July 20 Insurance

G.R. No.
125678
March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied
for a health care coverage with petitioner Philamcare Health
Systems, Inc. In the standard application form, he answered no to
the following question:
Have you or any of your family members ever consulted or
been treated for high blood pressure, heart trouble,
diabetes, cancer, liver disease, asthma or peptic ulcer? (If
Yes, give details).1
The application was approved for a period of one year from March
1, 1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondents
husband was entitled to avail of hospitalization benefits, whether
ordinary or emergency, listed therein. He was also entitled to avail
of "out-patient benefits" such as annual physical examinations,
preventive health care and other out-patient services.
April 13, 1990, Ernani had fever and was feeling very weak.
Respondent was constrained to bring him back to the Chinese
General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court
of Manila, Branch 44, an action for damages against petitioner and
its president, Dr. Benito Reverente, which was docketed as Civil
Case No. 90-53795. She asked for reimbursement of her expenses
plus moral damages and attorneys fees. After trial, the lower court
ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders
judgment in favor of the plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and
hospital coverage of the late Ernani Trinos in the amount of
P76,000.00 plus interest, until the amount is fully paid to
plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages
of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as
exemplary damages to plaintiff;
Upon the termination of the agreement, the same was extended for
another year from March 1, 1989 to March 1, 1990, then from
March 1, 1990 to June 1, 1990. The amount of coverage was
increased to a maximum sum of P75,000.00 per disability. 2
4. Defendants to pay attorneys fees of P20,000.00, plus

costs of suit.
During the period of his coverage, Ernani suffered a heart attack

and was confined at the Manila Medical Center (MMC) for one
month beginning March 9, 1990. While her husband was in the
hospital, respondent tried to claim the benefits under the health
care agreement. However, petitioner denied her claim saying that
the Health Care Agreement was void. According to petitioner, there
was a concealment regarding Ernanis medical history. Doctors at
the MMC allegedly discovered at the time of Ernanis confinement
that he was hypertensive, diabetic and asthmatic, contrary to his
answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
On appeal, the Court of Appeals affirmed the decision of the trial

court but deleted all awards for damages and absolved petitioner
Reverente.4 Petitioners
motion
for
reconsideration
was
denied.5 Hence, petitioner brought the instant petition for review,
raising the primary argument that a health care agreement is not
an insurance contract; hence the "incontestability clause" under
the Insurance Code6 does not apply.1wphi1.nt
After her husband was discharged from the MMC, he was attended
by a physical therapist at home. Later, he was admitted at the
Chinese General Hospital. Due to financial difficulties, however,
respondent brought her husband home again. In the morning of
SO ORDERED.3
Petitioner argues that the agreement grants "living benefits," such

as medical check-ups and hospitalization which a member may
immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also
points out that only medical and hospitalization benefits are given
under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his loss.
Moreover, since Health Care Agreements are only for a period of
INSURANCE.joycgc | 1
one year, as compared to insurance contracts which last

longer,7 petitioner argues that the incontestability clause does not
apply, as the same requires an effectivity period of at least two
years. Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of
Health.
Section 2 (1) of the Insurance Code defines a contract of insurance
as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where
the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of
the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays
a premium.8
Section 3 of the Insurance Code states that any contingent or
unknown event, whether past or future, which may damnify a
person having an insurable interest against him, may be insured
against. Every person has an insurable interest in the life
and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary
interest;
(3) of any person under a legal obligation to him for the
payment of money, respecting property or service, of which
death or illness might delay or prevent the performance;
and
(4) of any person upon whose life any estate or interest
vested in him depends.
In the case at bar, the insurable interest of respondents husband in
obtaining the health care agreement was his own health. The
health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity. 9 Once the member incurs
hospital, medical or any other expense arising from sickness, injury
or other stipulated contingent, the health care provider must pay

for the same to the extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material
fact in his application. It appears that in the application for health
coverage, petitioners required respondents husband to sign an
express authorization for any person, organization or entity that
has any record or knowledge of his health to furnish any and all
information relative to any hospitalization, consultation, treatment
or any other medical advice or examination. 10 Specifically, the
Health Care Agreement signed by respondents husband states:
We hereby declare and agree that all statement and
answers contained herein and in any addendum annexed to
this application are full, complete and true and bind all
parties in interest under the Agreement herein applied for,
that there shall be no contract of health care coverage
unless and until an Agreement is issued on this application
and the full Membership Fee according to the mode of
payment applied for is actually paid during the lifetime and
good health of proposed Members; that no information
acquired by any Representative of PhilamCare shall be
binding upon PhilamCare unless set out in writing in the
application;that any physician is, by these presents,
expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his
professional capacity upon any question affecting the
eligibility for health care coverage of the Proposed
Members and that the acceptance of any Agreement issued
on this application shall be a ratification of any correction in
or addition to this application as stated in the space for
Home Office Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required
the applicant for authorization to inquire about the applicants
medical history, thus:
I hereby authorize any person, organization, or entity that
has any record or knowledge of my health and/or that of
__________ to give to the PhilamCare Health Systems,
Inc. any and all information relative to any hospitalization,
consultation, treatment or any other medical advice or
examination. This authorization is in connection with the
application for health care coverage only. A photographic
copy of this authorization shall be as valid as the
original.12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of

agreement" which reads:
Failure to disclose or misrepresentation of any material
information by the member in the application or medical
examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to
return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its
revelation would have resulted in the declination of the
applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for. 13
The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely
depends on opinion rather than fact, especially coming from
respondents husband who was not a medical doctor. Where
matters of opinion or judgment are called for, answers made in
good faith and without intent to deceive will not avoid a policy even
though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation,
intention, belief, opinion, or judgment of the insured will not
avoid the policy if there is no actual fraud in inducing the
acceptance of the risk, or its acceptance at a lower rate of
premium, and this is likewise the rule although the
statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the
insurer is not justified in relying upon such statement, but is
obligated to make further inquiry. There is a clear distinction
between such a case and one in which the insured is
fraudulently and intentionally states to be true, as a matter
of expectation or belief, that which he then knows, to be
actually untrue, or the impossibility of which is shown by the
facts within his knowledge, since in such case the intent to
deceive the insurer is obvious and amounts to actual
fraud.15 (Underscoring ours)
The fraudulent intent on the part of the insured must be
established
to
warrant
rescission
of
the
insurance
contract.16 Concealment as a defense for the health care provider
or insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence
rests upon the provider or insurer. In any case, with or without the
authority to investigate, petitioner is liable for claims made under
the contract. Having assumed a responsibility under the

agreement, petitioner is bound to answer the same to the extent
agreed upon. In the end, the liability of the health care provider
attaches once the member is hospitalized for the disease or injury
covered by the agreement or whenever he avails of the covered
benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles
the injured party to rescind a contract of insurance." The right to
rescind should be exercised previous to the commencement of an
action on the contract.17 In this case, no rescission was made.
Besides, the cancellation of health care agreements as in insurance
policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of
the policy of one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the
address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the
Insurance Code and upon request of insured, to furnish facts on
which cancellation is based.18
None of the above pre-conditions was fulfilled in this case. When
the terms of insurance contract contain limitations on liability,
courts should construe them in such a way as to preclude the
insurer from non-compliance with his obligation. 19 Being a contract
of adhesion, the terms of an insurance contract are to be construed
strictly against the party which prepared the contract the
insurer.20 By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance
contract, ambiguity must be strictly interpreted against the insurer
and liberally in favor of the insured, especially to avoid
forfeiture.21 This is equally applicable to Health Care Agreements.
The phraseology used in medical or hospital service contracts, such
as the one at bar, must be liberally construed in favor of the
subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should be
strictly construed against the provider. 22
Anent the incontestability of the membership of respondents

husband, we quote with approval the following findings of the trial
court:
(U)nder the title Claim procedures of expenses, the
defendant Philamcare Health Systems Inc. had twelve
months from the date of issuance of the Agreement within
which to contest the membership of the patient if he had
previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of
diabetes or hypertension. The periods having expired, the
defense of concealment or misrepresentation no longer lie.23
Finally, petitioner alleges that respondent was not the legal wife of
the deceased member considering that at the time of their
marriage, the deceased was previously married to another woman
who was still alive. The health care agreement is in the nature of a
contract of indemnity. Hence, payment should be made to the party
who incurred the expenses. It is not controverted that respondent
paid all the hospital and medical expenses. She is therefore entitled
to reimbursement. The records adequately prove the expenses
incurred by respondent for the deceaseds hospitalization,
medication and the professional fees of the attending physicians. 24
WHEREFORE, in view of the foregoing, the petition is DENIED. The
assailed decision of the Court of Appeals dated December 14, 1995
is AFFIRMED.
SO ORDERED.
G.R. No. L-41014 November 28, 1988

PACIFIC BANKING CORPORATION, petitioner,
vs.
COURT OF APPEALS and ORIENTAL ASSURANCE
CORPORATION, respondents.
Flores, Ocampo, Dizon and Domingo Law Office for petitioner.
Cabochan and Reyes Law Office for respondents.
PARAS, J.:
This is a petition for review on certiorari of the decision of
respondent Court of Appeals * in CA-G.R. No. 41735-R, entitled
"Pacific Banking Corporation vs. Oriental Assurance Corporation",
which set aside the decision of the Court of First Instance (CFI) of
Manila, ** which had in turn granted the complaint for a sum of
money in Civil Case No. 56889.
As gathered from the records, the undisputed facts of this case are
as follows:
On October 21,1963, Fire Policy No. F-3770 (Exhibit "A"), an open
policy, was issued to the Paramount Shirt Manufacturing Co.
(hereinafter referred to as the insured, for brevity), by which private
respondent Oriental Assurance Corporation bound itself to
indemnify the insured for any loss or damage, not exceeding
P61,000.00, caused by fire to its property consisting of stocks,
materials and supplies usual to a shirt factory, including furniture,
fixtures, machinery and equipment while contained in the ground,
second and third floors of the building situated at number 256
Jaboneros St., San Nicolas, Manila, for a period of one year
commencing from that date to October 21, 1964.
The insured was at the time of the issuance of the policy and is up
to this time, a debtor of petitioner in the amount of not less than
Eight Hundred Thousand Pesos (P800,000.00) and the goods
described in the policy were held in trust by the insured for the
petitioner under thrust receipts (Record on Appeal, p. 4).
Said policy was duly endorsed to petitioner as mortgagee/ trustor
of the properties insured, with the knowledge and consent of
private respondent to the effect that "loss if any under this policy is
payable to the Pacific Banking Corporation".
On January 4, 1964, while the aforesaid policy was in full force and
effect, a fire broke out on the subject premises destroying the
goods contained in its ground and second floors (Record on Appeal,
p.5)
On January 24, 1964, counsel for the petitioner sent a letter of
demand to private respondent for indemnity due to the loss of
property by fire under the endorsement of said policy (Brief for
Plaintiff-Appellee, pp. 16-17).
On January 28, 1964, private respondent informed counsel for the

petitioner that it was not yet ready to accede to the latter's
demand as the former is awaiting the final report of the insurance
adjuster, H.H. Bayne Adjustment Company (Brief for PlaintiffAppellee, pp. 17-18).
On March 25, 1964, the said insurance adjuster notified counsel for
the petitioner that the insured under the policy had not filed any
claim with it, nor submitted proof of loss which is a clear violation of
Policy Condition No.11, and for which reason, determination of the
liability of private respondent could not be had (Supra, pp. 19-20).
On April 24, 1964, petitioner's counsel replied to aforesaid letter
asking the insurance adjuster to verify from the records of the
Bureau of Customs the entries of merchandise taken into the
customs bonded warehouse razed by fire as a reliable proof of loss
(Supra, pp. 21-22). For failure of the insurance company to pay the
loss as demanded, petitioner (plaintiff therein) on April 28, 1 964,
filed in the court a quo an action for a sum of money against the
private respondent, Oriental Assurance Corporation, in the principal
sum of P61,000.00 issued in favor of Paramount Shirt
Manufacturing Co. (Record on Appeal, pp. 1-36).
On May 25, 1964, private respondent raised the following defenses
in its answer to wit: (a) lack of formal claim by insured over the loss
and (b) premature filing of the suit as neither plaintiff nor insured
had submitted any proof of loss on the basis of which defendant
would determine its liability and the amount thereof, either to the
private respondent or its ad . adjuster H.H. Bayne Adjustment Co.,
both in violation of Policy Condition No.11 (Record on Appeal, pp.
37-38).
At the trial, petitioner presented in evidence Exhibit "H", which is a
communication dated December 22, 1965 of the insurance
adjuster, H.H. Bayne Adjustment Co. to Asian Surety Insurance Co.,
Inc.,
revealing
undeclared
co-insurances
with
the
following: P30,000.00 with Wellington Insurance; P25,000. 00 with
Empire Surety and P250,000.00 with Asian Surety; undertaken by
insured Paramount on the same property covered by its policy with
private respondent whereas the only co-insurances declared in the
subject policy are those of P30,000.00 with Malayan P50,000.00
with South Sea and P25.000.00 with Victory (Brief for the
Defendant pp. 13-14).
It will be noted that the defense of fraud and/or violation of

Condition No. 3 in the Policy, in the form of non-declaration of coinsurances which was not pleaded in the answer was also not
pleaded in the Motion to Dismiss.
At any rate, on June 30, 1967, the trial court denied private
respondent's motion on the ground that the defense of lack of proof
of loss or defects therein was raised for the first time after the
commencement of the suit and that it must be deemed to have
waived the requirement of proof of loss (Sections 83 and 84,
Insurance Act; Record on Appeal, p. 61).
On September 9, 1967, the case was considered submitted for
decision from which order private respondent filed a motion for
reconsideration to set the case or further reception of private
respondent's additional evidence, "in order to prove that 'insured
has committed a violation of condition No. 3 of the policy in relation
to the other Insurance Clause.' " (Record on Appeal, pp. 61-69).
On September 30,1967, the case was set for the continuation of the
hearing for the reception merely of the testimony of Alejandro Tan
Gatue, Manager of the Adjustment Co., over the vehement
opposition of the petitioner (Record on Appeal, p. 129).
On April 18, 1 968, the trial court rendered a decision adjudging
private respondent liable to the petitioner under the said contract
of insurance, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering
the defendant to pay the plaintiff P61,000.00, with
interest at the rate of 8% per annum from January 4,
1964, to April 28, 1964, and 12% from April 29, 1964,
until the amount is fully paid, P6,100.00, as
attorney's fees, and the costs.
SO ORDERED. (Record on Appeal, pp. 140-141)
On appeal, the Court of Appeals reversed the decision of the trial
court (Decision promulgated on April 23, 1975, Rollo, pp. 21-33).
Petitioner filed a motion for reconsideration of the said decision of
the respondent Court of Appeals, but this was denied on July
3,1975 for lack of merit (Rollo, pp. 54-67), resulting in this petition
with the following assigned errors;
I
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE
ERROR OF LAW IN CONCLUDING FRAUD FROM THE BARE
FACT THAT THE INSURED PARAMOUNT PROCURED
ADDITIONAL INSURANCES OTHER THAN THOSE STATED
IN THE POLICY IN SPITE OF THE EXISTENCE OF
CONTRARY PRESUMPTIONS AND ADMITTED FACT AND
CIRCUMSTANCES WHICH NEGATE THE CORRECTNESS OF
SAID CONCLUSION.
NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF

PETITIONER-APPELLANT'S
LAWYER
WHICH
IS
A
SUBSTANTIAL COMPLIANCE OF THE LEGAL REQUIREMENTS
AND NOT HOLDING THAT PRIVATE RESPONDENT INSURER
HAD ALREADY WAIVED THE SUPPOSED DEFECTS IN THE
CLAIM FILED BY PETITIONER-APPELLANT FOR ITS FAILURE
TO CALL THE ATTENTION OF THE LAYER TO SUCH ALLEGED
DEFECTS AND FOR ENDORSING THE CLAIM TO ITS
ADJUSTER FOR PROCESSING.
IV
(a) The respondent Court did not consider

the legal presumption against the
existence of fraud, which should be
established with such quantum of proof as
is required for any crime.
(b) The record of the case is bereft of proof
of such fraud.

ERROR OF LAW IN NOT INTERPRETING THE PROVISIONS OF
THE POLICY LIBERALLY IN FAVOR OF THE HEREIN
PETITIONER-APPELLANT, WHO IS NOT THE INSURED BUT
ONLY THE ASSIGNEE/MORTGAGEE OF THE PROPERTY
INSURED.
V
(c) The private respondent insurer did not

even plead or in anywise raise fraud as a
defense in its answer or motion to dismiss
and, therefore, it should have been
considered waived.

ERROR OF LAW IN DISMISSING THE CASE AND IN NOT
AFFIRMING THE APPEALED DECISION OF THE TRIAL COURT.
(Brief for Petitioners, pp. 1-3)
(d) The total amount of insurance

procured by the insured from the different
companies amounted to hardly onehalf
() of the value of the goods insured.
The crux of the controversy centers on two points: (a) unrevealed

co-insurances which violated policy conditions No. 3 and (b) failure
of the insured to file the required proof of loss prior to court action.
Policy Condition No. 3 explicitly provides:
RESPONDENT COURT ERRED IN NOT HOLDING THAT

CONSIDERING THE VOTING ON THE PARTICULAR
QUESTION OF FRAUD, THE FINDING OF THE TRIAL COURT
THEREON SHOULD BE CONSIDERED AFFIRMED.
3. The Insured shall give notice to the Company of any

insurance already effected, or which may subsequently be
effected, covering any of the property hereby insured, and
unless such notice be given and the particulars of such
insurance or insurances be stated in or endorsed on this
Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefit under this
policy shall be forfeited. (Record on Appeal, p. 12)
II
III
THE CONCURRING OPINION OF MR. JUSTICE CHANCO IS
LEGALLY ERRONEOUS IN HOLDING THAT THE ACTION WAS
PREMATURELY BROUGHT BECAUSE THE REQUIRED CLAIM
UNDER THE INSURANCE LAW HAS NOT BEEN FILED,
It is not disputed that the insured failed to reveal before the loss
three other insurances. As found by the Court of Appeals, by reason
of said unrevealed insurances, the insured had been guilty of a
false declaration; a clear misrepresentation and a vital one because
where the insured had been asked to reveal but did not, that was
deception. Otherwise stated, had the insurer known that there were
many co-insurances, it could have hesitated or plainly desisted
from entering into such contract. Hence, the insured was guilty of
clear fraud (Rollo, p. 25).
that is, to protect the mortgagee/assignee against any untoward

act or omission of the insured, it would be absurd to hold that
petitioner is barred from recovering the insurance on account of the
alleged violation committed by the insured (Rollo, Brief for the
petitioner, pp, 33-35).
Petitioner's contention that the allegation of fraud is but a mere

inference or suspicion is untenable. In fact, concrete evidence of
fraud or false declaration by the insured was furnished by the
petitioner itself when the facts alleged in the policy under clauses
"Co-Insurances Declared" and "Other Insurance Clause" are
materially different from the actual number of co-insurances taken
over the subject property. Consequently, "the whole foundation of
the contract fails, the risk does not attach and the policy never
becomes a contract between the parties. Representations of facts
are the foundation of the contract and if the foundation does not
exist, the superstructure does not arise. Falsehood in such
representations is not shown to vary or add to the contract, or to
terminate a contract which has once been made, but to show that
no contract has ever existed (Tolentino, Commercial Laws of the
Philippines, p. 991, Vol. II, 8th Ed.) A void or inexistent contract is
one which has no force and effect from the very beginning, as if it
had never been entered into, and which cannot be validated either
by time or by ratification Tongoy v. C.A., 123 SCRA 99 [1983]; Avila
v. C.A. 145 SCRA [1986]).
It is obvious that petitioner has missed all together the import of

subject mortgage clause which specifically provides:
As the insurance policy against fire expressly required that notice

should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy (Sta.
Ana v. Commercial Union Assurance Co., 55 Phil. 333 [1930]; Union
Manufacturing Co., Inc. vs. Philippine Guaranty Co., Inc., 47 SCRA
276 [1972]; Pioneer Ins. & Surety Corp., v. Yap, 61 SCRA 432
[1974]).
The argument that notice of co-insurances may be made orally is
preposterous and negates policy condition No. 20 which requires
every notice and other communications to the insurer to be written
or printed.
Petitioner points out that Condition No. 3 in the policy in relation to
the "other insurance clause" supposedly to have been violated,
cannot certainly defeat the right of the petitioner to recover the
insurance as mortgagee/assignee. Particularly referring to the
mortgage clause of the policy, petitioner argues that considering
the purpose for which the endorsement or assignment was made,
Mortgage Clause
Loss, if any, under this policy, shall be payable to the
PACIFIC
BANKING
CORPORATION
Manila
mortgagee/trustor as its interest may appear, it being
hereby understood and agreed that this insurance as to
the interest of the mortgagee/trustor only herein, shall
not be invalidated by any act or neglectexcept fraud or
misrepresentation, or arsonof the mortgagor or
owner/trustee of the property insured; provided, that in
case the mortgagor or owner/ trustee neglects or refuses
to pay any premium, the mortgagee/ trustor shall, on
demand pay the same. (Rollo, p. 26)
The paragraph clearly states the
insurance as to the interest
invalidated; namely: fraud, or
correctly found by the Court
aforecited
co-insurances can easily be
misrepresentation (Rollo, p. 27).
exceptions to the general rule that

of the mortgagee, cannot be
misrepresentation or arson. As
of Appeals, concealment of the
fraud,
or
in
the
very
least,
Undoubtedly, it is but fair and just that where the insured who is
primarily entitled to receive the proceeds of the policy has by its
fraud and/or misrepresentation, forfeited said right, with more
reason petitioner which is merely claiming as indorsee of said
insured, cannot be entitled to such proceeds.
Petitioner further stressed that fraud which was not pleaded as a
defense in private respondent's answer or motion to dismiss,
should be deemed to have been waived.
It will be noted that the fact of fraud was tried by express or at
least implied consent of the parties. Petitioner did not only object to
the introduction of evidence but on the contrary, presented the

very evidence that proved its existence.
Be that as it may, it is established that the Supreme Court has
ample authority to give beyond the pleadings where in the interest
of justice and the promotion of public policy, there is a need to
make its own finding to support its conclusion. Otherwise stated,
the Court can consider a fact which surfaced only after trial proper
(Maharlika Publishing Corp. v. Tagle, 142 SCRA 561 [1986]).
Generally, the cause of action on the policy accrues when the loss
occurs, But when the policy provides that no action shall be
brought unless the claim is first presented extrajudicially in the
manner provided in the policy, the cause of action will accrue from
the time the insurer finally rejects the claim for payment (Eagle
Star Insurance v. Chia Yu, 55 Phil 701 [1955]).
In the case at bar, policy condition No. 11 specifically provides that
the insured shall on the happening of any loss or damage give
notice to the company and shall within fifteen (15) days after such
loss or damage deliver to the private respondent (a) a claim in
writing giving particular account as to the articles or goods
destroyed and the amount of the loss or damage and (b) particulars
of all other insurances, if any. Likewise, insured was required "at his
own expense to produce, procure and give to the company all such
further particulars, plans, specifications, books, vouchers, invoices,
duplicates or copies thereof, documents, proofs and information
with respect to the claim". (Record on Appeal, pp. 18-20).
The evidence adduced shows that twenty-four (24) days after the
fire, petitioner merely wrote letters to private respondent to serve
as a notice of loss, thereafter, the former did not furnish the latter
whatever pertinent documents were necessary to prove and
estimate its loss. Instead, petitioner shifted upon private
respondent the burden of fishing out the necessary information to
ascertain the particular account of the articles destroyed by fire as
well as the amount of loss. It is noteworthy that private respondent
and its adjuster notified petitioner that insured had not yet filed a
written claim nor submitted the supporting documents in
compliance with the requirements set forth in the policy. Despite
the notice, the latter remained unheedful. Since the required claim
by insured, together with the preliminary submittal of relevant
documents had not been complied with, it follows that private
respondent could not be deemed to have finally rejected
petitioner's claim and therefore the latter's cause of action had not
yet arisen. Compliance with condition No. 11 is a requirement sine

qua non to the right to maintain an action as prior thereto no
violation of petitioner's right can be attributable to private
respondent. This is so, as before such final rejection, there was no
real necessity for bringing suit. Petitioner should have endeavored
to file the formal claim and procure all the documents, papers,
inventory needed by private respondent or its adjuster to ascertain
the amount of loss and after compliance await the final rejection of
its claim. Indeed, the law does not encourage unnecessary
litigation (Eagle Star Insurance Co., Ltd., et al. v. Chia Yu, p.
701, supra).<re||an1w>
Verily, petitioner prematurely filed Civil Case No. 56889 and
dismissal thereof was warranted under the circumstances. While it
is a cardinal principle of insurance law that a policy or contract of
insurance is to be construed liberally in favor of the insured and
strictly as against the insurer company (Eagle Star Insurance Co.,
Ltd., et al. v. Chia Yu, p. 702, supra; Taurus Taxi Co., Inc. v. The
Capital Ins. & Surety Co., Inc., 24 SCRA 458 [1968]; National Power
Corp. v. CA, 145 SCRA 533 [1986]), yet, contracts of insurance, like
other contracts, are to be construed according to the sense and
meaning of the terms which the parties themselves have used. If
such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense (Young v.
Midland Textile Ins. Co., 30 Phil. 617 [1919]; Union Manufacturing
Co., Inc. v. Phil. Guaranty Co., Inc., p. 277 supra; Pichel v. Alonzo, III
SCRA 341 [1982]; Gonzales v. CA, 124 SCRA 630 [1983]; GSIS v. CA,
145 SCRA 311 [1986]; Herrera v. Petrophil Corp., 146 SCRA 385
[1986]).
Contracts of insurance are contracts of indemnity upon the terms
and conditions specified in the policy. The parties have a right to
impose such reasonable conditions at the time of the making of the
contract as they may deem wise and necessary. The agreement has
the force of law between the parties. The terms of the policy
constitute the measure of the insurer's liability, and in order to
recover, the insured must show himself within those terms. The
compliance of the insured with the terms of the policy is a condition
precedent to the light of recovery (Stokes v. Malayan Insurance Co.,
Inc., 127 SCRA 766 [1984]).
It appearing that insured has violated or failed to perform the
conditions under No. 3 and 11 of the contract, and such violation or
want of performance has not been waived by the insurer, the
insured cannot recover, much less the herein petitioner. Courts are
not permitted to make contracts for the parties; the function and
duty of the courts is simply to enforce and carry out the contracts
actually made (Young v. Midland Textile Ins. Co., 30 Phil. 617
[1915]; Union Manufacturing Co. Inc. v. Phil. Guaranty Co. Inc., p.
276 supra).
Finally, the established rule in this jurisdiction that findings of fact
of the Court of Appeals when supported by substantial evidence,
are not reviewable on appeal by certiorari, deserves reiteration.
Said findings of the appellate court are final and cannot be
disturbed by the Supreme Court except in certain cases Lereos v.
CA, 117 SCRA 395 [1985]; Dalida v. CA, 117 SCRA 480 [1982]
Director of Lands v. CA, 117 SCRA 346 [1982]; Montesa v. CA, 117
SCRA 770 [1982]; Sacay v. Sandiganbayan, 142 SCRA 609 [1986];
Guita v. CA, 139 SCRA 576 [1985]; Manlapaz v. CA, 147 SCRA 238239 [1987]).
PREMISES CONSIDERED, the petition is DISMISSED for lack of merit,
and the decision appealed from is AFFIRMED. No costs.
SO ORDERED.
G.R. No. 48049 June 29, 1989

EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO
TAN, petitioners,
vs.
THE COURT OF APPEALS and THE PHILIPPINE AMERICAN
LIFE INSURANCE COMPANY, respondents.
O.F. Santos & P.C. Nolasco for petitioners.

Ferry, De la Rosa and Associates for private respondent.
GUTIERREZ, JR., J.:
The Court of Appeals dismissed ' the petitioners' appeal from the
Insurance Commissioner's decision for lack of merit
This is a petition for review on certiorari of the Court of Appeals'

decision affirming the decision of the Insurance Commissioner
which dismissed the petitioners' complaint against respondent
Philippine American Life Insurance Company for the recovery of the
proceeds from their late father's policy. The facts of the case as
found by the Court of Appeals are:
Petitioners appeal from the Decision of the
Commissioner dismissing herein petitioners'
against respondent Philippine American Life
Company for the recovery of the proceeds of
1082467 in the amount of P 80,000.00.
After hearing the evidence of both parties, the Insurance

Commissioner rendered judgment on August 9, 1977,
dismissing petitioners' complaint. (Rollo, pp. 91-92)
Insurance
complaint
Insurance
Policy No.
On September 23,1973, Tan Lee Siong, father of herein

petitioners, applied for life insurance in the amount of P
80,000.00 with respondent company. Said application was
approved and Policy No. 1082467 was issued effective
November 6,1973, with petitioners the beneficiaries thereof
(Exhibit A).
On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit
B). Petitioners then filed with respondent company their
claim for the proceeds of the life insurance policy. However,
in a letter dated September 11, 1975, respondent company
denied petitioners' claim and rescinded the policy by reason
of the alleged misrepresentation and concealment of
material facts made by the deceased Tan Lee Siong in his
application for insurance (Exhibit 3). The premiums paid on
the policy were thereupon refunded .
Alleging that respondent company's refusal to pay them the
proceeds of the policy was unjustified and unreasonable,
petitioners filed on November 27, 1975, a complaint against
the former with the Office of the Insurance Commissioner,
docketed as I.C. Case No. 218.
Hence, this petition.

The petitioners raise the following issues in their assignment of
errors, to wit:
A. The conclusion in law of respondent Court that
respondent insurer has the right to rescind the policy
contract when insured is already dead is not in accordance
with existing law and applicable jurisprudence.
B. The conclusion in law of respondent Court that
respondent insurer may be allowed to avoid the policy on
grounds of concealment by the deceased assured, is
contrary to the provisions of the policy contract itself, as
well as, of applicable legal provisions and established
jurisprudence.
C. The inference of respondent Court that respondent
insurer was misled in issuing the policy are manifestly
mistaken and contrary to admitted evidence. (Rollo, p. 7)
The petitioners contend that the respondent company no longer
had the right to rescind the contract of insurance as rescission
must allegedly be done during the lifetime of the insured within two
years and prior to the commencement of action.
The contention is without merit.
The pertinent section in the Insurance Code provides:
Section 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of
the insured for a period of two years from the date of its
issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindable by reason of
the fraudulent concealment or misrepresentation of the
insured or his agent.
According to the petitioners, the Insurance Law was amended and
the second paragraph of Section 48 added to prevent the insurance
company from exercising a right to rescind after the death of the
insured.
The so-called "incontestability clause" precludes the insurer from
raising the defenses of false representations or concealment of
material facts insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years
during the insured's lifetime. The phrase "during the lifetime" found
in Section 48 simply means that the policy is no longer considered
in force after the insured has died. The key phrase in the second
paragraph of Section 48 is "for a period of two years."
As noted by the Court of Appeals, to wit:
The policy was issued on November 6,1973 and the insured
died on April 26,1975. The policy was thus in force for a
period of only one year and five months. Considering that
the insured died before the two-year period had lapsed,
respondent company is not, therefore, barred from proving
that the policy is void ab initio by reason of the insured's
fraudulent concealment or misrepresentation. Moreover,
respondent company rescinded the contract of insurance
and refunded the premiums paid on September 11, 1975,
previous to the commencement of this action on November
27,1975. (Rollo, pp. 99-100)
xxx xxx xxx
The petitioners contend that there could have been no
concealment or misrepresentation by their late father because Tan
Lee Siong did not have to buy insurance. He was only pressured by
insistent salesmen to do so. The petitioners state:
Here then is a case of an assured whose application was
submitted because of repeated visits and solicitations by the
insurer's agent. Assured did not knock at the door of the
insurer to buy insurance. He was the object of solicitations

and visits.
Assured was a man of means. He could have obtained a
bigger insurance, not just P 80,000.00. If his purpose were
to misrepresent and to conceal his ailments in anticipation
of death during the two-year period, he certainly could have
gotten a bigger insurance. He did not.
Insurer Philamlife could have presented as witness its
Medical Examiner Dr. Urbano Guinto. It was he who
accomplished the application, Part II, medical. Philamlife did
not.
Philamlife could have put to the witness stand its Agent
Bienvenido S. Guinto, a relative to Dr. Guinto, Again
Philamlife did not. (pp. 138139, Rollo)
This Honorable Supreme Court has had occasion to
denounce the pressure and practice indulged in by agents in
selling insurance. At one time or another most of us have
been subjected to that pressure, that practice. This court
took judicial cognizance of the whirlwind pressure of
insurance selling-especially of the agent's practice of
'supplying the
information, preparing and answering the
application, submitting the
application
to
their
companies, concluding the
transactions
and
otherwisesmoothing out all difficulties.
We call attention to what this Honorable Court said in Insular Life v.
Feliciano, et al., 73 Phil. 201; at page 205:
It is of common knowledge that the selling of insurance
today is subjected to the whirlwind pressureof modern
salesmanship.
Insurance companies send detailed instructions to their
agents to solicit and procure applications.
These agents are to be found all over the length and
breadth of the land. They are stimulated to more active
efforts by contests and by the keen competition offered by
the other rival insurance companies.
They supply all the information, prepare and answer the

applications, submit the applications to their companies,
conclude the transactions, and otherwise smooth out all
difficulties.
The agents in short do what the company set them out to
do.
The Insular Life case was decided some forty years ago
when the pressure of insurance salesmanship was not
overwhelming as it is now; when the population of this
country was less than one-fourth of what it is now; when the
insurance companies competing with one another could be
counted by the fingers. (pp. 140-142, Rollo)
In the face of all the above, it would be unjust if, having
been subjected to the whirlwind pressure of insurance
salesmanship this Court itself has long denounced, the
assured who dies within the two-year period, should stand
charged of fraudulent concealment and misrepresentation."
(p. 142, Rollo)
The legislative answer to the arguments posed by the petitioners is
the "incontestability clause" added by the second paragraph of
Section 48.
The insurer has two years from the date of issuance of the
insurance contract or of its last reinstatement within which to
contest the policy, whether or not, the insured still lives within such
period. After two years, the defenses of concealment or
misrepresentation, no matter how patent or well founded, no longer
lie. Congress felt this was a sufficient answer to the various tactics
employed by insurance companies to avoid liability. The petitioners'
interpretation would give rise to the incongruous situation where
the beneficiaries of an insured who dies right after taking out and
paying for a life insurance policy, would be allowed to collect on the
policy even if the insured fraudulently concealed material facts.
The petitioners argue that no evidence was presented to show that
the medical terms were explained in a layman's language to the
insured. They state that the insurer should have presented its two
medical field examiners as witnesses. Moreover, the petitioners
allege that the policy intends that the medical examination must be
conducted before its issuance otherwise the insurer "waives
whatever imperfection by ratification."
We agree with the Court of Appeals which ruled:

On the other hand, petitioners argue that no evidence was
presented by respondent company to show that the
questions appearing in Part II of the application for
insurance were asked, explained to and understood by the
deceased so as to prove concealment on his part. The same
is not well taken. The deceased, by affixing his signature on
the application form, affirmed the correctness of all the
entries and answers appearing therein. It is but to be
expected that he, a businessman, would not have affixed his
signature on the application form unless he clearly
understood its significance. For, the presumption is that a
person intends the ordinary consequence of his voluntary
act and takes ordinary care of his concerns. [Sec. 5(c) and
(d), Rule 131, Rules of Court].
The evidence for respondent company shows that on
September 19,1972, the deceased was examined by Dr.
Victoriano Lim and was found to be diabetic and
hypertensive; that by January, 1973, the deceased was
complaining of progressive weight loss and abdominal pain
and was diagnosed to be suffering from hepatoma, (t.s.n.
August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr.
Wenceslao Vitug, testified that the deceased came to see
him on December 14, 1973 for consolation and claimed to
have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5;
Exhibit 6) Because of the concealment made by the
deceased of his consultations and treatments for
hypertension, diabetes and liver disorders, respondent
company was thus misled into accepting the risk and
approving his application as medically standard (Exhibit 5C) and dispensing with further medical investigation and
examination (Exhibit 5-A). For as long as no adverse medical
history is revealed in the application form, an applicant for
insurance is presumed to be healthy and physically fit and
no further medical investigation or examination is
conducted by respondent company. (t.s.n., April 8,1976, pp.
6-8). (Rollo, pp. 96-98)
There is no strong showing that we should apply the "fine print" or
"contract of adhesion" rule in this case. (Sweet Lines, Inc. v. Teves,
83 SCRA 361 [1978]). The petitioners cite:
It is a matter of common knowledge that large amounts of

money are collected from ignorant persons by companies
and associations which adopt high sounding titles and print
the amount of benefits they agree to pay in large blackfaced type, following such undertakings by fine print
conditions which destroy the substance of the promise. All
provisions, conditions, or exceptions which in any way tend
to work a forfeiture of the policy should be construed most
strongly against those for whose benefit they are inserted,
and most favorably toward those against whom they are
meant to operate. (Trinidad v. Orient Protective Assurance
Assn., 67 Phil. 184)
There is no showing that the questions in the application form for
insurance regarding the insured's medical history are in smaller
print than the rest of the printed form or that they are designed in
such a way as to conceal from the applicant their importance. If a
warning in bold red letters or a boxed warning similar to that
required for cigarette advertisements by the Surgeon General of
the United States is necessary, that is for Congress or the Insurance
Commission to provide as protection against high pressure
insurance salesmanship. We are limited in this petition to
ascertaining whether or not the respondent Court of Appeals
committed reversible error. It is the petitioners' burden to show that
the factual findings of the respondent court are not based on
substantial evidence or that its conclusions are contrary to
applicable law and jurisprudence. They have failed to discharge
that burden.
WHEREFORE, the petition is hereby DENIED for lack of merit. The
questioned decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. L-15774

November 29, 1920
PILAR C. DE LIM, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendantappellee.
Sanz and Luzuriaga for appellant.
Cohn and Fisher for appellee.
This is an appeal by plaintiff from an order of the Court of First

Instance of Zamboanga sustaining a demurrer to plaintiff's
complaint upon the ground that it fails to state a cause of action.
As the demurrer had the effect of admitting the material facts set
forth in the complaint, the facts are those alleged by the plaintiff.
On July 6, 1917, Luis Lim y Garcia of Zamboanga made application
to the Sun Life Assurance Company of Canada for a policy of
insurance on his life in the sum of P5,000. In his application Lim
designated his wife, Pilar C. de Lim, the plaintiff herein, as the
beneficiary. The first premium of P433 was paid by Lim, and upon
such payment the company issued what was called a "provisional
policy." Luis Lim y Garcia died on August 23, 1917, after the
issuance of the provisional policy but before approval of the
application by the home office of the insurance company. The
instant action is brought by the beneficiary, Pilar C. de Lim, to
recover from the Sun Life Assurance Company of Canada the sum
of P5,000, the amount named in the provisional policy.
The "provisional policy" upon which this action rests reads as
follows:
Received (subject to the following stipulations and
agreements) the sum of four hundred and thirty-three
pesos, being the amount of the first year's premium for a
Life Assurance Policy on the life of Mr. Luis D. Lim y Garcia of
Zamboanga for P5,000, for which an application dated the
6th day of July, 1917, has been made to the Sun Life
Assurance Company of Canada.
The above-mentioned life is to be assured in accordance
with the terms and conditions contained or inserted by the
Company in the policy which may be granted by it in this
particular case for four months only from the date of the
application, provided that the Company shall confirm this
agreement by issuing a policy on said application when the
same shall be submitted to the Head Office in Montreal.
Should the Company not issue such a policy, then this
agreement shall be null and void ab initio, and the Company
shall be held not to have been on the risk at all, but in such
case the amount herein acknowledged shall be returned.
[SEAL.]
(Sgd.) T. B. MACAULAY,
(Sgd.) A. F. Peters, Agent.
President.
MALCOLM, J.:
Our duty in this case is to ascertain the correct meaning of the

document above quoted. A perusal of the same many times by the
writer and by other members of the court leaves a decided
impression of vagueness in the mind. Apparently it is to be a
provisional policy "for four months only from the date of this
application." We use the term "apparently" advisedly, because
immediately following the words fixing the four months period
comes the word "provided" which has the meaning of "if."
Otherwise stated, the policy for four months is expressly made
subjected to the affirmative condition that "the company shall
confirm this agreement by issuing a policy on said application when
the same shall be submitted to the head office in Montreal." To
reenforce the same there follows the negative condition
Should the company not issue such a policy, then this agreement
shall be null and void ab initio, and the company shall be held not
to have been on the risk." Certainly, language could hardly be used
which would more clearly stipulate that the agreement should not
go into effect until the home office of the company should confirm
it by issuing a policy. As we read and understand the so-called
provisional policy it amounts to nothing but an acknowledgment on
behalf of the company, that it has received from the person named
therein the sum of money agreed upon as the first year's premium
upon a policy to be issued upon the application, if the application is
accepted by the company.
It is of course a primary rule that a contract of insurance, like other
contracts, must be assented to by both parties either in person or
by their agents. So long as an application for insurance has not
been either accepted or rejected, it is merely an offer or proposal to
make a contract. The contract, to be binding from the date of the
application, must have been a completed contract, one that leaves
nothing to be done, nothing to be completed, nothing to be passed
upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in
agreement. Our view is, that a contract of insurance was not here
consummated by the parties.lawph!l.net
Appellant relies on Joyce on Insurance. Beginning at page 253, of
Volume I, Joyce states the general rule concerning the agent's
receipt pending approval or issuance of policy. The first rule which
Joyce lays down is this: If the act of acceptance of the risk by the
agent and the giving by him of a receipt, is within the scope of the
agent's authority, and nothing remains but to issue a policy, then
the receipt will bind the company. This rule does not apply, for
while here nothing remained but to issue the policy, this was made
an express condition to the contract. The second rule laid down by
Joyce is this: Where an agreement is made between the applicant
and the agent whether by signing an application containing such
condition, or otherwise, that no liability shall attach until the
principal approves the risk and a receipt is given buy the agent,
such acceptance is merely conditional, and it subordinated to the
act of the company in approving or rejecting; so in life insurance a
"binding slip" or "binding receipt" does not insure of itself. This is
the rule which we believe applies to the instant case. The third rule
announced by Joyce is this: Where the acceptance by the agent is
within the scope of his authority a receipt containing a contract for
insurance for a specific time which is not absolute but conditional,
upon acceptance or rejection by the principal, covers the specified
period unless the risk is declined within that period. The case cited
by Joyce to substantiate the last principle is that a Goodfellow vs.
Times & Beacon Assurance Com. (17 U. C. Q. B., 411), not
available.
The two cases most nearly in point come from the federal courts
and the Supreme Court of Arkansas.
In the case of Steinle vs. New York Life Insurance Co. ([1897], 81
Fed., 489} the facts were that the amount of the first premium had
been paid to an insurance agent and a receipt given therefor. The
receipt, however, expressly declared that if the application was
accepted by the company, the insurance shall take effect from the
date of the application but that if the application was not accepted,
the money shall be returned. The trite decision of the circuit court
of appeal was, "On the conceded facts of this case, there was no
contract to life insurance perfected and the judgment of the circuit
court must be affirmed."
In the case of Cooksey vs. Mutual Life Insurance Co. ([1904], 73
Ark., 117) the person applying for the life insurance paid and
amount equal to the first premium, but the application and the
receipt for the money paid, stipulated that the insurance was to
become effective only when the application was approved and the
policy issued. The court held that the transaction did not amount to
an agreement for preliminary or temporary insurance. It was said:
It is not an unfamiliar custom among life insurance companies in
the operation of the business, upon receipt of an application for
insurance, to enter into a contract with the applicant in the shape
of a so-called "binding receipt" for temporary insurance pending
the consideration of the application, to last until the policy be

issued or the application rejected, and such contracts are upheld
and enforced when the applicant dies before the issuance of a
policy or final rejection of the application. It is held, too, that such
contracts may rest in parol. Counsel for appellant insists that such
a preliminary contract for temporary insurance was entered into in
this instance, but we do not think so. On the contrary, the clause in
the application and the receipt given by the solicitor, which are to
be read together, stipulate expressly that the insurance shall
become effective only when the "application shall be approved and
the policy duly signed by the secretary at the head office of the
company and issued." It constituted no agreement at all for
preliminary or temporary insurance; Mohrstadt vs. Mutual Life Ins.
Co., 115 Fed., 81, 52 C. C. A., 675; Steinle vs. New York Life Ins. Co.,
81 Fed., 489, 26 C. C. A., 491." (See further Weinfeld vs. Mutual
Reserve Fund Life Ass'n. [1892], 53 Fed, 208' Mohrstadt vs. Mutual
Life Insurance Co. [1902], 115 Fed., 81; Insurance co. vs. Young's
Administrator [1875], 90 U. S., 85; Chamberlain vs. Prudential
Insurance Company of America [1901], 109 Wis., 4; Shawnee Mut.
Fire Ins. Co. vs. McClure [1913], 39 Okla., 509; Dorman vs.
Connecticut Fire Ins. Co. [1914], 51 contra, Starr vs. Mutual Life Ins.
Co. [1905], 41 Wash., 228.)
We are of the opinion that the trial court committed no error in
sustaining the demurrer and dismissing the case. It is to be noted,
however, that counsel for appellee admits the liability of the
company for the return of the first premium to the estate of the
deceased. It is not to be doubted but that the Sun Life Assurance
Company of Canada will immediately, on the promulgation of this
decision, pay to the estate of the late Luis Lim y Garcia the of P433.
The order appealed from, in the nature of a final judgment is
affirmed, without special finding as to costs in this instance. So
ordered.
G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna &
Manalo for petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.
DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the
Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p.
58), because the petitioners in both cases seek similar relief,
through these petitions for certiorari by way of appeal, from the
amended decision of respondent Court of Appeals which affirmed in
toto the decision of the Court of First Instance of Cebu, ordering
"the defendants (herein petitioners Great Pacific Ligfe Assurance
Company and Mondragon) jointly and severally to pay plaintiff
(herein private respondent Ngo Hing) the amount of P50,000.00
with interest at 6% from the date of the filing of the complaint, and
the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing
filed an application with the Great Pacific Life Assurance Company
(hereinafter referred to as Pacific Life) for a twenty-year
endownment policy in the amount of P50,000.00 on the life of his

one-year old daughter Helen Go. Said respondent supplied the
essential data which petitioner Lapulapu D. Mondragon, Branch
Manager of the Pacific Life in Cebu City wrote on the corresponding
form in his own handwriting (Exhibit I-M). Mondragon finally typewrote the data on the application form which was signed by private
respondent Ngo Hing. The latter paid the annual premuim the sum
of P1,077.75 going over to the Company, but he reatined the
amount of P1,317.00 as his commission for being a duly authorized
agebt of Pacific Life. Upon the payment of the insurance premuim,
the binding deposit receipt (Exhibit E) was issued to private
respondent Ngo Hing. Likewise, petitioner Mondragon handwrote at
the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application.
Then on April 30, 1957, Mondragon received a letter from Pacific
Life disapproving the insurance application (Exhibit 3-M). The letter
stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old,
but Pacific Life can consider the same under the Juvenile Triple
Action Plan, and advised that if the offer is acceptable, the Juvenile
Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was
allegedly not communicated by petitioner Mondragon to private
respondent Ngo Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific Life again strongly recommending the approval of the
20-year endowment insurance plan to children, pointing out that
since 1954 the customers, especially the Chinese, were asking for
such coverage (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen
Go died of influenza with complication of bronchopneumonia.
Thereupon, private respondent sought the payment of the proceeds
of the insurance, but having failed in his effort, he filed the action
for the recovery of the same before the Court of First Instance of
Cebu, which rendered the adverse decision as earlier refered to
against both petitioners.
The decisive issues in these cases are: (1) whether the binding
deposit receipt (Exhibit E) constituted a temporary contract of the
life insurance in question; and (2) whether private respondent Ngo
Hing concealed the state of health and physical condition of Helen
Go, which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before

a deposit is considered a BINDING RECEIPT. These conditions state
that:
A. If the Company or its agent, shan have received
the premium deposit ... and the insurance
application, ON or PRIOR to the date of medical
examination ... said insurance shan be in force and in
effect from the date of such medical examination, for
such
period
as
is
covered
by
the
deposit ...,PROVIDED the company shall be satisfied
that on said date the applicant was insurable on
standard rates under its rule for the amount of
insurance and the kind of policy requested in the
application.
D. If the Company does not accept the application on
standard rate for the amount of insurance and/or the
kind of policy requested in the application but issue,
or offers to issue a policy for a different plan and/or
amount ..., the insurance shall not be in force and in
effect until the applicant shall have accepted the
policy as issued or offered by the Company and shall
have paid the full premium thereof. If the applicant
does not accept the policy, the deposit shall be
refunded.
E. If the applicant shall not have been insurable
under Condition A above, and the Company declines
to approve the application the insurance applied for
shall not have been in force at any time and the sum
paid be returned to the applicant upon the surrender
of this receipt. (Emphasis Ours).
The aforequoted provisions printed on Exhibit E show that the
binding deposit receipt is intended to be merely a provisional or
temporary insurance contract and only upon compliance of the
following conditions: (1) that the company shall be satisfied that
the applicant was insurable on standard rates; (2) that if the
company does not accept the application and offers to issue a
policy for a different plan, the insurance contract shall not be
binding until the applicant accepts the policy offered; otherwise,
the deposit shall be reftmded; and (3) that if the applicant is not ble
according to the standard rates, and the company disapproves the
application, the insurance applied for shall not be in force at any

time, and the premium paid shall be returned to the applicant.
determined, before it shall take effect. There can be no contract of

insurance unless the minds of the parties have met in agreement."
Clearly implied from the aforesaid conditions is that the binding

deposit receipt in question is merely an acknowledgment, on behalf
of the company, that the latter's branch office had received from
the applicant the insurance premium and had accepted the
application subject for processing by the insurance company; and
that the latter will either approve or reject the same on the basis of
whether or not the applicant is "insurable on standard rates." Since
petitioner Pacific Life disapproved the insurance application of
respondent Ngo Hing, the binding deposit receipt in question had
never become in force at any time.
We are not impressed with private respondent's contention that

failure of petitioner Mondragon to communicate to him the
rejection of the insurance application would not have any adverse
effect on the allegedly perfected temporary contract (Respondent's
Brief, pp. 13-14). In this first place, there was no contract perfected
between the parties who had no meeting of their minds. Private
respondet, being an authorized insurance agent of Pacific Life at
Cebu branch office, is indubitably aware that said company does
not offer the life insurance applied for. When he filed the insurance
application in dispute, private respondent was, therefore, only
taking the chance that Pacific Life will approve the recommendation
of Mondragon for the acceptance and approval of the application in
question along with his proposal that the insurance company starts
to offer the 20-year endowment insurance plan for children less
than seven years. Nonetheless, the record discloses that Pacific Life
had rejected the proposal and recommendation. Secondly, having
an insurable interest on the life of his one-year old daughter, aside
from being an insurance agent and an offense associate of
petitioner Mondragon, private respondent Ngo Hing must have
known and followed the progress on the processing of such
application and could not pretend ignorance of the Company's
rejection of the 20-year endowment life insurance application.
Upon this premise, the binding deposit receipt (Exhibit E) is,

manifestly, merely conditional and does not insure outright. As held
by this Court, where an agreement is made between the applicant
and the agent, no liability shall attach until the principal approves
the risk and a receipt is given by the agent. The acceptance is
merely conditional and is subordinated to the act of the company in
approving or rejecting the application. Thus, in life insurance, a
"binding slip" or "binding receipt" does not insure by itself (De Lim
vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication
of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the
insurance application in question on the ground that it is not
offering the twenty-year endowment insurance policy to children
less than seven years of age. What it offered instead is another
plan known as the Juvenile Triple Action, which private respondent
failed to accept. In the absence of a meeting of the minds between
petitioner Pacific Life and private respondent Ngo Hing over the 20year endowment life insurance in the amount of P50,000.00 in
favor of the latter's one-year old daughter, and with the noncompliance of the abovequoted conditions stated in the disputed
binding deposit receipt, there could have been no insurance
contract duly perfected between thenl Accordingly, the deposit paid
by private respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of
Canada, supra, "a contract of insurance, like other contracts, must
be assented to by both parties either in person or by their agents ...
The contract, to be binding from the date of the application, must
have been a completed contract, one that leaves nothing to be
dione, nothing to be completed, nothing to be passed upon, or
At this juncture, We find it fit to quote with approval, the very apt
observation of then Appellate Associate Justice Ruperto G. Martin
who later came up to this Court, from his dissenting opinion to the
amended decision of the respondent court which completely
reversed the original decision, the following:
Of course, there is the insinuation that neither the
memorandum of rejection (Exhibit 3-M) nor the reply
thereto of appellant Mondragon reiterating the desire
for applicant's father to have the application
considered as one for a 20-year endowment plan was
ever duly communicated to Ngo; Hing, father of the
minor applicant. I am not quite conninced that this
was so. Ngo Hing, as father of the applicant herself,
was precisely the "underwriter who wrote this case"
(Exhibit H-1). The unchallenged statement of
appellant Mondragon in his letter of May 6, 1957)
(Exhibit 4-M), specifically admits that said Ngo Hing
was "our associate" and that it was the latter who
"insisted that the plan be placed on the 20-year

endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of
the application was not brought home to his
knowledge. He must have been duly apprised of the
rejection of the application for a 20-year endowment
plan otherwise Mondragon would not have asserted
that it was Ngo Hing himself who insisted on the
application as originally filed, thereby implictly
declining the offer to consider the application under
the Juvenile Triple Action Plan. Besides, the associate
of Mondragon that he was, Ngo Hing should only be
presumed to know what kind of policies are available
in the company for minors below 7 years old. What
he and Mondragon were apparently trying to do in
the premises was merely to prod the company into
going into the business of issuing endowment
policies for minors just as other insurance companies
allegedly do. Until such a definite policy is however,
adopted by the company, it can hardly be said that it
could have been bound at all under the binding slip
for a plan of insurance that it could not have, by then
issued at all. (Amended Decision, Rollo, pp- 52-53).
vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to

communicate that which a partY knows aDd Ought to communicate
(Section 25, Act No. 2427). Whether intentional or unintentional the
concealment entitles the insurer to rescind the contract of
insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et
al, 105 Phil 930; Satumino vs. Philippine American Life Insurance
Company, 7 SCRA 316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was
perfected between the parties with the noncompliance of the
conditions provided in the binding receipt, and concealment, as
legally defined, having been comraitted by herein private
respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in
lieu thereof, one is hereby entered absolving petitioners Lapulapu
D. Mondragon and Great Pacific Life Assurance Company from their
civil liabilities as found by respondent Court and ordering the
aforesaid insurance company to reimburse the amount of
P1,077.75, without interest, to private respondent, Ngo Hing. Costs
against private respondent.
SO ORDERED.
2. Relative to the second issue of alleged concealment. this Court is

of the firm belief that private respondent had deliberately
concealed the state of health and piysical condition of his daughter
Helen Go. Wher private regpondeit supplied the required essential
data for the insurance application form, he was fully aware that his
one-year old daughter is typically a mongoloid child. Such a
congenital physical defect could never be ensconced nor
disguished. Nonetheless, private respondent, in apparent bad faith,
withheld the fact materal to the risk to be assumed by the
insurance compary. As an insurance agent of Pacific Life, he ought
to know, as he surely must have known. his duty and responsibility
to such a material fact. Had he diamond said significant fact in the
insurance application fom Pacific Life would have verified the same
and would have had no choice but to disapprove the application
outright.
The contract of insurance is one of perfect good faith uberrima
fides meaning good faith, absolute and perfect candor or openness
and honesty; the absence of any concealment or demotion,
however slight [Black's Law Dictionary, 2nd Edition], not for the
alone but equally so for the insurer (Field man's Insurance Co., Inc.
insured under the two marine policies accordingly consisted

of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
G.R. No. L-38613 February 25, 1982
PACIFIC TIMBER EXPORT CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and WORKMEN'S
INSURANCE COMPANY, INC., respondents.
DE CASTRO, ** J.:
This petition seeks the review of the decision of the Court of
Appeals reversing the decision of the Court of First Instance of
Manila in favor of petitioner and against private respondent which
ordered the latter to pay the sum of Pll,042.04 with interest at the
rate of 12% interest from receipt of notice of loss on April 15, 1963
up to the complete payment, the sum of P3,000.00 as attorney's
fees and the costs 1 thereby dismissing petitioner s complaint with
costs. 2
The findings of the of fact of the Court of Appeals, which are
generally binding upon this Court, Except as shall be indicated in
the discussion of the opinion of this Court the substantial
correctness of still particular finding having been disputed, thereby
raising a question of law reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance
from the defendant for its exportation of 1,250,000 board
feet of Philippine Lauan and Apitong logs to be shipped from
the Diapitan. Bay, Quezon Province to Okinawa and Tokyo,
Japan. The defendant issued on said date Cover Note No.
1010, insuring the said cargo of the plaintiff "Subject to the
Terms and Conditions of the WORKMEN'S INSURANCE
COMPANY, INC. printed Marine Policy form as filed with and
approved by the Office of the Insurance Commissioner
(Exhibit A).
The regular marine cargo policies were issued by the
defendant in favor of the plaintiff on April 2, 1963. The two
marine policies bore the numbers 53 HO 1032 and 53 HO
1033 (Exhibits B and C, respectively). Policy No. 53 H0 1033
(Exhibit B) was for 542 pieces of logs equivalent to 499,950
board feet. Policy No. 53 H0 1033 was for 853 pieces of logs
equivalent to 695,548 board feet (Exhibit C). The total cargo
After the issuance of Cover Note No. 1010 (Exhibit A), but
before the issuance of the two marine policies Nos. 53 HO
1032 and 53 HO 1033, some of the logs intended to be
exported were lost during loading operations in the Diapitan
Bay. The logs were to be loaded on the 'SS Woodlock' which
docked about 500 meters from the shoreline of the Diapitan
Bay. The logs were taken from the log pond of the plaintiff
and from which they were towed in rafts to the vessel. At
about 10:00 o'clock a. m. on March 29, 1963, while the logs
were alongside the vessel, bad weather developed resulting
in 75 pieces of logs which were rafted together co break
loose from each other. 45 pieces of logs were salvaged, but
30 pieces were verified to have been lost or washed away as
a result of the accident.
In a letter dated April 4, 1963, the plaintiff informed the defendant
about the loss of 'appropriately 32 pieces of log's during loading of
the 'SS Woodlock'. The said letter (Exhibit F) reads as follows:
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for
shipment of 1,250,000 bd. ft. Philippine Lauan and Apitong
Logs. We would like to inform you that we have received
advance preliminary report from our Office in Diapitan,
Quezon that we have lost approximately 32 pieces of logs
during loading of the SS Woodlock.
We will send you an accurate report all the details including
values as soon as same will be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.

Although dated April 4, 1963, the letter was received in the
office of the defendant only on April 15, 1963, as shown by
the stamp impression appearing on the left bottom corner of
said letter. The plaintiff subsequently submitted a 'Claim
Statement demanding payment of the loss under Policies
Nos. 53 HO 1032 and 53 HO 1033, in the total amount of
P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First
Philippine Adjustment Corporation to inspect the loss and
assess the damage. The adjustment company submitted its
'Report on August 23, 1963 (Exhibit H). In said report, the
adjuster found that 'the loss of 30 pieces of logs is not
covered by Policies Nos. 53 HO 1032 and 1033 inasmuch as
said policies covered the actual number of logs loaded on
board the 'SS Woodlock' However, the loss of 30 pieces of
logs is within the 1,250,000 bd. ft. covered by Cover Note
1010 insured for $70,000.00.
On September 14, 1963, the adjustment company
submitted a computation of the defendant's probable
liability on the loss sustained by the shipment, in the total
amount of Pl1,042.04 (Exhibit 4).
On January 13, 1964, the defendant wrote the plaintiff
denying the latter's claim, on the ground they defendant's
investigation revealed that the entire shipment of logs
covered by the two marines policies No. 53 110 1032 and
713 HO 1033 were received in good order at their point of
destination. It was further stated that the said loss may be
considered as covered under Cover Note No. 1010 because
the said Note had become 'null and void by virtue of the
issuance of Marine Policy Nos. 53 HO 1032 and 1033'(Exhibit
J-1). The denial of the claim by the defendant was brought
by the plaintiff to the attention of the Insurance
Commissioner by means of a letter dated March 21, 1964
(Exhibit K). In a reply letter dated March 30, 1964, Insurance
Commissioner Francisco Y. Mandanas observed that 'it is
only fair and equitable to indemnify the insured under Cover
Note No. 1010', and advised early settlement of the said
marine loss and salvage claim (Exhibit L).
On June 26, 1964, the defendant informed the Insurance

Commissioner that, on advice of their attorneys, the claim of
the plaintiff is being denied on the ground that the cover
note is null and void for lack of valuable consideration
(Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
COVER NOTE WAS NULL AND VOID FOR LACK OF VALUABLE
CONSIDERATION BECAUSE THE COURT DISREGARDED THE
PROVEN FACTS THAT PREMIUMS FOR THE COMPREHENSIVE
INSURANCE COVERAGE THAT INCLUDED THE COVER NOTE
WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER
NOTE WAS PAID BY PETITIONER AND THAT NO SEPARATE
PREMIUMS ARE COLLECTED BY PRIVATE RESPONDENT ON
ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE
RESPONDENT WAS RELEASED FROM LIABILITY UNDER THE
COVER NOTE DUE TO UNREASONABLE DELAY IN GIVING
NOTICE OF LOSS BECAUSE THE COURT DISREGARDED THE
PROVEN FACT THAT PRIVATE RESPONDENT DID NOT
PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE
GROUND OF DELAY IN GIVING NOTICE OF LOSS AND,
CONSEQUENTLY, OBJECTIONS ON THAT GROUND ARE
WAIVED UNDER SECTION 84 OF THE INSURANCE ACT. 5
1. Petitioner contends that the Cover Note was issued with a
consideration when, by express stipulation, the cover note is made
subject to the terms and conditions of the marine policies, and the
payment of premiums is one of the terms of the policies. From this
undisputed fact, We uphold petitioner's submission that the Cover
Note was not without consideration for which the respondent court
held the Cover Note as null and void, and denied recovery
therefrom. The fact that no separate premium was paid on the
Cover Note before the loss insured against occurred, does not
militate against the validity of petitioner's contention, for no such
premium could have been paid, since by the nature of the Cover
Note, it did not contain, as all Cover Notes do not contain
particulars of the shipment that would serve as basis for the
computation of the premiums. As a logical consequence, no

separate premiums are intended or required to be paid on a Cover
Note. This is a fact admitted by an official of respondent company,
Juan Jose Camacho, in charge of issuing cover notes of the
respondent company (p. 33, tsn, September 24, 1965).
should legally operate otherwise, it would serve no practical

purpose in the realm of commerce, and is supported by the
doctrine that where a policy is delivered without requiring payment
of the premium, the presumption is that a credit was intended and
policy is valid. 7
At any rate, it is not disputed that petitioner paid in full all the
premiums as called for by the statement issued by private
respondent after the issuance of the two regular marine insurance
policies, thereby leaving no account unpaid by petitioner due on
the insurance coverage, which must be deemed to include the
Cover Note. If the Note is to be treated as a separate policy instead
of integrating it to the regular policies subsequently issued, the
purpose and function of the Cover Note would be set at naught or
rendered meaningless, for it is in a real sense a contract, not a
mere application for insurance which is a mere offer. 6
2. The defense of delay as raised by private respondent in resisting

the claim cannot be sustained. The law requires this ground of
delay to be promptly and specifically asserted when a claim on the
insurance agreement is made. The undisputed facts show that
instead of invoking the ground of delay in objecting to petitioner's
claim of recovery on the cover note, it took steps clearly indicative
that this particular ground for objection to the claim was never in
its mind. The nature of this specific ground for resisting a claim
places the insurer on duty to inquire when the loss took place, so
that it could determine whether delay would be a valid ground upon
which to object to a claim against it.
It may be true that the marine insurance policies issued were for
logs no longer including those which had been lost during loading
operations. This had to be so because the risk insured against is not
for loss during operations anymore, but for loss during transit, the
logs having already been safely placed aboard. This would make no
difference, however, insofar as the liability on the cover note is
concerned, for the number or volume of logs lost can be
determined independently as in fact it had been so ascertained at
the instance of private respondent itself when it sent its own
adjuster to investigate and assess the loss, after the issuance of
the marine insurance policies.
The adjuster went as far as submitting his report to respondent, as
well as its computation of respondent's liability on the insurance
coverage. This coverage could not have been no other than what
was stipulated in the Cover Note, for no loss or damage had to be
assessed on the coverage arising from the marine insurance
policies. For obvious reasons, it was not necessary to ask petitioner
to pay premium on the Cover Note, for the loss insured against
having already occurred, the more practical procedure is simply to
deduct the premium from the amount due the petitioner on the
Cover Note. The non-payment of premium on the Cover Note is,
therefore, no cause for the petitioner to lose what is due it as if
there had been payment of premium, for non-payment by it was
not chargeable against its fault. Had all the logs been lost during
the loading operations, but after the issuance of the Cover Note,
liability on the note would have already arisen even before
payment of premium. This is how the cover note as a "binder"
As already stated earlier, private respondent's reaction upon

receipt of the notice of loss, which was on April 15, 1963, was to set
in motion from July 1963 what would be necessary to determine the
cause and extent of the loss, with a view to the payment thereof on
the insurance agreement. Thus it sent its adjuster to investigate
and assess the loss in July, 1963. The adjuster submitted his report
on August 23, 1963 and its computation of respondent's liability on
September 14, 1963. From April 1963 to July, 1963, enough time
was available for private respondent to determine if petitioner was
guilty of delay in communicating the loss to respondent company.
In the proceedings that took place later in the Office of the
Insurance Commissioner, private respondent should then have
raised this ground of delay to avoid liability. It did not do so. It must
be because it did not find any delay, as this Court fails to find a real
and substantial sign thereof. But even on the assumption that there
was delay, this Court is satisfied and convinced that as expressly
provided by law, waiver can successfully be raised against private
respondent. Thus Section 84 of the Insurance Act provides:
Section 84.Delay in the presentation to an insurer
of notice or proof of loss is waived if caused by any
act of his or if he omits to take objection promptly
and specifically upon that ground.
From what has been said, We find duly substantiated petitioner's
assignments of error.
ACCORDINGLY, the appealed decision is set aside and the decision

of the Court of First Instance is reinstated in toto with the
affirmance of this Court. No special pronouncement as to costs.
SO ORDERED.
On January 15, 1946, Atkin, Kroll & Co., loaded on the S. S. Roeph
Silverlight owned and operated by Leigh Hoegh & Co., A/S, of San
Francisco California, 14 bales of assorted underwear valued at
P8,085.23 consigned to Chia Yu in the City of Manila. The shipment
was insured against all risks by Eagle Star Ins. Co. of San Francisco,
California, under a policy issued to the shipper and by the latter
assigned to the consignee. The vessel arrived in Manila on February
10, 1946, and on March 4 started discharging its cargo into the
custody of the Manila Terminal Co., Inc., which was then operating
the arrastre service for the Bureau of Customs. But the 14 bales
consigned to Chia Yu only 10 were delivered to him as the
remaining 3 could not be found. Three of those delivered were also
found damaged to the extent of 50 per cent.
Chia Yu claimed indemnity for the missing and damaged bales. But
the claim was declined, first, by the carrier and afterward by the
insurer, whereupon Chia Yu brought the present action against
both, including their respective agents in the Philippines.
Commenced in the Court of First Instance of Manila on November
16, 1948, or more than two years after delivery of the damaged
bales and the date when the missing bales should have been
delivered, the action was resisted by the defendants principally on
the ground of prescription. But the trial court found for plaintiff and
rendered judgment in his favor for the sum claimed plus legal
interest and costs. The judgment was affirmed by the Court of
Appeals, and the case is now before us on appeal by certiorari.
Except for the controversy as to the amount for which the carrier
could be held liable under the terms of the bill of lading, the only
question presented for determination is whether plaintiff's action
has prescribed.
G.R. No. L-5915
March 31, 1955
EAGLE STAR INSURANCE CO., LTD., KURR STEAMSHIP CO.,

INC., ROOSEVELT STEAMSHIP AGENCY, INC., and LEIF HOEGH
& COMPANY, A/S., petitioners,
vs.
CHIA YU, respondent.
Ross, Selph, Carrascoso and Janda and Delfin L. Gonzales for
petitioner.
Nabong and Sese for respondent.
REYES, A., J.:
On the part of the carrier the defense of prescription is made to

rest on the following stipulation of the bill of lading:
In any event the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit is
brought within one year after the delivery of the goods or
the date when the goods should have been delivered.
The stipulation is but a repetition of a provision contained in section
3 (6) of the United States Carriage of Goods by Sea, Act of 1936,
which was adopted and made applicable to the Philippines by
Commonwealth Act 65 and by express agreement incorporated by
reference in the bill of lading. Following our decision in Chua Kuy vs.
Everett Steamship Corporation, 1 G. R. No L-5554 (May 27, 1953)

and in E. R. Elser, Inc., et al., vs. Court of Appeals,. et al.,2 G. R. No.
L-6517 (November 29, 1954) giving force and effect to this kind of
stipulation in bills of lading covering shipments from the United
States to the Philippines, we have to hold that plaintiff's failure to
bring his action "within one year after the delivery of the goods or
the date when the goods should have been delivered" discharged
the carrier from all liability. This dispenses with the necessity of
deciding how much could be recovered from the carrier under the
terms of the bill of lading.
The case for the insurer stands on a different footing, for its claim
of prescription is founded upon the terms of the policy and not
upon the bill of lading. Under our law the time limit for bringing a
civil action upon a written contract is ten years after the right of
action accrues. (Sec. 43, Act 190; Art. 1144, New Civil Code.) But
counsel for the insurer claim that this statutory in the policy:
No suit action on this Policy, for the recovery of any claim,
shall be sustainable in any Court of law or equity unless the
insured shall have fully complied with all the terms and
conditions of this Policy nor unless commenced with twelve
(12) months next after the happening of the loss . . .
To this we cannot agree.
In the case of E. Macias & Co. vs. China Fire Insurance & Co., Ltd.,
et al., 46 Phil. 345, relied upon by the insurer, this Court held that a
clause in an insurance policy providing that an action upon the
policy by the insured must be brought within a certain time is, if
reasonable, valid and will prevail over statutory limitations of the
action. That decision, however, was rendered before the passage of
Act 4101, which amended the Insurance Act by inserting the
following section in chapter one thereof:
SEC. 61-A. Any condition, stipulation or agreement in any
policy of insurance, limiting the time for commencing an
action thereunder to a period of less than one year from the
time when the cause of action accrues, is void.
As "matters respecting a remedy, such as the bringing of suit,
admissibility of evidence, and statute of limitations, depend upon
the law of the place where the suit is brought" (Insular
Government vs. Frank, 13 Phil. 236), any policy clause repugnant to
this amendment to the Insurance Act cannot be given effect in an

action in our courts.
Examining the policy sued upon in the present case, we find that its
prescriptive clause, if given effect in accordance with the terms of
the policy, would reduce the period allowed the insured for bringing
his action to less than one year. This is so because the said clause
makes the prescriptive period begin from the happening of the loss
and at the same time provides that the no suit on the policy shall
be sustainable in any court unless the insured shall have first fully
complied with all the terms and conditions of the policy, among
them that which requires that, as so as the loss is determined,
written claim therefor be filed with the carrier and that the letter to
the carrier and the latter's reply should be attached to the claim
papers to be sent to the insurer. It is obvious that compliance with
this condition precedent will necessarily consume time and thus
shorten the period for bringing suit to less than one year if the
period is to begin, as stated in the policy, from "the happening of
the loss." Being contrary to the law of the forum, such stipulation
cannot be given effect.
It may perhaps be suggested that the policy clause relied on by the
insurer for defeating plaintiff's action should be given the
construction that would harmonize it with section 61-A of the
Insurance Act by taking it to mean that the time given the insured
for bringing his suit is twelve months after the cause of action
accrues. But the question then would be: When did the cause of
action accrue? On that question we agree with the court below that
plaintiff's cause of action did not accrue until his claim was finally
rejected by the insurance company. This is because, before such
final rejection, there was no real necessity for bringing suit. As the
policy provides that the insured should file his claim, first, with the
carrier and then with the insurer, he had a right to wait for his claim
to be finally decided before going to court. The law does not
encourages unnecessary litigation.
At this junction it should be explained that while the decision of the
Court of Appeals states that the claim against the insurance
company "was finally rejected o April 22, 1947, as correctly
concluded by the court below," it is obvious from the context and
we find it to be a fact that the date meant was April 22, 1948, for
this was the date when, according to the finding of the trial court,
the insurance company in London rejected the claim. The trial
court's decision says:
On September 21, 1946, after Roosevelt Steamship Agency

Inc., and Manila Terminal Co., Inc., denied plaintiff's claim, a
formal insurance claim was filed with Kerr & Co., Ltd., local
agents of Eagle Star Insurance Co., Ltd., (Exh. L.)Kerr & Co.,
Ltd., referred the insurance claim to Eagle Star Insurance
Co., Ltd. in London but the latter, after insistent request of
plaintiffs for action, rejected the claim on April 22, 1948,
giving as its reasons the lapse of the expiry day of the risks
covered by the policy and returned the claim documents
only in August of 1948. (pp. 87-88, Record on Appeal.)
Furthermore, there is nothing in the record to show that the claim
was rejected in the year 1947, either by the insurance company in
London or its settling agents in the Philippines, while on the other
hand defendant's own Exhibit L-1 is indisputable proof that it was
on 22nd April 1948" that the settling agents informed the claimant
"that after due and careful consideration, our Principals confirm our
declination of this claim." It not appearing that the settling agents'
decision on claims against their principals were not subject to
reversal or modification by the latter, while on the contrary the
insurance policy expressly stipulates, under the heading "Important
Notice," that the said agents "have authority to certify only as to
the nature, cause and extent of the damage," and it furthermore
appearing that a reiteration of plaintiffs claim was made to the
principals and the latter gave it due course since only "after due
and careful consideration" did they confirm the action taken by the
agents, we conclude that, for the purpose of the present action, we
should consider plaintiff's claim to have been finally rejected by the
insurer on April 22, 1948. Having been filed within twelve months
form that date, the action cannot be deemed to have prescribed
even on the supposition that the period given the insured for
bringing suit under the prescriptive clause of the policy is twelve
months after the accrual of the cause of action.
In concluding, we may state that contractual limitations contained
in insurance policies are regarded with extreme jealousy by courts
and will be strictly construed against the insurer and should not be
permitted to prevent a recovery when their just and honest
application would not produce that result. (46 C. J. S. 273.)
Wherefore, the judgment appealed from is reversed with respect to
the carrier and its agents but affirmed with respect to the insurance
company and its agents, with costs against the latter.

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G.R. No.

4. Defendants to pay attorneys fees of P20,000.00, plus

During the period of his coverage, Ernani suffered a heart attack

On appeal, the Court of Appeals affirmed the decision of the trial

Petitioner argues that the agreement grants "living benefits," such

one year, as compared to insurance contracts which last

or other stipulated contingent, the health care provider must pay

Petitioner cannot rely on the stipulation regarding "Invalidation of

the contract. Having assumed a responsibility under the

Anent the incontestability of the membership of respondents

G.R. No. L-41014 November 28, 1988

On January 28, 1964, private respondent informed counsel for the

It will be noted that the defense of fraud and/or violation of

NOTWITHSTANDING THE LETTER, (EXHIBIT "C") OF

(a) The respondent Court did not consider

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE

(c) The private respondent insurer did not

RESPONDENT COURT OF APPEALS COMMITTED A GRAVE

(d) The total amount of insurance

The crux of the controversy centers on two points: (a) unrevealed

RESPONDENT COURT ERRED IN NOT HOLDING THAT

3. The Insured shall give notice to the Company of any

that is, to protect the mortgagee/assignee against any untoward

Petitioner's contention that the allegation of fraud is but a mere

It is obvious that petitioner has missed all together the import of

As the insurance policy against fire expressly required that notice

exceptions to the general rule that

the introduction of evidence but on the contrary, presented the

yet arisen. Compliance with condition No. 11 is a requirement sine

G.R. No. 48049 June 29, 1989

O.F. Santos & P.C. Nolasco for petitioners.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals'

After hearing the evidence of both parties, the Insurance

On September 23,1973, Tan Lee Siong, father of herein

Hence, this petition.

insurer to buy insurance. He was the object of solicitations

They supply all the information, prepare and answer the

We agree with the Court of Appeals which ruled:

It is a matter of common knowledge that large amounts of

G.R. No. L-15774

This is an appeal by plaintiff from an order of the Court of First

Our duty in this case is to ascertain the correct meaning of the

the consideration of the application, to last until the policy be

G.R. No. L-31845 April 30, 1979

endownment policy in the amount of P50,000.00 on the life of his

1. At the back of Exhibit E are condition precedents required before

application, the insurance applied for shall not be in force at any

determined, before it shall take effect. There can be no contract of

Clearly implied from the aforesaid conditions is that the binding

We are not impressed with private respondent's contention that

Upon this premise, the binding deposit receipt (Exhibit E) is,

"insisted that the plan be placed on the 20-year

vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to

2. Relative to the second issue of alleged concealment. this Court is

insured under the two marine policies accordingly consisted

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

On June 26, 1964, the defendant informed the Insurance