insurance batch 1

8/10/2019 Insurance Batch 1

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G.R. No. 82036 May 22, 1997

TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner,vs.HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.

The petition herein seeks the review and reversal of the decision 1of respondent Courtof Appeals 2affirming in totothe judgment 3of the Regional Trial Court 4in an action fordamages 5filed by private respondent Vicente Mendoza, Jr. as heir of his mother whowas killed in a vehicular accident.

Before the trial court, the complainant lumped the erring taxicab driver, the owner of thetaxicab, and the alleged insurer of the vehicle which featured in the vehicular accidentinto one complaint. The erring taxicab was allegedly covered by a third-party liabilityinsurance policy issued by petitioner Travellers Insurance & Surety Corporation.

The evidence presented before the trial court established the following facts:

At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the nameof Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral.While walking along Tayuman corner Gregorio Perfecto Streets, she was bumped by ataxi that was running fast. Several persons witnessed the accident, among whom wereRolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the bumping, the old womanwas seen sprawled on the pavement. Right away, the good Samaritan that he was,Mavilla ran towards the old woman and held her on his lap to inquire from her what hadhappened, but obviously she was already in shock and could not talk. At this moment, aprivate jeep stopped. With the driver of that vehicle, the two helped board the old woman

on the jeep and brought her to the Mary Johnston Hospital in Tondo.

. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street fromPritil, Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It was on hisreturn trip from Rizal Avenue when Lopez saw the plaintiff and his brother who werecrying near the scene of the accident. Upon learning that the two were the sons of the oldwoman, Lopez told them what had happened. The Mendoza brothers were then able totrace their mother at the Mary Johnston Hospital where they were advised by theattending physician that they should bring the patient to the National Orthopedic Hospitalbecause of her fractured bones. Instead, the victim was brought to the U.S.T. Hospitalwhere she expired at 9:00 o'clock that same morning. Death was caused by "traumaticshock" as a result of the severe injuries she sustained . . .

. . . The evidence shows that at the moment the victim was bumped by the vehicle, thelatter was running fast, so much so that because of the strong impact the old woman wasthrown away and she fell on the pavement. . . . In truth, in that related criminal caseagainst defendant Dumlao . . . the trial court found as a fact that therein accused "wasdriving the subject taxicab in a careless, reckless and imprudent manner and at a speedgreater than what was reasonable and proper without taking the necessary precaution toavoid accident to persons . . . considering the condition of the traffic at the place at thetime aforementioned" . . . Moreover, the driver fled from the scene of the accident andwithout rendering assistance to the victim. . . .


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. . . Three (3) witnesses who were at the scene at the time identified the taxi involved,though not necessarily the driver thereof. Marvilla saw a lone taxi speeding away justafter the bumping which, when it passed by him, said witness noticed to be a Lady LoveTaxi with Plate No. 438, painted maroon, with baggage bar attached on the baggagecompartment and with an antenae [sic] attached at the right rear side. The samedescriptions were revealed by Ernesto Lopez, who further described the taxi to have . . .reflectorized decorations on the edges of the glass at the back . . . A third witness in theperson of Eulogio Tabalno . . . made similar descriptions although, because of the fastspeed of the taxi, he was only able to detect the last digit of the plate number which is"8". . . . [T]he police proceeded to the garage of Lady Love Taxi and then and there theytook possession of such a taxi and later impounded it in the impounding area of theagency concerned. . . . [T]he eyewitnesses . . . were unanimous in pointing to that LadyLove Taxi with Plate No. 438, obviously the vehicle involved herein.

. . . During the investigation, defendant Armando Abellon, the registered owner of LadyLove Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact "that the vehiclewas driven last July 20, 1980 by one Rodrigo Dumlao. . ." . . . It was on the basis of thisaffidavit of the registered owner that caused the police to apprehend Rodrigo Dumlao,and consequently to have him prosecuted and eventually convicted of the offense . . . . . .. [S]aid Dumlao absconded in that criminal case, specially at the time of the promulgationof the judgment therein so much so that he is now a fugitive from justice.6

Private respondent filed a complaint for damages against Armando Abellon as theowner of the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicabthat bumped private respondent's mother. Subsequently, private respondent amendedhis complaint to include petitioner as the compulsory insurer of the said taxicab underCertificate of Cover No. 1447785-3.

After trial, the trial court rendered judgment in favor of private respondent, thedispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularlythe "Heirs of the late Feliza Vineza de Mendoza," and against defendants RodrigoDumlao, Armando Abellon and Travellers Insurance and Surety Corporation, by orderingthe latter to pay, jointly and severally, the former the following amounts:

(a) The sum of P2,924.70, as actual and compensatory damages, withinterest thereon at the rate of 12% per annum from October 17, 1980,when the complaint was filed, until the said amount is fully paid;

(b) P30,000.00 as death indemnity;

(c) P25,000.00 as moral damages;

(d) P10,000.00 as by way of corrective or exemplary damages ; and

(e) Another P10,000.00 by way of attorney's fees and other litigationexpenses.

Defendants are further ordered to pay, jointly and severally, the costs of this suit.

SO ORDERED. 7


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Petitioner appealed from the aforecited decision to the respondent Court of Appeals.The decision of the trial court was affirmed by respondent appellate court. Petitioner'sMotion for Reconsideration 8of September 22, 1987 was denied in a Resolution 9datedFebruary 9, 1988.

Hence this petition.

Petitioner mainly contends that it did not issue an insurance policy as compulsoryinsurer of the Lady Love Taxi and that, assuming arguendo that it had indeed coveredsaid taxicab for third-party liability insurance, private respondent failed to file a writtennotice of claim with petitioner as required by Section 384 of P.D. No. 612, otherwiseknown as the Insurance Code.

We find the petition to be meritorious.

I

When private respondent filed his amended complaint to implead petitioner as partydefendant and therein alleged that petitioner was the third-party liability insurer of theLady Love taxicab that fatally hit private respondent's mother, private respondent did notattach a copy of the insurance contract to the amended complaint. Private respondentdoes not deny this omission.

It is significant to point out at this juncture that the right of a third person to sue theinsurer depends on whether the contract of insurance is intended to benefit thirdpersons also or only the insured.

[A] policy . . . whereby the insurer agreed to indemnify the insured "against all sums . . .which the Insured shall become legally liable to pay in respect of: a. death of or bodilyinjury to any person . . . is one for indemnity against liability; from the fact then that theinsured is liable to the third person, such third person is entitled to sue the insurer.

The right of the person injured to sue the insurer of the party at fault (insured), dependson whether the contract of insurance is intended to benefit third persons also or on theinsured And the test applied has been this: Where the contract provides for indemnityagainst liability to third persons, then third persons to whom the insured is liable can suethe insurer. Where the contract is for indemnity against actual loss or payment, then thirdpersons cannot proceed against the insurer, the contract being solely to reimburse theinsured for liability actually discharged by him thru payment to third persons, said thirdpersons' recourse being thus limited to the insured alone.

10

Since private respondent failed to attach a copy of the insurance contract to hiscomplaint, the trial court could not have been able to apprise itself of the real nature andpecuniary limits of petitioner's liability. More importantly, the trial court could not havepossibly ascertained the right of private respondent as third person to sue petitioner asinsurer of the Lady Love taxicab because the trial court never saw nor read theinsurance contract and learned of its terms and conditions.


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Petitioner, understandably, did not volunteer to present any insurance contract coveringthe Lady Love taxicab that fatally hit private respondent's mother, considering thatpetitioner precisely presented the defense of lack of insurance coverage before the trialcourt. Neither did the trial court issue a subpoena duces tecumto have the insurancecontract produced before it under pain of contempt.

We thus find hardly a basis in the records for the trial court to have validly foundpetitioner liable jointly and severally with the owner and the driver of the Lady Lovetaxicab, for damages accruing to private respondent.

Apparently, the trial court did not distinguish between the private respondent's cause ofaction against the owner and the driver of the Lady Love taxicab and his cause of actionagainst petitioner. The former is based on torts and quasi-delictswhile the latter isbased on contract. Confusing these two sources of obligations as they arise from thesame act of the taxicab fatally hitting private respondent's mother, and in the face ofoverwhelming evidence of the reckless imprudence of the driver of the Lady Love

taxicab, the trial court brushed aside its ignorance of the terms and conditions of theinsurance contract and forthwith found all three the driver of the taxicab, the owner ofthe taxicab, and the alleged insurer of the taxicab jointly and severally liable foractual, moral and exemplary damages as well as attorney's fees and litigationexpenses. This is clearly a misapplication of the law by the trial court, and respondentappellate court grievously erred in not having reversed the trial court on this ground.

While it is true that where the insurance contract provides for indemnity against liability tothird persons, such third persons can directly sue the insurer, however, the direct liabilityof the insurer under indemnity contracts against third-party liability does not mean thatthe insurer can be held solidarily liable with the insured and/or the other parties found atfault. The liability of the insurer is based on contract; that of the insured is based on tort.11

Applying this principle underlying solidary obligation and insurance contracts, weruled in one case that:

In solidary obligation, the creditor may enforce the entire obligation against one of thesolidary debtors. On the other hand, insurance is defined as "a contract whereby oneundertakes for a consideration to indemnify another against loss, damage or liabilityarising from an unknown or contingent event."

In the case at bar, the trial court held petitioner together with respondents Sio Choy andSan Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount ofP29,103.00, with the qualification that petitioner's liability is only up to P20,000.00. In thecontext of a solidary obligation, petitioner may be compelled by respondent Vallejos topay the entire obligation of P29,103.00, notwithstanding the qualification made by the trialcourt. But, how can petitioner be obliged to pay the entire obligation when the amountstated in its insurance policy with respondent Sio Choy for indemnity against third-partyliability is only P20,000.00? Moreover, the qualification made in the decision of the trialcourt to the effect that petitioner is sentenced to pay up to P20,000.00 only when theobligation to pay P29,103.00 is made solidary is an evident breach of the concept of asolidary obligation.

12


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The above principles take on more significance in the light of the counter-allegation ofpetitioner that, assuming arguendo that it is the insurer of the Lady Love taxicab inquestion, its liability is limited to only P50,000.00, this being its standard amount ofcoverage in vehicle insurance policies. It bears repeating that no copy of the insurancecontract was ever proffered before the trial court by the private respondent,

notwithstanding knowledge of the fact that the latter's complaint against petitioner is oneunder a written contract. Thus, the trial court proceeded to hold petitioner liable for anaward of damages exceeding its limited liability of P50,000.00. This only shows beyonddoubt that the trial court was under the erroneous presumption that petitioner could befound liable absent proof of the contract and based merely on the proof of recklessimprudence on the part of the driver of the Lady Love taxicab that fatally hit privaterespondent's mother.

II

Petitioner did not tire in arguing before the trial court and the respondent appellate court

that, assuming arguendo that it had issued the insurance contract over the Lady Lovetaxicab, private respondent's cause of action against petitioner did not successfullyaccrue because he failed to file with petitioner a written notice of claim within six (6)months from the date of the accident as required by Section 384 of the Insurance Code.

At the time of the vehicular incident which resulted in the death of private respondent'smother, during which time the Insurance Code had not yet been amended by BatasPambansa (B.P.) Blg. 874, Section 384 provided as follows:

Any person having any claim upon the policy issued pursuant to this chapter shall,without any unnecessary delay, present to the insurance company concerned a writtennotice of claim setting forth the amount of his loss, and/or the nature, extent and duration

of the injuries sustained as certified by a duly licensed physician. Notice of claim must befiled within six months from date of the accident, otherwise, the claim shall be deemedwaived. Action or suit for recovery of damage due to loss or injury must be brought inproper cases, with the Commission or the Courts within one year from date of accident,otherwise the claimant's right of action shall prescribe [emphasis supplied].

In the landmark case of Summit Guaranty and Insurance Co., Inc.v.De Guzman, 13weruled that the one year prescription period to bring suit in court against the insurershould be counted from the time that the insurer rejects the written claim filed therewithby the insured, the beneficiary or the third person interested under the insurance policy.We explained:

It is very obvious that petitioner company is trying to use Section 384 of the InsuranceCode as a cloak to hide itself from its liabilities. The facts of these cases evidently reflectthe deliberate efforts of petitioner company to prevent the filing of a formal action againstit. Bearing in mind that if it succeeds in doing so until one year lapses from the date of theaccident it could set up the defense of prescription, petitioner company made privaterespondents believe that their claims would be settled in order that the latter will not find itnecessary to immediately bring suit. In violation of its duties to adopt and implementreasonable standards for the prompt investigation of claims and to effectuate prompt, fairand equitable settlement of claims, and with manifest bad faith, petitioner company


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devised means and ways of stalling the settlement proceeding . . . [N]o steps were takento process the claim and no rejection of said claim was ever made even if privaterespondent had already complied with all the requirements. . . .

This Court has made the observation that some insurance companies have beeninventing excuses to avoid their just obligations and it is only the State that can give the

protection which the insuring public needs from possible abuses of the insurers.

14

It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 tocategorically provide that "action or suit for recovery of damage due to loss or injurymust be brought in proper cases, with the Commissioner or the Courts within one yearfrom denial of the claim, otherwise the claimant's right of action shall prescribe"[emphasis ours]. 15

We have certainly ruled with consistency that the prescriptive period to bring suit incourt under an insurance policy, begins to run from the date of the insurer's rejection ofthe claim filed by the insured, the beneficiary or any person claiming under an insurance

contract. This ruling is premised upon the compliance by the persons suing under aninsurance contract, with the indispensable requirement of having filed the written claimmandated by Section 384 of the insurance Code before and after its amendment.

Absent such written claim filed by the person suing under an insurance contract, nocause of action accrues under such insurance contract, considering that it is therejection of that claim that triggers the running of the one-year prescriptive period tobring suit in court, and there can be no opportunity for the insurer to even reject a claimif none has been filed in the first place, as in the instant case.

The one-year period should instead be counted from the date of rejection by the insureras this is the time when the cause of action accrues. . . .

In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:

The plaintiff's cause of action did not accrue until his claim was finally rejected by theinsurance company. This is because, before such final rejection, there was no realnecessity for bringing suit.

The philosophy of the above pronouncement was pointed out in the case of ACCFA vs.Alpha Insurance and Surety Co., viz:

Since a cause of action requires, as essential elements, not only a legal right of theplaintiff and a correlative obligation of the defendant but also an act or omission of thedefendant in violation of said legal right, the cause of action does not accrue until the

party obligated refuses, expressly or impliedly, to comply with its duty.

16

When petitioner asseverates, thus, that no written claim was filed by private respondentand rejected by petitioner, and private respondent does not dispute such asseverationthrough a denial in his pleadings, we are constrained to rule that respondent appellatecourt committed reversible error in finding petitioner liable under an insurance contractthe existence of which had not at all been proven in court. Even if there were such acontract, private respondent's cause of action can not prevail because he failed to file


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the written claim mandated by Section 384 of the Insurance Code. He is deemed, underthis legal provision, to have waived his rights as against petitioner-insurer.

WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court ofAppeals in CA-G.R. CV No. 09416 and the decision of the Regional Trial Court in Civil

Case No. 135486 are REVERSED and SET ASIDE insofar as Travelers Insurance &Surety Corporation was found jointly and severally liable to pay actual, moral andexemplary damages, death indemnity, attorney's fees and litigation expenses in CivilCase No. 135486. The complaint against Travellers Insurance & Surety Corporation insaid case is hereby ordered dismissed.

No pronouncement as to costs.

SO ORDERED.


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G.R. No. 156167 May 16, 2005

GULF RESORTS, INC.,petitioner,vs.PHILIPPINE CHARTER INSURANCE CORPORATION,respondent.

D E C I S I O N

PUNO, J.:

Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court bypetitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCECORPORATION. Petitioner assails the appellate court decision1which dismissed its two appealsand affirmed the judgment of the trial court.

For review are the warring interpretations of petitioner and respondent on the scope of the

insurance companys liability for earthquake damage to petitioners properties. Petitioner aversthat, pursuant to its earthquake shock endorsement rider, Insurance Policy No. 31944 covers alldamages to the properties within its resort caused by earthquake. Respondent contends that therider limits its liability for loss to the two swimming pools of petitioner.

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

[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had itsproperties in said resort insured originally with the American Home Assurance Company(AHAC-AIU). In the first four insurance policies issued by AHAC-AIU from 1984-85;1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. "1", "2", "3"

and "4" respectively), the risk of loss from earthquake shock was extended only toplaintiffs two swimming pools, thus, "earthquake shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) swimming pools only (Exhs. "C-1"; D-1", "E" and "F-1"). "Item 5" in those policies referred to the two (2) swimming pools only (Exhs. "1-B","2-B", "3-B" and "F-2"); that subsequently AHAC(AIU) issued in plaintiffs favor PolicyNo. 206-4182383-0 covering the period March 14, 1988 to March 14, 1989 (Exhs. "G"also "G-1") and in said policy the earthquake endorsement clause as indicated in Exhibits"C-1", "D-1", Exhibits "E" and "F-1" was deleted and the entry underEndorsements/Warranties at the time of issue read that plaintiff renewed its policy withAHAC (AIU) for the period of March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. "H") which carried the entry under "Endorsement/Warranties at Time of

Issue", which read "Endorsement to Include Earthquake Shock (Exh. "6-B-1") in theamount of P10,700.00 and paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof,computed as follows:

Item - P7,691,000.00 - on the Clubhouse only

@ .392%;

- 1,500,000.00 - on the furniture, etc. contained in the building
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above-mentioned@ .490%;

- 393,000.00 - on the two swimming pools, only (against theperil of earthquake shock only) @ 0.100%

- 116,600.00 other buildings include as follows:

a) Tilter House - P19,800.00 - 0.551%b) Power House - P41,000.00 - 0.551%

c) House Shed - P55,000.00 - 0.540%

P100,000.00 - for furniture, fixtures, lines air-con and operatingequipment

that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU)Policy No. 206-4568061-9 (Exh. "H") provided that the policy wording and rates in saidpolicy be copied in the policy to be issued by defendant; that defendant issued Policy No.31944 to plaintiff covering the period of March 14, 1990 to March 14, 1991 for

P10,700,600.00 for a total premium of P45,159.92 (Exh. "I"); that in the computation ofthe premium, defendants Policy No. 31944 (Exh. "I"), which is the policy in question,contained on the right-hand upper portion of page 7 thereof, the following:

Rate-Various

Premium P37,420.60 F/L

2,061.52 Typhoon

1,030.76 EC

393.00 ES

Doc. Stamps 3,068.10F.S.T. 776.89

Prem. Tax 409.05

TOTAL 45,159.92;

that the above break-down of premiums shows that plaintiff paid only P393.00 aspremium against earthquake shock (ES); that in all the six insurance policies (Exhs. "C","D", "E", "F", "G" and "H"), the premium against the peril of earthquake shock is thesame, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and "3-B-1" and "3-B-2"; "F-02" and"4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G"

and "H") and in Policy No. 31944 issued by defendant, the shock endorsementprovide(sic):

In consideration of the payment by the insured to the company of the sumincluded additional premium the Company agrees, notwithstanding what is statedin the printed conditions of this policy due to the contrary, that this insurancecovers loss or damage to shock to any of the property insured by this Policy


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occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2-D","3-A", "4-B", "5-A", "6-D" and "7-C");

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

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

After the earthquake, petitioner advised respondent that it would be making a claim under itsInsurance Policy No. 31944 for damages on its properties. Respondent instructed petitioner tofile a formal claim, then assigned the investigation of the claim to an independent claimsadjuster, Bayne Adjusters and Surveyors, Inc.3On July 30, 1990, respondent, through itsadjuster, requested petitioner to submit various documents in support of its claim. On August 7,1990, Bayne Adjusters and Surveyors, Inc., through its Vice-President A.R. de Leon,4rendered apreliminary report5finding extensive damage caused by the earthquake to the clubhouse and tothe two swimming pools. Mr. de Leon stated that "except for the swimming pools, all affected

items have no coverage for earthquake shocks."

6

On August 11, 1990, petitioner filed its formaldemand7for settlement of the damage to all its properties in the Agoo Playa Resort. On August23, 1990, respondent denied petitionersclaim on the ground that its insurance policy onlyafforded earthquake shock coverage to the two swimming pools of the resort.8Petitioner andrespondent failed to arrive at a settlement.9Thus, on January 24, 1991, petitioner filed acomplaint10with the regional trial court of Pasig praying for the payment of the following:

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

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

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

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

5.) Costs.11

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

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

The above schedule clearly shows that plaintiff paid only a premium of P393.00 againstthe peril of earthquake shock, the same premium it paid against earthquake shock only onthe two swimming pools in all the policies issued by AHAC(AIU) (Exhibits "C", "D","E", "F" and "G"). From this fact the Court must consequently agree with the position of
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defendant that the endorsement rider (Exhibit "7-C") means that only the two swimmingpools were insured against earthquake shock.

Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence,where the language used in an insurance contract or application is such as to create

ambiguity the same should be resolved against the party responsible therefor, i.e., theinsurance company which prepared the contract. To the mind of [the] Court, the languageused in the policy in litigation is clear and unambiguous hence there is no need forinterpretation or construction but only application of the provisions therein.

From the above observations the Court finds that only the two (2) swimming pools hadearthquake shock coverage and were heavily damaged by the earthquake which struck onJuly 16, 1990. Defendant having admitted that the damage to the swimming pools wasappraised by defendants adjuster at P386,000.00, defendant must, by virtue of thecontract of insurance, pay plaintiff said amount.

Because it is the finding of the Court as stated in the immediately preceding paragraphthat defendant is liable only for the damage caused to the two (2) swimming pools andthat defendant has made known to plaintiff its willingness and readiness to settle saidliability, there is no basis for the grant of the other damages prayed for by plaintiff. As tothe counterclaims of defendant, the Court does not agree that the action filed by plaintiffis baseless and highly speculative since such action is a lawful exercise of the plaintiffsright to come to Court in the honest belief that their Complaint is meritorious. The prayer,therefore, of defendant for damages is likewise denied.

WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum ofTHREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing

damage to the two (2) swimming pools, with interest at 6% per annum from the date ofthe filing of the Complaint until defendants obligation to plaintiff is fully paid.

No pronouncement as to costs.13

Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the

Court of Appeals based on the following assigned errors:14

A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CANONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDERITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THECIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THEACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OFJULY 16, 1990.

B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTSRIGHT TO RECOVER UNDER DEFENDANT-APPELLEES POLICY (NO. 31944;EXH "I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID POLICYISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND
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THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY 16,1990.

C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST

COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.

On the other hand, respondent filed a partial appeal, assailing the lower courts failure to award itattorneys fees and damages on its compulsory counterclaim.

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

However, after carefully perusing the documentary evidence of both parties, We are notconvinced that the last two (2) insurance contracts (Exhs. "G" and "H"), which theplaintiff-appellant had with AHAC (AIU) and upon which the subject insurance contractwith Philippine Charter Insurance Corporation is said to have been based and copied

(Exh. "I"), covered an extended earthquake shock insurance on all the insured properties.

x x x

We also find that the Court a quo was correct in not granting the plaintiff-appellantsprayer for the imposition of interest24% on the insurance claim and 6% on loss ofincome allegedly amounting to P4,280,000.00. Since the defendant-appellant hasexpressed its willingness to pay the damage caused on the two (2) swimming pools, asthe Court a quo and this Court correctly found it to be liable only, it then cannot be saidthat it was in default and therefore liable for interest.

Coming to the defendant-appellants prayer for an attorneys fees, long-standing is therule that the award thereof is subject to the sound discretion of the court. Thus, if suchdiscretion is well-exercised, it will not be disturbed on appeal (Castro et al. v. CA, et al.,G.R. No. 115838, July 18, 2002). Moreover, being the award thereof an exception ratherthan a rule, it is necessary for the court to make findings of facts and law that would bringthe case within the exception and justify the grant of such award (Country BankersInsurance Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No.136914, January 25, 2002). Therefore, holding that the plaintiff-appellants action is notbaseless and highly speculative, We find that the Court a quo did not err in granting thesame.

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

Petitioner filed the present petition raising the following issues:16

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


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SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVEREDTHEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS

PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED,

ATTORNEYS FEES AND EXPENSES OF LITIGATION.

Petitioner contends:

First, that the policys earthquake shock endorsement clearly covers all of the properties insuredand not only the swimming pools. It used the words "any property insured by this policy," and itshould be interpreted as all inclusive.

Second, the unqualified and unrestricted nature of the earthquake shock endorsement isconfirmed in the body of the insurance policy itself, which states that it is "[s]ubject to: OtherInsurance Clause, Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage Endt.,

FEA Warranty & Annual Payment Agreement On Long Term Policies."

17

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

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

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

Sixth, that in their previous insurance policies, limits were placed on theendorsements/warranties enumerated at the time of issue.

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

Eighth, the qualification of the endorsement limiting the earthquake shock endorsement shouldbe interpreted as a caveat on the standard fire insurance policy, such as to remove the twoswimming pools from the coverage for the risk of fire. It should not be used to limit the

respondents liability for earthquake shock to the two swimming pools only.

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

Tenth, the parties contemporaneous and subsequent acts show that they intended to extendearthquake shock coverage to all insured properties. When it secured an insurance policy from
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respondent, petitioner told respondent that it wanted an exact replica of its latest insurance policyfrom American Home Assurance Company (AHAC-AIU), which covered all the resortsproperties for earthquake shock damage and respondent agreed. After the July 16, 1990earthquake, respondent assured petitioner that it was covered for earthquake shock. Respondents

insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise requested petitioner to submit

the necessary documents for its building claims and other repair costs. Thus, under the doctrineof equitable estoppel, it cannot deny that the insurance policy it issued to petitioner covered all ofthe properties within the resort.

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

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

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended

coverage against earthquake shock to petitioners insured properties other than on the twoswimming pools. Petitioner admitted that from 1984 to 1988, only the two swimming pools wereinsured against earthquake shock. From 1988 until 1990, the provisions in its policy werepractically identical to its earlier policies, and there was no increase in the premium paid.AHAC-AIU, in a letter19by its representative Manuel C. Quijano, categorically stated that itsprevious policy, from which respondents policy was copied, covered only earthquake shock forthe two swimming pools.

Second, petitioners payment of additional premium in the amount of P393.00 shows that thepolicy only covered earthquake shock damage on the two swimming pools. The amount was thesame amount paid by petitioner for earthquake shock coverage on the two swimming pools from

1990-1991. No additional premium was paid to warrant coverage of the other properties in theresort.

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

qualification in the title was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that suchdeletion was a mere inadvertence. This inadvertence did not make the policy incomplete, nor didit broaden the scope of the endorsement whose descriptive title was merely enumerated. Anyambiguity in the policy can be easily resolved by looking at the other provisions, specially theenumeration of the items insured, where only the two swimming pools were noted as covered forearthquake shock damage.

Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, thephrase "Item 5P393,000.00on the two swimming pools only (against the peril of earthquakeshock only)" meant that only the swimming pools were insured for earthquake damage. The


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same phrase is used in totoin the policies from 1989 to 1990, the only difference being thedesignation of the two swimming pools as "Item 3."

Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid forall the properties covered. In all of its seven insurance policies, petitioner only paid P393.00 as

premium for coverage of the swimming pools against earthquake shock. No other premium waspaid for earthquake shock coverage on the other properties. In addition, the use of the qualifier"ANY" instead of "ALL" to describe the property covered was done deliberately to enable theparties to specify the properties included for earthquake coverage.

Sixth, petitioner did not inform respondent of its requirement that all of its properties must beincluded in the earthquake shock coverage. Petitioners own evidence shows that it only requiredrespondent to follow the exact provisions of its previous policy from AHAC-AIU. Respondentcomplied with this requirement. Respondents only deviation from the agreement was when itmodified the provisions regarding the replacement cost endorsement. With regard to the issueunder litigation, the riders of the old policy and the policy in issue are identical.

Seventh, respondent did not do any act or give any assurance to petitioner as would estop it frommaintaining that only the two swimming pools were covered for earthquake shock. Theadjusters letter notifying petitioner to present certain documents for its building claims and

repair costs was given to petitioner before the adjuster knew the full coverage of its policy.

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

Before petitioner accepted the policy, it had the opportunity to read its conditions. It did notobject to any deficiency nor did it institute any action to reform the policy. The policy binds thepetitioner.

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

We hold that the petition is devoid of merit.

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

First, in the designation of location of risk, only the two swimming pools were specified asincluded, viz:

ITEM 3393,000.00On the two (2) swimming pools only (against the peril ofearthquake shock only)20

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


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PREMIUM RECAPITULATION

ITEM NOS. AMOUNT RATES PREMIUM

x x x

3 393,000.00 0.100%-E/S 393.00

Third, Policy Condition No. 6 stated:

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

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

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

ANNUAL PAYMENT AGREEMENT ONLONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATESUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OFA DISCOUNT OF 5% OR 7 % OF THE NET PREMIUM x x x POLICY HEREBYUNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMEDx x x AND TO PAY THE PREMIUM.

Earthquake Endorsement

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

Provided always that all the conditions of this Policy shall apply (except in so far as theymay be hereby expressly varied) and that any reference therein to loss or damage by fireshould be deemed to apply also to loss or damage occasioned by or through or inconsequence of Earthquake.24

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

It is basic that all the provisions of the insurance policy should be examined and interpreted inconsonance with each other.25All its parts are reflective of the true intent of the parties. Thepolicy cannot be construed piecemeal. Certain stipulations cannot be segregated and then madeto control; neither do particular words or phrases necessarily determine its character. Petitioner
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cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. Allthe provisions and riders, taken and interpreted together, indubitably show the intention of theparties to extend earthquake shock coverage to the two swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent of the

parties to extend earthquake shock coverage only to the two swimming pools. Section 2(1) of theInsurance Code defines a contract of insurance as an agreement whereby one undertakes for aconsideration to indemnify another against loss, damage or liability arising from an unknown orcontingent event. Thus, 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 alarge group of persons bearing a similar risk; and

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

An insurance premium is the consideration paid an insurer for undertaking to indemnify theinsured against a specified peril.27In fire, casualty, and marine insurance, the premium payablebecomes a debt as soon as the risk attaches.28In the subject policy, no premium payments weremade with regard to earthquake shock coverage, except on the two swimming pools. There is nomention of any premium payable for the other resort properties with regard to earthquake shock.

This is consistent with the history of petitioners previous insurance policies from AHAC-AIU.As borne out by petitioners witnesses:

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

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

A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty,

there is a provision here that it was only for item 5.

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

A. Yes, sir.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
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pp. 23-26

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

A. Yes, sir.

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

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

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

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

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

A. Yes, sir, they are separate entity.

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

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

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

earthquake shock coverage must extend to all properties of Agoo Playa Resort in LaUnion?

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

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

A. Yes, sir.

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

A. Yes, sir.

Q. Now, after this policy was delivered to you did you bother to check the provisionswith respect to your instructions that all properties must be covered again by earthquakeshock endorsement?


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A. Are you referring to the insurance policy issued by American Home AssuranceCompany marked Exhibit "G"?

Atty. Mejia: Yes.

Witness:

A. I examined the policy and seeing that the warranty on the earthquake shockendorsement has no more limitation referring to the two swimming pools only, I wascontented already that the previous limitation pertaining to the two swimming pools wasalready removed.

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

shock. However, this phrase is merely an enumeration of the descriptive titles of the riders,clauses, warranties or endorsements to which the policy is subject, as required under Section 50,paragraph 2 of the Insurance Code.

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

DIRECT EXAMINATION OF JUAN BARANDA III30TSN, August 11, 1992pp. 9-12

Atty. Mejia:

We respectfully manifest that the same exhibits C to H inclusive have beenpreviously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did youhave occasion to review of (sic) these six (6) policies issued by your company [infavor] of Agoo Playa Resort?

WITNESS:

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

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

x x x
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WITNESS:

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

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

A. Yes, sir.

ATTY. MEJIA:

What is your basis for stating that the coverage against earthquake shock asprovided for in each of the six (6) policies extend to the two (2) swimming poolsonly?

WITNESS:

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

ATTY. MEJIA:

Witness referring to Exhibit C-1, your Honor.

WITNESS:

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

For swimming pools we do cover earthquake shock. For building we covered itfor full earthquake coverage which includes earthquake shock

COURT:

As far as earthquake shock endorsement you do not have a specific coverage forother things other than swimming pool? You are covering building? They arecovered by a general insurance?

WITNESS:

Earthquake shock coverage could not stand alone. If we are covering building oranother we can issue earthquake shock solely but that the moment I see this, thething that comes to my mind is either insuring a swimming pool, foundations,they are normally affected by earthquake but not by fire, sir.

DIRECT EXAMINATION OF JUAN BARANDA IIITSN, August 11, 1992pp. 23-25


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Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, Eand F inclusive [remained] its coverage against earthquake shock to two (2) swimmingpools only but that Exhibits G and H respectively entend the coverage against earthquakeshock to all the properties indicated in the respective schedules attached to said policies,what can you say about that testimony of plaintiffs witness?

WITNESS:

As I have mentioned earlier, earthquake shock cannot stand alone without theother half of it. I assure you that this one covers the two swimming pools withrespect to earthquake shock endorsement. Based on it, if we are going to look atthe premium there has been no change with respect to the rates. Everytime (sic)there is a renewal if the intention of the insurer was to include the earthquakeshock, I think there is a substantial increase in the premium. We are not onlygoing to consider the two (2) swimming pools of the other as stated in the policy.As I see, there is no increase in the amount of the premium. I must say that the

coverage was not broaden (sic) to include the other items.

COURT:

They are the same, the premium rates?

WITNESS:

They are the same in the sence (sic), in the amount of the coverage. If you aregoing to do some computation based on the rates you will arrive at the samepremiums, your Honor.

CROSS-EXAMINATION OF JUAN BARANDA IIITSN, September 7, 1992pp. 4-6

ATTY. ANDRES:

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

WITNESS:

No, we dont, sir.

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

A. Yes, sir.

ATTY. ANDRES:


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Will you not also agree with me that these exhibits, Exhibits G and H which youhave pointed to during your direct-examination, the phrase "Item no. 5 only"meaning to (sic) the two (2) swimming pools was deleted from the policies issuedby AIU, is it not?

x x x

ATTY. ANDRES:

As an insurance executive will you not attach any significance to the deletion ofthe qualifying phrase for the policies?

WITNESS:

My answer to that would be, the deletion of that particular phrase is inadvertent.Being a company underwriter, we do not cover. . it was inadvertent because of the

previous policies that we have issued with no specific attachments, premium ratesand so on. It was inadvertent, sir.

The Court also rejects petitioners contention that respondents contemporaneous and subsequentacts to the issuance of the insurance policy falsely gave the petitioner assurance that the coverageof the earthquake shock endorsement included all its properties in the resort. Respondent onlyinsured the properties as intended by the petitioner. Petitioners own witness testified to thisagreement, viz:

CROSS EXAMINATION OF LEOPOLDO MANTOHACTSN, January 14, 1992

pp. 4-5

Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly didyou tell Atty. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the policyfrom Philippine Charter Insurance Corporation?

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

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

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

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

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


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CROSS EXAMINATION OF LEOPOLDO MANTOHACTSN, January 14, 1992pp. 12-14

Atty. Mejia:

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

A. Yes, sir, about that time.

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

A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that

the policy wordings and rates were copied from the insurance policy I sent them but itwas only when this case erupted that we discovered some discrepancies.

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

A. With regard to the wordings I did not notice any difference because it was exactly thesame P393,000.00 on the two (2) swimming pools only against the peril of earthquakeshock which I understood before that this provision will have to be placed here becausethis particular provision under the peril of earthquake shock only is requested because

this is an insurance policy and therefore cannot be insured against fire, so this has to beplaced.

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

Finally, petitioner puts much stress on the letter of respondents independent claims adjuster,

Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne Adjustersand Surveyors, Inc., respondent never meant to lead petitioner to believe that the endorsementfor earthquake shock covered properties other than the two swimming pools, viz:

DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors,Inc.)TSN, January 26, 1993pp. 22-26

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


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A. I remember that when I returned to the office after the inspection, I got a photocopy ofthe insurance coverage policy and it was indicated under Item 3 specifically that thecoverage is only for earthquake shock. Then, I remember I had a talk with Atty. Umlas(sic), and I relayed to him what I had found out in the policy and he confirmed to meindeed only Item 3 which were the two swimming pools have coverage for earthquake

shock.

x x x

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

x x x

A. I based my statement on my findings, because upon my examination of the policy Ifound out that under Item 3 it was specific on the wordings that on the two swimming

pools only, then enclosed in parenthesis (against the peril[s] of earthquake shock only),and secondly, when I examined the summary of premium payment only Item 3 whichrefers to the swimming pools have a computation for premium payment for earthquakeshock and all the other items have no computation for payment of premiums.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely onthe general rule that insurance contracts are contracts of adhesion which should be liberallyconstrued in favor of the insured and strictly against the insurer company which usually preparesit.31A contract of adhesion is one wherein a party, usually a corporation, prepares thestipulations in the contract, while the other party merely affixes his signature or his "adhesion"thereto. Through the years, the courts have held that in these type of contracts, the parties do not

bargain on equal footing, the weaker party's participation being reduced to the alternative to takeit or leave it. Thus, these contracts are viewed as traps for the weaker party whom the courts ofjustice must protect.32Consequently, any ambiguity therein is resolved against the insurer, orconstrued liberally in favor of the insured.33

The case law will show that this Court will only rule out blind adherence to terms where factsand circumstances will show that they are basically one-sided.34Thus, we have called on lowercourts to remain careful in scrutinizing the factual circumstances behind each case to determinethe efficacy of the claims of contending parties. In Development Bank of the Philippines v.National Merchandising Corporation, et al.,35the parties, who were acute businessmen ofexperience, were presumed to have assented to the assailed documents with full knowledge.

We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannotclaim it did not know the provisions of the policy. From the inception of the policy, petitionerhad required the respondent to copy verbatimthe provisions and terms of its latest insurancepolicy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant insecuring the insurance policy of petitioner, is reflective of petitioners knowledge, viz:
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DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36TSN, September 23, 1991pp. 20-21

Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those

facilities in Agoo Playa?

A. Yes, sir. I told him that I will agree to that renewal of this policy under PhilippineCharter Insurance Corporation as long as it will follow the same or exact provisions ofthe previous insurance policy we had with American Home Assurance Corporation.

Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted inthe American Home Insurance policy are to be incorporated in the PCIC policy?

A. Yes, sir.

Q. What steps did you take?

A. When I examined the policy of the Philippine Charter Insurance Corporation Ispecifically told him that the policy and wordings shall be copied from the AIU PolicyNo. 206-4568061-9.

Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in someterms, specifically in the replacement cost endorsement, but the principal provisions of the policyremained essentially similar to AHAC-AIUs policy. Consequently, we cannot apply the "fineprint" or "contract of adhesion" rule in this case as the parties intent to limit the coverage of the

policy to the two swimming pools only is not ambiguous.

37

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

SO ORDERED.
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G.R. No. 171468 August 24, 2011

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC.,Petitioner,vs.NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD),

LEP INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES,INC., MARINA PORT SERVICES, INC., SERBROS CARRIER CORPORATION, andSEABOARD-EASTERN INSURANCE CO., INC.,Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 174241

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC.,Petitioner,vs.SEABOARD-EASTERN INSURANCE CO., INC.,Respondent.

D E C I S I O N

ABAD, J.:

These consolidated petitions involve a cargo owners right to recover damages from the loss ofinsured goods under the Carriage of Goods by Sea Act and the Insurance Code.

The Facts and the Case

Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT

Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergencygenerator sets worth US$721,500.00.

DMT shipped the generator sets by truck from Wisconsin, United States, to LEP ProfitInternational, Inc. (LEP Profit) in Chicago, Illinois. From there, the shipment went by train toOakland, California, where it was loaded on S/S California Luna V59, owned and operated byNYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World in Manila.NYK issued a bill of lading, declaring that it received the goods in good condition.

NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that italso owned and operated. On its journey to Manila, however, ACX Ruby encountered typhoon

Kadiang whose captain filed a sea protest on arrival at the Manila South Harbor on October 5,1993 respecting the loss and damage that the goods on board his vessel suffered.

Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handlingoperator, received the shipment on October 7, 1993. Upon inspection of the three container vansseparately carrying the generator sets, two vans bore signs of external damage while the third vanappeared unscathed. The shipment remained at Pier 3s Container Yard under Marinas care

pending clearance from the Bureau of Customs. Eventually, on October 20, 1993 customs


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authorities allowed petitioners customs broker, Serbros Carrier Corporation (Serbros), to

withdraw the shipment and deliver the same to petitioner New Worlds job site in Makati City.

An examination of the three generator sets in the presence of petitioner New Worlds

representatives, Federal Builders (the project contractor) and surveyors of petitioner New

Worlds insurer, SeaboardEastern Insurance Company (Seaboard), revealed that all three setssuffered extensive damage and could no longer be repaired. For these reasons, New Worlddemanded recompense for its loss from respondents NYK, DMT, Advatech, LEP Profit, LEPInternational Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledgedreceipt of the demand, both denied liability for the loss.

Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it aformal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard requiredpetitioner New World to submit to it an itemized list of the damaged units, parts, and accessories,with corresponding values, for the processing of the claim. But petitioner New World did notsubmit what was required of it, insisting that the insurance policy did not include the submission

of such a list in connection with an insurance claim. Reacting to this, Seaboard refused to processthe claim.

On October 11, 1994 petitioner New World filed an action for specific performance and damagesagainst all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, inCivil Case 94-2770.

On August 16, 2001 the RTC rendered a decision absolving the various respondents fromliability with the exception of NYK. The RTC found that the generator sets were damaged duringtransit while in the care of NYKs vessel, ACX Ruby. The latter failed, according to the RTC, to

exercise the degree of diligence required of it in the face of a foretold raging typhoon in its path.

The RTC ruled, however, that petitioner New World filed its claim against the vessel ownerNYK beyond the one year provided under the Carriage of Goods by Sea Act (COGSA). NewWorld filed its complaint on October 11, 1994 when the deadline for filing the action (on orbefore October 7, 1994) had already lapsed. The RTC held that the one-year period should becounted from the date the goods were delivered to the arrastre operator and not from the datethey were delivered to petitioners job site.

1

As regards petitioner New Worlds claim against Seaboard, its insurer, the RTC held that the

latter cannot be faulted for denying the claim against it since New World refused to submit theitemized list that Seaboard needed for assessing the damage to the shipment. Likewise, thebelated filing of the complaint prejudiced Seaboards right to pursue a claim against NYK in the

event of subrogation.

On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006,2affirming theRTCs rulings except with respect to Seaboards liability. The CA held that petitioner New

World can still recoup its loss from Seaboards marine insurance policy, considering a) that thesubmission of the itemized listing is an unreasonable imposition and b) that the one-yearprescriptive period under the COGSA did not affect New Worlds right under the insurance
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policy since it was the Insurance Code that governed the relation between the insurer and theinsured.

Although petitioner New World promptly filed a petition for review of the CA decision beforethe Court in G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision.

On August 17, 2006 the CA rendered an amended decision, reversing itself as regards the claimagainst Seaboard. The CA held that the submission of the itemized listing was a reasonablerequirement that Seaboard asked of New World. Further, the CA held that the one-yearprescriptive period for maritime claims applied to Seaboard, as insurer and subrogee of NewWorlds right against the vessel owner. New Worlds failure to comply promptly with what was

required of it prejudiced such right.

Instead of filing a motion for reconsideration, petitioner instituted a second petition for reviewbefore the Court in G.R. 174241, assailing the CAs amended decision.

The Issues Presented

The issues presented in this case are as follows:

a) In G.R. 171468, whether or not the CA erred in affirming the RTCs release from

liability of respondents DMT, Advatech, LEP, LEP Profit, Marina, and Serbros who wereat one time or another involved in handling the shipment; and

b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboards request frompetitioner New World for an itemized list is a reasonable imposition and did not violatethe insurance contract between them; and 2) whether or not the CA erred in failing to rulethat the one-year COGSA prescriptive period for marine claims does not apply to

petitioner New Worlds prosecution of its claim against Seaboard, its insurer.

The Courts Rulings

In G.R. 171468 --

Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit,Marina and Serbros in handling and transporting its shipment from Wisconsin to Manilacollectively resulted in the damage to the same, rendering such respondents solidarily liable withNYK, the vessel owner.

But the issue regarding which of the parties to a dispute incurred negligence is factual and is nota proper subject of a petition for review on certiorari. And petitioner New World has been unableto make out an exception to this rule.3Consequently, the Court will not disturb the finding of theRTC, affirmed by the CA, that the generator sets were totally damaged during the typhoon whichbeset the vessels voyage from Hong Kong to Manila and that it was her negligence incontinuing with that journey despite the adverse condition which caused petitioner New Worlds

loss.
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That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the CivilCode, does not automatically relieve the common carrier of liability. The latter had the burden ofproving that the typhoon was the proximate and only cause of loss and that it exercised duediligence to prevent or minimize such loss before, during, and after the disastrous typhoon.4Asfound by the RTC and the CA, NYK failed to discharge this burden.

In G.R. 174241 --

One. The Court does not regard as substantial the question of reasonableness of Seaboardsadditional requirement of an itemized listing of the damage that the generator sets suffered. Therecord shows that petitioner New World complied with the documentary requirementsevidencing damage to its generator sets.

The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policyinsured against all causes of conceivable loss or damage except when otherwise excluded orwhen the loss or damage was due to fraud or intentional misconduct committed by the insured.

The policy covered all losses during the voyage whether or not arising from a marine peril.

5

Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay invoyage, or vessels unseaworthiness, among others.6But Seaboard had been unable to show thatpetitioner New Worlds loss or damage fell within some or one of the enumerated exceptions.

What is more, Seaboard had been unable to explain how it could not verify the damage that NewWorlds goods suffered going by the documents that it already submitted, namely, (1) copy ofthe Suppliers Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copyof Marine Insurance Policy MA-HO-000266; (6) copies of Damage Report from Supplier and

Insurance Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies ofReceived Formal Claim from the following: a) LEP International Philippines, Inc.; b) MarinaPort Services, Inc.; and c) Serbros Carrier Corporation.7Notably, Seaboards own marinesurveyor attended the inspection of the generator sets.

Seaboard cannot pretend that the above documents are inadequate since they were precisely thedocuments listed in its insurance policy.8Being a contract of adhesion, an insurance policy isconstrued strongly against the insurer who prepared it. The Court cannot read a requirement inthe policy that was not there.

Further, it appears from the exchanges of communications between Seaboard and Advatech thatsubmission of the requested itemized listing was incumbent on the latter as the seller DMTslocal agent. Petitioner New World should not be made to suffer for Advatechs shortcomings.

Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier andthe ship shall be discharged from all liability in case of loss or damage unless the suit is broughtwithin one year after delivery of the goods or the date when the goods should have beendelivered.
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But whose fault was it that the suit against NYK, the common carrier, was not brought to courton time? The last day for filing such a suit fell on October 7, 1994. The record shows thatpetitioner New World filed its formal claim for its loss with Seaboard, its insurer, a remedy ithad the right to take, as early as November 16, 1993 or about 11 months before the suit againstNYK would have fallen due.

In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard wouldhave been subrogated to petitioner New Worlds right to recover from NYK. And it could have

then filed the suit as a subrogee. But, as discussed above, Seaboard made an unreasonabledemand on February 14, 1994 for an itemized list of the damaged units, parts, and accessories,with corresponding values when it appeared settled that New Worlds loss was total and when

the insurance policy did not require the production of such a list in the event of a claim.

Besides, when petitioner New World declined to comply with the demand for the list, Seaboardagainst whom a formal claim was pending should not have remained obstinate in refusing toprocess that claim. It should have examined the same, found it unsubstantiated by documents if

that were the case, and formally rejected it. That would have at least given petitioner New World

insurance batch 1

Documents