1

* RISKS *

LOSS

“SEC. 85. An agreement not to transfer the claim of the insured against the insurer after the loss has happened, is void if made before the loss except as otherwise provided in the case of life insurance.

“SEC. 86. Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause.

“SEC. 87. An insurer is liable where the thing insured is rescued from a peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part; or where a loss is caused by efforts to rescue the thing insured from a peril insured against.

“SEC. 88. Where a peril is especially excepted in a contract of insurance, a loss, which would not have occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril which was not excepted.

“SEC. 89. An insurer is not liable for a loss caused by the willful act or through the connivance of the insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others.

BONIFACIO BROS., INC., ET AL., plaintiffs-appellants, vs.ENRIQUE MORA, ET AL., defendants-appellees.

This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil case 48823, affirming the decision of the Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts Company, appellants herein, to the proceeds of motor insurance policy A-0615, in the sum of P2,002.73, issued by the State Bonding & Insurance Co. Inc., and directing payment of the said amount to the H. Reyes, Inc.

Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged the same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile with the latter as beneficiary. The automobile was thereafter insured on June 23, 1959 with the State Bonding & Insurance Co., Inc., and motor car insurance policy A-0615 was issued to Enrique Mora, the pertinent provisions of which read:

1. The Company (referring to the State Bonding & Insurance Co., Inc.) will, subject to the Limits of Liability, indemnify the Insured against loss of or damages to the Motor Vehicle and its accessories and spare parts whilst thereon; (a) by accidental collision or overturning or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear,

x x x           x x x           x x x

2. At its own option the Company may pay in cash the amount of the loss or damage or may repair, reinstate, or replace the Motor Vehicle or any part thereof or its accessories or spare parts. The liability of the Company shall not exceed the value of the parts whichever is the less. The Insured's estimate of value stated in the schedule will be the maximum amount payable by the Company in respect of any claim for loss or damage.1äwphï1.ñët

x x x           x x x           x x x

4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the Company may be liable under this Policy provided that: — (a) The estimated cost of such repair does not exceed the Authorized Repair Limit, (b) A detailed estimate of the cost is forwarded to the Company without delay, subject to the condition that "Loss, if any is payable to H.S. Reyes, Inc.," by virtue of the fact that said Oldsmobile sedan was mortgaged in favor of the said H.S. Reyes, Inc. and that under a clause in said insurance policy, any loss was made payable to the H.S. Reyes, Inc. as Mortgagee;

x x x           x x x           x x x

During the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the accident to the Bayne Adjustment Co. for investigation and appraisal of the damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne Adjustment Co. The insurance company after claiming a franchise in the amount of P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, payable to the order of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. In the meantime, the car was delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and materials.

Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the Municipal Court of Manila against Enrique Mora

2

and the State Bonding & Insurance Co., Inc. for the collection of the sum of P2,002.73 The insurance company filed its answer with a counterclaim for interpleader, requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has better right to the insurance proceeds in question. Enrique Mora was declared in default for failure to appear at the hearing, and evidence against him was received ex parte. However, the counsel for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the basis of which are Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as having a better right to the disputed amount and ordering State Bonding & Insurance Co. Inc. to pay to the H. S. Reyes, Inc. the said sum of P2,002.73. From this decision, the appellants elevated the case to the Court of First Instance of Manila which the stipulation of facts was reproduced. On October 19, 1962 the latter court rendered a decision, affirming the decision of the Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision, but the trial court denied the motion. Hence, this appeal.

The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand and the insurance company on the other. The appellants argue that the insurance company and Enrique Mora are parties to the repair of the car as well as the towage thereof performed. The authority for this assertion is to be found, it is alleged, in paragraph 4 of the insurance contract which provides that "the insured may authorize the repair of the Motor Vehicle necessitated by damage for which the company may be liable under the policy provided that (a) the estimated cost of such repair does not exceed the Authorized Repair Limit, and (b) a detailed estimate of the cost is forwarded to the company without delay." It is stressed that the H.H. Bayne Adjustment Company's recommendation of payment of the appellants' bill for materials and repairs for which the latter drew a check for P2,002.73 indicates that Mora and the H.H. Bayne Adjustment Co. acted for and in representation of the insurance company.

This argument is, in our view, beside the point, because from the undisputed facts and from the pleadings it will be seen that the appellants' alleged cause of action rests exclusively upon the terms of the insurance contract. The appellants seek to recover the insurance proceeds, and for this purpose, they rely upon paragraph 4 of the insurance contract document executed by and between the State Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned in the contract as parties thereto nor is there any clause or provision thereof from which we can infer that there is an obligation on the part of the insurance company to pay the cost of repairs directly to them. It is fundamental that contracts take effect only between the parties thereto, except in some specific instances provided by law where the contract contains some stipulation in favor of a third person.1 Such stipulation is known as stipulation pour autrui or a provision in favor of a third person not a pay to the contract. Under this doctrine, a third person is allowed 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.2Consequently, a third person not a party to the contract has no action against the parties thereto, and cannot generally demand the enforcement of the same.3 The question of whether a third person has an enforcible 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 a 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 third 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.4 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 materialmen 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.

We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or pretension of the appellants that they are privy to the contract. If it were the intention of the insurance company to make itself liable to the repair shop or materialmen, it could have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the insurance contract intended to confer upon the appellants the benefit claimed by them would require us to ignore the indespensable requisite that a stipulation pour autrui must be clearly expressed by the parties, which we cannot do.

As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishing privity between the appellants and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of the appellants a right of action against the insurance company as such intention can never be inferred therefrom.

Another cogent reason for not recognizing a right of action by the appellants against the insurance company is that "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 between the insured and third person."5 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 appellants' claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora who entered into a

3

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 which read:

The insurance shall be applied exclusively to the proper interests of the person in whose name it is made unless otherwise specified in the policy.

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.

The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the insurance proceeds arises only if there was loss and not where there is mere damage as in the instant case. Suffice it to say that any attempt to draw a distinction between "loss" and "damage" is uncalled for, because the word "loss" in insurance law embraces injury or damage.

Loss in insurance, defined. — The injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary; Cyclopedic Law Dictionary, cited in Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608).

Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial.

Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost.

PROXIMATE CAUSE

SALUD VILLANUEVA VDA. DE BATACLAN and the minors NORMA, LUZVIMINDA, ELENITA, OSCAR and ALFREDO BATACLAN, represented by their Natural guardian, SALUD VILLANUEVA VDA. DE BATACLAN, plaintiffs-appellants, vs.MARIANO MEDINA, defendant-appellant.

Shortly after midnight, on September 13, 1952 bus no. 30 of the Medina Transportation, operated by its owner defendant Mariano Medina under a certificate of public convenience, left the town of Amadeo, Cavite, on its way to Pasay City, driven by its regular chauffeur, Conrado Saylon. There were about eighteen passengers, including the driver and conductor. Among the passengers were Juan Bataclan, seated beside and to the right of the driver, Felipe Lara, sated to the right of Bataclan, another passenger apparently from the Visayan Islands whom the witnesses just called Visaya, apparently not knowing his name, seated in the left side of the driver, and a woman named Natalia Villanueva, seated just behind the four last mentioned. At about 2:00 o'clock that same morning, while the bus was running within the jurisdiction of Imus,

Cavite, one of the front tires burst and the vehicle began to zig-zag until it fell into a canal or ditch on the right side of the road and turned turtle. Some of the passengers managed to leave the bus the best way they could, others had to be helped or pulled out, while the three passengers seated beside the driver, named Bataclan, Lara and the Visayan and the woman behind them named Natalia Villanueva, could not get out of the overturned bus. Some of the passengers, after they had clambered up to the road, heard groans and moans from inside the bus, particularly, shouts for help from Bataclan and Lara, who said they could not get out of the bus. There is nothing in the evidence to show whether or not the passengers already free from the wreck, including the driver and the conductor, made any attempt to pull out or extricate and rescue the four passengers trapped inside the vehicle, but calls or shouts for help were made to the houses in the neighborhood. After half an hour, came about ten men, one of them carrying a lighted torch made of bamboo with a wick on one end, evidently fueled with petroleum. These men presumably approach the overturned bus, and almost immediately, a fierce fire started, burning and all but consuming the bus, including the four passengers trapped inside it. It would appear that as the bus overturned, gasoline began to leak and escape from the gasoline tank on the side of the chassis, spreading over and permeating the body of the bus and the ground under and around it, and that the lighted torch brought by one of the men who answered the call for help set it on fire.

That same day, the charred bodies of the four deemed passengers inside the bus were removed and duly identified that of Juan Bataclan. By reason of his death, his widow, Salud Villanueva, in her name and in behalf of her five minor children, brought the present suit to recover from Mariano Medina compensatory, moral, and exemplary damages and attorney's fees in the total amount of P87,150. After trial, the Court of First Instance of Cavite awarded P1,000 to the plaintiffs plus P600 as attorney's fee, plus P100, the value of the merchandise being carried by Bataclan to Pasay City for sale and which was lost in the fire. The plaintiffs and the defendants appealed the decision to the Court of Appeals, but the latter endorsed the appeal to us because of the value involved in the claim in the complaint.

Our new Civil Code amply provides for the responsibility of common carrier to its passengers and their goods. For purposes of reference, we are reproducing the pertinent codal provisions:

ART. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extra ordinary diligence for the safety of the

4

passengers is further set forth in articles 1755 and 1756.

ART. 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.

ART. 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in articles 1733 and 1755

ART. 1759. Common carriers are liable for the death of or injuries to passengers through the negligence or willful acts of the former's employees, although such employees may have acted beyond the scope of their authority or in violation of the order of the common carriers.

This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good father of a family in the selection and supervision of their employees.

ART. 1763. A common carrier responsible for injuries suffered by a passenger on account of the willful acts or negligence of other passengers or of strangers, if the common carrier's employees through the exercise of the diligence of a good father of a family could have prevented or stopped the act or omission.

We agree with the trial court that the case involves a breach of contract of transportation for hire, the Medina Transportation having undertaken to carry Bataclan safely to his destination, Pasay City. We also agree with the trial court that there was negligence on the part of the defendant, through his agent, the driver Saylon. There is evidence to show that at the time of the blow out, the bus was speeding, as testified to by one of the passengers, and as shown by the fact that according to the testimony of the witnesses, including that of the defense, from the point where one of the front tires burst up to the canal where the bus overturned after zig-zaging, there was a distance of about 150 meters. The chauffeur, after the blow-out, must have applied the brakes in order to stop the bus, but because of the velocity at which the bus must have been running, its momentum carried it over a distance of 150 meters before it fell into the canal and turned turtle.

There is no question that under the circumstances, the defendant carrier is liable. The only question is to what degree. The trial court was of the opinion that the proximate cause of the death of Bataclan was not the overturning of the bus, but rather, the fire that burned the bus, including himself and his co-passengers who were unable to leave it; that at the time the fire started, Bataclan, though he must have suffered physical injuries, perhaps serious, was still alive, and so damages were

awarded, not for his death, but for the physical injuries suffered by him. We disagree. A satisfactory definition of proximate cause is found in Volume 38, pages 695-696 of American jurisprudence, cited by plaintiffs-appellants in their brief. It is as follows:

. . . 'that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred.' And more comprehensively, 'the proximate legal cause is that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final event in the chain immediately effecting the injury as a natural and probable result of the cause which first acted, under such circumstances that the person responsible for the first event should, as an ordinary prudent and intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result therefrom.

It may be that ordinarily, when a passenger bus overturns, and pins down a passenger, merely causing him physical injuries, if through some event, unexpected and extraordinary, the overturned bus is set on fire, say, by lightning, or if some highwaymen after looting the vehicle sets it on fire, and the passenger is burned to death, one might still contend that the proximate cause of his death was the fire and not the overturning of the vehicle. But in the present case under the circumstances obtaining in the same, we do not hesitate to hold that the proximate cause was the overturning of the bus, this for the reason that when the vehicle turned not only on its side but completely on its back, the leaking of the gasoline from the tank was not unnatural or unexpected; that the coming of the men with a lighted torch was in response to the call for help, made not only by the passengers, but most probably, by the driver and the conductor themselves, and that because it was dark (about 2:30 in the morning), the rescuers had to carry a light with them, and coming as they did from a rural area where lanterns and flashlights were not available; and what was more natural than that said rescuers should innocently approach the vehicle to extend the aid and effect the rescue requested from them. In other words, the coming of the men with a torch was to be expected and was a natural sequence of the overturning of the bus, the trapping of some of its passengers and the call for outside help. What is more, the burning of the bus can also in part be attributed to the negligence of the carrier, through is driver and its conductor. According to the witness, the driver and the conductor were on the road walking back and forth. They, or at least, the driver should and must have known that in the position in which the overturned bus was, gasoline could and must have leaked from the gasoline tank and soaked the area in and around the bus, this aside from the fact that gasoline when spilled, specially over a large area, can be smelt and directed even from a distance, and yet neither the driver nor the conductor would appear to have cautioned or taken steps to warn the rescuers not to bring the

5

lighted torch too near the bus. Said negligence on the part of the agents of the carrier come under the codal provisions above-reproduced, particularly, Articles 1733, 1759 and 1763.

As regard the damages to which plaintiffs are entitled, considering the earning capacity of the deceased, as well as the other elements entering into a damage award, we are satisfied that the amount of SIX THOUSAND (P6,000) PESOS would constitute satisfactory compensation, this to include compensatory, moral, and other damages. We also believe that plaintiffs are entitled to attorney's fees, and assessing the legal services rendered by plaintiffs' attorneys not only in the trial court, but also in the course of the appeal, and not losing sight of the able briefs prepared by them, the attorney's fees may well be fixed at EIGHT HUNDRED (P800) PESOS for the loss of merchandise carried by the deceased in the bus, is adequate and will not be disturbed.

There is one phase of this case which disturbs if it does not shock us. According to the evidence, one of the passengers who, because of the injuries suffered by her, was hospitalized, and while in the hospital, she was visited by the defendant Mariano Medina, and in the course of his visit, she overheard him speaking to one of his bus inspectors, telling said inspector to have the tires of the bus changed immediately because they were already old, and that as a matter of fact, he had been telling the driver to change the said tires, but that the driver did not follow his instructions. If this be true, it goes to prove that the driver had not been diligent and had not taken the necessary precautions to insure the safety of his passengers. Had he changed the tires, specially those in front, with new ones, as he had been instructed to do, probably, despite his speeding, as we have already stated, the blow out would not have occurred. All in all, there is reason to believe that the driver operated and drove his vehicle negligently, resulting in the death of four of his passengers, physical injuries to others, and the complete loss and destruction of their goods, and yet the criminal case against him, on motion of the fiscal and with his consent, was provisionally dismissed, because according to the fiscal, the witnesses on whose testimony he was banking to support the complaint, either failed or appear or were reluctant to testify. But the record of the case before us shows the several witnesses, passengers, in that bus, willingly and unhesitatingly testified in court to the effect of the said driver was negligent. In the public interest the prosecution of said erring driver should be pursued, this, not only as a matter of justice, but for the promotion of the safety of passengers on public utility buses. Let a copy of this decision be furnished the Department of Justice and the Provincial Fiscal of Cavite.

In view of the foregoing, with the modification that the damages awarded by the trial court are increased from ONE THOUSAND (P1,000) PESOS TO SIX THOUSAND (P6,000) PESOS, and from SIX HUNDRED PESOS TO EIGHT HUNDRED (P800) PESOS, for the death of Bataclan and for the attorney's fees, respectively, the decision appealed is from hereby affirmed, with costs.

* LIFE INSURANCE *

“SEC. 181. Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith.

“Every contract or undertaking for the payment of annuities including contracts for the payment of lump sums under a retirement program where a life insurance company manages or acts as a trustee for such retirement program shall be considered a life insurance contract for purposes of this Code.

“SEC. 182. An insurance upon life may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life.

“Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purposes of this Code.

“In the absence of a judicial guardian, the father, or in the latter’s absence or incapacity, the mother, of any minor, who is an insured or a beneficiary under a contract of life, health, or accident insurance, may exercise, in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a bond, where the interest of the minor in the particular act involved does not exceed Five hundred thousand pesos (P500,000.00) or in such reasonable amount as may be determined by the Commissioner. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the Policy, and giving the minor’s consent to any transaction on the policy.

“In the absence or in case of the incapacity of the father or mother, the grandparent, the eldest brother or sister at least eighteen (18) years of age, or any relative who has actual custody of the minor insured or beneficiary, shall act as a guardian without need of a court order or judicial appointment as such guardian, as long as such person is not otherwise disqualified or incapacitated. Payment made by the insurer pursuant to this section shall relieve such insurer of any liability under the contract.

KINDS OF LIFE POLICY

LIFE ANNUITY  Art. 2021. The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income. (1802a)

Art. 2022. The annuity may be constituted upon the life of the person who gives the capital, upon that of a third

6

person, or upon the lives of various persons, all of whom must be living at the time the annuity is established.

It may also be constituted in favor of the person or persons upon whose life or lives the contract is entered into, or in favor of another or other persons. (1803)

Art. 2023. Life annuity shall be void if constituted upon the life of a person who was already dead at the time the contract was entered into, or who was at that time suffering from an illness which caused his death within twenty days following said date. (1804)

Art. 2024. The lack of payment of the income due does not authorize the recipient of the life annuity to demand the reimbursement of the capital or to retake possession of the property alienated, unless there is a stipulation to the contrary; he shall have only a right judicially to claim the payment of the income in arrears and to require a security for the future income, unless there is a stipulation to the contrary. (1805a)

Art. 2025. The income corresponding to the year in which the person enjoying it dies shall be paid in proportion to the days during which he lived; if the income should be paid by installments in advance, the whole amount of the installment which began to run during his life shall be paid. (1806)

Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may provide at the time the annuity is established that the same shall not be subject to execution or attachment on account of the obligations of the recipient of the annuity. If the annuity was constituted in fraud of creditors, the latter may ask for the execution or attachment of the property. (1807a)

Art. 2027. No annuity shall be claimed without first proving the existence of the person upon whose life the annuity is constituted. (1808) 

MUTUAL LIFE INSURANCE COMPANIES

“SEC. 268. Any domestic stock life insurance company doing business in the Philippines may convert itself into an incorporated mutual life insurer. To that end it may provide and carry out a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its policyholders, or any class or classes of its policyholders, by complying with the requirements of this chapter.

REPUBLIC V. SUNLIFE

aving satisfactorily proven to the Court of Tax Appeals, to the Court of Appeals and to this Court that it is a bona fide cooperative, respondent is entitled to exemption from the payment of taxes on life insurance premiums and documentary stamps. Not being governed by the Cooperative Code of the Philippines, it is not required to be registered with the Cooperative Development Authority in order to avail itself of the tax exemptions.

Significantly, neither the Tax Code nor the Insurance Code mandates this administrative registration.

 The Case

 Before us is a Petition for Review[1] under Rule 45

of the Rules of Court, seeking to nullify the January 23, 2003 Decision[2] and the April 21, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 69125. The dispositive portion of the Decision reads as follows:

 WHEREFORE, the petition for

review is hereby DENIED.[4]

   

The Facts 

The antecedents, as narrated by the CA, are as follows:

Sun Life is a mutual life insurance company organized and existing under the laws of Canada. It is registered and authorized by the Securities and Exchange Commission and the Insurance Commission to engage in business in the Philippines as a mutual life insurance company with principal office at Paseo de Roxas, Legaspi Village, Makati City.

 On October 20, 1997, Sun Life

filed with the [Commissioner of Internal Revenue] (CIR) its insurance premium tax return for the third quarter of 1997 and paid the premium tax in the amount of P31,485,834.51. For the period covering August 21 to December 18, 1997, petitioner filed with the CIR its [documentary stamp tax (DST)] declaration returns and paid the total amount of P30,000,000.00.

 On December 29, 1997, the [Court

of Tax Appeals] (CTA) rendered its decision in Insular Life Assurance Co. Ltd. v. [CIR], which held that mutual life insurance companies are purely cooperative companies and are exempt from the payment of premium tax and DST. This pronouncement was later affirmed by this court in [CIR] v. Insular Life Assurance Company, Ltd. Sun Life surmised that[,] being a mutual life insurance company, it was likewise exempt from the payment of premium tax and DST. Hence, on August 20, 1999, Sun Life filed with the CIR an administrative claim for tax credit of its alleged erroneously paid premium tax and DST for the aforestated tax periods.

 For failure of the CIR to act upon

the administrative claim for tax credit and with the 2-year period to file a claim for tax credit or refund dwindling away and about to expire, Sun Life filed with the

7

CTA a petition for review on August 23, 1999. In its petition, it prayed for the issuance of a tax credit certificate in the amount of P61,485,834.51 representing P31,485,834.51 of erroneously paid premium tax for the third quarter of 1997 and P30,000[,000].00 of DST on policies of insurance from August 21 to December 18, 1997. Sun Life stood firm on its contention that it is a mutual life insurance company vested with all the characteristic features and elements of a cooperative company or association as defined in [S]ection 121 of the Tax Code. Primarily, the management and affairs of Sun Life were conducted by its members; secondly, it is operated with money collected from its members; and, lastly, it has for its purpose the mutual protection of its members and not for profit or gain.

 In its answer, the CIR, then

respondent, raised as special and affirmative defenses the following:

 7. Petitioners (Sun Lifes)

alleged claim for refund is subject to administrative routinary investigation/examination by respondents (CIRs) Bureau.

 8. Petitioner must prove that it

falls under the exception provided for under Section 121 (now 123) of the Tax Code to be exempted from premium tax and be entitled to the refund sought. 

9. Claims for tax refund/credit are construed strictly against the claimants thereof as they are in the nature of exemption from payment of tax.

 10. In an action for tax credit/refund, the

burden is upon the taxpayer to establish its right thereto, and failure to sustain this burden is fatal to said claim x x x.

 11. It is incumbent upon petitioner to

show that it has complied with the provisions of Section 204[,] in relation to Section 229, both in the 1997 Tax Code.

 On November 12, 2002, the CTA

found in favor of Sun Life. Quoting largely from its earlier findings in Insular Life Assurance Company, Ltd. v. [CIR], which it found to be on all fours with the present action, the CTA ruled:

 The [CA] has already spoken. It ruled that a

mutual life insurance company is a purely cooperative company[;] thus, exempted from the payment of premium and documentary stamp taxes. Petitioner Sun

Life is without doubt a mutual life insurance company. x x x.

 x x x x x x x x x Being similarly situated with Insular, Petitioner

at bar is entitled to the same interpretation given by this Court in the earlier cases of The Insular Life Assurance Company, Ltd. vs. [CIR] (CTA Case Nos. 5336 and 5601) and by the [CA] in the case entitled [CIR] vs. The Insular Life Assurance Company, Ltd., C.A. G.R. SP No. 46516, September 29, 1998. Petitioner Sun Life as a mutual life insurance company is[,] therefore[,] a cooperative company or association and is exempted from the payment of premium tax and [DST] on policies of insurance pursuant to Section 121 (now Section 123) and Section 199[1]) (now Section 199[a]) of the Tax Code.

 Seeking reconsideration of the

decision of the CTA, the CIR argued that Sun Life ought to have registered, foremost, with the Cooperative Development Authority before it could enjoy the exemptions from premium tax and DST extended to purely cooperative companies or associations under [S]ections 121 and 199 of the Tax Code. For its failure to register, it could not avail of the exemptions prayed for. Moreover, the CIR alleged that Sun Life failed to prove that ownership of the company was vested in its members who are entitled to vote and elect the Board of Trustees among [them]. The CIR further claimed that change in the 1997 Tax Code subjecting mutual life insurance companies to the regular corporate income tax rate reflected the legislatures recognition that these companies must be earning profits.

 Notwithstanding these

arguments, the CTA denied the CIRs motion for reconsideration.

 Thwarted anew but nonetheless

undaunted, the CIR comes to this court via this petition on the sole ground that:

 The Tax Court erred in granting the refund[,] because respondent does not fall under the exception provided for under Section 121 (now 123) of the Tax Code to be exempted from premium tax and DST and be entitled to the refund. The CIR repleads the arguments it

raised with the CTA and proposes further that the [CA] decision in [CIR] v. Insular Life

8

Assurance Company, Ltd. is not controlling and cannot constitute res judicata in the present action. At best, the pronouncements are merely persuasive as the decisions of the Supreme Court alone have a universal and mandatory effect.[5]

  

 Ruling of the Court of Appeals

 In upholding the CTA, the CA reasoned that respondent was a purely cooperative corporation duly licensed to engage in mutual life insurance business in the Philippines. Thus, respondent was deemed exempt from premium and documentary stamp taxes, because its affairs are managed and conducted by its members with money collected from among themselves, solely for their own protection, and not for profit. Its members or policyholders constituted both insurer and insured who contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities were paid. The dividends it distributed to them were not profits, but returns of amounts that had been overcharged them for insurance. For having satisfactorily shown with substantial evidence that it had erroneously paid and seasonably filed its claim for premium and documentary stamp taxes, respondent was entitled to a refund, the CA ruled. Hence, this Petition.[6]

   

The Issues 

 Petitioner raises the following issues for our consideration:

 I. 

Whether or not respondent is a purely cooperative company or association under Section 121 of the National Internal Revenue Code and a fraternal or beneficiary society, order or cooperative company on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive benefit of each member and not for profit under Section 199 of the National Internal Revenue Code. 

II. Whether or not registration with the Cooperative Development Authority is a sine qua non requirement to be entitled to tax exemption. 

III. Whether or not respondent is exempted from payment of tax on life insurance premiums and documentary stamp tax.[7]

  We shall tackle the issues seriatim. 

The Courts Ruling The Petition has no merit.

First Issue:Whether Respondent Is a Cooperative

 The Tax Code defines a cooperative as an association conducted by the members thereof with the money collected from among themselves and solely for their own protection and not for profit.[8] Without a doubt, respondent is a cooperative engaged in a mutual life insurance business. First, it is managed by its members. Both the CA and the CTA found that the management and affairs of respondent were conducted by its member-policyholders.[9]

 A stock insurance company doing business in the Philippines may alter its organization and transform itself into a mutual insurance company.[10] Respondent has been mutualized or converted from a stock life insurance company to a nonstock mutual life insurance corporation[11] pursuant to Section 266 of the Insurance Code of 1978.[12] On the basis of its bylaws, its ownership has been vested in its member-policyholders who are each entitled to one vote;[13] and who, in turn, elect from among themselves the members of its board of trustees.[14] Being the governing body of a nonstock corporation, the board exercises corporate powers, lays down all corporate business policies, and assumes responsibility for the efficiency of management.[15]

 Second, it is operated with money collected from its members. Since respondent is composed entirely of members who are also its policyholders, all premiums collected obviously come only from them.[16]

 The member-policyholders constitute both insurer and insured[17] who contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid.[18] The premiums[19] pooled into this fund are earmarked for the payment of their indemnity and benefit claims. Third, it is licensed for the mutual protection of its members, not for the profit of anyone. As early as October 30, 1947, the director of commerce had already issued a license to respondent -- a corporation organized and existing under the laws of Canada -- to engage in business in the Philippines.[20] Pursuant to Section 225 of Canadas Insurance Companies Act, the Canadian minister of state (for finance and privatization) also declared in its Amending Letters Patent that respondent would be a mutual company effective June 1, 1992.[21] In the Philippines, the insurance commissioner also granted it annual Certificates of Authority to transact life insurance business, the most relevant of which were dated July 1, 1997 and July 1, 1998.[22]

 

9

A mutual life insurance company is conducted for the benefit of its member-policyholders,[23] who pay into its capital by way of premiums. To that extent, they are responsible for the payment of all its losses.[24] The cash paid in for premiums and the premium notes constitute their assets x x x.[25] In the event that the company itself fails before the terms of the policies expire, the member-policyholders do not acquire the status of creditors.[26] Rather, they simply become debtors for whatever premiums that they have originally agreed to pay the company, if they have not yet paid those amounts in full, for [m]utual companies x x x depend solely upon x x x premiums.[27] Only when the premiums will have accumulated to a sum larger than that required to pay for company losses will the member-policyholders be entitled to a pro rata division thereof as profits.[28]

 Contributing to its capital, the member-policyholders of a mutual company are obviously also its owners.[29] Sustaining a dual relationship inter se, they not only contribute to the payment of its losses, but are also entitled to a proportionate share[30] and participate alike[31] in its profits and surplus. Where the insurance is taken at cost, it is important that the rates of premium charged by a mutual company be larger than might reasonably be expected to carry the insurance, in order to constitute a margin of safety. The table of mortality used will show an admittedly higher death rate than will probably prevail; the assumed interest rate on the investments of the company is made lower than is expected to be realized; and the provision for contingencies and expenses, made greater than would ordinarily be necessary.[32] This course of action is taken, because a mutual company has no capital stock and relies solely upon its premiums to meet unexpected losses, contingencies and expenses. Certainly, many factors are considered in calculating the insurance premium. Since they vary with the kind of insurance taken and with the group of policyholders insured, any excess in the amount anticipated by a mutual company to cover the cost of providing for the insurance over its actual realized cost will also vary. If a member-policyholder receives an excess payment, then the apportionment must have been based upon a calculation of the actual cost of insurance that the company has provided for that particular member-policyholder. Accordingly, in apportioning divisible surpluses, any mutual company uses a contribution method that aims to distribute those surpluses among its member-policyholders, in the same proportion as they have contributed to the surpluses by their payments.[33]

 Sharing in the common fund, any member-policyholder may choose to withdraw dividends in cash or to apply them in order to reduce a subsequent premium, purchase additional insurance, or accelerate the payment period. Although the premium made at the beginning of a year is more than necessary to provide for the cost of carrying the insurance, the member-policyholder will nevertheless receive the benefit of the overcharge by way of dividends, at the end of the year when the cost is actually ascertained. The declaration of a dividend upon a policy reduces pro tanto the cost of

insurance to the holder of the policy. That is its purpose and effect.[34]

 A stipulated insurance premium cannot be increased, but may be lessened annually by so much as the experience of the preceding year has determined it to have been greater than the cost of carrying the insurance x x x.[35] The difference between that premium and the cost of carrying the risk of loss constitutes the so-called dividend which, however, is not in any real sense a dividend.[36] It is a technical term that is well understood in the insurance business to be widely different from that to which it is ordinarily attached. The so-called dividend that is received by member-policyholders is not a portion of profits set aside for distribution to the stockholders in proportion to their subscription to the capital stock of a corporation.[37] One, a mutual company has no capital stock to which subscription is necessary; there are no stockholders to speak of, but only members. And, two, the amount they receive does not partake of the nature of a profit or income. The quasi-appearance of profit will not change its character. It remains an overpayment, a benefit to which the member-policyholder is equitably entitled.[38]

 Verily, a mutual life insurance corporation is a cooperative that promotes the welfare of its own members. It does not operate for profit, but for the mutual benefit of its member-policyholders. They receive their insurance at cost, while reasonably and properly guarding and maintaining the stability and solvency of the company.[39] The economic benefits filter to the cooperative members. Either equally or proportionally, they are distributed among members in correlation with the resources of the association utilized.[40]

 It does not follow that because respondent is registered as a nonstock corporation and thus exists for a purpose other than profit, the company can no longer make any profits.[41] Earning profits is merely its secondary, not primary, purpose. In fact, it may not lawfully engage in any business activity for profit, for to do so would change or contradict its nature[42] as a non-profit entity.[43] It may, however, invest its corporate funds in order to earn additional income for paying its operating expenses and meeting benefit claims. Any excess profit it obtains as an incident to its operations can only be used, whenever necessary or proper, for the furtherance of the purpose for which it was organized.[44]

 Second Issue:

Whether CDA Registration Is Necessary  Under the Tax Code although respondent is a cooperative, registration with the Cooperative Development Authority (CDA)[45] is not necessary in order for it to be exempt from the payment of both percentage taxes on insurance premiums, under Section 121; and documentary stamp taxes on policies of insurance or annuities it grants, under Section 199. First, the Tax Code does not require registration with the CDA. No tax provision requires a mutual life insurance company to register with that agency in order to enjoy exemption from both percentage and documentary stamp taxes.

10

 A provision of Section 8 of Revenue Memorandum Circular (RMC) No. 48-91 requires the submission of the Certificate of Registration with the CDA,[46]before the issuance of a tax exemption certificate. That provision cannot prevail over the clear absence of an equivalent requirement under the Tax Code. One, as we will explain below, the Circular does not apply to respondent, but only to cooperatives that need to be registered under the Cooperative Code. Two, it is a mere issuance directing all internal revenue officers to publicize a new tax legislation. Although the Circular does not derogate from their authority to implement the law, it cannot add a registration requirement,[47] when there is none under the law to begin with. Second, the provisions of the Cooperative Code of the Philippines[48] do not apply. Let us trace the Codes development in our history. As early as 1917, a cooperative company or association was already defined as one conducted by the members thereof with money collected from among themselves and solely for their own protection and not profit.[49] In 1990, it was further defined by the Cooperative Code as a duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.[50]

 The Cooperative Code was actually an offshoot of the old law on cooperatives. In 1973, Presidential Decree (PD) No. 175 was signed into law by then President Ferdinand E. Marcos in order to strengthen the cooperative movement.[51] The promotion of cooperative development was one of the major programs of the New Society under his administration. It sought to improve the countrys trade and commerce by enhancing agricultural production, cottage industries, community development, and agrarian reform through cooperatives.[52]

 The whole cooperative system, with its vertical and horizontal linkages -- from the market cooperative of agricultural products to cooperative rural banks, consumer cooperatives and cooperative insurance -- was envisioned to offer considerable economic opportunities to people who joined cooperatives.[53] As an effective instrument in redistributing income and wealth,[54] cooperatives were promoted primarily to support the agrarian reform program of the government.[55]

 Notably, the cooperative under PD 175 referred only to an organization composed primarily of small producers and consumers who voluntarily joined to form a business enterprise that they themselves owned, controlled, and patronized.[56] The Bureau of Cooperatives Development -- under the Department of Local Government and Community Development (later Ministry of Agriculture)[57] -- had the authority to register, regulate and supervise only the following cooperatives: (1) barrio associations involved in the issuance of certificates of land transfer; (2) local or primary cooperatives composed of natural persons and/or barrio associations; (3) federations

composed of cooperatives that may or may not perform business activities; and (4) unions of cooperatives that did not perform any business activities.[58] Respondent does not fall under any of the above-mentioned types of cooperatives required to be registered under PD 175. When the Cooperative Code was enacted years later, all cooperatives that were registered under PD 175 and previous laws were also deemed registered with the CDA.[59] Since respondent was not required to be registered under the old law on cooperatives, it followed that it was not required to be registered even under the new law. Furthermore, only cooperatives to be formed or organized under the Cooperative Code needed registration with the CDA.[60] Respondent already existed before the passage of the new law on cooperatives. It was not even required to organize under the Cooperative Code, not only because it performed a different set of functions, but also because it did not operate to serve the same objectives under the new law -- particularly on productivity, marketing and credit extension.[61]

 The insurance against losses of the members of a cooperative referred to in Article 6(7) of the Cooperative Code is not the same as the life insurance provided by respondent to member-policyholders. The former is a function of a service cooperative,[62] the latter is not. Cooperative insurance under the Code is limited in scope and local in character. It is not the same as mutual life insurance. We have already determined that respondent is a cooperative. The distinguishing feature of a cooperative enterprise[63] is the mutuality of cooperation among its member-policyholders united for that purpose.[64] So long as respondent meets this essential feature, it does not even have to use[65] and carry the name of a cooperative to operate its mutual life insurance business. Gratia argumenti that registration is mandatory, it cannot deprive respondent of its tax exemption privilege merely because it failed to register. The nature of its operations is clear; its purpose well-defined. Exemption when granted cannot prevail over administrative convenience. Third, not even the Insurance Code requires registration with the CDA. The provisions of this Code primarily govern insurance contracts; only if a particular matter in question is not specifically provided for shall the provisions of the Civil Code on contracts and special laws govern.[66]

 True, the provisions of the Insurance Code relative to the organization and operation of an insurance company also apply to cooperative insurance entities organized under the Cooperative Code.[67] The latter law, however, does not apply to respondent, which already existed as a cooperative company engaged in mutual life insurance prior to the laws passage of that law. The statutes prevailing at the time of its organization and mutualization were the Insurance Code and the Corporation Code, which imposed no registration requirement with the CDA. 

Third Issue:Whether Respondent Is Exempted

11

from Premium Taxes and DST  Having determined that respondent is a cooperative that does not have to be registered with the CDA, we hold that it is entitled to exemption from both premium taxes and documentary stamp taxes (DST).The Tax Code is clear. On the one hand, Section 121 of the Code exempts cooperative companies from the 5 percent percentage tax on insurance premiums. On the other hand, Section 199 also exempts from the DST, policies of insurance or annuities made or granted by cooperative companies. Being a cooperative, respondent is thus exempt from both types of taxes. It is worthy to note that while RA 8424 amending the Tax Code has deleted the income tax of 10 percent imposed upon the gross investment income of mutual life insurance companies -- domestic[68] and foreign[69] -- the provisions of Section 121 and 199 remain unchanged.[70]

 Having been seasonably filed and amply substantiated, the claim for exemption in the amount of P61,485,834.51, representing percentage taxes on insurance premiums and documentary stamp taxes on policies of insurance or annuities that were paid by respondent in 1997, is in order. Thus, the grant of a tax credit certificate to respondent as ordered by the appellate court was correct. 

WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution are AFFIRMED. No pronouncement as to costs. SO ORDERED.

TRANSFER OF POLICY

“SEC. 184. A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered.

SUICIDE

SEC. 183. The insurer in a life insurance contract shall be liable in case of suicide only when it is committed after the policy has been in force for a period of two (2) years from the date of its issue or of its last reinstatement, unless the policy provides a shorter period: Provided, however, That suicide committed in the state of insanity shall be compensable regardless of the date of commission.

ACCIDENTAL DEATH, DEATH BY ACCIDENTAL MEANS

FINMAN V. CA

This is a petition for certiorari with a prayer for the issuance of a restraining order and preliminary

mandatory injunction to annul and set aside the decision of the Court of Appeals dated July 11, 1991, 1 affirming the decision dated March 20, 1990 of the Insurance Commission 2 in ordering petitioner Finman General Assurance Corporation to pay private respondent Julia Surposa the proceeds of the personal accident Insurance policy with interest.

It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman General Assurance Corporation under Finman General Teachers Protection Plan Master Policy No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October 18, 1988 as a result of a stab wound inflicted by one of the three (3) unidentified men without provocation and warning on the part of the former as he and his cousin, Winston Surposa, were waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City after attending the celebration of the "Maskarra Annual Festival."

Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written notice of claim with the petitioner insurance company which denied said claim contending that murder and assault are not within the scope of the coverage of the insurance policy.

On February 24, 1989, private respondent filed a complaint with the Insurance Commission which subsequently rendered a decision, the pertinent portion of which reads:

In the light of the foregoing. we find respondent liable to pay complainant the sum of P15,000.00 representing the proceeds of the policy with interest. As no evidence was submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same cannot be entertained.

WHEREFORE, judgment is hereby rendered ordering respondent to pay complainant the sum of P15,000.00 with legal interest from the date of the filing of the complaint until fully satisfied. With costs.4

On July 11, 1991, the appellate court affirmed said decision.

Hence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate court in applying the principle of "expresso unius exclusio alterius" in a personal accident insurance policy since death resulting from murder and/or assault are impliedly excluded in said insurance policy considering that the

12

cause of death of the insured was not accidental but rather a deliberate and intentional act of the assailant in killing the former as indicated by the location of the lone stab wound on the insured. Therefore, said death was committed with deliberate intent which, by the very nature of a personal accident insurance policy, cannot be indemnified.

We do not agree.

The terms "accident" and "accidental" as used in insurance contracts have not acquired any technical meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected.

. . . The generally accepted rule is that, death or injury does not result from accident or accidental means within the terms of an accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except the death or injury. There is no accident when a deliberate act is performed unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury or death. In other words, where the death or injury is not the natural or probable result of the insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of the policies insuring against death or injury from accident. 5

As correctly pointed out by the respondent appellate court in its decision:

In the case at bar, it cannot be pretended that Carlie Surposa died in the course of an assault or murder as a result of his voluntary act considering the very nature of these crimes. In the first place, the insured and his companion were on their way home from attending a festival. They were confronted by unidentified persons. The record is barren of any circumstance showing how the stab wound was inflicted. Nor can it be pretended that the malefactor aimed at the insured precisely because the killer wanted to take his life. In any event, while the act may not exempt the unknown perpetrator from

criminal liability, the fact remains that the happening was a pure accident on the part of the victim. The insured died from an event that took place without his foresight or expectation, an event that proceeded from an unusual effect of a known cause and, therefore, not expected. Neither can it be said that where was a capricious desire on the part of the accused to expose his life to danger considering that he was just going home after attending a festival. 6

Furthermore, the personal accident insurance policy involved herein specifically enumerated only ten (10) circumstances wherein no liability attaches to petitioner insurance company for any injury, disability or loss suffered by the insured as a result of any of the stimulated causes. The principle of " expresso unius exclusio alterius" — the mention of one thing implies the exclusion of another thing — is therefore applicable in the instant case since murder and assault, not having been expressly included in the enumeration of the circumstances that would negate liability in said insurance policy cannot be considered by implication to discharge the petitioner insurance company from liability for, any injury, disability or loss suffered by the insured. Thus, the failure of the petitioner insurance company to include death resulting from murder or assault among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.

Moreover,

it is well settled that contracts of insurance are to be construed liberally in favor of the insured and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of its beneficiary. 7

WHEREFORE, finding no irreversible error in the decision of the respondent Court of Appeals, the petition forcertiorari with restraining order and preliminary injunction is hereby DENIED for lack of merit.

SO ORDERED.

CALANOC V. CA

This suit involves the collection of P2,000 representing the value of a supplemental policy covering accidental death which was secured by one Melencio Basilio from the Philippine American Life Insurance Company. The case originated in the Municipal Court of Manila and

13

judgment being favorable to the plaintiff it was appealed to the court of first instance. The latter court affirmed the judgment but on appeal to the Court of Appeals the judgment was reversed and the case is now before us on a petition for review.

Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizal and Zurbaran. He secured a life insurance policy from the Philippine American Life Insurance Company in the amount of P2,000 to which was attached a supplementary contract covering death by accident. On January 25, 1951, he died of a gunshot wound on the occasion of a robbery committed in the house of Atty. Ojeda at the corner of Oroquieta and Zurbaan streets. Virginia Calanoc, the widow, was paid the sum of P2,000, face value of the policy, but when she demanded the payment of the additional sum of P2,000 representing the value of the supplemental policy, the company refused alleging, as main defense, that the deceased died because he was murdered by a person who took part in the commission of the robbery and while making an arrest as an officer of the law which contingencies were expressly excluded in the contract and have the effect of exempting the company from liability.

The pertinent facts which need to be considered for the determination of the questions raised are those reproduced in the decision of the Court of Appeals as follows:

The circumstances surrounding the death of Melencio Basilio show that when he was killed at about seven o'clock in the night of January 25, 1951, he was on duty as watchman of the Manila Auto Supply at the corner of Avenida Rizal and Zurbaran; that it turned out that Atty. Antonio Ojeda who had his residence at the corner of Zurbaran and Oroquieta, a block away from Basilio's station, had come home that night and found that his house was well-lighted, but with the windows closed; that getting suspicious that there were culprits in his house, Atty. Ojeda retreated to look for a policeman and finding Basilio in khaki uniform, asked him to accompany him to the house with the latter refusing on the ground that he was not a policeman, but suggesting that Atty. Ojeda should ask the traffic policeman on duty at the corner of Rizal Avenue and Zurbaran; that Atty. Ojeda went to the traffic policeman at said corner and reported the matter, asking the policeman to come along with him, to which the policeman agreed; that on the way to the Ojeda residence, the policeman and Atty. Ojeda passed by Basilio and somehow or other invited the latter to come along; that as the tree approached the Ojeda residence and stood in front of the main gate which was covered with galvanized iron, the fence itself being partly concrete and partly adobe stone, a shot was fired; that immediately after the shot, Atty. Ojeda and the policeman sought cover; that the policeman, at the request of Atty. Ojeda, left the premises to look for reinforcement; that it turned out afterwards that the special watchman

Melencio Basilio was hit in the abdomen, the wound causing his instantaneous death; that the shot must have come from inside the yard of Atty. Ojeda, the bullet passing through a hole waist-high in the galvanized iron gate; that upon inquiry Atty. Ojeda found out that the savings of his children in the amount of P30 in coins kept in his aparador contained in stockings were taken away, the aparador having been ransacked; that a month thereafter the corresponding investigation conducted by the police authorities led to the arrest and prosecution of four persons in Criminal Case No. 15104 of the Court of First Instance of Manila for 'Robbery in an Inhabited House and in Band with Murder'.

It is contended in behalf of the company that Basilio was killed which "making an arrest as an officer of the law" or as a result of an "assault or murder" committed in the place and therefore his death was caused by one of the risks excluded by the supplementary contract which exempts the company from liability. This contention was upheld by the Court of Appeals and, in reaching this conclusion, made the following comment:

From the foregoing testimonies, we find that the deceased was a watchman of the Manila Auto Supply, and, as such, he was not boud to leave his place and go with Atty. Ojeda and Policeman Magsanoc to see the trouble, or robbery, that occurred in the house of Atty. Ojeda. In fact, according to the finding of the lower court, Atty. Ojeda finding Basilio in uniform asked him to accompany him to his house, but the latter refused on the ground that he was not a policeman and suggested to Atty. Ojeda to ask help from the traffic policeman on duty at the corner of Rizal Avenue and Zurbaran, but after Atty. Ojeda secured the help of the traffic policeman, the deceased went with Ojeda and said traffic policeman to the residence of Ojeda, and while the deceased was standing in front of the main gate of said residence, he was shot and thus died. The death, therefore, of Basilio, although unexpected, was not caused by an accident, being a voluntary and intentional act on the part of the one wh robbed, or one of those who robbed, the house of Atty. Ojeda. Hence, it is out considered opinion that the death of Basilio, though unexpected, cannot be considered accidental, for his death occurred because he left his post and joined policeman Magsanoc and Atty. Ojeda to repair to the latter's residence to see what happened thereat. Certainly, when Basilio joined Patrolman Magsanoc and Atty. Ojeda, he should have realized the danger to which he was exposing himself, yet, instead of remaining in his place, he went with Atty. Ojeda and Patrolman Magsanoc to see what was the trouble in Atty. Ojeda's house and thus he was fatally shot.

We dissent from the above findings of the Court of Appeals. For one thing, Basilio was a watchman of the Manila Auto Supply which was a block away from the

14

house of Atty. Ojeda where something suspicious was happening which caused the latter to ask for help. While at first he declied the invitation of Atty. Ojeda to go with him to his residence to inquire into what was going on because he was not a regular policeman, he later agreed to come along when prompted by the traffic policeman, and upon approaching the gate of the residence he was shot and died. The circumstance that he was a mere watchman and had no duty to heed the call of Atty. Ojeda should not be taken as a capricious desire on his part to expose his life to danger considering the fact that the place he was in duty-bound to guard was only a block away. In volunteering to extend help under the situation, he might have thought, rightly or wrongly, that to know the truth was in the interest of his employer it being a matter that affects the security of the neighborhood. No doubt there was some risk coming to him in pursuing that errand, but that risk always existed it being inherent in the position he was holding. He cannot therefore be blamed solely for doing what he believed was in keeping with his duty as a watchman and as a citizen. And he cannot be considered as making an arrest as an officer of the law, as contended, simply because he went with the traffic policeman, for certainly he did not go there for that purpose nor was he asked to do so by the policeman.

Much less can it be pretended that Basilio died in the course of an assault or murder considering the very nature of these crimes. In the first place, there is no proof that the death of Basilio is the result of either crime for the record is barren of any circumstance showing how the fatal shot was fired. Perhaps this may be clarified in the criminal case now pending in court as regards the incident but before that is done anything that might be said on the point would be a mere conjecture. Nor can it be said that the killing was intentional for there is the possibility that the malefactor had fired the shot merely to scare away the people around for his own protection and not necessarily to kill or hit the victim. In any event, while the act may not excempt the triggerman from liability for the damage done, the fact remains that the happening was a pure accident on the part of the victim. The victim could have been either the policeman or Atty. Ojeda for it cannot be pretended that the malefactor aimed at the deceased precisely because he wanted to take his life.

We take note that these defenses are included among the risks exluded in the supplementary contract which enumerates the cases which may exempt the company from liability. While as a general rule "the parties may limit the coverage of the policy to certain particular accidents and risks or causes of loss, and may expressly except other risks or causes of loss therefrom" (45 C. J. S. 781-782), however, it is to be desired that the terms and phraseology of the exception clause be clearly expressed so as to be within the easy grasp and understanding of the insured, for if the terms are doubtful or obscure the same must of necessity be interpreted or resolved aganst the one who has caused the obscurity. (Article 1377, new Civil Code) And so it has bene generally held that the "terms in an insurance policy, which are ambiguous, equivacal, or uncertain . . . are to be construed strictly and most strongly against the insurer,

and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is that he "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company." (44 C. J. S., p. 1174.)

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are prepared by experts who know and can anticipate the bearings and possible complications of every contingency. So long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which conceal rather than frankly disclose, their own intentions, the courts must, in fairness to those who purchase insurance, construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)lawphi1.net

An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the very purpose for which the policy was procured. (Moore vs. Aetna Life Insurance Co., LRA 1915D, 264.)

We are therefore persuaded to conclude that the circumstances unfolded in the present case do not warrant the finding that the death of the unfortunate victim comes within the purview of the exception clause of the supplementary policy and, hence, do not exempt the company from liability.

Wherefore, reversing the decision appealed from, we hereby order the company to pay petitioner-appellant the amount of P2,000, with legal interest from January 26, 1951 until fully paid, with costs.

BIAGTAN V. INSULAR

This is an appeal from the decision of the Court of First Instance of Pangasinan in its Civil Case No. D-1700.

The facts are stipulated. Juan S. Biagtan was insured with defendant InsularLife Assurance Company under Policy No. 398075 for the sum of P5,000.00 and, under a supplementary contract denominated "Accidental Death Benefit Clause, for an additional sum of P5,000.00 if "the death of the Insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident ... and independently of all other causes." The clause, however,expressly provided that it would not apply where death resulted from an injury"intentionally inflicted by another party."

On the night of May 20, 1964, or during the first hours of the following day a band of robbers entered the house of

15

the insured Juan S. Biagtan. What happened then is related in the decision of the trial court as follows:

...; that on the night of May 20, 1964 or the first hours of May 21, 1964, while the said life policy and supplementary contract were in full force and effect, the house of insured Juan S. Biagtan was robbed by a band of robbers who were charged in and convicted by the Court of First Instance of Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the staircase landing on the second floor, rushed towards the door of the second floor room, where they suddenly met a person near the door of oneof the rooms who turned out to be the insured Juan S. Biagtan who received thrusts from their sharp-pointed instruments, causing wounds on the body of said Juan S. Biagtan resulting in his death at about 7 a.m. on the same day, May 21, 1964;

Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid the basic amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the accidental death benefit clause, on the ground that the insured's death resulted from injuries intentionally inflicted by third parties and therefore was not covered. Plaintiffs filed suit to recover, and after due hearing the court a quo rendered judgment in their favor. Hence the present appeal by the insurer.

The only issue here is whether under the facts are stipulated and found by the trial court the wounds received by the insured at the hands of the robbers — nine in all, five of them mortal and four non-mortal — were inflicted intentionally. The court, in ruling negatively on the issue, stated that since the parties presented no evidence and submitted the case upon stipulation, there was no "proof that the act of receiving thrust (sic) from the sharp-pointed instrument of the robbers was intended to inflict injuries upon the person of the insured or any other person or merely to scare away any person so as to ward off any resistance or obstacle that might be offered in the pursuit of their main objective which was robbery."

The trial court committed a plain error in drawing the conclusion it did from the admitted facts. Nine wounds were inflicted upon the deceased, all by means of thrusts with sharp-pointed instruments wielded by the robbers. This is a physical fact as to which there is no dispute. So is the fact that five of those wounds caused the death of the insured. Whether the robbers had the intent to kill or merely to scare the victim or to ward off any defense he might offer, it cannot be denied that the act itself of inflicting the injuries was intentional. It should be noted that the exception in the accidental benefit clause invoked by the appellant does not speak of the purpose — whether homicidal or not — of a third party in causing the injuries, but only of the fact that such injuries have been "intentionally" inflicted — this obviously to distinguish them from injuries which, although received

at the hands of a third party, are purely accidental. This construction is the basic idea expressed in the coverage of the clause itself, namely, that "the death of the insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident ... and independently of all other causes." A gun which discharges while being cleaned and kills a bystander; a hunter who shoots at his prey and hits a person instead; an athlete in a competitive game involving physical effort who collides with an opponent and fatally injures him as a result: these are instances where the infliction of the injury is unintentional and therefore would be within the coverage of an accidental death benefit clause such as thatin question in this case. But where a gang of robbers enter a house and coming face to face with the owner, even if unexpectedly, stab him repeatedly, it is contrary to all reason and logic to say that his injuries are not intentionally inflicted, regardless of whether they prove fatal or not. As it was, in the present case they did prove fatal, and the robbers have been accused and convicted of the crime of robbery with homicide.

The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in support of its decision. The facts in that case, however, are different from those obtaining here. The insured there was a watchman in a certain company, who happened to be invited by a policeman to come along as the latter was on his way to investigate a reported robbery going on in a private house. As the two of them, together with the owner of the house, approached and stood in front of the main gate, a shot was fired and it turned out afterwards that the watchman was hit in the abdomen, the wound causing his death. Under those circumstances this Court held that it could not be said that the killing was intentional for there was the possibility that the malefactor had fired the shot to scare people around for his own protection and not necessarrily to kill or hit the victim. A similar possibility is clearly ruled out by the facts in the case now before Us. For while a single shot fired from a distance, and by a person who was not even seen aiming at the victim, could indeed have been fired without intent to kill or injure, nine wounds inflicted with bladed weapons at close range cannot conceivably be considered as innocent insofar as such intent is concerned. The manner of execution of the crime permits no other conclusion.

Court decisions in the American jurisdiction, where similar provisions in accidental death benefit clauses in insurance policies have been construed, may shed light on the issue before Us. Thus, it has been held that "intentional" as used in an accident policy excepting intentional injuries inflicted by the insured or any other person, etc., implies the exercise of the reasoning faculties, consciousness and volition. 1 Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling. 2 If the injuries suffered by the insured clearly resulted from the intentional act of a third person the insurer is relieved from liability as stipulated. 3

In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep. 484, the insured

16

was waylaid and assassinated for the purpose of robbery. Two (2) defenses were interposed to the action to recover indemnity, namely: (1) that the insured having been killed by intentional means, his death was not accidental, and (2) that the proviso in the policy expressly exempted the insurer from liability in case the insured died from injuries intentionally inflicted by another person. In rendering judgment for the insurance company the Court held that while the assassination of the insured was as to him an unforeseen event and therefore accidental, "the clause of the proviso that excludes the (insurer's) liability, in case death or injury is intentionally inflicted by another person, applies to this case."

In Butero v. Travelers' Acc. Ins. Co., 96 Wis. 536, 65 Am. St. Rep. 61, 71 S.W. 811, the insured was shot three times by a person unknown late on a dark and stormy night, while working in the coal shed of a railroad company. The policy did not cover death resulting from "intentional injuries inflicted by the insured or any other person." The inquiry was as to the question whether the shooting that caused the insured's death was accidental or intentional; and the Court found that under the facts, showing that the murderer knew his victim and that he fired with intent to kill, there could be no recovery under the policy which excepted death from intentional injuries inflicted by any person.

WHEREFORE, the decision appealed from is reversed and the complaint dismissed, without pronouncement as to costs.

Sun Insurance Office, Ltd. vs. Court of Appeals,

211 SCRA 554

An accident is an event which happens without any

human agency or, if happening through human agency,

an event which, under the circumstances is unusual to

and not expected by the person to whom it happens.

There is no accident when a deliberate act is performed

unless some additional, unexpected, independent and

unforeseen happening occurs which produces or brings

about their injury or death. There is nothing in the policy

that relieves the insurer of the responsibility to pay the

indemnity agreed upon if the insured is shown to have

contributed to his own accident.