PHILIPPINE HEALTH CARE PROVIDERS, INC. V. COMMISSIONER OF INTERNAL REVENUE, G.R. NO. 167330 (RESOLUTION), [SEPTEMBER 18, 2009], 616 PHIL 387-423

FACTS: Petitioner is a domestic corporation whose primary purpose is “[t]o establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization”. Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it.

On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of P224,702,641.18. . . .

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code . . .

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.

ISSUE: WON THE PETITIONER IS ENGAGED IN INSURANCE BUSINESS.

HELD: NO. The mere presence of risk would be insufficient to override the primary purpose of the business to provide medical services as needed, with payment made directly to the provider of these services. In short, even if petitioner assumes the risk of paying the cost of these services even if significantly more than what the member has prepaid, it nevertheless cannot be considered as being engaged in the insurance business.

By the same token, any indemnification resulting from the payment for services rendered in case of emergency by non-participating health providers would still be incidental to petitioner’s purpose of providing and arranging for health care services and does not transform it into an insurer. To fulfill its obligations to its members under the agreements, petitioner is required to set up a system and the facilities for the delivery of such medical services. This indubitably shows that indemnification is not its sole object.

In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical services intended to keep members from developing medical conditions or diseases. As an HMO, it is its obligation to maintain the good health of its members. Accordingly, its health care programs are designed to prevent or to minimize the possibility of any assumption of risk on its part. Thus, its undertaking under its agreements is not to indemnify its members against any loss or damage arising from a medical condition but, on the contrary, to provide the health and medical services needed to prevent such loss or damage.

Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services), but these are incidental to the principal activity of providing them medical care. The “insurance-like” aspect of petitioner’s business is miniscule compared to its non-insurance activities. Therefore, since it substantially provides health care services rather than insurance services, it cannot be considered as being in the insurance business.

It is important to emphasize that, in adopting the “principal purpose test” used in the above-quoted U.S. cases, we are not saying that petitioner’s operations are identical in every respect to those of the HMOs or health providers which were parties to those cases. What we are stating is that, for the purpose of determining what “doing an insurance business” means, we have to scrutinize the operations of the business as a whole and not its mere components. This is of course only prudent and appropriate, taking into account the burdensome and strict laws, rules and regulations applicable to insurers and other entities engaged in the insurance business. Moreover, we are also not unmindful that there are other American authorities who have found particular HMOs to be actually engaged in insurance activities.

Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that it is not supervised by the Insurance Commission but by the Department of Health. In fact, in a letter dated September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business. This determination of the commissioner must be accorded great weight. It is well-settled that the interpretation of an administrative agency which is tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of laws by the courts.

ETERNAL GARDENS MEMORIAL PARK CORP. V. PHILIPPINE AMERICAN LIFE INSURANCE CO., G.R. NO. 166245, [APRIL 8, 2008], 574 PHIL 161-174

FACTS: On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-1920 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.

The relevant provisions of the policy are:

ELIGIBILITY.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured for the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage by the Company on its effective date is eligible for insurance under the Policy.

EVIDENCE OF INSURABILITY.

No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of good health shall be required for all Lot Purchasers as part of the application. The Company reserves the right to require further evidence of insurability satisfactory to the Company in respect of the following:

1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan (including arrears up to but not exceeding 2 months) as reported by the Assured to the Company or the sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if the Lot Purchaser dies while insured under the Policy.

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated December 29, 1982, containing a list of insurable balances of its lot buyers for October 1982. One of those included in the list as “new business” was a certain John Chuang. His balance of payments was PhP100,000. On August 2, 1984, Chuang died. Eternal sent a letter dated August 20, 1984 to Philamlife, which served as an insurance claim for Chuang’s death. Attached to the claim were the following documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984, requiring Eternal to submit the following documents relative to its insurance claim for Chuang’s death: (1) Certificate of Claimant (with form attached); (2) Assured’s Certificate (with form attached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance of Chuang before his death. Eternal transmitted the required documents through a letter dated November 14, 1984, which was received by Philamlife on November 15, 1984. After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP100,000 on April 25, 1986.

ISSUE: WON THE INSURER IS LIABLE. 

HELD: YES. As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company. IcDESA

An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the second sentence appears to require Philamlife to approve the insurance contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations. (Emphasis supplied.) TECcHA

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be construed in favor of the insured and in favor of the effectivity of the insurance contract.

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract.

MALAYAN INSURANCE CO., INC. V. PHILIPPINE FIRST INSURANCE CO., INC., G.R. NO. 184300, [JULY 11, 2012], 690 PHIL 621-639

FACTS: Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter undertook to transport and deliver the former’s products to its customers, dealers or salesmen.

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over its own products. Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and other products usual or incidental to the insured’s business while the same were being transported or shipped in the Philippines. The policy covers all risks of direct physical loss or damage from any external cause, if by land, and provides a limit of P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned out, however, that the contract was not signed by Wyeth’s representative/s. Nevertheless, it was admittedly signed by Reputable’s representatives, the terms thereof faithfully observed by the parties and, as previously stated, the same contract of carriage had been annually executed by the parties every year since 1989. DST

Under the contract, Reputable undertook to answer for “all risks with respect to the goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and other force majeure while the goods/products are in transit and until actual delivery to the customers, salesmen, and dealers of the COMPANY”. The contract also required Reputable to secure an insurance policy on Wyeth’s goods. Thus, on February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s products was hijacked by about 10 armed men. They threatened to kill the truck driver and two of his helpers should they refuse to turn over the truck and its contents to the said highway robbers. The hijacked truck was recovered two weeks later without its cargo.

On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to the Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines First then demanded reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of the payment. The latter, however, ignored the demand.

Consequently, Philippines First instituted an action for sum of money against Reputable on August 12, 1996. In its complaint, Philippines First stated that Reputable is a “private corporation engaged in the business of a common carrier.” In its answer, Reputable claimed that it is a private carrier. It also claimed that it cannot be made liable under the contract of carriage with Wyeth since the contract was not signed by Wyeth’s representative and that the cause of the loss wasforce majeure, i.e., the hijacking incident.

Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the amount covered in the SR Policy. According to Reputable, “it was validly insured with [Malayan] for P1,000,000.00 with respect to the lost products under the latter’s Insurance Policy No. SR-0001-02577 effective February 1, 1994 to February 1, 1995” and that the SR Policy covered the risk of robbery or hijacking.

Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy, the insurance does not cover any loss or damage to property which at the time of the happening of such loss or damage is insured by any marine policy and that the SR Policy expressly excluded third-party liability.

ISSUE: WON THERE IS DOUBLE INSURANCE.

HELD: NONE. Section 5 is actually the other insurance clause (also called “additional insurance” and “double insurance”), one akin to Condition No. 3 in issue in Geagonia v. CA, which validity was upheld by the Court as a warranty that no other insurance exists. The Court ruled that Condition No. 3 is a condition which is not proscribed by law as its incorporation in the policy is allowed by Section 75 of the Insurance Code. It was also the Court’s finding that unlike the other insurance clauses, Condition No. 3 does not absolutely declare void any violation thereof but expressly provides that the condition “shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00.”

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR Policy but simply limits the liability of Malayan only up to the excess of the amount that was not covered by the other insurance policy. In interpreting the “other insurance clause” in Geagonia, the Court ruled that the prohibition applies only in case of double insurance. The Court ruled that in order to constitute a violation of the clause, the other insurance must be upon same subject matter, the same interest therein, and the same risk. Thus, even though the multiple insurance policies involved were all issued in the name of the same assured, over the same subject matter and covering the same risk, it was ruled that there was no violation of the “other insurance clause” since there was no double insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers the situation where there is over insurance due to double insurance. In such case, Section 15 provides that Malayan shall “not be liable to pay or contribute more than its ratable proportion of such loss or damage.” This is in accord with the principle of contribution provided under Section 94 (e) of the Insurance Code, which states that “where the insured is over insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.” HEDaTA

Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question that now arises is whether there is double insurance in this case such that either Section 5 or Section 12 of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. The requisites in order for double insurance to arise are as follows:

1.   The person insured is the same;

2.   Two or more insurers insuring separately;

3.   There is identity of subject matter;

4.   There is identity of interest insured; and

5.   There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same subject matter, i.e., goods belonging to Wyeth, and both covered the same peril insured against, it is, however, beyond cavil that the said policies were issued to two different persons or entities. It is undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy, while Reputable is the recognized insured of Malayan under the SR Policy. The fact that Reputable procured Malayan’s SR Policy over the goods of Wyeth pursuant merely to the stipulated requirement under its contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the said SR Policy. aCHcIE

The interest of Wyeth over the property subject matter of both insurance contracts is also different and distinct from that of Reputable’s. The policy issued by Philippines First was in consideration of the legal and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued by Malayan to Reputable was over the latter’s insurable interest over the safety of the goods, which may become the basis of the latter’s liability in case of loss or damage to the property and falls within the contemplation of Section 15 of the Insurance Code.

Therefore, even though the two concerned insurance policies were issued over the same goods and cover the same risk, there arises no double insurance since they were issued to two different persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of the SR Policy can be applied.

Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions of the SR Policy against Malayan. This is in keeping with the rule that: ACTEHI

“Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations.”

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying premiums for a [P]1,000,000.00 insurance coverage, would not be entitled to recover said amount for the simple reason that the same property is covered by another insurance policy, a policy to which it was not a party to and much less, from which it did not stand to benefit. . . .

On the fourth issue — Reputable is

not solidarily liable with Malayan.

There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. In Heirs of George Y. Poe v. Malayan Insurance Company, Inc., the Court ruled that:

[W]here the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is direct and such third persons can directly sue the insurer. The direct liability of the insurer under indemnity contracts against third party[-]liability does not mean, however, that the insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they are being held liable under different obligations. The liability of the insured carrier or vehicle owner is based on tort, in accordance with the provisions of the Civil Code; while that of the insurer arises from contract, particularly, the insurance policy. (Citation omitted and emphasis supplied)

Suffice it to say that Malayan’s and Reputable’s respective liabilities arose from different obligations — Malayan’s is based on the SR Policy while Reputable’s is based on the contract of carriage. Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for compensation, offering their services to the public. On the other hand, a private carrier is one wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for the general public. A common carrier becomes a private carrier when it undertakes to carry a special cargo or chartered to a special person only. For all intents and purposes, therefore, Reputable operated as a private/special carrier with regard to its contract of carriage with Wyeth.

On the second issue — Reputable is

bound by the terms of the contract

of carriage.

The extent of a private carrier’s obligation is dictated by the stipulations of a contract it entered into, provided its stipulations, clauses, terms and conditions are not contrary to law, morals, good customs, public order, or public policy. “The Civil Code provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier. Public policy governing common carriers has no force where the public at large is not involved.”

Thus, being a private carrier, the extent of Reputable’s liability is fully governed by the stipulations of the contract of carriage, one of which is that it shall be liable to Wyeth for the loss of the goods/products due to any and all causes whatsoever, including theft, robbery and other force majeure while the goods/products are in transit and until actual delivery to Wyeth’s customers, salesmen and dealers.

KEPPEL CEBU SHIPYARD, INC. V. PIONEER INSURANCE AND SURETY CORP., G.R. NOS. 180880-81 & 180896-97, [SEPTEMBER 18, 2012], 695 PHIL 169-226

FACTS: On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) entered into, and executed, a Shiprepair Agreement wherein KCSI agreed to carry out renovation and reconstruction of M/V Superferry 3 (Superferry 3), owned by WG&A, using its (KCSI’s) dry docking facilities. Prior to the execution of the Shiprepair Agreement, Superferry 3 was already insured by WG&A with Pioneer for US$8,472,581.78.

On February 8, 2000, while undergoing repair, Superferry 3 was gutted by fire. WG&A declared the vessel’s damage as a “total constructive loss” and filed an insurance claim with Pioneer.

On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of US$8,472,581.78. In exchange, WG&A executed a Loss and Subrogation Receipt in favor of Pioneer.

Believing that KCSI was solely responsible for the loss of Superferry 3, Pioneer tried to collect the amount of US$8,472,581.78 form KCSI but it was frustrated. Thus, Pioneer sought arbitration with the Construction Industry Arbitration Commission (CIAC) pursuant to the arbitration clause in the Shiprepair Agreement.

During the arbitration proceedings, an amicable settlement was forged between KCSI and WG&A. Pioneer, thus, stayed on as the remaining claimant.

On October 28, 2002, the CIAC rendered its Decision finding that both WG&A and KCSI were equally guilty of negligence which resulted in the fire and loss of Superferry 3. The CIAC also ruled that the liability of KSCI was limited to the amount of P50,000,000.00 pursuant to Clause 20 of the Shiprepair Agreement.

Accordingly, the CIAC ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest at 6% per annum from the time of the filing of the case up to the time the decision was promulgated, and 12% interest per annum added to the award, or any balance thereof, after it would become final and executory. The CIAC further ordered that the arbitration costs be imposed on both parties on a pro rata basis.

ISSUE: who should be responsible for the loss of Superferry 3.

HELD: was resolved by the CIAC against both parties. As this finding of fact by the CIAC was affirmed by the CA, the Court must have a strong and cogent reason to disturb it.

It is a hornbook doctrine that, save for certain exceptions, the findings of fact of administrative agencies and quasi-judicial bodies like the CIAC, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect, but finality when affirmed by the CA. It is well-settled that “the consequent policy and practice underlying our Administrative Law is that courts of justice should respect the findings of fact of said administrative agencies, unless there is absolutely no evidence in support thereof or such evidence is clearly, manifestly and patently insubstantial.” Moreover, in petitions for review on certiorari, only questions of law may be put into issue.

Be that as it may, the Court, after making its own assiduous assessment of the case, concurs with the conclusions arrived at by the tribunals below that the loss of Superferry 3 cannot be attributed to one party alone.

WG&A was negligent because, although it utilized the welders of KCSI, it used them outside the agreed area, the restaurant of the promenade deck. If they did not venture out of the restaurant, the sparks or the hot molten slags produced by the welding of the steel plates would not have reached the combustible lifejackets stored at the deck below.

On the part of KCSI, it failed to secure a hot work permit pursuant to another work order. Had this been applied for by the KCSI worker, the hot work area could have been inspected and safety measures, including the removal of the combustible lifejackets, could have been undertaken. In this regard, KCSI is responsible.

In short, both WG&A and KCSI were equally negligent for the loss of Superferry 3. The parties being mutually at fault, the degree of causation may be impossible of rational assessment as there is no scale to determine how much of the damage is attributable to WG&A’s or KCSI’s own fault. Therefore, it is but fair that both WG&A and KCSI should equally shoulder the burden for their negligence.

With respect to the defenses of KCSI that it was a co-assured under Clause 22 (a) of the contract and that its liability is limited to P50,000,000.00 under Clause 20 of the Shiprepair Agreement, the Court maintains the earlier ruling on the invalidity of Clause 22 (a) of the Shiprepair Agreement.

It cannot, however, maintain the earlier ruling on the invalidity of Clause 20 of the Shiprepair Agreement, which limited KCSI’s liability to P50,000,000.00. In the September 25, 2009 Decision, the Third Division found Clause 20 of the Shiprepair Agreement invalid, seeing it as an unfair imposition by KCSI, being the dominant party, on WG&A. TCASIH

Basic is the rule that parties to a contract may establish such stipulations, clauses, terms, or conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, and public policy. While greater vigilance is required in determining the validity of clauses arising from contracts of adhesion, the Court has nevertheless consistently ruled that contracts of adhesion are not invalid per se and that it has, on numerous occasions, upheld the binding effect thereof.

In its Decision, the Third Division placed great weight in the testimony of Engr. Elvin F. Bello, WG&A’s fleet manager, that while he assented to the Shiprepair Agreement, he did not sign the fine-print portion thereof where Clause 20 was found because he did not want WG&A to be bound by them. This testimony however, was correctly found by the CIAC as clearly self-serving, because such intention of WG&A was belied by its actions before, during and after the signing of the Shiprepair Agreement.

As pointed out by the CA, WG&A and its related group of companies, which were all extensively engaged in the shipping business, had previously dry-docked and repaired its various ships with KCSI under ship repair agreements incorporating the same standard conditions on at least 22 different occasions. Yet, in all these instances, WG&A had not been heard to complain of being strong-armed and forced to accept the fine-print provisions imposed by KCSI to limit its liability.

Also, as pointed out by the CIAC, if it were true that WG&A did not want to be bound under such an onerous clause, it could have easily transacted with other ship repairers, which may not have included such a provision.

After the signing of the Shiprepair agreement, the record is bereft of any other evidence to show that WG&A had protested such a provision limiting the liability of KCSI. Indeed, the parties bound themselves to the terms of their contract which became the law between them.

While contracts of adhesion may be struck down as void and unenforceable for being subversive of public policy, the same can only be done when, under the circumstances, the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely depriving the former of the opportunity to bargain on equal footing. This is not the situation in this case.

NATIONAL DEVELOPMENT COMPANY V. MADRIGAL WAN HAI LINES CORP., G.R. NO. 148332, [SEPTEMBER 30, 2003], 458 PHIL 1038-1056

FACTS: The National Shipping Corporation of the Philippines (NSCP) is a wholly-owned subsidiary of petitioner. Private respondent acquired in a public bidding petitioner’s stock ownership in NSCP, as well as its three vessels. Subsequently, respondent received from the US Department of Treasury, Internal Revenue Service (US IRS), a notice of final assessment against NSCP for deficiency taxes on gross transportation income derived from US sources. Anxious that the delay in the payment of the deficiency taxes may hamper its shipping operations overseas, respondent assumed and paid petitioner’s tax liabilities. For petitioner’s refusal to reimburse respondent of the amount it paid to the US IRS, the latter filed a complaint against the former for reimbursement and damages. The trial court ruled in favor of respondent. On appeal, the Court of Appeals affirmed the trial court’s decision with modification. Hence, this petition.

ISSUE: WON THE PETITIONER IS LIABLE FOR THE TAXES PAID BY THE RESPONDENT. 

HELD: YES. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF ADHESION; DEFINED. — A contract of adhesion is one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. In other words, in such contract, the terms therein are fixed by one party, and the other party has merely “to take it, or leave it.” Thus, it can be struck down as void and unenforceable for being subversive of public policy, especially when the will of the dominant party is imposed upon the weaker party and the latter is denied the opportunity to bargain on equal footing.

NOT STRICTLY AGAINST THE LAW. — It must be stressed, however, that contracts of adhesion are not strictly against the law. In Ong Yiu vs. Court of Appeals and Pan American World Airways, Inc. vs. Intermediate Appellate Court, we held that contracts of adhesion—wherein one party imposes a ready-made form of contract on the other—are not entirely prohibited. The other party is free to reject it entirely; if he adheres, he gives his consent. Nevertheless, the inequality of bargaining positions and the resulting impairment of the other party’s freedom to contract necessarily call upon us to exercise our mandate as a court of justice and equity. Indeed, we have ruled that contracts of such nature “obviously call for greater strictness and vigilance on the part of the courts of justice with a view to protecting the weaker party from abuses and imposition and prevent their becoming traps for the unwary.”

SALES; CONTRACT OF SALE; THE PHRASE “AS IS, WHERE IS” BASIS, CONSTRUED. — In Hian vs. Court of Tax Appeals, we had the occasion to construe the phrase “as is, where is” basis, thus: “We cannot accept the contention in the Government’s Memorandum of March 31, 1976 that Condition No. 5 in the Notice of Sale to the effect that ‘The abovementioned articles (the tobacco) are offered for sale `AS IS’ and the Bureau of Customs gives no warranty as to their condition’ relieves the Bureau of Customs of liability for the storage fees in dispute. As we understand said Condition No. 5, it refers to the physical condition of the tobacco and not to thelegal situation in which it was at the time of the sale, as could be implied from the right of inspection to prospective bidders under Condition No. 1….. The phrase “as is, where is” basis pertains solely to the physical condition of the thing sold, not to its legal situation. In the case at bar, the US tax liabilities constitute a potential lien which applies to NSCP’s legal situation, not to its physical aspect. Thus, respondent as a buyer: has no obligation to shoulder the same.

PRINCIPLE OF UNJUST ENRICHMENT, APPLIED IN CASE AT BAR. —The case at bar calls to mind the principle of unjust enrichment — Nemo cum alterius detrimento locupletari potest. No person shall be allowed to enrich himself unjustly at the expense of others. . . Justice and equity thus oblige that petitioner be held liable for NSCP’s tax liabilities and reimburse respondent for the amounts it paid. It would be unjust enrichment on the part of petitioner to be relieved of that obligation.

FIELDMEN’S INSURANCE CO., INC. V. VDA. DE SONGCO, G.R. NO. L-24833, [SEPTEMBER 23, 1968], 134 PHIL 90-96

FACTS: The facts as found by respondent Court of Appeals, binding upon us, follow: “This is a peculiar case. Federico Songco of Floridablanca, Pampanga, a man of scant education, being only a first grader . . ., owned a private jeepney with Plate No. 41-289 for the year 1960. On September 15, 1960, as such private vehicle owner, he was induced by FIELDMEN’S Insurance Company Pampanga agent Benjamin Sambat to apply for a Common Carrier’s Liability Insurance Policy covering his motor vehicle .. Upon paying an annual premium of P16.50, defendant FIELDMEN’S Insurance Company Inc. issued on September 19, 1960, Common Carriers Accident Insurance Policy No. 45-HO-4254 . . . the duration of which will be for one (1) year, effective September 15, 1960 to September 15, 1961. On September 22, 1961, the defendant company, upon payment of the corresponding premium, renewed the policy by extending the coverage from October 15, 1961 to October 15, 1962. This time Federico Songco’s private jeepney carried Plate No. J-68136- Pampanga – 1961 . . . On October 29, 1961, during the effectivity of the renewed policy, the insured vehicle while being driven by Rodolfo Songco, a duly licensed driver and son of Federico (the vehicle owner) collided with a car in the municipality of Calumpit, province of Bulacan, as a result of which mishap Federico Songco (father) and Rodolfo Songco (son) died, Carlos Songco (another son), the latter’s wife, Angelita Songco, and a family friend by the name of Jose Manuel sustained physical injuries of varying degrees.”

It was further shown according to the decision of respondent Court of Appeals: “Amor Songco, 42-year-old son of deceased Federico Songco, testifying as witness, declared that when insurance agent Benjamin Sambat was inducing his father to insure his vehicle, he butted in saying: ‘That cannot be, Mr. Sambat, because our vehicle is an ‘owner’ private vehicle and not for passengers,’ to which agent Sambat replied: ‘whether our vehicle was an ‘owner’ type or for passengers it could be insured because their company is not owned by the Government and the Government has nothing to do with their company. So they could do what they please whenever they believe a vehicle is insurable’ . . . In spite of the fact that the present case was filed and tried in the CFI Pampanga, the defendant company did not even care to rebut Amor Songco’s testimony by calling on the witness-stand agent Benjamin Sambat, its Pampanga Field Representative.”

The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of the deceased Federico Songco as well as the injured passenger Jose Manuel. On the above facts they prevailed, as had been mentioned, in the lower court and in the respondent Court of Appeals.

ISSUE: WON THE INSURER SHOULD PAY FOR THE PROCEEDS OF THE INSURANCE. 

HELD: YES. COMMERCIAL LAWS; INSURANCE CONTRACTS; COMMON CARRIER LIABILITY INSURANCE; INSURER WHO REPRESENTS INSURABILITY OF VEHICLE ESTOPPED FROM DENYING LIABILITY THEREON. — After petitioner FIELDMEN’S Insurance Co., Inc., had led the insured Federico Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in any litigation arising out of such representation, be permitted to change its stand to the detriment of the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply it in this case would result in a gross travesty of justice.

INSURER ESTOPPED FROM ASSERTING BREACH OF IMPOSSIBLE CONDITION IN THE CONTRACT. — Why liability under the terms of the policy was inescapable was set forth in the decision of respondent Court of Appeals: Thus: “Since some of the conditions contained in the policy issued by the defendant-appellant were impossible to comply with under the existing conditions at the time and ‘inconsistent with the known facts,’ the insurer ‘is estopped from asserting breach of such conditions. From this jurisprudence, we find no valid reason to deviate and consequently hold that the decision appealed from should be affirmed. The injured parties, to wit, Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical expenses the defendant company was being made liable, were passengers of the jeepney at the time of the occurrence, and Rodolfo Songco, for whose burial expenses the defendant company was also being made liable, was the driver of the vehicle in question. Except for the fact that they were not fare-paying passengers, their status as beneficiaries under the policy is recognized therein.”

SPOUSES TIBAY V. COURT OF APPEALS, G.R. NO. 119655, [MAY 24, 1996], 326 PHIL 931-955

FACTS: On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street, Makati City, together with all their personal effects therein. The insurance was for P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a considerable balance unpaid.

On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March 1987 Violeta Tibay paid the balance of the premium. On the same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with the necessary documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987 she signed a non-waiver agreement with GASI to the effect that any action taken by the companies or their representatives in investigating the claim made by the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of the amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies held by said claimant, nor the rights of either or any of the parties to this agreement, and such action shall not be, or be claimed to be, an admission of liability on the part of said companies or any of them.

In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violeta and the other petitioners sued FORTUNE for damages in the amount of P600,000.00 representing the total coverage of the fire insurance policy plus 12% interest per annum, P100,000.00 moral damages, and attorney’s fees equivalent to 20% of the total claim.

On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value of the insured building and personal properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the complaint until full payment, and attorney’s fees equivalent to 20% of the total amount claimed plus costs of suit.

On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable to plaintiff-appellees therein but ordering defendant-appellant to return to the former the premium of P2,983.50 plus 12% interest from 10 March 1987 until full payment.

Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the appellate court, FORTUNE remains liable under the subject fire insurance policy inspite of the failure of petitioners to pay their premium in full.

ISSUE: May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?

HELD: NO.  COMMERCIAL LAW; INSURANCE; DEFINED. — Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. The consideration is the premium, which must be paid at the time and in the way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms.

WHERE THE PREMIUM HAS ONLY BEEN PARTIALLY PAID AND THE BALANCE PAID ONLY AFTER THE PERIL INSURED AGAINST HAS OCCURRED, THE INSURANCE CONTRACT DID NOT TAKE EFFECT AND THE INSURED CANNOT COLLECT AT ALL ON THE POLICY. — Clearly, the Insurance Policy in case at bar provides for payment of premium in full. Accordingly, where the premium has only been partially paid and the balance paid only after the peril insured against has occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy. This is fully supported by Sec. 77 of the Insurance Code.

THE 1967 PHOENIX CASE IS NOT DECISIVE OF THE INSTANT DISPUTE. — The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is different. In Phoenix it was the insurance company that sued for the balance of the premium, i.e., it recognized and admitted the existence of an insurance contract with the insured. In the case before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his policy . . . is not in force until the premium had been fully paid and duly receipted by the Company . . . Resultantly, it is correct to say that in Phoenix a contract was perfected upon partial payment of the premium since the parties had not otherwise stipulated that prepayment of the premium in full was a condition precedent to the existence of a contract. In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without any other precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue with the existing contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific performance from the insured. This is not so here. By express agreement of the parties, no vinculum juris or bond of law was to be established until full payment was effected prior to the occurrence of the risk insured against.

FULL PAYMENT MUST BE MADE BEFORE THE RISK OCCURS FOR THE POLICY TO BE CONSIDERED EFFECTIVE AND IN FORCE; CASE AT BAR. — Phoenix andTuscany, adequately demonstrate the waiver, either express or implied, of prepayment in full by the insurer: impliedly, by suing for the balance of the premium as inPhoenix, and expressly, by agreeing to make premiums payable in installments as inTuscany. But contrary to the stance taken by petitioners, there is no waiver express or implied in the case at bench. Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal thereof and/or any indorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company . . . and that this policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have actually been paid in full and duly acknowledged. Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance Code the payment of partial premium by the assured in this particular instance should not be considered the payment required by the law and the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount has been tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full payment must be made before the risk occurs for the policy to be considered effective and in force. Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the fractional payment of premium. The insurance contract itself expressly provided that the policy would be effective only when the premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.

PAYMENT OF PREMIUM IS A REQUISITE TO KEEP THE POLICY OF INSURANCE IN FORCE. — The cardinal polestar in the construction of an insurance contract is the intention of the parties as expressed in the policy. Courts have no other function but to enforce the same. The rule that contracts of insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the insured. Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the whole payment.

STATUTORY CONSTRUCTION; RULE THAT THE EXPRESSED EXCEPTION OR EXEMPTION EXCLUDES OTHERS; APPLICATION OF THE RULE IN CASE AT BAR. — A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others. Exceptio firmat regulim in casibus non exceptis. The express mention of exceptions operates to exclude other exceptions; conversely, those which are not within the enumerated exceptions are deemed included in the general rule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and the law has not expressly excepted partial payments, there is no valid and binding contract. Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy.

PHILIPPINE PHOENIX SURETY & INSURANCE, INC. V. WOODWORKS, INC., G.R. NO. L-22684, [AUGUST 31, 1967], 127 PHIL 697-700

FACTS: Appellee Philippine Phoenix Surety & Insurance Co., Inc., commenced this action in the Municipal Court of Manila to recover from appellant Woodworks, Inc. the sum of P3,522.09, representing the unpaid balance of the premiums on a fire insurance policy issued by appellee in favor of appellant for a term of one year from April 1, 1960 to April 1, 1961. From an adverse decision of said court, Woodworks, Inc. appealed to the Court of First Instance of Manila (Civil Case No. 50710) where the parties submitted the following stipulation of facts, on the basis of which the appealed decision was rendered:

“That plaintiff and defendant are both corporations duly organized and existing under and by virtue of the laws of the Philippines;

“That on April 1, 1960, plaintiff issued to defendant Fire Policy No. 9652 for the amount of P300,000.00, under the terms and conditions therein set forth in said policy a copy of which is hereto attached and made a part hereof as Annex ‘A;’

“That the premiums of said policy as stated in Annex ‘A’ amounted to P6,051.95; the margin fee pursuant to the adopted plan as an implementation of Republic Act 2609 amounted to P363.22, copy of said adopted plan is hereto attached as Annex ‘B’ and made a part hereof, the documentary stamps attached to the policy was P96.42;

“That the defendant paid P3,000.00 on September 22, 1960 under official receipt No. 30245 of plaintiff;” That plaintiff made several demands on defendant to pay the amount of P3,522.09.”

In the present appeal, appellant claims that the court a quo committed the following errors:

“I. The lower court erred in stating that in fire insurance policies the risk attached upon the issuance and delivery of the policy to the insured.

“II. The lower court erred in deciding that in a perfected contract of insurance non-payment of premium does not cancel the policy.

“III. The lower court erred in deciding that the premium in the policy was still collectible when the complaint was filed.

“IV. The lower court erred in deciding that a partial payment of the premium made the policy effective during the whole period of the policy.”

ISSUE: WON THE CONTRACT OF INSURANCE WAS PERFECTED. 

HELD: YES. It is clear from the foregoing that on April 1, 1960 Fire Insurance Policy No. 9652 was issued by appellee and delivered to appellant, and that on September 22 of the same year, the latter paid to the former the sum of P3,000.00 on account of the total premium of P6,051.95 due thereon. There is, consequently, no doubt at all that, as between the insurer and the insured, there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was concerned. Thereafter the obligation of the insurer to pay the insured the amount for which the policy was issued in case the conditions therefor had been complied with, arose and became binding upon it, while the obligation of the insured to pay the remainder of the total amount of the premium due became demandable.

We can not agree with appellant’s theory that non-payment by it of the premium due, produced the cancellation of the contract of insurance. Such theory would place exclusively in the hands of one of the contracting parties the right to decide whether the contract should stand or not. Rather the correct view would seem to be this: as the contract had become perfected, the parties could demand from each other the performance of whatever obligations they had assumed. In the case of the insurer, it is obvious that it had the right to demand from the insured the completion of the payment of the premium due or sue for the rescission of the contract. As it chose to demand specific performance of the insured’s obligation to pay the balance of the premium, the latter’s duty to pay is indeed indubitable.

PAN MALAYAN INSURANCE CORP. V. COURT OF APPEALS, G.R. NO. 81026, [APRIL 3, 1990], 262 PHIL 919-929)

FACTS: On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang Automotive Resources Corporation [CANLUBANG]; that on May 26, 1985, due to the “carelessness, recklessness, and imprudence” of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG against the driver of the pick-up and his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and refused to pay the claim of PANMALAY.

Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion thereto. In compliance therewith, PANMALAY clarified, among others, that the damage caused to the insured car was settled under the “own damage” coverage of the insurance policy, and that the driver of the insured car was, at the time of the accident, an authorized driver duly licensed to drive the vehicle. PANMALAY also submitted a copy of the insurance policy and the Release of Claim and Subrogation Receipt executed by CANLUBANG in favor of PANMALAY.

On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had no cause of action against them. They argued that payment under the “own damage” clause of the insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification thereunder was made on the assumption that there was no wrongdoer or no third party at fault.

After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued an order dated June 16, 1986 dismissing PANMALAY’s complaint for no cause of action. On August 19, 1986, the RTC denied PANMALAY’s motion for reconsideration.

On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on November 27, 1987. Consequently, PANMALAY filed the present petition for review. prcd

After private respondents filed its comment to the petition, and petitioner filed its reply, the Court considered the issues joined and the case submitted for decision.

ISSUE: whether or not the insurer PANMALAY may institute an action to recover the amount it had paid its assured in settlement of an insurance claim against private respondents as the parties allegedly responsible for the damage caused to the insured vehicle.

HELD: YES. CIVIL LAW; DAMAGES; RIGHT OF SUBROGATION; NOT DEPENDENT UPON, NOR DOES IT GROW OUT OF, ANY PRIVITY OF CONTRACT OR UPON WRITTEN ASSIGNMENT OF CLAIM. — Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.

2.ID.; ID.; ID.; ID.; EXCEPTION; NOT AVAILABLE IN CASE AT BAR. — There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer’s right of subrogation is defeated. Similarly, where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assured’s claim for loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation [McCarthy v. Barber Steamship Lines, Inc., 45 Phil. 488 (1923)]. And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting “voluntary payment”, the former has no right of subrogation against the third party liable for the loss [Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, G.R. No. L-22146, September 5, 1967, 21 SCRA 12]. None of the exceptions are availing in the present case.

3.ID.; INTERPRETATION OF CONTRACTS; TERMS THEREOF ARE TO BE CONSTRUED ACCORDING TO THE SENSE AND MEANING THE PARTIES THERETO HAVE USED; CASE AT BAR. — It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense and meaning of the terms which theparties thereto have used. In the case of property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the assured, determine the import of the various terms and provisions embodied in the policy. It is only when the terms of the policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of particular provisions, that the courts will intervene. In such an event, the policy will be construed by the courts liberally in favor of the assured and strictly against the insurer [Union Manufacturing Co., Inc. v. Philippine Guaranty Co., Inc., G.R. No. L-27932, October 30, 1972, 47 SCRA 271; and other cases.] PANMALAY contends that the coverage of insured risks under the above section, specifically Section III-1(a), is comprehensive enough to include damage to the insured vehicle arising from collision or overturning due to the fault or negligence of a third party. CANLUBANG is apparently of the same understanding. Considering that the very parties to the policy were not shown to be in disagreement regarding the meaning and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe meaning contrary to the clear intention and understanding of these parties.

4.COMMERCIAL LAW; INSURANCE CONTRACT; ACCIDENT OR ACCIDENTAL; DEFINED. — It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase “by accidental collision or overturning” found in the first part of sub-paragraph (a) is untenable. Although the terms “accident” or “accidental” as used in insurance contracts have not acquired a technical meaning, the Court has on several occasions defined these terms to mean that which takes place “without one’s foresight or expectation, an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected” [De la Cruz v. The Capital Insurance & Surety Co., Inc., G.R. No. L-21574, June 30, 1966, 17 SCRA 559; Filipino Merchants Insurance Co., Inc. v. Court of Appeals, G.R. No. 85141, November 28, 1989]. Certainly, it cannot be inferred from jurisprudence that these terms, without qualification, exclude events resulting in damage or loss due to the fault, recklessness or negligence of third parties. The concept “accident” is not necessarily synonymous with the concept of “no fault”. It may be utilized simply to distinguish intentional or malicious acts from negligent or careless acts of man.

5.ID.; ID.; INTERPRETATION THEREOF MUST FAVOR THE ASSURED OR BENEFICIARY. — The Court, furthermore, finds it noteworthy that the meaning advanced by PANMALAY regarding the coverage of Section III-1(a) of the policy is undeniably more beneficial to CANLUBANG than that insisted upon by respondents herein. By arguing that this section covers losses or damages due not only to malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a more comprehensive coverage of insured risks. And this, in the final analysis, is more in keeping with the rationale behind the various rules on the interpretation of insurance contracts favoring the assured or beneficiary so as to effect the dominant purpose of indemnity or payment [See Calanoc v. Court of Appeals, 98 Phil. 79 (1955); Del Rosario v. The Equitable Insurance and Casualty Co., Inc., G.R. No. L-16215, June 29, 1963, 8 SCRA 343; Serrano v. Court of Appeals, G.R. No. L-35529, July 16, 1984, 130 SCRA 327]

FILIPINAS COMPAÑIA DE SEGUROS V. CHRISTERN, HUNEFELD & CO., INC., G.R. NO. L-2294, [MAY 25, 1951], 89 PHIL 54-60

FACTS: On October 1, 1941, the respondent corporation, Christern, Huenefeld & Co., Inc., after payment of corresponding premium, obtained from the petitioner, Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P100,000, covering merchandise contained in a building located at No. 711 Roman Street, Binondo, Manila. On February 27, 1942, or during the Japanese military occupation, the building and insured merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy. The salvaged goods were sold at public auction and, after deducting their value, the total loss suffered by the respondent was fixed at P92,650. The petitioner refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United States declared war against Germany, the respondent corporation (though organized under and by virtue of the laws of the Philippines) being controlled by German subjects and the petitioner being a company under American jurisdiction when said policy was issued on October 1, 1941. The petitioner, however, in pursuance of the order of the Director of the Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the insured merchandise were burned after the policy issued in 1941 in favor of the respondent corporation had ceased to be effective because of the outbreak of the war between the United States and Germany on December 10, 1941, and that the payment made by the petitioner to the respondent corporation during the Japanese military occupation was under pressure. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. The case is now before us on appeal by certiorari from the decision of the Court of Appeals.

The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy when the United States declared war against Germany, relying on English and American cases which held that a corporation is a citizen of the country or state by and under the laws of which it was created or organized. It rejected the theory that the nationality of a private corporation is determined by the character or citizenship of its controlling stockholders.

ISSUE: WON THE VALIDITY OF INSURANCE CONTRACT CEASED UPON THE DECLARATION OF WAR.

HELD: YES. CORPORATIONS; NATIONALITY OF PRIVATE CORPORATION; CONTROL TEST. — The nationality of a private corporation is determined by the character or citizenship of its controlling stockholders.

INTERNATIONAL LAW; EFFECT OF WAR. — Where majority of the stockholders of a corporation were German subjects, the corporation became an enemy corporation upon the outbreak of the war between the United States and Germany.

TERMINATION OF POLICY OF PUBLIC ENEMY. — As the Philippine Insurance Law (Act No. 2427, as amended), in its section 8, provides that “anyone except a public enemy may be insured,” an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.

RETURN OF PREMIUMS UPON TERMINATION OF POLICY BY REASON OF WAR. — Where an insurance policy ceases to be effective by reason of war, which has made the insured an enemy, the premiums paid for the period covered by the policy from the date war is declared, should be returned.

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforceable, and since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered by its policy from December 11, 1941, should be returned by the petitioner.