INSURANCE CASES2.doc

7/27/2019 INSURANCE CASES2.doc

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Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 48049 June 29, 1989

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners,vs.

THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCECOMPANY, respondents.

O.F. Santos & P.C. Nolasco for petitioners.Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming thedecision of the Insurance Commissioner which dismissed the petitioners' complaint against

respondent Philippine American Life Insurance Company for the recovery of the proceedsfrom their late father's policy. The facts of the case as found by the Court of Appeals are:

Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein

petitioners' complaint against respondent Philippine American Life Insurance Company for therecovery of the proceeds of Policy No. 1082467 in the amount of P 80,000.00.

On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life insurancein the amount of P 80,000.00 with respondent company. Said application was approved andPolicy No. 1082467 was issued effective November 6,1973, with petitioners the beneficiariesthereof (Exhibit A).

On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed withrespondent company their claim for the proceeds of the life insurance policy. However, in aletter dated September 11, 1975, respondent company denied petitioners' claim and rescindedthe policy by reason of the alleged misrepresentation and concealment of material facts made

by the deceased Tan Lee Siong in his application for insurance (Exhibit 3). The premiums paid

on the policy were thereupon refunded .

Alleging that respondent company's refusal to pay them the proceeds of the policy wasunjustified and unreasonable, petitioners filed on November 27, 1975, a complaint against theformer with the Office of the Insurance Commissioner, docketed as I.C. Case No. 218.

After hearing the evidence of both parties, the Insurance Commissioner rendered judgment onAugust 9, 1977, dismissing petitioners' complaint. (Rollo, pp. 91-92)

The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner'sdecision for lack of merit

Hence, this petition.

The petitioners raise the following issues in their assignment of errors, to wit:

A. The conclusion in law of respondent Court that respondent insurer has the right torescind the policy contract when insured is already dead is not in accordance with existing lawand applicable jurisprudence.

B. The conclusion in law of respondent Court that respondent insurer may be allowed

to avoid the policy on grounds of concealment by the deceased assured, is contrary to theprovisions of the policy contract itself, as well as, of applicable legal provisions andestablished jurisprudence.

C. The inference of respondent Court that respondent insurer was misled in issuing thepolicy are manifestly mistaken and contrary to admitted evidence. (Rollo, p. 7)

The petitioners contend that the respondent company no longer had the right to rescind thecontract of insurance as rescission must allegedly be done during the lifetime of the insuredwithin two years and prior to the commencement of action.

The contention is without merit.

The pertinent section in the Insurance Code provides:

Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any

provision of this chapter, such right must be exercised previous to the commencement of anaction on the contract.

After a policy of life insurance made payable on the death of the insured shall have been inforce during the lifetime of the insured for a period of two years from the date of its issue or ofits last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable

by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

According to the petitioners, the Insurance Law was amended and the second paragraph ofSection 48 added to prevent the insurance company from exercising a right to rescind after thedeath of the insured.

The so-called "incontestability clause" precludes the insurer from raising the defenses of falserepresentations or concealment of material facts insofar as health and previous diseases are

concerned if the insurance has been in force for at least two years during the insured's lifetime.

The phrase "during the lifetime" found in Section 48 simply means that the policy is no longerconsidered in force after the insured has died. The key phrase in the second paragraph ofSection 48 is "for a period of two years."

As noted by the Court of Appeals, to wit:

The policy was issued on November 6,1973 and the insured died on April 26,1975. The policywas thus in force for a period of only one year and five months. Considering that the insureddied before the two-year period had lapsed, respondent company is not, therefore, barred from

proving that the policy is void ab initio by reason of the insured's fraudulent concealment ormisrepresentation. Moreover, respondent company rescinded the contract of insurance andrefunded the premiums paid on September 11, 1975, previous to the commencement of thisaction on November 27,1975. (Rollo, pp. 99-100)

xxx xxx xxx


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The petitioners contend that there could have been no concealment or misrepresentation bytheir late father because Tan Lee Siong did not have to buy insurance. He was only pressured

by insistent salesmen to do so. The petitioners state:

Here then is a case of an assured whose application was submitted because of repeated visits

and solicitations by the insurer's agent. Assured did not knock at the door of the insurer to buyinsurance. He was the object of solicitations and visits.

Assured was a man of means. He could have obtained a bigger insurance, not just P 80,000.00.

If his purpose were to misrepresent and to conceal his ailments in anticipation of death duringthe two-year period, he certainly could have gotten a bigger insurance. He did not.

Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano Guinto.It was he who accomplished the application, Part II, medical. Philamlife did not.

Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a relative toDr. Guinto, Again Philamlife did not. (pp. 138139, Rollo)

xxx xxx xxx

This Honorable Supreme Court has had occasion to denounce the pressure and practice

indulged in by agents in selling insurance. At one time or another most of us have beensubjected to that pressure, that practice. This court took judicial cognizance of the whirlwind

pressure of insurance selling-especially of the agent's practice of 'supplying the information,preparing and answering the application, submitting the application to their companies,concluding the transactions and otherwise smoothing out all difficulties.

We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil.201; at page 205:

It is of common knowledge that the selling of insurance today is subjected to the whirlwindpressure of modern salesmanship.

Insurance companies send detailed instructions to their agents to solicit and procureapplications.

These agents are to be found all over the length and breadth of the land. They are stimulated tomore active efforts by contests and by the keen competition offered by the other rivalinsurance companies.

They supply all the information, prepare and answer the applications, submit the applicationsto their companies, conclude the transactions, and otherwise smooth out all difficulties.

The agents in short do what the company set them out to do.

The Insular Life case was decided some forty years ago when the pressure of insurancesalesmanship was not overwhelming as it is now; when the population of this country was lessthan one-fourth of what it is now; when the insurance companies competing with one anothercould be counted by the fingers. (pp. 140-142, Rollo)

xxx xxx xxx

In the face of all the above, it would be unjust if, having been subjected to the whirlwindpressure of insurance salesmanship this Court itself has long denounced, the assured who dieswithin the two-year period, should stand charged of fraudulent concealment and

misrepresentation." (p. 142, Rollo)

The legislative answer to the arguments posed by the petitioners is the "incontestabilityclause" added by the second paragraph of Section 48.

The insurer has two years from the date of issuance of the insurance contract or of its last

reinstatement within which to contest the policy, whether or not, the insured still lives withinsuch period. After two years, the defenses of concealment or misrepresentation, no matter howpatent or well founded, no longer lie. Congress felt this was a sufficient answer to the varioustactics employed by insurance companies to avoid liability. The petitioners' interpretationwould give rise to the incongruous situation where the beneficiaries of an insured who diesright after taking out and paying for a life insurance policy, would be allowed to collect on the

policy even if the insured fraudulently concealed material facts.

The petitioners argue that no evidence was presented to show that the medical terms wereexplained in a layman's language to the insured. They state that the insurer should have

presented its two medical field examiners as witnesses. Moreover, the petitioners allege thatthe policy intends that the medical examination must be conducted before its issuance

otherwise the insurer "waives whatever imperfection by ratification."

We agree with the Court of Appeals which ruled:

On the other hand, petitioners argue that no evidence was presented by respondent company toshow that the questions appearing in Part II of the application for insurance were asked,explained to and understood by the deceased so as to prove concealment on his part. The sameis not well taken. The deceased, by affixing his signature on the application form, affirmed thecorrectness of all the entries and answers appearing therein. It is but to be expected that he, a

businessman, would not have affixed his signature on the application form unless he clearlyunderstood its significance. For, the presumption is that a person intends the ordinaryconsequence of his voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and (d),Rule 131, Rules of Court].

The evidence for respondent company shows that on September 19,1972, the deceased was

examined by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that byJanuary, 1973, the deceased was complaining of progressive weight loss and abdominal painand was diagnosed to be suffering from hepatoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit2). Another physician, Dr. Wenceslao Vitug, testified that the deceased came to see him onDecember 14, 1973 for consolation and claimed to have been diabetic for five years. (t.s.n.,Aug. 23,1976, p. 5; Exhibit 6) Because of the concealment made by the deceased of hisconsultations and treatments for hypertension, diabetes and liver disorders, respondentcompany was thus misled into accepting the risk and approving his application as medicallystandard (Exhibit 5- C) and dispensing with further medical investigation and examination(Exhibit 5-A). For as long as no adverse medical history is revealed in the application form, anapplicant for insurance is presumed to be healthy and physically fit and no further medicalinvestigation or examination is conducted by respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-98)

There is no strong showing that we should apply the "fine print" or "contract of adhesion" rulein this case. (Sweet Lines, Inc. v. Teves, 83 SCRA 361 [1978]). The petitioners cite:


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It is a matter of common knowledge that large amounts of money are collected from ignorantpersons by companies and associations which adopt high sounding titles and print the amount

of benefits they agree to pay in large black-faced type, following such undertakings by fineprint conditions which destroy the substance of the promise. All provisions, conditions, or

exceptions which in any way tend to work a forfeiture of the policy should be construed moststrongly against those for whose benefit they are inserted, and most favorably toward thoseagainst whom they are meant to operate. (Trinidad v. Orient Protective Assurance Assn., 67Phil. 184)

There is no showing that the questions in the application form for insurance regarding theinsured's medical history are in smaller print than the rest of the printed form or that they aredesigned in such a way as to conceal from the applicant their importance. If a warning in boldred letters or a boxed warning similar to that required for cigarette advertisements by theSurgeon General of the United States is necessary, that is for Congress or the InsuranceCommission to provide as protection against high pressure insurance salesmanship. We arelimited in this petition to ascertaining whether or not the respondent Court of Appealscommitted reversible error. It is the petitioners' burden to show that the factual findings of therespondent court are not based on substantial evidence or that its conclusions are contrary to

applicable law and jurisprudence. They have failed to discharge that burden.

WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision ofthe Court of Appeals is AFFIRMED.


Manila

FIRST DIVISION

G.R. No. 138941 October 8, 2001

AMERICAN HOME ASSURANCE COMPANY, petitioner,vs.

TANTUCO ENTERPRISES, INC., respondent.

PUNO, J.:

Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals

in CA-G.R. CV No. 52221 promulgated on January 14, 1999, which affirmed in toto theDecision of the Regional Trial Court, Branch 53, Lucena City in Civil Case No. 92-51 datedOctober 16, 1995.

Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refiningindustry. It owns two oil mills. Both are located at factory compound at Iyam, Lucena City. Itappears that respondent commenced its business operations with only one oil mill. In 1988, itstarted operating its second oil mill. The latter came to be commonly referred to as the new oilmill.

The two oil mills were separately covered by fire insurance policies issued by petitionerAmerican Home Assurance Co., Philippine Branch.1 The first oil mill was insured for threemillion pesos (P3,000,000.00) under Policy No. 306-7432324-3 for the period March 1, 1991

to 1992.2 The new oil mill was insured for six million pesos (P6,000,000.00) under Policy No.306-7432321-9 for the same term.3 Official receipts indicating payment for the full amount of

the premium were issued by the petitioner's agent.4

A fire that broke out in the early morning of September 30,1991 gutted and consumed the newoil mill. Respondent immediately notified the petitioner of the incident. The latter then sent its

appraisers who inspected the burned premises and the properties destroyed. Thereafter, in aletter dated October 15, 1991, petitioner rejected respondent's claim for the insurance proceedson the ground that no policy was issued by it covering the burned oil mill. It stated that thedescription of the insured establishment referred to another building thus: "Our policy nos.306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps 3M) extend insurance coverage to your oilmill under Building No. 5, whilst the affected oil mill was under Building No. 14. "5

A complaint for specific performance and damages was consequently instituted by therespondent with the RTC, Branch 53 of Lucena City. On October 16, 1995, after trial, thelower court rendered a Decision finding the petitioner liable on the insurance policy thus:

"WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay

plaintiff:

(a) P4,406,536.40 representing damages for loss by fire of its insured property withinterest at the legal rate;

(b) P80,000.00 for litigation expenses;

(c) P300,000.00 for and as attorney's fees; and

(d) Pay the costs.

SO ORDERED."6

Petitioner assailed this judgment before the Court of Appeals. The appellate court upheld the

same in a Decision promulgated on January 14, 1999, the pertinent portion of which states:

"WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trialcourt's Decision dated October 16, 1995 is hereby AFFIRMED in toto.

SO ORDERED."7

Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in aResolution promulgated on June 10, 1999.

Hence, the present course of action, where petitioner ascribes to the appellate court thefollowing errors:

"(1) The Court of Appeals erred in its conclusion that the issue of non-payment of thepremium was beyond its jurisdiction because it was raised for the first time on appeal."8


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"(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing AppliancesWarranty' of the policy."9

"(3) With due respect, the conclusion of the Court of Appeals giving no regard to the paroleevidence rule and the principle of estoppel is erroneous."10

The petition is devoid of merit.

The primary reason advanced by the petitioner in resisting the claim of the respondent is that

the burned oil mill is not covered by any insurance policy. According to it, the oil mill insuredis specifically described in the policy by its boundaries in the following manner:

"Front: by a driveway thence at 18 meters distance by Bldg. No. 2.

Right: by an open space thence by Bldg. No. 4.

Left: Adjoining thence an imperfect wall by Bldg. No. 4.

Rear: by an open space thence at 8 meters distance."

However, it argues that this specific boundary description clearly pertains, not to the burned

oil mill, but to the other mill. In other words, the oil mill gutted by fire was not the onedescribed by the specific boundaries in the contested policy.

What exacerbates respondent's predicament, petitioner posits, is that it did not have thesupposed wrong description or mistake corrected. Despite the fact that the policy in questionwas issued way back in 1988, or about three years before the fire, and despite the "Important

Notice" in the policy that "Please read and examine the policy and if incorrect, return itimmediately for alteration," respondent apparently did not call petitioner's attention withrespect to the misdescription.

By way of conclusion, petitioner argues that respondent is "barred by the parole evidence rulefrom presenting evidence (other than the policy in question) of its self-serving intention (sic)that it intended really to insure the burned oil mill," just as it is "barred by estoppel fromclaiming that the description of the insured oil mill in the policy was wrong, because it

retained the policy without having the same corrected before the fire by an endorsement in

accordance with its Condition No. 28."

These contentions can not pass judicial muster.

In construing the words used descriptive of a building insured, the greatest liberality is shownby the courts in giving effect to the insurance.11 In view of the custom of insurance agents toexamine buildings before writing policies upon them, and since a mistake as to the identityand character of the building is extremely unlikely, the courts are inclined to consider that the

policy of insurance covers any building which the parties manifestly intended to insure,however inaccurate the description may be.12

Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind,that what the parties manifestly intended to insure was the new oil mill. This is obvious fromthe categorical statement embodied in the policy, extending it s protection:

"On machineries and equipment with complete accessories usual to a coconut oil millincluding stocks of copra, copra cake and copra mills whilst contained in the new oil mill

building, situate (sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA

CITY UNBLOCKED.''13 (emphasis supplied.)

If the parties really intended to protect the first oil mill, then there is no need to specify it asnew.

Indeed, it would be absurd to assume that respondent would protect its first oil mill for

different amounts and leave uncovered its second one. As mentioned earlier, the first oil millis already covered under Policy No. 306-7432324-4 issued by the petitioner. It is unthinkablefor respondent to obtain the other policy from the very same company. The latter ought toknow that a second agreement over that same realty results in its over insurance.

The imperfection in the description of the insured oil mill's boundaries can be attributed to amisunderstanding between the petitioner's general agent, Mr. Alfredo Borja, and its policyissuing clerk, who made the error of copying the boundaries of the first oil mill when typingthe policy to be issued for the new one. As testified to by Mr. Borja:

"Atty. G. Camaligan:

Q: What did you do when you received the report?

A: I told them as will be shown by the map the intention really of Mr. Edison Tantuco isto cover the new oil mill that is why when I presented the existing policy of the old policy, the

policy i ssuing clerk just merely (sic) copied the wording from the old policy and what shetyped is that the description of the boundaries from the old policy was copied but she insertedcovering the new oil mill and to me at that time the important thing is that it covered the newoil mill because it is just within one compound and there are only two oil mill[s] and so justenough, I had the policy prepared. In fact, two policies were prepared having the same dateone for the old one and the other for the new oil mill and exactly the same policy period,sir."14 (emphasis supplied)

It is thus clear that the source of the discrepancy happened during the preparation of thewritten contract.

These facts lead us to hold that the present case falls within one of the recognized exceptionsto the parole evidence rule. Under the Rules of Court, a party may present evidence to modify,explain or add to the terms of the written agreement if he puts in issue in his pleading, amongothers, its failure to express the true intent and agreement of the parties thereto.15 Here, thecontractual intention of the parties cannot be understood from a mere reading of theinstrument. Thus, while the contract explicitly stipulated that it was for the insurance of thenew oil mill, the boundary description written on the policy concededly pertains to the first oilmill. This irreconcilable difference can only be clarified by admitting evidence aliunde, whichwill explain the imperfection and clarify the intent of the parties.

Anent petitioner's argument that the respondent is barred by estoppel from claiming that thedescription of the insured oil mill in the policy was wrong, we find that the same proceedsfrom a wrong assumption. Evidence on record reveals that respondent's operating manager,Mr. Edison Tantuco, notified Mr. Borja (the petitioner's agent with whom respondent

negotiated for the contract) about the inaccurate description in the policy. However, Mr. Borjaassured Mr. Tantuco that the use of the adjective new will distinguish the insured property.


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The assurance convinced respondent, despite the impreciseness in the specification of theboundaries, the insurance will cover the new oil mill. This can be seen from the testimony oncross of Mr. Tantuco:

"ATTY. SALONGA:

Q: You mentioned, sir, that at least in so far as Exhibit A is concern you have read whatthe policy contents. (sic)

Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2 particularly theboundaries of the property insured by the insurance policy Exhibit A, will you tell us as themanager of the company whether the boundaries stated in Exhibit A-2 are the boundaries ofthe old (sic) mill that was burned or not.

A: It was not, I called up Mr. Borja regarding this matter and he told me that what isimportant is the word new oil mill. Mr. Borja said, as a matter of fact, you can never insured(sic) one property with two (2) policies, you will only do that if you will make to increase theamount and it is by indorsement not by another policy, sir.,16

We again stress that the object of the court in construing a contract is to ascertain the intent ofthe parties to the contract and to enforce the agreement which the parties have entered into. In

determining what the parties intended, the courts will read and construe the policy as a wholeand if possible, give effect to all the parts of the contract, keeping in mind always, however,

the prime rule that in the event of doubt, this doubt is to be resolved against the insurer. Indetermining the intent of the parties to the contract, the courts will consider the purpose andobject of the contract.17

In a further attempt to avoid liability, petitioner claims that respondent forfeited the renewalpolicy for its failure to pay the full amount of the premium and breach of the FireExtinguishing Appliances Warranty.

The amount of the premium stated on the face of the policy was P89,770.20. From theadmission of respondent's own witness, Mr. Borja, which the petitioner cited, the former only

paid it P75,147.00, leaving a difference of P14,623.20. The deficiency, petitioner argues,suffices to invalidate the policy, in accordance with Section 77 of the Insurance Code.18

The Court of Appeals refused to consider this contention of the petitioner. It held that thisissue was raised for the first time on appeal, hence, beyond its jurisdiction to resolve, pursuantto Rule 46, Section 18 of the Rules of Court.19

Petitioner, however, contests this finding of the appellate court. It insists that the issue wasraised in paragraph 24 of its Answer, viz.:

"24. Plaintiff has not complied with the condition of the policy and renewal certificatethat the renewal premium should be paid on or before renewal date."

Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja, whoacknowledged that the paid amount was lacking by P14,623.20 by reason of a discount orrebate, which rebate under Sec. 361 of the Insurance Code is illegal.

The argument fails to impress. It is true that the asseverations petitioner made in paragraph 24of its Answer ostensibly spoke of the policy's condition for payment of the renewal premium

on time and respondent's non-compliance with it. Yet, it did not contain any specific anddefinite allegation that respondent did not pay the premium, or that it did not pay the fullamount, or that it did not pay the amount on time.

Likewise, when the issues to be resolved in the trial court were formulated at the pre-trial

proceedings, the question of the supposed inadequate payment was never raised. Mostsignificant to point, petitioner fatally neglected to present, during the whole course of the trial,any witness to testify that respondent indeed failed to pay the full amount of the premium. Thethrust of the cross-examination of Mr. Borja, on the other hand, was not for the purpose of

proving this fact. Though it briefly touched on the alleged deficiency, such was made in thecourse of discussing a discount or rebate, which the agent apparently gave the respondent.Certainly, the whole tenor of Mr. Borja's testimony, both during direct and cross examinations,implicitly assumed a valid and subsisting insurance policy. It must be remembered that he wascalled to the stand basically to demonstrate that an existing policy issued by the petitionercovers the burned building.

Finally, petitioner contends that respondent violated the express terms of the FireExtinguishing Appliances Warranty. The said warranty provides:

"WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances asmentioned below shall be maintained in efficient working order on the premises to which

insurance applies:

- PORTABLE EXTINGUISHERS

- INTERNAL HYDRANTS

- EXTERNAL HYDRANTS

- FIRE PUMP

- 24-HOUR SECURITY SERVICES

BREACH of this warranty shall render this policy null and void and the Company shall nolonger be liable for any loss which may occur."20

Petitioner argues that the warranty clearly obligates the insured to maintain all the appliancesspecified therein. The breach occurred when the respondent failed to install internal firehydrants inside the burned building as warranted. This fact was admitted by the oil mill'sexpeller operator, Gerardo Zarsuela.

Again, the argument lacks merit. We agree with the appellate court's conclusion that theaforementioned warranty did not require respondent to provide for all the fire extinguishingappliances enumerated therein. Additionally, we find that neither did it require that theappliances are restricted to those mentioned in the warranty. In other words, what the warrantymandates is that respondent should maintain in efficient working condition within the

premises of the insured property, fire fighting equipments such as, but not limited to, thoseidentified in the list, which will serve as the oil mill's first line of defense in case any part of it

bursts into flame.

To be sure, respondent was able to comply with the warranty. Within the vicinity of the newoil mill can be found the following devices: numerous portable fire extinguishers, two fire


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hoses,21 fire hydrant,22 and an emergency fire engine.23 All of these equipments were inefficient working order when the fire occurred.

It ought to be remembered that not only are warranties strictly construed against the insurer,but they should, likewise, by themselves be reasonably interpreted.24 That reasonableness is

to be ascertained in light of the factual conditions prevailing in each case. Here, we find thatthere is no more need for an internal hydrant considering that inside the burned building were:(1) numerous portable fire extinguishers, (2) an emergency fire engine, and (3) a fire hosewhich has a connection to one of the external hydrants.

IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instantpetition is hereby DISMISSED.


Manila

SECOND DIVISION

G.R. No. 156167 May 16, 2005

GULF RESORTS, INC., petitioner,vs.

PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

D E C I S I O N

PUNO, J.:

Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court bypetitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTERINSURANCE CORPORATION. Petitioner assails the appellate court decision1 whichdismissed its two appeals and affirmed the judgment of the trial court.

For review are the warring interpretations of petitioner and respondent on the scope of theinsurance companys liability for earthquake damage to petitioners properties. Petitioneravers that, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944

covers all damages to the properties within its resort caused by earthquake. Respondentcontends that the rider limits its liability for loss to the two swimming pools of petitioner.

The facts as established by the court a quo, and affirmed by the appellate court are as follows:

[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties insaid resort insured originally with the American Home Assurance Company (AHAC-AIU). Inthe first four insurance policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987;and 1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. "1", "2", "3" and "4" respectively), therisk of loss from earthquake shock was extended only to plaintiffs two swimming pools, thus,"earthquake shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) swimming

pools only (Exhs. "C-1"; D-1", "E" and "F-1"). "Item 5" in those policies referred to the two

(2) swimming pools only (Exhs. "1-B", "2-B", "3-B" and "F-2"); that subsequentlyAHAC(AIU) issued in plaintiffs favor Policy No. 206-4182383-0 covering the period March14, 1988 to March 14, 1989 (Exhs. "G" also "G-1") and in said policy the earthquake

endorsement clause as indicated in Exhibits "C-1", "D-1", Exhibits "E" and "F-1" was deletedand the entry under Endorsements/Warranties at the time of issue read that plaintiff renewed

its policy with AHAC (AIU) for the period of March 14, 1989 to March 14, 1990 under PolicyNo. 206-4568061-9 (Exh. "H") which carried the entry under "Endorsement/Warranties atTime of Issue", which read "Endorsement to Include Earthquake Shock (Exh. "6-B-1") in theamount of P10,700.00 and paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof,computed as follows:

Item

-

P7,691,000.00

-

on the Clubhouse only

@ .392%;

-

1,500,000.00

-

on the furniture, etc. contained in the building above-mentioned@ .490%;

-

393,000.00

-

on the two swimming pools, only (against the peril of earthquake shock only) @ 0.100%

-

116,600.00

other buildings include as follows:

a) Tilter House

-

P19,800.00

-


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0.551%

b) Power House

-

P41,000.00

-

0.551%

c) House Shed

-

P55,000.00

-

0.540%

P100,000.00

-

for furniture, fixtures, lines air-con and operating equipment

that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) PolicyNo. 206-4568061-9 (Exh. "H") provided that the policy wording and rates in said policy becopied in the policy to be issued by defendant; that defendant issued Policy No. 31944 to

plaintiff covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for atotal premium of P45,159.92 (Exh. "I"); that in the computation of the premium, defendantsPolicy No. 31944 (Exh. "I"), which is the policy in question, contained on the right-hand

upper portion of page 7 thereof, the following:

Rate-Various

Premium

P37,420.60 F/L

2,061.52

Typhoon

1,030.76

EC

393.00

ES

Doc. Stamps

3,068.10

F.S.T.

776.89

Prem. Tax

409.05

TOTAL

45,159.92;

that the above break-down of premiums shows that plaintiff paid only P393.00 as premiumagainst earthquake shock (ES); that in all the six insurance policies (Exhs. "C", "D", "E", "F",

"G" and "H"), the premium against the peril of earthquake shock is the same, that is P393.00

(Exhs. "C" and "1-B"; "2-B" and "3-B-1" and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G" and "H") and in Policy No.31944 issued by defendant, the shock endorsement provide(sic):

In consideration of the payment by the insured to the company of the sum included additionalpremium the Company agrees, notwithstanding what is stated in the printed conditions of thispolicy due to the contrary, that this insurance covers loss or damage to shock to any of theproperty insured by this Policy occasioned by or through or in consequence of earthquake(Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C");

that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that onJuly 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs

properties covered by Policy No. 31944 issued by defendant, including the two swimmingpools in its Agoo Playa Resort were damaged.2


8/16

After the earthquake, petitioner advised respondent that it would be making a claim under itsInsurance Policy No. 31944 for damages on its properties. Respondent instructed petitioner tofile a formal claim, then assigned the investigation of the claim to an independent claims

adjuster, Bayne Adjusters and Surveyors, Inc.3 On July 30, 1990, respondent, through itsadjuster, requested petitioner to submit various documents in support of its claim. On August

7, 1990, Bayne Adjusters and Surveyors, Inc., through its Vice-President A.R. de Leon,4rendered a preliminary report5 finding extensive damage caused by the earthquake to theclubhouse and to the two swimming pools. Mr. de Leon stated that "except for the swimming

pools, all affected items have no coverage for earthquake shocks."6 On August 11, 1990,petitioner filed its formal demand7 for settlement of the damage to all its properties in theAgoo Playa Resort. On August 23, 1990, respondent denied petitioners claim on the groundthat its insurance policy only afforded earthquake shock coverage to the two swimming poolsof the resort.8 Petitioner and respondent failed to arrive at a settlement.9 Thus, on January 24,1991, petitioner filed a complaint10 with the regional trial court of Pasig praying for the

payment of the following:

1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, withinterest thereon, as computed under par. 29 of the policy (Annex "B") until fully paid;

2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiffon account of defendants refusal to pay the claims;

3.) The sum of P500,000.00, by way of exemplary damages;

4.) The sum of P500,000.00 by way of attorneys fees and expenses of litigation;

5.) Costs.11

Respondent filed its Answer with Special and Affirmative Defenses with CompulsoryCounterclaims.12

On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:

The above schedule clearly shows that plaintiff paid only a premium of P393.00 against theperil of earthquake shock, the same premium it paid against earthquake shock only on the two

swimming pools in all the policies issued by AHAC(AIU) (Exhibits "C", "D", "E", "F" and

"G"). From this fact the Court must consequently agree with the position of defendant that theendorsement rider (Exhibit "7-C") means that only the two swimming pools were insuredagainst earthquake shock.

Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, wherethe language used in an insurance contract or application is such as to create ambiguity thesame should be resolved against the party responsible therefor, i.e., the insurance companywhich prepared the contract. To the mind of [the] Court, the language used in the policy inlitigation is clear and unambiguous hence there is no need for interpretation or construction

but only application of the provisions therein.

From the above observations the Court finds that only the two (2) swimming pools hadearthquake shock coverage and were heavily damaged by the earthquake which struck on July16, 1990. Defendant having admitted that the damage to the swimming pools was appraised by

defendants adjuster at P386,000.00, defendant must, by virtue of the contract of insurance,pay plaintiff said amount.

Because it is the finding of the Court as stated in the immediately preceding paragraph thatdefendant is liable only for the damage caused to the two (2) swimming pools and that

defendant has made known to plaintiff its willingness and readiness to settle said liability,there is no basis for the grant of the other damages prayed for by plaintiff. As to the

counterclaims of defendant, the Court does not agree that the action filed by plaintiff isbaseless and highly speculative since such action is a lawful exercise of the plaintiffs right tocome to Court in the honest belief that their Complaint is meritorious. The prayer, therefore, ofdefendant for damages is likewise denied.

WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREEHUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to thetwo (2) swimming pools, with interest at 6% per annum from the date of the filing of theComplaint until defendants obligation to plaintiff i s fully paid.

No pronouncement as to costs.13

Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal with theCourt of Appeals based on the following assigned errors:14

A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN

ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITSFIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES

SURROUNDING THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS OF THEPARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.

B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHTTO RECOVER UNDER DEFENDANT-APPELLEES POLICY (NO. 31944; EXH "I") BYLIMITING ITSELF TO A CONSIDERATION OF THE SAID POLICY ISOLATED FROMTHE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OFTHE PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990.

C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT ISENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24%PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.

On the other hand, respondent filed a partial appeal, assailing the lower courts failure toaward it attorneys fees and damages on its compulsory counterclaim.

After review, the appellate court affirmed the decision of the trial court and ruled, thus:

However, after carefully perusing the documentary evidence of both parties, We are notconvinced that the last two (2) insurance contracts (Exhs. "G" and "H"), which the plaintiff-appellant had with AHAC (AIU) and upon which the subject insurance contract withPhilippine Charter Insurance Corporation is said to have been based and copied (Exh. "I"),covered an extended earthquake shock insurance on all the insured properties.

x x x

We also find that the Court a quo was correct in not granting the plaintiff-appellants prayer

for the imposition of interest 24% on the insurance claim and 6% on loss of incomeallegedly amounting to P4,280,000.00. Since the defendant-appellant has expressed its


9/16

willingness to pay the damage caused on the two (2) swimming pools, as the Court a quo andthis Court correctly found it to be liable only, it then cannot be said that it was in default andtherefore liable for interest.

Coming to the defendant-appellants prayer for an attorneys fees, long-standing is the rule

that the award thereof is subject to the sound discretion of the court. Thus, if such discretion iswell-exercised, it will not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838,July 18, 2002). Moreover, being the award thereof an exception rather than a rule, it isnecessary for the court to make findings of facts and law that would bring the case within theexception and justify the grant of such award (Country Bankers Insurance Corp. v. Lianga Bayand Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002). Therefore,holding that the plaintiff-appellants action is not baseless and highly speculative, We find thatthe Court a quo did not err in granting the same.

WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED andjudgment of the Trial Court hereby AFFIRMED in toto. No costs.15

Petitioner filed the present petition raising the following issues:16

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDERRESPONDENTS INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING

POOLS, RATHER THAN ALL THE PROPERTIES COVERED THEREUNDER, AREINSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERSPRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED,ATTORNEYS FEES AND EXPENSES OF LITIGATION.

Petitioner contends:

First, that the policys earthquake shock endorsement clearly covers all of the propertiesinsured and not only the swimming pools. It used the words "any property insured by this

policy," and it should be interpreted as all inclusive.

Second, the unqualified and unrestricted nature of the earthquake shock endorsement is

confirmed in the body of the insurance policy itself, which states that it is "[s]ubject to: Other

Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage Endt.,FEA Warranty & Annual Payment Agreement On Long Term Policies."17

Third, that the qualification referring to the two swimming pools had already been deleted inthe earthquake shock endorsement.

Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omissionwhen it deleted the said qualification.

Fifth, that the earthquake shock endorsement rider should be given precedence over thewording of the insurance policy, because the rider is the more deliberate expression of theagreement of the contracting parties.

Sixth, that in their previous insurance policies, limits were placed on the

endorsements/warranties enumerated at the time of issue.

Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor ofpetitioner and against respondent. It was respondent which caused the ambiguity when it madethe policy in issue.

Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should

be interpreted as a caveat on the standard fire insurance policy, such as to remove the twoswimming pools from the coverage for the risk of fire. It should not be used to limit therespondents liability for earthquake shock to the two swimming pools only.

Ninth, there is no basis for the appellate court to hold that the additional premium was not paidunder the extended coverage. The premium for the earthquake shock coverage was alreadyincluded in the premium paid for the policy.

Tenth, the parties contemporaneous and subsequent acts show that they intended to extendearthquake shock coverage to all insured properties. When it secured an insurance policy fromrespondent, petitioner told respondent that it wanted an exact replica of its latest insurance

policy from American Home Assurance Company (AHAC-AIU), which covered all theresorts properties for earthquake shock damage and respondent agreed. After the July 16,1990 earthquake, respondent assured petitioner that it was covered for earthquake shock.

Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise requestedpetitioner to submit the necessary documents for its building claims and other repair costs.

Thus, under the doctrine of equitable estoppel, it cannot deny that the insurance policy itissued to petitioner covered all of the properties within the resort.

Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 ofthe Revised Rules of Court as its remedy, and there is no need for calibration of the evidencein order to establish the facts upon which this petition is based.

On the other hand, respondent made the following counter arguments:18

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitlyextended coverage against earthquake shock to petitioners insured properties other than onthe two swimming pools. Petitioner admitted that from 1984 to 1988, only the two swimming

pools were insured against earthquake shock. From 1988 until 1990, the provisions in itspolicy were practically identical to its earlier policies, and there was no increase in the

premium paid. AHAC-AIU, in a letter19 by its representative Manuel C. Quijano,

categorically stated that its previous policy, from which respondents policy was copied,covered only earthquake shock for the two swimming pools.

Second, petitioners payment of additional premium in the amount of P393.00 shows that thepolicy only covered earthquake shock damage on the two swimming pools. The amount wasthe same amount paid by petitioner for earthquake shock coverage on the two swimming poolsfrom 1990-1991. No additional premium was paid to warrant coverage of the other propertiesin the resort.

Third, the deletion of the phrase pertaining to the limitation of the earthquake shockendorsement to the two swimming pools in the policy schedule did not expand the earthquakeshock coverage to all of petitioners properties. As per its agreement with petitioner,respondent copied its policy from the AHAC-AIU policy provided by petitioner. Although thefirst five policies contained the said qualification in their riders title, in the last two policies,

this qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III, stated thatsuch deletion was a mere inadvertence. This inadvertence did not make the policy incomplete,


10/16

nor did it broaden the scope of the endorsement whose descriptive title was merelyenumerated. Any ambiguity in the policy can be easily resolved by looking at the other

provisions, specially the enumeration of the items insured, where only the two swimming

pools were noted as covered for earthquake shock damage.

Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, thephrase "Item 5 P393,000.00 on the two swimming pools only (against the peril ofearthquake shock only)" meant that only the swimming pools were insured for earthquakedamage. The same phrase is used in toto in the policies from 1989 to 1990, the only difference

being the designation of the two swimming pools as "Item 3."

Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paidfor all the properties covered. In all of its seven insurance policies, petitioner only paidP393.00 as premium for coverage of the swimming pools against earthquake shock. No other

premium was paid for earthquake shock coverage on the other properties. In addition, the useof the qualifier "ANY" instead of "ALL" to describe the property covered was donedeliberately to enable the parties to specify the properties included for earthquake coverage.

Sixth, petitioner did not inform respondent of its requirement that all of its properties must be

included in the earthquake shock coverage. Petitioners own evidence shows that it onlyrequired respondent to follow the exact provisions of its previous policy from AHAC-AIU.

Respondent complied with this requirement. Respondents only deviation from the agreementwas when it modified the provisions regarding the replacement cost endorsement. With regard

to the issue under litigation, the riders of the old policy and the policy in issue are identical.

Seventh, respondent did not do any act or give any assurance to petitioner as would estop itfrom maintaining that only the two swimming pools were covered for earthquake shock. Theadjusters letter notifying petitioner to present certain documents for its building claims andrepair costs was given to petitioner before the adjuster knew the full coverage of its policy.

Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase "Item 5 Only"after the descriptive name or title of the Earthquake Shock Endorsement. However, the wordsof the policy reflect the parties clear intention to limit earthquake shock coverage to the twoswimming pools.

Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not

object to any deficiency nor did it institute any action to reform the policy. The policy bindsthe petitioner.

Eighth, there is no basis for petitioner to claim damages, attorneys fees and litigationexpenses. Since respondent was willing and able to pay for the damage caused on the twoswimming pools, it cannot be considered to be in default, and therefore, it is not liable forinterest.

We hold that the petition is devoid of merit.

In Insurance Policy No. 31944, four key items are important in the resolution of the case atbar.

First, in the designation of location of risk, only the two swimming pools were specified as

included, viz:

ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of earthquakeshock only)20

Second, under the breakdown for premium payments,21 it was stated that:

PREMIUM RECAPITULATION

ITEM NOS.

AMOUNT

RATES

PREMIUM

x x x

3

393,000.00

0.100%-E/S

393.0022]

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through or inconsequence, directly or indirectly of any of the following occurrences, namely:--

(a) Earthquake, volcanic eruption or other convulsion of nature. 23

Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Includethe Perils of Explosion, Aircraft, Vehicle and Smoke)," stated, viz:

ANNUAL PAYMENT AGREEMENT ON

LONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMSINSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF ADISCOUNT OF 5% OR 7 % OF THE NET PREMIUM x x x POLICY HEREBYUNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x xAND TO PAY THE PREMIUM.

Earthquake Endorsement

In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . .. . . . additional premium the Company agrees, notwithstanding what is stated in the printedconditions of this Policy to the contrary, that this insurance covers loss or damage (includingloss or damage by fire) to any of the property insured by this Policy occasioned by or through

or in consequence of Earthquake.


11/16

Provided always that all the conditions of this Policy shall apply (except in so far as they maybe hereby expressly varied) and that any reference therein to loss or damage by fire should bedeemed to apply also to loss or damage occasioned by or through or in consequence of

Earthquake.24

Petitioner contends that pursuant to this rider, no qualifications were placed on the scope ofthe earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all ofthe insured properties.

It is basic that all the provisions of the insurance policy should be examined and interpreted inconsonance with each other.25 All its parts are reflective of the true intent of the parties. The

policy cannot be construed piecemeal. Certain stipulations cannot be segregated and thenmade to control; neither do particular words or phrases necessarily determine its character.Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other

provisions. All the provisions and riders, taken and interpreted together, indubitably show theintention of the parties to extend earthquake shock coverage to the two swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent of theparties to extend earthquake shock coverage only to the two swimming pools. Section 2(1) of

the Insurance Code defines a contract of insurance as an agreement whereby one undertakesfor a consideration to indemnify another against loss, damage or liability arising from an

unknown or contingent event. Thus, an insurance contract exists where the following elementsconcur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a largegroup of persons bearing a similar risk; and

5. In consideration of the insurer's promise, the insured pays a premium.26 (Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify the

insured against a specified peril.27 In fire, casualty, and marine insurance, the premiumpayable becomes a debt as soon as the risk attaches.28 In the subject policy, no premiumpayments were made with regard to earthquake shock coverage, except on the two swimmingpools. There is no mention of any premium payable for the other resort properties with regardto earthquake shock. This is consistent with the history of petitioners previous insurance

policies from AHAC-AIU. As borne out by petitioners witnesses:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991pp. 12-13

Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policyduring the period from March 4, 1984 to March 4, 1985 the coverage on earthquake shock waslimited to the two swimming pools only?

A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, thereis a provision here that it was only for item 5.

Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the twoswimming pools only?

A. Yes, sir.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 23-26

Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange forthe procurement of this policy?

A. Yes, sir.

Q. Did you also do this through your insurance agency?

A. If you are referring to Forte Insurance Agency, yes.

Q. Is Forte Insurance Agency a department or division of your company?

A. No, sir. They are our insurance agency.

Q. And they are independent of your company insofar as operations are concerned?

A. Yes, sir, they are separate entity.

Q. But insofar as the procurement of the insurance policy is concerned they are of coursesubject to your instruction, is that not correct?

A. Yes, sir. The final action is still with us although they can recommend what insurance totake.

Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989,did you give written instruction to Forte Insurance Agency advising it that the earthquake

shock coverage must extend to all properties of Agoo Playa Resort in La Union?

A. No, sir. We did not make any written instruction, although we made an oral instruction tothat effect of extending the coverage on (sic) the other properties of the company.

Q. And that instruction, according to you, was very important because in April 1987 there wasan earthquake tremor in La Union?

A. Yes, sir.

Q. And you wanted to protect all your properties against similar tremors in the [future], is thatcorrect?

A. Yes, sir.


12/16

Q. Now, after this policy was delivered to you did you bother to check the provisions withrespect to your instructions that all properties must be covered again by earthquake shockendorsement?

A. Are you referring to the insurance policy issued by American Home Assurance Company

marked Exhibit "G"?

Atty. Mejia: Yes.

Witness:

A. I examined the policy and seeing that the warranty on the earthquake shock endorsementhas no more limitation referring to the two swimming pools only, I was contented already thatthe previous limitation pertaining to the two swimming pools was already removed.

Petitioner also cited and relies on the attachment of the phrase "Subject to: Other InsuranceClause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended CoverageEndorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies"29 to theinsurance policy as proof of the intent of the parties to extend the coverage for earthquake

shock. However, this phrase is merely an enumeration of the descriptive titles of the riders,clauses, warranties or endorsements to which the policy is subject, as required under Section

50, paragraph 2 of the Insurance Code.

We also hold that no significance can be placed on the deletion of the qualification limiting thecoverage to the two swimming pools. The earthquake shock endorsement cannot stand alone.As explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU:

DIRECT EXAMINATION OF JUAN BARANDA III30TSN, August 11, 1992

pp. 9-12

Atty. Mejia:

We respectfully manifest that the same exhibits C to H inclusive have been previously markedby counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to review of (sic)

these six (6) policies issued by your company [in favor] of Agoo Playa Resort?

WITNESS:

Yes[,] I remember having gone over these policies at one point of time, sir.

Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to Hrespectively carries an earthquake shock endorsement[?] My question to you is, on the basison (sic) the wordings indicated in Exhibits C to H respectively what was the extent of thecoverage [against] the peril of earthquake shock as provided for in each of the six (6) policies?

x x x

WITNESS:

The extent of the coverage is only up to the two (2) swimming pools, sir.

Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?

A. Yes, sir.

ATTY. MEJIA:

What is your basis for stating that the coverage against earthquake shock as provided for ineach of the six (6) policies extend to the two (2) swimming pools only?

WITNESS:

Because it says here in the policies, in the enumeration "Earthquake Shock Endorsement, inthe Clauses and Warranties: Item 5 only (Earthquake Shock Endorsement)," sir.

ATTY. MEJIA:

Witness referring to Exhibit C-1, your Honor.

WITNESS:

We do not normally cover earthquake shock endorsement on stand alone basis. For swimming

pools we do cover earthquake shock. For building we covered it for full earthquake coveragewhich includes earthquake shock

COURT:

As far as earthquake shock endorsement you do not have a specific coverage for other thingsother than swimming pool? You are covering building? They are covered by a generalinsurance?

WITNESS:

Earthquake shock coverage could not stand alone. If we are covering building or another wecan issue earthquake shock solely but that the moment I see this, the thing that comes to mymind is either insuring a swimming pool, foundations, they are normally affected by

earthquake but not by fire, sir.

DIRECT EXAMINATION OF JUAN BARANDA IIITSN, August 11, 1992

pp. 23-25

Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and Finclusive [remained] its coverage against earthquake shock to two (2) swimming pools only

but that Exhibits G and H respectively entend the coverage against earthquake shock to all theproperties indicated in the respective schedules attached to said policies, what can you sayabout that testimony of plaintiffs witness?

WITNESS:

As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. I

assure you that this one covers the two swimming pools with respect to earthquake shockendorsement. Based on it, if we are going to look at the premium there has been no change


13/16

with respect to the rates. Everytime (sic) there is a renewal if the intention of the insurer wasto include the earthquake shock, I think there is a substantial increase in the premium. We arenot only going to consider the two (2) swimming pools of the other as stated in the policy. As I

see, there is no increase in the amount of the premium. I must say that the coverage was notbroaden (sic) to include the other items.

COURT:

They are the same, the premium rates?

WITNESS:

They are the same in the sence (sic), in the amount of the coverage. If you are going to dosome computation based on the rates you wil l arrive at the same premiums, your Honor.

CROSS-EXAMINATION OF JUAN BARANDA IIITSN, September 7, 1992

pp. 4-6

ATTY. ANDRES:

Would you as a matter of practice [insure] swimming pools for fire insurance?

WITNESS:

No, we dont, sir.

Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" was placed,is it not?

A. Yes, sir.

ATTY. ANDRES:

Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed

to during your direct-examination, the phrase "Item no. 5 only" meaning to (sic) the two (2)swimming pools was deleted from the policies issued by AIU, is it not?

x x x

ATTY. ANDRES:

As an insurance executive will you not attach any significance to the deletion of the qualifyingphrase for the policies?

WITNESS:

My answer to that would be, the deletion of that particular phrase is inadvertent. Being acompany underwriter, we do not cover. . it was inadvertent because of the previous policiesthat we have issued with no specific attachments, premium rates and so on. It was inadvertent,

sir.

The Court also rejects petitioners contention that respondents contemporaneous andsubsequent acts to the issuance of the insurance policy falsely gave the petitioner assurancethat the coverage of the earthquake shock endorsement included all its properties in the resort.

Respondent only insured the properties as intended by the petitioner. Petitioners own witnesstestified to this agreement, viz:

CROSS EXAMINATION OF LEOPOLDO MANTOHACTSN, January 14, 1992

pp. 4-5

Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tellAtty. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the policy fromPhilippine Charter Insurance Corporation?

A. I told him that the insurance that they will have to get will have the same provisions as thisAmerican Home Insurance Policy No. 206-4568061-9.

Q. You are referring to Exhibit "H" of course?

A. Yes, sir, to Exhibit "H".

Q. So, all the provisions here will be the same except that of the premium rates?

A. Yes, sir. He assured me that with regards to the insurance premium rates that they will becharging will be limited to this one. I (sic) can even be lesser.

CROSS EXAMINATION OF LEOPOLDO MANTOHACTSN, January 14, 1992

pp. 12-14

Atty. Mejia:

Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions andscope of coverage of Exhibits "I" and "H" sometime in the third week of March, 1990 orthereabout?

A. Yes, sir, about that time.

Q. And at that time did you notice any discrepancy or difference between the policy wordingsas well as scope of coverage of Exhibits "I" and "H" respectively?

A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that thepolicy wordings and rates were copied from the insurance policy I sent them but it was onlywhen this case erupted that we discovered some discrepancies.

Q. With respect to the items declared for insurance coverage did you notice any discrepancy atany time between those indicated in Exhibit "I" and those indicated in Exhibit "H"respectively?

A. With regard to the wordings I did not notice any difference because it was exactly the same

P393,000.00 on the two (2) swimming pools only against the peril of earthquake shock whichI understood before that this provision will have to be placed here because this particular


14/16

provision under the peril of earthquake shock only is requested because this is an insurancepolicy and therefore cannot be insured against fire, so this has to be placed.

The verbal assurances allegedly given by respondents representative Atty. Umlas were notproved. Atty. Umlas categorically denied having given such assurances.

Finally, petitioner puts much stress on the letter of respondents independent claims adjuster,Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of BayneAdjusters and Surveyors, Inc., respondent never meant to lead petitioner to believe that theendorsement for earthquake shock covered properties other than the two swimming pools, viz:

DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.)TSN, January 26, 1993

pp. 22-26

Q. Do you recall the circumstances that led to your discussion regarding the extent of coverageof the policy issued by Philippine Charter Insurance Corporation?

A. I remember that when I returned to the office after the inspection, I got a photocopy of the

insurance coverage policy and it was indicated under Item 3 specifically that the coverage isonly for earthquake shock. Then, I remember I had a talk with Atty. Umlas (sic), and I relayed

to him what I had found out in the policy and he confirmed to me indeed only Item 3 whichwere the two swimming pools have coverage for earthquake shock.

x x x

Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except forthe swimming pools all affected i tems have no coverage for earthquake shock?

x x x

A. I based my statement on my findings, because upon my examination of the policy I foundout that under Item 3 it was specific on the wordings that on the two swimming pools only,then enclosed in parenthesis (against the peril[s] of earthquake shock only), and secondly,when I examined the summary of premium payment only Item 3 which refers to the

swimming pools have a computation for premium payment for earthquake shock and all theother items have no computation for payment of premiums.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot relyon the general rule that insurance contracts are contracts of adhesion which should be liberallyconstrued in favor of the insured and strictly against the insurer company which usually

prepares it.31 A contract of adhesion is one wherein a party, usually a corporation, preparesthe stipulations in the contract, while the other party merely affixes his signature or his"adhesion" thereto. Through the years, the courts have held that in these type of contracts, the

parties do not bargain on equal footing, the weaker party's participation being reduced to thealternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker partywhom the courts of justice must protect.32 Consequently, any ambiguity therein is resolvedagainst the insurer, or construed liberally in favor of the insured.33

The case law will show that this Court will only rule out blind adherence to terms where facts

and circumstances will show that they are basically one-sided.34 Thus, we have called onlower courts to remain careful in scrutinizing the factual circumstances behind each case to

determine the efficacy of the claims of contending parties. In Development Bank of thePhilippines v. National Merchandising Corporation, et al.,35 the parties, who were acute

businessmen of experience, were presumed to have assented to the assailed documents with

full knowledge.

We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannotclaim it did not know the provisions of the policy. From the inception of the policy, petitionerhad required the respondent to copy verbatim the provisions and terms of its latest insurance

policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant insecuring the insurance policy of petitioner, is reflective of petitioners knowledge, viz:

DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36TSN, September 23, 1991

pp. 20-21

Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for thosefacilities in Agoo Playa?

A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter

Insurance Corporation as long as it will follow the same or exact provisions of the previousinsurance policy we had with American Home Assurance Corporation.

Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the

American Home Insurance policy are to be incorporated in the PCIC policy?

A. Yes, sir.

Q. What steps did you take?

A. When I examined the policy of the Philippine Charter Insurance Corporation I specificallytold him that the policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.

Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No.206-4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in

some terms, specifically in the replacement cost endorsement, but the principal provisions ofthe policy remained essentially similar to AHAC-AIUs policy. Consequently, we cannot

apply the "fine print" or "contract of adhesion" rule in this case as the parties intent to limitthe coverage of the policy to the two swimming pools only is not ambiguous.37

IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition forcertiorari is dismissed. No costs.

Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION


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G.R. No. L-38613 February 25, 1982

PACIFIC TIMBER EXPORT CORPORATION, petitioner,

vs.THE HONORABLE COURT OF APPEALS and WORKMEN'S INSURANCE COMPANY,

INC., respondents.

DE CASTRO, ** J.:

This petition seeks the review of the decision of the Court of Appeals reversing the decision ofthe Court of First Instance of Manila in favor of petitioner and against private respondentwhich ordered the latter to pay the sum of Pll,042.04 with interest at the rate of 12% interestfrom receipt of notice of loss on April 15, 1963 up to the complete payment, the sum ofP3,000.00 as attorney's fees and the costs 1 thereby dismissing petitioner s complaint withcosts. 2

The findings of the of fact of the Court of Appeals, which are generally binding upon this

Court, Except as shall be indicated in the discussion of the opinion of this Court the substantialcorrectness of still particular finding having been disputed, thereby raising a question of law

reviewable by this Court 3 are as follows:

March 19, l963, the plaintiff secured temporary insurance from the defendant for itsexportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped fromthe Diapitan. Bay, Quezon Province to Okinawa and Tokyo, Japan. The defendant issued onsaid date Cover Note No. 1010, insuring the said cargo of the plaintiff "Subject to the Termsand Conditions of the WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policyform as filed with and approved by the Office of the Insurance Commissioner (Exhibit A).

The regular marine cargo policies were issued by the defendant in favor of the plaintiff onApril 2, 1963. The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033(Exhibits B and C, respectively). Policy No. 53 H0 1033 (Exhibit B) was for 542 pieces oflogs equivalent to 499,950 board feet. Policy No. 53 H0 1033 was for 853 pieces of logsequivalent to 695,548 board feet (Exhibit C). 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 No. 1010 (Exhibit A), but before the issuance of the twomarine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be exportedwere lost during loading operations in the Diapitan Bay. The logs were to be loaded on the 'SSWoodlock' which docked about 500 meters from the shoreline of the Diapitan Bay. The logswere taken from the log pond of the plaintiff and from which they were towed in rafts to thevessel. At about 10:00 o'clock a. m. on March 29, 1963, while the logs were alongside thevessel, bad weather developed resulting in 75 pieces of logs which were rafted together co

break loose from each other. 45 pieces of logs were salvaged, but 30 pieces were verified tohave been lost or washed away as a result of the accident.

In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of'appropriately 32 pieces of log's during loading of the 'SS Woodlock'. The said letter (ExhibitF) reads as follows:

April 4, 1963

Workmen's Insurance Company, Inc. Manila, Philippines

Gentlemen:

This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000 bd. ft.Philippine Lauan and Apitong Logs. We would like to inform you that we have receivedadvance preliminary report from our Office in Diapitan, Quezon that we have lostapproximately 32 pieces of logs during loading of the SS Woodlock.

We will send you an accurate report all the details including values as soon as same will bereported to us.

Thank you for your attention, we wish to remain.

Very respectfully yours,

PACIFIC TIMBER EXPORT CORPORATION

(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.

Although dated April 4, 1963, the letter was received in the office of the defendant only onApril 15, 1963, as shown by the stamp impression appearing on the left bottom corner of said

letter. The plaintiff subsequently submitted a 'Claim Statement demanding payment of the lossunder Policies Nos. 53 HO 1032 and 53 HO 1033, in the total amount of P19,286.79 (ExhibitG).

On July 17, 1963, the defendant requested the First Philippine Adjustment Corporation toinspect the loss and assess the damage. The adjustment company submitted its 'Report onAugust 23, 1963 (Exhibit H). In said report, the adjuster found that 'the loss of 30 pieces oflogs is not covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as said policies coveredthe actual number of logs loaded on board the 'SS Woodlock' However, the loss of 30 piecesof logs is within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00.

On September 14, 1963, the adjustment company submitted a computation of the defendant's

probable liability on the loss sustained by the shipment, in the total amount of Pl1,042.04(Exhibit 4).

On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim, on theground they defendant's investigation revealed that the entire shipment of logs covered by thetwo marines policies No. 53 110 1032 and 713 HO 1033 were received in good order at their

point of destination. It was further stated that the said loss may be considered as covered underCover Note No. 1010 because the said Note had become 'null and void by virtue of theissuance of Marine Policy Nos. 53 HO 1032 and 1033'(Exhibit J-1). The denial of the claim bythe defendant was brought by the plaintiff to the attention of the Insurance Commissioner bymeans of a letter dated March 21, 1964 (Exhibit K). In a reply letter dated March 30, 1964,Insurance Commissioner Francisco Y. Mandanas observed that 'it is only fair and equitable toindemnify the insured under Cover Note No. 1010', and advised early settlement of the saidmarine loss and salvage claim (Exhibit L).


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On June 26, 1964, the defendant informed the Insurance Commissioner that, on advice of theirattorneys, the claim of the plaintiff is being denied on the ground that the cover note is nulland void for lack of valuable consideration (Exhibit M). 4

Petitioner assigned as errors of the Court of Appeals, the following:

I

THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WASNULL AND VOID FOR LACK OF VALUABLE CONSIDERATION BECAUSE THECOURT DISREGARDED THE PROVEN FACTS THAT PREMIUMS FOR THECOMPREHENSIVE INSURANCE COVERAGE THAT INCLUDED THE COVER NOTEWAS PAID BY PETITIONER AND THAT INCLUDED THE COVER NOTE WAS PAIDBY PETITIONER AND THAT NO SEPARATE PREMIUMS ARE COLLECTED BYPRIVATE RESPONDENT ON ALL ITS COVER NOTES.

II

THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT WAS

RELEASED FROM LIABILITY UNDER THE COVER NOTE DUE TOUNREASONABLE DELAY IN GIVING NOTICE OF LOSS BECAUSE THE COURT

DISREGARDED THE PROVEN FACT THAT PRIVATE RESPONDENT DID NOTPROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE GROUND OF

DELAY IN GIVING NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS ONTHAT GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE ACT. 5

1. Petitioner contends that the Cover Note was issued with a consideration when, byexpress 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. From thisundisputed fact, We uphold petitioner's submission that the Cover Note was not withoutconsideration for which the respondent court held the Cover Note as null and void, and deniedrecovery therefrom. The fact that no separate premium was paid on the Cover Note before theloss 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 notcontain, 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 areintended or required to be paid on a Cover Note. This is a fact admitted by an official of

respondent company, Juan Jose Camacho, in charge of issuing cover notes of the respondentcompany (p. 33, tsn, September 24, 1965).

At any rate, it is not disputed that petitioner paid in full all the premiums as called for by thestatement 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 andfunction of the Cover Note would be set at naught or rendered meaningless, for it is in a realsense a contract, not a mere application for insurance which is a mere offer. 6

It may be true that the marine insurance policies issued were for logs no longer including thosewhich had been lost during loading operations. This had to be so because the risk insured

against is not for loss during operations anymore, but for loss during transit, the logs havingalready been safely placed aboard. This would make no difference, however, insofar as the

liability on the cover note is concerned, for the number or volume of logs lost can bedetermined independently as in fact it had been so ascertained at the instance of privaterespondent itself when it sent its own adjuster to investigate and assess the loss, after the

issuance of the marine insurance policies.

The adjuster went as far as submitting his report to respondent, as well as its computation ofrespondent's liability on the insurance coverage. This coverage could not have been no otherthan what was stipulated in the Cover Note, for no loss or damage had to be assessed on thecoverage arising from the marine insurance policies. For obvious reasons, it was not necessaryto ask petitioner to pay premium on the Cover Note, for the loss insured against havingalready occurred, the more practical procedure is simply to deduct the premium from theamount due the petitioner on the Cover Note. The non-payment of premium on the Cover Noteis, therefore, no cause for the petitioner to lose what is due it as if there had been payment of

premium, for non-payment by it was not chargeable against its fault. Had all the logs been lostduring the loading operations, but after the issuance of the Cover Note, liability on the notewould 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 ofcommerce, 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. 7

2. The defense of delay as raised by private respondent in resisting the claim cannot be

sustained. The law requires this ground of delay to be promptly and specifically asserted whena claim on the insurance agreement is made. The undisputed facts show that instead of

invoking the ground of delay in objecting to petitioner's claim of recovery on the cover note, ittook steps clearly indicative that this particular ground for objection to the claim was never inits mind. The nature of this specific ground for resisting a claim places the insurer on duty toinquire when the loss took place, so that it could determine whether delay would be a validground upon which to object to a claim against it.

As already stated earlier, private respondent's reaction upon receipt of the notice of loss, whichwas on April 15, 1963, was to set in motion from July 1963 what would be necessary todetermine the cause and extent of the loss, with a view to the payment thereof on the insuranceagreement. Thus it sent its adjuster to investigate and assess the loss in July, 1963. Theadjuster submitted his report on August 23, 1963 and its computation of respondent's liabilityon September 14, 1963. From April 1963 to July, 1963, enough time was available for private

respondent to determine if petitioner was guilty of delay in communicating the loss torespondent company. In the proceedings that took place later in the Office of the Insurance

Commissioner, private respondent should then have raised this ground of delay to avoidliability. It did not do so. It must be because it did not find any delay, as this Court fails to finda real and substantial sign thereof. But even on the assumption that there was delay, this Courtis satisfied and convinced that as expressly provided by law, waiver can successfully be raisedagainst 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 ifcaused by any act of his or if he omits to take objection promptly and specifically upon thatground.

From what has been said, We find duly substantiated petitioner's assignments of error.

ACCORDINGLY, 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. No special pronouncement as tocosts.

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