Pacific v CA G.R. No.
L-41014 November 28, 1988
J. Paras
Facts:
An open fire insurance policy, was issued to Paramount Shirt Manufacturing by
Oriental Assurance Corporation to indemnify P61,000.00, caused by fire to the
factory’s stocks, materials and supplies.
The insured was a debtor of Pacific Banking in the amount of (P800,000.00) and
the goods described in the policy were held in trust by the insured for Pacific
Banking under trust receipts.
The policy was endorsed to Pacific Banking as mortgagee/ trustor of the
properties insured, with the knowledge and consent of private respondent to the
effect that "loss if any under this policy is payable to the Pacific Banking
Corporation".
A fire broke out on the premises destroying the goods contained in the building.
The bank sent a letter of demand to Oriental for indemnity.
The company wasn’t ready to give since it was awaiting the adjuster’s report.
The company then made an excuse that the insured had not filed any claim with
it, nor submitted proof of loss which is a clear violation of Policy Condition No.
11, as a result, determination of the liability of private respondent could not be
made.
Pacific Banking filed in the trial court an action for a sum of money for
P61,000.00 against Oriental Assurance.
At the trial, petitioner presented communications of the insurance adjuster to
Asian Surety revealing undeclared co-insurances with the following: P30,000
with Wellington Insurance; P25,000 with Empire Surety and P250,000 with
Asian Surety undertaken by insured Paramount on the same property covered by
its policy with Oriental whereas the only co-insurances declared in the subject
policy are those of P30,000.00 with Malayan P50,000.00 with South Sea and
P25.000.00 with Victory.
The defense of fraud, in the form of non-declaration of co-insurances which was
not pleaded in the answer, was also not pleaded in the Motion to Dismiss.
The trial court denied the respondent’s motion. Oriental filed another motion to
include additional evidence of the co-insurance which could amount to fraud.
The trial court still made Oriental liable for P 61,000. The CA reversed the
trial court decision. Pacific Banking filed a motion for reconsideration of the
said decision of the respondent Court of Appeals, but this was denied for lack of
merit.
Issues:
1. WON unrevealed co-insurances Violated policy conditions No. 3
2. WON the insured failed to file the required proof of loss prior to court action.
Held: Yes. Petition dismissed.
Page 1 of 14
Ratio:
1. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any insurance already
effected, or which may subsequently be effected, covering any of the property
hereby insured, and unless such notice be given and the particulars of such
insurance or insurances be stated in or endorsed on this Policy by or on behalf of
the Company before the occurrence of any loss or damage, all benefit under this
policy shall be forfeited.
The insured failed to reveal before the loss three other insurances. Had the
insurer known that there were many co-insurances, it could have hesitated or
plainly desisted from entering into such contract. Hence, the insured was guilty
of clear fraud.
Concrete evidence of fraud or false declaration by the insured was furnished by
the petitioner itself when the facts alleged in the policy under clauses "Co-
Insurances Declared" and "Other Insurance Clause" are materially different from
the actual number of co-insurances taken over the subject property.
As the insurance policy against fire expressly required that notice should be
given by the insured of other insurance upon the same property, the total absence
of such notice nullifies the policy.
Petitioner points out that Condition No. 3 in the policy in relation to the "other
insurance clause" supposedly to have been violated, cannot certainly defeat the
right of the petitioner to recover the insurance as mortgagee/assignee. Hence,
they claimed that the purpose for which the endorsement or assignment was
made was to protect the mortgagee/assignee against any untoward act or
omission of the insured. It would be absurd to hold that petitioner is barred from
recovering the insurance on account of the alleged violation committed by the
insured.
It is obvious that petitioner has missed all together the import of subject
mortgage clause which specifically provides:
“Loss, if any, under this policy, shall be payable to the PACIFIC BANKING
CORPORATION Manila mortgagee/trustor as its interest may appear, it being
hereby understood and agreed that this insurance as to the interest of the
mortgagee/trustor only herein, shall not be invalidated by any act or neglect—
except fraud or misrepresentation, or arson—of the mortgagor or owner/trustee
of the property insured; provided, that in case the mortgagor or owner/ trustee
neglects or refuses to pay any premium, the mortgagee/ trustor shall, on demand
pay the same.”
The paragraph clearly states the exceptions to the general rule that insurance as
to the interest of the mortgagee, cannot be invalidated; namely: fraud, or
misrepresentation or arson. Concealment of the aforecited co-insurances can
easily be fraud, or in the very least, misrepresentation.
Undoubtedly, it is but fair and just that where the insured who is primarily
entitled to receive the proceeds of the policy has by its fraud and/or
misrepresentation, forfeited said right.
Petitioner further stressed that fraud which was not pleaded as a defense in
private respondent's answer or motion to dismiss, should be deemed to have
been waived. It will be noted that the fact of fraud was tried by express or at
least implied consent of the parties. Petitioner did not only object to the
introduction of evidence but on the contrary, presented the very evidence that
proved its existence.
2. Generally, the cause of action on the policy accrues when the loss occurs, But
when the policy provides that no action shall be brought unless the claim is first
presented extrajudicially in the manner provided in the policy, the cause of
action will accrue from the time the insurer finally rejects the claim for payment
In the case at bar, policy condition No. 11 specifically provides that the insured
shall on the happening of any loss or damage give notice to the company and
shall within fifteen (15) days after such loss or damage deliver to the private
respondent (a) a claim in writing giving particular account as to the articles or
goods destroyed and the amount of the loss or damage and (b) particulars of all
other insurances, if any.
Twenty-four days after the fire did petitioner merely wrote letters to private
respondent to serve as a notice of loss. It didn’t even furnish other documents.
Instead, petitioner shifted upon private respondent the burden of fishing out the
necessary information to ascertain the particular account of the articles destroyed
by fire as well as the amount of loss. Since the required claim by insured,
together with the preliminary submittal of relevant documents had not been
complied with, it follows that private respondent could not be deemed to have
finally rejected petitioner's claim and therefore there was no cause of action.
It appearing that insured has violated or failed to perform the conditions under
No. 3 and 11 of the contract, and such violation or want of performance has not
been waived by the insurer, the insured cannot recover, much less the herein
petitioner.
Oriental v CA G.R. No. 94052 August 9, 1991
J. Melencio-Herrera
Facts:
Panama Sawmill shipped 1208 pieces of apitog logs to Manila and insured the
logs with Oriental for the value of Php 1 million. Two barges were loaded with
610 and 598 logs. At sea, typhoons ravaged one of the barges, resulting in the
loss of 497 of 598 of the logs.
The Insurance contract provided for indemnity under the following conditions:
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the
following clauses:
— Civil Code Article 1250 Waiver clause
— Typhoon warranty clause
— Omnibus clause.
Oriental didn’t give an indemnity because there wasn’t total loss of the shipment.
Page 2 of 14
The sawmill filed a civil case against Oriental and the court ordered it to pay
410,000 as value for the missing logs. The CA affirmed the lower court
judgment but reduced the legal interest. Hence this appeal by Oriental.
Issue:
Whether or not Oriental Assurance can be held liable under its marine insurance
policy based on the theory of a divisiblecontract of insurance and, consequently,
a constructive total loss.
Held: No. Petition granted.
Ratio:
Perla v CA- The terms of the contract constitute the measure of the insurer
liability and compliance therewith is a condition precedent to the insured's right
to recovery from the insurer.
“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.”
Also, the insurer's liability was for "total loss only" as stipulated. A total loss
may be either actual or constructive. An actual total loss under Sec 130 of the
Insurance Code is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the
purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at
the port of destination, of the thing insured.
A constructive total loss, gives to a person insured a right to abandon and it
means:
SECTION 139. A person insured by a contract of marine insurance may
abandon the 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 appellate court considered the cargo in one barge as separate from the other
and ruled that 497 of 598 was more than ¾ of the amount lost, showing a
constructive total loss.
The SC, however, said that although the logs were placed in two barges, they
were not separately valued by the policy, nor separately insured. 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 can not be said to have sustained a
constructive total loss under Section 139(a) of the Insurance Code.
Fortune v CA G.R. No. 115278 May 23, 1995
J. Davide Jr.
Facts:
Producers Bank’s money was stolen while it was being transported from Pasay
to Makati. The people guarding the money were charged with the theft. The bank
filed a claim for the amount of Php 725,000, and such was refused by the
insurance corporation due to the stipulation:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or
any officer, employee, partner, director, trustee or authorized representative of
the Insured whether acting alone or in conjunction with others. . . .
In the trial court, the bank claimed that the suspects were not any of the above
mentioned. They won the case. The appellatecourt affirmed on the basis that the
bank had no power to hire or dismiss the guard and could only ask for
replacements from the security agency.
Issue: Did the guards fall under the general exceptions clause of the insurance
policy and thus absolved the insurance company from liability?
Held: Yes to both. Petition granted.
Ratio:
The insurance agency contended that the guards automatically became the
authorized representatives of the bank when they cited International Timber
Corp. vs. NLRC where a contractor is a "labor-only" contractor in the sense that
there is an employer-employee relationship between the owner of the project and
the employees of the "labor-only" contractor.
They cited Art. 106. Of the Labor Code which said:
Contractor or subcontractor. — There is "labor-only" contracting where the
person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing
Page 3 of 14
activities which are directly related to the principal business of such employer. In
such cases, the person or intermediary shall be considered merely as an agent of
the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.
The bank asserted that the guards were not its employees since it had nothing to
do with their selection and engagement, the payment of their wages, their
dismissal, and the control of their conduct.
They cited a case where an employee-employer relationship was governed by (1)
the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employee's conduct.
The case was governed by Article 174 of the Insurance Code where it stated that
casualty insurance awarded an amount to loss cause by accident or mishap.
“The term "employee," should be read as a person who qualifies as such
as generally and universally understood, or jurisprudentially established in the
light of the four standards in the determination of the employer-employee
relationship, or as statutorily declared even in a limited sense as in the case of
Article 106 of the Labor Code which considers the employees under a "labor-
only" contract as employees of the party employing them and not of the party
who supplied them to the employer.”
But even if the contracts were not labor-only, the bank entrusted the suspects
with the duty to safely transfer the money to its head office, thus, they were
representatives. According to the court, “a ‘representative’ is defined as one who
represents or stands in the place of another; one who represents others or another
in a special capacity, as an agent, and is interchangeable with ‘agent.’”
Great Pacific v CA G.R. No. L-31845 April 30, 1979
J. De Castro
Facts:
Ngo Hing filed an application with the Great Pacific for a twenty-year
endowment policy in the amount of P50,000.00 on the life of his one-year old
daughter Helen. He supplied the essential data which petitioner Mondragon, the
Branch Manager, wrote on the form. The latter paid the annual premium the sum
of P1,077.75 going over to the Company, but he retained the amount of
P1,317.00 as his commission for being a duly authorized agent of Pacific Life.
Upon the payment of the insurance premium, the binding deposit receipt was
issued Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of
the back page of the application form his strong recommendation for the
approval of the insurance application. Then Mondragon received a letter from
Pacific Life disapproving the insurance application. The letter stated that the said
life insurance application for 20-year endowment plan is not available for minors
below seven years old, but Pacific Life can consider the same under the Juvenile
Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-
Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing.
Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly
recommending the approval of the 20-year endowment insurance plan to
children, pointing out that since the customers were asking for such coverage.
Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed the action for the recovery
before the Court of First Instance of Cebu, which ruled against him.
Issues:
1. Whether the binding deposit receipt constituted a temporary contract of the
life insurance in question
2. Whether Ngo Hing concealed the state of health and physical condition of
Helen Go, which rendered void the policy
Held: No. Yes. Petition dismissed.
Ratio:
The receipt was intended to be merely a provisional insurance contract. Its
perfection was subject to compliance of the following conditions: (1) that the
company shall be satisfied that the applicant was insurable on standard rates; (2)
that if the company does not accept the application and offers to issue a policy
for a different plan, the insurance contract shall not be binding until the applicant
accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that
if the company disapproves the application, the insurance applied for shall not be
in force at any time, and the premium paid shall be returned to the applicant.
The receipt is merely an acknowledgment that the latter's branch office had
received from the applicant the insurance premium and had accepted the
application subject for processing by the insurance company. There was still
approval or rejection the same on the basis of whether or not the applicant is
"insurable on standard rates." Since Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had
never become in force at any time. The binding deposit receipt is conditional and
does not insure outright. This was held in Lim v Sun.
The deposit paid by private respondent shall have to be refunded by Pacific Life.
2. Ngo Hing had deliberately concealed the state of health of his daughter Helen
Go. When he supplied data, he was fully aware that his one-year old daughter is
typically a mongoloid child. He withheld the fact material to the risk insured.
“The contract of insurance is one of perfect good faith uberrima fides meaning
good faith, absolute and perfect candor or openness and honesty; the absence of
any concealment or demotion, however slight.”
The concealment entitles the insurer to rescind the contract of insurance.
Page 4 of 14
Bonifacio Bros. v. Mora
20 SCRA 262
Facts:
> Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the
condition that Mora would insure the car with HS Reyes as beneficiary.
> The car was then insured with State Insurance Company and the policy
delivered to Mora.
> During the effectivity of the insurance contract, the car figured in an accident.
The company then assigned the accident to an insurance appraiser for
investigation and appraisal of the damage.
> Mora without the knowledge and consent of HS Reyes, authorized Bonifacio
Bros to fix the car, using materials supplied by the Ayala Auto Parts Company.
> For the cost of Labor and materials, Mora was billed P2,102.73. The bill was
sent to the insurer’s appraiser. The insurance company drew a check in the
amount of the insurance proceeds and entrusted the check to its appraiser for
delivery to the proper party.
> The car was delivered to Mora without the consent of HS Reyes, and without
payment to Bonifacio Bros and Ayala.
> Upon the theory that the insurance proceeds should be directly paid to them,
Bonifacio and Ayala filed a complaint against Mora and the insurer with the
municipal court for the collection of P2,102.73.
> The insurance company filed its answer with a counterclaim for interpleader,
requiring Bonifacio and HS Reyes to interplead in order to determine who has a
better right to the proceeds.
Issue:
Whether or not there is privity of contract between Bonficacio and Ayala on one
hand and State Insurance on the other.
Held:
NONE.
It is fundamental that contracts take effect only between the parties thereto,
except in some specific instance provided by law where the contract contains
some stipulation in favor of a third person. Such stipulation is known as a
stipulation pour autrui; or a provision in favor of a third person not a party to the
contract.
Under this doctrine, a third person is ed to avail himself of a benefit granted to
him by the terms of the contract, provided that the contracting parties have
clearly and deliberately conferred a favor upon such person. Consequently, a
third person NOT a party to the contract has NO action against the aprties
thereto, and cannot generally demand the enforcement of the same.
The question of whether a third person has an enforceable interest in a contract
must be settled by determining whether the contracting parties intended to tender
him such an interest by deliberately inserting terms in their agreement with the
avowed purpose of conferring favor upon such third person. IN this connection,
this court has laid down the rule that the fairest test to determine whether the
interest of a 3rd person in a contract is a stipulation pour autrui or merely an
incidental interest, is to rely upon the intention of the parties as disclosed by
their contract.
In the instant case the insurance contract does not contain any words or clauses
to disclose an intent to give any benefit to any repairmen or material men in case
of repair of the car in question. The parties to the insurance contract omitted
such stipulation, which is a circumstance that supports the said conclusion. On
the other hand, the "loss payable" clause of the insurance policy stipulates that
"Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S.
Reyes, Inc. which they intended to benefit.
A policy of insurance is a distinct and independent contract between the insured
and insurer, and third persons have no right either in a court of equity, or in a
court of law, to the proceeds of it, unless there be some contract of trust,
expressed or implied, by the insured and third person. In this case, no contract
of trust, express or implied. In this case, no contract of trust, expressed or
implied exists. We, therefore, agree with the trial court that no cause of action
exists in favor of the appellants in so far as the proceeds of insurance are
concerned. The appellant's claim, if at all, is merely equitable in nature and must
be made effective through Enrique Mora who entered into a contract with the
Bonifacio Bros Inc. This conclusion is deducible not only from the principle
governing the operation and effect of insurance contracts in general, but is
clearly covered by the express provisions of section 50 of the Insurance Act
(now Sec. 53).
The policy in question has been so framed that "Loss, if any, is payable to H. S.
Reyes, Inc." which unmistakably shows the intention of the parties.
Insurance Case Digest: Heirs Of Loreto C. Maramag V Maramag (2009)
Page 5 of 14
G.R. No. 181132 June 5, 2009
Lessons Applicable: To whom insurance proceeds payable (Insurance)
FACTS:
• Loreto Maramag designated as beneficiary his concubine Eva
de Guzman Maramag
• Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie
(heirs of Loreto Maramag) and his concubine Eva de Guzman
Maramag, also suspected in the killing of Loreto and his illegitimate
children are claiming for his insurance.
• Vicenta alleges that Eva is disqualified from claiming
• RTC: Granted - civil code does NOT apply
• CA: dismissed the case for lack of jurisdiction for filing
beyond reglementary period
ISSUE: W/N Eva can claim even though prohibited under the civil code against
donation
HELD: YES. Petition is DENIED.
• Any person who is forbidden from receiving any donation
under Article 739 cannot be named beneficiary of a life insurance
policy of the person who cannot make any donation to him
If a concubine is made the beneficiary, it is believed
•
that the insurance contract will still remain valid, but the
indemnity must go to the legal heirs and not to the concubine,
for evidently, what is prohibited under Art. 2012 is the naming
of the improper beneficiary.
• SECTION 53. The insurance proceeds shall be applied
exclusively to the proper interest of the person in whose name or for
whose benefit it is made unless otherwise specified in the policy.
GR: only persons entitled to claim the insurance
•
proceeds are either the insured, if still alive; or the beneficiary,
if the insured is already deceased, upon the maturation of the
policy.
EX: situation where the insurance contract was
•
intended to benefit third persons who are not parties to the
same in the form of favorable stipulations or indemnity. In
such a case, third parties may directly sue and claim from the
insurer
It is only in cases where the insured has not designated any
•
beneficiary, or when the designated beneficiary is disqualified by law to
receive the proceeds, that the insurance policy proceeds shall redound
to the benefit of the estate of the insured
Coquia v. Fieldmen’s Insurance
26 SCRA 172
Facts:
> On Dec. 1, 1961, Fieldmen’s Insurance co. Issued in favor of the Manila
Yellow Taxicab a common carrier insurance policy with a stipulation that the
company shall indemnify the insured of the sums which the latter wmy be held
liable for with respect to “death or bodily injury to any faire-paying passenger
including the driver and conductor”.
> The policy also stated that in “the event of the death of the driver, the
Company shall indemnify his personal representatives and at the Company’s
option may make indemnity payable directly to the claimants or heirs of the
claimants.”
> During the policy’s lifetime, a taxicab of the insured driven by Coquia met an
accident and Coquia died.
> When the company refused to pay the only heirs of Coquia, his parents, they
institued this complaint. The company contends that plaintiffs have no cause of
action since the Coquias have no contractual relationship with the company.
Issue:
Whether or not plaintiffs have the right to collect on the policy.
Held:
YES.
Athough, in general, only parties to a contract may bring an action based
thereon, this rule is subject to exceptions, one of which is found in the second
paragraph of Article 1311 of the Civil Code of the Philippines, reading: "If a
contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person." This is but the restatement of a well-known principle
concerning contracts pour autrui, the enforcement of which may be demanded by
a third party for whose benefit it was made, although not a party to the contract,
before the stipulation in his favor has been revoked by the contracting parties
In the case at bar, the policy under consideration is typical of contracts pour
autrui this character being made more manifest by the fact that the deceased
driver paid fifty percent (50%) of the corresponding premiums, which were
deducted from his weekly commissions. Under these conditions, it is clear that
the Coquias — who, admittedly, are the sole heirs of the deceased — have a
direct cause of action against the Company, and, since they could have
Page 6 of 14
maintained this action by themselves, without the assistance of the insured it
goes without saying that they could and did properly join the latter in filing the
complaint herein.
Lopez v. Del Rosario
44 PHIL 98
Facts:
> Benita Del Rosario is the owner of a bonded warehouse in Manila where
copra and other merchandise are deposited.
> Among those who had copra deposited in the warehouse was Froilan Lopez,
the owner of 14 warehouse receipts with a declared value of P107,990.40 in his
name.
> Del Rosario secured insurance on the warehouse and its contents with 5
different insurance companies in the amount of P404,800.
> All policies were in the name of Del Rosario, except for one (with Nat’l
Insurance Co.) for 40T, in favor of Compania Copra de Tayabas.
> The warehouse and its contents were destroyed by fire. When Bayne, a fire
loss adjuster, failed to effect a settlement between the Insurance companies and
Del Rosario, the latter authorized Atty. Fisher to negotiate with the Companies.
> An agreement was reached to submit the matter to arbitration. The claims by
different people who had stored copra in the warehouse were settled with the
exception of Friolan Lopez.
> A case was filed in CFI by Lopez. The court awarded him the sum of
P88,492.21 with legal interest.
Issue:
Whether or not Del Rosario acted as the agent of Lopez in taking out the
insurance on the contents of the warehouse or whether she acted as the reinsurer
of the copra.


Held:
She acted as the agent of Lopez.
The agency can be deduced from the warehouse receipts, the insurance policies
and the circumstances surrounding the transaction. Under any aspect, Del
Rosario is liable. The law is that a policy effected by a bailee and covering by
its terms in his own property and property held in trust, inures, in the event of
loss, equally and proportionately to the benefit of all owners of the property
insured. Even if one secured insurance covering his own goods and goods
stored with him, and even if the owner of the stored goods did not request or
know the insurance, and did not ratify it before the payment of the loss, it has
been held by a reputable court that the warehouseman is liable to the owner of
such stored goods for his share.
In a case of contributing policies, adjustments of loss made by an expert or by a
board of arbitrators may be submitted to the court NOT as evidence of the facts
stated therein, or as obligatory, but for the purpose of assisting the court in
calculating the amount of liability.
Development Insurance v IAC G.R. No. 71360 July 16, 1986
J. Cruz
Facts:
A fire occurred in the building of Philippine Union. It sued for recovery of
damages from the petitioner on the basis of an insurance contract between them.
The petitioner failed to answer on time despite the numerous extensions it asked
for. It was declared in default by the trial court. A judgment of default was
subsequently rendered on the strength of the evidence given by the private
respondent, which was allowed damages. The petitioner moved to lift the order
of default. Its motion was denied. It went to the appellate court, which affirmed
the decision of the trial court. Hence this appeal.
Issue: Was Philippine Union required to jointly indemnify the building?
Held: No. Petition dismissed.
Ratio:
The policy insured the private respondent's building against fire for
P2,500,000.00.
The petitioner argued that the respondent must share the difference between that
amount and the face value of the policy and the loss sustained for 5.8 million
under Condition 17 of the policy.
The building was insured at P2,500,000.00 by agreement of the insurer and
the insured.
The agreement is known as an open policy and is subject to the express
condition that:
Page 7 of 14
“In the event of loss, whether total or partial, it is understood that the amount of
the loss shall be subject to appraisal and the liability of the company,
if established, shall be limited to the actual loss, subject to the applicable terms,
conditions, warranties and clauses of this Policy, and in no case shall exceed the
amount of the policy.”
Section 60 of the Insurance Code defines an open policy is one in which the
value of the thing insured is not agreed upon but is left to be ascertained in case
of loss." This means that the actual loss, as determined, will represent the
total indemnity due the insured from the insurer except only that the
total indemnity shall not exceed the face value of the policy.
The actual loss has been ascertained in this case. Hence, applying the open
policy clause as expressly agreed upon, the private respondent is entitled
to indemnity in the total amount of P508,867.00.
The refusal of its vice-president to receive the private respondent's complaint
was the first indication of the petitioner's intention to prolong this case and
postpone the discharge of its obligation to the private respondent under this
agreement. They still evaded payment for 5 years.
Paulo Ang and Sally Ang v. Fulton Fire Insurance Co. et al
No. L-15862. July 31, 1961; J. Labrador
FACTS:
(chronological arrangement of facts)
1. Sept 1953: P&S Department Store (Sally Ang) was insured with Fulton Fire
Insurance Co over stocks of general merchandise, consisting principally of
dried goods. It contained a stipulation stating “if the claim is made and
rejected but no action is commenced within 12 months after such rejection,
all benefits under the policy would be forfeited.”
2. Dec 1954: fire consumed the store and Ang filed claims. However, on April
1956, Fulton denied claims.
3. January 1955: Paulo Ang and 10 others were charged for arson in the Justice
of the Peace Court of Ilocos Norte. Remanded to CFI and the latter
acquitted Paulo Ang of the crime of arson.
4. May 1956: Ang filed case against Fulton’s agent. On Sept 1957, this case
was dismissed without prejudice.
5. May 1958: Ang filed the present case against Fulton. CFI ruled in favor of
Ang, holding that the 12-month prescription period (from insurer’s denial of
claim) was suspended by the case against the agent.
ISSUE: whether or not the filing of the previous suit against the agent suspended
the running of the prescriptive period.
HELD:
1. SC ruled that no, period was not suspended, and action had already
prescribed. CFI ruling set aside, case dismissed.
2. The condition contained that claims must be presented within 12 months or
one year after rejection is not merely a procedural requirement, but is
essential to a prompt settlement of claims against insurance companies.
3. It demands that insurance suits be brought by the insured while the evidence
as to the origins and causes of destruction have not yet disappeared.
4. Its purpose is to terminate all liabilities in case the action is not filed by the
insured within the period stipulated.
5. The action against the agent cannot have any other legal effect except that of
notifying the agent of the claim if there is no condition in the policy that an
action should be filed by the insured against the agent for his claim. There is
no law giving any effect to such action upon the principal, and courts cannot
by interpretation extend the clear scope of the agreement beyond what is
agreed upon by the parties.
6. Contractual limitations in insurance policies prevail over the statutory
limitations, as well as over the exceptions to the latter, because the rights of
the parties flow from the contract of insurance. Their contract is the law
between the parties, and their agreement that an action on a claim denied by
the insurer must be brought within one year from the denial, governs, not
the rules on the prescription of actions.
Sun v CA G.R. No. 89741 March 13, 1991
J. Paras
Facts:
Tan took from Sun Insurance a Php 300,000 policy to cover his electrical store in
Iloilo city. Tan’s request for an indemnity in 1983 was repeatedly denied, firstly
in 1984. He wrote for a reconsideration in the same year. This was rejected in
1985, prompting him to file a civil case in the same year. The insurance
company filed a motion to dismiss due to prescription in 1987, but this was
denied. The company went to the court of appeals to petition the same thing, but
this was denied.
Issue:
1. WON the filing of a motion for reconsideration interrupts the twelve months
prescriptive 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 denial is final. (ie. the first letter in 1984)
3. When does the cause of action accrue?
Held:
1.No
2.No
3. At the time of the first rejection of the insurance company
Page 8 of 14
Ratio:
1. The policy states in section 27.
Action or suit clause — If a claim be made and rejected and an action or suit be
not commenced either in the Insurance Commission or in any court of competent
jurisdiction within twelve (12) months from receipt of notice of such rejection,
or in case of arbitration taking place as provided herein, within twelve (12)
months after due notice of the award made by the arbitrator or arbitrators or
umpire, then the claim shall for all purposes be deemed to have
been abandoned and shall not thereafter be recoverable hereunder.
Respondent Tan admitted that he received a copy of the letter of rejection on
April 2, 1984. Thus, the 12-month prescriptive period started to run from the
said date of April 2, 1984, under section 27.
2. It was clear in the letter.
Ang v. Fulton Fire Insurance Co.- The condition contained in an insurance
policy that claims must be presented within one year after rejection is not merely
a procedural requirement but an important matter essential to a prompt
settlement of claims against insurance companies as it demands that insurance
suits be brought by the insured while the evidence as to the origin and cause of
destruction have not yet disappeared.
Therefore, there was a necessity of bringing suits against the Insurer within one
year from the rejection of the claim. (1984) The contention of the respondents
that the one-year prescriptive period does not start to run until the petition for
reconsideration had been resolved by the insurer (1985), runs counter to the
doctrine.
The provision in the contract was pursuant to Sec. 63.
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.
3. Eagle star- The right of the insured to the payment of his loss accrues from the
happening of the loss. However, the cause of action in an insurance contract does
not accrue until the insured's claim is finally rejected by the insurer. This is
because before such final rejection there is no real necessity for bringing suit.
The cause of action, then, started when the insurer denied his claim in the first
instance(1984). This rejection of a petition for reconsideration as insisted by
respondents wasn’t the beginning of the cause of action.
Pacific v CA G.R. No. L-41014 November 28, 1988
J. Paras
Facts:
An open fire insurance policy, was issued to Paramount Shirt Manufacturing by
Oriental Assurance Corporation to indemnify P61,000.00, caused by fire to the
factory’s stocks, materials and supplies.
The insured was a debtor of Pacific Banking in the amount of (P800,000.00) and
the goods described in the policy were held in trust by the insured for Pacific
Banking under trust receipts.
The policy was endorsed to Pacific Banking as mortgagee/ trustor of the
properties insured, with the knowledge and consent of private respondent to the
effect that "loss if any under this policy is payable to the Pacific Banking
Corporation".
A fire broke out on the premises destroying the goods contained in the building.
The bank sent a letter of demand to Oriental for indemnity.
The company wasn’t ready to give since it was awaiting the adjuster’s report.
The company then made an excuse that the insured had not filed any claim with
it, nor submitted proof of loss which is a clear violation of Policy Condition No.
11, as a result, determination of the liability of private respondent could not be
made.
Pacific Banking filed in the trial court an action for a sum of money for
P61,000.00 against Oriental Assurance.
At the trial, petitioner presented communications of the insurance adjuster to
Asian Surety revealing undeclared co-insurances with the following: P30,000
with Wellington Insurance; P25,000 with Empire Surety and P250,000 with
Asian Surety undertaken by insured Paramount on the same property covered by
its policy with Oriental whereas the only co-insurances declared in the subject
policy are those of P30,000.00 with Malayan P50,000.00 with South Sea and
P25.000.00 with Victory.
The defense of fraud, in the form of non-declaration of co-insurances which was
not pleaded in the answer, was also not pleaded in the Motion to Dismiss.
The trial court denied the respondent’s motion. Oriental filed another motion to
include additional evidence of the co-insurance which could amount to fraud.
The trial court still made Oriental liable for P 61,000. The CA reversed the
trial court decision. Pacific Banking filed a motion for reconsideration of the
said decision of the respondent Court of Appeals, but this was denied for lack of
merit.
Issues:
1. WON unrevealed co-insurances Violated policy conditions No. 3
2. WON the insured failed to file the required proof of loss prior to court action.
Held: Yes. Petition dismissed.
Ratio:
1. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any insurance already
effected, or which may subsequently be effected, covering any of the property
hereby insured, and unless such notice be given and the particulars of such
insurance or insurances be stated in or endorsed on this Policy by or on behalf of
Page 9 of 14
the Company before the occurrence of any loss or damage, all benefit under this
policy shall be forfeited.
The insured failed to reveal before the loss three other insurances. Had the
insurer known that there were many co-insurances, it could have hesitated or
plainly desisted from entering into such contract. Hence, the insured was guilty
of clear fraud.
Concrete evidence of fraud or false declaration by the insured was furnished by
the petitioner itself when the facts alleged in the policy under clauses "Co-
Insurances Declared" and "Other Insurance Clause" are materially different from
the actual number of co-insurances taken over the subject property.
As the insurance policy against fire expressly required that notice should be
given by the insured of other insurance upon the same property, the total absence
of such notice nullifies the policy.
Petitioner points out that Condition No. 3 in the policy in relation to the "other
insurance clause" supposedly to have been violated, cannot certainly defeat the
right of the petitioner to recover the insurance as mortgagee/assignee. Hence,
they claimed that the purpose for which the endorsement or assignment was
made was to protect the mortgagee/assignee against any untoward act or
omission of the insured. It would be absurd to hold that petitioner is barred from
recovering the insurance on account of the alleged violation committed by the
insured.
It is obvious that petitioner has missed all together the import of subject
mortgage clause which specifically provides:
“Loss, if any, under this policy, shall be payable to the PACIFIC BANKING
CORPORATION Manila mortgagee/trustor as its interest may appear, it being
hereby understood and agreed that this insurance as to the interest of the
mortgagee/trustor only herein, shall not be invalidated by any act or neglect—
except fraud or misrepresentation, or arson—of the mortgagor or owner/trustee
of the property insured; provided, that in case the mortgagor or owner/ trustee
neglects or refuses to pay any premium, the mortgagee/ trustor shall, on demand
pay the same.”
The paragraph clearly states the exceptions to the general rule that insurance as
to the interest of the mortgagee, cannot be invalidated; namely: fraud, or
misrepresentation or arson. Concealment of the aforecited co-insurances can
easily be fraud, or in the very least, misrepresentation.
Undoubtedly, it is but fair and just that where the insured who is primarily
entitled to receive the proceeds of the policy has by its fraud and/or
misrepresentation, forfeited said right.
Petitioner further stressed that fraud which was not pleaded as a defense in
private respondent's answer or motion to dismiss, should be deemed to have
been waived. It will be noted that the fact of fraud was tried by express or at
least implied consent of the parties. Petitioner did not only object to the
introduction of evidence but on the contrary, presented the very evidence that
proved its existence.
2. Generally, the cause of action on the policy accrues when the loss occurs, But
when the policy provides that no action shall be brought unless the claim is first
presented extrajudicially in the manner provided in the policy, the cause of
action will accrue from the time the insurer finally rejects the claim for payment
In the case at bar, policy condition No. 11 specifically provides that the insured
shall on the happening of any loss or damage give notice to the company and
shall within fifteen (15) days after such loss or damage deliver to the private
respondent (a) a claim in writing giving particular account as to the articles or
goods destroyed and the amount of the loss or damage and (b) particulars of all
other insurances, if any.
Twenty-four days after the fire did petitioner merely wrote letters to private
respondent to serve as a notice of loss. It didn’t even furnish other documents.
Instead, petitioner shifted upon private respondent the burden of fishing out the
necessary information to ascertain the particular account of the articles destroyed
by fire as well as the amount of loss. Since the required claim by insured,
together with the preliminary submittal of relevant documents had not been
complied with, it follows that private respondent could not be deemed to have
finally rejected petitioner's claim and therefore there was no cause of action.
It appearing that insured has violated or failed to perform the conditions under
No. 3 and 11 of the contract, and such violation or want of performance has not
been waived by the insurer, the insured cannot recover, much less the herein
petitioner.
[G.R. No. 82036. May 22, 1997]
Travellers Insurance & Surety Corporation vs. Hon. Court of Appeals &
Vicente Mendoza
Facts:
Vicente Mendoza, Jr. as heir of his mother (Feliza Vineza de Mendoza)
who was killed in a vehicular accident, filed an action for damages against the
erring taxicab driver (Rodrigo Dumlao), the owner (Armando Abellon) of the
taxicab (Lady Love Taxi with Plate No. 438-HA Pilipinas Taxi 1980) and the
alleged insurer of the vehicle which featured in the vehicular accident. The
erring taxicab was allegedly covered by a third-party liability insurance policy
issued by petitioner Travellers Insurance & Surety Corporation. Petitioner was
included in the complaint as the compulsory insurer of the said taxicab under
Certificate of Cover No. 1447785-3.
The trial court rendered judgment in favor of private respondent and
ordered Rodrigo Dumlao, Armando Abellon and petitioner to pay private
respondent death indemnity, moral damages, exemplary damages, attorney’s fees
and other litigation expenses, jointly and severally.
The decision was affirmed by the CA and the subsequent MR was denied.
Hence this petition.
Page 10 of 14
ISSUE: Whether petitioner is liable to private respondent?
HELD: NO.
I. The right of the person injured to sue the insurer of the party at fault (insured),
depends on whether the contract of insurance is intended to benefit third persons
also or on the insured. And the test applied has been this: Where the contract
provides for indemnity against liability to third persons, then third persons to
whom the insured is liable can sue the insurer. Where the contract is for
indemnity against actual loss or payment, then third persons cannot proceed
against the insurer, the contract being solely to reimburse the insured for liability
actually discharged by him thru payment to third persons, said third persons’
recourse being thus limited to the insured alone.”
The trial court did not distinguish between the private respondent’s cause
of action against the owner and the driver of the Lady Love taxicab and his
cause of action against petitioner. The former is based on torts and quasi-
delicts while the latter is based on contract. Confusing these two sources of
obligations as they arise from the same act of the taxicab fatally hitting private
respondent’s mother, and in the face of overwhelming evidence of the reckless
imprudence of the driver of the Lady Love taxicab, the trial court brushed aside
its ignorance of the terms and conditions of the insurance contract and forthwith
found all three - the driver of the taxicab, the owner of the taxicab, and the
alleged insurer of the taxicab - jointly and severally liable for actual, moral and
exemplary damages as well as attorney’s fees and litigation expenses. This is
clearly a misapplication of the law by the trial court, and respondent appellate
court grievously erred in not having reversed the trial court on this ground.
“While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer,
however, the direct liability of the insurer under indemnity contracts against
third-party liability does not mean that the insurer can be held solidarily liable
with the insured and/or the other parties found at fault. The liability of the
insurer is based on contract; that of the insured is based on tort.”
II. At the time of the vehicular incident which resulted in the death of private
respondent’s mother, during which time the Insurance Code had not yet been
amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:
“Any person having any claim upon the policy issued pursuant to this chapter
shall, without any unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the amount of his loss, and/or
the nature, extent and duration of the injuries sustained as certified by a duly
licensed physician. Notice of claim must be filed within six months from date of
the accident, otherwise, the claim shall be deemed waived. Action or suit for
recovery of damage due to loss or injury must be brought in proper cases, with
the Commission or the Courts within one year from date of accident, otherwise
the claimant’s right of action shall prescribe” [emphasis and underscoring
supplied].
It is significant to note that the aforecited Section 384 was amended by B.P.
Blg. 874 to categorically provide that “action or suit for recovery of damage due
to loss or injury must be brought in proper cases, with the Commissioner or the
Courts within one year from denial of the claim, otherwise the claimant’s right
of action shall prescribe” [emphasis ours].
We have certainly ruled with consistency that the prescriptive period to
bring suit in court under an insurance policy, begins to run from the date of the
insurer’s rejection of the claim filed by the insured, the beneficiary or any person
claiming under an insurance contract. This ruling is premised upon the
compliance by the persons suing under an insurance contract, with the
indispensable requirement of having filed the written claim mandated by
Section 384 of the Insurance Code before and after its amendment. Absent such
written claim filed by the person suing under an insurance contract, no cause of
action accrues under such insurance contract, considering that it is the rejection
of that claim that triggers the running of the one-year prescriptive period to bring
suit in court, and there can be no opportunity for the insurer to even reject a
claim if none has been filed in the first place, as in the instant case.
WHEREFORE, the instant petition is HEREBY GRANTED.
Lopez vs. Filipinas Compañia de Seguros
G.R. No. L-19613 April 30, 1966
FACTS:
• Plaintiff applied with the defendant company for the insurance of his
properties: Biederman truck tractor and a Winter Weils trailer from loss
or damage in the amount of P20,000.00 and P10,000.00, respectively.
• During the application, the defendant company inquired of the plaintiff
the ff:
• Has any company in respect of the insurance of any car or
vehicle
• (A) declined, cancelled or refused to renew your insurance?
• (B) increased your premium renewal?
• Plaintiff answered in negative but the truth was that the American
International Underwriters of the Philippines (AIU) had already
declined similar application for insurance by the plaintiff with respect
of the above-mentioned vehicles.
• The defendant issued to the plaintiff two Commercial Vehicle
Comprehensive Policies covering the said properties.
Page 11 of 14
• The vehicles mentioned figured in an accident resulting in the total loss
of the tractor and partial damage to the trailer. Plaintiff demand upon
the defendant for the payment to him the total amt. of damages
resulting from the accident.
• On April 28, 1960, defendant rejected the claim on the ground of
concealment of a material fact: that the insured property previously
been declined insurance by another company.
• May 27, 1960, the plaintiff filed with the Office of the Insurance
Commissioner a complaint against the said company.
• As suggested, the plaintiff was willing to submit his claim to
arbitration but was contested by the defendant since "the claim of the
plaintiff cannot be resolved by arbitration, as recourse to arbitration
referred to in the policy contract, envisioned only differences or
disputes, 'with respect to the amount of the company's liability,' and not
to cases where the company does not admit its liability to the insured.
• With this rejection, the plaintiff filed his complaint with the CFI of
Manila on September 19,1961.
• Against the above complaint, the defendant-appellee filed on
September 29, 1961 a motion to dismiss on the ground of prescription.
The latter argued that the plaintiff's claim had already prescribed since
it was not filed within twelve months from its rejection by the insurance
company as stipulated under paragraph 9 of the General Conditions of
Commercial Vehicle Comprehensive Policy Nos. 5598 and 5599, to
wit:
If a claim be made and rejected and an action or suit be not commenced within
twelve months after such rejection or (in case of an arbitration taking place as
provided herein) within twelve months after the arbitrator, arbitrators, or umpire
shall have made their award then the claim shall for all purposes be deemed to
have been abandoned and shall not thereafter be recovered hereunder.
ISSUE: Whether the complaint filed by the plaintiff-appellant with the Office of
the Insurance Comm. on May 27,1960 a commencement of an "action or suit"
within the meaning and intent of general condition? No.
RATIO:
• "Action" and "suit":
Rule 2, Section 1 of the Rules of Court
Section 1. Action defined.—Action means an ordinary suit in a Court of Justice
by which one party prosecutes another for the enforcement or protection of a
right, or the prevention or redress of a wrong. (Emphasis supplied.)
Jurisprudence
Suit is the prosecution or pursuit of some claim or demand in a court of justice
or any proceeding in a court of justice in which a plaintiff pursues his remedy to
recover a right or claim. (Emphasis supplied.)
- Upon the authorities, therefore, it is settled that the terms "action" and "suit"
are synonymous. Moreover, it is clear that the determinative or operative fact
which converts a claim into an "action or suit" is the filing of the same with a
"court or justice." Filed elsewhere, as with some other body or office not a court
of justice, the claim may not properly be categorized under either term.
• An "action or suit" is essentially "for the enforcement or protection of a
right, or the prevention or redress of a wrong." (Rule 2, Sec. 1, Rules of
Court). There is nothing in the Insurance Law, which empowers the
Insurance Commissioner to adjudicate on disputes relating to an
insurance company's liability to an insured under a policy issued by the
former to the latter. The validity of an insured's claim under a specific
policy, its amount, and all such other matters as might involve the
interpretation and construction of the insurance policy, are issues which
only a regular court of justice may resolve and settle. Consequently, the
complaint filed by the appellant herein with the Office of the Insurance
Commission could not have been an "action or suit."
ACCFA v. Alpha Insurance July 29, 1968
FACTS
• To guarantee the Asingan Farmers' Cooperative Marketing Association, Inc.
(FACOMA) against loss on account of personal dishonesty, amounting to
larceny/estafa of its Secretary-Treasurer, Ladines, appellee Alpha Insurance &
Surety Company had issued, on 14 February 1958, its bond with 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) with approval of the principal and the
surety.
• • During the effectivity of the bond, Ladines converted and misappropriated,
to his personal benefit, some of the FACOMA funds, of which a part 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. ACCFA filed suit against appellee
on 30 May 1960.
• • Defendant Alpha Insurance & Surety Co., Inc., (now appellee) moved to
dismiss the complaint as it was filed more than one year after plaintiff made
claim for loss, contrary to the eighth condition of the bond
• • At first, the Court of First Instance denied dismissal; but, upon
reconsideration, the court reversed its original stand, and dismissed the
Page 12 of 14
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?
NO
RATIO
• A fidelity bond is, 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 is subject to the provisions of Section 61-A of the Insurance
Act (No. 2427), as amended by Act 4101 of the preCommonwealth 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. Page 2 of 2
• • 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 from the time of
appellee's refusal to comply with its bond. It can’t 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, the action may be brought within the statutory period of
limitation for written contracts (New Civil Code, Article 1144).
Saura Import and Export v Philippine International Surety Co
GR L – 15184
May 31, 1963
Mortgagor/Insured: Saura Import and Export Co., Inc. (Saura)
Mortgagee: Philippine National Bank (PNB)
Insurer: Philippine International Surety Co. (PISC)
EMERGENCY RECIT: Saura mortgaged its property to PNB. Saura insured
its mortgaged property to Philippine International Surety Co. from October 2,
1954 to October 2, 1955. However, on October 15, 1954 Philippine International
Surety Co. cancelled the insurance policy without informing the insured Saura.
SC: If a mortgage or lien exists against the property insured, and the policy
contains a clause stating that loss, if any, shall be payable to such mortgagee or
the holder of such lien as his interest may appear, notice of cancellation to the
mortgagee or lienholder alone is ineffective as a cancellation of the policy as to
the owner of the property.
FACTS:
• On Dec. 26, 1952, Saura mortgaged to PNB its registered parcel of land
in Davao to secure the payment of a promissory note amounting to Php
27,000.
• A building of strong materials which was also owned by Saura, was
erected on the parcel of land and the building had always been covered
by insurance even before the execution of the mortgage contract.
• Pursuant to the mortgage agreement which required Saura to insure the
building and its contents, it obtained a fire insurance for Php 29,000
from PISC for a period of 1 year starting Oct. 2, 1954 to Oct. 2, 1955.
• The mortgage also required Saura to endorse the insurance policy to
PNB. The memo stated: Loss if any, payable to PNG as their interest
may appear, subject to the terms, conditions and warranties of this
policy.
• The policy was delivered to PNB by Saura.
• However on Oct. 15, 1954, barely 13 days after the issuance of the fire
insurance, PISC canceled the same, effective as of the date of issue.
Notice of the cancellation was sent to PNB (but not to Saura) in writing
and was received by the bank on Nov. 8, 1954.
• On April 6, 1955, the building and its contents worth Php 4,685 were
burned.
• On April 11, 1985, Saura filed a claim with PISC and mortgagee bank.
• Upon presentation of notice of loss with PNB, Saura learned for the
first time that the policy had been previously canceled by PISC, when
Saura’s folder in the bank’s file was opened and the notice of the
cancellation by PISC was found.
ISSUE: W/N cancellation by PISC was proper.
HELD: No. SC ordered PISC to pay Saura in the amount of Php 29,000.
Page 13 of 14
RATIO: The policy in question does NOT provide for the notice of cancellation,
its form or period. The Insurance Law does not likewise provide for such notice.
This being the case, it devolves upon the Court to apply the generally accepted
principles of insurance, regarding cancellation of the insurance policy by the
insurer.
Actual notice of cancellation in a clear and unequivocal manner, preferably in
writing should be given by the insurer to the insured so that the latter might be
given an opportunity to obtain other insurance for his own protection. The
notice should be personal to the insurer and not to and/or through any
unauthorized person by the policy. Both the PSIC and the PNB failed, wittingly
or unwittingly to notify Saura of the cancellation made.
The insurer contends that it gave notice to PNB as mortgagee of the property and
that was already substantial compliance with its duty to notify the insured of the
cancellation of the policy. But notice to the bank, as far as Saura herein is
concerned, is not effective notice. PISC is then ordered to pay Saura Php
29,000, the amount involved in the policy subject matter of this case.
Malayan Insurance Corp vs CA G.R. 119599 March 20, 1997
J. Romero
Facts:
TKC Marketing imported 3,000 metric tons of soya from Brazil to Manila. It
was insured by Malayan at the value of almost 20 million pesos. The vessel,
however, was stranded on South Africa because of a lawsuit regarding the
possession of the soya. TKC consulted Malayan on recovery of the amount, but
the latter claimed that it wasn’t covered by the policy. The soya was sold in
Africa for Php 10 million, but TKC wanted Malayan to shoulder the remaining
value of 10 million as well.
Petitioner filed suit due to Malayan’s reticence to pay. Malayan claimed that
arrest by civil authorities wasn’t covered by the policy. The trial court ruled in
TKC’s favor with damages to boot. The appellate court affirmed the decision
under the reason that clause 12 of the policy regarding an excepted risk due to
arrest by civil authorities was deleted by Section 1.1 of the Institute
War Clauses which covered ordinary arrests by civil authorities. Failure of the
cargo to arrive was also covered by the Theft, Pilferage, and Non-delivery
Clause of the contract. Hence this petition.
Issues:
1. WON the arrest of the vessel was a risk covered under the subject insurance
policies.
2. WON the insurance policies must strictly construed against the insurer.
Held: Yes. Yes. Petition dismissed.

Ratio:
1. Section 12 or the "Free from Capture & Seizure Clause" states: "Warranted
free of capture, seizure, arrest, restraint or detainment, and the consequences
thereof or of any attempt thereat… Should Clause 12 be deleted, the relevant
current institute war clauses shall be deemed to form part of this insurance.”
This was really replaced by the subsection 1.1 of section 1 of Institute
War Clauses (Cargo) which included “the risks excluded from the standard form
of English Marine Policy by the clause warranted free of capture, seizure, arrest,
restraint or detainment, and the consequences thereof of hostilities or warlike
operations, whether there be a declaration of war or not.”
The petitioner’s claim that the Institute War Clauses can be operative in case of
hostilities or warlike operations on account of its heading "Institute
War Clauses" is not tenable. It reiterated the CA’s stand that “its interpretation in
recent years to include seizure or detention by civil authorities seems consistent
with the general purposes of the clause.” This interpretation was regardless of
the fact whether the arrest was in war or by civil authorities.
The petitioner was said to have confused the Institute War clauses and the F.C.S.
in English law.
“It stated that "the F.C. & S. Clause was "originally incorporated in insurance
policies to eliminate the risks of warlike operations". It also averred that the F.C.
& S. Clause applies even if there be no war or warlike operations. In the same
vein, it contended that subsection 1.1 of Section 1 of the Institute
War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also
stated that "the deletion of the F.C. & S. Clause and the consequent incorporation
of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) was to
include "arrest, etc. even if it were not a result of hostilities or warlike
operations."
The court found that the insurance agency tried to interpret executive and
political acts as those not including ordinary arrestsin the exceptions of the FCS
clause , and claims that the War Clauses now included executive and
political acts without including ordinary arrests in the new stipulation.
“A strained interpretation which is unnatural and forced, as to lead to an absurd
conclusion or to render the policy nonsensical, should, by all means, be
avoided.”
2. Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguitytherein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, means that any ambiguity should be resolved against the
insurer.

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