among others, that the location of the risk insured against is at the Sanyo factory in PEZA.
The subject insured properties, however, were totally burned at the Pace Factory. Although it was
also located in PEZA, Pace Factory was not the location stipulated in the renewal policy. There being
an unconsented removal, the transfer was at PAPs own risk. Consequently, it must suffer the

consequences of the fire. Thus, the Court agrees with the report of Cunningham Toplis Philippines,
Inc., an international loss adjuster which investigated the fire incident at the Pace Factory, which
opined that "[g]iven that the location of risk covered under the policy is not the location affected, the
policy will, therefore, not respond to this loss/claim." 19
It can also be said that with the transfer of the location of the subject properties, without notice and
without Malayans consent, after the renewal of the policy, PAP clearly committed concealment,
misrepresentation and a breach of a material warranty. Section 26 of the Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought to communicate, is called
a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a
contract of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance
contract in case of an alteration in the use or condition of the thing insured. Section 168 of the
Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by
the policy made without the consent of the insurer, by means within the control of the insured, and
increasing the risks, entitles an insurer to rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the following
conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insureds control; and
5) the alteration increases the risk of loss.20
In the case at bench, all these circumstances are present. It was clearly established that the renewal
policy stipulated that the insured properties were located at the Sanyo factory; that PAP removed the
properties without the consent of Malayan; and that the alteration of the location increased the risk of
loss.
WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and
SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby declared NOT liable for the loss
of the insured machineries and equipment suffered by PAP Co., Ltd.
SO ORDERED.

JOSE CATRAL MENDOZA


Associate Justice

Allstate Ins. Co. v. Meloni


Annotate this Case
98 N.J. Super. 154 (1967)
236 A.2d 402
ALLSTATE INSURANCE COMPANY, PLAINTIFF-RESPONDENT, v. VINCENT
MELONI, ET AL., DEFENDANTS-APPELLANTS.
Superior Court of New Jersey, Appellate Division.
Argued November 6, 1967.
Decided December 8, 1967.
*156 Before Judges CONFORD, COLLESTER and LABRECQUE.
Mr. Edgar E. Moss, II for appellants (Messrs. Moss & Powell, attorneys).
*157 Mr. Michael Patrick King for respondent (Messrs. Kisselman, Devine, Deighan &
Montano, attorneys).
The opinion of the court was delivered by LABRECQUE, J.A.D.
Defendants Vincent Meloni and Marion Meloni appeal from a judgment declaring void a
certain policy of insurance issued by plaintiff Allstate Insurance Company (Allstate).
On or about April 2, 1964 Mrs. Meloni, having purchased a used Rambler automobile,
applied to Allstate for insurance coverage thereon. Its agent, Froio, called at her home
with an application which, when completed, was to become part of the policy. One of the
questions (declarations) contained in the application was: "With respect to the applicant
or any member of his household; * * * Has any license or permit to drive any automobile
been revoked, suspended, or refused?" To this question Mrs. Meloni answered, "No."
When the application had been completed, and after she had allegedly "glanced" at it
"briefly", she signed it. The policy here involved was subsequently issued.

Actually, Mrs. Meloni's husband Vincent had had two previous suspensions of his New
Jersey driver's license, the first in December 1962 for a point system violation, and the
second on January 16, 1964 for failure to maintain proof of financial responsibility. He
continued to be without a driver's license during the period here involved. The Rambler
which Allstate covered had been purchased in Mrs. Meloni's name in March 1964 after
Mr. Meloni had disposed of a Chevrolet he owned at the time his license was
suspended. At the time she applied for the insurance Mrs. Meloni told Allstate's
representative that she would be the only driver, and that her husband did not have a
driver's license and would not be driving.
Although at one time the policy in question was lapsed for nonpayment of premium, it
was reinstated without change of terms on June 13, 1964 when Mrs. Meloni substituted
a Plymouth automobile for the Rambler. She testified that at *158 the same time she told
Froio that her husband's license had been revoked, and was thereupon informed by him
that "as long as there were no deaths involved [in the loss of his license?] he would be
insured." When cross-examined as a witness for plaintiff Froio denied there had been
any discussion on that day concerning Mr. Meloni's use of the car.
On February 25, 1965 Mr. Meloni was involved in an accident while driving the
Plymouth. Separate actions were instituted against the Melonis by Joseph G. Munger III
(Munger), the driver of the other vehicle involved, for his injuries, and by Ruth Maria
Rubino, administratrix ad prosequendum of Nicola Rubino (Rubino), a passenger in the
Meloni car, for his death. During the course of its investigation of the accident Allstate
learned for the first time of the previous suspensions of Vincent's driver's license. It
thereupon filed the present declaratory judgment proceeding seeking an adjudication
that the policy was void ab initio and by reason thereof it was not obligated to defend
any suit brought against Vincent or Marion or to pay any judgment based thereon.
Munger and Rubino were joined as defendants, but only Rubino was represented at the
trial. The trial judge, sitting without a jury, resolved the issue of credibility in favor of
plaintiff and determined that Mrs. Meloni had misrepresented the status of her
husband's driver's license in answer to the cited question in the application; that the
misrepresentation was material, and that when she made it she was aware of the fact
her answers to the questions in the application were required to be forthright. A finding
of reliance by the insurer is clearly to be implied from the court's overall findings.
Actually, this was conceded by counsel for defendants at the oral argument. A

concomitant judgment was entered which held the policy void ab initio and absolved
plaintiff from any obligation thereunder. Only the Melonis appeal.
In general, a representation by the insured, whether contained in the policy itself or in
the application for insurance, will support the forfeiture of the insured's rights *159 under
the policy if it is untruthful, material to the particular risk assumed by the insurer, and
actually and reasonably relied upon by the insurer in the issuance of the policy.
Merchants Indemnity Corp. of New York v. Eggleston, 68 N.J. Super. 235, 244 (App. Div.
1961), affirmed 37 N.J. 114 (1962); Citizens Casualty Company of New York v.
Zambrano Trucking Co., Inc., 140 N.J. Eq. 378 (Ch. 1947), affirmed 141 N.J. Eq. 310
(E. & A. 1948).
Here the untruthfulness of Mrs. Meloni's representation is conceded, but it is contended
that she was justified in assuming that the question referred to her driver's license only.
The trial judge was not impressed with this contention nor are we. The wording of the
question was clear. It referred to the applicant or any member of his household. Almost
immediately below it and just above Mrs. Meloni's signature she declared:
"I declare that the statements made by me in this application, and any supplemental
questionnaire hereto, are true. Fully understanding that the company may investigate
the truthfulness of said statements through motor vehicle or police department records
and the use of inspection services, I hereby request the Company to issue the
insurance applied for, including renewals thereof, in reliance thereon."
The policy itself was prefaced by a statement which referred to the cited declaration in
the following terms:
"In reliance upon the Declarations on the Supplement Page and subject to all of the
terms of this policy * * * Allstate makes the following agreements with the named
insured:"
The policy also contained a provision as follows:
"11. Effect of Policy Acceptance
By acceptance of this policy the named insured agrees that the Declarations on the
Supplement Page are his agreements and representations, and that this policy
embodies all agreements, relating to this insurance, existing between himself and
Allstate or any of its agents."

*160 In the absence of proof of fraud or unconscionable conduct on the part of Allstate
or its agents, defendants were chargeable with knowledge of the terms and contents of
the policy, Merchants Indemnity Corp. of New York v. Eggleston, supra, 37 N.J., at p.
121, and of the application which became a part of it.
In order to justify cancellation or rescission of a policy for a misrepresentation material to
the risk, it must appear that in issuing the policy the carrier relied upon the
misrepresentation and that the circumstances were such that its reliance thereon was
reasonable. Here the burden of proving reasonable reliance was on the company and it
produced its sales manager who testified to the effect that the policy had been issued in
reliance upon the cited representation and would not have been written otherwise.
However, defendants rely upon the fact that upon receipt of Mrs. Meloni's application
Allstate ordered an investigation by Service Review, Inc., a firm which made confidential
investigations for insurance companies. Actually, a binder was issued to Mrs. Meloni on
April 7, 1964 while Service Review's report was dated April 22, 1964. The fact that such
an investigation was ordered did not absolve her from speaking the truth nor did it
lessen the right of the company to rely upon her statement, unless the investigation
disclosed facts sufficient to expose the falsity of the representation made or was of such
a nature as to place upon the company the duty of making further inquiry. John Hancock
Mutual Life Insurance Co. of Boston, Mass. v. Cronin, 139 N.J. Eq. 392, 398 (E. & A.
1947); Gallagher v. New England Mutual Life Insurance Co. of Boston, 19 N.J. 14, pp.
21-22 (1955).
Defendants argue that Service Review's investigation should have been extended to Mr.
Meloni and that a copy of his driving record, obtainable from the Division of Motor
Vehicles for a nominal fee, would have revealed the truth of the matter. But nothing in
the contents of the application or in the subsequent report by Service Review pointed
*161 to Mr. Meloni as an actual, or even a potential driver of the insured vehicle. It is
conceded that Mrs. Meloni told Froio in April that her husband did not and would not
drive the car and had no interest in doing so. She assured Harwood, Service Review's
investigator, that "she was the sole driver, * * * her husband had no license and was not
interested in driving." Further, he made a "street" investigation which satisfied him that
Meloni was not driving the car. We conclude that Allstate's omission to extend its inquiry
to Meloni's driving record was not unreasonable in view of Mrs. Meloni's
representations. While, as noted, she testified that she had later told Froio that her

husband's license had been revoked, the trial judge did not credit her testimony and we
find in the record adequate support for his refusal to do so.
We are satisfied that the evidence fully supports the implied finding of the trial judge that
Allstate reasonably relied upon the representation referred to, and that its right to do so
was in no wise lessened by the investigation which was undertaken in its behalf. See
State Farm Mutual Auto Insurance Co. v. Wall, 92 N.J. Super. 92, pp. 96-98 (App. Div.
1966).
Defendants next seek to invoke the so-called "Steliga rule," Steliga v. Metropolitan
Casualty Ins. Co. of New York, 113 N.J.L. 101 (Sup. Ct. 1934), affirmed o.b. 114 N.J.L.
156 (E. & A. 1935), urging that notwithstanding the alleged misrepresentation, the
provisions of the Motor Vehicle Security-Responsibility Act, N.J.S.A. 39:6-23 et seq.,
rendered the policy noncancellable. They point out that Meloni's license had been
suspended in January 1964, the policy was issued in April 1964 while the suspension
was in effect, and it was not cancelled until after the accident which gave rise to the
present suit. The policy contained a financial responsibility clause which provided:
"When this policy is certified as proof of financial responsibility for the future under the
provisions of any Motor Vehicle Financial Responsibility Law, such insurance as is
afforded by this Part 1 shall *162 comply with the provisions of such law to the extent of
the coverage and limits of liability required by such law, but not in excess of the policy
limits of liability. The insured agrees to reimburse Allstate for any payment it is required
to make by such law, if it would not have had to pay except for the agreement in this
paragraph."
Defendants argue that regardless of the lack of proof that the Director of the Division of
Motor Vehicles had required proof of financial responsibility from Meloni, and in the face
of the lack of certification to that effect by Allstate in accordance with N.J.S.A. 39:6-40,
upon the happening of the accident in which Munger and Rubino were injured, liability
attached from which Allstate could not subsequently disengage itself. See State Farm
Mutual Auto Insurance Co. v. Wall, supra, at pp. 98-101.
Defendants misconceive the import of the "Steliga rule" as applied to our present Motor
Vehicle Security-Responsibility Act in State Farm Mutual Auto Insurance Co. v. Wall. In
the latter case we held that although the policy was noncancellable as to the persons
injured in the accident which gave rise to the suit, it was void as to Wall, the insured, by

reason of his misrepresentations. Here we are concerned only with Allstate's liability to
the insured, the Melonis. They alone have appealed. While Munger and Rubino would
have been entitled to stand in the shoes of the Melonis as to any rights of the latter
against Allstate under the policy, it does not follow that defendants are entitled to stand
in the shoes of Munger and Rubino as to such rights as they may have to recover under
the policy. While we specifically refrain from deciding that point, in the event that plaintiff
were to be found liable to Munger and Rubino by reason of the obligation imposed by
the Motor Vehicle Security-Responsibility Act, the terms of the policy required that
defendants reimburse Allstate for such sums as it would be required to pay out in
satisfaction of their liability.
We have considered the remaining points raised and find them to be without merit.
Affirmed.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-47593 December 29, 1943
THE INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
SERAFIN D. FELICIANO ET AL., respondents.
Manuel Roxas and Araneta, Zaragoza, Araneta and Bautista for petitioner.
Deflfin Joven and Pablo Lorenzo for respondents.
Ramirez and Ortigas as amici curiae.

OZAETA, J.:
In a four-to-three decision promulgated on September 13, 1941, 1 this Court affirmed the judgment of
the Court of Appeals in favor of the respondents and against the petitioner for the sum of P25,000,
representing the value of two insurance policies issued by the petitioner on the life of Evaristo
Feliciano. A motion to reconsider and set aside said decision has been filed by the petitioner, and
both parties have submitted exhaustive and luminous written arguments in support of their
respective contentions.

The facts of the case are set forth in the majority and dissenting opinions heretofore handed down
by this Court, the salient points of which may be briefly restated as follows:
Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary
tuberculosis when he signed his applications for insurance with the petitioner on October 12, 1934.
On that same date Doctor Trepp, who had taken X-ray pictures of his lungs, informed the respondent
Dr. Serafin D. Feliciano, brother of Evaristo, that the latter "was already in a very serious ad
practically hopeless condition." Nevertheless the question contained in the application "Have you
ever suffered from any ailment or disease of the lungs, pleurisy, pneumonia or asthma?" appears
to have been answered , "No" And above the signature of the applicant, following the answers to the
various questions propounded to him, is the following printed statement:
1awphil.net

I declare on behalf of myself and of any person who shall have or claim any interest in any
policy issued hereunder, that each of the above answers is full, complete and true, and that
to the best of my knowledge and belief I am a proper subject for life insurance. (Exhibit K.)
The false answer above referred to, as well as the others, was written by the Company's soliciting
agent Romulo M. David, in collusion with the medical examiner Dr. Gregorio Valdez, for the purpose
of securing the Company's approval of the application so that the policy to be issued thereon might
be credited to said agent in connection with the inter-provincial contest which the Company was then
holding among its soliciting agents to boost the sales of its policies. Agent David bribed Medical
Examiner Valdez with money which the former borrowed from the applicant's mother by way of
advanced payment on the premium, according to the finding of the Court of Appeals. Said court also
found that before the insured signed the application he, as well as the members of his family, told the
agent and the medical examiner that he had been sick and coughing for some time and that he had
gone three times to the Santol Sanatorium and had X-ray pictures of his lungs taken; but that in spite
of such information the agent and the medical examiner told them that the applicant was a fit subject
for insurance.
Each of the policies sued upon contains the following stipulations:
This policy and the application herefor constitute the entire contract between the parties
hereto. . . . Only the President, or the Manager, acting jointly with the Secretary or Assistant
Secretary (and then only in writing signed by them) have power in behalf of the Company to
issue permits, or to modify this or any contract, or to extend the same time for making any
premium payment, and the Company shall not be bound by any promise or representation
heretofore or hereafter given by any person other than the above-named officials, and by
them only in writing and signed conjointly as stated.
The application contains, among others, the following statements:
18. I [the applicant] hereby declare that all the above statements and answers as well as
all those that I may make to the Company's Medical Examiner in continuation of this
application, to be complete, true and correct to the best of my knowledge and belief, and I
hereby agree as follows:

1. That his declaration, with the answers to be given by me to the Medical Examiner, shall be
the basis of the policy and form part of same.
xxx

xxx

xxx

3. That the said policy shall not take effect until the first premium has been paid and the
policy has been delivered to and accepted by me, while I am in good health.
4. That the agent taking this application has no authority to make, modify or discharge
contracts, or to waive any of the Company's rights or requirements.
5. My acceptance of any policy issued on this application will constitute a ratification by me of
any corrections in or additions to this application made by the Company in the space
provided "For Home Office Corrections or Additions Only." I agree that photographic copy of
this applications as corrected or added to shall constitute sufficient notice to me of the
changes made. (Emphasis added.)
The petitioner insists that upon the facts of the case the policies in question are null and void ab
initio and that all that the respondents are entitled to is the refund of the premiums paid thereon.
After a careful re-examination of the facts and the law, we are persuaded that petitioner's contention
is correct. To the reasons adduced in the dissenting opinion heretofore published, we only desire to
add the following considerations:
When Evaristo Feliciano, the applicant for insurance, signed the application in blank and authorized
the soliciting agent and/or medical examiner of the Company to write the answers for him, he made
them his own agents for that purpose, and he was responsible for their acts in that connection. If
they falsified the answers for him, he could not evade the responsibility for he falsification. He was
not supposed to sign the application in blank. He knew that the answers to the questions therein
contained would be "the basis of the policy," and for that every reason he was required with his
signature to vouch for truth thereof.
Moreover, from the facts of the case we cannot escape the conclusion that the insured acted in
connivance with the soliciting agent and the medical examiner of the Company in accepting the
policies in question. Above the signature of the applicant is the printed statement or representation: "
. . . I am a proper subject for life insurance." In another sheet of the same application and above
another signature of the applicant was also printed this statement: "That the said policy shall not take
effect until he first premium has been paid and the policy as been delivered to and accepted by me,
while I am in good health." When the applicant signed the application he was "having difficulty in
breathing, . . . with a very high fever." He had gone three times to the Santol Sanatorium and had Xray pictures taken of his lungs. He therefore knew that he was not "a proper subject for life
insurance." When he accepted the policy, he knew that he was not in good health. Nevertheless, he
not only accepted the first policy of P20,000 but then and there applied for and later accepted
another policy of P5,000.
We cannot bring ourselves to believe that the insured did not take the trouble to read the answers
contained in the photostatic copy of the application attached to and made a part of the policy before

he accepted it and paid the premium thereon. He must have notice that the answers to the questions
therein asked concerning his clinical history were false, and yet he accepted the first policy and
applied for another. In any event, he obligated himself to read the policy when he subscribed to this
statement: "My acceptance of any policy issued on this application will constitute a ratification by me
of any corrections in or additions to this application made by the Company . . ." By accepting the
policy he became charged with knowledge of its contents, whether he actually read it or not. He
could not ostrich-like hide his head from it in order to avoid his part of the bargain and at the same
time claim the benefit thereof. He knew, or was chargeable with knowledge, from the very terms of
the two policies sued upon (one of which is printed in English and the other in Spanish) that the
soliciting agent and the medical examiner had no power to bind the Company by any verbal promise
or oral representation. The insured, therefore, had no right to rely and we cannot believe he relied
in good faith upon the oral representation. The insured, therefore, had no right to rely and we
cannot believe he relied in good faith upon the oral representation of said agent and medical
examiner that he (the applicant) was a fit subject for insurance notwithstanding that he had been and
was still suffering with advanced pulmonary tuberculosis.
From all the facts and circumstances of this case, we are constrained to conclude that the insured
was a coparticipant, and coresponsible with Agent David and Medical Examiner Valdez, in the
fraudulent procurement of the policies in question and that by reason thereof said policies are
void ab initio.
Wheretofore, the motion for reconsideration is sustained and the judgment of the Court of Appeals is
hereby reversed. Let another judgment be entered in favor of the respondents and against the
petitioner for the refund of the premiums amounting to P1,389, with legal interest thereon from the
date of the complaint, and without any finding as to costs.
Moran, Paras and Bocobo, JJ., concur.

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