FINMAN GENERAL ASSURANCE CORPORATION, PETITIONER, VS. COURT OF APPEALS AND USIPHIL INCORPORATED, RESPONDENTS.

Finman General Assurance versus Usiphil

The Case

This is a petition for review on certiorari brought by Finman General Assurance Corporation, the insurer, against Usiphil Incorporated, its insured, after the Court of Appeals affirmed a trial court judgment ordering the insurer to pay an unpaid fire insurance claim. The insured had obtained a fire policy, suffered a fire loss, and submitted its claim; the insurer refused to pay, invoking the insured's alleged failure to submit the documents required by the policy's condition on proof of loss. The case matters because it fixes two rules every practitioner must know: that what the policy requires of the insured as proof of loss is satisfied by substantial compliance, and that an insurer's unreasonable refusal or delay in paying a claim carries the statutory interest of twice the ceiling prescribed by the Monetary Board, which the parties and the courts treated as 24 percent per annum.

Procedural History

The insured filed a complaint against the insurer for the unpaid insurance claim before the trial court. After trial, the trial court rendered judgment in favor of the insured, ordering the insurer to pay the principal sum of 842,683 pesos and 40 centavos with 24 percent interest per annum from February 28, 1985 until fully paid, plus attorney's fees equivalent to 10 percent of the principal obligation and 1,500 pesos per court appearance of counsel, plus 30,000 pesos in exemplary damages, and the costs of suit. The trial court dismissed the insured's separate claim for actual damages, its claim for interest under another paragraph of its prayer for lack of agreement, and the insurer's counterclaim.

The insurer appealed to the Court of Appeals, which substantially affirmed the trial court. The appellate court modified only the date from which the 24 percent interest per annum would run, fixing it from May 3, 1985 until fully paid, and affirmed the appealed decision in all other respects. The insurer's motion for reconsideration was denied. The insurer then came to the Supreme Court through this petition for review on certiorari.

Facts

On September 15, 1981, the insured obtained a fire insurance policy from the insurer, then doing business under the name Summa Insurance Corporation, covering its office, furniture, fixtures, shop machinery, and other trade equipment. Under that policy, the insurer undertook to indemnify the insured for any damage to or loss of those properties arising from fire.

Sometime in 1982, a fire occurred and the insured filed an insurance claim amounting to 987,126 pesos and 11 centavos. The insurer appointed an adjuster, H.H. Bayne, to undertake the valuation and adjustment of the loss. The adjuster required the insured to file a formal claim and submit proof of loss. In compliance, the insured submitted its Sworn Statement of Loss and Formal Claim dated July 22, 1982, signed by its Manager Reynaldo Cayetano, and a Proof of Loss signed by its Accounting Manager Pedro Palallos and countersigned by the adjuster's representative F.C. Medina. The insured's Palallos personally followed up the claim with the insurer's President Joaquin Ortega, who instructed the insurer's Finance Manager, Rosauro Maghirang, to reconcile the records. Thereafter, Maghirang and Palallos signed a Statement or Agreement dated February 28, 1985, indicating that the amount due the insured was 842,683 pesos and 40 centavos.

Despite repeated demands, the insurer refused to pay, contending that the insured had failed to comply with Policy Condition Number 13 on the submission of documents to prove the loss. The insurer pointed to two letters of its adjuster listing numerous documents the insured allegedly never submitted. The insured was constrained to sue.

Issues

• Whether or not the Court of Appeals erred in finding that the evidence was sufficient to justify the trial court's decision in favor of the insured.
• Whether or not the insured's alleged violation of the insurance policy, by failing to submit the documents required under Policy Condition Number 13, justified the insurer's denial of the claim.
• Whether or not the insurer is liable to pay interest at 24 percent per annum on the principal amount of 842,683 pesos and 40 centavos.

Applicable Provisions

Policy Condition Number 13 of the fire insurance policy provides:

13. The insured shall give immediate written notice to the Company of any loss, protect the property from further damage, forthwith separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete inventory of the destroyed, damaged, and undamaged property, showing in detail quantities, costs, actual cash value and the amount of loss claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS, signed and sworn to by the insured, stating the knowledge and belief of the insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy by whom and for what purpose any buildings herein described and the several parts thereof were occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies, and if required verified plans and specifications of any building, fixtures, or machinery destroyed or damaged. The insured, as often as may be reasonably required, shall exhibit to any person designated by the company all that remains of any property herein described, and submit to examination under oath by any person named by the Company, and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of account, bills, invoices, and other vouchers or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by the Company or its representative and shall permit extracts and copies thereof to be made. No claim under this policy shall be payable unless the terms of this condition have been complied with.

This is the condition the insurer invoked to deny the claim, and the Court measured the insured's submissions against it.

Section 243 of the Insurance Code provides:

Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.

This is the provision that authorizes the award of interest for the insurer's delay in paying the claim.

Section 244 of the Insurance Code provides:

Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied: Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of reasonable delay in payment.

This provision makes the failure to pay within the prescribed period prima facie evidence of unreasonable delay, and fixes the same double-ceiling interest.

Section 29 of the policy itself, the settlement of claim clause, provides:

29. Settlement of claim clause. The amount of any loss or damage for which the company may be liable, under this policy shall be paid within thirty days after proof of loss is received by the company and ascertainment of the loss or damage is made either in an agreement between the insured and the company or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the company of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the grounds (sic) that the claim is fraudulent.

This contractual clause independently obliges the insurer to pay within thirty days after proof of loss and ascertainment by agreement, and to pay the same interest upon refusal or failure.

Ruling

On the first issue, the Court held that the factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect and will not be disturbed on appeal absent a clear showing that the trial court overlooked facts or circumstances that would substantially affect the disposition of the case. The Court found no cogent reason to deviate from that rule.

On the second issue, the Court held that the insured had substantially complied with Policy Condition Number 13. After the fire, the insured immediately notified the insurer and submitted its Sworn Statement of Loss and Formal Claim and its Proof of Loss. The Court ruled that as regards the submission of documents to prove loss, substantial, not strict, compliance with the requirements will always be deemed sufficient. Independently, the Court held that even assuming the insured failed to submit certain required documents, any such violation was waived when the insurer, through its Finance Manager Maghirang, signed the document showing the amount due the insured as of February 1985, thereby acknowledging its liability. On the insurer's claim that Maghirang lacked authority to bind it, the Court applied the doctrine of apparent authority: one who clothes another with apparent authority as his agent, and holds him out to the public as such, cannot later be allowed to deny that authority when a third person entered into the contract in good faith and in the honest belief that he was such agent.

On the third issue, the Court held that the 24 percent interest per annum from May 3, 1985 until fully paid is authorized by Sections 243 and 244 of the Insurance Code and by Section 29 of the policy itself. The policy obliged the insurer to pay within thirty days after proof of loss and ascertainment of the loss by agreement between the parties. Since the agreement was signed on April 2, 1985, the insurer had until May 2, 1985 to pay. For its failure to do so, the trial court and the Court of Appeals rightfully directed the payment of 24 percent interest per annum.

Doctrine

First, as to the insured's duty under the proof of loss condition, the rule is that substantial compliance suffices; strict compliance is not required. Where the insured gives immediate notice of loss and submits a sworn statement of loss, a formal claim, and a proof of loss, the condition is satisfied.

Second, the insurer may waive the insured's failure to submit required documents. When the insurer, through an officer it clothed with apparent authority, signs a statement reconciling and fixing the amount due on the claim, it acknowledges its liability and cannot later deny that authority or invoke the omitted documents.

Third, under Sections 243 and 244 of the Insurance Code, refusal or failure to pay the loss within the time prescribed entitles the insured to interest at twice the ceiling prescribed by the Monetary Board, and such failure is prima facie evidence of unreasonable delay in payment. The same obligation arises from the settlement of claim clause of the policy.

Disposition

The Supreme Court denied the petition for lack of merit and affirmed in toto the decision of the Court of Appeals and its resolution denying reconsideration, leaving the insurer liable for the claim of 842,683 pesos and 40 centavos with 24 percent interest per annum from May 3, 1985 until fully paid, plus attorney's fees, exemplary damages, and costs.

Remember This

Memorize the line: proof of loss under a fire policy calls for substantial, not strict, compliance, and an insurer's unreasonable refusal or delay in paying carries interest at twice the Monetary Board ceiling. Examiners use this case on insurance procedure, on waiver and apparent authority of corporate officers, and on the statutory interest and prima facie delay under Sections 243 and 244 of the Insurance Code.