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AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO ENTERPRISES, INC. FACTS: Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry. It owns two oil mills which were separately covered by fire insurance policies issued by petitioner American Home Assurance Co., Philippine Branch. The first oil mill was insured for P3,000,000.00 under Policy No. 306-7432324-3 for the period March 1, 1991 to 1992. The new oil mill was insured for P6,000,000.00 under Policy No. 3067432321-9 for the same term. Official receipts indicating payment for the full amount of the premium were issued by the petitioner's agent. A fire that broke out in the early morning of September 30,1991 gutted and consumed the new oil mill. Respondent immediately notified the petitioner of the incident but petitioner rejected respondent's claim for the insurance proceeds on the ground that no policy was issued by it covering the burned oil mill. It stated that the description of the insured establishment referred to another building thus: "Our policy nos. 306-7432321-9 (Ps 6M) and 3067432324-4 (Ps 3M) extend insurance coverage to your oil mill under Building No. 5, whilst the affected oil mill was under Building No. 14. " ISSUE: Whether or not the Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances Warranty' of the policy. HELD: In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in giving effect to the insurance. In view of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are inclined to consider that the policy of insurance covers any building which the parties manifestly intended to insure, however inaccurate the description may be. Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties manifestly intended to insure was the new oil mill. If the parties really intended to protect the first oil mill, then there is no need to specify it as new. In determining what the parties intended, the courts will read and construe the policy as a whole and if possible, give effect to all the parts of the contract, keeping in mind always, however, the prime rule that in the event of doubt, this doubt is to be resolved against the insurer. In determining the intent of the parties to the contract, the courts will consider the purpose and object of the contract. ANG GIOK CHIP V SPRINGFIELD An important question in the law of insurance, not heretofore considered in this jurisdiction and, according to our information, not directly resolved in California from which State the Philippine Insurance Act was taken, must be decided on this appeal for the future guidance of trial courts and of insurance companies doing business in the Philippine Islands. This question, flatly stated, is whether a warranty referred to in the policy as forming part of the contract of insurance and in the form of a rider to the insurance policy, is null and void because not complying with the Philippine Insurance Act. The court has had the benefit of instructive briefs and memoranda from the parties and has also been assisted by a well prepared brief submitted on behalf of amici curiae. The admitted facts are these: Ang Giok Chip doing business under the name and style of Hua Bee Kong Si was formerly the owner of a warehouse situated at No. 643 Calle Reina Regente, City of Manila. The contents of the warehouse were insured with the three insurance companies for the total sum of P60,000. One insurance policy, in the amount of P10,000, was taken out with the Springfield Fire & Marine Insurance Company. The warehouse was destroyed by fire on January 11, 1928, while the policy issued by the latter company was in force. Predicated on this policy the plaintiff instituted action in the Court of First Instance of Manila against the defendant to recover a proportional part of the loss coming to P8,170.59. Four special defenses were interposed on behalf of the insurance company, one being planted on a violation of warranty F fixing the amount of hazardous goods which might be stored in the insured building. The trial judge in his decision found against the insurance
company on all points, and gave judgment in favor of the plaintiff for the sum of P8,188.74. From this judgment the insurance company has appealed, and it is to the first and fourth errors assigned that we would address particular attention. Considering the result at which we arrive, it is unnecessary for us to discuss three of the four special defenses which were made by the insurance company. We think, however, that it would be a reasonable deduction to conclude that more than 3 per cent of the total value of the merchandise contained in the warehouse constituted hazardous goods, and that this per cent reached as high as 39 . We place reliance on the consular invoices and on the testimony of the adjuster, Herridge. Having thus swept to one side all intervening obstacle, the legal question recurs, as stated in the beginning of this decision, of whether or not warranty F was null and void. To place this question in its proper light, we turn to the policy issued by the Springfield Fire & Marine Insurance Company in favor of the plaintiff. The description of the risk in this policy is as follows: lawphil.net Ten thousand pesos Philippine Currency. — On general non-hazardous merchandise, chiefly consisting of chucherias, also produce, Cacao, Flour, all the property of the Insured, or held by them in trust, on commission or on joint account with others, or for which he is responsible, while contained during the currency of this policy in the godown, situate No. 643 Calle Reina Regent. . . . This policy is subject to the hereon attached "Ordinary Short Period Rate Scale" Warranties A & F, Co-insurances Clause "and Three Fourths Loss Clause," which are forming part of same. Co-insurance declared: "P20,000. — Sun Insurance Office Ltd. (K & S)." (Emphasis inserted.) Securely pasted on the left hand margin of the face of the policy are five warranties and special clauses. One of them is warranty F, specially referred to on the face of the policy, reading in part as follows: WARRANTY F It is hereby declared and agreed that during the currency of this policy no hazardous goods be stored in the Building to which this insurance applies or in any building communicating therewith, provided, always, however, that the Insured be permitted to stored a small quantity of the hazardous goods specified below, but not exceeding in all 3 per cent of the total value of the whole of the goods or merchandise contained in said warehouse, viz; . . . . The applicable law is found in the Instance Act, Act No. 2427, as amended, section 65 reading: "Every express warranty, made at or before the execution of a policy, must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy, as making a part of it." As the Philippine law was taken verbatim from the law of California, in accordance with well settled canons of statutory construction, the court should follow in fundamental points, at least, the construction placed by California courts on a California law. Unfortunately the researches of counsel reveal no authority coming from the courts of California which is exactly on all fours with the case before us. However, there are certain consideration lying at the basis of California law and certain indications in the California decisions which point the way for the decision in this case Section 65 of the Philippine Insurance Act corresponds to section 2605 of the Civil Cod of California. The comments of the Code Examiners of California disclose that the language of section 2605 was quite different from that under the Code as adopted in 1872. That language was found too harsh as to insurance companies. The Code Examiners' notes state: "The amendment restores the law as it existed previous to the Code: See Parsons on
Maritime Law, 106, and Phillips on Insurance, sec. 756." The passage referred to in Philips on Insurance, was worded by the author as follows: "Any express warranty or condition is always a part of the policy, but, like any other part of an express contract, may be written in the margin, or contained in proposals or documents expressly referred to in the policy, and so made a part of it." The annotator of the Civil Code of California, after setting forth these facts, adds: . . . The section as it now reads is in harmony with the rule that a warranty may be contained in another instrument than the policy when expressly referred to in the policy as forming a part thereof: . . . . What we have above stated has been paraphrased from the decision of the California Court of Appeals in the case of Isaac Upham Co. vs. United States Fidelity & Guaranty Co. ( [1922], 211 Pac., 809), and thus discloses the attitude of the California courts. Likewise in the Federal courts, in the case of Conner vs. Manchester Assur. Co. ([1904], 130 Fed., 743), section 2605 of the Civil Code of California came under observation, and it was said that it "is in effect an affirmance of the generally accepted doctrine applicable to such contracts." We, therefore, think it wrong to hold that the California law represents a radical departure from the basic principles governing the law of insurance. We are more inclined to believe that the codification of the law of California had exactly the opposite purpose, and that in the language of the Federal court it was but an affirmance of the generally accepted doctrine applicable to such contracts. This being true, we turn to two of such well recognized doctrines. In the first place, it is well settled that a rider attached to a policy is a part of the contract, to the same extent and with like effect as it actually embodied therein. (I Couch, Cyclopedia of Insurance Law, sec. 159.) In the second place, it is equally well settled that an express warranty must appear upon the face of the policy, or be clearly incorporated therein and made a part thereof by explicit reference, or by words clearly evidencing such intention. (4 Couch, Cyclopedia of Insurance Law, sec. 862.) Section 65 of the Insurance Act and its counterpart, section 265 of the Civil Code of California, will bear analysis as tested by reason and authority. The law says that every express warranty must be "contained in the policy itself." The word "contained," according to the dictionaries, means "included," inclosed," "embraced," "comprehended," etc. When, therefore, the courts speak of a rider attached to the policy, and thus "embodied" therein, or of a warranty "incorporated" in the policy, it is believed that the phrase "contained in the policy itself" must necessarily include such rider and warranty. As to the alternative relating to "another instrument," "instrument" as here used could not mean a mere slip of paper like a rider, but something akin to the policy itself, which in section 48 of the Insurance Act is defined as "The written instrument, in which a contract of insurance is set forth." In California, every paper writing is not necessarily an "instrument" within the statutory meaning of the term. The word "instrument has a well defined definition in California, and as used in the Codes invariably means some written paper or instrument signed and delivered by one person to another, transferring the title to, or giving a lien, on property, or giving a right to debt or duty. (Hoag vs. Howard [1880], 55 Cal., 564; People vs. Fraser[1913], 137 Pac., 276.) In other words, the rider, warranty F, is contained in the policy itself, because by the contract of insurance agreed to by the parties it is made to form a part of the same, but is not another instrument signed by the insured and referred to in the policy as forming a part of it. Again, referring to the jurisprudence of California, another rule of insurance adopted in that State is in point. It is admitted that the policy before us was accepted by the plaintiff. The receipt of this policy by the insured without objection binds both the acceptor and the insured to the terms thereof. The insured may not thereafter be heard to say that he did not read the policy or know its terms, since it is his duty to read his policy and it will be assumed that he did so. In California Jurisprudence, vol. 14, p. 427, from which these statements are taken with citations to California decisions, it is added that it has been held that where the holder of a policy discovers a mistake made by himself and the local agent in attaching the wrong rider to his application, elects to retain the policy issued to him, and neither requests the issuance of a different one nor offers to pay the premium requisite to insure against the risk which he believe the rider to cover, he thereby accepts the policy. We are given to understand, and there is no indication to the contrary, that we have here a standard insurance policy. We are further given to understand, and there is no indication to the contrary, that the issuance of the policy in this
case with its attached rider conforms to well established practice in the Philippines and elsewhere. We are further given to understand, and there is no indication to the contrary, that there are no less than sixty-nine insurance companies doing business in the Philippine Islands with outstanding policies more or less similar to the one involved in this case, and that to nullify such policies would place an unnecessary hindrance in the transaction of insurance business in the Philippines. These are matters of public policy. We cannot believe that it was ever the legislative intention to insert in the Philippine Law on Insurance an oddity, an incongruity, entirely out of harmony with the law as found in other jurisdiction, and destructive of good business practice. We have studied this case carefully and having done so have reached the definite conclusion that warranty F, a rider attached to the face of the insurance policy, and referred to in contract of insurance, is valid and sufficient under section 65 of the Insurance Act. Accordingly, sustaining the first and fourth errors assigned, and it being unnecessary to discuss the remaining errors, the result will be to reverse the judgment appealed from and to order the dismissal of the complaint, without special pronouncement as to costs in either instance. Street, Villamor, Ostrand, and Romualdez, JJ., concur.
Young v. Midland Textile Insurance Co Facts: Young owned a candy and fruit store in Manila. Midland issued a policy for the payment of a premium of P60. The indemnity was 3,000 if the place was destroyed by fire. One clause claimed: ―Waranty B. – It is hereby declared and agreed that during the pendency of this policy no hazardous goods stored or kept for sale, and no hazardous trade or process be carried on, in the building to which this insurance applies, or in any building connected therewith.‖ Young then placed three boxes of fireworks. The plaintiff intended to use them for Chinese New Year, but the authorities prohibited the use. The bodega was destroyed by fire. Both of the parties agree that said fireworks come within the phrase ―hazardous goods,‖ mentioned in said ―warranty B‖ of the policy. But it was found out that the fireworks were found in a part of the building not destroyed by the fire, and that they in no way contributed to the fire. Issue: Whether or not the placing of said fireworks in the building insured is a violation of the terms of the contract of insurance and especially of ―warranty B‖ Held: Yes. Petition dismissed. Ratio: Both the plaintiff and defendant agree that if they were ―hazardous goods,‖ and if they were ―stored,‖ then t he act of the plaintiff was a violation of the terms of the contract of insurance and the defendant was justified in repudiating its liability. This leads us to a consideration of the meaning of the accord ―stored‖ as used in said ―warranty B.‖ Whether a particular article is ―stored‖ or not must, in some degree, depend upon the intention of the parties. Nearly all of the cases cited by the lower court are cases where the article was being put to some reasonable and actual use, which might easily have been permitted by the terms of the policy, and within the intention of the parties, and excepted from the operation of the warranty, like the present. The author of the Century Dictionary defines the world ―store‖ to be a deposit in a store or warehouse for preservation or safe keeping; o place in a warehouse or other place of deposit for safe keeping.
Said definitions, of course, do not include a deposit in a store, in small quantities, for daily use. ―Daily use‖ precludes the idea of a deposit for preservation or safe keeping, as well as a deposit for future consumption, or safe keeping. The plaintiff makes no claim that he deposited them there with any other idea than ―for future use‖ – for future consumption. It seems clear to us that the ―hazardous goods‖ in question were ―stored‖ in the bodega, as that word is generally defined. That being true, suppose the defendant had made an examination of the premises, even in the absence of a fire, and had found the ―hazardous goods‖ there, under the conditions above described, would it not have been justified, then and there, in declaring the policy null and of no effect by reason of a violation of its terms? The appellant argues, however, that in view of the fact that the ―storing‖ of the fireworks on the premises of the insured did not contribute in any way to the damage occasioned by the fire, he should be permitted to recover – that the ―storing‖ of the ―hazardous goods‖ in no way caused injury to the defendant company. The ―storing‖ was a violation of the terms of the contract by virtue of the provisions of the policy itself, terminated the contractual relations. The plaintiff paid a premium based upon the risk at the time the policy was issued. Certainly it cannot be denied that the placing of the firecrackers in the building insured increased the risk. The plaintiff had not paid a premium based upon the increased risk, neither had the defendant issued a policy upon the theory of a different risk. The plaintiff was enjoying, if his contention may be allowed may be allowed, the benefits of an insurance policy upon one risk, whereas, as a matter of fact, it was issued upon an entirely different risk. The defendant had neither been paid nor had issues a policy to cover the increased risk. An increase of risk which is substantial and which is continued for a considerable period of time, is a direct and certain injury to the insurer, and changes the basis upon which the contract of insurance rests.
Qua Chee Gan v. law Unoin & Rock Ins. Co. Qua Chee Gan owns four warehouses in Albay. He was using these warehouses to house crops like copra and hemp. All warehouses were insured by Law Union and Rock Insurance for the amount of P370,000.00. The insurance states that Qua Chee Gan should install 11 hydrants i n the warehouses’ premises. Qua Chee Gan installed only two, but Law Union nevertheless went on with the insurance policy and collected premium from Qua Chee Gan. The insurance contract also provides that ―oil‖ should not be stored within the premises of t he warehouses. In 1940, three of the warehouses were destroyed by fire. The damage caused amounted to P398k. Qua Chee Gan demanded insurance pay from Law Union but the latter refused as it alleged that after investigation from their part, they found out that Qua Chee Gan caused the fire. Law Union in fact sued Qua Chee Gan for Arson. Qua Chee Gan was acquitted in the arson case. He then demanded that Law Union pay up. This time, Law Union averred that the insurance contract is void because Qua Chee Gan failed to install 11 hydrants; and that gasoline was found in one of the warehouses. ISSUE: Whether or not the insurance contract is void. HELD: No. Law Union cannot exempt itself from paying Qua Chee Gan because it is estopped from invoking the same. It is a well settled rule of law that an insurer which with knowledge of facts entitling it to treat a policy as no longer in force, receives and accepts a premium on the policy, estopped to take advantage of the forfeiture. Also, gasoline is not one of those items specifically prohibited from the premises of the warehouses. What was mentioned was the word ―oil‖ which could mean anything (from palm oil to lubricant and not gasoline or kerosene). This ambiguity is to be interpreted against Law Union because a contract of insurance is a contract of adhesion. Further, oil is incidental to Qua Chee Gan’s business, it being used for motor fuel.
BACHRACH V BRITISH AMERICAN INSURANCE Bachrach insured his building against fire with the British-American Assurance Company. After the effectivity of the policy, the insured stored gasoline, paints and varnishes within the premises insured. The building was burned and the insurer refused to pay the loss on the ground that the risk of fire was increased by the storage of gasoline, paints and varnishes. The insurer also claimed that the plaintiff transferred his interest in and to the property covered by the policy to H. W. Peabody & Co. to secure certain indebtedness due and owing to said company, and also that the plaintiff had transferred his interest in certain of the goods covered by the said policy to one Macke, to secure certain obligations assumed by the said Macke for and on behalf of the insured. Such execution of a chattel mortgage on the insured property without consent to the insurer violated what is known as the "alienation clause,". ISSUE: I. II. Whether the use of the building as a paint and varnish shop annulled the policy insurance Whether the execution of the chattel mortgages without the knowledge and consent of the insurance company annulled the policy insurance.
HELD:The court ruled in negative for both issues. I. The property insured consisted mainly of household furniture kept for the purpose of sale. The preservation of the furniture in a salable condition by retouching or otherwise was incidental to the business. The evidence offered by the plaintiff is to the effect that alcohol was used in preparing varnish for the purpose of retouching, though he also says that the alcohol was kept in store and not in the bodega where the furniture was. It is well settled that the keeping of inflammable oils on the premises, though prohibited by the policy, does not void it if such keeping is incidental to the business. Thus, where a furniture factory keeps benzine for the purposes of or where it is usedfor the cleaning machinery, the insurer cannot on that ground avoid payment of loss, though the keeping of the benzine on the premises is expressly prohibited. It may be added that there was no provision in the policy prohibiting the keeping of paints and varnishes upon the premises where the insured property was stored. If the company intended to rely upon a condition of that character, it ought to have been plainly expressed in the policy. II. Upon reading the policy of insurance issued by the defendant to the plaintiff, it will be noted that there is no provision in said policy prohibiting the plaintiff from placing a mortgage upon the property insured, but,admitting that such a provision was intended, we think the lower court has completely answered thiscontention of the defendant. He said, in passing upon this question as it was presented: It is claimed that the execution of a chattel mortgage on the insured property violated what is known as the "alienation clause," which is now found in most policies, and which is expressed in the policies involved in cases 6496 and 6497 by a purchase imposing forfeiture if the interest in the property pass from the insured. (Cases 6496 and 6497, in which are involved other action against other insurance companies for the same loss as in the present action.)This clause has been the subject of a vast number of judicial decisions , and it is held by the great weight of authority that the interest in property insured does not pass by the mere execution of a chattel mortgage and that while a chattel mortgage is a conditional sale,there is no alienation within the meaning of the insurance law until the mortgage acquires a right to take possession by default under the terms of the mortgage. No such right is claimed to have accrued in the caseat bar, and the alienation clause is therefore inapplicable
GEAGONIA V CA Facts: Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for P100,000.00. The 1 year policy and covered thestock trading of dry goods. The policy noted the requirement that "3. The insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless notice be given and the particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this 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." The petitioners’ stocks were destroyed by fire. He then filed a claim which was subsequently denied because the petitioner’s stocks were covered by two other fire insurance policies for Php 200,000 issued by PFIC. The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy. Geagonia then filed a complaint against the private respondent in the Insurance Commission for the recovery of P100,000.00 under fire insurance policy and damages. He claimed that he knew the existence of the other two policies. But, he said that he had no knowledge of the provision in the private respondent's policy requiring him to inform it of the prior policies and this requirement was not mentioned to him by the private respondent's agent. The Insurance Commission found that the petitioner did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. The Insurance Commission then ordered the respondent company to pay complainant the sum of P100,000.00 with interest and attorney’s fees. CA reversed the decision of the Insurance Commission because it found that the petitioner knew of the existence of the two other policies issued by the PFIC. Issues: 1. WON the petitioner had not disclosed the two insurance policies when he obtained the fire insurance and thereby violated Condition 3 of the policy. 2. WON he is prohibited from recovering Held: Yes. No. Petition Granted Ratio: 1. The court agreed with the CA that the petitioner knew of the prior policies issued by the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary before the Insurance Commissioner and which the latter relied upon cannot prevail over a written admission made ante litem motam. It was, indeed, incredible that he did not know about the prior policies since these policies were not new or original.
2. Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance policies should be construed most strictly against those for whose benefits they are inserted, and most favorably toward those against whom they are intended to operate. With these principles in mind, Condition 3 of the subject policy is not totally free from ambiguity and must be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained. Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured.