section 83-end cases

7/31/2019 Section 83-End Cases

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INSURANCE ATTY. QUIMSON 1Anbochi, Atillo, Weigand

Taken from Rhys Alexeis reviewer. Digests from upperbatch.

Sections 83-92

Paris-Manila v Phoenix Assurance

Facts: Paris-Manila is a domestic corporation engaged in the manufacture ofperfumery and toilet articles. Phoenix issued a fire insurance in favor of Paris.

With the knowledge of Phoenix, Paris also obtained fire insurance policies overthe same property with 2 other companies. Phoenix was able to pay the fullamount of the premium.

The property covered by the insurance was totally destroyed by fire. Parisfiled its claim but Phoeniex refused to pay. Paris requested to have an arbitratorappointed as stipulated in the policy but this was also rejected, hence, the filingof the suit.

Phoenix for its part admits all these facts. However, it alleges that[important the policy does not cover loss caused by explosion and that theproperty of Paris was burned by an explosion. Also, the policy was allegedlyactually issued to Peter Johnson as the proprietor of Paris and that it was notthe company who was the insured. It is also contended that the claim wasfraudulent and that the loss was occasioned by the wilful act of Peter Johnson.

Issue: W/N Phoenix is liable to pay the loss?

Held: Yes. The cause of the fire cannot be actually determined. PeterJohnson and Francisco Banta (who were both inside the building at the time thefire started) claim that they saw no explosion, but that they heard it. Afterwards,they saw the fire and felt the heat already. Neither evidence nor competenttestimony was presented as to the origin of the fire.

Note that the factory is filled with various kinds of essences and oils for the

manufacture of perfumery. With the alcoholic nature of these products, andbeing highly flammable, the fire may have started for a number of reasons. Butwhatever the reason, the fact remains that there was a fire and the insuredproperties were destroyed. Phoenix bears the burden of proving that the fireoriginated from an explosion.

Phoenix relies on sec6 of the policy which provides that loss or damageoccasioned by the explosion are not covered. Paris answers this by citing sec5

of the policy which provides that loss or damage caused by earthquake,hurricane...etc., and damage which may follow after such earthquake etc., arenot covered. Note that although sec6 covers loss or damage as a direct result ofthe explosion itself, it does not cover in the exemption the fire occurring AFTERthe explosion. Compare this with sec5 that exempts the loss or damage fromthe earthquake, etc., as well as loss or damage arising after such earthquake.

But even if the fire resulted from the explosion, the burden of proof stillrested with Phoenix. However, there is no competent evidence to prove that theexplosion caused the fire, or the fire caused the explosion.

Hence, Phoenix having issued the policy and such policy is of legal forceand effect at the time of the loss, it is bound by the terms and conditions of thepolicy --- that is, to pay the loss.

Prats v Phoenix Assurance

Facts: Prats & Co., a mercantile partnership, instituted an action to recoverfrom Phoenix Insurance P117k by reason of a loss it sustained from a fire, withthe said loss covered by a policy of insurance for P200k.

Phoenix alleged that the fire had been set up by Prats, or with its connivance,and that Prats had submitted under oath a fraudulent claim of loss, incontravention of the terms of the policy.

The trial court absolved Phoenix.

Issue: W/N Phoenix is liable.

Held: The insurance policy was held to have been avoided by the connivanceof the insured in setting the fire to insured goods and the submission by the

insured of fraudulent proof of loss.

The fire which caused the loss was of incendiary origin and was set by theprocurance or connivance of Prats to defraud the insurer.

-Prats (Spanish), Hanna, & Bejar (Turkish nationals of unsavory reputation ininsurance circles) set up 2 companies: Prats & Co. (PC) and Hanna, Bejar &Co. (HBC).


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- Prats, acting for HBC, purchased a one-story building, converting it into abodega to store merchandise. in

- Before the fire, 9 policies were taken out by Prats under the name of HBC onmerchandise with different insurance companies. However, when Prats appliedwith Phoenix, the agent told him that if Hanna or Bejar had any interest in the

stock, the policy could not be issued because of their bad reputation. Becauseof this, the policy was made out to PC, and the other policies were subsequentlyendorsed to PC.

- PC took out a marine insurance on fictitious 22 cases of silk from France, tobe stored in the bodega.

- Obscure manipulations were used in the storing of merchandise & removal ofparts of the contents of the bodega before the fire (stocks were shipped toanother office, new stocks subject of insurance were replaced by old stock withlesser value)

- Carefully thought of plan to burn the bodega by Prats, Osete, and Romero.Osete (firestarter) rented neighboring building, and bought 2 cans of petroleumwhich disappeared on the night of the fire. When the fire occurred, heinstructed his muchacho to guard the fire alarm box and stop anyone whoattempted to turn on the alarm. The smoke issuing from the bodega was black,suggesting combustion of inflammable material & there was the odor ofpetroleum. Romero, who was also a neighbor, took his family to the home ofPrats before the fire but moved back immediately after. Romero paid theneighbors who were affected P100 as gifts.

Prats submitted a fraudulent claim to Phoenix

- Prats submitted a claim for jewelry lost in the firs for P12k when the value wasonly P600

- Prats sought to recover the value of the goods which had been surreptiouslywithdrawn from the bodega prior to the fire.

- Prats presented to the adjuster copies of supposed invoices in which theprices and expenses of the importation of a quantity of goods were stated atdouble the true amount.

Bachrach v British American Assurance

Facts: Bachrach insured a building and the goods thereat with British-Americanagainst Fire.

A fire razed the building including the goods thereat. A claim by Bachrach was

made but the same was denied by British-American.

The denial of liability by respondent was premised on the following (1) thatpetitioner maintained a paint and varnish shop at the second floor of thebuilding (2) that the petitioner assigned his interests to third persons to secureseveral obligations without the consent of respondent (3) petitioner willfullyplaced a tank of gasoline in the second floor and he knew that the gasoline wassipping out. Petitioner also willfully placed a fire lamp near the gasoline (4)petitioner did not submit proof of losses within the required period of time in thepolicy

For this part petitioner contends (1) that he was acquitted in an earlier criminalcase for arson based on the same facts (2) that he no longer bothered to submitproof of loss because when he sent an earlier notice of loss, respondent alreadyinformed him that the policy was null and void and to provide proof of losseswould only be a futile act.

HELD: The Court ruled in favor of Bachrach. With respect to paint, gasoline andalcohol. The presence of flammable oils within the insured premises does notipso facto avoid the policy even though there is an express prohibition thereforewhen such oils are incidental to the business of the insured. In this case, thealcohol and gasoline were used to produce varnish necessary for the furniturestored therein. The insured premise was a furniture store and the furniturethereat was the one insured.

With respect to the transfer of interest over the properties to third person withoutrespondents consent. Remember that when one mortgages his property, he

does not lose his interest thereat. Only when mortgagor defaults and mortgageetakes possession of the properties will there be a transfer of interest andownership.

With respect to the accusation of arson. The question on arson having alreadypassed upon by a competent court, the element of res judicata kicks in and thefinding thereat cannot be contested anymore.


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With respect to the proof of loss. The policy did not contain any requirement onproof of loss. Even if it did, respondent has already waived it after informing thepetitioner in a letter-reply to the latters notice of loss that the policy had beenavoided

Malayan Insurance v Arnaldo

Facts: Petitioner Malayan Insurance Co, Inc (MICO) issued a fire insurancepolicy to Coronacion Pinca (private respondent) on her property for the amountof 100K, effective July 1981-1982.

October 1981, MICO allegedly cancelled the policy for non-payment of premiumand sent notice to Pinca. December 1981, Pinca paid the premium to Adora,MICOs agent. Adora paid remitted this to MICO but it refused to accept.January 1982, Pincas property was burned. In due time, Pinca made therequisite demands for payment which MICO rejected. Pinca went to theInsurance Commissioner, the latter sustained her claim. Hence this.

Issue: W/N MICO is liable under the insurance

Held: Yes.

Procedurally, the petition cannot be granted because it was filed out of time. (iwont discuss na)

On the merits, Sec 77 does not apply here, because there was indeed paymentbefore the fire occurred. MICOs acknowledgement of Adora as its agentauthorizes him to receive payment. Also, under the law on agency, payment toagent is payment to the principal.

MICOs contention that the policy had been cancelled before the occurrence ofthe loss is not acceptable. A valid cancellation must require the concurrence ofthe ff:

(1) There must be prior notice of cancellation to the insured

(2) The notice must be based on the occurrence, after the effective date of thepolicy, of one or more of the grounds mentioned [See Sec 64]

(3) The notice must be in writing and mailed or delivered to the insured at theaddress shown in the policy

(4) It must state which of the grounds mentioned in Sec 64 is relied upon andthat upon written request of the insured, the insurer will furnish the facts onwhich cancellation is based

MICO claims it cancelled for non-payment of premium, but there is no proof thatthe notice was actually mailed and received by Pinca. All MICO offered to show

is that it sent the notice, nothing more. If Pinca really received the notice, shewould not have paid the premium on the original insurance, she would haveasked to be issued a new one.

MICO also assails the value claimed (no specifics were given on this matter).The valuation fixed in the policy is conclusive in case of total loss in theabsence of fraud. Loss may be determined on the basis of proof offered by theinsured, which need not be of such persuasiveness required of judicialproceedings. If the insured files notice and preliminary proof of loss and insurerfails to specify to the former the defects thereof and without unnecessary delay,all objections to the notice and proof of loss are determined waived. Thecertification as to the amount of loss issued by the National Police is sufficient toprove loss.

Pacific Bank v CA

Facts: Paramount Shirt Manufacturing Co. (Paramount) was indebted to PacificBank. At the same time, certain goods were held in trust by Paramount in favorof Pacific as evidenced by trust receipts. Paramount then applied and wasissued by Oriental Assurance Corporation a fire insurance policy covering thegoods subject of the trust agreement.

The fire insurance policy was indorsed to Pacific as the mortgagee and trustorof the properties. And as agreed and consented to by Oriental, the loss shall bepayable to Pacific instead.

While the policy was in effect, the properties were burned. Pacifics counsel

then sent a demand letter to Oriental to claim the indemnity. Oriental repliedthat they could not act on the claim yet because they were still waiting for thereport of H.H. Bayne Adjustment Company, the insurance adjuster. Bayne thennotified Pacifics counsel that Paramount had not filed any claim with it hence,the liability of Oriental could not be determined yet. Oriental failed to pay theclaim.


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Oriental alleges in its defense the lack of formal claim by Paramount (who is theinsured) and the premature filing of the suit since neither Paramount nor Pacificsubmitted any proof of loss in which the insurers liability could be determined.Both are supposedly violations of Condition 11 in the policy are.

During the hearing, Pacific presented a communication between Bayne and

Asian Surety revealing that Wellington Insurance, Empire Surety and AsianSurety. However, the policy declares that Malayan, South Sea and Victory arethe co-insurers. Note that the defense of fraud in the form of non-declaration ofco-insurances (as provided in condition 3 of the policy) was not pleaded in theanswer and in the motion to dismiss.

RTC rendered Oriental liable. CA reversed.

Issue: W/N Oriental was right in not addressing the claim?

Held: Yes. The case should have been dismissed.

It is not disputed that Paramount failed to reveal the three other insurances.Had Oriental known that there were other insurers, it would not have enteredinto the contract. Clearly, there is clear fraud.

On the other hand, Pacific contends that violation of condition3 does not defeatits right as mortgagee. However, the mortgage clause provides that the interestof the mortgagee may be invalidated by reason of fraud, misrepresentation orarson which in this case exists.

Pacific also contends that since this fraud was not pleaded as a defense,Oriental had already waived it. However, it is established that the SupremeCourt has ample authority to go beyond the pleadings in the interest of justiceand the promotion of public policy. In other words, the Court can consider a fact

which surfaced only after trial proper. Note that the fact of fraud was tried withthe implied consent of the parties. Plus, it is actually Pacific that presented theevidence to prove the fraud.

Generally, cause of action on the policy accrues when the loss occurs. Butwhen the policy provides for a condition before a claim can be made, the causeof action will accrue from the time such condition is complied with. In this case,condition11 provides that notice shall be given and within 15days from the loss

present a claim giving the particulars of the properties destroyed (and theiramount) as well as other particulars.

The evidence shows that 24days after the fire, Pacific merely wrote letters toOriental to serve as a notice of loss. Pacific did not furnish any documentnecessary to prove the loss. Since the required claim by Oriental was not

complied with, could not be deemed to have finally rejected the claim andtherefore, there is no cause of action yet.

Compliance with condition No. 11 is a requirement sine qua non. Since Pacificviolated has conditions 3 and 11 and such violation or want of performance hasnot been waived by the insurer, Paramount cannot recover, much less Pacific.

Pacific Timber v CA

Facts: Pacific Timber secured temporary insurance from Workmens InsuranceCompany (WIC) for its exportation of Philippine Lauan and Apitong logs to beshipped from Diapitan Bay to Japan. WIC issued a Cover Note on the cargo,which was 1,250,00 board feet.

The regular marine cargo policies were subsequently issued, the 1st was for542 pieces of log (499k bd ft) and the 2nd for 853 pieces (695k bd ft), totaling1,195,498 bd ft.

After the issuance of the Cover Note but before the issuance of the 2 marinepolicies, some of the logs were lost during the loading operation on the SSWoodlock (around 30 logs). Pacific informed WIC of the loss and demandedpayment.

WIC denied the claim on the ground that the entire shipment of logs covered bythe 2 marine insurance policies were received in good order at their point ofdestination (in short, the loss of the 30 logs were not covered by the policies butthey were covered by the Cover Note). The said loss may not be considered as

covered under the Cover Note because this had become null & void by virtue ofthe issuance of the marine policies and for lack of valuable consideration. WICalso set up the defense of delay of Phoenix in giving notice of the loss.

Issue: W/N Pacific Timber can collect YES

W/N there was delay - NO


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On the Cover Note:

The non-payment of premium on the Cover Note does not invalidate the claimbecause no separate premiums are intended or required to be paid on theCover Note. It is not a separate policy but should be integrated to the regularpolicies; otherwise, the purpose & function of the Cover Note would be rendered

meaningless.

On Delay:

The law requires the ground of delay to be promptly and specifically assertedwhen a claim on the insurance agreement is made. Instead of invoking thisground, WIC took steps indicative that this ground for objection was never on itsmind. It had enough time to determine if Pacific was guilty of delay incommunicating the loss and should have raised it. But this they failed to do,and the SC fails to find substantial signs thereof. But even assuming there wasa delay, waiver can be successfully raised against WIC under Sec. 84 of theInsurance Act:

Delay in the presentation to an insurer of notice of proof of loss is waived ifcaused by any act of his or if he omits to take objection promptly and

specifically upon that ground.

Sections 93-98

Pioneer Insurance v Yap

Facts: Yap is the owner of a two storey building which she utilizes as a store tosell bags and foot wear. She obtained a 25,000 fire insurance policy foreverything inside her store (stock in trade, fixtures therein etc.) from Pioneer.

A stipulation in the policy obligated Yap to disclose whatever prior orsubsequent insurance covering the same properties otherwise, loss will not be

paid.

When the policy was issued, a notation was made therein indicating a priorinsurance by Great American in the amount of 20,000.

However, after the policy was issued, Yap obtained another 20,000 insurancefrom Federal Insurance without notice and written consent by Pioneer.

The store was burned. Yap filed a claim. The claim was denied due to breach ofconditions and terms

RTC and CA both ruled in favor of Yap

The CA contends that Federal Insurance simply substituted Great American

(the other co-insurer which was already declared by Yap in her policy withPioneer). Thus it did not increase the amount of the declared co-insurance

Issue: W/N Pioneer should be absolved from liability because of Yaps violationof the terms and conditions

HELD: Pioneer wins.

No proof of substitution by Federal. Instead, records clearly show that GreatAmerican was substituted by Northwest Insurance and not Federal.

The contention of the CA that Pioneer had waived its right to endorse the policyof co-insurance because it failed to prove that it was not unaware of thesubstitution is untenable. This is because the burden of prove that Pioneer wasaware of the substitution was on Yap because it is her affirmative allegation.

This burden cannot be shifted to Pioneer.

The procurement of another insurance contrary to the provisions of the policyipso facto avoids the liability of Pioneer. Pioneer need not make any affirmativeact of election to make operative the clause avoiding the contract.

Policy behind the law is to avoid over-insurance and avert the perpetration offraud. It seeks to prevent a situation in which fire would be profitable for theinsured.

Geagonia v CA (Bar Exam Question)

Facts: Geagonia owns Normans Mart in Agusan. He obtained from CountryBankers Insurance a fire insurance policy to cover stock in trade consistingprimarily of dry goods such as mens and womens RTWs for 100K. Hedeclared in the application that only Mercantile Insurance was also a co-insurer.The policy also contained Condition 3 that requires notice to Country Bankers ifGeagonia insures the same property with another insurer (double insurance),but the condition will not apply when the total insurance/s in force at the time ofloss is not more than 200K.


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when a policy exceeds Philams maximum retention limit) the re-insurancetreaty is not yet enforceable. THUS THERE IS A BIG DIFFERENCE BETWEENA RE-INSURANCE TREATY AND A RE-INSURACE POLICY/RE-INSURANCECESSION.

A re-insurance policy is a contract of indemnity whereby a second insurer

obligates itself to protect a first insurer from the risk the latter had alreadyassumed. A re-insurance treaty is a contract to enter into re-insurancebusiness. Necessarily, a re-insurance treaty comes before a re-insurancepolicy. The former may exist without the latter but the latter cannot exist withoutthe former.

Thus, unless the re-insurance policies/cessions were made before the effectivityof the Margin Law, all remittances made by Philamlife to AIRCO by virtue of re-insurance cessions will be subject to margin fees.

The contention of Philamlife that the imposition of the margin fee will defeatobligations arising from contract (which is prohibited by the constitution) isuntenable. Contract is always subordinate to Law especially when there is avalid exercise of police power. In this case, the intent of the law in imposingmargin fee is to protect the international reserve of the Philippines and keep the

value of peso high. The Margin Law is both valid and reasonable. Thus, itshould have been deemed to be an unwritten portion of every re-insurancecontract.

NOTE: why did Philamlife become liable for margin fees? Well, first, it neededto pay premium to AIRCO for every re-insurance cession made. But paymentcannot be made in peso so Philamlife has to buy foreign exchange from CB topay AIRCO. There is where the margin fee comes into play

Artex Development Corp. v Wellington Insurance

Facts: Petitioner obtained from respondent fire insurance in the amount of

24.3M (thereafter increased for an additional amount of 833,000) and insurancefor losses arising from business interruptions amounting to 5.2M.

Petitioners equipment in its spinning department was burned. When a claimwas filed, the same was referred to an adjuster. The adjusters reportdetermined a loss of 10.1M from fire and 3M from business interruption.Wellington made a partial payment 3.6 and 1.7M respectively. Thus leaving abalance.

Petitioner now sues Wellington for the balance. But Wellington said thatpetitioner should go after the re-insurer (Alexander & Alexander NYC).Wellington contends that petitioner should have understood that Wellington,being a corporation with a meager 500,000 paid up capital cannot in any wayindemnify a 13M loss. Thus petitioner impliedly agreed to run after the re-insurer instead.

Issue: W/N it was proper for Artex to go after Wellington instead of thereinsurers?

Held: Yes. Unless there is a specific grant in, or assignment of, reinsurancecontract in favor of the insured or a manifest intention of the contracting partiesto the insurance contrary to grant such benefit or favor to the insured , not beingprivy to the reinsurance contract, has no cause of action against the reinsurer. Itis expressly provided in section 91 the Insurance Act that "(T)he original insuredhas no interest in a contract of insurance."

A reinsurance contract is a contract between a second insurer who obligateshimself to indemnify the first insurer for losses the latter sustained from theassumption of risks in an insurance policy. The insured is not privy to thecontract of reinsurance absent a stipulation pour autrui.

Wellington also contends that the reinsurance contract contains a stipulationpour autrui in favor of Artex. Hence Artex has agreed that to claim indemnity, itwill only come after the reinsurers.

The intention to benefit a 3rd person in a contract must be clearly expressed.Since Artex was not privy to Wellingtons reinsurance contract, it could notdemand enforcement of such insurance contracts. Artex has no businesswith Alexander. It dealt directly with Wellington. Thus, it is Wellington who isprimarily liable to Artex for everything subject only to the formers right of actionagainst Alexander the reinsurer and with whom Wellingtons directly dealt with.

Assuming that Artex could avail of the reinsurance contracts and directly suethe reinsurers for payment of the loss, still such assumption would not in any

way affect or cancel out Wellingtons direct contractual liability to Artex underthe insurance policy to indemnify plaintiff for the property losses.


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Sections 99-110

Go Tiaoco v. Union Insurance

Facts:A policy if marine insurance was issued by the Union Insurance Societyof Canton upon a cargo of rice belonging to the Go Tiaoco Brother, transported

on the steamship Hondagua from Saigon to Cebu. The policy insured thecargo from perils of the seas, men, of war, enemies, pirates, rovers, thieves,jettisonsand of all other perils, losses and misfortunes that have or shall cometo the hurt, detriment, or damage of said goods. Upon arrival, it wasdiscovered that 1,473 sacks had been damaged by seawater, resulting in a lossamounting to P3k.

The trial court found that the inflow of the seawater during the voyage was dueto a defect in one of the drain pipes of the ship. The said pipe served as adischarge from the water closet and passed through the compartment wherethe rice was stowed and then out to sea through the wall of the compartment.The pipes elbow was of cast iron and had an opening because of corrosion.The hole existed before the voyage and an attempt to repair it was made byfilling it with cement and bolting. However, the effect of loading the boat was tosubmerge the pipe 2 feet below sea level; hence, sea water rose in the pipe,

washing out the cement filling and permitted the continuous flow of salt waterinto the compartment of rice. The trial court concluded that the loss was notcovered by the insurance policy.

Issue: W/N the loss was covered by the policy.

Held: No.

Perils of the Sea v. Perils of the Ship

The insurer undertakes to insure against perils of the sea and similar perils, notperils of the ship. The phrase and all other perils, losses, and misfortune is tobe interpreted as covering risks which are of like kind (ejusdem generis) withparticular risks which are enumerated in the preceding part of the same clause,

i.e, perils of the sea.

A loss which, in the ordinary course of events, results from the natural andinevitable action of the sea, from the ordinary wear and tear of the ship, or fromthe negligent failure of the ships owner to provide the vessel with properequipment to convey the cargo under ordinary conditions, is not a peril of thesea. Rather, it is called the peril of the ship.

In order to make the insurer liable, there must be some casualty, somethingwhich could not be foreseen as one of the necessary incidents of the adventure.The purpose of the policy is to secure an indemnity against accidents whichmay happen, not against events which must happen. In this case, the entry ofthe seawater through the defective pipe was not due to any accident whichhappened during the voyage, but to the failure of the ships owner to properly

repair the defect.

Seaworthiness of the Ship

In every contract of insurance upon anything which is the subject of marineinsurance, a warranty is implied that the ship shall be seaworthy at the time ofthe inception of the voyage. It is also well settled that a ship which is seaworthyfor the purpose of insurance upon the ship may yet be unseaworthy for thepurpose of insurance upon the cargo. In this case, the ship is unseaworthy withreference to the cargo.


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Sections 111-126

Madrigal v Hanson

Facts: Madrigal was the owner of the motor launch which was chartered byHanson for 6 months with rental to be paid in the amount of 1,750 a month. Itwas agreed that the motor launch will be returned in good working condition andwith all the documents necessary for it to navigate.

The boat was dry docked at Malabon and thereafter at defendants dock toundergo several repairs and improvement.

The boat started its voyage manned by a crew/complement selected by Hansonbut was subsequently sunk resulting in total loss.

Madrigal sued. Hanson filed a counterclaim for unrealized profits and the cost ofthe repairs and improvements made on the vessel.

Trial Court ruled in favor of Hanson for although there was delivery of the vessel

to him, the vessel was unseaworthy.

Issue: W/N the vessel was seaworthy.

Held: The Court ruled in favor of Hanson.

The preponderance of evidence points to the conclusion that the vessel wasunseaworthy. It matters not whether there was delivery of the vessel or it wasonly given to Hanson for trial run. The fact remains that the vessel was notseaworthy. First, it did not have the requisite license from both the Bureau ofCustoms and Bureau of Fisheries (for deep sea fishing). Second, the vessel didnot encounter a typhoon or high waves or did not hit anything during its voyage.

The contention of Madrigal that the crew of the vessel was negligent in

disproportionately positioning the loads of the vessel such that the vesselbecame uneven is untenable. The fact that the vessel sailed smoothly for 17hours without mishap is testament that the unevenness was not the cause whythe vessel capsized.

Roque v IAC

Facts: Manila Bay Lighterage Corp, a common carrier, entered into a contractwith petitioners (Roque and Chiong) whereby it would load and carry on its

barge, Mable 10, logs (owned by petitioners) from Palawan to Manila. The logswere insured against loss for 100k with Pioneer Insurance.

Manila Bay loaded the logs, but it never reached Manila because Mable 10sank. It turns out that Mable was not seaworthy in that it had a leak. One of thehatches was left open causing water to enter, and because Mable was not

covered with the necessary tarpaulin, the waves of the sea brought more waterinside.

Petitioners wrote to Manila Bay demanding damages, and to Pioneerdemanding insurance proceeds, but this was ignored. Petitioners sued. Trialcourt ruled for petitioners. Only Pioneer appealed from the decision. IACmodified the trial court ruling, absolving Pioneer from liability ruling that therewas a breach of implied warranty of seaworthiness on the part of petitioners andthe loss of the logs was caused by perils of the ship and not by perils of the sea.

Issues: W/N there was breach of warranty; W/N the damage was covered bythe marine insurance policy; and W/N there was barratry based on the findingthat the crew was negligent.

Held: (1) W/N there was breach of the warranty NO

Petitioners allege that the implied warranty of seaworthiness under theinsurance code refers only to the responsibility of the shipowner who must seeto it that the ship is fit to complete the voyage. They also claim that theyremerely shippers of the cargo without control over the ship. Theyre wrong. Theimplied warranty under the law attaches to whoever is insuring the cargowhether he be the shipowner or not. The fact that the unseaworthiness of theship was unknown to the shipper (petitioners) is immaterial and cannot be usedas a defense in order to recover from marine insurance policy. Because of theimplied warranty, it becomes the obligation of a cargo owner to look for areliable common carrier. The shipper of the cargo may have no control over thevessel, but he has full control over the choice of the common carrier that willtransport his goods. [or the shipper can enter into a contract of insurance wherethe insurer would answer not only for perils of the sea, but also perils of the

ship]

(2) W/N the damage was covered by the marine insurance policy NO and (3)w/n there was barratry based on the finding that the crew was negligent NO

It is unmistakeable that the loss of the cargo was due to the perils of the ship,not from perils of the sea. The loss was because of the leak. Clearly therefore, itis not covered. Petitioners also contend that barratry, against which the cargo


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was insured, existed when the crew improperly loaded the cargo and made amistake by turning lose the barge. Barratry is willful misconduct on the part ofthe master or crew in pursuance of an unlawful or fraudulent purpose withoutthe consent of the owners and to the prejudice of the owners interest. It requiresa intentional act in its commission. Mere negligence or lack of skill (as in thiscase) is not barratry.

Philamgen v CA

Facts: On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on boardMV Asilda, a vessel owned and operated by respondent Felman ShippingLines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles tobe transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu. The shipment was insured withpetitioner Philippine American General Insurance Co., Inc. (PHILAMGEN forbrevity), under Marine Open Policy No. 100367-PAG. The vessel left the port inZamboanga, in fine weather, but the vessel sank the next day in the waters ofZamboanga del Norte bringing down her entire cargo with her including thesubject 7,500 cases of 1-liter Coca-Cola softdrink bottles. Thus, Coca-cola fileda claim with Felmans insurance, which denied the claim. Coca-cola thus filed aclaim an insurance claim with PHILAMGEN which paid its claim of

P755,250.00. Claiming its right of subrogation PHILAMGEN sought recourseagainst respondent FELMAN which disclaimed any liability for the loss.Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sumof money and damages. In its complaint PHILAMGEN alleged that the sinkingand total loss of MV Asilda and its cargo were due to the vesselsunseaworthiness as she was put to sea in an unstable condition. It furtheralleged that the vessel was improperly manned and that its officers weregrossly negligent in failing to take appropriate measures to proceed to a nearbyport or beach after the vessel started to list. The lower court ruled that thevessel was not seaworthy, thus, Philamgen cannot claim from Felmans also,even if the was sea worthy, Coca-cola had breached its implied warranty on thevessels seaworthiness. On appeal to the CA, the CA held that Philamgen couldnot claim as well.

Issue: (a) W/N MV Asilda was seaworthy when it left the port of Zamboanga;(b) W/N the limited liability under Art. 587 of the Code of Commerce shouldapply; and, (c) W/N PHILAMGEN was properly subrogated to the rights andlegal actions which the shipper had against FELMAN, the shipowner.

Held: The proximate cause of the sinking of MV Asilda was its being top-heavy. Contrary to the ship captains allegations, evidence shows thatapproximately 2,500 cases of softdrink bottles were stowed on deck. Several

days after MV Asilda sank, an estimated 2,500 empty Coca-Cola plastic caseswere recovered near the vicinity of the sinking. Considering that the shipshatches were properly secured, the empty Coca-Cola cases recovered couldhave come only from the vessels deck cargo. It is settled that carrying a deckcargo raises the presumption of unseaworthiness unless it can be shown thatthe deck cargo will not interfere with the proper management of the ship.

However, in this case it was established that MV Asilda was not designed tocarry substantial amount of cargo on deck. The inordinate loading of cargodeck resulted in the decrease of the vessels metacentric height thus making itunstable. The strong winds and waves encountered by the vessel are but theordinary vicissitudes of a sea voyage and as such merely contributed to itsalready unstable and unseaworthy condition.

The ship agent is liable for the negligent acts of the captain in the care of goodsloaded on the vessel. This liability however can be limited throughabandonment of the vessel, its equipment and freightage as provided in Art.587. Nonetheless, there are exceptional circumstances wherein the shipagent could still be held answerable despite the abandonment, as where theloss or injury was due to the fault of the shipowner and the captain.[9] Theinternational rule is to the effect that the right of abandonment of vessels, as alegal limitation of a shipowners liability, does not apply to cases where the

injury or average was occasioned by the shipowners own fault. It must bestressed at this point that Art. 587 speaks only of situations where the fault ornegligence is committed solely by the captain. Where the shipowner is likewiseto be blamed, Art. 587 will not apply, and such situation will be covered by theprovisions of the Civil Code on common carrier. It was already established atthe outset that the sinking of MV Asilda was due to its unseaworthiness evenat the time of its departure from the port of Zamboanga. It was top-heavy as anexcessive amount of cargo was loaded on deck. Closer supervision on the partof the shipowner could have prevented this fatal miscalculation. As such,FELMAN was equally negligent. It cannot therefore escape liability through theexpedient of filing a notice of abandonment of the vessel by virtue of Art. 587 ofthe Code of Commerce.

It is generally held that in every marine insurance policy the assured impliedly

warrants to the assurer that the vessel is seaworthy and such warranty is asmuch a term of the contract as if expressly written on the face of the policy.Thus Sec. 113 of the Insurance Code provides that (i)n every marine insuranceupon a ship or freight, or freightage, or upon anything which is the subject ofmarine insurance, a warranty is implied that the ship is seaworthy. Under Sec.114, a ship is seaworthy when reasonably fit to perform the service, and toencounter the ordinary perils of the voyage, contemplated by the partiesto the policy. Thus it becomes the obligation of the cargo owner to look for a


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reliable common carrier which keeps its vessels in seaworthy condition. Hemay have no control over the vessel but he has full control in the selection ofthe common carrier that will transport his goods. He also has full discretion inthe choice of assurer that will underwrite a particular venture. The marine policyissued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2)instances has dispensed with the usual warranty of worthiness. Paragraph 15

of the Marine Open Policy No. 100367-PAG reads (t)he liberties as perContract of Affreightment the presence of the Negligence Clause and/or LatentDefect Clause in the Bill of Lading and/or Charter Party and/or Contract ofAffreightment as between the Assured and the Company shall not prejudicethe insurance. The seaworthiness of the vessel as between the Assured andthe Assurers is hereby admitted. The result of the admission of seaworthinessby the assurer PHILAMGEN may mean one or two things: (a) that the warrantyof the seaworthiness is to be taken as fulfilled; or, (b) that the risk ofunseaworthiness is assumed by the insurance company. The insertion of suchwaiver clauses in cargo policies is in recognition of the realistic fact that cargoowners cannot control the state of the vessel. Thus it can be said that with suchcategorical waiver, PHILAMGEN has accepted the risk of unseaworthiness sothat if the ship should sink by unseaworthiness, as what occurred in this case,PHILAMGEN is liable. The doctrine of subrogation has its roots in equity. It isdesigned to promote and to accomplish justice and is the mode which equityadopts to compel the ultimate payment of a debt by one who in justice, equityand good conscience ought to pay. Therefore, the payment made byPHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the rightto bring an action as subrogee against FELMAN. Having failed to rebut thepresumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.

Sections 127 137:

PMC v Union Insurance

Facts: PMC is a corporation that owned the steel tank lighter named Philmaco.Union Insurance insured the lighter, warranting against absolute total loss only.

A typhoon hit and the lighter was sunk in Manila Bay. PMC notified Union thatthe lighter was of no value and offered to abandon the wreck as an absoluteloss. Union refused the offer and instructed PMC to salvage the wreck ifpossible. After several attempts, the storm-beaten hull was finally raised. Thecost of salvage, repair, and reconstruction was more than the original cost ofthe vessel or its value at the time the policy was issued. Because of the

reconstruction and the subsequent placing of the hull in commission, Unionalleged that the loss was not absolute or total and hence, it was not liable. Thetrial court ruled for Union.

Issue: W/N the loss was absolute or total.

Held: Yes.A total loss may either be actual or constructive. The loss of thething by sinking or being broken up is an actual loss. Any damage to the thingwhich renders it valueless to the owner for the purposes for which he held it isan actual loss or a total destruction of the thing insured. At the time the lighterwas sunk and at the bottom of the bay, it was of no value to the owner, since hewas deprived of its use or the interest on its investment. To render it valueless,it is not necessary that there should be an actual or total loss or destruction ofall the different parts of the entire vessel.

In English practice, a ship is a total loss when she has sustained such extensivedamage that it would not be reasonably practical to repair her. The ordinarymeasure of prudence which the courts have adopted is this: If the ship, whenrepaired, will not be worth the sum which it would ne necessary to expend uponher, the repairs are, practically speaking, impossible, and it is a case of totalloss (The Great Western Insurance Co. v. Fogarty).

Malayan Insurance v CA

Facts: TKC was the owner/consignee of a shipment of soy bean meal. Theshipment was made from Brazil and destined for manila on board MV AlKaziemah. The cargo was insured by Malayan under 2 marine insurancepolicies.

En route to Manila, the vessel was seized and arrested by civil officials ofDurban South Africa allegedly because of questions on ownership.

Because of the arrest, TKC notified and claimed from Malayan but the latterrefused saying that arrest was an excepted risk. It instead proposedtransshipping the cargo from Durban to Manila which meant extending the

coverage of the insurance. TKC agreed and paid the corresponding premiumfor the transshipment. However, because of the perishable nature of the goods,they were sold in South Africa as it was incapable of withstanding another 20day voyage to Manila. Again, TKC lodged a claim but was denied for the samereason (that arrest was an excepted risk)

RTC and CA ruled in favor of TKC. CA said that although arrest by judicialprocess was excepted under Clause 12 of the Institute Cargo Clause or F.C & S


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Clause, the deletion of Clause 12 and the adoption Institute War Clausesremoved arrest by judicial process as an excepted risk. The only risks that werethereby excepted were arrests due to political or executive acts. Furthermore,CA said that the loss could also be covered by Theft, Pilferage and Non-Delivery Clause.

Issue: W/N TKC may claim from Malayan Insurance.

Held: TKC wins.The Court found that it was pointless for Malayan to maintainits position that it only insures risks of "arrest" occasioned by executive orpolitical acts of government which is interpreted as not referring to those causedby ordinary legal processes as contained in the "Perils" Clause; deletes the F.C.& S. Clause which excludes risks of arrest occasioned by executive or politicalacts of the government and naturally, also those caused by ordinary legalprocesses; and, thereafter incorporates the Institute War Clauses which nowincludes in the coverage risks of arrest due to executive or political acts of agovernment but then still excludes "arrests" occasioned by ordinary legalprocesses when the Institute War Clauses should also have included "arrests"previously excluded from the coverage of the F.C. & S. Clause.

Pan Malayan Insurance v CA

Facts: The Food and Agricultural Organization of the UN (FAO), madearrangements to send to Kampuchea 1,500 metric tons of IR-36 certified riceseeds for seedling purposes. Luzon Stevedoring (Luzteveco) made an offer toFAO to deliver the rice seeds to Vietnam, which the latter accepted.

The cargo was thus loaded on board a Luzteveco Barge, consisting of 34,122bags of the rice seeds purchased from Bureau of Plant Industry for 4.6M. Afterthe loading was completed, Luzteveco issued its Bill of Lading for FAO and thelatter secured a marine policy insurance from Pan Malayan in the amount of5.25M. FAO gave instructions to Luzteveco to leave for Vietnam right awaybecause the cargo, by its nature, cannot withstand delay because of inherentrisks of germination and spoilage. Later FAO was informed that the tugboat andbarge returned to Manila (hindi sinabi kung san nagpunta the first time na

umalis) and it again left for Vietnam this time with a different tug boat. Daysafter, FAO was advised that the barge sank in China Sea.

FAO filed a claim with Pan Malayan and Lusteveco. Both denied the claim.Pans reason was its inability to recover the value of the shipment fromLuzteveco and because its adjuster found out that 9K bags were in good order,23.5K bags were wet and 900 bags were missing (in total, 78% loss) in short,there was only partial damage, hence its not compensable under the policy.

FAO wrote a letter to Pan Malayan signifying its willingness to abandon theproceeds of sale of the remaining good order bags, but Pan Malayan rejectedthis.

FAO the sued Luzteveco and Pan. RTC ruled for FAO, ordering the defendantsto pay up. Only Pan Malayan appealed, but CA upheld RTC ruling. Hence this.

Issue: W/N Pan is liable for the full insured value of the rice seeds (consideringits allegation that there was only a partial loss)

Held: Yes, Pan is liable for the whole amount. In case of total loss in marineinsurance, the insured is entitled to recover from the insurer the whole amountof the insurance.

If there were some cargoes saved, FAO abandoned them. (these were sold forthe benefit of Luzteveco and Pan) Notwithstanding the cargoes saved, therewas total loss, because the rule is this: the complete physical destruction of thesubject matter is not essential to constitute an actual total loss. Such a loss mayexist where the form of the thing is destroyed, although the materials of which itconsisted still exist, as where the cargo by the process of decomposition orother chemical agency no longer remains the same kind of thing as before.

Because there was actual total loss, it is no longer necessary to pass upon thevalidity of abandonment made by FAO. Section 135 provides that in case ofactual total loss, the right of insured to claim the whole insurance is absolute,without need of a notice of abandonment.

Sections 138 155:

Oriental Assurance v CA

Facts: Panama Sawmill (Panama) hired Transpacific Towage to transport 2000cubic meters of Apitong Logs from Palawan (where Panama bought the logs) toManila. The logs were insured by Oriental Assurance (Oriental). The policystates that the insurance covers 2000cubic meters of Apitong logs and that the

insurance is for TOTAL LOSS ONLY.

The logs were loaded onto 2separate barges each with a volume of 1000cubicmeters. As the barges were being towed, strong winds caused damage to thebarge resulting in the loss of more than of the logs in one barge.


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Panama demanded payment for loss from Assurance but the latter refused.Assurance contended that the insurance was for total loss only. Panama thenfiled a complaint. RTC and CA rendered judgment against Assurance.

Issue: W/N Assurance is liable to pay the loss.

Held: NO. The contract is the means by which the insurers liability ismeasured. And whether a contract is entire or severable is a question ofintention to be interpreted from the language of the parties. The policy in thiscase is clear that the subject matter insured was the entire shipment of2000cubic meters of logs. Even if the logs were loaded onto 2different barges,this did not make the contract severable or divisible as to the items insured.Remember that the logs on the 2barges were not separately insured; only onepremium was paid. The contract therefore, is indivisible.

Notably, the insurers loss is for total loss only. Loss may be actual orconstructive. Actual loss is covered by Article 129 of the Insurance Code.Constructive Loss is covered by Article 139. Under Article 139, A personinsured... may abandon the thing insured... separately valued by the policy, orotherwise separately insured...

CA treated the loss as a constructive one since more than of the logs werelost in one barge (the logs in barge was treated separately from the logs in theother barge). However, the SC is of the opinion that the requirements of Article139 on constructive loss have not been met.

The logs were not separately valued nor separately insured. Hence, the numberof logs lost in one barge cannot be made to determine whether more than were lost in relation to the entire subject matter insured. The logs were insuredas one, so the basis for determining the existence of constructive loss must bebased on the totality of shipment. Using that as a basis, the number of logs lostdid not exceed 75% (3/4) of the entire shipment.

In the absence of either actual or constructive loss, there can be no recovery ofPanama from Assurance.

Pan Malayan Ins. v CA (See previous case)

Sections 156-166

Jarque v Smith Bell

Facts: The plaintiff was the owner of the motorboat Pandan and held a marineinsurance policy for the sum of P45,000 on the boat, the policy being issued bythe National Union Fire Insurance Company and according to the provisions ofa "rider" attached to the policy, the insurance was against the "absolute totalloss of the vessel only." On October 31, 1928, the ship ran into very heavy seaoff the Islands of Ticlin, and it became necessary to jettison a portion of thecargo. As a result of the jettison, the National Union Fire Insurance Companywas assessed in the sum of P2,610.86 as its contribution to the generalaverage. The insurance company, insisting that its obligation did not extendbeyond the insurance of the "absolute total loss of the vessel only, and to payproportionate salvage of the declared value," refused to contribute to thesettlement of the general average. The present action was thereupon instituted,and after trial the lower court rendered judgment in favor of the plaintiff andordered the defendant National Union Fire Insurance Company to pay theplaintiff the sum of P2,610.86 as its part of the indemnity for the generalaverage brought about by the jettison of cargo. The insurance companyappealed to this court and assigns as errors (1) "that the lower court erred in

disregarding the typewritten clause endorsed upon the policy, Exhibit A,expressly limiting insurer's liability thereunder of the total loss of the woodenvessel Pandan and to proportionate salvage charges," and (2) "that the lowercourt erred in concluding that defendant and appellant, National Union FireInsurance Company is liable to contribute to the general average resulting fromthe jettison of a part of said vessel's cargo."

Issue: W/N the petitioner is entitled to his claim.

Held: It is a well settled rule that in case repugnance exists between written andprinted portions of a policy, the written portion prevails, and there can be noquestion that as far as any inconsistency exists, the above-mentioned typed"rider" prevails over the printed clause it covers. Section 291 of the Code of CivilProcedure provides that "when an instrument consists partly of written words

and partly of a printed form and the two are inconsistent, the former controls thelatter."

In the absence of positive legislation to the contrary, the liability of thedefendant insurance company on its policy would, perhaps, be limited to"absolute loss of the vessel only, and to pay proportionate salvage of thedeclared value." But the policy was executed in this jurisdiction and "warrantedto trade within the waters of the Philippine Archipelago only." Here the liability


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for contribution in general average is not based on the express terms of thepolicy, but rest upon the theory that from the relation of the parties and for theirbenefit, a quasi contract is implied by law. Article 859 of the Code of Commerceis still in force and reads as follows:

ART. 859. The underwriters of the vessel, of the freight, and of the cargo shall

be obliged to pay for the indemnity of the gross average in so far as is requiredof each one of these objects respectively.

The article is mandatory in its terms, and the insurers, whether for the vessel orfor the freight or for the cargo, are bound to contribute to the indemnity of thegeneral average. And there is nothing unfair in that provisions; it simply placesthe insurer on the same footing as other persons who have an interest in thevessel, or the cargo therein at the time of the occurrence of the general averageand who are compelled to contribute (art. 812, Code of Commerce). In thepresent case it is not disputed that the ship was in grave peril and that thejettison of part of the cargo was necessary. If the cargo was in peril to the extentof call for general average, the ship must also have been in great danger,possibly sufficient to cause its absolute loss. The jettison was therefore as muchto the benefit of the underwriter as to the owner of the cargo. The latter wascompelled to contribute to the indemnity; why should not the insurer be required

to do likewise? If no jettison had take place and if the ship by reason thereofhad foundered, the underwriter's loss would have been many times as large asthe contribution now demanded. Judgment affirmed.

Sections 167-173

Bachrach v British American Assurance

Facts: Bachrach insured a building and the goods thereat with British-Americanagainst Fire. A fire razed the building including the goods thereat. A claim byBachrach was made but the same was denied by British-American. The denialof liability by respondent was premised on the following (1) that petitionermaintained a paint and varnish shop at the second floor of the building (2) thatthe petitioner assigned his interests to third persons to secure several

obligations without the consent of respondent (3) petitioner willfully placed atank of gasoline in the second floor and he knew that the gasoline was sippingout. Petitioner also willfully placed a fire lamp near the gasoline (4) petitioner didnot submit proof of losses within the required period of time in the policy. Forthis part petitioner contends (1) that he was acquitted in an earlier criminal casefor arson based on the same facts (2) that he no longer bothered to submitproof of loss because when he sent an earlier notice of loss, respondent already

informed him that the policy was null and void and to provide proof of losseswould only be a futile act.

Issue: W/N petitioner may recover for his loss.

Held: Yes. With respect to paint, gasoline and alcohol. The presence offlammable oils within the insured premises does not ipso facto avoid the policyeven though there is an express prohibition therefore when such oils areincidental to the business of the insured. In this case, the alcohol and gasolinewere used to produce varnish necessary for the furniture stored therein. Theinsured premise was a furniture store and the furniture thereat was the oneinsured. With respect to the transfer of interest over the properties to thirdperson without respondents consent. Remember that when one mortgages hisproperty, he does not lose his interest thereat. Only when mortgagor defaultsand mortgagee takes possession of the properties will there be a transfer ofinterest and ownership. With respect to the accusation of arson. The questionon arson having already passed upon by a competent court, the element of resjudicata kicks in and the finding thereat cannot be contested anymore. Withrespect to the proof of loss. The policy did not contain any requirement on proofof loss. Even if it did, respondent has already waived it after informing thepetitioner in a letter-reply to the latters notice of loss that the policy had been

avoided.

Ong Guan Can v Century Insurance

Facts: Petitioner is the owner of a building and the merchandise stored thereinwhich were insured with Century for the sum of 30,000 and 15,000 respectively.The building was completely razed by fire. Ong Guan filed a claim from Century,but the latter averred that under Clause 14 of the policy, it may rebuild thehouse burnt, and although the house may be smaller, it would be sufficientindemnity to the insured for the actual loss suffered. Instead of paying indemnityin accordance with the policy, Century insisted on rebuilding the structure.Century relied on Clause 14 of its policy which reads: The Company may at itsoption reinstate or replace the property damaged or destroyed, or any partthereof, instead of paying the amount of the loss of damages, or may join with

any other Company or insurers in so doing, but the Company shall not bebound to reinstate exactly or completely, but only as circumstances permit andin reasonable sufficient manner, and in no case shall the Company be bound toexpend more in reinstatement that it would have cost to reinstate such propertyas it was at the time of the occurrence of such loss or damage, nor more thanthe sum insured by the Company thereon. RTC ruled in favor of petitioner.

Issue: W/N Century may choose to rebuild the structure.


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Held: No. The policy actually provides that the company [century] may at itsoption reinstate or replace the property damaged... instead of paying theamount of loss... but the company shall not be bound to reinstate exactly orcompletely, but only as circumstances permit... and in no case shall thecompany be bound to expend more in reinstatement than it would have cost toreinstate such property as it was at the time of the occurrence of such loss...nor

more than the sum insured by the company.... If this clause is valid, the effectwould be to make the insurers obligation alternative either pay the value orrebuild it. This is a clear case of alternative obligations by a debtor: pay theindemnity or rebuild the house. In case of alternative obligations, the Civil Coderequires the debtor to notify the creditor of the choice which obligation toperform. The object of the notice is to give the creditor an opportunity to consentto or impugn the election. In this case, no notice was given Note however that inalternative obligations, the debtor (Century) must notify creditor (Ong Guan) ofhis choice, pursuant to Art 1133, CC. The purpose of the notice is to give thecreditor a chance to give his consent or to impugn the debtors choice. Onlyafter this notice shall the choice take legal effect, when creditor consents or if heimpugns it, when declared proper by a court. The problem here is Centurynever gave a formal notice of its choice to rebuild, and while there was aproposition to do so (according to witnesses), Ong Guan never assented to it,because the new house would be smaller and of lesser quality. It would be

inequitable and unjust to compel Ong Guan to accept the rebuilding, withoutbeing offered additional indemnity for the difference in size between the 2houses, or without tendering the insured value of the merchandise lost.Therefore, the election made by Century to rebuild is improper. Further, even ifnotice was given petitioner vehemently impugns the election of Century simplybecause the building to be re-constructed is admittedly smaller and ofsubstandard materials. Century also was not willing to pay for the difference inthe size.

Galian v State Assurance

Facts: Petitioner insured the properties inside his house with State Assurancefor 3,000. Thereafter a fire razed the building. However, with respect to theeffects inside the house which were the subject of insurance, there was no total

loss. In fact, petitioner was able to sell at public auction the salvaged effects.Petitioner now claims from State Assurance saying that the effects that wereburned totaled 4,000. petitioner claims 2,000 from State Assurance (this wasafter the proceeds for the sale of the salvaged effects had been deducted) StateAssurance disclaims liability on the ground of (1) fraudulent claim (2) not all thelisted articles on that were supposedly burned were inside the house when thefire occurred and (3) over-valuation of the effects. Petitioner counters by sayingthat he immediately prepared the list of the articles burned after the fire from

memory and with the assistance of his brother. State Assurance presentedvarious witnesses who testified, as appraisers, that the total value of the articlesburned was 1000 1500 which is the most liberal estimate. RTC ruled sayingthat petitioner was not a qualified appraiser. It also dismissed the testimony ofthe witnesses in favor of State Assurance but nevertheless found that thearticles were worth 1,500 because it was the amount allegedly offered by State

Assurance to petitioner as compromise. This offer, according to the RTC, waspresented as evidence but was not excepted to by State Assurance thus, it isbound by it.

Issue: How much really is the value of the articles?

Held: The value of the articles was reasonable and was not over-valued.Petitioner was a man of wealth; having inherited 15,000 from his father, beingan administrator of his fathers estate, having stockholdings in a company fromwhich he regularly derives dividends. There is no question therefore, that hecan afford expensive articles which were burnt by the fire. The reasoning of thetrial court that petitioner was not an appraiser is untenable. The articles thatwere burnt consisted mainly of furniture, wardrobe etc which an ordinary man,more so if he was the one who purchased it, would readily know of its value. Noexpert is needed to determine the value of the effects that were lost. In this

case, since the insurance coverage was only for 3,000 but the total value of theeffects lost after deducting the value of the salvaged articles was 4,300, theinsurer must bear a portion of the loss represented by a fraction the numeratorof which is the amount of the insurance and the denominator of which is thevalue of the property at the time of the fire. This entitles the insured to ajudgment against the insurer for 2,919.92.


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Section 174

Tanco v Phil. Guaranty

Facts: Tancos automobile, while being driven by his brother Manuel, figured ina collision with a pick-up delivery van, resulting in damage to both vehicles.Tanco paid for repairs and filed a claim with Philippine Guaranty under a carinsurance policy it issued.

The policy covers, to a certain extent, los or damage to the insured vehicle aswell as damage to property of 3rd persons as a consequence of or incident tothe operation of the vehicle. There is an exception clause which provides thatthe company shall not be liable in respect of any accident, loss, etc. while thevehicle is being driven by anyone other than an Authorized Driver, which is theinsured himself and any person driving on the Insureds order or with hispermission, provided that the person driving is permitted in accordance withlicensing or other laws to drive the vehicle, or has been permitted and is notdisqualified by order of a court or enactment of law (as defined in the policy).

Phil. Guaranty refused based on the exclusion clause. At that time, Manuel didnot have a valid license, not having renewed it (required by Sec. 31 of the Motor

Vehicle Law). He was not an authorized driver and hence, Phil. Guaranty is notliable under the policy.

Tanco filed suit in court. The CFI ruled in his favor since there was no evidencethat Manuel had been disqualified by order of a court or law from driving suchvehicle. Any ambiguity in the definition of authorized driver in the policyshould be construed in Tancos favor, the policy having been prepared in itsentirety by Phil. Guaranty.

Issue: W/N Phil. Guaranty should pay.

Held: No. The exclusion clause in the contract is clear. It should beimplemented as is, and need not be interpreted. The car was being driven byan un-authorized driver, which exempts Phil. Guaranty from liability under the

exception clause in the policy.

CCC Ins. v CA

Facts: Carlos Robes took out an insurance from CCC on his Dodge Kingswayfor 8,000 against loss or damage arising from accident. The car, driven byRobes driver, figured into an accident. The repairs for the damaged caramounted to 5,300. CCC disclaimed liability and refused to either indemnify or

to restore the car claiming that the driver was not an authorized driver. Thus,Robes sued. RTC ruled in favor of Robes ordering the payment by CCC of thecost of the repair, towing and impounding and damages. CA sustained the trialcourt. CCC contends that the driver is not an authorized driver because he isilliterate.

Issue: W/N CCC is liable for the claim.

Held: Yes. There are two classes of authorized drivers. The first is the insurerhimself and the second is anyone operating the vehicle under the ownerspermission PROVIDED such operator is a holder of a valid and subsistingdrivers license. In this case, the driver is admittedly illiterate but neverthelesshe was able to obtain a valid drivers license without taking the requisiteexamination. The driver only paid 25 pesos to a certain person to obtain thelicense. Notwithstanding this fact, the CA found that the license was genuineand no proof to the contrary was presented by CCC. In short, the license wasapparently genuine upon which Robes is entitled to rely on. The fact that theCavite Motor Vehicle Office manifested that it did not issue the questioneddrivers license does not militate against the driver because for all we know, thelicense was not issued at the Cavite MVO after all. As the law stands during thattime, an examination is not mandatory but only permissive. According to Sec 26

of the Revised Motor Vehicles Law, the Chief of the MVO may issue the licenseif he is convince of the driving abilities of an applicant even without anexamination.

Villacorta v Insurance Commissioner

Facts: Villacorta owned a Colt Lancer, insured with Empire Insurance for 35K-own damage; 30k theft; and 30k third party liability. The car was brought toSunday Machine Works for general check up and repairs. While the car was incustody of Sunday, it was taken by 6 men for a drive to Montalban, Rizal. Itfigured in an accident, hitting a gravel truck, and sustained bad damage. Driverwas Benito Mabasa, a person unknown to Villacorta and his wife. Empiredenied Villacortas claim. The policy actually undertook to indemnify the insuredagainst loss/damage by accidental collision, overturning upon mechanical

breakdown or upon wear and tear, damage by fire, external explosion, self-ignition, burglary, housebreaking or theft and by malicious act. InsuranceCommission dismissed Villacortas complaint for recovery, averring that theaccident did not fall within the provisions of the policy either under the OwnDamage or Theft coverage, invoking the Authorized Driver clause whichprovides that only the insured or any person driving under the insureds order orwith his permission, in accordance with licensing laws are consideredauthorized drivers [if driver is unauthorized, insurer is under no liability].


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Respondent also said that the claim does not fall under the Theft clause,because the element of taking under art. 308, RPC, requires that the intent todeprive the owner of the thing must be permanent, and since it was merely ajoyride, the element of taking is absent.

Issue: W/N Empire is liable to Villacorta.

Held: Yes. IC ruling is wrong. Remember that Insurance Contracts are contractsof adhesion they must be liberally construed in favour of the insured. A carowner who entrusts his car to a car service and repair shop necessarily entrustshis key to the shop and its employees who are presumed to have permission todrive the car for legitimate purposes (checking, testing). That the employeesdiverted the use of the car for illicit or unlawful purposes does not mean that theAuthorized Driver clause was violated so as to bar recovery, provided thatsuch employee has a valid license. Even so, when a car is unlawfully taken, it isthe Theft clause, not the Authorized Driver clause that applies. The taking ofthe car here was without owners consent or knowledge, and such partakes ofthe taking required by art 308, RPC (there was intent to gain, no violence norforce used). It matters not whether taking was permanent or temporary. Finally,it wasnt a joy ride. After the accident, the driver was searched, and from hisbody was found a .45 caliber and a grenade.

Association of Baptists v Fieldmens Insurance

Facts: Association of Baptists for World Evangelism is a religious corporation.Assoc. Of Baptists, having an insurable property over the Chevrolet Carry-allowned by Reverend Clinton Bonnel, had it insured with Fieldmens InsuranceCompany. Fieldmens issued a Private Car Comprehensive Policy against lossor damage up to the amount of P5K. Dr. Antonio Lim, Assoc. Of Baptistsrepresentative, placed the Chevrolet at the Jones Monument Mobilgas ServiceStation. The Chevrolet was placed under the Mobilgas operator, Rene Te sothat the Chevrolet could be displayed as being for sale. Later, Romeo Catibenwho is a boy at the service station and wo is also the nephew of Rene Tes wifetook the Chevrolet for a joyride. Such taking of the car was without the priorpermission of Assoc. of Baptists, Dr. Lim and Rene Te. On the way back to the

service station, the vehicle bumped an electric post due to some mechanicaldefect.

Issue: W/N Fieldmens is liable.

Held: Yes. The Comprehensive Policy issued by Fieldmens includes loss ordamage to the motor vehicle by burglary or theft. In this case, the act of

Catiben taking the vehicle for a joyride constitutes theft within the RPC and ofthe policy.

There is no need for prior conviction for the crime of theft before the insureris made liable under the theft clause of the policy. The act of Catiben whichultimately caused damage to the car is an act of theft within the policyinsurance. In civil cases, only preponderance of evidence is needed. Besides,the policy does not require that there be prior conviction for the crime of theft,before the insured can recover his loss.

Stokes v Malayan Insurance

Facts: Adolfson had a subsisting Malayan car insurance policy when his carcollided with another car owned by Poblete. At the time of the accident,Adolfsons car was being driven by James Stokes (with authority fromAdolfson), an I rish citizen who had been in the Philippines as a tourist for morethan 90 days, had a valid Irish drivers license but without a Philippine driverslicense. Adolfson filed a claim with Malayan but the latter refused to pay,contending that Stokes was not an authorized driver under the AuthorizedDriver clause of the policy in relation to Sec. 21 of the Land Transportation andTraffic Code. Under the said Code, bona fide tourists who are duly licensed in

their countries may operate motor vehicles in the Philippines, but not after 90days during their stay. If they desire to operate MVs after 90 days, then theyshould obtain a Philippine license. Adolfson brought suit before the CFI andsucceeded in getting a favorable judgment. The CFI held that Stokes lack of aPhilippine drivers license was not fatal to the enforcement of the insurancepolicy, and that Malayan was estopped from denying liability because itaccepted premium payment made one day after the accident.

Issues: W/N Malayan is liable to Adolfson.

W/N Malayan is estopped from denying liability.

Held: Both no.

Not an Authorized Driver: When the insurer is called upon to pay in case of lossor damage, he has the right to insist upon compliance with the terms &conditions of the contract. This is a condition precedent to the right of recovery.Under the authorized driver clause, an authorized driver must not only bepermitted to drive by the insured. It is essential that he is permitted under thelaw to drive the MV and is not disqualified. Under the law, Stokes could notdrive an MV without a Philippine license, already staying for more than 90 days.Hence, he is not an authorized driver under the policy.


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Not Estopped: Acceptance of premium within the stipulated period for payment(including grace period) merely assures continued effectivity of the policy. Suchacceptance does not estop the insurer from interposing a valid defense. Theprinciple of estoppel is a principle of equity. In accepting premium payment,Malayan was not guilty of any inequitable act. There is nothing inconsistentbetween acceptance of premium due and the enforcement of the policys terms.

Palermo v Pyramid Insurance

Facts: Andrew Palermo bought a new Nissan Cedric De Luxe Sedan from NgSam Bok Motors. He had it insured with Pyramid for 20,000 against loss ordamages and 10,000 against third party liability. The car was however,mortgaged with Ng Sam Bok as security for the balance of the purchase pricewhich explains why the registration certificate was in the possession of Ng SamBok. One day, the car driven by Andrew figured a vehicular accident causingthe total wreckage of the car, injuries on himself and death of his father-passenger. The claim against Pyramid was denied because Andrew allegedlyviolated the authorized driver clause for driving with an expired drivers license

Issue: W/N Palermo is entitled to his claim.

Held: Yes. The requirement of a valid and subsisting drivers license found inmany authorized driver clauses only pertains to drivers other than the insuredhimself who operates the vehicles with the owners consent. It does not apply tothe insured who is himself an authorized driver with or without license. While theMotor Vehicle Law prohibits a person from operating a motor vehicle on thehighway without a license or with an expired license, an infraction of the MotorVehicle Law on the part of the insured, is not a bar to recovery under theinsurance contract. It however renders him subject to the penal sanctions of theMotor Vehicle Law.

Perla Cia. De Seguros v CA

Facts: Spouses Lim executed a promissory note in favour of Supercars for77.9K secured by a chattel mortgage over a brand new Ford Laser, which wasinsured with Perla. Supercars assigned to FCP Credit Corp all its rights andinterests over the PN. Car was carnapped while parked at the back ofBroadway Centrum. It was Mrs. Evelyn Lim who drove the car before it wasstolen. The Lims filed a claim for loss with Perla, but it denied on the groundthat Evelyn had an expired drivers license at the time of loss, which violated theauthorized driver clause of the policy, which provides that only the insured or

any person driving on the insureds order, or with his permission, provided thatthe person driving is permitted in accordance with licensing laws to drive thevehicle are considered authorized. Because the Lims couldnt pay the PNissued to FCP, it sued them. They filed a third party complaint against Perla.Trial court ruled that spouses Lim should pay FCP. On appeal to CA, itreversed. Hence this action.

Issue: W/N Perla is liable to the spouses Lim. [Perla contends that theauthorized driver clause was violated, hence it cant be made liable; it alsoavers that the said clause cannot apply to the theft clause]

Held: Yes, Perla is liable. The Comprehensive Motor Car Insurance Policyissued by Perla undertook to indemnify spouses Lim against loss or damage tothe car by accidental collision, overturning upon mechanical breakdown or uponwear and tear, damage by fire, external explosion, self-ignition, burglary,housebreaking or theft and by malicious act. Where a car is unlawfully takenwithout owners consent or knowledge, such taking constitutes theft, hence it isthe theft clause that applies here, not the authorized driver clause. As correctlystated by CA: had the vehicle figure in an accident at the time she drove it withher expired license, then Perla could properly resist the claim; but the case isdifferent, it was stolen. Moreover, it is worthy to note that there is no causal

connection between the possession of a valid license and the loss of a vehicle.To rule otherwise would render car insurance a sham, because then, the insurercan escape liability by citing restrictions which are not germane to the claim.

[side note: on FCPs claim: it is only right that the spouses be not excused frompaying the loan just because the mortgaged property was stolen]

Sun Ins. v CA

Facts: Sun Insurance issued a personal accident policy to Felix Lim, Jr. With hiswife Nerissa as beneficiary. Felix Lim died with a bullet wound to his head.When Nerissa tried to claim payment from Sun Insurance, the latter refused.Nerissa argued there was no suicide but Sun Insurance countered that therewas no accident either. The only witness to Felixs death was his secretary,

Pilar Nalagon. According to Nalagon, Felix was actually in happy mood(although note, not drunk) after his mothers birthday party. He was playing withhis handgun, the magazine of which he had earlier removed. While Nalagonwas watching TV, Felix pointed the gun at her. Nalagon pushed the gun asideand said it might be loaded. Felix assured her that it was not then pointed it tohis temple.. Suddenly, there was an explosion and Felix was dead with a bulletwound to his head. RTC and CA held Sun Insurance to be liable for thepayment of the insurance policy.


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Issue: W/N Sun Ins. is liable.

Held: Yes. Accident and accidental mean that which happens by chance orfortuitously, without intention or design and which is unexpected, unusual orunforeseen. It is an event that is not expected. It happens without any humanintervention or, if it happens through a human agency, it is unusual and is notexpected by the person through whom it happens. By reason of thesedefinitions, the SC holds that Felix Lim died of an accident. Sun Insurancecounters that there is no accident when a deliberate act is performed unlesssome additional and unexpected or independent happening occurs whichproduces the death or injury. In this case, the SC thinks that the firing of the gunwas the additional yet unexpected and independent act which produced Felixsdeath. Sun Insurance also cites the provision in the insurance policy whereinthe insurer shall not be liable for bodily injury brought upon by the insuredattempting to commit suicide or wilfully exposing himself to needless perilexcept to save life. Note that the parties have agreed that Felix did not commitsuicide. However, Sun Insurance argues that still, Felix placed himself inneedless peril. Hence, the insurer cannot be made liable. Sun Insurancemaintains that the mere act of pointing the gun to his temple, Felix had alreadywilfully exposed himself to needless peril. However, this theory stems from anassumption that a gun is per se dangerous. This assumption is at best

arguable. However, recalling the eyewitness testimony, Felix had removed themagazine from the gun and actually believed it was no longer dangerous. Felixpointed the gun to his temple, NOT to expose himself to needless peril but toassure Nalagon that it was really harmless. Felix case is compared to a manjumping to a river which he knew had a st rong current. According the SC, theman who jumped to a river knowing that the current was strong needlesslyexposed himself to peril. However, Felixs case is different since he did notknow that the gun was loaded. There is no doubt that Felix was negligent andthat such negligence caused his death. However, such negligence will not barhis beneficiary from receiving the proceeds of the policy. Nothing in the policyexempts the insurer from cases wherein it is shown that the insured contributedto his injury. In fact, most accidents are caused by negligence.

Finman General Insurance v CA

Facts: Deceased Carlie Surposa was insured with Finman General underFinman General Teachers Protection Plan (Master and Individual Policies), withhis parents, spouse, & brothers as beneficiaries. During the effectivity of thepolicy, Carlie died as a result of a stab wound inflicted by one of 3 unidentifiedmen without provocation and warning on his part. This happened when he waswaiting for a ride on his way home from the Maskarra Annual Festival(Bacolod).

The beneficiaries filed a written notice of claim with Finman which denied it,contending that the murder and assault are not within the coverage of theinsurance policy. They filed a complaint with the Insurance Commission, whichordered Finman to pay. This was confirmed by the CA. Hence, Finman filed apetition with the SC alleging grave abuse of discretion on the part of the CA forapplying the principle of expresso unius exclusio alterius in a personalaccident insurance policy, since death resulting from murder and/or assault areimpliedly excluded, considering that the cause of death was not accidental butrather a deliberate and intentional act of the assailant.

Issue: W/N Finman is liable.

Held: Yes.

Accident: The term accident or accidental as used in insurance contractshave not acquired any technical meaning and are construed in their ordinaryand common acceptation. An accident is an event that takes place withoutones foresight or expectation (unforeseen, unexpected, unusual, withoutintention and design, by chance or fortuitously).

The generally accepted rule is that death or injury does not result from accidentif it is the natural result of the insureds voluntary act, unaccompanied byanything unforeseen except death or injury. Where the death or injury is not thenatural or probable result of the insureds voluntary act, or if somethingunforeseen occurs in the doing of the act which produces the injury, theresulting death is within the protection of the policies insuring against death orinjury from accident.

In this case, the event was a pure accident on the victims part. He died froman event that took place without his foresight or expectation, an even thatproceeded from an unusual effect.

Expresso Unis Exclusio Alterius: Furthermore, the personal accident insurance

policy enumerated only 10 circumstances wherein no liability attaches toFinman. The principle of expresso unis exclusio alterius (the mention of onething excludes another thing) is applicable, since murder and assault, nothaving been expressly included in the enumeration of the circumstances thatwould negate liability in the policy cannot be considered to discharge Finmanfrom liability. It is well-settled that contracts of insurance are to be construedliberally in favor of the insured and strictly against the insurer.


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Fortune Insurance v CA

Facts: An armored vehicle of Producers bank containing 750,000 was robbedwhile in transit from the Pasay Branch to its Head Office in Makati City. Themoney was insured by Fortune The armored car was driven by Magalong,secured by Atiga. Accompanying them was the teller Maribeth Alampay. BothMagalong and Atiga were provided by their agencies to Producers bank byvirtue of service agreements that latter had with the former. After investigation,an information was filed against Magalong, Atiga and three others for violationof the Anti-Highway Robbery Law. Fortune disclaims the liability on the groundthat it was an excepted risk; that the coverage of the insurance did not includeany loss caused by any dishonest, fraudulent or criminal act of the insured orany officer, employee , partner, director, trustee or authorized representative ofthe Insured whether acting alone or in conjunction with others. . . Insisting onthe claim, Producers contend that Magalong and Atiga were not any of thepersons above mentioned. In fact, Magalong anf Atiga were not their(producers employees) as they are properly the employees of their respective

agencies. RTC and CA ruled in favor of Producers bank saying that Magalongand Atiga were not the formers employees or authorized representatives.

Held: Fortune wins. Magalong and Atiga were, in respect of the transfer ofProducer's money from its Pasay City branch to its head office in Makati, its"authorized representatives" who served as such with its teller MaribethAlampay. Howsoever viewed, Producers entrusted the three with the specificduty to safely transfer the money to its head office, with Alampay to beresponsible for its custody in transit; Magalong to drive the armored vehiclewhich would carry the money; and Atiga to provide the needed security for themoney, the vehicle, and his two other companions. In short, for these particulartasks, the three acted as agents of Producers. A "representative" is

section 83-end cases

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