21.

GREAT PACIFIC LIFE v. CA (LEUTERIO)

316 SCRA 677
QUISUMBING; October 13, 1999
NATURE
Petition for Review of CA decision
FACTS
- A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafter Grepalife)
and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of
DBP.
- In Nov. 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 Qs concerning his health condition as follows:
Q: 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? No.
Q: Are you now, to the best of your knowledge, in good health? Yes.
- Grepalife issued an insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness of P86,200.00. In Aug. 1984,
Dr. Leuterio died due to "massive cerebral hemorrhage." DBP submitted a death claim to Grepalife. Grepalife denied the claim
because Dr. Leuterio was not physically healthy when he applied for an insurance. 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.
- Herein respondent Medarda Leuterio, widow, filed a complaint with RTC against Grepalife for "Specific Performance with Damages."
Dr. Mejia, who issued the death certificate, testified 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.
- RTC ruled in favor of respondent widow and against Grepalife. CA sustained the RTC decision. Hence, the present petition.
ISSUES
1. WON CA erred in holding petitioner liable to DBP as beneficiary in a group life insurance contract from a complaint filed by the
widow of the decedent/mortgagor
2. WON CA erred in not finding that Dr. Leuterio concealed that he had hypertension, which would vitiate the insurance contract
3. WON CA erred in holding Grepalife liable for P86,200.00 without proof of the actual outstanding mortgage payable by the
mortgagor to DBP
HELD
1. NO
Ratio Insured, being the person with whom the contract was made, is primarily the proper person to bring suit. Subject to some
exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of another person named or unnamed,
and although it is expressly made payable to another as his interest may appear or otherwise. Although a policy issued to a
mortgagor is taken out for the benefit of the mortgagee and is made payable to him, yet the mortgagor may sue thereon in his own
name, especially where the mortgagee's interest is less than the full amount recoverable under the policy. (See Sec. 8, Insurance
Code)
Reasoning
[a] The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that:
In the event of the debtor's death before his indebtedness with the Creditor (DBP) shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the
beneficiary/ies designated by the debtor. When DBP submitted the insurance claim against Grepalife, the latter denied payment
thereof, interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor
and took the necessary action of foreclosure on the residential lot of private respondent.
[b] Since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable
interest or not, and such person may recover it whatever the insured might have recovered, the widow of the decedent Dr. Leuterio
may file the suit against the insurer, Grepalife.
2. NO
Ratio 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. In the case at bar, the petitioner failed to clearly and satisfactorily
establish its defense, and is therefore liable to pay the proceeds of the insurance.
Reasoning
[a] 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. From this report, petitioner Grepalife
refused to pay the insurance claim. It alleged that the insured had concealed the fact that he had hypertension.
[b] Contrary to Grepalifes allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside from the
statement of the insured's widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant
had not proven nor produced any witness who could attest to Dr. Leuterio's medical history.
[c] Grepalife had failed to establish that there was concealment made by the insured, hence, it cannot refuse payment of the claim.
3. NO
- Considering the supervening event that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding loan,
the insurance proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that DBP
should not unjustly enrich itself at the expense of another. Hence, it cannot collect the insurance proceeds, after it already foreclosed
on the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow, herein private respondent.
- The Court ruled this issue based on the clear provisions of the policy. The mortgagor paid the premium according to the coverage of
his insurance, which states that: "The policy states that upon receipt of due proof of the Debtor's death during the terms of this
insurance, a death benefit in the amount of P86,200.00 shall be paid In the event of the debtor's death before his indebtedness
with the creditor shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the Creditor and the
balance of the Sum Assured, if there is any shall then be paid to the beneficiary/ies designated by the debtor." From this, it is clear
that Grepalife is liable and that Dr. Leuterios heirs must get the proceeds.
Disposition Petition DENIED. CA Decision AFFIRMED with modification.

22.
Grepalife v. CA
89 SCRA 543
Facts:
On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a 20-yr endowment policy for 50T on the life of
his one year old daughter Helen Go.

All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu Mondragon, the branch manager of GrepalifeCebu.Mondragon then typed the data on the application form which was later signed by Ngo.
Ngo then paid the insurance premium and a binding deposit receipt was issued to him.The binding receipt contained the
following provision: If the applicant shall not have been insurable xxx and the Company declines to approve the application, the
insurance applied for shall not have been in force at any time and the sum paid shall be returned to the applicant upon the surrender
of this receipt.
Mondragon wrote on the bottom of the application form his strong recommendation for the approval of the insurance application.
On Apr 30, 1957, Mondragon received a letter from Grepalife Main office disapproving the insurance application of Ngo for the
simple reason that the 20yr endowment plan is not available for minors below 7 yrs old.

Mondragon wrote back the main office again strongly recommending the approval of the endowment plan on the life of Helen,
adding that Grepalife was the only insurance company NOT selling endowment plans to children.

On may 1957, Helen died of influenza with complication of broncho pneumonia. Ngo filed a claim with Grepalife, but the latter
denied liability on the ground that there was no contract between the insurer and the insured and a binding receipt is NOT evidence
of such contract.
Issue: WON the binding deposit receipt, constituted a temporary contract of life insurance.
Held: NO.
The binding receipt in question was merely an acknowledgement on behalf of the company, that the latters 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 Grepalife disapproved the insurance application of Ngo, the binding deposit receipt had never became on force at any
time, pursuant to par. E of the said receipt. A binding 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.

22.
GREAT PACIFIC LIFE v. CA (NGO HING)
89 SCRA 543
DE CASTRO, J; April 30, 1979
NATURE
Petition for certiorari
FACTS
- On March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Co. (Pacific Life) for a 20
year endowment policy of P50k on the life of his 1 year old daughter, Helen. Ngo Hing supplied the essetntial data which petitioner
Mondragon, branch manager of the Pacific Life in Cebu, wrote on the corresponding form in his own handwriting, later typing the data
on an application form signed by Ngo Hing. The latter paid the P1077.75 annual premium but retained P1,317 as commission as he
was also a duly authorized agent of Pacific Life. The binding deposit receipt was then issued to Ngo Hing; Mondragon handwrote his
strong recommendation for the approval of the application on the back of the form.
- On April 30, Mondragon received a letter from Pacific Life which stated that the 20 year endowment plan was not available for
minors below 7, but that Pacific Life could consider the same under the Juvenile Triple Action Plan, advising that if the offer was
acceptable, the Juvenile Non-Medical Declaration be sent to the company.
-Mondragon allegedly failed to inform Ngo Hing of the non-acceptance of the insurance plan, instead writing Pacific Life again,
recommending the approval of the endowment plan to children since customers had been asking for such coverage since 1954.
-On May 28, 1957, Helen died of influenza. Ngo Hing sought the payment of the proceeds of the insurance, but having failed to do so,
filed an action for recovery with the CFI of Cebu. The Court ordered Pacific Life to pay P50k with 6% interest, hence this petition.
ISSUE
WON the binding deposit receipt constituted a temporary contract of the life insurance in question
HELD
NO
- The binding deposit receipt is merely a provisional contract and only upon compliance with the ff conditions: (1) that the company
be satisfied that the applicant was insurable on standard rates (2) that if the company does not accept the application and offers a
different policy, the insurance contract shall not be binding until the applicant accepts the new policy (3) that if the applicant is not
found to be insurable on standard rates and the application is disapproved, the insurance shall not be in force at any time and the
premium be returned to the applicant.

-This implies the receipt is merely an acknowledgement, on behalf of the company, that the Cebu branch of Pacific Life had received
the premium and had accepted the application subject to processing by the insurance company, which will approve or reject it
depending on whether the applicant is insurable on standard rates. As such, the receipt was never in forceit does not insure
outright. No liability attaches until the principal approves the risk and a receipt is given by the agent; because private respondent
failed to accept Pacific Lifes offer for the Juvenile Triple Action plan, there was no meeting of the minds and thus no contract. Also,
being an authorized agent of Pacific Life, Ngo Hing must have known the company did not offer the insurance applied for and merely
took a chance on Mondragons recommendation.
Disposition the decision appealed from is set aside, absolving Pacific Life from their civil liabilities

23.
PHILAMCARE HEALTH SYSTEMS, INC. V CA (TRINOS)
379 SCRA 357
YNARES-SANTIAGO; March 18, 2002
NATURE
Petition for review of CA decision
FACTS
- Ernani TRINOS, deceased husband of respondent Julita, applied for a health care coverage with Philamcare Health Systems,
Inc. In the standard application form, he answered no to the 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 period of one year; upon termination, it was extended for another 2 years. Amount of coverage
was increased to a maximum sum of P75T per disability.
- During this period, Ernani suffered a HEART ATTACK and was confined at the Manila Medical Center (MMC) for one month. While her
husband was in the hospital, Julita tried to claim the hospitalization benefits.
- Petitioner treated the Health Care Agreement (HCA) as void since there was a concealment regarding Ernanis
medical history. Doctors at the MMC allegedly discovered at the time of his confinement, he was hypertensive, diabetic and
asthmatic. Julita then paid the hospitalization expenses herself, amounting to about P76T.
- After her husband died, Julita instituted action for damages against Philamcare and its Pres. After trial, the lower court ruled
in her favor and ordered Philamcare to reimburse medical and hospital coverage amounting to P76T plus interest, until fully paid; pay
moral damages of P10T; pay exemplary damages of P10T; attys fees of P20T.
- CA affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente.
Petitioners Claims
(1) Agreement grants living benefits such as medical check-ups and hospitalization which a member may immediately enjoy so
long as he is alive upon effectivity of the agreement until its expiration.
(2) Only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance
contract where the insured is indemnified for his loss.
(3) HCAs are only for a period of one year; therefore, incontestability clause does not apply, as it requires effectivity period of at
least 2 yrs.
(4) It is not an insurance company, governed by Insurance Commission, but a Health Maintenance Organization under the authority
of DOH.
(5) Trinos concealed a material fact in his application.
(6) Julita was not the legal wife since at the time of their marriage, the deceased was previously married to another woman who
was still alive.*
ISSUES
1. WON a health care agreement is an insurance contract (If so, incontestability clause under the Insurance Code is applicable)
2. WON the HCA can be invalidated on the basis of alleged concealment
HELD
YES
Ratio Every person has an insurable interest in the life and health of himself 1. The health care agreement was in the nature of nonlife 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.
Reasoning
- A contract of insurance2 is an agreement whereby 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:
(a) The insured has an insurable interest;
(b) The insured is subject to a risk of loss by the happening of the peril;
(c) The insurer assumes the risk;
(d) 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

1 Sec.10. 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.

2 Section 2 (1) of the Insurance Code

(e) In consideration of the insurers promise, the insured pays a premium.

2. NO
Ratio 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; since in such case the insurer is not justified in relying upon such statement, but is obligated to
make further inquiry.
Reasoning
- The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. The right to
rescind should be exercised previous to the commencement of an action on the contract. No rescission was made. Besides, the
cancellation of health care agreements as in insurance policies requires:
(a) Prior notice of cancellation to insured;
(b) Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;
(c) Must be in writing, mailed or delivered to the insured at the address shown in the policy;
(d) 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.
- These conditions have not been met. When the terms of insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude insurer from non-compliance of obligation. Being a contract of adhesion, terms of an insurance
contract are to be construed strictly against the party which prepared it the insurer.
- Also, Philamcare had 12 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 health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred
the expenses. It is clear that respondent paid all the hospital and medical bills; thus, she is entitled to reimbursement.
Disposition Petition DENIED.
24.NG v. ASIAN CRUSADER LIFE ASSURANCE CORP
122 SCRA 461
ESCOLIN; May 30, 1983
FACTS
- On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000, with his wife, Ng Gan
Zee, as beneficiary.
- He died on Dec 1963 of cancer of the liver with metastasis. All premiums had been paid at the time of his death.
- Ng presented a claim for payment of the face value of the policy. Appellant (Asian Crusader) denied the claim on the ground that the
answers given by the insured to the questions appearing in his application for life insurance were untrue.
-Appellant: the insured was guilty of misrepresentation when
1) he answered "No" to the question (in the application) of "Has any life insurance company ever refused your application for
insurance or for reinstatement of a lapsed policy or offered you a policy different from that applied for?" when in fact, Insular Life
denied his application for reinstatement of his lapsed life insurance policy
2) he gave the appellant's medical examiner false and misleading information as to his ailment and previous operation when he said
he was
operated on for a Tumor [mayoma] of the stomach associated with ulcer of stomach. Tumor taken out was hard and of a hen's egg
size. Operation was two years ago in Chinese General Hospital by Dr. Yap. Claims he is completely recovered. Medical report show
that insured was operated on for "peptic ulcer", involving the excision of a portion of the stomach, not tumor.
ISSUE
WON there was concealment (Was appellant, because of insured's aforesaid representation, misled or deceived into entering the
contract or in accepting the risk at the rate of premium agreed upon?)
HELD
NO
-"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 assurer, but he designedly and intentionally withholds the same."
- It has also been held "that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must
have been intentionally withheld."
Reasoning
1) The evidence shows that the Insular Life Assurance Co., Ltd. approved Kwong Nam's request for reinstatement and amendment of
his lapsed insurance policy on April 24, 1962. It results, therefore, that when on May 12, 1962 Kwong Nam answered `No' to the
question whether any life insurance company ever refused his application for reinstatement of a lapsed policy he did not
misrepresent any fact.
2) Assuming that the aforesaid answer given by the insured is false,
Sec. 273 of the Insurance Law nevertheless requires that
fraudulent intent on the part of the insured be established to entitle the insurer to rescind the contract . And as correctly observed by
the lower court, "misrepresentation as a defense of the insurer to avoid liability is an `affirmative defense. The duty to establish such
a defense by satisfactory and convincing evidence rests upon the defendant. The evidence before the Court does not clearly and
satisfactorily establish that defense."
-Kwong Nam had informed the appellant's medical examiner that the tumor for which he was operated on was ''associated with ulcer
of the stomach." In the absence of evidence that the insured had sufficient medical knowledge as to enable him to distinguish
between "peptic ulcer" and "a tumor", his statement that said tumor was "associated with ulcer of the stomach" should be construed
as an expression made in good faith of his belief as to the nature of his ailment and operation . Indeed, such statement must be
presumed to have been made by him without knowledge of its incorrectness and without any deliberate intent on his part to mislead
the appellant.

3 "Sec. 27.
warranty."

Such party to a contract of insurance must communicate to the other, in good faith, all facts within his knowledge which are material to the contract, and which the other has not the means of ascertaining, and as to which he makes no

3) Waiver:
While it may be conceded that, from the viewpoint of a medical expert, the information communicated was imperfect, the same was
nevertheless sufficient to have induced appellant to make further inquiries about the ailment and operation of the insured.
Section 32 of Insurance Law [Act No. 2427] provides:
The right to information of material facts may be waived either by the terms of insurance or by neglect to make inquiries as to such
facts where they are distinctly implied in other facts of which information is communicated.
It has been held that where, "upon the face of the application, a question appears to be not answered at all or to be imperfectly
answered, and the insurers issue a policy without any further inquiry, they waive the imperfection of the answer and render the
omission to answer more fully immaterial.
Disposition the judgment appealed from is hereby affirmed, with costs against appellant

24.NG v. ASIAN CRUSADER LIFE ASSURANCE CORP

122 SCRA 461
FACTS
- On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum ofP20,000, with his wife, Ng Gan
Zee, as beneficiary.
- He died on Dec 1963 of cancer of the liver with metastasis. All premiums had been paid at the time of his death.
- Ng presented a claim for payment of the face value of the policy. Appellant (Asian Crusader) denied the claim on the ground that the
answers given by the insured to the questions appearing in his application for life insurance were untrue.
-Appellant:
The insured was guilty of misrepresentation when:
1) he answered "No" to the question (in the application) of "Has any life insurance company ever refused your application for
insurance or for reinstatement of a lapsed policy or offered you a policy different from that applied for?" when in fact, Insular Life
denied his application for reinstatement of his lapsed life insurance policy
2) he gave the appellant's medical examiner false and misleading information as to his ailment and previous operation when he said
he was operated on for a Tumor [mayoma] of the stomach associated with ulcer of stomach. Tumor taken out was hard and of a
hen's egg size. Operation was two years ago in Chinese General Hospital by Dr. Yap. Claims he is completely recovered. Medical
report show that insured was operated on for "peptic ulcer", involving the excision of a portion of the stomach, not tumor.

ISSUE
WON there was concealment (Was appellant, because of insured's aforesaid representation, misled or deceived into entering the
contract or in accepting the risk at the rate of premium agreed upon?)
HELD
NO.
-"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 assurer, but he designedly and intentionally withholds the same."
- It has also been held "that the concealment must, in the absence of inquiries, be not only material, but fraudulent, or the fact must
have been intentionally withheld."
Reasoning
1) The evidence shows that the Insular Life Assurance Co., Ltd. approved Kwong Nam's request for reinstatement and amendment of
his lapsed insurance policy on April 24, 1962. It results, therefore, that when on May 12, 1962 Kwong Nam answered `No' to the
question whether any life insurance company ever refused his application for reinstatement of a lapsed policy he did not
misrepresent any fact.
2) Assuming that the aforesaid answer given by the insured is false,
Sec. 278 of the Insurance Law nevertheless requires that fraudulent intent on the part of the insured be established to entitle the
insurer to rescind the contract. And as correctly observed by the lower court, "misrepresentation as a defense of the insurer to avoid
liability is an `affirmative defense. The duty to establish such a defense by satisfactory and convincing evidence rests upon the
defendant. The evidence before the Court does not clearly and satisfactorily establish that defense."

-Kwong Nam had informed the appellant's medical examiner that the tumor for which he was operated on was ''associated with ulcer
of the stomach." In the absence of evidence that the insured had sufficient medical knowledge as to enable him to distinguish
between "peptic ulcer" and "a tumor", his statement that said tumor was "associated with ulcer of the stomach" should be construed
as an expression made in good faith of his belief as to the nature of 8 "Sec. 27.Such party to a contract of insurance must
communicate to the other, in good faith, all facts within his knowledge which are material to the contract, and which the other has
not the means of ascertaining, and as to which he makes no warranty." his ailment and operation. Indeed, such statement must be
presumed to have been made by him without knowledge of its incorrectness and without any deliberate intent on his part to mislead
the appellant.
3) Waiver:
While it may be conceded that, from the viewpoint of a medical expert, the information communicated was imperfect, the same was
nevertheless sufficient tohave induced appellant to make further inquiries about the ailment and operation of the insured.
Section 32 of Insurance Law [Act No. 2427] provides:
The right to information of material facts may be waived either by the terms of insurance or by neglect to make inquiries as to such
facts where they are distinctly implied in other facts of which information is communicated.

It has been held that where, "upon the face of the application, a question appears to be not answered at all or to be imperfectly
answered, and the insurers issue a policy without any further inquiry, they waive the imperfection of the answer and render the
omission to answer more fully immaterial.
Disposition the judgment appealed from is hereby affirmed, with costs against appellant

25.
DE LIM v. SUN LIFE ASSURANCE COMPANY OF CANADA
41 PHIL 263
MALCOLM; November 29, 1920
NATURE
Appeal from an order of the CFI of Zamboanga sustaining a demurrer to plaintiff's complaint upon the ground that it fails to state a
cause of action.
FACTS
- On July 6, 1917, Luis Lim of Zamboanga made application to the Sun Life Assurance Company of Canada for a policy of insurance on
his life in the sum of P5,000. In his application Lim designated his wife, Pilar de Lim, the plaintiff herein, as the beneficiary. The first
premium of P433 was paid by Lim, and upon such payment the company issued what was called a ''provisional policy." Luis Lim died
on August 23, 1917, after the issuance of the provisional policy but before approval of the application by the home office of the
insurance company. Pilar de Lim brought an action to recover from the Sun Life sum of P5,000, the amount named in the provisional
policy.
- The "provisional policy" reads: "Received (subject to the following stipulations and agreements) the sum of P433, being the amount
of the first year's premium for a Life Assurance Policy on the life of Mr. Luis D. Lim of Zamboanga for P5,000, for which an application
dated the 6th day of July, 1917, has been made to the Sun Life Assurance Company of Canada.
- The above-mentioned life is to be assured in accordance with the terms and conditions contained or inserted by the Company in the
policy which may be granted by it in this particular case for four months only from the date of the application, provided that the
Company shall confirm this agreement by issuing a policy on said application when the same shall be submitted to the Head Office in
Montreal. Should the Company not issue such a policy, then this agreement shall be null and void ab initio, and the Company shall be
held not to have been on the risk at all, but in such case the amount herein acknowledged shall be returned.
ISSUE
WON the contract of insurance between Luis Lim and Sun Life Assurance Company of Canada was perfected
HELD
NO.
- The document it is to be a provisional policy "for four months only from the date of this application." Immediately following the
words fixing the four months period comes the word "provided" which has the meaning of "if." Otherwise stated, the policy for four
months is expressly made subject to the affirmative condition that the company shall confirm this agreement by issuing a policy on
said application when the same shall be submitted to the head office in Montreal. To re-enforce the same there follows the negative
condition - "Should the company not issue such a policy, then this agreement shall be null and void ab initio, and the company shall
be held not to have been on the risks." Certainly language could hardly be used which would more clearly stipulate that the
agreement should not go into effect until the home office of the company should confirm it by issuing a policy. As we read and
understand the so-called provisional policy, it amounts to nothing but an acknowledgment on behalf of the company, that it has
received from the person named therein the sum of money agreed upon as the first year's premium upon a policy to be issued upon
the application, if the application is accepted by the company.
- It is of course a primary rule that a contract of insurance, like other contracts, must be assented to by both parties either in person
or by their agents. So long as an application for insurance has not been either accepted or rejected, it is merely an offer or proposal
to make a contract. The contract, to be binding from the date of the application must have been a completed contract, one that

leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can
be no contract of insurance unless the minds of the parties have met in agreement. Our view is, that a contract of insurance was not
here consummated by the parties.
- The trial court committed no error in sustaining the demurrer and dismissing the case. It is to be noted, however that counsel for
appellee admits the liability of the company for the return of the first premium to the estate of the deceased.
26.
PACIFIC TIMBER EXPORT CORPORATION v. CA (WORKMENS INSURANCE CO)
112 SCRA 199
DE CASTRO; February 25, 1982
FACTS
- March 19, 1963 - the plaintiff secured temporary insurance from the defendant for its exportation of 1,250,000 board feet of
Philippine Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon to Okinawa and Tokyo, Japan. The defendant issued
on said date Cover Note No. 1010, insuring the said cargo of the plaintiff "Subject to the Terms and Conditions of the WORKMEN'S
INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approved by the Office of the Insurance Commissioner.
- April 2, 1963 - The two (2) regular marine cargo policies were issued by the defendant in favor of the plaintiff. The total cargo
insured under the two marine policies accordingly consisted of 1,395 logs, or the equivalent of 1,195,498 bd. ft.
- After the issuance of cover note but before the issuance of the two marine policies some of the logs intended to be exported were
lost during loading operations in the Diapitan Bay due to bad weather.
- April 4, 1963 - The plaintiff informed the defendant about the loss of 'approximately 32 pieces of logs' during loading through a
letter.
- The plaintiff subsequently submitted a 'Claim Statement' demanding payment of the loss under the second marine cargo policy.
- July 17, 1963 - the defendant requested the First Philippine Adjustment Corporation to inspect the loss and assess the damage.
- August 23, 1963 - the adjuster reported that 'the loss of 30 pieces of logs is not covered by the two policies inasmuch as said
policies covered the actual number of logs loaded on board. But it is covered by Cover Note.
- On January 13, 1964 - the defendant wrote the plaintiff denying the latter's claim, on the ground that defendant's investigation
revealed that the entire shipment of logs covered by the two marines policies were received in good order at their point of
destination. It was further stated that the said loss may not be considered as covered under cover note because the said note had
become 'null and void by virtue of the issuance of two marine policies.
- The CFI of Manila ruled in favour of the petitioner.
- The Court of Appeals reversed the decision of the CFI.
ISSUES
1. WON the cover note is null and void for lack of valuable consideration because no separate premiums are collected by private
respondent on all its cover notes
2. WON the court of appeals erred in holding that private respondent was released from liability under the cover note due to
unreasonable delay in giving notice of loss because the court disregarded the proven fact that private respondent did not promptly
and specifically object to the claim on the ground of delay in giving notice of loss and, consequently, objections on that ground are
waived under section 84 of the insurance act
HELD
1. NO
Ratio Cover note is issued with a consideration when, by express stipulation, the cover note is made subject to the terms and
conditions of the marine policies, and the payment of premiums is one of the terms of the policies.
Reasoning
a. the cover note in question is subject to the terms and conditions of the marine policies
b. Nature of the Cover Note: The fact that no separate premium was paid on the Cover Note before the loss insured against
occurred, does not militate against the validity of petitioner's contention, for no such premium could have been paid, since by the
nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for
the computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover
Note.
c. The petitioner paid in full all the premiums as called for by the statement issued by private respondent after the issuance of the
two regular marine insurance policies, thereby leaving no account unpaid by petitioner due on the insurance coverage, which must be
deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is in a real
sense a contract, not a mere application for insurance which is a mere offer. Had all the logs been lost during the loading operations,
but after the issuance of the Cover Note, liability on the note would have already arisen even before payment of premium. This is how
the cover note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realm of commerce, and is
supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that a credit
was intended and policy is valid.
2. NO
- The private respondent company never raised this ground in the proceedings. It must be because it did not find any delay, as this
Court fails to find a real and substantial sign thereof. But even on the assumption that there was delay, this Court is satisfied and
convinced that as expressly provided by law, waiver can successfully be raised against private respondent. Thus Section 84 of the
Insurance Act provides:
"Section 84. - Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of his or if he omits to
take objection promptly and specifically upon that ground."
- From what has been said, We find duly substantiated petitioner's assignments of error.
Disposition The appealed decision is set aside and the decision of the Court of First Instance is reinstated in toto with the affirmance
of this Court.
27.
EAGLE STAR INSURANCE CO LTD v. CHIA YU
96 PHIL 696
REYES; March 31, 1955
NATURE

Certiorari
FACTS
- Atkin, Kroll & Co., loaded on the S. S. Roeph Silverlight owned and operated by Leigh Hoegh & Co., A/S, of San Francisco California,
14 bales of assorted underwear valued at P8,085.23 consigned to Chia Yu in the City of Manila.
- The shipment was insured against all risks by Eagle Star Ins. Co. of San Francisco, California, under a policy issued to the shipper
and by the latter assigned to the consignee.
- The vessel arrived in Manila but of the 14 bales (a.k.a. freights =p) consigned to Chia Yu only 10 were delivered to him as the
remaining 3 could not be found.3 of those delivered were also found damaged to the extent of 50 per cent.
-Chia Yu claimed indemnity for the missing and damaged bales. But the claim was declined, first, by the carrier and afterward by the
insurer, whereupon Chia Yu brought the present action against both, including their respective agents in the Philippines.
- An action was filed at the CFI after more than 2 years after delivery of the damaged bales and the date when the missing bales
should have been delivered, the action was resisted by the Atkins and Eagle Star principally on the ground of prescription.
-TC favored Chia Yu and CA affirmed.
*** CARRIERs defense of prescription is made to rest on the following stipulation of the bill of lading:
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within
one year after the delivery of the goods or the date when the goods should have been delivered. (This stipulation is but a repetition
of a provision in the CA 65 which says that bills of lading covering shipments from the US to the Phils should be brought w/in one
year after the delivery of the goods or the date when the goods should have been delivered to hold the carrier liable.)
*** INSURERs claim of prescription is founded upon the terms of the policy and not upon the bill of lading. (But in our jurisdiction, as
per A1144, prescription is 10 years after action accrues.)
No suit action on this Policy, for the recovery of any claim, shall be sustainable in any Court of law or equity unless the insured shall
have fully complied with all the terms and conditions of this Policy nor unless commenced with twelve (12) months next after the
happening of the loss . . .
ISSUE
WON ATKIN s action has prescribed
HELD
NO
- Being contrary to the law of the forum, the stipulation in the policy cannot be given effect as it would reduce the period allowed the
insured for bringing his action to less than one year (because the prescription period begins from the happening of the loss and
that before any suit could be sustained the insured shall have to comply with the terms and conditions of the policy first TF lessening
the period to less than a year. )
- Insular Government vs. Frank(13 Phil. 236)~ "matters respecting a remedy, such as the bringing of suit, admissibility of evidence,
and statute of limitations, depend upon the law of the place where the suit is brought" TF any policy clause repugnant to this
amendment to the Insurance Act cannot be given effect in an action in our courts.
SEC. 61-A. (Insurance Code) ~ Any condition, stipulation or agreement in any policy of insurance, limiting the time for commencing
an action thereunder to a period of less than one year from the time when the cause of action accrues, is void.
- The prescription clause could be harmonized with section 61-A of the Insurance Act by taking it to mean that the time given the
insured for bringing his suit is twelve months after the cause of action accrues.
- If so, when did the cause of action accrue? Chia Yus action did not accrue until his claim was finally rejected by the insurance
company. This is because, before such final rejection, there was no real necessity for bringing suit.
- As the policy provides that the insured should file his claim, first, with the carrier and then with the insurer, he had a right to wait for
his claim to be finally decided before going to court.
- Furthermore, there is nothing in the record to show that the claim was rejected in the year 1947, either by the insurance company in
London or its settling agents in the Philippines.
- For the purpose of this action, Chia Yu's claim was considered to have been finally rejected by the insurer on April 22, 1948. Having
been filed within twelve months form that date, the action cannot be deemed to have prescribed even on the supposition that the
period given the insured for bringing suit under the prescriptive clause of the policy is twelve months after the accrual of the cause of
action.
- Contractual limitations contained in insurance policies are regarded with extreme jealousy by courts and will be strictly construed
against the insurer and should not be permitted to prevent a recovery when their just and honest application would not produce that
result. (46 C. J. S. 273.)
Disposition Judgment appealed from is REVERSED with respect to the carrier and its agents but AFFIRMED with respect to the
insurance company and its agents.
28.
ACCFA v. ALPHA INSURANCE
24 SCRA 151
REYES; July 29, 1968
FACTS
- In order to guarantee the Asingan Farmers' Cooperative Marketing Association, Inc. (FACOMA) against loss on account of "personal
dishonesty, amounting to larceny or estafa of its Secretary-Treasurer, Ladines, the appellee, Alpha Insurance & Surety Company had
issued, on 14 February 1958, its bond, No. P-FID-15-58, for the sum of P5,000 with said Ladines as principal and the appellee as
solidary surety. On the same date, the Asingan FACOMA assigned its rights to the appellant, Agricultural Credit Cooperative and
Financing Administration (ACCFA for short), with approval of the principal and the surety.
- During the effectivity of the bond, Ladines converted and misappropriated, to his personal benefit, some P11,513.22 of the FACOMA
funds, of which P6,307.33 belonged to the ACCFA. Upon discovery of the loss, ACCFA immediately notified in writing the survey
company on 10 October 1958, and presented the proof of loss within the period fixed in the bond; but despite repeated demands the
surety company refused and failed to pay. Whereupon, ACCFA filed suit against appellee on 30 May 1960.
- Defendant Alpha Insurance & Surety Co., Inc., (now appellee) moved to dismiss the complaint for failure to state a cause of action,
giving as reason that (1) the same was filed more than one year after plaintiff made claim for loss, contrary to the eighth condition of
the bond, providing as follows:

EIGHT LIMITATION OF ACTION: No action, suit or proceeding shall be had or maintained upon this Bond unless the same be
commenced within one year from the time of making claim for the loss upon which such action, suit or proceeding, is based, in
accordance with the fourth section hereof.
(2) the complaint failed to show that plaintiff had filed civil or criminal action against Ladines, as required by conditions 4 and 11 of
the bond; and (3) that Ladines was a necessary and indispensable party but had not been joined as such.
- At first, the Court of First Instance denied dismissal; but, upon reconsideration, the court reversed its original stand, and dismissed
the complaint on the ground that the action was filed beyond the contractual limitation period. Hence, this appeal.
ISSUE
WON the provision of a fidelity bond that no action shall be had or maintained thereon unless commenced within one year from the
making of a claim for the loss upon which the action is based, is valid, in view of Section 61-A of the Insurance Act invalidating
stipulations limiting the time for commencing an action thereon to less than one year from the time the cause of action accrues
HELD
NO
- A fidelity bond is, in effect, in the nature of a contract of insurance against loss from misconduct, and is governed by the same
principles of interpretation. Consequently, the condition of the bond in question, limiting the period for bringing action thereon, is
subject to the provisions of Section 61-A of the Insurance Act (No. 2427), as amended by Act 4101 of the pre-Commonwealth
Philippine Legislature, prescribing that:
SEC. 61-A: A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing an action thereunder
to a period of less than one year from the time when the cause of action accrues is void.
- Since a "cause of action" requires, as essential elements, not only a legal right of the plaintiff and a correlative obligation of the
defendant but also "an act or omission of the defendant in violation of said legal right," the cause of action does not accrue until the
party obligated refuses, expressly or impliedly, to comply with its duty (in this case, to pay the amount of the bond). The year for
instituting action in court must be reckoned, therefore, from the time of appellee's refusal to comply with its bond; it can not be
counted from the creditor's filing of the claim of loss, for that does not import that the surety company will refuse to pay. In so far,
therefore, as condition eight of the bond requires action to be filed within one year from the filing of the claim for loss, such
stipulation contradicts the public policy expressed in Section 61-A of the Philippine Insurance Act.
- Condition eight of the bond, therefore, is null and void, and the appellant is not bound to comply with its provisions. The
discouraging of unnecessary litigation must be deemed a rule of public policy, considering the unrelieved congestion in the courts. As
a consequence of the foregoing, action may be brought within the statutory period of limitation for written contracts (New Civil Code,
Article 1144).

29.
SUN INSURANCE OFFICE LTD. V CA (TAN)
195 SCRA 193
PARAS; March 13, 1991
NATURE
Petition for certiorari to review the decision of the CA
FACTS
- Private respondent Emilio Tan took from the petitioner a Peso 300,000 property insurance policy to cover his interest in the
electrical insurance store of his brother housed in a building in Iloilo City on August 15, 1983. Four days after the issuance of the
policy, the building including the insured store burned.
- On August 20, 1983, Tan filed his claim for fire loss. Sun Insurance, on February 29, 1984, wrote the private respondent denying the
claim. On April 3, 1984, private respondent wrote another letter to the insurance company requesting reconsideration of the denial.
Tans lawyer wrote another letter to the insurance company inquiring about the April 3 letter which sought for a reconsideration of the
denial. In its reply to the lawyers letter, Sun Insurance reiterated its denial of the claim and enclosed therein copies of the two
previous denials dated February 29, 1984 and May 17, 1985.
- On November 20, 1985, Tan filed a civil case with the RTC. Petition filed a motion to dismiss on the alleged ground that the action
has already prescribed based on Condition 27 of the Insurance Policy which stated that the window to file the appropriate action with
either the Insurance Commission or in any court of competent jurisdiction is twelve months from the rejection of the claim. RTC
denied the motion and the subsequent motion for reconsideration. The CA likewise denied the petition of Sun Insurance.
ISSUE
1. WON the court the filing of a motion for reconsideration interrupts the 12 months prescription period to contest the denial of the
insurance claim
2. WON the rejection of the claim shall be deemed final only if it contains words to the effect that the denial is final
HELD
1. NO
- The SC held that Condition 27 of the Insurance policy is very clear and free from any doubt or ambiguity. It has to be taken in its
plain, ordinary, and popular sense. The rejection letter of February 29, 1984 was clear and plain. The Court noted that the one year
period is likewise in accord with Section 23 of the Insurance Code which states that any condition which limits the time for
commencing an action to a period of less than one year when the cause of action accrues is void. The right of action, according to
the SC, accrues at the time that the claim is rejected at the first instance. A request for reconsideration of the denial cannot suspend
the running of the prescriptive period. The Court noted that the rationale for the one year period is to ensure that the evidence as to
the origin and cause of the destruction have not yet disappeared.
2. NO
- The Court clarified its ruling in Eagle Star Insurance Co. vs Chia Yu where it ruled that the cause of action in an insurance contract
does not accrue until the Insureds claim is finally rejected by the Insurer by stating the use of the word finally cannot be
construed to mean the rejection of a petition for reconsideration. What the court referred to in effect is the rejection in the first
instance as claimed by Sun Insurance
Disposition The decision of the CA is reversed and set aside. The case is dismissed

30.
UNION MANUFACTURING CO., INC. VS. PHILIPPINE GUARANTY CO., INC.
47 SCRA 271 (G.R. NO. L-27932)
OCTOBER 30, 1972
Petitioner:
Republic Bank
Respondent:
Philippine Guaranty Co.. Inc.
J. Fernando:
FACTS: On January 12, 1962, the Union Manufacturing Co., Inc. obtained certain loans from the Republic Bank in the total sum of
415,000.00. To secure the payment thereof, UMC executed real and chattel mortgage on certain properties.
The Republic Bank procured from the defendant Philippine Guaranty Co., Inc. an insurance coverage on loss against fire for
500,000.00 over the properties of the UMC, as described in defendants cover note dated September 25, 1962, with the annotation
that loss or damage, if any, under said cover note is payable to Republic Bank as its interest may appear, subject however to the
printed conditions of said defendants Fire Insurance Policy Form.
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On September 6, 1964, a fire occurred in the premises of UMC and on October 6, 1964, UMC filed its fire claim with the PGC Inc., thru
its adjuster, H.H. Bayne Adjustment Co., which was denied by said defendant in its letter dated November 26, 1964 on the following
ground: Policy Condition No. 3 and/or the Other Insurance Clause of the policy was violated because you did not give notice to us of
the other insurance which you had taken from New India for 80,000.00. Sincere Insurance for 25,000.00 and Manila Insurance for
200,000.00 with the result that these insurances of which we became aware of only after the fire, were not endorsed on our policy.
ISSUE:

Whether Republic Bank can recover.

HELD: Without deciding- whether notice of other insurance upon the same property must be given in writing, or whether a verbal
notice is sufficient to render an insurance valid which requires such notice, whether oral or written, we hold that in the absolute
absence of such notice when it is one of the conditions specified in the fire insurance policy, the policy is null and void. (Santa Ana vs.
Commercial Union Ass. Co., 55 Phil. 128).
If the insured has violated or failed to perform the conditions of the contract, and such a violation or want of performance has not
been waived by the insurer, then the insured cannot recover. Courts are not permitted to make contracts for the parties. The
functions and duty of the courts consist simply in enforcing and carrying out the contracts actually made.
While it is true, as a general rule, that contracts of insurance are construed most favorably to the insured, yet contracts of insurance,
like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If
such terms are clear and unambiguous they must be taken and understood in their plain, ordinary and popular sense.
The annotation then, must be deemed to be a warranty that the property was not insured by any other policy. Violation thereof
entitles the insurer to rescind. xxx The materiality of non-disclosure of other insurance policies is not open to doubt.
The insurance contract may be rather onerous, but that in itself does not justify the abrogation of its express terms, terms which the
insured accepted or adhered to and which is the law between the contracting parties.

31.
Philippine Phoenix Surety & Insurance Company vs. Woodworks Inc. [GR L-25317, 6 August 1979]
Division, Melencio-Herrera (J): 4 concur, 1 abroad.

First

Facts: On 21 July 1960, upon Woodworks Inc.'s application, Philippine Phoenix Surety & Insurance Company (Phoenix) issued in its
favor Fire Insurance Policy 9749 for P500,000.00 whereby Phoenix insured Woodworks Inc.'s building, machinery and equipment for a
term of one year from 21 July 1960 to 21 July 1961 against loss by fire. The premium and other charges including the margin fee
surcharge of P590.76 and the documentary stamps in the amount of P156.60 affixed on the Policy, amounted to P10,593.36.
Woodworks Inc. did not pay the premium stipulated in the Policy when it was issued nor at any time thereafter. On 19 April 1961, or
before the expiration of the one-year term, Phoenix notified Woodworks Inc., through its Indorsement F-6963/61, of the cancellation of
the Policy allegedly upon request of Woodworks Inc. The latter has denied having made such a request. In said Indorsement, Phoenix
credited Woodworks Inc. with the amount of P3,110.25 for the unexpired period of 94 days, and claimed the balance of P7,483.11
representing "earned premium from 21 July 1960 to 18 April 1961 or, say 271 days. On 6 July 1961, Phoenix demanded in writing for
the payment of said amount. Woodworks Inc., through counsel, disclaimed any liability in its reply-letter of 15 August 1961,
contending, in essence, that it need not pay premium "because the Insurer did not stand liable for any indemnity during the period
the premiums were not paid." On 30 January 1962, Phoenix commenced action in the Court of First Instance of Manila, Branch IV (Civil
Case 49468), to recover the amount of P7,483.11 as "earned premium." Woodworks Inc. controverted basically on the theory that its
failure "to pay the premium after the issuance of the policy put an end to the insurance contract and rendered the policy
unenforceable." On 13 September 1962, judgment was rendered in Phoenix's favor "ordering Woodworks Inc. to pay Phoenix the sum
of P7,483.11, with interest thereon at the rate of 6% per annum from 30 January 1962, until the principal shall have been fully paid,
plus the sum of P700.00 as attorney's fees of the Phoenix, and the costs of the suit." From this adverse Decision, Woodworks Inc.
appealed to the Court of Appeals which certified the case to the Supreme Court on a question of law.
Issue: Whether the Fire Insurance Policy was a binding contract even if the premium stated in the policy has not been paid.
Held: Insurance is "a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event." The consideration is the "premium". "The premium must be paid at the time and in the
way and manner specified in the policy and, if not so paid, the policy will lapse and be forfeited by its own terms." The Policy provides
for pre-payment of premium. Accordingly, "when the policy is tendered the insured must pay the premium unless credit is given or

there is a waiver, or some agreement obviating the necessity for prepayment." To constitute an extension of credit there must be a
clear and express agreement therefor. From the Policy provisions, there was no clear agreement that a credit extension was accorded
Woodworks Inc. And even if it were to be presumed that Phoenix had extended credit from the circumstances of the unconditional
delivery of the Policy without prepayment of the premium, yet it is obvious that Woodworks Inc. had not accepted the insurer's offer
to extend credit, which is essential for the validity of such agreement. An acceptance of an offer to allow credit, if one was made, is as
essential to make a valid agreement for credit, to change a conditional delivery of an insurance policy to an unconditional delivery, as
it is to make any other contract. Such an acceptance could not be merely a mental act or state of mind, but would require a promise
to pay made known in some manner to Woodworks Inc. In this respect, the present case differs from that involving the same parties
where recovery of the balance of the unpaid premium was allowed inasmuch as in that case "there was not only a perfected contract
of insurance but a partially performed one as far as the payment of the agreed premium was concerned." This is not the situation
obtaining here where no partial payment of premiums has been made whatsoever. Since the premium had not been paid, the policy
must be deemed to have lapsed. The nonpayment of premiums does not merely suspend but puts an end to an insurance contract,
since the time of the payment is peculiarly of the essence of the contract. The rule is that under policy provisions that upon the
failure to make a payment of a premium or assessment at the time provided for, the policy shall become void or forfeited, or the
obligation of the insurer shall cease, or words to like effect, because the contract so prescribes and because such a stipulation is a
material and essential part of the contract. This is true, for instance, in the case of life, health and accident, fire and hail insurance
policies. In fact, if the peril insured against had occurred, Phoenix, as insurer, would have had a valid defense against recovery under
the Policy it had issued. Explicit in the Policy itself is Phoenix's agreement to indemnify Woodworks Inc. for loss by fire only "after
payment of premium. Compliance by the insured with the terms of the contract is a condition precedent to the right of recovery. The
burden is on an insured to keep a policy in force by the payment of premiums, rather than on the insurer to exert every effort to
prevent the insured from allowing a policy to elapse through a failure to make premium payments. The continuance of the insurer's
obligation is conditional upon the payment of premiums, so that no recovery can be had upon a lapsed policy, the contractual relation
between the parties having ceased. Moreover, an insurer cannot treat a contract as valid for the purpose of collecting premiums and
invalid for the purpose of indemnity. The foregoing findings are buttressed by section 77 of the Insurance Code (Presidential Decree
No. 612, promulgated on December 18, 1974), which now provides that no contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary.

32.

UCPB GENERAL INSURANCE CO., INC. v. MASAGANA TELAMART, INC. (EN BANC)

356 SCRA 307

DAVIDE; April 4, 2001
NATURE
Motion for reconsideration of the decision of the Supreme Court.
FACTS
- In its decision of 15 June 1999, the SC defined the main issue to be whether the fire insurance policies issued by petitioner to the
respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or renewed by an implied credit arrangement
though actual payment of premium was tendered on a later date and after the occurrence of the (fire) risk insured against. The
Court resolved this issue in the negative in view of Section 77 of the Insurance Code and its decisions in Valenzuela v. Court of
Appeals; South Sea Surety and Insurance Co., Inc. v. Court of Appeals; and Tibay v. Court of Appeals. Accordingly, it reversed and set
aside the decision of the Court of Appeals.
- Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the motion that the SC had made
in the decision its own findings of facts, which are not in accord with those of the trial court and the Court of Appeals. The courts
below correctly found that no notice of non-renewal was made within 45 days before 22 May 1992, or before the expiration date of
the fire insurance policies. Thus, the policies in question were renewed by operation of law and were effective and valid on 30 June
1992 when the fire occurred, since the premiums were paid within the 60- to 90-day credit term.
- Respondent likewise disagrees with its ruling that parties may neither agree expressly or impliedly on the extension of credit or time
to pay the premium nor consider a policy binding before actual payment. It urges the Court to take judicial notice of the fact that
despite the express provision of Section 77 of the Insurance Code, extension of credit terms in premium payment has been the
prevalent practice in the insurance industry. Most insurance companies, including Petitioner, extend credit terms because Section 77
of the Insurance Code is not a prohibitive injunction but is merely designed for the protection of the parties to an insurance contract.
The Code itself, in Section 78, authorizes the validity of a policy notwithstanding non-payment of premiums.
- Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77 Petitioner persuaded
and induced Respondent to believe that payment of premium on the 60- to 90-day credit term was perfectly alright; in fact it
accepted payments within 60 to 90 days after the due dates. By extending credit and habitually accepting payments 60 to 90 days
from the effective dates of the policies, it has implicitly agreed to modify the tenor of the insurance policy and in effect waived the
provision therein that it would pay only for the loss or damage in case the same occurred after payment of the premium.
- Petitioner filed an opposition to the Respondents motion for reconsideration. It argues that both the trial court and the Court of
Appeals overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-renewal and sent by
personal delivery a copy thereof to Respondents broker, Zuellig. Both courts likewise ignored the fact that Respondent was fully
aware of the notice of non-renewal. A reading of Section 66 of the Insurance Code readily shows that in order for an insured to be
entitled to a renewal of a non-life policy, payment of the premium due on the effective date of renewal should first be made.
Respondents argument that Section 77 is not a prohibitive provision finds no authoritative support.
- The following facts, as found by the trial court and the Court of Appeals, are indeed duly established:
1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually renewed.
2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on the renewed
policies.
3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice sent by ordinary
mail was received by Respondent, and the copy thereof allegedly sent to Zuellig was ever transmitted to Respondent.
4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by Respondent within the 60- to
90-day credit term and were duly accepted and received by Petitioners cashier.
ISSUE

WON Sec. 77 of the Insurance Code of 1978 must be strictly applied to Petitioners advantage despite its practice of granting a 60- to
90-day credit term for the payment of premiums
HELD
NO
- Section 77 of the Insurance Code of 1978 provides:
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the
grace period provision applies.
- This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18 December 1974. In turn, this
Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act as amended by R.A. No. 3540, approved on
21 June 1963, which read:
SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril insured against, unless
there is clear agreement to grant the insured credit extension of the premium due. No policy issued by an insurance company is
valid and binding unless and until the premium thereof has been paid. (Underscoring supplied)
- It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to extend the
period to pay the premium. But there are exceptions to Section 77.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period
provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment,
so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually
paid.
- A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, wherein we ruled that Section 77
may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the
time of loss. Tuscany has provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the
payment of the premium. This simply means that if the insurer has granted the insured a credit term for the payment of the premium
and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the
loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within which to
pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy. The agreement binds
the parties. Article 1306 of the Civil Code provides:
ART. 1306. The contracting parties may establish such stipulations clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public policy.
- Finally, it would be unjust and inequitable if recovery on the policy would not be permitted against Petitioner, which had consistently
granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from
taking refuge under said Section since Respondent relied in good faith on such practice. Estoppel then is the fifth exception to
Section 77.
Disposition Judgment reconsidered and set aside, that of the Court of Appeals affirmed in toto.
SEPARATE OPINION
VITUG
- An essential characteristic of an insurance is its being synallagmatic, a highly reciprocal contract where the rights and obligations of
the parties correlate and mutually correspond.
- By weight of authority, estoppel cannot create a contract of insurance, neither can it be successfully invoked to create a primary
liability, nor can it give validity to what the law so procribes as a matter of public policy.
PARDO [dissent]
- An assureds failure to give notice of the fire immediately upon its occurrence blatantly showed the fraudulent character of its
claims. Respondent is required by law and by express terms of the policy to give immediate written notice of loss. This must be
complied with in the utmost good faith.
- Assuming arguendo that the 60- to 90-day credit has been agreed between the parties, respondent could not still invoke estoppel to
back up its claim. Estoppel cannot give validity to an act that is prohibited by law or against public policy. The actual payment of
premiums is a condition precedent to the validity of an insurance contract other than life insurance policy. Any agreement to the
contrary is void as against law and public policy.
33.
PHILIPPINE PHOENIX SURETY & INSURANCE, INC. vs.WOODWORKS, INC.
G.R. No. L-22684, 31 August 1967
FACTS:
Plaintiff Philippine Phoenix Surety issued to defendant companya fire insurance policy for the amount of P300,000.00. The defendant
was obligated to pay P6,051.95 as premium of the said policy. However, the defendant was only able to payP3,000.00. Despite
several demands made by the plaintiff on the defendant to pay the amount of P3,522.09, the latter failed to pay.
ISSUE: Whether or not the insurance company has the right to demand the balance of the premium
HELD:
YES. There is, consequently, no doubt at all that, as between the insurer and the insured, there was not only a perfected contract of
insurance but a partially performed one as far as the payment of the agreed premium was concerned. Thereafter the obligation of the
insurer to pay the insured the amount for which the policy was issued in case the conditions therefore had been complied with, arose

and became binding upon it, while the obligation of the insured to pay the remainder of the total amount of the premium due became
demandable.
As the contract had become perfected, the parties could demand from each other the performance of whatever obligations they had
assumed. In the case of the insurer, it is obvious that it had the right to demand from the insured the completion of the payment of
the premium due or sue for the rescission of the contract. As it chose to demand specific performance of the insureds obligation to
pay the balance of the premium, the latters duty to pay is indeed indubitable.
Wherefore, the appealed decision being in accordance with law and the evidence, the same is hereby affirmed, with costs

34.
TIBAY v. CA (FORTUNE LIFE & GENERAL INSURANCE)
257 SCRA 126
BELLOSILLO; May 24, 1996
FACTS
- On 22 January 1987 Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy No. 136171 in favor of
Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street, Makati City, together with
all their personal effects therein. The insurance was for P600,000 covering the period from 23 January 1987 to 23 January 1988. On
23 January 1987, of the total premium of P2,983.50, Violeta Tibay only paid P600 thus leaving a considerable balance unpaid.
- On 8 March 1987 the insured building was completely destroyed by fire. Two days later, Violeta Tibay paid the balance of the
premium. On the same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim was accordingly referred to its
adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with the necessary
documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987 she signed a nonwaiver
agreement with GASI to the effect that any action taken by the companies shall not be, or be claimed to be, an admission of liability.
- FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the
case before the Insurance Commission proved futile. On 3 March 1988 Violeta and the other petitioners sued FORTUNE for damages
in the amount of P600,000 representing the total coverage of the fire insurance policy plus 12% interest per annum, P100,000 moral
damages, and attorney's fees equivalent to 20% of the total claim. The trial court ruled for petitioners. CA reversed.
ISSUE
WON a fire insurance policy is valid, binding and enforceable upon mere partial payment of premium
HELD
NO
Ratio Where the insurer and the insured expressly stipulated that the policy is not in force until the premium has been fully paid the
payment of partial premium by the assured in this particular instance should not be considered the payment required by the law and
the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that
the full amount has been tendered and duly receipted for.
Reasoning
- As expressly agreed upon in the contract, full payment must be made before the risk occurs for the policy to be considered effective
and in force. Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from
the fractional payment of premium. The insurance contract itself expressly provided that the policy would be effective only when the
premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of
choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.
- Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of the parties as
expressed in the policy. Courts have no other function but to enforce the same. The rule that contracts of insurance will be construed
in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement
ambiguous and then construe it in favor of the insured. Verily, it is elemental law that the payment of premium is requisite to keep
the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy
is ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of
the year as the part payment bears to the whole payment.
Disposition Petition is DENIED. Decision of the CA is AFFIRMED.
SEPARATE OPINION
VITUG [dissent]
- The law neither requires, nor measures the strength of the vinculum juris by, any specific amount of premium payment. It should
thus be enough that payment on the premium, partly or in full, is made by the insured which the insurer accepts. In fine, it is either
that a juridical tie exists (by such payment) or that it is not extant at all (by an absence thereof). Once the juridical relation comes
into being, the full efficacy, not merely pro tanto, of the insurance contract naturally follows. Verily, not only is there an insurance
perfected but also a partially performed contract. In case of loss, recovery on the basis of the full contract value, less the unpaid
premium can accordingly be had; conversely, if no loss occurs, the insurer can demand the payment of the unpaid balance of the
premium. The insured, on the one hand, cannot avoid the obligation of paying the balance of the premium while the insurer, upon the
other hand, cannot treat the contract as valid only for the purpose of collecting premiums and as invalid for the purpose of indemnity.
35.DBP POOL OF ACCREDITED INSURANCE v. RADIO MINDANAO NETWORK
480 SCRA 314
MARTINEZ; January 27, 2006

This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company in the manner provided herein.

NATURE
Petition for certiorari
FACTS
- In the evening of July 27, 1988, the radio station of Radio Mindanao Network located at the SSS Building in Bacolod City was burned
down causing damage in the amount of over one million pesos. Respondent sought to recover under two insurance policies but the
claims were denied on the basis that the case of the loss was an excepted risk under condition no. 6 (c) and (d), to wit:
6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the
following consequences, namely:
(c) War, invasion, act of foreign enemies, hostilities, or warlike operations (whether war be declared or not), civic war.
(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power.
- The insurers maintained that based on witnesses and evidence gathered at the site, the fire was caused by the members of the
Communist Party of the Philippines/New Peoples Army. Hence the refusal to honor their obligations.
- The trial court and the CA found in favor of the respondent. In its findings, both courts mentioned the fact that there was no credible
evidence presented that the CCP/NPA did in fact cause the fire that gutted the radio station in Bacolod.
ISSUE
WON the insurance companies are liable to pay Radio Mindanao Network under the insurance policies
HELD
YES
- The Court will not disturb the factual findings of the appellant and trial courts absent compelling reason. Under this mode of review,
the jurisdiction of the court is limited to reviewing only errors of law.
- Particularly in cases of insurance disputes with regard to excepted risks, it is the insurance companies which have the burden to
prove that the loss comes within the purview of the exception or limitation set up. It is sufficient for the insured to prove the fact of
damage or loss. Once the insured makes out a prima facie case in its favor, the duty or burden of evidence shifts to the insurer to
controvert said prima facie case.
Disposition Petition dismissed. Decision of the CA is affirmed.

36.
CATHAY INSURANCE CO. v. CA (REMINGTON INDUSTRIAL SALES CORP.)
151 SCRA 710
PARAS; June 30 1987
FACTS
- Remington Industrial Sales Corp insured its shipment of seamless steel pipes. It incurred losses and damages (I gather the steel
pipes rusted during the voyage from Japan to the Phils. on board vessel SS "Eastern Mariner) and filed complaint against Cathay
Insurance Co seeking collection of the sum of P868,339.15
- TC decided for Remington. Cathay filed MR, which was denied. CA affirmed.
- CA said (among other things):
1. Coverage of private respondent's loss under the insurance policy issued by petitioner is
unmistakable;
2. Alleged contractual limitations contained in insurance policies are regarded with extreme caution by courts and are to be strictly
construed against the insurer; obscure phrases and exceptions should not be allowed to defeat the very purpose for which the policy
was procured;
3. Rust is not an inherent vice of the seamless steel pipes without interference of external factors
- Cathay contend (among other things): 1. private respondent has admitted that the questioned shipment is not covered by a
"square provision of the contract," but private respondent claims implied coverage from the phrase "perils of the sea" mentioned in
the opening sentence of the policy; 2. The insistence of private respondent that rusting is a peril of the sea is erroneous; 3. Rusting
is not a risk insured against, since a risk to be insured against should be a casualty or some casualty, something which could not be
foreseen as one of the necessary incidents of adventure; 4. A fact capable of unquestionable demonstration or of public knowledge
needs no evidence. This fact of unquestionable demonstration or of public knowledge is that heavy rusting of steel or iron pipes
cannot occur within a period of a seven (7) day voyage. Besides, petitioner had introduced the clear cargo receipts or tally sheets
indicating that there was no damage on the steel pipes during the voyage.
ISSUE
WON rusting is a peril of the sea
HELD
YES
- There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of the toll on the cargo of
wind, water, and salt conditions. At any rate if the insurer cannot be held accountable therefor, We would fail to observe a cardinal
rule in the interpretation of contracts, namely, that any ambiguity therein should be construed against the maker/issuer/drafter
thereof, namely, the insurer. Besides the precise purpose of insuring cargo during a voyage would be rendered fruitless.
Disposition WHEREFORE, this petition is hereby DENIED, and the assailed decision of the Court of Appeals is hereby AFFIRMED.
37.
ROQUE v. IAC (PIONEER INSURANCE AND SURETY CORP.)
139 SCRA 596
GUTIERREZ; November 11, 1985
NATURE
Petition for certiorari to review the decision of the IAC
FACTS

- February 19, 1972 Common carrier Manila Bay Lighterage Corp. entered into a contract with Roque Timber Enterprises and Chiong.
The contract stated that Manila Bay would carry 422.18 cu. meters of logs on its vessel Mable 10 from Malampaya Sound, Palawan to
Manila North Harbor. Roque insured the logs with Pioneer Insurance for P100,000.
- February 29, 1972 811 logs were loaded in Malampaya but en route to Manila, Mable 10 sank.
- March 8,1972 Roque and Chiong wrote a letter to Manila Bay, demanding payment of P150,000.00 for the loss of the shipment
plus P100,000.00 as unrealized profits but the latter ignored the demand.
- A letter was also sent to Pioneer, claiming the full amount of P100,000.00 under the insurance policy but Pioneer refused to pay on
the ground that its liability depended upon the "Total Loss by Total Loss of Vessel only".
- After hearing, the trial court favored Roque. Pioneer and Manila Bay were ordered to pay Roque P100,000. Pioneer appealed the
decision.
- January 30, 1984 Pioneer was absolved from liability after finding that there was a breach of implied warranty of seaworthiness on
the part of the petitioners and that the loss of the insured cargo was caused by the "perils of the ship" and not by the "perils of the
sea". It ruled that the loss is not covered by the marine insurance policy.
- It was alleged that Mable 10 was not seaworthy and that it developed a leak
- The IAC found that one of the hatches was left open, causing water to enter the barge and because the barge was not provided with
the necessary cover or tarpaulin, the splash of sea waves brought more water inside the barge.
- Petitioners contend that the implied warranty of seaworthiness provided for in the Insurance Code refers only to the responsibility of
the shipowner who must see to it that his ship is reasonably fit to make in safety the contemplated voyage.
- The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with its seaworthiness. They
argue that a cargo owner has no control over the structure of the ship, its cables, anchors, fuel and provisions, the manner of loading
his cargo and the cargo of other shippers, and the hiring of a sufficient number of competent officers and seamen.
ISSUE
WON the loss should have been covered by the marine insurance policy
HELD
NO
Ratio It is universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a
warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. In marine insurance, the risks insured
against are classified as 'perils of the sea, which includes such losses that are of extraordinary nature, or arise from some
overwhelming power, which cannot be guarded against by the ordinary exertion of human skill and prudence.
Reasoning
- Based on Sec. 113 and Sec. 99 of the Insurance Code, the term "cargo" can be the subject of marine insurance and that once it is so
made, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he be the shipowner or
not.
- The fact that the un-seaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance and may not
be used by him as a defense in order to recover on the marine insurance policy.
- Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the
obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. The shipper of cargo
my have no control over the vessel but he has full control in the choice of the common carrier that will transport his goods.
- In marine cases, the risks insured against are 'perils of the sea. The term extends only to losses caused by sea damage, or by the
violence of the elements, and does not embrace all losses happening at sea.
- It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea.
- Loss which, in the ordinary course of events, results from the natural and inevitable action of the sea, from the ordinary wear and
tear of the ship, or from the negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargo
under ordinary conditions, is not a peril of the sea but is called peril of the ship.
Disposition Decision appealed from is affirmed.
38.
Oriental Assurance Corporation vs. CA [G.R. No. 94052 August 9, 1991, 200 SCRA 459]
Facts: Panama bought, in Palawan, 1,208 pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific
Towage, Inc., to transport said logs by sea to Manila and insured it against loss for P1-M with Oriental Assurance. The policy was
issued. It is stipulated there, among others, that the subject matter insured is 2,000 cubic meters of apitong logs and that the vessels
to be utilized are the following: MT. 'Seminole', BargePCT-7000 for the 1,000 cubic meter of apitong logs and BargeTranspac-1000 for
the other 1,000 cubic meter of apitong logs. It is also stipulated in the policy that the insurance is against TOTAL LOSS only, and it is
subject to the following clauses, to wit: Civil Code Article 1250 Waiver clause, Typhoon warranty clause, and Omnibus clause. The logs
were loaded on the 2 barges: (1) on barge PCT-7000, 610 pieces of logs with a volume of 1,000 cubicmeters; and (2) on BargeTPAC1000, 598 pieces of logs, also with a volume of 1,000 cubic meters. On 28 January 1986, the 2 barges were towed by MT
'Seminole'(tugboat), during the voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of 497
pieces of logs out of the 598 pieces loaded thereon. Panama demanded payment for the loss but Oriental Assurance refused on the
ground that its contracted liability was for "TOTAL LOSS ONLY." Consequently, Panama filed a Complaint for Damages against Ever
Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental Assurance, before the RTC-Kalookan. RTC rendered a
decision ordering Oriental Assurance to pay Panama P415,000.00 as insurance indemnity. Both parties appealed. The appellate court
affirmed the RTC decision. Both RTC and CA shared the view that the insurance contract should be liberally construed in order to
avoid a denial of substantial justice; that the logs loaded in the two barges should be treated separately such that the loss sustained
by the shipment in one of them may be considered as "constructive total loss" and correspondingly compensable. Oriental Assurance
filed a petition for review on certiorari challenging the aforesaid dispositions.
Issue: Is Oriental Assurance liable?
Held: No. The SC held that the terms of the contract constitute the measure of the insurers liability and compliance therewith is a
condition precedent to the insured's right to recovery from theinsurer. That whether a contract is entire or severable is a question of
intention to be determined by the language employed by the parties. The policy in question shows that the subject matter insured
was the entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two different barges did not

make the contract several and divisible as to the items insured. The logs on the two barges were not separately valued or separately
insured. Only one premium was paid for the entire shipment, making for only one cause or consideration. The insurance contract
must, therefore, be considered indivisible. The law provides that a constructive total loss, is one which gives to a person insured by
a contract of marine insurance a right to abandon thing insured, or any particular portion thereof separately valued by the policy, or
otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril injured against: (a) If more than
three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril; (b) If it is injured to such an
extent as to reduce its value more than three-fourths. The logs involved, although placed in two barges, were not separately valued
by the policy, nor separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of logs loaded on
the same barge cannot be made the basis for determining constructive total loss. The logs having been insured as one inseparable
unit, the correct basis for determining the existence of constructive total loss is the totality of the shipment of logs. Of the entirety of
1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those 497 pieces does not
exceed 75% of the value of all 1,208 pieces of logs, the shipment cannot be said to have sustained a constructive total loss. Hence,
no recovery can be had against Oriental Assurance. The latter has no liability under the policy.

39.
Palermo vs Pyramid
G.R.L.-36480,
May 31,1988?
This refers to the requirement of license when making a valid insurance claim. Based on this case, the requirement of license for
purposes of claiming for insurance is applicable only when the one driving is someone under the permission of the insured to drive.
Conversely, the decision in this case stated that in the event that it is the insured himself who is driving the insured vehicle, the
requirement of a valid license is not a requirement in making a valid insurance claim. Therefore, the insured can validly claim for
benefits under the policy even if it is proven that the license of the insured is expired at the time of accident.

39.

G.R. No. L-36480 May 31, 1988

ANDREW PALERMO, plaintiff-appellee, vs. PYRAMID INSURANCE CO., INC., defendant- appellant.
GRIO-AQUINO, J:
PALERMO vs. PYRAMID
FACTS:

Palermo insured his car with Pyramid against loss or damage and third party liability. While Palermo was driving his car, a fire

truck bumped said car head on causing injuries to Palermo, the death of his father who was then a passenger, and a total damage to
the car insured. At the time of the accident, the license of Palermo was expired. The insurer refused tom pay the proceeds of the
insurance on the ground that the insured was not an authorized driver since his license had expired at the time of the accident.
ISSUE: Is the insurers refusal to pay meritorious?
HELD:

There is no merit in the insurers allegation that the insured was not authorized to drive the insured motor vehicle because

his drivers license had expired. The driver of the insured vehicle at the time of the accident was the insured himself,
hence an authorized driver under the policy. The requirement in the policy that the driver must be licensed to drive
under the law does not apply when the person driving is the insured himself. If the insured himself is the driver of the
vehicle insured, he has the right to recover the damage thereto even if he has no drivers license or the same had
expired at the time of the accident.

40.
JEWEL VILLACORTA vs. THE INSURANCE COMMISSION
G.R. No. L-54171, 28 October 1980
100 SCRA 467
FACTS: Villacorta had her Colt Lancer car insured with Empire Insurance Company against own damage, theft and 3 rd party liability.
While the car was in the repair shop, one of the employees of the said repair shop took it out for a joyride after which it figured in a
vehicular accident. This resulted to the death of the driver and some of the passengers as well as to extensive damage to the car.
Villacorta filed a claim for total loss with the said insurance company. However, it denied the claim on the ground that the accident
did not fall within the provisions of the policy either for the Own Damage or Theft coverage, invoking the policy provision on
Authorized Driver Clause.
This was upheld by the Insurance Commission further stating that the car was not stolen and therefore not covered by the Theft
Clause because it is not evident that the person who took the car for a joyride intends to permanently deprive the insured of his/ her
car.
ISSUE:

Whether or not the insurer company should pay the said claim

HELD: Yes. Where the insureds car is wrongfully taken without the insureds consent from the car service and repair shop to whom
it had been entrusted for check-up and repairs (assuming that such taking was for a joy ride, in the course of which it was totally
smashed in an accident), respondent insurer is liable and must pay insured for the total loss of the insured vehicle under the Theft
Clause of the policy.
Assuming, despite the totally inadequate evidence, that the taking was temporary and for a joy ride, the Court sustains as the
better view that which holds that when a person, either with the object of going to a certain place, or learning how to drive, or
enjoying a free ride, takes possession of a vehicle belonging to another, without the consent of its owner, he is guilty of theft because
by taking possession of the personal property belonging to another and using it, his intent to gain is evident since he derives
therefrom utility, satisfaction, enjoymet and pleasure.
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing private respondent to pay petitioner
the sum of P35,000.00 with legal interest from the filing of the complaint until full payment is made and to pay the costs of suit.
40.

VILLACORTA vs. INSURANCE COMM.

FACTS: Complainant [petitioner] was the owner of a Colt Lancer, Model 1976, insured with respondent company. On May 9, 1978, the
vehicle was brought to the Sunday Machine Works, Inc., for general check-up and repairs. On May 11, 1978, while it was in the
custody of the Sunday Machine Works, the car was allegedly taken by six (6) persons and driven out to Montalban, Rizal. While
travelling along Mabini St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car figured in an accident, hitting and
bumping a gravel and sand truck parked at the right side of the road going south. The driver, Benito Mabasa, and one of the
passengers died and the other four sustained physical injuries. The car, as well, suffered extensive damage. Complainant, thereafter,
filed a claim for total loss with the respondent company but claim was denied. Respondent insurance commission, however,
dismissed petitioner's complaint for recovery of the total loss of the vehicle against private respondent, sustaining respondent
insurer's contention that the accident did not fall within the provisions of the policy either for the Own Damage or Theft coverage,
invoking the policy provision on "Authorized Driver" clause. Respondent commission upheld private respondent's contention on the
"Authorized Driver" clause.
HELD: The main purpose of the "authorized driver" clause, as may be seen from its text, supra, is that a person other than the insured
owner, who drives the car on the insured's order, such as his regular driver, or with his permission, such as a friend or member of the
family or the employees of a car service or repair shop must be duly licensed drivers and have no disqualification to drive a motor
vehicle. A car owner who entrusts his car to an established car service and repair shop necessarily entrusts his car key to the shop
owner and employees who are presumed to have the insured's permission to drive the car for legitimate purposes of checking or
road-testing the car. The mere happenstance that the employee(s) of the shop owner diverts the use of the car to his own illicit or
unauthorized purpose in violation of the trust reposed in the shop by the insured car owner does not mean that the "authorized
driver" clause has been violated such as to bar recovery, provided that such employee is duly qualified to drive under a valid driver's
license. The situation is no different from the regular or family driver, who instead of carrying out the owner's order to fetch the
children from school takes out his girl friend instead for a joy ride and instead wrecks the car. There is no question of his being an
"authorized driver" which allows recovery of the loss although his trip was for a personal or illicit purpose without the owner's
authorization.

41.

PRUDENTIAL GUARANTEE and ASSURANCE, INC. vs. EQUINOX LAND CORPORATION

FACTS: Sometime in 1996, Equinox Land Corporation (Equinox), respondent, decided to construct five (5) additional floors to its
existing building, the Eastgate Centre, located at 169 EDSA, Mandaluyong City. It then sent invitations to bid to various building
contractors. Four (4) building contractors, including JMarc Construction & Development Corporation (JMarc), responded.
Finding the bid of JMarc to be the most advantageous, Equinox offered the construction project to it. On February 22, 1997, J Marc
accepted the offer. Two days later, Equinox formally awarded to JMarc the contract to build the extension for a consideration of
P37,000,000.00.
On February 24, 1997, JMarc submitted to Equinox two (2) bonds, namely: (1) a surety bond issued by Prudential Guarantee and
Assurance, Inc. (Prudential), herein petitioner, in the amount of P9,250,000.00 to guarantee the unliquidated portion of the advance
payment payable to JMarc; and (2) a performance bond likewise issued by Prudential in the amount of P7,400,000.00 to guarantee
JMarcs faithful performance of its obligations under the construction agreement.

On March 17, 1997, Equinox and JMarc signed the contract and related documents. Under the terms of the contract, JMarc would
supply all the labor, materials, tools, equipment, and supervision required to complete the project.
JMarc did not adhere to the terms of the contract. It failed to submit the required monthly progress billings for the months of March
and April 1997. Its workers neglected to cover the drainpipes, hence, they were clogged by wet cement. This delayed the work on the
project.
Faced with the problem of delay, Equinox formally gave JMarc one final chance to take remedial steps in order to finish the project
on time. However, JMarc failed to undertake any corrective measure. Consequently, on July 10, 1997, Equinox terminated its
contract with JMarc and took over the project. On the same date, Equinox sent Prudential a letter claiming relief from JMarcs
violations of the contract.
On August 25, 1997, Equinox filed with the Regional Trial Court (RTC), Branch 214, Mandaluyong City a complaint for sum of money
and damages against JMarc and Prudential. Equinox prayed that JMarc be ordered to reimburse the amounts corresponding to its
(Equinox) advanced payments and unliquidated portion of its downpayment; and to pay damages. Equinox also prayed that
Prudential be ordered to pay its liability under the bonds.
On May 19, 1999, Equinox filed with the CIAC a request for arbitration, docketed as CIAC Case No. 17-99. Prudential submitted a
position paper contending that the CIAC has no jurisdiction over it since it is not a privy to the construction contract between Equinox
and JMarc; and that its surety and performance bonds are not construction agreements, thus, any action thereon lies exclusively
with the proper court.
On December 21, 1999, the CIAC rendered its Decision in favor of Equinox and against JMarc and Prudential,
Thereupon, Prudential filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 56491. Prudential alleged that
the CIAC erred in ruling that it is bound by the terms of the construction contract between Equinox and J Marc and that it is solidarily
liable with JMarc under its bonds.
HELD: Anent the second issue, it is not disputed that Prudential entered into a suretyship contract with JMarc. Section 175 of the
Insurance Code defines a suretyship as "a contract or agreement whereby a party, called the suretyship, guarantees the performance
by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes
official recognizances, stipulations, bonds, or undertakings issued under Act 536 8, as amended." Corollarily, Article 2047 of the Civil
Code provides that suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor for the
purpose of fulfilling an obligation.
In Castellvi de Higgins and Higgins v. Seliner,9 we held that while a surety and a guarantor are alike in that each promises to answer
for the debt or default of another, the surety assumes liability as a regular party to the undertaking and hence its
obligation is primary.
In Security Pacific Assurance Corporation v. Tria-Infante,10 we reiterated the rule that while a contract of surety is secondary only to a
valid principal obligation, the suretys liability to the creditor is said to be direct, primary, and absolute. In other words, the surety is
directly and equally bound with the principal. Thus, Prudential is barred from disclaiming that its liability with JMarc is solidary.

42.
AFP GENERAL INSURANCE CORPORATION,
Petitioner,

G.R. No. 151133

Present:

- versus NOEL MOLINA, JUANITO ARQUEZA, LEODY VENANCIO,

QUISUMBING, J., Chairperson,

CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.

JOSE
OLAT,
ANGEL
CORTEZ,
PANCRASIO
SIMPAO, CONRADO CALAPON AND NATIONAL LABOR
RELATIONS COMMISSION (FIRST DIVISION),
Respondents.

Promulgated:

June 30, 2008

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:

This is a petition for review on certiorari of the Decision [1] dated August 20, 2001 of the Court of Appeals in CA-G.R. SP No.
58763 which dismissed herein petitioners special civil action for certiorari. Before the appellate court, petitioner AFP General
Insurance Corporation (AFPGIC) sought to reverse the Resolution [2] dated October 5, 1999of the National Labor Relations Commission
(NLRC) in NLRC NCR CA-011705-96 for having been issued with grave abuse of discretion. The NLRC affirmed the Order[3]dated March
30, 1999 of Labor Arbiter Edgardo Madriaga in NLRC NCR Case No. 02-00672-90 which had denied AFPGICs Omnibus Motion to Quash
Notice/Writ of Garnishment and Discharge AFPGICs appeal bond for failure of Radon Security & Allied Services Agency (Radon
Security) to pay the premiums on said bond. Equally challenged is the Resolution [4] dated December 14, 2001 of the appellate court
in CA-G.R. SP No. 58763 which denied herein petitioners motion for reconsideration.

The facts of this case are not disputed.

The private respondents are the complainants in a case for illegal dismissal, docketed as NLRC NCR Case No. 02-00672-90, filed
against Radon Security & Allied Services Agency and/or Raquel Aquias and Ever Emporium, Inc. In his Decision dated August 20, 1996,
the Labor Arbiter ruled that the private respondents were illegally dismissed and ordered Radon Security to pay them separation pay,
backwages, and other monetary claims.

Radon Security appealed the Labor Arbiters decision to public respondent NLRC and posted a supersedeas bond, issued by herein
petitioner AFPGIC as surety. The appeal was docketed as NLRC NCR CA-011705-96.

On April 6, 1998, the NLRC affirmed with modification the decision of the Labor Arbiter. The NLRC found the herein private
respondents constructively dismissed and ordered Radon Security to pay them their separation pay, in lieu of reinstatement with
backwages, as well as their monetary benefits limited to three years, plus attorneys fees equivalent to 10% of the entire amount,
with Radon Security and Ever Emporium, Inc. adjudged jointly and severally liable.

Radon Security duly moved for reconsideration, but this was denied by the NLRC in its Resolution dated June 22, 1998.

Radon Security then filed a Petition for Certiorari docketed as G.R. No. 134891 with this Court, but we dismissed this petition in
our Resolution of August 31, 1998.

When the Decision dated April 6, 1998 of the NLRC became final and executory, private respondents filed an Urgent Motion for
Execution. As a result, the NLRC Research and Information Unit submitted a Computation of the Monetary Awards in accordance with
the NLRC decision. Radon Security opposed said computation in its Motion for Recomputation.

On February 5, 1999, the Labor Arbiter issued a Writ of Execution [5] incorporating the computation of the NLRC Research and
Information Unit. That same date, the Labor Arbiter dismissed the Motion for Recomputation filed by Radon Security. By virtue of the
writ of execution, the NLRC Sheriff issued a Notice of Garnishment [6] against the supersedeas bond.

Both Ever Emporium, Inc. and Radon Security moved to quash the writ of execution.

On March 30, 1999, the Labor Arbiter denied both motions, and Radon Security appealed to the NLRC.

On April 14, 1999, AFPGIC entered the fray by filing before the Labor Arbiter an Omnibus Motion to Quash Notice/Writ of
Garnishment and to Discharge AFPGICs Appeal Bond on the ground that said bond has been cancelled and thus non-existent in view
of the failure of Radon Security to pay the yearly premiums.[7]

On April 30, 1999, the Labor Arbiter denied AFPGICs Omnibus Motion for lack of merit. [8] The Labor Arbiter pointed out that
the question of non-payment of premiums is a dispute between the party who posted the bond and the insurer; to allow the bond to
be cancelled because of the non-payment of premiums would result in a factual and legal absurdity wherein a surety will be rendered
nugatory by the simple expedient of non-payment of premiums.

The petitioner then appealed the Labor Arbiters order to the NLRC. The appeals of Radon Security and AFPGIC were jointly
heard as NLRC NCR CA-011705-96.

On October 5, 1999, the NLRC disposed of NLRC NCR CA-011705-96 in this wise:

merit.

WHEREFORE, premises considered, the appeals under consideration are hereby DISMISSED for lack of

SO ORDERED.[9]

In dismissing the appeal of AFPGIC, the NLRC pointed out that AFPGICs theory that the bond cannot anymore be proceeded
against for failure of Radon Security to pay the premium is untenable, considering that the bond is effective until the finality of the
decision.[10] The NLRC stressed that a contrary ruling would allow respondents to simply stop paying the premium to frustrate
satisfaction of the money judgment.[11]

AFPGIC then moved for reconsideration, but the NLRC denied the motion in its Resolution [12] dated February 29, 2000.

AFPGIC then filed a special civil action for certiorari, docketed as CA-G.R. SP No. 58763, with the Court of Appeals, on the
ground that the NLRC committed a grave abuse of discretion in affirming the Order dated March 30, 1999 of the Labor Arbiter.

On August 20, 2001, the appellate court dismissed CA-G.R. SP No. 58763, disposing as follows:
WHEREFORE, the foregoing considered, the petition is denied due course and accordingly DISMISSED.
SO ORDERED.[13]

AFPGIC seasonably moved for reconsideration, but this was denied by the appellate court in its Resolution [14] of December 14,
2001.

Hence, the instant case anchored on the lone assignment of error that:
THE COURT OF APPEALS SERIOUSLY ERRED IN SUSTAINING THE PUBLIC RESPONDENT NLRC ALTHOUGH THE LATTER
GRAVELY ABUSED ITS DISCRETION WHEN IT ARBITRARILY IGNORED THE FACT THAT SUBJECT APPEAL BOND WAS
ALREADY CANCELLED FOR NON-PAYMENT OF PREMIUM AND THUS IT COULD NOT BE SUBJECT OF EXECUTION OR
GARNISHMENT.[15]

The petitioner contends that under Section 64 [16] of the Insurance Code, which is deemed written into every insurance contract
or contract of surety, an insurer may cancel a policy upon non-payment of the premium. Said cancellation is binding upon the

beneficiary as the right of a beneficiary is subordinate to that of the insured. Petitioner points out that in South Sea Surety &
Insurance Co., Inc. v. CA,[17] this Court held that payment of premium is a condition precedent to and essential for the efficaciousness
of a contract of insurance. [18] Hence, following UCPB General Ins. Co., Inc. v. Masagana Telamart, Inc., [19] no insurance policy, other
than life, issued originally or on renewal is valid and binding until actual payment of the premium. [20] The petitioner also points
to Malayan Insurance Co., Inc. v. Cruz Arnaldo, [21] which reiterated that an insurer may cancel an insurance policy for non-payment of
premium.[22] Hence, according to petitioner, the Court of Appeals committed a reversible error in not holding that under Section
77[23] of the Insurance Code, the surety bond between it and Radon Security was not valid and binding for non-payment of premiums,
even as against a third person who was intended to benefit therefrom.

The private respondents adopted in toto the ratiocinations of the Court of Appeals that inasmuch as a supersedeas bond was posted
for the benefit of a third person to guarantee that the money judgment will be satisfied in case it is affirmed on appeal, the third person who
stands to benefit from said bond is entitled to notice of its cancellation for any reason. Likewise, the NLRC should have been notified to
enable it to take the proper action under the circumstances. The respondents submit that from its very nature, asupersedeas bond remains
effective and the surety liable thereon until formally discharged from said liability. To hold otherwise would enable a losing party to frustrate
a money judgment by the simple expedient of ceasing to pay premiums.

We find merit in the submissions of the private respondents.

The controversy before the Court involves more than just the mere application of the provisions of the Insurance Code to the
factual circumstances. This instant case, after all, traces its roots to a labor controversy involving illegally dismissed workers. It thus
entails the application of labor laws and regulations. Recall that the heart of the dispute is not an ordinary contract of property or life
insurance, but an appeal bond required by both substantive and adjective law in appeals in labor disputes, specifically Article
223[24] of the Labor Code, as amended by Republic Act No. 6715, [25] and Rule VI, Section 6[26] of the Revised NLRC Rules of
Procedure. Said provisions mandate that in labor cases where the judgment appealed from involves a monetary award, the appeal
may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company accredited by the NLRC.
[27]

The perfection of an appeal by an employer only upon the posting of a cash or surety bond clearly and categorically shows the

intent of the lawmakers to make the posting of a cash or surety bond by the employer to be the exclusive means by which an
employers appeal may be perfected.[28] Additionally, the filing of a cash or surety bond is a jurisdictional requirement in an appeal
involving a money judgment to the NLRC. [29] In addition, Rule VI, Section 6 of the Revised NLRC Rules of Procedure is a
contemporaneous construction of Article 223 by the NLRC. As an interpretation of a law by the implementing administrative agency,
it is accorded great respect by this Court. [30] Note that Rule VI, Section 6 categorically states that the cash or surety bond posted in
appeals involving monetary awards in labor disputes shall be in effect until final disposition of the case. This could only be
construed to mean that the surety bond shall remain valid and in force until finality and execution of judgment, with the resultant
discharge of the surety company only thereafter, if we are to give teeth to the labor protection clause of the Constitution. To construe
the provision any other way would open the floodgates to unscrupulous and heartless employers who would simply forego paying
premiums on their surety bond in order to evade payment of the monetary judgment. The Court cannot be a party to any such
iniquity.

Moreover, the Insurance Code supports the private respondents arguments. The petitioners reliance on Sections 64 and 77
of the Insurance Code is misplaced. The said provisions refer to insurance contracts in general. The instant case pertains to a surety
bond; thus, the applicable provision of the Insurance Code is Section 177, [31] which specifically governs suretyship. It provides that a
surety bond, once accepted by the obligee becomes valid and enforceable, irrespective of whether or not the premium has been paid
by the obligor. The private respondents, the obligees here, accepted the bond posted by Radon Security and issued by the
petitioner. Hence, the bond is both valid and enforceable. A verbis legis non est recedendum (from the language of the law there
must be no departure).[32]

When petitioner surety company cancelled the surety bond because Radon Security failed to pay the premiums, it gave due
notice to the latter but not to the NLRC. By its failure to give notice to the NLRC, AFPGIC failed to acknowledge that the NLRC had

jurisdiction not only over the appealed case, but also over the appeal bond. This oversight amounts to disrespect and contempt for a
quasi-judicial agency tasked by law with resolving labor disputes. Until the surety is formally discharged, it remains subject to the
jurisdiction of the NLRC.

Our ruling, anchored on concern for the employee, however, does not in any way seek to derogate the rights and interests of
the petitioner as against Radon Security. The former is not devoid of remedies against the latter. Under Section 176[33] of the
Insurance Code, the liability of petitioner and Radon Security is solidary in nature. There is solidary liability only when the obligation
expressly so states, or when the law so provides, or when the nature of the obligation so requires. [34] Since the law provides that the
liability of the surety company and the obligor or principal is joint and several, then either or both of them may be proceeded against
for the money award.

The Labor Arbiter directed the NLRC Sheriff to garnish the surety bond issued by the petitioner. The latter, as surety, is
mandated to comply with the writ of garnishment, for as earlier pointed out, the bond remains enforceable and under the jurisdiction
of the NLRC until it is discharged. In turn, the petitioner may proceed to collect the amount it paid on the bond, plus the premiums
due and demandable, plus any interest owing from Radon Security. This is pursuant to the principle of subrogation enunciated in
Article 2067[35] of the Civil Code which we apply to the suretyship agreement between AFPGIC and Radon Security, in accordance with
Section 178[36] of the Insurance Code. Finding no reversible error committed by the Court of Appeals in CA-G.R. SP No. 58763, we
sustain the challenged decision.

WHEREFORE, the instant petition is DENIED for lack of merit. The assailed Decision dated August 20, 2001 of the Court of
Appeals in CA-G.R. SP No. 58763 and the Resolution dated December 14, 2001, of the appellate court denying the herein petitioners
motion for reconsideration are AFFIRMED. Costs against the petitioner.

43.
SUN INSURANCE OFFICE, LTD. V CA (LIM)
211 SCRA 554
CRUZ; July 17, 1992
NATURE
Petition for review from the decision of the Court of Appeals
FACTS
- Felix Lim was issued a Personal Accident Policy insurance with petitioner company with a face value of P200,000. His beneficiary
was his wife Nerissa.
- October 6, 1982 Felix accidentally shot himself in the head with his own gun.
- He was playing with the handgun after he had removed the guns magazine (kasi naman).
- He pointed the gun at his secretary and only witness Pilar Nalagon as a joke and assured her that the gun was not loaded ( are you
sure).
- He then put the gun to his temple and fired it (haaay, sabi ko na nga ba).
- Both parties are in agreement that there was no suicide.
- Nerissa claimed as Felixs beneficiary but Sun Insurance would not grant her claim, saying that her husbands death was not an
accident.
- Nerissa sued Sun Insurance and won the case. Sun Insurance was ordered to pay her P200,000 representing the face value of the
claim along with moral, exemplary and compensatory damages and attorneys fees. The decision was affirmed by the CA.
Petitioners Claim
- Sun Insurance cites one of the four exceptions in the contract of insurance which includes bodily injury consequent upon the insured
person attempting to commit suicide or willfully exposing himself to needless peril in an attempt to save a human life.
- There mere act of pointing the gun to his temple showed that Felix willfully exposed himself to danger because a gun should always
be handled with caution.
Respondents Comments
- Felix believed the gun to be safe because he had removed the magazine.
- He repeatedly assured his secretary that the gun was not loaded.
ISSUES
1. WON Felix Lims death was an accident, thus making his widow Nerissa liable to claim the accident insurance
2. WON the award of damages to Nerissa Lim was justified
HELD
1. YES, Felix Lims death was an accident.
Ratio There is no accident when a deliberate act is performed unless some additional, unexpected, independent and unforeseen
happening occurs which produces or brings bout their injury or death.
Reasoning

- An accident has been defined to be that which happens by chance or fortuitously without intention or design and which is
unexpected, unusual and unforeseen. It an event that takes pace without ones foresight or expectastion an event that proceeds
from an unknown cause or is an unusual effect of a known case and therefore not expected. It happens without any human agency,
an event which, under the circumstances, is unusual to and not expected by the person to whom it happens.
- The firing of the gun was deemed to be the unexpected and independent and unforeseen occurrence that led to the insured
persons death.
- There was no willful exposure to needless peril for the part of Felix. Suicide and exposure to needless peril are similar in the sense
that both signify disregard for ones life. Suicide imparts a positive act of ending ones life whereas the latter indicates recklessness
that is almost suicidal in intent.
- Accident insurance policies were never meant to reward the insured for his tendency to show off or for his miscalculations. They
were intended to provide for contingencies.
- Lim was unquestionably negligent but it should not prevent his widow from recovering from the insurance policy he obtained
precisely against accident.
- Insurance contracts are, as a rule, supposed to be interpreted liberally in favor of the assured.
2. NO, the claim for damages should not be granted for being unjust.
Ratio A person may be made liable to the payment of moral damages if his act is wrongful. The adverse result of an action does not
per se make the act wrongful and subject the act or to the payment of moral damages.
Reasoning
- Petitioner was acting in good faith when it resisted the private respondents claim on the ground that the death of the insured was
covered by the exception.
- The issue was debatable and was clearly not raised only for the purpose of evading a legitimate obligation.
43.
SUN INSURANCE v. CA (LIM)
211 SCRA 554
CRUZ; July 17, 1992
FACTS
- The petitioner issued Personal Accident Policy to Felix Lim, Jr. with a face value of P200,000.00. Two months later, he was dead with
a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim was rejected. The
petitioner agreed that there was no suicide. It argued, however, that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. According to Nalagon, Lim was in a happy mood (but not drunk)
and was playing with his handgun, from which he had previously removed the magazine. As she watched the television, he stood in
front of her and pointed the gun at her. She pushed it aside and said it might be loaded. He assured her it was not and then pointed it
to his temple. The next moment there was an explosion and Lim slumped to the floor. He was dead before he fell.
- The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical signification in law, and when used in an insurance
contract are to be construed and considered according to the ordinary understanding and common usage and speech of people
generally. In substance, the courts are practically agreed that the words "accident" and "accidental" mean that which happens by
change or fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The definition that has
usually been adopted by the courts is that an accident is an event that takes place without one's foresight or expectation an
event that proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not expected.
- An accident is an event which happens without any human agency or, if happening through human agency, an event which, under
the circumstances, is unusual to and not expected by the person to whom it happens. It has also been defined as an injury which
happens by reason of some violence or casualty to the insured without his design, consent, or voluntary co-operation.
ISSUE
WON what happened was an accident
HELD
YES
- The petitioner, however, cites one of the four exceptions provided for in the insurance contract and contends that the private
petitioner's claim is barred by such provision. It is there stated:
Exceptions The company shall not be liable in respect of.
1.
Bodily injury.
xxx
xxx
xxx
b.
consequent upon.
i)
The insured persons attempting to commit suicide or wilfully exposing himself to needless peril except in an attempt to save
human life.
- To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the insured willfully exposed
himself to needless peril and thus removed himself from the coverage of the insurance policy. That posture is arguable. But what is
not is that, as the secretary testified, Lim had removed the magazine from the gun and believed it was no longer dangerous. He
expressed assured her that the gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act was precisely intended to assure
Nalagon that the gun was indeed harmless.
Disposition CA Affirmed