Insurance Case No. 1 20

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G.R. No. L-8151 December 16, 1955

VIRGINIA CALANOC,petitioner,vs.

COURT OF APPEALS !" T#E P#ILIPPINE A$ERICAN LIFE INSURANCE CO.,respondents.

Lucio Javillonar for petitioner.

J. A. Wolfson, Manuel Y. Mecias, Emilio Abello and Anselmo A. Reyes for respondents.

%AUTISTA ANGELO, J.:

This suit involves the collection of P2,000 representing the value of a supplemental policy covering

accidental death which was secured by one Melencio Basilio from the Philippine American ife !nsurance

"ompany. The case originated in the Municipal "ourt of Manila and #udgment being favorable to the

plaintiff it was appealed to the court of first instance. The latter court affirmed the #udgment but on appeal

the "ourt of Appeals the #udgment was reversed and the case is now before us on a petition for review.

Melencio Basilio was a watchman of the Manila Auto $upply located at the corner of Avenida %i&al and

'urbaran. (e secured a life insurance policy from the Philippine American ife !nsurance "ompany in the

amount of P2,000 to which was attached a supplementary contract covering death by accident. )n

*anuary 2+, -+, he died of a gunshot wound on the occasion of a robbery committed in the house of A

)#eda at the corner of )rouieta and 'urbaan streets. /irginia "alanoc, the widow, was paid the sum of

P2,000, face value of the policy, but when she demanded the payment of the additional sum of P2,000

representing the value of the supplemental policy, the company refused alleging, as main defense, that th

deceased died because he was murdered by a person who too part in the commission of the robbery an

while maing an arrest as an officer of the law which contingencies were e1pressly e1cluded in the contraand have the effect of e1empting the company from liability.

The pertinent facts which need to be considered for the determination of the uestions raised are those

reproduced in the decision of the "ourt of Appeals as follows

The circumstances surrounding the death of Melencio Basilio show that when he was illed at about seve

o3cloc in the night of *anuary 2+, -+, he was on duty as watchman of the Manila Auto $upply at the

corner of Avenida %i&al and 'urbaran4 that it turned out that Atty. Antonio )#eda who had his residence at

the corner of 'urbaran and )rouieta, a bloc away from Basilio3s station, had come home that night and

found that his house was well5lighted, but with the windows closed4 that getting suspicious that there wer

culprits in his house, Atty. )#eda retreated to loo for a policeman and finding Basilio in hai uniform,

ased him to accompany him to the house with the latter refusing on the ground that he was not a

policeman, but suggesting that Atty. )#eda should as the traffic policeman on duty at the corner of %i&al

Avenue and 'urbaran4 that Atty. )#eda went to the traffic policeman at said corner and reported the matte

asing the policeman to come along with him, to which the policeman agreed4 that on the way to the )#ed

residence, the policeman and Atty. )#eda passed by Basilio and somehow or other invited the latter to

come along4 that as the tree approached the )#eda residence and stood in front of the main gate which

was covered with galvani&ed iron, the fence itself being partly concrete and partly adobe stone, a shot wa

fired4 that immediately after the shot, Atty. )#eda and the policeman sought cover4 that the policeman, at

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the reuest of Atty. )#eda, left the premises to loo for reinforcement4 that it turned out afterwards that the

special watchman Melencio Basilio was hit in the abdomen, the wound causing his instantaneous death4

that the shot must have come from inside the yard of Atty. )#eda, the bullet passing through a hole waist5

high in the galvani&ed iron gate4 that upon inuiry Atty. )#eda found out that the savings of his children in

the amount of P60 in coins ept in his aparador contained in stocings were taen away, the aparador

having been ransaced4 that a month thereafter the corresponding investigation conducted by the police

authorities led to the arrest and prosecution of four persons in "riminal "ase 7o. +08 of the "ourt of

9irst !nstance of Manila for 3%obbery in an !nhabited (ouse and in Band with Murder3.

!t is contended in behalf of the company that Basilio was illed which :maing an arrest as an officer of th

law: or as a result of an :assault or murder: committed in the place and therefore his death was caused b

one of the riss e1cluded by the supplementary contract which e1empts the company from liability. This

contention was upheld by the "ourt of Appeals and, in reaching this conclusion, made the following

comment

9rom the foregoing testimonies, we find that the deceased was a watchman of the Manila Auto $upply,

and, as such, he was not boud to leave his place and go with Atty. )#eda and Policeman Magsanoc to se

the trouble, or robbery, that occurred in the house of Atty. )#eda. !n fact, according to the finding of the

lower court, Atty. )#eda finding Basilio in uniform ased him to accompany him to his house, but the latte

refused on the ground that he was not a policeman and suggested to Atty. )#eda to as help from the traf

policeman on duty at the corner of %i&al Avenue and 'urbaran, but after Atty. )#eda secured the help of t

traffic policeman, the deceased went with )#eda and said traffic policeman to the residence of )#eda, and

while the deceased was standing in front of the main gate of said residence, he was shot and thus died.

The death, therefore, of Basilio, although une1pected, was not caused by an accident, being a voluntary

and intentional act on the part of the one wh robbed, or one of those who robbed, the house of Atty. )#ed

(ence, it is out considered opinion that the death of Basilio, though une1pected, cannot be considered

accidental, for his death occurred because he left his post and #oined policeman Magsanoc and Atty. )#e

to repair to the latter3s residence to see what happened thereat. "ertainly, when Basilio #oined PatrolmanMagsanoc and Atty. )#eda, he should have reali&ed the danger to which he was e1posing himself, yet,

instead of remaining in his place, he went with Atty. )#eda and Patrolman Magsanoc to see what was the

trouble in Atty. )#eda3s house and thus he was fatally shot.

;e dissent from the above findings of the "ourt of Appeals. 9or one thing, Basilio was a watchman of the

Manila Auto $upply which was a bloc away from the house of Atty. )#eda where something suspicious

was happening which caused the latter to as for help. ;hile at first he declied the invitation of Atty. )#ed

to go with him to his residence to inuire into what was going on because he was not a regular policeman

he later agreed to come along when prompted by the traffic policeman, and upon approaching the gate o

the residence he was shot and died. The circumstance that he was a mere watchman and had no duty toheed the call of Atty. )#eda should not be taen as a capricious desire on his part to e1pose his life to

danger considering the fact that the place he was in duty5bound to guard was only a bloc away. !n

volunteering to e1tend help under the situation, he might have thought, rightly or wrongly, that to now th

truth was in the interest of his employer it being a matter that affects the security of the neighborhood. 7o

doubt there was some ris coming to him in pursuing that errand, but that ris always e1isted it being

inherent in the position he was holding. (e cannot therefore be blamed solely for doing what he believed

was in eeping with his duty as a watchman and as a citi&en. And he cannot be considered as maing an

arrest as an officer of the law, as contended, simply because he went with the traffic policeman, for

certainly he did not go there for that purpose nor was he ased to do so by the policeman.

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Much less can it be pretended that Basilio died in the course of an assault or murder considering the very

nature of these crimes. !n the first place, there is no proof that the death of Basilio is the result of either

crime for the record is barren of any circumstance showing how the fatal shot was fired. Perhaps this ma

be clarified in the criminal case now pending in court as regards the incident but before that is done

anything that might be said on the point would be a mere con#ecture. 7or can it be said that the illing wa

intentional for there is the possibility that the malefactor had fired the shot merely to scare away the peop

around for his own protection and not necessarily to ill or hit the victim. !n any event, while the act may n

e1cempt the triggerman from liability for the damage done, the fact remains that the happening was a pu

accident on the part of the victim. The victim could have been either the policeman or Atty. )#eda for itcannot be pretended that the malefactor aimed at the deceased precisely because he wanted to tae his

life.

;e tae note that these defenses are included among the riss e1luded in the supplementary contract

which enumerates the cases which may e1empt the company from liability. ;hile as a general rule :the

parties may limit the coverage of the policy to certain particular accidents and riss or causes of loss, and

may e1pressly e1cept other riss or causes of loss therefrom:

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G.R. No. L-&55'9 $rc( &9, 19'&

E$ILIA T. %IAGTAN, )UAN T. %IAGTAN, )R., $IGUEL T. %IAGTAN, GIL T. %IAGTAN !" GRACIA T.%IAGTAN,plaintiffs5appellees,vs.

T#E INSULAR LIFE ASSURANCE CO$PAN*, LTD., defendant5appellant.

anopo, Millora, !erafica, and !a"e# for plaintiff$appellees.

Araneta, Mendo#a and %apa for defendant$appellant.

$A+ALINTAL, J.:p

This is an appeal from the decision of the "ourt of 9irst !nstance of Pangasinan in its "ivil "ase 7o. @5

=00.

The facts are stipulated. *uan $. Biagtan was insured with defendant !nsularife Assurance "ompany

under Policy 7o. 6->0=+ for the sum of P+,000.00 and, under a supplementary contract denominated

:Accidental @eath Benefit "lause, for an additional sum of P+,000.00 if :the death of the !nsured resulted

directly from bodily in#ury effected solely through e1ternal and violent means sustained in an accident ...

and independently of all other causes.: The clause, however,e1pressly provided that it would not apply

where death resulted from an in#ury:intentionally inflicted by another party.:

)n the night of May 20, -8, or during the first hours of the following day a band of robbers entered the

house of the insured *uan $. Biagtan. ;hat happened then is related in the decision of the trial court asfollows

...4 that on the night of May 20, -8 or the first hours of May 2, -8, while the said life policy and

supplementary contract were in full force and effect, the house of insured *uan $. Biagtan was robbed by

band of robbers who were charged in and convicted by the "ourt of 9irst !nstance of Pangasinan for

robbery with homicide4 that in committing the robbery, the robbers, on reaching the staircase landing on t

second floor, rushed towards the door of the second floor room, where they suddenly met a person near

the door of oneof the rooms who turned out to be the insured *uan $. Biagtan who received thrusts from

their sharp5pointed instruments, causing wounds on the body of said *uan $. Biagtan resulting in his dea

at about = a.m. on the same day, May 2, -84

Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company paid the

basic amount of P+,000.00 but refused to pay the additional sum of P+,000.00 under the accidental death

benefit clause, on the ground that the insured3s death resulted from in#uries intentionally inflicted by third

parties and therefore was not covered. Plaintiffs filed suit to recover, and after due hearing the court a

&uorendered #udgment in their favor. (ence the present appeal by the insurer.

The only issue here is whether under the facts are stipulated and found by the trial court the wounds

received by the insured at the hands of the robbers nine in all, five of them mortal and four non5mortal

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were inflicted intentionally. The court, in ruling negatively on the issue, stated that since the parties

presented no evidence and submitted the case upon stipulation, there was no :proof that the act of

receiving thrust Phil. =-, is relied upon by the trial court in support of itsdecision. The facts in that case, however, are different from those obtaining here. The insured there was

watchman in a certain company, who happened to be invited by a policeman to come along as the latter

was on his way to investigate a reported robbery going on in a private house. As the two of them, togethe

with the owner of the house, approached and stood in front of the main gate, a shot was fired and it turne

out afterwards that the watchman was hit in the abdomen, the wound causing his death. Cnder those

circumstances this "ourt held that it could not be said that the illing was intentional for there was the

possibility that the malefactor had fired the shot to scare people around for his own protection and not

necessarrily to (ill or hit the victim. A similar possibility is clearly ruled out by the facts in the case now

before Cs. 9or while a single shot fired from a distance, and by a person who was not even seen aiming

the victim, could indeed have been fired without intent to ill or in#ure, nine wounds inflicted with bladedweapons at close range cannot conceivably be considered as innocent insofar as such intent is concerne

The manner of e1ecution of the crime permits no other conclusion.

"ourt decisions in the American #urisdiction, where similar provisions in accidental death benefit clauses

insurance policies have been construed, may shed light on the issue before Cs. Thus, it has been held th

:intentional: as used in an accident policy e1cepting intentional in#uries inflicted by the insured or any oth

person, etc., implies the e1ercise of the reasoning faculties, consciousness and volition. 1;here a

provision of the policy e1cludes intentional in#ury, it is the intention of the person inflicting the in#ury that is

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controlling. &!f the in#uries suffered by the insured clearly resulted from the intentional act of a third person

the insurer is relieved from liability as stipulated.

!n the case of )utchcraft*s E+*r v. ravelers* ns. 'o., >= Dy. 600, > $.;. +=0, 2 Am. $t. %ep. 8>8, the

insured was waylaid and assassinated for the purpose of robbery. Two

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)n 9ebruary 28, ->-, private respondent filed a complaint with the !nsurance "ommission which subseuently rendered a decision, the pertinent portion of

which reads

n the light of the foregoing. we find respondent liable to pay complainant the sum of P+,000.00 representing the proceeds of the policy with interest. As no

evidence was submitted to prove the claim for mortuary aid in the sum of P,000.00, the same cannot be entertained.

;(E%E9)%E, #udgment is hereby rendered ordering respondent to pay complainant the sum of P+,000.00 with legal interest from the date of the filing of t

complaint until fully satisfied. ;ith costs. 0

)n *uly , --, the appellate court affirmed said decision.

(ence, petitioner filed this petition alleging grove abuse of discretion on the part of the appellate court in applying the principle of :e+presso unius e+clusio

alterius: in a personal accident insurance policy since death resulting from murder andGor assault are impliedly e1cluded in said insurance policy considering

the cause of death of the insured was not accidental but rather a deliberate and intentional act of the assailant in illing the former as indicated by the locatio

the lone stab wound on the insured. Therefore, said death was committed with deliberate intent which, by the very nature of a personal accident insurance

policy, cannot be indemnified.

;e do not agree.

The terms :accident: and :accidental: as used in insurance contracts have not acuired any technical meaning, and are construed by the courts in their ordin

and common acceptation. Thus, the terms have been taen to mean that which happen by chance or fortuitously, without intention and design, and which is

une1pected, unusual, and unforeseen. An accident is an event that taes place without one3s foresight or e1pectation an event that proceeds from an

unnown cause, or is an unusual effect of a nown cause and, therefore, not e1pected.

. . The generally accepted rule is that, death or in#ury does not result from accident or accidental means within the terms of an accident5policy if it is the naturesult of the insured3s voluntary act, unaccompanied by anything unforeseen e1cept the death or in#ury. There is no accident when a deliberate act is perform

unless some additional, une1pected, independent, and unforeseen happening occurs which produces or brings about the result of in#ury or death. !n other

words, where the death or in#ury is not the natural or probable result of the insured3s voluntary act, or if something unforeseen occurs in the doing of the act

which produces the in#ury, the resulting death is within the protection of the policies insuring against death or in#ury from accident. 5

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

n the case at bar, it cannot be pretended that "arlie $urposa died in the course of an assault or murder as a result of his voluntary act considering the very

nature of these crimes. !n the first p lace, the insured and his companion were on their way home from attending a festival. They were confronted by unidentif

persons. The record is barren of any circumstance showing how the stab wound was inflicted. 7or can it be pretended that the malefactor aimed at the insur

precisely because the iller wanted to tae his life. !n any event, while the act may not e1empt the unnown perpetrator from criminal liability, the fact remain

that the happening was a pure accident on the part of the victim. The insured died from an event that too place without his foresight or e1pectation, an even

that proceeded from an unusual effect of a nown cause and, therefore, not e1pected. 7either can it be said that where was a capricious desire on the part o

the accused to e1pose his life to danger considering that he was #ust going home after attending a festival. 6

9urthermore, the personal accident insurance policy involved herein specifically enumerated only ten

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9!%$T @!/!$!)7

HF.%. 7o. >+2-. May 8, --0.I

ENIT# INSURANCE CORPORATION,petitioner,vs.COURT OF APPEALS !"

LA2RENCE FERNANDE,respondents.

/icente R. Laya0enfor petitioner.

La0rence L. 1ernande# 2 Associatesfor private respondent.

D E C I S I O N

$EDIALDEA, J p

Assailed in this petition is the decision of the "ourt of Appeals in "A5F.%. "./. 7o.68-> entitled, :awrence . 9ernande&, plaintiff5appellee v.'enith !nsurance "orp.,defendant5appellant: which affirmed in totothe decision of the %egional Trial "ourt of "ebu,Branch JJ in "ivil "ase 7o. "EB52+ and the denial of petitioner3s Motion for%econsideration.

The antecedent facts are as followsibe1

)n *anuary 2+, ->6, private respondent awrence 9ernande& insured his car for :own

damage: under private car Policy 7o. +08+- with petitioner 'enith !nsurance "orporation. )n*uly , ->6, the car figured in an accident and suffered actual damages in the amount ofP6,80.00. After allegedly being given a run around by 'enith for two 6 butthe same was moved to 7ovember 8, ->6 upon petitioner3s motion, allegedly to e1plore waysto settle the case although at an amount lower than private respondent3s claim. )n 7ovember8, ->6, the trial court terminated the pre5trial. $ubseuently, 9ernande& presented hisevidence. Petitioner 'enith, however, failed to present its evidence in new of its failure toappear in court, without #ustifiable reason, on the day scheduled for the purpose. The trial courtissued an order on August 26, ->8 submitting the case for decision without 'enith3s evidence

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)n *une 8, ->, a decision was rendered by the trial court in favor of privaterespondent 9ernande&. The dispositive portion of the trial court3s decision provides

:;(E%E9)%E, defendant is hereby ordered to pay to the plaintiff.

.The amount of P6,80.00 representing the damage incurred plus interest atthe rate of twice the prevailing interest rates4

2.The amount of P20,000.00 by way of moral damages4

6.The amount of P20,000.00 by way of e1emplary damages4

8.The amount of P+,000.00 as attorney3s fees4+.The amount of P6,000.00 as litigation e1penses4 and

."osts.: , ordered the e1ecution of the decision pending appeal. The order wasassailed by petitioner in a petition for certiorari with the "ourt of Appeals on )ctober 26, ->in ".A. F.% 7o. 0820 but which petition was also dismissed on @ecember 28, -> , petitioner filed a notice of appeal before the trial court. The notice of

appeal was granted in the same order granting private respondent3s motion for e1ecutionpending appeal. The appeal to respondent court assigned the following errors

:!.The lower court erred in denying defendant appellant to adduce evidence inits behalf.

!!.The lower court erred in ordering 'enith !nsurance "orporation to pay theamount of P6,80.00 in its decision.

!!!.The lower court erred in awarding moral damages, attorney3s fees ande1emplary damages, the worst is that, the court awarded damages more than whatare prayed for in the complaint.: >, the "ourt of Appeals rendered its decision affirming in totothedecision of the trial court. !t also ruled that the matter of the trial court3s denial of 9ernande&3sright to adduce evidence is a closed matter in view of its

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The propriety of the award of moral damages, e1emplary damages and attorney3s fees isthe main issue raised herein by petitioner.

The award of damages in case of unreasonable delay in the payment of insuranceclaims is governed by the Philippine !nsurance "ode, which provides

:$E". 288.!n case of any litigation for the enforcement of any policy or contractof insurance, it shall be the duty of the "ommissioner or the "ourt, as the case maybe, to mae a finding as to whether the payment of the claim of the insured has beenunreasonably denied or withheld4 and in the affirmative case, the insurance company

shall be ad#udged to pay damages which shall consist of attorney3s fees and othere1penses incurred by the insured person by reason of such unreasonable denial orwithholding of payment plus interest of twice the ceiling prescribed by the MonetaryBoard of the amount of the claim due the insured, from the date following the timeprescribed in section two hundred forty5two or in section two hundred forty5three, asthe case may be, until the claim is fully satisfied4 Provided, That the failure to pay anysuch claim within the time prescribed in said sections shall be considered prima facieevidence of unreasonable delay in payment.:

!t is clear that under the !nsurance "ode, in case of unreasonable delay in the paymentof the proceeds of an insurance policy, the damages that may be awarded are ? attorney3s

fees4 2? other e1penses incurred by the insured person by reason of such unreasonable denialor withholding of payment4 6? interest at twice the ceiling prescribed by the Monetary Board ofthe amount of the claim due the in#ured4 and 8? the amount of the claim.

As regards the award of moral and e1emplary damages, the rules under the "ivil "odeof the Philippines shall govern. pr

:The purpose of moral damages is essentially indemnity or reparation, not punishment ocorrection. Moral damages are emphatically not intended to enrich a complainant at thee1pense of a defendant, they are awarded only /o e!b3e /(e 4!re" r/7 /o ob/4! me!,"4er4o! or meme!/ /(/ :433 ere /o 33e4/e /(e mor3 ;;er4!< (e (!"er

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3oda v. 'ru#$Arnaldo, F.%. 7o. +=622, *une 22, ->=4 + $"%A 22=, e1emplary damageswere not awarded as the insurance company had not acted in wanton, oppressive ormalevolent manner. The same is true in the case at bar.

The amount of P+,000.00 awarded as attorney3s fees is #ustified under the circumstancesof this case considering that there were other petitions filed and defended by privaterespondent in connection with this case.

As regards the actual damages incurred by private respondent, the amount of P6,80.00had been established before the trial court and affirmed by the appellate court. %espondentappellate court correctly ruled that the deductions of P2+0.00 and P2=8.00 as deductiblefranchise and 20K depreciation on parts, respectively claimed by petitioners as agreed upon inthe contract, had no basis. %espondent court ruled

:Cnder its second assigned error, defendant5appellant puts forward twoarguments, both of which are entirely without merit. !t is contented that the amountrecoverable under the insurance policy defendant5appellant issued over the car ofplaintiff5appellee is sub#ect to deductible franchise, and . . .

:The policy

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SUN INSURANCE OFFICE, LTD.,petitioner,vs.T#E #ON. COURT OF APPEALS!" NERISSA LI$,respondents.

D E C I S I O N

CRU, J p

The petitioner issued Personal Accident Policy 7o. 0+>= to 9eli1 im, *r. with a face value ofP200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, hiswife 7erissa im sought payment on the policy but her claim was re#ected. The petitioner agreedthat there was no suicide. !t argued, however, that there was no accident either.

Pilar 7alagon, im3s secretary, was the only eyewitness to his death. !t happened on )ctober ,->2, at about 0 o3cloc in the evening, after his mother3s birthday party. According to 7alagon,im was in a happy mood

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independent and unforeseen happening occurs which produces or brings about their in#ury ordeath.: There was such a happening. This was the firing of the gun, which was the additionalune1pected and independent and unforeseen occurrence that led to the insured person3s death.

The petitioner also cites one of the four e1ceptions provided for in the insurance contract andcontends that the private petitioner3s claim is barred by such provision. !t is there stated

E1ceptions

The company shall not be liable in respect of.

.Bodily in#ury.

111 111 111

b.conseuent upon.

i?The insured persons attempting to commit suicide or :43;337 e1posing himself to needlessperil e1cept in an attempt to save human life.

To repeat, the parties agree that im did not commit suicide. 7evertheless, the petitioner contendthat the insured willfully e1posed himself to needless peril and thus removed himself from thecoverage of the insurance policy.

!t should be noted at the outset that suicide and willful e1posure to needless peril are in parimateriabecause they both signify a disregard for one3s life. The only difference is in degree, assuicide imports a positive act of ending such life whereas the second act indicates a reclessrising of it that is almost suicidal in intent. To illustrate, a person who wals a tightrope one

thousand meters above the ground and without any safety device may not actually be intending tcommit suicide, but his act is nonetheless suicidal. (e would thus be considered as :willfullye1posing himself to needless peril: within the meaning of the e1ception in uestion.

The petitioner maintains that by the mere act of pointing the gun to his temple, im had willfullye1posed himself to needless peril and so came under the e1ception. The theory is that a gun ispse dangerous and should therefore be handled cautiously in every case.

T(/ o/re 4 r

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the case at bar deliberately put the gun to his head and pulled the trigger. (e wilfullye1posed himself to peril.

T(e Cor/ cer/4!37

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litigate which should not be so. 9or those e1penses, the law deems the award of costs as

sufficient. >

;(E%E9)%E, the challenged decision of the "ourt of Appeals is A99!%ME@ insofar as it holdsthe petitioner liable to the private respondent in the sum of P200,000.00 representing the facevalue of the insurance contract, with interest at the legal rate from the date of the filing of thecomplaint until the full amount is paid, but M)@!9!E@ with the deletion of all awards for damagesincluding attorney3s fees, e1cept the costs of the suit.

$) )%@E%E@.

4ri"o$A&uino, Medialdea and-ellosillo, JJ ., concur.

5!un nsurance ffice, Ltd. v. 'ourt of Appeals, 4.R. 3o. :9@7@, July 0.I

)E2EL VILLACORTA, 4/e" b7 (er (b!", GUERRERO VILLACORTA,petitioner,vs.T#E INSURANCE CO$$ISSION !" E$PIRE INSURANCECO$PAN*,respondents.

D E C I S I O N

TEE#AN+EE,Acting '.J p

The "ourt sets aside respondent !nsurance "ommission3s dismissal of petitioner3s complaint andholds that where the insured3s car is wrongfully taen without the insured3s consent from the carservice and repair shop to whom it had been entrusted for chec5up and repairs 0 of respondeinsurance commission are as follows

:"omplainant

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;ors, !nc., for general chec5up and repairs. )n May , -=>, while it was in the custodyof the $unday Machine ;ors, the car was allegedly taen by si1

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9irst, respondent commission3s ruling that the person who drove the vehicle in the person of BenMabasa, who, according to its own finding, was one of the residents of the $unday Machine;ors, !nc. to whom the car had been entrusted for general chec5up and repairs was not an:authori&ed driver: of petitioner5complainant is too restrictive and contrary to the establishedprinciple that insurance contracts, being contracts of adhesion where the only participation of theother party is the signing of his signature or his :adhesion: thereto, :obviously call for greaterstrictness and vigilance on the part of courts of #ustice with a view of protecting the weaer partyfrom abuse and imposition, and prevent their becoming traps for the unwary.: 2

The main purpose of the :authori&ed driver: clause, as may be seen from its te1t, supra, is that aperson other than the insured owner, who drives the car on the insured3s order, such as his regudriver, or with his permission, such as a friend or member of the family or the employees of a carservice or repair shop must be duly licensed drivers and have no disualification to drive a motorvehicle.

A car owner who entrusts his car to an established car service and repair shop necessarily entruhis car ey to the shop owner and employees who are presumed to have the insured3s permissioto drive the car for legitimate purposes of checing or road5testing the car. The mere happenstanthat the employee

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rather than temporary, for the car was totally smashed in the fatal accident and was never returnein serviceable and useful condition to petitioner5owner.

Assuming, despite the totally inadeuate evidence, that the taing was :temporary: and for a :#oyride:, the "ourt sustains as the better view that which (o3" /(/ :(e! ero!, e4/(er :4/( /(obec/ o; eoe4o! o; e(4c3e be3o! Gro4@r" :(o (o3"/(/ /(e e o; /(4!< co!/4//e

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The "ourt of Appeals certified this case to Cs for proper disposition as the only uestion involvedis the interpretation of the provision of the insurance contract regarding the :authori&ed driver: ofthe insured motor vehicle.

)n March =, --, the insured, appellee Andrew Palermo, filed a complaint in the "ourt of 9irst!nstance of 7egros )ccidental against Pyramid !nsurance "o., !nc., for payment of his claim unda Private "ar "omprehensive Policy M/52+ issued by the defendant ==-= from the 7g $am Bo Motors "o. in Bacolod "ity, plaintiffinsured the same with the defendant insurance company against any loss or damage forP20,000.00 and against third party liability for P0,000.00. Plaintiff paid the defendantP6.68 premium for one year, March 2, -> to March 2, --, for which defendantissued Private "ar "omprehensive Policy 7o. M/52+, mared E1hibit 3A.3

:The automobile was, however, mortgaged by the plaintiff with the vendor, 7g $am BoMotors "o., to secure the payment of the balance of the purchase price, which e1plains whythe registration certificate in the name of the plaintiff remains in the hands of the mortgagee,

7g $am Bo Motors "o.

:)n April =, ->, while driving the automobile in uestion, the plaintiff met a violentaccident. The a "arlota "ity fire engine crashed head on, and as a conseuence, theplaintiff sustained physical in#uries, his father, "esar Palermo, who was with him in the carat the time was liewise seriously in#ured and died shortly thereafter, and the car in uestionwas totally wreced.

:The defendant was immediately notified of the occurrence, and upon its orders, thedamaged car was towed from the scene of the accident to the compound of 7g $am BoMotors in Bacolod "ity where it remains deposited up to the present time.

:The insurance policy, E1hibit 3A,3 grants an option unto the defendant, in case of accidenteither to indemnify the plaintiff for loss or damage to the car in cash or to replace thedamaged car. The defendant, however, refused to tae either of the above5mentionedalternatives for the reason as alleged, that the insured himself had violated the terms of thepolicy when he drove the car in uestion with an e1pired driver3s license.: , %ecord on Appeal.?

Appellant alleges that the trial court erred in interpreting the following provision of the Private "a"omprehensive Policy M/52+

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:ACT()%!'E@ @%!/E%

Any of the following

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5%alermo v. %yramid nsurance 'o., nc., 4.R. 3o. L$@;=7>, May @, 6-?

[email protected] [email protected] [email protected] [email protected] !AB!!TL )9 !7$C%E% @!$T!7"T 9%)M !AB!!TL )9 T(E !7$C%E@AFA!7$T T(!%@ PA%T!E$. ;e cannot agree that A9!$") is liewise solidarily liable with@estra#o. !n Malayan nsurance 'o.v.'ourt of Appeals, >, +$"%A +6, +88?, this "ourt had the opportunity to resolve the issue as to the nature of the liabilitof the insurer and the insured vis5a5vis the third party in#ured in an accident. ;e categorically rulethus :;hile it is true that where the insurance contract provides for indemnity against liability tothird persons, such third persons can directly sue the insurer, however, the direct liability of theinsurer under indemnity contracts against third party liability does not mean that the insurer can bheldsolidarily liable 0ith the insured andBor the other parties found at fault. he liability of theinsurer is based on contractC that of the insured is based on tort. . . . 1or if petitioner$insurer 0eresolidarily liable 0ith said t0o 59? respondents by reason of the indemnity contract against third

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)n @ecember 8, ->, the lower court rendered a decision finding that @estra#o had note1ercised sufficient diligence as the operator of the #eepney. The dispositive portion of the decisireads

:;(E%E9)%E, the "ourt finds #udgment in favor of the plaintiffs against defendant@estra#o, ordering him to pay plaintiffs the sum of P2>,000.00 for loss of income4 /o 734!/4;; /(e m o; P1&,. :(4c( mo!/ (33 be "e"c/e" 4! /(e ee!/

"

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.The "ompany will, sub#ect to the imits of iability, pay all sums necessary to dischargeliability of the insured in respect of.

"e/( o; or bo"437 4!r7 /o !7 T#IRD PART*

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o34"r437 34b3e :4/( /(e 4!re" ;or /(e e!/4re ob34

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FCP CREDIT CORPORATION,petitioner,vs.T#E COURT OF APPEALS, Sec43T(4r" D444o!, #ER$INIO LI$ !" EVEL*N LI$,,respondents.

Yolanda uisumbing$Javellana and 3elson A. Loyola for petitioner.

Wilson L. ee for respondents (ermenio and Evelyn im.

S*LLA%US

.")MME%"!A A;4 !7$C%A7"E4 )$$ )9 M)T)% /E(!"E T(%C T(E9T4 7) "AC$A")77E"T!)7 BET;EE7 P)$$E$$!)7 )9 A /A!@ @%!/E%3$ !"E7$E A7@ )$$ )9/E(!"E T(%C T(E9T. !t is worthy to note that there is no causal connection between thepossession of a valid driver3s license and the loss of a vehicle. To rule otherwise would render cainsurance practically a sham since an insurance company can easily escape liability by citingrestrictions which are not applicable or germane to the claim, thereby reducing indemnity to ashadow.

[email protected] [email protected] !7$C%A7"E P)!"L MEA7T T) BE A@@!T!)7A $E"C%!TL T) P%!7"!PA")7T%A"T4 "A$E AT BA%. The insurance policy was therefore meant to be an additionalsecurity to the principal contract, that is, to insure that the promissory note will be paid in case thautomobile is lost through accident or theft. The "hattel Mortgage "ontract provided that :3T(E$A!@ M)%TFAF)% ")/E7A7T$ A7@ AF%EE$ T(AT (EG!T ;! "AC$E T(EP%)PE%TLG!E$ (E%E!75AB)/E M)%TFAFE@ T) BE !7$C%E@ AFA!7$T )$$ )%@AMAFE BL A""!@E7T, T(E9T A7@ 9!%E 9)% A PE%!)@ )9 )7E LEA% 9%)M @ATE(E%E)9 A7@ E/E%L LEA% T(E%EA9TE% C7T! T(E M)%TFAFE )B!FAT!)7 !$ 9CLPA!@ ;!T( A7 !7$C%A7"E ")MPA7L )% ")MPA7!E$ A""EPTABE T) T(E M)%TFAFE!7 A7 AM)C7T 7)T E$$ T(A7 T(E )CT$TA7@!7F BAA7"E )9 T(E M)%TFAFE)B!FAT!)74 )A )EB WLL MAFE ALL L!!, 1 A3Y, G3DER !G') %L'Y R%L'E!, %AYA-LE )E MR4A4EE R ! A!!43! A! ! 3ERE!! MAYA%%EAR A3D 1R)W) DEL/ER !G') %L'Y R %L'E! )E MR4A4EE,. . .*H!t is clear from the abovementioned provision that upon the loss of the insured vehicle, theinsurance company Perla undertaes to pay directly to the mortgagor or to their assignee, 9"P, toutstanding balance of the mortgage at the time of said loss under the mortgage contract.

6."!/! A;4 ")7T%A"T$4 "(ATTE M)%TFAFE4 ME%EL A7 A""E$$)%L T)P%)M!$$)%L 7)TE4 P%!7"!PA ")7T%A"T C7A99E"TE@ BL ;(ATE/E% BE9A$A""E$$)%L ")7T%A"T4 "A$E AT BA%. The chattel mortgage constituted over theautomobile is merely an accessory contract to the promissory note. Being the principal contract,

the promissory note is unaffected by whatever befalls the sub#ect matter of the accessory contracTherefore, the unpaid balance on the promissory note should be paid, and not #ust the installmendue and payable before the automobile was carnapped, as erroneously held by the "ourt ofAppeals.

[email protected] @AMAFE$4 MADE% 7)T !ABE 9)% !7TE%E$T, !NC!@ATE@ @AMAFE$ A7@ATT)%7EL3$ 9EE$ $T!PCATE@ !7 P%)M!$$)%L 7)TE %EMA!7!7F C7PA!@ @CE T)!7$C%E%3$ @E7!A )9 A /A!@ "A!M4 "A$E AT BA%. Because petitioner Perla hadunreasonably denied their valid claim, private respondents should not be made to pay the interesliuidated damages and attorney3s fees as stipulated in the promissory note. As mentioned above

the contract of indemnity was procured to insure the return of the money loaned from petitioner

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9"P, and the un#ustified refusal of petitioner Perla to recogni&e the valid claim of the privaterespondents should not in any way pre#udice the latter.

[email protected] [email protected] A;A%@ 9)% M)%A A7@ EJEMPA%L @AMAFE$, A$ ;E A$ ATT)%7EL3$9EE$ E9T T) $)C7@ @!$"%ET!)7 )9 T(E ")C%T4 "A$E AT BA%. As to the award of amoral damages, e1emplary damages and attorney3s fees, private respondents are legally entitledto the same since petitioner Perla had acted in bad faith by unreasonably refusing to honor theinsurance claim of the private respondents. Besides, awards for moral and e1emplary damages,

as well as attorney3s fees are left to the sound discretion of the "ourt. $uch discretion, if welle1ercised, will not be disturbed on appeal.

D E C I S I O N

NOCON, J p

These are two petitions for review on certiorari, one filed by Perla "ompania de $eguros, !nc. in

F.%. 7o. -8+2, and the other by 9"P "redit "orporation in F.%. 7o. -8-6 both seeing to annand set aside the decision dated *uly 60, --0 of the "ourt of Appeals in "A5F.%. 7o. 606=,which reversed the decision of the %egional Trial "ourt of Manila, Branch /!!! in "ivil "ase 7o. >-0-> for replevin and damages. The dispositive portion of the decision of the "ourt of Appealsreads, as follows

:;(E%E9)%E, the decision appealed from is reversed and appellee Perla "ompania de$eguros, !nc. is ordered to indemnify appellants (erminio and Evelyn im for the loss oftheir insured vehicle4 while said appellants are ordered to pay appellee 9"P "redit"orporation all the unpaid installments that were due and payable before the date saidvehicle was carnapped4 and appellee Perla "ompania de $eguros, !nc. is also ordered to

pay appellants moral damages of P2,000.00 for the latter3s mental sufferings, e1emplarydamages of P20,000.00 for appellee Perla "ompania de $eguros. !nc.3s unreasonablerefusal on sham grounds to honor the #ust insurance claim of appellants by way of e1ampleand correction for public good, and attorney3s fees of P0,000.00 as a #ust and euitablereimbursement for the e1penses incurred therefor by appellants, and the costs of suit both

in the lower court and in this appeal.: 2

The facts as found by the trial court are as follows

)n @ecember 28, ->, private respondents spouses (erminio and Evelyn im e1ecuted apromissory note in favor of $upercars, !nc. in the sum of P==,-80.00, payable in monthly

installments according to the schedule of payment indicated in said note, 6and secured by achattel mortgage over a brand new red 9ord aser 600 +@% (atchbac -> model with motorand serial 7o. $CP*LD506=>0, which is registered under the name of private respondent (erminim 8and insured with the petitioner Perla "ompania de $eguros, !nc. 6. +

)n the same date, $upercars, !nc., with notice to private respondents spouses, assigned topetitioner 9"P "redit "orporation

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At around 260 P.M. of 7ovember -, ->2, said vehicle was carnapped while pared at the bac Broadway "entrum along 7. @omingo $treet, Nue&on "ity. Private respondent Evelyn im, whowas driving said car before it was carnapped, immediately called up the Anti5"arnapping Cnit ofthe Philippine "onstabulary to report said incident and thereafter, went to the nearest policesubstation at Araneta, "ubao to mae a police report regarding said incident, as shown by thecertification issued by the Nue&on "ity police. =

)n 7ovember 0, ->2, private respondent Evelyn im reported said incident to the and

Transportation "ommission in Nue&on "ity, as shown by the letter of her counsel to said office, >in compliance with the insurance reuirement. $he also filed a complaint with the (eaduarters"onstabulary (ighway Patrol Froup. -

)n 7ovember , ->2, private respondent filed a claim for loss with the petitioner Perla but saidclaim was denied on 7ovember >, ->2 0on the ground that Evelyn im, who was using thevehicle before it was carnapped, was in possession of an e1pired driver3s license at the time of thloss of said vehicle which is in violation of the authori&ed driver clause of the insurance policy,which states, to wit"dpr

:ACT()%!'E@ @%!/E%

Any of the following 6, petitioner 9"P filed a complaint against private respondents, who in turn filed amended third party complaint against petitioner Perla on @ecember >, ->6. After trial on themerits, the trial court rendered a decision, the dispositive portion of which reads.

:;(E%E9)%E, in view of the foregoing, #udgment is hereby rendered as follows

.)rdering defendants (erminio im and Evelyn im to pay, #ointly and severally, plaintiffthe sum of P++,0++.-6 plus interest thereon at the rate of 28K per annum from *uly 2, ->6until fully paid4

2.)rdering defendants to pay plaintiff P+,000.00 as and for attorney3s fees4 and the costs ofsuit.

Cpon the other hand, liewise, ordering the @!$M!$$A of the Third Party "omplaint filed

against Third5Party @efendant.: 6

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7ot satisfied with said decision, private respondents appealed the same to the "ourt of Appeals,which reversed said decision.

After petitioners3 separate motions for reconsideration were denied by the "ourt of Appeals in itsresolution of @ecember 0, --0, petitioners filed these separate petitions for review on certiorar

Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellate couin holding that private respondents did not violate the insurance contract because the authori&ed

driver clause is not applicable to the :Theft: clause of said "ontract.

9or its part, petitioner 9"P raised the issue of whether or not the loss of the collateral e1emptedthe debtor from his admitted obligations under the promissory note particularly the payment ofinterest, litigation e1penses and attorney3s fees.pr

;e find no merit in Perla3s petition.

The comprehensive motor car insurance policy issued by petitioner Perla undertoo to indemnify

the private respondents against loss or damages to the car

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since an insurance company can easily escape liability by citing restrictions which are notapplicable or germane to the claim, thereby reducing indemnity to a shadow.

;e however find the petition of 9"P meritorious.

This "ourt agrees with petitioner 9"P that private respondents are not relieved of their obligationto pay the former the installments due on the promissory note on account of the loss of theautomobile. The chattel mortgage constituted over the automobile is merely an accessory contra

to the promissory note. Being the principal contract, the promissory note is unaffected by whatevbefalls the sub#ect matter of the accessory contract. Therefore, the unpaid balance on thepromissory note should be paid, and not #ust the installments due and payable before theautomobile was carnapped, as erroneously held by the "ourt of Appeals.

(owever, this does not mean that private respondents are bound to pay the interest, litigatione1penses and attorney3s fees stipulated in the promissory note. Because of the peculiarrelationship between the three contracts in this case, i. e.,the promissory note, the chattelmortgage contract and the insurance policy, this "ourt is compelled to construe all three contractas intimately interrelated to each other, despite the fact that at first glance there is no relationshipwhatsoever between the parties thereto.

Cnder the promissory note, private respondents are obliged to pay $upercars, !nc. the amountstated therein in accordance with the schedule provided for. To secure said promissory note,private respondents constituted a chattel mortgage in favor of $upercars, !nc. over the automobithe former purchased from the latter. The chattel mortgage, in turn, reuired private respondentsinsure the automobile and to mae the proceeds thereof payable to $upercars, !nc. Thepromissory note and chattel mortgage were assigned by $upercars, !nc. to petitioner 9"P, with tnowledge of private respondents. Private respondents were able to secure an insurance policyfrom petitioner Perla, and the same was made specifically payable to petitioner 9"P.

The insurance policy was therefore meant to be an additional security to the principal contract, this, to insure that the promissory note will still be paid in case the automobile is lost throughaccident or theft. The "hattel Mortgage "ontract provided that #ur

:3T(E $A!@ M)%TFAF)% ")/E7A7T$ A7@ AF%EE$ T(AT (EG!T ;! "AC$E T(EP%)PE%TLG!E$ (E%E!75AB)/E M)%TFAFE@ T) BE !7$C%E@ AFA!7$T )$$ )%@AMAFE BL A""!@E7T, T(E9T A7@ 9!%E 9)% A PE%!)@ )9 )7E LEA% 9%)M @ATE(E%E)9 A7@ E/E%L LEA% T(E%EA9TE% C7T! T(E M)%TFAFE )B!FAT!)7 !$9CL PA!@ ;!T( A7 !7$C%A7"E ")MPA7L )% ")MPA7!E$ A""EPTABE T) T(EM)%TFAFEE !7 A7 AM)C7T 7)T E$$ T(A7 T(E )CT$TA7@!7F BAA7"E )9T(E M)%TFAFE )B!FAT!)74 )A )EB WLL MAFE ALL L!!, 1 A3Y, G3DER

!G') %L'Y R %L'E!, %AYA-LE )E MR4A4EE R ! A!!43! A!! 3ERE!! MAY A%%EAR A3D 1R)W) DEL/ER !G') %L'Y R

%L'E! )E MR4A4EE,. . .3: =

!t is clear from the abovementioned provision that upon the loss of the insured vehicle, theinsurance company Perla undertaes to pay directly to the mortgagor or to their assignee, 9"P, toutstanding balance of the mortgage at the time of said loss under the mortgage contract. !f theclaim on the insurance policy had been approved by petitioner Perla, it would have paid theproceeds thereof directly to petitioner 9"P, and this would have had the effect of e1tinguishingprivate respondents3 obligation to petitioner 9"P. Therefore, private respondents were #ustified in

asing petitioner 9"P to demand the unpaid installments from petitioner Perla.

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Because petitioner Perla had unreasonably denied their valid claim, private respondents shouldnot be made to pay the interest, liuidated damages and attorney3s fees as stipulated in thepromissory note. As mentioned above, the contract of indemnity was procured to insure the returof the money loaned from petitioner 9"P, and the un#ustified refusal of petitioner Perla to recognthe valid claim of the private respondents should not in any way pre#udice the latter.

Private respondents can not be said to have unduly enriched themselves at the e1pense ofpetitioner 9"P since they will be reuired to pay the latter the unpaid balance of its obligation

under the promissory note.

!n view of the foregoing discussion, ;e hold that the "ourt of Appeals did not err in reuiringpetitioner Perla to indemnify private respondents for the loss of their insured vehicle. (owever, thlatter should be ordered to pay petitioner 9"P the amount of P++,0++.-6, representing the unpaiinstallments from @ecember 60, ->2 up to *uly , ->6, as shown in the statement of accountprepared by petitioner 9"P, >plus legal interest from *uly 2, ->6 until fully paid.llcd

As to the award of moral damages, e1emplary damages and attorney3s fees, private respondentsare legally entitled to the same since petitioner Perla had acted in bad faith by unreasonablyrefusing to honor the insurance claim of the private respondents. Besides, awards for moral ande1emplary damages, as well as attorney3s fees are left to the sound discretion of the "ourt. $uchdiscretion, if well e1ercised, will not be disturbed on appeal. -

;(E%E9)%E, the assailed decision of the "ourt of Appeals is hereby M)@!9!E@ to reuireprivate respondents to pay petitioner 9"P the amount of P++,0++.-6, with legal interest from *uly2, ->6 until fully paid. The decision appealed from is hereby affirmed as to all other respects. 7opronouncement as to costs.

$) )%@E%E@.

Melencio$)errera, %aras, %adilla andRegalado, JJ ., concur.

5%erla 'ompania de !eguros, nc. v. 'ourt of Appeals, 4.R. 3o. :;=89, :;=:@, May >,

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@A/!@E, *%., J p

9or our review under %ule 8+ of the %ules of "ourt is the decisionof the "ourt ofAppeals in "A5F.%. $P 7o. 6-, entitled :'ountry -an(ers nsurance 'orporation versusArmando 4eagonia,: reversing the decision of the !nsurance "ommission in !.". "ase 7o.6680 which awarded the claim of petitioner Armando Feagonia against private respondent"ountry Baners !nsurance "orporation.

The petitioner is the owner of 7orman3s Mart located in the public maret of $an

9rancisco, Agusan del $ur. )n 22 @ecember ->-, he obtained from the private respondent fireinsurance policy 7o. 958222for P00,000.00. The period of the policy was from 22@ecember ->- to 22 @ecember --0 and covered the following :$toc5in5trade consistingprincipally of dry goods such as %T;3s for men and women wear and other usual to assured3sbusiness.:cdasia

The petitioner declared in the policy under the subheading entitled ")5!7$C%A7"E thatMercantile !nsurance "o., !nc. was the co5insurer for P+0,000.00. 9rom ->- to --0, thepetitioner had in his inventory stocs amounting to P6-2,60.+0, itemi&ed as follows

'enco $ales, !nc.P++,->.009. egaspi Fen. Merchandise>,862.+0

"ebu Tesing Te1tiles2+0,000.00 :8

The basis of the private respondent3s denial was the petitioner3s alleged violation of"ondition 6 of the policy.

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The petitioner then filed a complaint+against the private respondent with the !nsurance"ommission 8G9ire Policy 7o. 2>88 that theinsurance was taen in the name of private respondent Hpetitioner hereinI. The policy statesthat 3@!$")C7T MA%T

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e1istence of these insurances private respondent violated "ondition 7o. 6 of 9ire Policy 7o.822. . . .

!ndeed private respondent3s allegation of lac of nowledge of the previous insurances isbelied by his letter to petitioner Hof > *anuary --. The body of the letter reads asfollowsIcdasia

111 111 111

3Please be informed that ! have no nowledge of the provision reuiring me to informyour office about my prior insurance under 9FA52>8 and 95"EB528=+>. Lourrepresentative did not mention about said reuirement at the time he was convincingme to insure with you. !f he only did or even inuired if ! had other e1isting policiescovering my establishment, ! would have told him so. Lou will note that at the time hetaled to me until ! decided to insure with your company the two policiesaforementioned were already in effect. Therefore ! would have no reason to withholdsuch information and ! would have no reason to withhold such information and !would have desisted to part with my hard earned peso to pay the insurancepremiums HifI ! now ! could not recover anything.

$ir, ! am only an ordinary businessman interested in protecting my investments. Theactual value of my stocs damaged by the fire was estimated by the Police@epartment to be P,000,000.00 - or five months before the fire,shows my merchandise inventory was already some P+-+,8++,=+. . . . These willsupport my claim that the amount under the three policies are much below the valueof my stocs lost.

111 111 111

The letter contradicts private respondent3s pretension that he did not now that there were

other insurances taen on the stoc5in5trade and seriously puts in uestion his credibility.: cdasia

(is motion to reconsider the adverse decision having been denied, the petitioner filed theinstant petition. (e contends therein that the "ourt of Appeals acted with grave abuse ofdiscretion amounting to lac of e1cess of #urisdiction

:A . . . ;(E7 !T %E/E%$E@ T(E 9!7@!7F$ )9 9A"T$ )9 T(E !7$C%A7"E")MM!$$!)7, A NCA$!5*C@!"!A B)@L "(A%FE@ ;!T( T(E @CTL )9@ETE%M!7!7F !7$C%A7"E "A!M A7@ ;()$E @E"!$!)7 !$ A"")%@E@%E$PE"T A7@ E/E7 9!7A!TL BL T(E ")C%T$4

B . . . ;(E7 !T ")7$!@E%E@ A$ E/!@E7"E MATTE%$ ;(!"( ;E%E 7)TP%E$E7TE@ A$ E/!@E7"E @C%!7F T(E (EA%!7F )% T%!A4 A7@

" . . . ;(E7 !T @!$M!$$E@ T(E "A!M )9 T(E PET!T!)7E% (E%E!7 AFA!7$T T(EP%!/ATE %E$P)7@E7T.:

The chief issues that crop up from the first and third grounds are

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The second ground, which is based on the "ourt of Appeals3 reliance on the petitioner3sletter of reconsideration of > *anuary --, is without merit. The petitioner claims that the saidletter was not offered in evidence and thus should not have been considered in deciding thecase. (owever, as correctly pointed out by the "ourt of Appeals, a copy of this letter wasattached to the petitioner3s complaint in !.". "ase 7o. 6680 as Anne1 :M: thereof and made anintegral part of the complaint.2!t has attained the status of a #udicial admission and since itsdue e1ecution and authenticity was not denied by the other party, the petitioner is bound by iteven if it were not introduced as an independent evidence. 6

As to the first issue, the !nsurance "ommission found that the petitioner had nonowledge of the previous two policies. The "ourt of Appeals disagreed and found otherwise inview of the e1plicit admission by the petitioner in his letter to the private respondent of >*anuary --, which was uoted in the challenged decision of the "ourt of Appeals. Thesedivergent findings of fact constitute an e1ception to the general rule that in petitions for reviewunder %ule 8+, only uestions of law are involved and findings of fact by the "ourt of Appealsare conclusive and binding upon this "ourt. 8

;e agree with the "ourt of Appeals that the petitioner new of the prior policies issued by

the P9!". (is letter of > *anuary -- to the private respondent conclusively proves thisnowledge. (is testimony to the contrary before the !nsurance "ommissioner and which thelatter relied upon cannot prevail over a written admission made ante litem motam. !t was,indeed, incredible that he did not now about the prior policies since these policies were notnew or original. Policy 7o. FA52>88 was a renewal of Policy 7o. 9528=+>, while Policy 7o.FA52>8 had been renewed twice, the previous policy being 9528=-2. cdasia

"ondition 6 of the private respondent3s Policy 7o. 95822 is a condition which is notproscribed by law. !ts incorporation in the policy is allowed by $ection =+ of the !nsurance "ode+which provides that :HaI policy may declare that a violation of specified provisions thereofshall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.: $uch a

condition is a provision which invariably appears in fire insurance policies and is intended toprevent an increase in the moral ha&ard. !t is commonly nown as the additional or :otherinsurance: clause and has been upheld as valid and as a warranty that no other insurancee1ists. !ts violation would thus avoid the policy. (owever, in order to constitute a violation,the other insurance must be upon the same sub#ect matter, the same interest therein, and thesame ris. =

As to a mortgaged property, the mortgagor and the mortgagee have each an independeninsurable interest therein and both interests may be covered by one policy, or each may taeout a separate policy covering his interest, either at the same or at separate times. >Themortgagor3s insurable interest covers the full value of the mortgaged property, even though the

mortgage debt is euivalent to the full value of the property. -The mortgagee3s insurableinterest is to the e1tent of the debt, since the property is relied upon as security thereof, and ininsuring he is not insuring the property but his interest or lien thereon. (is insurable interest is

prima faciethe value mortgaged and e1tends only the amount of the debt, not e1ceeding thevalue of the mortgaged property.20Thus, separate insurances covering different insurableinterests may be obtained by the mortgagor and the mortgagee.

A mortgagor may, however, tae out insurance for the benefit of the mortgagee, which isthe usual practice. The mortgagee may be made the beneficial payee in several ways. (e maybecome the assignee of the policy with the consent of the insurer4 or the mere pledgee withoutsuch consent4 or the original policy may contain a mortgage clause4 or a rider maing the policy

payable to the mortgagee :as his interest may appear: may be attached4 or a :standard

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mortgage clause,: containing a collateral independent contract between the mortgagee andinsurer, may be attached4 or the policy, though by its terms payable absolutely to the mortgagomay have been procured by a mortgagor under a contract duty to insure for the mortgagee3sbenefit, in which case the mortgagee acuires an euitable lien upon the proceeds. 2

!n the policy obtained by the mortgagor with loss payable clause in favor of themortgagee as his interest may appear, the mortgagee is only a beneficiary under the contract,and recogni&ed as such by the insurer but not made a party to the contract itself. (ence, anyact of the mortgagor which defeats his right will also defeat the right of the mortgagee.22This

ind of policy covers only such interest as the mortgagee has at the issuing of the policy. 26

)n 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. 28!t has been noted, however, that although the mortgagee is himselfthe insured, as where he applies for a policy, fully informs the authori&ed agent of his interest,pays the premiums, and obtains a policy on the assurance that it insures him, the policy is infact in the form used to insure a mortgagor with loss payable clause. 2+

The fire insurance policies issued by the P9!" name the petitioner as the assured andcontain a mortgage clause which readscdasia

:oss, if any, shall be payable to ME$$%$. TE$!7F TEJT!E$, "ebu "ity as theirinterest may appear sub#ect to the terms of the policy.:

This is clearly a simple loss payable clause, not a standard mortgage clause.

!t must, however, be underscored that unlie the :other insurance: clauses involved in4eneral nsurance and !urety 'orp. vs. 3g )ua2or in %ioneer nsurance 2 !urety 'orp. vs.Yap, 2=which read

:The insured shall give notice to the company of any insurance or insurances alreadyeffected, or which may subseuently be effected covering any of the property herebyinsured, and unless such notice be given and the particulars of such insurance orinsurances be stated in or endorsed on this Policy by or on behalf of the "ompany before

the occurrence of any loss or damage, all benefits under this Policy shall be forfeited.:

or in the -60 case of !anta Ana vs. 'ommercial Gnion Assurance 'o. 2>which provided :thaany outstanding insurance upon the whole or a portion of the ob#ects thereby assured must bedeclared by the insured in writing and he must cause the company to add or insert it in thepolicy, without which such policy shall be null and void, and the insured will not be entitled toindemnity in case of loss,: 'ondition @in the private respondent3s policy 7o. 95822 does notabsolutely declare void any violation thereof. !t e1pressly provides that the condition :shall notapply when the total insurance or insurances in force at the time of the loss or damage is notmore than P200,000.00.:cdasia

!t 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, undoubtedlyto afford the greatest protection which the insured was endeavoring to secure when he appliedfor insurance. !t is also a cardinal principle of law that forfeitures are not favored and that anyconstruction which would result in the forfeiture of the policy benefits for the person claimingthereunder, will be avoided, if it is possible to construe the policy in a manner which wouldpermit recovery, as, for e1ample, by finding a waiver for such forfeiture. 2-$tated differently,provisions, conditions or e1ceptions in policies which tend to wor a forfeiture of insurancepolicies should be construed most strictly against those for whose benefits they are inserted,and most favorably toward those against whom they are intended to operate. 60The reason fothis is that, e1cept for riders which may later be inserted, the insured sees the contract already

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in its final form and has had no voice in the selection or arrangement of the words employedtherein. )n the other hand, the language of the contract