insurance cases i.pdf

7/28/2019 Insurance Cases I.pdf

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VIRGINIA CALANOC vs. COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFEINSURANCE CO.G.R. No. L-8151, December 16, 1955

Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of Avenida Rizaland Zurbaran. He secured a life insurance policy from the Philippine American Life InsuranceCompany in the amount of P2,000 to which was attached a supplementary contract covering deathby accident. On January 25, 1951, he died of a gunshot wound on the occasion of a robbery

committed in the house of Atty. Ojeda at the corner of Oroquieta and Zurbaan streets. VirginiaCalanoc, the widow, was paid the sum of P2,000, face value of the policy, but when she demandedthe payment of the additional sum of P2,000 representing the value of the supplemental policy, thecompany refused alleging, as main defense, that the deceased died because he was murdered by aperson who took part in the commission of the robbery and while making an arrest as an officer of the law which contingencies were expressly excluded in the contract and have the effect of exempting the company from liability.

The case originated in the Municipal Court of Manila and judgment being favorable to the plaintiff itwas appealed to the court of first instance. The latter court affirmed the judgment but on appeal tothe Court of Appeals the judgment was reversed.

CA considered the death of Basilio, though unexpected, cannot be accidental, for his death occurredbecause he left his post and joined policeman Magsanoc and Atty. Ojeda to see what was thetrouble in Atty. Ojedas house.

SC dissent from the above findings of the CA. The circumstance that he was a mere watchman andhad no duty to heed the call of Atty. Ojeda should not be taken as a capricious desire on his part toexpose his life to danger considering the fact that the place he was in duty-bound to guard was only a block away. In volunteering to extend help under the situation, he might have thought, rightly orwrongly, that to know the truth was in the interest of his employer it being a matter that affects thesecurity of the neighborhood. No doubt there was some risk coming to him in pursuing that errand,but that risk always existed it being inherent in the position he was holding. He cannot therefore beblamed solely for doing what he believed was in keeping with his duty as a watchman and as acitizen.

It cannot be said that the killing was intentional for there is the possibility that the malefactor hadfired the shot merely to scare away the people around for his own protection and not necessarily tokill or hit the victim. The victim could have been either the policeman or Atty. Ojeda for it cannotbe pretended that the malefactor aimed at the deceased precisely because he wanted to take his life.

While as a general rule the parties may limit the coverage of the policy to certain particular

accidents and risks or causes of loss, and may expressly except other risks or causes of losstherefrom, however, it is to be desired that the terms and phraseology of the exception clause beclearly expressed so as to be within the easy grasp and understanding of the insured, for if theterms are doubtful or obscure the same must of necessity be interpreted or resolved aganst the onewho has caused the obscurity. And so it has bene generally held that the terms in an insurancepolicy, which are ambiguous, equivacal, or uncertain . . . are to be construed strictly and moststrongly against the insurer, and liberally in favor of the insured so as to effect the dominantpurpose of indemnity or payment to the insured, especially where a forfeiture is involved


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EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T. BIAGTAN andGRACIA T. BIAGTAN vs. THE INSULAR LIFE ASSURANCE COMPANY, LTD.G.R. No. L-25579 March 29, 1972

Juan S. Biagtan was insured with defendant InsularLife Assurance Company under Policy No.398075 for the sum of P5,000.00 and, under a supplementary contract denominated "AccidentalDeath Benefit Clause, for an additional sum of P5,000.00 if "the death of the Insured resulteddirectly from bodily injury effected solely through external and violent means sustained in an

accident ... and independently of all other causes." The clause, however,expressly provided that itwould not apply where death resulted from an injury"intentionally inflicted by another party."

On May 20, 1964, the house of insured Juan S. Biagtan was robbed by a band of robbers. Incommitting the robbery, the robbers, on reaching the staircase landing on the second floor, rushedtowards the door of the second floor room, where they suddenly met Juan S. Biagtan who receivedthrusts from their sharp-pointed instruments, causing wounds on the body resulting in his death.

Beneficiaries of the insured, filed a claim under the policy. The insurance company paid the basicamount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the accidentaldeath benefit clause, on the ground that the insured's death resulted from injuries intentionally inflicted by third parties and therefore was not covered. Plaintiffs filed suit to recover, and after due

hearing the court a quo rendered judgment in their favor.

The trial court committed a plain error in drawing the conclusion it did from the admitted facts.Nine wounds were inflicted upon the deceased, all by means of thrusts with sharp-pointedinstruments wielded by the robbers. Whether the robbers had the intent to kill or merely to scarethe victim or to ward off any defense he might offer, it cannot be denied that the act itself of inflicting the injuries was intentional.

It should be noted that the exception in the accidental benefit clause invoked by the appellant doesnot speak of the purpose whether homicidal or not of a third party in causing the injuries, butonly of the fact that such injuries have been "intentionally" inflicted this obviously to distinguishthem from injuries which, although received at the hands of a third party, are purely accidental.

A gun which discharges while being cleaned and kills a bystander; a hunter who shoots at his prey and hits a person instead; an athlete in a competitive game involving physical effort who collideswith an opponent and fatally injures him as a result: these are instances where the infliction of theinjury is unintentional and therefore would be within the coverage of an accidental death benefitclause such as that in question in this case. But where a gang of robbers enter a house and comingface to face with the owner, even if unexpectedly, stab him repeatedly, it is contrary to all reasonand logic to say that his injuries are not intentionally inflicted, regardless of whether they provefatal or not. As it was, in the present case they did prove fatal, and the robbers have been accusedand convicted of the crime of robbery with homicide.

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


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FINMAN GENERAL ASSURANCE CORPORATION vs. THE HONORABLE COURT OFAPPEALS and JULIA SURPOSAG.R. No. 100970 September 2, 1992

Carlie Surposa was insured with petitioner Finman General Assurance Corporation under FinmanGeneral Teachers Protection Plan Master Policy No. 2005 and Individual Policy No. 08924 with hisparents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester andClifton, all surnamed, Surposa, as beneficiaries.

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

Beneficiaries of said insurance policy filed a written notice of claim with the insurance company which denied said claim contending that murder and assault are not within the scope of thecoverage of the insurance policy since death resulting from murder and/or assault are impliedly excluded in said insurance policy considering that the cause of death of the insured was notaccidental but rather a deliberate and intentional act of the assailant in killing the former as

indicated by the location of the lone stab wound on the insured.

The terms "accident" and "accidental" as used in insurance contracts have not acquired any technical meaning, and are construed by the courts in their ordinary and common acceptation.

Thus, the terms have been taken to mean that which happen by chance or fortuitously, withoutintention and design, and which is unexpected, unusual, and unforeseen. An accident is an eventthat takes place without one's foresight or expectation an event that proceeds from an unknowncause, or is an unusual effect of a known cause and, therefore, not expected.

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

It cannot be pretended that Carlie Surposa died in the course of an assault or murder as a result of his voluntary act considering the very nature of these crimes. In the first place, the insured and hiscompanion were on their way home from attending a festival. They were confronted by unidentifiedpersons. The record is barren of any circumstance showing how the stab wound was inflicted. Norcan it be pretended that the malefactor aimed at the insured precisely because the killer wanted totake his life. In any event, while the act may not exempt the unknown perpetrator from criminalliability, the fact remains that the happening was a pure accident on the part of the victim. Theinsured died from an event that took place without his foresight or expectation, an event thatproceeded from an unusual effect of a known cause and, therefore, not expected. Neither can it besaid that where was a capricious desire on the part of the accused to expose his life to dangerconsidering that he was just going home after attending a festival.


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ZENITH INSURANCE CORPORATION vs. COURT OF APPEALS and LAWRENCE FERNANDEZG.R. No. 85296 May 14, 1990

Lawrence Fernandez insured his car for "own damage" with petitioner Zenith InsuranceCorporation. On July 6, 1983, the car figured in an accident and suffered actual damages in theamount of P3,640.00. After allegedly being given a run around by Zenith for two (2) months,Fernandez filed a complaint with the Regional Trial Court of Cebu for sum of money and damagesresulting from the refusal of Zenith to pay the amount claimed. Aside from actual damages andinterests, Fernandez also prayed for moral damages in the amount of P10,000.00, exemplary damages of P5,000.00, attorney's fees of P3,000.00 and litigation expenses of P3,000.00. On June4, 1986, a decision was rendered by the trial court in favor of private respondent Fernandez.

On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of appeal wasgranted in the same order granting private respondent's motion for execution pending appeal. Theappeal to respondent court assigned the following errors:

I. The lower court erred in denying defendant appellant to adduce evidence in its behalf.

II. The lower court erred in ordering Zenith Insurance Corporation to pay the amount of P3,640.00 in its decision.

III. The lower court erred in awarding moral damages, attorneys fees and exemplary damages, the worst is that, the court awarded damages more than what are prayed for in thecomplaint.

It is clear that under the Insurance Code, in case of unreasonable delay in the payment of theproceeds of an insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) otherexpenses incurred by the insured person by reason of such unreasonable denial or withholding of payment; 3) interest at twice the ceiling prescribed by the Monetary Board of the amount of theclaim due the injured; and 4) the amount of the claim.

As regards the award of moral and exemplary damages, the rules under the Civil Code of thePhilippines shall govern.

"The purpose of moral damages is essentially indemnity or reparation, not punishment orcorrection. Moral damages are emphatically not intended to enrich a complainant at the expense of a defendant, they are awarded only to enable the injured party to obtain means, diversions oramusements that will serve to alleviate the moral suffering he has undergone by reason of thedefendant's culpable action."

On the other hand, exemplary or corrective damages are imposed by way of example or correctionfor the public good.

As regards the actual damages incurred by private respondent, the amount of P3,640.00 had beenestablished before the trial court and affirmed by the appellate court. Respondent appellate courtcorrectly ruled that the deductions of P250.00 and P274.00 as deductible franchise and 20%depreciation on parts, respectively claimed by petitioners as agreed upon in the contract, had nobasis. Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary damages is hereby deleted.


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SUN INSURANCE OFFICE, LTD. vs. THE HON. COURT OF APPEALS and NERISSA LIMG.R. No. 92383 July 17, 1992

Felix Lim was in a happy mood (but not drunk) and was playing with his handgun, from which hehad previously removed the magazine. As she watched television, he stood in front of her andpointed the gun at her. She pushed it aside and said it might he loaded. He assured her it was notand then pointed it to his temple. The next moment there was an explosion and Lim slumped to thefloor. He was dead before he fell.

As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim was rejected. Thepetitioner agreed that there was no suicide. It argued, however that there was no accident either.

The words "accident" and "accidental" have never acquired any technical signification in law,and when used in an insurance contract are to be construed and considered according to theordinary understanding and common usage and speech of people generally. In-substance,the courts are practically agreed that the words "accident" and "accidental" mean that whichhappens by chance or fortuitously, without intention or design, and which is unexpected,unusual, and unforeseen. The definition that has usually been adopted by the courts is thatan accident is an event that takes place without one's foresight or expectation an eventthat proceeds from an unknown cause, or is an unusual effect of a known case, and

therefore not expected.

The petitioner contends that the insured willfully exposed himself to needless peril and thusremoved himself from the coverage of the insurance policy. Accident insurance policies were neverintended to reward the insured for his tendency to show off or for his miscalculations. They wereintended to provide for contingencies. Hence, when I miscalculate and jump from the QuezonBridge into the Pasig River in the belief that I can overcome the current, I have wilfully exposedmyself to peril and must accept the consequences of my act. If I drown I cannot go to the insurancecompany to ask them to compensate me for my failure to swim as well as I thought I could. Theinsured in the case at bar deliberately put the gun to his head and pulled the trigger. He wilfully exposed himself to peril.

The private respondent maintains that Lim did not. That is where she says the analogy fails. The petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge that thecurrents below were dangerous. By contrast, Lim did not know that the gun he put to hishead was loaded.

Lim was unquestionably negligent and that negligence cost him his own life. But it shouldnot prevent his widow from recovering from the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his ownaccident. Indeed, most accidents are caused by negligence.

On the second assigned error, however, the Court must rule in favor of the petitioner. The basicissue raised in this case is, as the petitioner correctly observed, one of first impression. It is evidentthat the petitioner was acting in good faith then it resisted the private respondent's claim on theground that the death of the insured was covered by the exception. The issue was indeed debatableand was clearly not raised only for the purpose of evading a legitimate obligation. We hold thereforethat the award of moral and exemplary damages and of attorney's fees is unjust and so must bedisapproved.

In order that a person may be made liable to the payment of moral damages, the law requiresthat his act be wrongful. The adverse result of an action does not per se make the actwrongful and subject the act or to the payment of moral damages.


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JEWEL VILLACORTA, assisted by her husband, GUERRERO VILLACORTA vs. THE INSURANCECOMMISSION and EMPIRE INSURANCE COMPANYG.R. No. L-54171 October 28, 1980

Villacorta was the owner of a Colt Lancer, Model 1976, insured with Empire Insurance forP35,000.00 Own Damage; P30,000.00 Theft; and P30,000.00 Third Party Liability. On May 9, 1978, the vehicle was brought to the Sunday Machine Works, Inc., for general check-up andrepairs. While it was in the custody of the Sunday Machine Works, the car was allegedly taken by six (6) persons and driven out to Montalban, Rizal. While travelling along Mabini St., Sitio Palyasan,Barrio Burgos, going North at Montalban, Rizal, the car figured in an accident, hitting and bumpinga gravel and sand truck parked. The driver and one of the passengers died and the other foursustained physical injuries. The car, as well, suffered extensive damage. Complainant, thereafter,filed a claim for total loss with the respondent company but claim was denied.

Respondent insurance commission, however, dismissed petitioner's complaint for recovery of thetotal loss of the vehicle against private respondent, sustaining respondent insurer's contention thatthe accident did not fall within the provisions of the policy either for the Own Damage or Theftcoverage, invoking the policy provision on "Authorized Driver" clause.

A car owner who entrusts his car to an established car service and repair shop necessarily entrusts

his car key to the shop owner and employees who are presumed to have the insured's permission todrive the car for legitimate purposes of checking or road-testing the car. The mere happenstancethat the employee(s) of the shop owner diverts the use of the car to his own illicit or unauthorizedpurpose in violation of the trust reposed in the shop by the insured car owner does not mean thatthe "authorized driver" clause has been violated such as to bar recovery, provided that suchemployee is duly qualified to drive under a valid driver's license.

Secondly, since when a car is unlawfully taken, it is the theft clause, not the "authorized driver"clause, that applies, such taking constitutes or partakes of the nature of theft as defined in Article308 of the Revised Penal Code, viz. "Who are liable for theft. Theft is committed by any personwho, with intent to gain but without violence against or intimidation of persons nor force uponthings, shall take personal property of another without the latter's consent," for purposes of

recovering the loss under the policy in question.

The Court rejects respondent commission's premise that there must be an intent on the part of thetaker of the car "permanently to deprive the insured of his car" and that since the taking here wasfor a "joy ride" and "merely temporary in nature," a "temporary taking is held not a taking insuredagainst."

The evidence does not warrant respondent commission's findings that it was a mere "joy ride". Fromthe very investigator's report cited in its comment, 3 the police found from the waist of the car driverBenito Mabasa Bartolome who smashed the car and was found dead right after the incident "onecal. 45 Colt. and one apple type grenade," hardly the materials one would bring along on a "joy ride".

Assuming, despite the totally inadequate evidence, that the taking was "temporary" and for a "joy ride", the Court sustains as the better view that which holds that when a person, either with theobject of going to a certain place, or learning how to drive, or enjoying a free ride, takes possessionof a vehicle belonging to another, without the consent of its owner, he is guilty of theft because by taking possession of the personal property belonging to another and using it, his intent to gain isevident since he derives therefrom utility, satisfaction, enjoyment and pleasure. Justice Ramon C.Aquino cites in his work Groizard who holds that the use of a thing constitutes gain and CuelloCalon who calls it "hurt de uso. "


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ANDREW PALERMO vs. PYRAMID INSURANCE CO., INC.G.R. No. L-36480 May 31, 1988

On October 12,1968, after having purchased a brand new Nissan Cedric de Luxe Sedan car fromthe Ng Sam Bok Motors Co. in Bacolod City. Palermo insured the same with Pyramid Insuranceagainst any loss or damage for P 20,000.00 and against third party liability for P 10,000.00. Theautomobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam Bok Motors Co., tosecure the payment of the balance of the purchase price.

On April 17, 1968, while driving the automobile, the plaintiff met a violent accident. Palermosustained physical injuries, his father, Cesar Palermo, who was with him in the car was likewiseseriously injured and died shortly thereafter, and the car was totally wrecked.

Pyramid Insurance was immediately notified of the occurrence. The insurance policy grants anoption unto the defendant, in case of accident either to indemnify the plaintiff for loss or damage tothe car in cash or to replace the damaged car. Pyramid, however, refused to take either of theabove-mentioned alternatives for the reason as alleged, that the insured himself had violated theterms of the policy when he drove the car in question with an expired driver's license.

There is no merit in the appellant's allegation that the plaintiff was not authorized to drive

the insured motor vehicle because his driver's license had expired. The driver of the insuredmotor vehicle at the time of the accident was, the insured himself, hence an "authorizeddriver" under the policy.

While the Motor Vehicle Law prohibits a person from operating a motor vehicle on thehighway without a license or with an expired license, an infraction of the Motor Vehicle Lawon the part of the insured, is not a bar to recovery under the insurance contract. It howeverrenders him subject to the penal sanctions of the Motor Vehicle Law.

The requirement that the driver be "permitted in accordance with the licensing or other lawsor regulations to drive the Motor Vehicle and is not disqualified from driving such motorvehicle by order of a Court of Law or by reason of any enactment or regulation in that behalf,"applies only when the driver" is driving on the insured's order or with his permission." It doesnot apply when the person driving is the insured himself.

FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M.MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamedMAGLANA, herein represented by their mother, FIGURACION VDA. DE MAGLANA vs.HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, andAFISCO INSURANCE CORPORATION G.R. No. 60506 August 6, 1992

Lope Maglana was on his way to his work station, driving a motorcycle owned by the Bureau of Customs. He met an accident that resulted in his death. He died on the spot. The PUJ jeep thatbumped the deceased was driven by Pepito Into, operated and owned by defendant Destrajo.

Consequently, the heirs of Lope Maglana, Sr., filed an action for damages and attorney's feesagainst operator Patricio Destrajo and AFISCObefore the then Court of First Instance of Davao,Branch II.

On December 14, 1981, the lower court rendered a decision finding that Destrajo had not exercisedsufficient diligence as the operator of the jeepney. The court ordered Destrajo to pay plaintiffs


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damages. The defendant insurance company is ordered to reimburse defendant Destrajo whateveramounts the latter shall have paid only up to the extent of its insurance coverage.

Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portionof the decision contending that AFISCO should not merely be held secondarily liable because theInsurance Code provides that the insurer's liability is "direct and primary and/or jointly andseverally with the operator of the vehicle, although only up to the extent of the insurance coverage."Hence, they argued that the P20,000.00 coverage of the insurance policy issued by AFISCO, should

have been awarded in their favor.Petitioners reassert their position that the insurance company is directly and solidarily liable withthe negligent operator up to the extent of its insurance coverage. Petition was granted, However, wecannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan Insurance Co., Inc.v. Court of Appeals, the Court had the opportunity to resolve the issue as to the nature of theliability of the insurer and the insured vis-a-vis the third party injured in an accident. Wecategorically ruled thus:

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 liability of the insurer under indemnity contracts against third party liability does not mean that the

insurer can be held solidarily liable with the insured and/or the other parties found at fault . The liability of the insurer is based on contract; that of the insured is based on tort .

The Court then proceeded to distinguish the extent of the liability and manner of enforcingthe same in ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may enforce the entire obligation against one of the solidary debtors,in an insurance contract, the insurer undertakes for a consideration to indemnify theinsured against loss, damage or liability arising from an unknown or contingentevent. 11 Thus, petitioner therein, which, under the insurance contract is liable only up toP20,000.00, can not be made solidarily liable with the insured for the entire obligation of P29,013.00 otherwise there would result "an evident breach of the concept of solidary obligation."

PERLA COMPANIA DE SEGUROS, INC. vs. THE COURT OF APPEALS, HERMINIO LIM andEVELYN LIMG.R. No. 96452 May 7, 1992

FCP CREDIT CORPORATION vs. THE COURT OF APPEALS, Special Third Division, HERMINIOLIM and EVELYN LIMG.R. No. 96493 May 7, 1992

On December 24, 1981, spouses Herminio and Evelyn Lim executed a promissory note in favorSupercars, Inc. and secured by a chattel mortgage over a brand new red Ford Laser 1300 5DRHatchback 1981 model, which is registered under the name Herminio Lim and insured with thepetitioner Perla Compania de Seguros, Inc. for comprehensive coverage.

On the same date, Supercars, Inc., with notice to private respondents spouses, assigned topetitioner FCP Credit Corporation its rights, title and interest on said promissory note and chattelmortgage as shown by the Deed of Assignment.

On November 9, 1982, said vehicle was carnapped while parked at the back of Broadway Centrumalong N. Domingo Street, Quezon City. Private respondent Evelyn Lim, who was driving said carbefore it was carnapped.


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On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla but saidclaim was denied on November 18, 1982 on the ground that Evelyn Lim, who was using the vehiclebefore it was carnapped, was in possession of an expired driver's license at the time of the loss of said vehicle which is in violation of the authorized driver clause of the insurance policy.

Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner'sconsent or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, andnot the "AUTHORIZED DRIVER" clause that should apply. As correctly stated by the respondent

court in its decision:. . . Theft is an entirely different legal concept from that of accident. Theft is committedby a person with the intent to gain or, to put it in another way, with the concurrenceof the doer's will. On the other hand, accident, although it may proceed or result fromnegligence, is the happening of an event without the concurrence of the will of theperson by whose agency it was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p.101).

Clearly, the risk against accident is distinct from the risk against theft. The"authorized driver clause" in a typical insurance policy is in contemplation oranticipation of accident in the legal sense in which it should be understood, and not in

contemplation or anticipation of an event such as theft. The distinction often seizedupon by insurance companies in resisting claims from their assureds betweendeath occurring as a result of accident and death occurring as a result of intent may,by analogy, apply to the case at bar. Thus, if the insured vehicle had figured in anaccident at the time she drove it with an expired license, then, appellee PerlaCompania could properly resist appellants' claim for indemnification for the loss ordestruction of the vehicle resulting from the accident. But in the present case. Theloss of the insured vehicle did not result from an accident where intent was involved;the loss in the present case was caused by theft, the commission of which wasattended by intent. 15

It is worthy to note that there is no causal connection between the possession of a valid driver'slicense and the loss of a vehicle. To rule otherwise would render car insurance practically a shamsince an insurance company can easily escape liability by citing restrictions which are notapplicable or germane to the claim, thereby reducing indemnity to a shadow.

The court however find the petition of FCP meritorious. The Court agrees with petitioner FCP thatprivate respondents are not relieved of their obligation to pay the former the installments due on thepromissory note on account of the loss of the automobile. The chattel mortgage constituted over theautomobile is merely an accessory contract to the promissory note. Being the principal contract, thepromissory note is unaffected by whatever befalls the subject matter of the accessory contract.

Therefore, the unpaid balance on the promissory note should be paid, and not just the installmentsdue and payable before the automobile was carnapped, as erronously held by the Court of Appeals.

Because petitioner Perla had unreasonably denied their valid claim, private respondents should notbe made to pay the interest, liquidated damages and attorney's fees as stipulated in the promissory note. As mentioned above, the contract of indemnity was procured to insure the return of themoney loaned from petitioner FCP, and the unjustified refusal of petitioner Perla to recognize thevalid claim of the private respondents should not in any way prejudice the latter.

Private respondents can not be said to have unduly enriched themselves at the expense of petitionerFCP since they will be required to pay the latter the unpaid balance of its obligation under thepromissory note.


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ARMANDO GEAGONIA vs. COURT OF APPEALS and COUNTRY BANKERS INSURANCECORPORATIONG.R. No. 114427 February 6, 1995

Geagonia is the owner of Norman's Mart in the public market of San Francisco, Agusan del Sur. On22 December 1989, he obtained from Country Bankers Insurance fire insurance policy forP100,000.00 and covered the following: "Stock-in-trade consisting principally of dry goods such asRTW's for men and women wear and other usual to assured's business." Geagonia declared in thepolicy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was theco-insurer for P50,000.00.

The policy contained the condition (3) that the insured shall give notice to the Company of any insurance or insurances already affected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured. Failure of notice shall deem all benefits under this policy forfeited.

On 27 May 1990, fire of accidental origin broke out at the public market of San Francisco, Agusandel Sur. The petitioner's insured stock-in-trade were completely destroyed prompting him to filewith the private respondent a claim under the policy. The private respondent denied the claimbecause it found that at the time of the loss the petitioner's stocks-in-trade were likewise covered by

fire insurance policies issued by the Cebu Branch of the Philippines First Insurance Co., Inc. Thesepolicies indicate a mortgage clause of co-insurance of P100,000.

The Insurance Commission found that the petitioner had no knowledge of the previous two policies. The Court of Appeals disagreed and found otherwise in view of the explicit admission by thepetitioner in his letter to the private respondent of 18 January 1991.

SC agrees with the Court of Appeals that the petitioner knew of the prior policies issued by the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves thisknowledge.

Condition 3 of the private respondent's Policy is a condition which is not proscribed by law. Itsincorporation in the policy is allowed by Section 75 of the Insurance Code 15 which is commonly known as the additional or "other insurance" clause and has been upheld as valid and as awarranty that no other insurance exists. Its violation would thus avoid the policy. However, in orderto constitute a violation, the other insurance must be upon same subject matter, the same interesttherein, and the same risk.

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurableinterest therein and both interests may be one policy, or each may take out a separate policy covering his interest, either at the same or at separate times. The mortgagor's insurable interestcovers the full value of the mortgaged property, even though the mortgage debt is equivalent to thefull value of the property. The mortgagee's insurable interest is to the extent of the debt, since theproperty is relied upon as security thereof, and in insuring he is not insuring the property but hisinterest or lien thereon. His insurable interest is prima facie the value mortgaged and extends only to the amount of the debt, not exceeding the value of the mortgaged property. Thus, separateinsurances covering different insurable interests may be obtained by the mortgagor and themortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is theusual practice. The mortgagee may be made the beneficial payee in several ways. He may become the assignee of the policy with the consent of the insurer; or the mere pledgeewithout such consent; or the original policy may contain a mortgage clause; or a ridermaking the policy payable to the mortgagee "as his interest may appear" may be attached; ora "standard mortgage clause," containing a collateral independent contract between the


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mortgagee and insurer, may be attached; or the policy, though by its terms payableabsolutely to the mortgagor, may have been procured by a mortgagor under a contract duty to insure for the mortgagee's benefit, in which case the mortgagee acquires an equitable lienupon the proceeds.

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee ashis interest may appear, the mortgagee is only a beneficiary under the contract, andrecognized as such by the insurer but not made a party to the contract himself. Hence, any

act of the mortgagor which defeats his right will also defeat the right of the mortgagee. Thiskind of policy covers only such interest as the mortgagee has at the issuing of the policy.

On the other hand, a mortgagee may also procure a policy as a contracting party inaccordance with the terms of an agreement by which the mortgagor is to pay the premiumsupon such insurance. It has been noted, however, that although the mortgagee is himself theinsured, as where he applies for a policy, fully informs the authorized agent of his interest,pays the premiums, and obtains on the assurance that it insures him, the policy is in fact inthe form used to insure a mortgagor with loss payable clause.

It is a cardinal rule on insurance that a policy or insurance contract is to be interpretedliberally in favor of the insured and strictly against the company, the reason being,

undoubtedly, to afford the greatest protection which the insured was endeavoring to securewhen he applied for insurance. It is also a cardinal principle of law that forfeitures are notfavored and that any construction which would result in the forfeiture of the policy benefitsfor the person claiming thereunder, will be avoided, if it is possible to construe the policy in amanner which would permit recovery.

With these principles in mind, we are of the opinion that Condition 3 of the subject policy is nottotally free from ambiguity and must, perforce, be meticulously analyzed. Such analysis leads us toconclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained.

A double insurance exists where the same person is insured by several insurers separately inrespect of the same subject and interest. As earlier stated, the insurable interests of a mortgagorand a mortgagee on the mortgaged property are distinct and separate. Since the two policies of thePFIC do not cover the same interest as that covered by the policy of the private respondent, nodouble insurance exists. The non-disclosure then of the former policies was not fatal to thepetitioner's right to recover on the private respondent's policy.

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the totalinsurance in force at the time of loss does not exceed P200,000.00, the private respondent wasamenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had inmind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "otherinsurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a totalamount that exceeds the property's value, the insured may have an inducement to destroy theproperty for the purpose of collecting the insurance. The public as well as the insurer is interestedin preventing a situation in which a fire would be profitable to the insured.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the decision of the Insurance Commission in Case No. 3340 isREINSTATED.

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