G.R. No.

173773

November 28, 2012

PARAMOUNT INSURANCE CORPORATION, Petitioner,

vs.
SPOUSES YVES and MARIA TERESA REMONDEULAZ, Respondents.
DECISION

After presentation of respondents evidence, petitioner filed a Demurrer to Evidence.

Acting thereon, the trial court dismissed the complaint filed by respondents. The full text of
said Order3 reads:
Before the Court is an action filed by the plaintiffs, spouses Yves and Maria Teresa
Remondeulaz against the defendant, Paramount Insurance Corporation, to recover from the
defendant the insured value of the motor vehicle.

PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking
the reversal and setting aside of the Decision 1 dated April 12, 2005 and Resolution 2 dated
July 20, 2006 of the Court of Appeals in CA-G.R. CV No. 61490.
The undisputed facts follow.
On May 26, 1994, respondents insured with petitioner their 1994
Toyota Corolla sedan under a comprehensive motor vehicle insurance policy for one year.
During the effectivity of said insurance, respondents car was unlawfully taken. Hence, they
immediately reported the theft to the Traffic Management Command of the PNP who made
them accomplish a complaint sheet. In said complaint sheet, respondents alleged that a
certain Ricardo Sales (Sales) took possession of the subject vehicle to add accessories and
improvements thereon, however, Sales failed to return the subject vehicle within the agreed
three-day period.
As a result, respondents notified petitioner to claim for the reimbursement of their lost vehicle.
However, petitioner refused to pay.
Accordingly, respondents lodged a complaint for a sum of money against petitioner before
the Regional Trial Court of Makati City (trial court) praying for the payment of the insured
value of their car plus damages on April 21, 1995.

It appears that on 26 May 1994, plaintiffs insured their vehicle, a 1994 Toyota Corolla XL with
chassis number EE-100-9524505, with defendant under Private Car Policy No. PC-37396 for
Own Damage, Theft, Third-Party Property Damage and Third-Party Personal Injury, for the
period commencing 26 May 1994 to 26 May 1995. Then on 1 December 1994, defendants
received from plaintiff a demand letter asking for the payment of the proceeds in the amount
of PhP409,000.00 under their policy. They alleged the loss of the vehicle and claimed the
same to be covered by the policys provision on "Theft." Defendant disagreed and refused to
pay.
It appears, however, that plaintiff had successfully prosecuted and had been awarded the
amount claimed in this action, in another action (Civil Case No. 95-1524 entitled Sps. Yves
and Maria Teresa Remondeulaz versus Standard Insurance Company, Inc.), which involved
the loss of the same vehicle under the same circumstances although under a different policy
and insurance company. This, considered with the principle that an insured may not recover
more than its interest in any property subject of an insurance, leads the court to dismiss this
action.
SO ORDERED.4
Not in conformity with the trial courts Order, respondents interposed an appeal to the Court
of Appeals (appellate court).
In its Decision dated April 12, 2005, the appellate court reversed and set aside the Order
issued by the trial court, to wit:

Indeed, the trial court erred when it dismissed the action on the ground of double recovery
since it is clear that the subject car is different from the one insured with another insurance
company, the Standard Insurance Company. In this case, defendant-appellee herein
petitioner denied the reimbursement for the lost vehicle on the ground that the said loss could
not fall within the concept of the "theft clause" under the insurance policy x x x
xxxx
WHEREFORE, the October 7, 1998 Order of the Regional Trial Court of Makati City, Branch
63, is hereby REVERSED and SET ASIDE
x x x.
SO ORDERED.5

We do not agree.
Adverse to petitioners claim, respondents policy clearly undertook to indemnify the insured
against loss of or damage to the scheduled vehicle when caused by theft, to wit:
SECTION III LOSS OR DAMAGE
1. The Company will, subject to the Limits of Liability, indemnify the insured against loss of or
damage to the Scheduled Vehicle and its accessories and spare parts whilst thereon:
(a) by accidental collision or overturning, or collision or overturning consequent upon
mechanical breakdown or consequent upon wear and tear;
(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or
theft;

Petitioner, thereafter, filed a motion for reconsideration against said Decision, but the same
was denied by the appellate court in a Resolution dated July 20, 2006.

(c) by malicious act;

Consequently, petitioner filed a petition for review on certiorari before this Court praying that
the appellate courts Decision and Resolution be reversed and set aside.

(d) whilst in transit (including the process of loading and unloading) incidental to such
transit by road, rail, inland waterway, lift or elevator. 7

In its petition, petitioner raises this issue for our resolution:

Whether or not the Court of Appeals decided the case a quo in a way not in accord with law
and/or applicable jurisprudence when it promulgated in favor of the respondents
Remondeulaz, making Paramount liable for the alleged "theft" of respondents vehicle. 6
Essentially, the issue is whether or not petitioner is liable under the insurance policy for the
loss of respondents vehicle.
Petitioner argues that the loss of respondents vehicle is not a peril covered by the policy. It
maintains that it is not liable for the loss, since the car cannot be classified as stolen as
respondents entrusted the possession thereof to another person.

Apropos, we now resolve the issue of whether the loss of respondents vehicle falls within the
concept of the "theft clause" under the insurance policy.
In People v. Bustinera,8 this Court had the occasion to interpret the "theft clause" of an
insurance policy. In this case, the Court explained that when one takes the motor vehicle of
another without the latters consent even if the motor vehicle is later returned, there is theft
there being intent to gain as the use of the thing unlawfully taken constitutes gain.
Also, in Malayan Insurance Co., Inc. v. Court of Appeals, 9 this Court held that the taking of a
vehicle by another person without the permission or authority from the owner thereof is
sufficient to place it within the ambit of the word theft as contemplated in the policy, and is
therefore, compensable.

Moreover, the case of Santos v. People 10 is worthy of note. Similarly in Santos, the owner of a
car entrusted his vehicle to therein petitioner Lauro Santos who owns a repair shop for
carburetor repair and repainting. However, when the owner tried to retrieve her car, she was
not able to do so since Santos had abandoned his shop. In the said case, the crime that was
actually committed was Qualified Theft. However, the Court held that because of the fact that
it was not alleged in the information that the object of the crime was a car, which is a
qualifying circumstance, the Court found that Santos was only guilty of the crime of Theft and
merely considered the qualifying circumstance as an aggravating circumstance in the
imposition of the appropriate penalty. The Court therein clarified the distinction between the
crime of Estafa and Theft, to wit:
x x x The principal distinction between the two crimes is that in theft the thing is taken while in
estafa the accused receives the property and converts it to his own use or benefit. However,
there may be theft even if the accused has possession of the property. If he was entrusted
only with the material or physical (natural) or de facto possession of the thing, his
misappropriation of the same constitutes theft, but if he has the juridical possession of the
thing his conversion of the same constitutes embezzlement or estafa. 11
In the instant case, Sales did not have juridical possession over the vehicle. Hence, it is
apparent that the taking of repondents vehicle by Sales is without any consent or authority
from the former.
Records would show that respondents entrusted possession of their vehicle only to the extent
that Sales will introduce repairs and improvements thereon, and not to permanently deprive
them of possession thereof. Since, Theft can also be committed through misappropriation,
the fact that Sales failed to return the subject vehicle to respondents constitutes Qualified
Theft. Hence, since repondents car is undeniably covered by a Comprehensive Motor
Vehicle Insurance Policy that allows for recovery in cases of theft, petitioner is liable under
the policy for the loss of respondents vehicle under the "theft clause."
All told, Sales act of depriving respondents of their motor vehicle at, or soon after the transfer
of physical possession of the movable property, constitutes theft under the insurance policy,
which is compensable.12

WHEREFORE, the instant petition is DENIED. The Decision dated April 12, 2005 and
Resolution dated July 20, 2006 of the Court of Appeals are hereby AFFIRMED in toto.
SO ORDERED.

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The
contract of insurance obligates the petitioner to pay the respondent the amount of Six
Hundred Thirty Thousand Pesos (P630,000.00) in case of loss or damage to said vehicle
during the period covered, which is from February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar
Lanuza (Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up.
However, Lanuza no longer returned the motor vehicle to respondent and despite diligent
efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of the said loss and
demanded payment of the insurance proceeds in the total sum of P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating
among others, thus:

G.R. No. 198174

September 2, 2013

Upon verification of the documents submitted, particularly the Police Report and your
Affidavit, which states that the culprit, who stole the Insure[d] unit, is employed with you. We
would like to invite you on the provision of the Policy under Exceptions to Section-III, which
we quote:

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.

1.) The Company shall not be liable for:

DECISION

(4) Any malicious damage caused by the Insured, any member of his family or by "A
PERSON IN THE INSUREDS SERVICE."

PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing
the Decision1 dated May 31, 2011 and Resolution 2 dated August 10, 2011 of the Court of
Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.

xxxx

In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and
argued that the exception refers to damage of the motor vehicle and not to its loss. However,
petitioners denial of respondents insured claim remains firm.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner
before the Regional Trial Court (RTC) of Quezon City on September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent
in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant ordering the latter as follows:
To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per annum from the time
of demand up to the time the amount is fully settled;
To pay attorneys fees in the sum of P65,000.00; and

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND

GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF
THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT
EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF
THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH
THAT THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR
PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE COURTS LIBERALLY IN
FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND
COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE
JUDGMENT OF THE TRIAL COURT.5

To pay the costs of suit.

Simply, the core issue boils down to whether or not the loss of respondents vehicle is
excluded under the insurance policy.

All other claims not granted are hereby denied for lack of legal and factual basis. 3

We rule in the negative.

Aggrieved, petitioner filed an appeal with the CA.

Significant portions of Section III of the Insurance Policy states:

On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon Citys
decision. The fallo reads:

SECTION III LOSS OR DAMAGE

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision,
dated December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil
Case No. Q-07-61099, is hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied
in a Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds for the allowance
of its petition:

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or
damage to the Schedule Vehicle and its accessories and spare parts whilst thereon:
(a)
by accidental collision or overturning, or collision or overturning consequent upon mechanical
breakdown or consequent upon wear and tear;
(b)
by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

(c)

We do not agree.

by malicious act;

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft
perpetrated by the driver of the insured is not an exception to the coverage from the
insurance policy, since Section III thereof did not qualify as to who would commit the theft.
Thus:

(d)
whilst in transit (including the processes of loading and unloading) incidental to such transit
by road, rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one event, the first
amount of each and every loss for each and every vehicle insured by this Policy, such
amount being equal to one percent (1.00%) of the Insureds estimate of Fair Market Value as
shown in the Policy Schedule with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns,
failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the
Insureds service.6
In denying respondents claim, petitioner takes exception by arguing that the word "damage,"
under paragraph 4 of "Exceptions to Section III," means loss due to injury or harm to person,
property or reputation, and should be construed to cover malicious "loss" as in "theft." Thus, it
asserts that the loss of respondents vehicle as a result of it being stolen by the latters driver
is excluded from the policy.

Theft perpetrated by a driver of the insured is not an exception to the coverage from the
insurance policy subject of this case. This is evident from the very provision of Section III
"Loss or Damage." The insurance company, subject to the limits of liability, is obligated to
indemnify the insured against theft. Said provision does not qualify as to who would commit
the theft. Thus, even if the same is committed by the driver of the insured, there being no
categorical declaration of exception, the same must be covered. As correctly pointed out by
the plaintiff, "(A)n insurance contract should be interpreted as to carry out the purpose for
which the parties entered into the contract which is to insure against risks of loss or damage
to the goods. Such interpretation should result from the natural and reasonable meaning of
language in the policy. Where restrictive provisions are open to two interpretations, that which
is most favorable to the insured is adopted." The defendant would argue that if the person
employed by the insured would commit the theft and the insurer would be held liable, then
this would result to an absurd situation where the insurer would also be held liable if the
insured would commit the theft. This argument is certainly flawed. Of course, if the theft
would be committed by the insured himself, the same would be an exception to the coverage
since in that case there would be fraud on the part of the insured or breach of material
warranty under Section 69 of the Insurance Code. 7
Moreover, contracts of insurance, like other contracts, are to be construed according to the
sense and meaning of the terms which the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and understood in their plain, ordinary and
popular sense.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms
used specifying the excluded classes therein are to be given their meaning as understood in
common speech.9

Adverse to petitioners claim, the words "loss" and "damage" mean different things in
common ordinary usage. The word "loss" refers to the act or fact of losing, or failure to keep
possession, while the word "damage" means deterioration or injury to property.1wphi1
Therefore, petitioner cannot exclude the loss of respondents vehicle under the insurance
policy under paragraph 4 of "Exceptions to Section III," since the same refers only to
"malicious damage," or more specifically, "injury" to the motor vehicle caused by a person
under the insureds service. Paragraph 4 clearly does not contemplate "loss of property," as
what happened in the instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as
one of the exceptions from coverage, is the damage that is the direct result from the
deliberate or willful act of the insured, members of his family, and any person in the insureds
service, whose clear plan or purpose was to cause damage to the insured vehicle for
purposes of defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy
appears to clearly delineate between the terms "loss" and "damage" by using both terms
throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss" within the term
"damage" then logic dictates that it should have used the term "damage" alone in the entire
policy or otherwise included a clear definition of the said term as part of the provisions of the
said insurance contract. Which is why the Court finds it puzzling that in the said policys
provision detailing the exceptions to the policys coverage in Section III thereof, which is one
of the crucial parts in the insurance contract, the insurer, after liberally using the words "loss"
and "damage" in the entire policy, suddenly went specific by using the word "damage" only in
the policys exception regarding "malicious damage." Now, the defendant-appellant would like
this Court to believe that it really intended the word "damage" in the term "malicious damage"
to include the theft of the insured vehicle.

The Court does not find the particular contention to be well taken.
True, 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 the parties 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. However, when the terms of the insurance policy are
ambiguous, equivocal or uncertain, such that the parties themselves disagree about the
meaning of particular provisions, the policy will be construed by the courts liberally in favor of
the assured and strictly against the insurer. 10
Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the 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. Thus, in Eternal Gardens
Memorial Park Corporation v. Philippine American Life Insurance Company, 11 this Court ruled

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 latters 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 non-compliance with its obligations.
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.12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED.
Accordingly, the Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the
Court of Appeals are hereby AFFIRMED.
SO ORDERED.

G.R. No. 200784

August 7, 2013

MALAYAN INSURANCE COMPANY, INC., PETITIONER,

vs.
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
DECISION
MENDOZA, J.:
Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the
October 27, 2011 Decision1 of the Court of Appeals (CA), which affirmed with modification the
September 17, 2009 Decision 2 of the Regional Trial Court, Branch 15, Manila (RTC), and its
February 24, 2012 Resolution 3 denying the motion for reconsideration filed by petitioner
Malayan Insurance Company., Inc. (Malayan).

The Facts

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff.

Defendant is hereby ordered:

The undisputed factual antecedents were succinctly summarized by the CA as follows:

a)
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No.
F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the latters machineries and equipment
located at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite
(Sanyo Building). The insurance, which was for Fifteen Million Pesos (?15,000,000.00) and
effective for a period of one (1) year, was procured by PAP Co. for Rizal Commercial Banking
Corporation (RCBC), the mortgagee of the insured machineries and equipment.

To pay plaintiff the sum of FIFTEEN MILLION PESOS (P15,000,000.00) as and for indemnity
for the loss under the fire insurance policy, plus interest thereon at the rate of 12% per annum
from the time of loss on October 12, 1997 until fully paid;
b)

After the passage of almost a year but prior to the expiration of the insurance coverage, PAP
Co. renewed the policy on an "as is" basis. Pursuant thereto, a renewal policy, Fire Insurance
Policy No. F-00227-000079, was issued by Malayan to PAP Co. for the period May 13, 1997
to May 13, 1998.

To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (PhP500,000.00) as and by
way of attorneys fees; [and,]

On October 12, 1997 and during the subsistence of the renewal policy, the insured
machineries and equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance
claim with Malayan in the amount insured.

To pay the costs of suit.

In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the
time of the loss, the insured machineries and equipment were transferred by PAP Co. to a
location different from that indicated in the policy. Specifically, that the insured machineries
were transferred in September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot
14, Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co.
argued that Malayan cannot avoid liability as it was informed of the transfer by RCBC, the
party duty-bound to relay such information. However, Malayan reiterated its denial of PAP
Co.s claim. Distraught, PAP Co. filed the complaint below against Malayan. 4

The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire
insurance policy because, although there was a change in the condition of the thing insured
as a result of the transfer of the subject machineries to another location, said insurance
company failed to show proof that such transfer resulted in the increase of the risk insured
against. In the absence of proof that the alteration of the thing insured increased the risk, the
contract of fire insurance is not affected per Article 169 of the Insurance Code.

Ruling of the RTC

On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP
Company Ltd (PAP) an indemnity for the loss under the fire insurance policy as well as for
attorneys fees. The dispositive portion of the RTC decision reads:

c)

SO ORDERED.5

The RTC further stated that PAPs notice to Rizal Commercial Banking Corporation (RCBC)
sufficiently complied with the notice requirement under the policy considering that it was
RCBC which procured the insurance. PAP acted in good faith in notifying RCBC about the
transfer and the latter even conducted an inspection of the machinery in its new location.
Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial
court erred in ordering it to indemnify PAP for the loss of the subject machineries since the

latter, without notice and/or consent, transferred the same to a location different from that
indicated in the fire insurance policy.
Ruling of the CA
On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision
but deleted the attorneys fees. The decretal portion of the CA decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance
Company must indemnify PAP Co. Ltd the amount of Fifteen Million Pesos
(PhP15,000,000.00) for the loss under the fire insurance policy, plus interest thereon at the
rate of 12% per annum from the time of loss on October 12, 1997 until fully paid. However,
the Five Hundred Thousand Pesos (PhP500,000.00) awarded to PAP Co., Ltd. as attorneys
fees is DELETED. With costs.
SO ORDERED.6
The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of
the insured properties during the efficacy of the insurance policy. Malayan also failed to show
that its contractual consent was needed before carrying out a transfer of the insured
properties. Despite its bare claim that the original and the renewed insurance policies
contained provisions on transfer limitations of the insured properties, Malayan never cited the
specific provisions.
The CA further stated that even if there was such a provision on transfer restrictions of the
insured properties, still Malayan could not escape liability because the transfer was made
during the subsistence of the original policy, not the renewal policy. PAP transferred the
insured properties from the Sanyo Factory to the Pace Pacific Building (Pace Factory)
sometime in September 1996. Therefore, Malayan was aware or should have been aware of
such transfer when it issued the renewal policy on May 14, 1997. The CA opined that since
an insurance policy was a contract of adhesion, any ambiguity must be resolved against the
party that prepared the contract, which, in this case, was Malayan.

Finally, the CA added that Malayan failed to show that the transfer of the insured properties
increased the risk of the loss. It, thus, could not use such transfer as an excuse for not paying
the indemnity to PAP. Although the insurance proceeds were payable to RCBC, PAP could
still sue Malayan to enforce its rights on the policy because it remained a party to the
insurance contract.
Not in conformity with the CA decision, Malayan filed this petition for review anchored on the
following
GROUNDS
I
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE
COURT WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT AND THUS RULING
IN THE QUESTIONED DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS
LIABLE UNDER THE INSURANCE CONTRACT BECAUSE:
CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER
MALAYAN WAS ABLE TO PROVE AND IT IS NOT DENIED, THAT ON THE FACE OF THE
RENEWAL POLICY ISSUED TO RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE
WARRANTY OR A REPRESENTATION MADE BY THE INSURED THAT THE "LOCATION
OF THE RISK" WAS AT THE SANYO BUILDING. IT IS LIKEWISE UNDISPUTED THAT
WHEN THE RENEWAL POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED
PROPERTIES WERE NOT AT THE SANYO BUILDING BUT WERE AT A DIFFERENT
LOCATION, THAT IS, AT THE PACE FACTORY AND IT WAS IN THIS DIFFERENT
LOCATION WHEN THE LOSS INSURED AGAINST OCCURRED. THESE SET OF
UNDISPUTED FACTS, BY ITSELF ALREADY ENTITLES PETITIONER MALAYAN TO
CONSIDER THE RENEWAL POLICY AS AVOIDED OR RESCINDED BY LAW, BECAUSE
OF CONCEALMENT, MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE
WARRANTY UNDER SECTIONS 27, 45 AND 74 IN RELATION TO SECTION 31 OF THE
INSURANCE CODE, RESPECTIVELY.

RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT
CONCEALMENT, MISREPRESENTATION OR BREACH OF AN AFFIRMATIVE WARRANTY
WHEN IT FAILED TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT THE
INSURED PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM
WHAT WAS INDICATED IN THE INSURANCE POLICY.
IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE
CONDITIONS AND LIMITATIONS TO THE RENEWAL POLICY WHICH ARE THE
REASONS WHY ITS CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST
PROOF THAT RESPONDENT PAP CO. RECOGNIZES THESE CONDITIONS AND
LIMITATIONS IS THE FACT THAT ITS ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL
ASSERTION THAT IT SUPPOSEDLY NOTIFIED PETITIONER MALAYAN OF THE
TRANSFER AS REQUIRED BY THE INSURANCE POLICY.
MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN
INCREASE IN RISK BECAUSE OF THE UNILATERAL TRANSFER OF THE INSURED
PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY
RESPONDENT PAP CO.
II
THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND
ESTABLISHED DECISIONS OF THE HONORABLE COURT WHEN IT IMPOSED
INTEREST AT THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME OF
THE LOSS UNTIL FULLY PAID.
JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A
LOAN OR FORBEARANCE OF MONEY FROM WHICH A BREACH ENTITLES A PLAINTIFF
TO AN AWARD OF INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM.
MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD
NOT HAVE BEEN APPLIED BY THE COURT OF APPEALS BECAUSE THERE WAS
NEVER ANY FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR

WITHHELD THE PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE FIRST

PLACE, THERE WAS A LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON
WHETHER
RESPONDENT
PAP
CO.
COMMITTED
CONCEALMENT,
MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE WARRANTY WHICH
ENTITLES PETITIONER MALAYAN TO RESCIND THE INSURANCE POLICY AND/OR TO
CONSIDER THE CLAIM AS VOIDED.
III
THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN
ACCORDANCE WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE
COURT WHEN IT AGREED WITH THE TRIAL COURT AND HELD IN THE QUESTIONED
DECISION THAT THE PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE TO
RESPONDENT PAP CO. DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE
INSURANCE POLICY.
IV
THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED DECISION AND RESOLUTION
THAT THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE
ADOPTED.7
Malayan basically argues that it cannot be held liable under the insurance contract because
PAP committed concealment, misrepresentation and breach of an affirmative warranty under
the renewal policy when it transferred the location of the insured properties without informing
it. Such transfer affected the correct estimation of the risk which should have enabled
Malayan to decide whether it was willing to assume such risk and, if so, at what rate of
premium. The transfer also affected Malayans ability to control the risk by guarding against
the increase of the risk brought about by the change in conditions, specifically the change in
the location of the risk.

Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance
Code8 when it did not inform Malayan of the actual and new location of the insured
properties. In fact, before the issuance of the renewal policy on May 14, 1997, PAP even
informed it that there would be no changes in the renewal policy. Malayan also argues that
PAP is guilty of breach of warranty under the renewal policy in violation of Section 74 of the
Insurance Code9 when, contrary to its affirmation in the renewal policy that the insured
properties were located at the Sanyo Factory, these were already transferred to the Pace
Factory. Malayan adds that PAP is guilty of misrepresentation upon a material fact in violation
of Section 45 of the Insurance Code 10 when it informed Malayan that there would be no
changes in the original policy, and that the original policy would be renewed on an "as is"
basis.
Malayan further argues that PAP failed to discharge the burden of proving that the transfer of
the insured properties under the insurance policy was with its knowledge and consent.
Granting that PAP informed RCBC of the transfer or change of location of the insured
properties, the same is irrelevant and does not bind Malayan considering that RCBC is a
corporation vested with separate and distinct juridical personality. Malayan did not consent to
be the principal of RCBC. RCBC did not also act as Malayans representative.
With regard to the alleged increase of risk, Malayan insists that there is evidence of an
increase in risk as a result of the unilateral transfer of the insured properties. According to
Malayan, the Sanyo Factory was occupied as a factory of automotive/computer parts by the
assured and factory of zinc & aluminum die cast and plastic gear for copy machine by Sanyo
Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A, while Pace Factory was occupied
as factory that repacked silicone sealant to plastic cylinders with a rate of 0.657% under 6.1.2
A.
PAPs position
On the other hand, PAP counters that there is no evidence of any misrepresentation,
concealment or deception on its part and that its claim is not fraudulent. It insists that it can
still sue to protect its rights and interest on the policy notwithstanding the fact that the
proceeds of the same was payable to RCBC, and that it can collect interest at the rate of

12% per annum on the proceeds of the policy because its claim for indemnity was unduly
delayed without legal justification.
The Courts Ruling
The Court agrees with the position of Malayan that it cannot be held liable for the loss of the
insured properties under the fire insurance policy.
As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained
a ?15,000,000.00 fire insurance policy from Malayan covering its machineries and equipment
effective for one (1) year or until May 13, 1997; that the policy expressly stated that the
insured properties were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6,
Block 15, EPZA, Rosario, Cavite"; that before its expiration, the policy was renewed 11 on an
"as is" basis for another year or until May 13, 1998; that the subject properties were later
transferred to the Pace Factory also in PEZA; and that on October 12, 1997, during the
effectivity of the renewal policy, a fire broke out at the Pace Factory which totally burned the
insured properties.
The policy forbade the removal of the insured properties unless sanctioned by Malayan
Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance ceases to attach as regards the
property affected unless the insured, before the occurrence of any loss or damage, obtains
the sanction of the company signified by endorsement upon the policy, by or on behalf of the
Company:
xxx

xxx

xxx

(c) If property insured be removed to any building or place other than in that which is herein
stated to be insured.12

Evidently, by the clear and express condition in the renewal policy, the removal of the insured
property to any building or place required the consent of Malayan. Any transfer effected by
the insured, without the insurers consent, would free the latter from any liability.

hearsay testimony of its principal witness, Branch Manager Katsumi Yoneda (Mr. Yoneda),
who testified as follows:
Q

The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal
What did you do as Branch Manager of Pap Co. Ltd.?
The records are bereft of any convincing and concrete evidence that Malayan was notified of
the transfer of the insured properties from the Sanyo factory to the Pace factory. The Court
has combed the records and found nothing that would show that Malayan was duly notified of
the transfer of the insured properties.
What PAP did to prove that Malayan was notified was to show that it relayed the fact of
transfer to RCBC, the entity which made the referral and the named beneficiary in the policy.
Malayan and RCBC might have been sister companies, but such fact did not make one an
agent of the other. The fact that RCBC referred PAP to Malayan did not clothe it with authority
to represent and bind the said insurance company. After the referral, PAP dealt directly with
Malayan.
The respondent overlooked the fact that during the November 9, 2006 hearing, 13 its counsel
stipulated in open court that it was Malayans authorized insurance agent, Rodolfo Talusan,
who procured the original policy from Malayan, not RCBC. This was the reason why
Talusans testimony was dispensed with.

A
What I did I instructed my Secretary, because these equipment was bank loan and because
of the insurance I told my secretary to notify.
Q
To notify whom?
A
I told my Secretary to inform the bank.
Q
You are referring to RCBC?

Moreover, in the previous hearing held on November 17, 2005, 14 PAPs hostile witness,
Alexander Barrera, Administrative Assistant of Malayan, testified that he was the one who
procured Malayans renewal policy, not RCBC, and that RCBC merely referred fire insurance
clients to Malayan. He stressed, however, that no written referral agreement exists between
RCBC and Malayan. He also denied that PAP notified Malayan about the transfer before the
renewal policy was issued. He added that PAP, through Maricar Jardiniano (Jardiniano),
informed him that the fire insurance would be renewed on an "as is basis." 15

Granting that any notice to RCBC was binding on Malayan, PAPs claim that it notified RCBC
and Malayan was not indubitably established. At best, PAP could only come up with the

After the RCBC was informed in the manner you stated, what did you do regarding the new
location of these properties at Pace Pacific Bldg. insofar as Malayan Insurance Company is
concerned?

Yes, sir.
xxxx
Q

After that transfer, we informed the RCBC about the transfer of the equipment and also
Malayan Insurance but we were not able to contact Malayan Insurance so I instructed again
my secretary to inform Malayan about the transfer.

Because she is my secretary.

So how many secretaries did you have at that time?

Who was the secretary you instructed to contact Malayan Insurance, the defendant in this
case?

A
Dory Ramos.
Q

Two, sir.
Q
What happened with the instruction that you gave to your secretary Dory Ramos about the
matter of informing the defendant Malayan Insurance Co of the new location of the insured
properties?

How many secretaries do you have at that time in your office?

A
A
She informed me that the notification was already given to Malayan Insurance.
Only one, sir.
Q
Q
Do you know a certain Maricar Jardiniano?

Aside from what she told you how did you know that the information was properly relayed by
the said secretary, Dory Ramos, to Malayan Insurance?

Yes, sir.

I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.

Why do you know her?

Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan
Insurance Company about the transfer of the properties insured to the new location, do you
know what happened insofar this information was given to the defendant Malayan Insurance?

The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal
knowledge of the notice to either Malayan or RCBC. PAP should have presented his
secretaries, Dory Ramos and Maricar Jardiniano, at the witness stand. His testimony alone
was unreliable.

I heard that someone from Malayan Insurance came over to our company.

Verbal.16 [Emphases supplied]

Q
Did you come to know who was that person who came to your place at Pace Pacific?
A
I do not know, sir.
Q

Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured
properties were transferred to a different location only after the renewal of the fire insurance
policy.
COURT
Q

How did you know that this person from Malayan Insurance came to your place?

When did you transfer the machineries and equipments before the renewal or after the
renewal of the insurance?

It is according to the report given to me.

After the renewal.

COURT

Who gave that report to you?

You understand my question?

Dory Ramos.

Yes, Your Honor.17 [Emphasis supplied]

Was that report in writing or verbally done?

This enfeebles PAPs position that the subject properties were already transferred to the
Pace factory before the policy was renewed.
The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of the
insured properties to the Pace Factory was insignificant as it did not increase the risk.
Malayan argues that the change of location of the subject properties from the Sanyo Factory
to the Pace Factory increased the hazard to which the insured properties were exposed.
Malayan wrote:
With regards to the exposure of the risk under the old location, this was occupied as factory
of automotive/computer parts by the assured, and factory of zinc & aluminum die cast, plastic
gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A.
But under Pace Pacific Mfg. Corporation this was occupied as factory that repacks silicone
sealant to plastic cylinders with a rate of 0.657% under 6.1.2 A. Hence, there was an
increase in the hazard as indicated by the increase in rate. 18
The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties
to a hazardous environment and negatively affected the fire rating stated in the renewal
policy. The increase in tariff rate from 0.449% to 0.657% put the subject properties at a
greater risk of loss. Such increase in risk would necessarily entail an increase in the premium
payment on the fire policy.
Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the
importance of the issue, PAP failed to refute Malayans argument on the increased risk.
Malayan is entitled to rescind the insurance contract
Considering that the original policy was renewed on an "as is basis," it follows that the
renewal policy carried with it the same stipulations and limitations. The terms and conditions
in the renewal policy provided, among others, that the location of the risk insured against is at
the Sanyo factory in PEZA. The subject insured properties, however, were totally burned at

the Pace Factory. Although it was also located in PEZA, Pace Factory was not the location
stipulated in the renewal policy. There being an unconsented removal, the transfer was at
PAPs own risk. Consequently, it must suffer the consequences of the fire. Thus, the Court
agrees with the report of Cunningham Toplis Philippines, Inc., an international loss adjuster
which investigated the fire incident at the Pace Factory, which opined that "[g]iven that the
location of risk covered under the policy is not the location affected, the policy will, therefore,
not respond to this loss/claim."19
It can also be said that with the transfer of the location of the subject properties, without
notice and without Malayans consent, after the renewal of the policy, PAP clearly committed
concealment, misrepresentation and a breach of a material warranty. Section 26 of the
Insurance Code provides:
Section 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind
a contract of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or condition of the thing insured. Section
168 of the Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is
limited by the policy made without the consent of the insurer, by means within the control of
the insured, and increasing the risks, entitles an insurer to rescind a contract of fire
insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the
following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;

3) the alteration is without the consent of the insurer;

PAP removed the properties without the consent of Malayan; and that the alteration of the
location increased the risk of loss.

4) the alteration is made by means within the insureds control; and

5) the alteration increases the risk of loss. 20
In the case at bench, all these circumstances are present. It was clearly established that the
renewal policy stipulated that the insured properties were located at the Sanyo factory; that

WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED
and SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby declared NOT liable
for the loss of the insured machineries and equipment suffered by PAP Co., Ltd.
SO ORDERED.