NEW LIFE ENTERPRISES AND JULIAN SY, PETITIONERS, VS. HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY AND INSURANCE CO., INC. AND WESTERN GUARANTY CORPORA…

This appeal by certiorari seeks the nullification of the
decision^[1]
of respondent Court of Appeals in CA-G.R. CV No. 13866 which reversed the
decision of the Regional Trial Court, Branch
LVII at Lucena City, jointly deciding Civil Cases Nos. 6-84, 7-84 and 8-84
thereof and consequently ordered the dismissal of the aforesaid actions filed
by herein petitioners.

The undisputed background of this case as found by the court a
quo and adopted by respondent court, being sustained by the evidence on
record, we hereby reproduce the same with approval.^[2]

“The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a
business partnership in the City of Lucena. Under the business name of New Life Enterprises, the partnership engaged
in the sale of construction materials at its place of business, a two storey
building situated at Iyam, Lucena City. The facts show that Julian Sy insured the stocks in trade of New Life
Enterprises with Western Guaranty Corporation, Reliance Surety and Insurance
Co. Inc., and Equitable Insurance Corporation.

“On May 15, 1981, Western Guaranty Corporation issued Fire
Insurance Policy No. 37201 in the amount of P350,000.00. This policy was renewed on May 13, 1982.

“On July 30, 1981, Reliance Surety and Insurance Co., Inc.
issued Fire Insurance Policy No. 69135 in the amount of P300,000.00 (Renewed
under Renewal Certificate No. 41997). An additional insurance was issued by the same company on November 12, 1981
under Fire Insurance Policy No. 71547 in the amount of P700,000.00.

“On February 8, 1982, Equitable Insurance Corporation issued
Fire Insurance Policy No. 39328 in the amount of P200,000.00.

“Thus when the building occupied by the New Life Enterprises
was gutted by fire at about 2:00 o’clock in the morning of October 19, 1982,
the stocks in trade inside said building were insured against fire in the total
amount of P1,550,000.00. According to
the certification issued by the Headquarters, Philippine Constabulary/Integrated
National Police, Camp Crame, the cause of fire was electrical in nature. According to the plaintiffs, the building
and the stocks inside were burned. After the fire, Julian Sy went
to the agent of Reliance Insurance whom he asked to accompany him to the office
of the company so that he can file his claim. He averred that in support of his claim, he submitted the fire
clearance, the insurance policies and inventory of stocks. He further testified that the three
insurance companies are sister companies, and as a matter of fact when he was following-up his claim with
Equitable Insurance, the Claims Manager told him to go first to Reliance
Insurance and if said company agrees to pay, they would also pay. The same treatment was given him by the
other insurance companies. Ultimately, the three insurance companies
denied plaintiffs’ claim for payment.

“In its letter of denial dated March 9, 1983, (Exhibit ‘C’ No.
8-84) Western Guaranty Corporation through Claims Manager Bernard S. Razon told
the plaintiff that his claim ‘is denied for breach of policy conditions.’
Reliance Insurance purveyed the same message in its letter dated November 23,
1982 and signed by Executive Vice-President Mary Dee Co (Exhibit ‘C’ No. 7-84)
which said that “plaintiff’s claim is denied for breach of policy
conditions.” The letter of denial received by the plaintiff from Equitable
Insurance Corporation (Exhibit ‘C’ No. 6-84) was of the same tenor, as said
letter dated February 22, 1983, and signed by Vice-President Elma R. Bondad,
said ‘we find that certain policy conditions were violated, therefore, we
regret, we have to deny your claim, as it is hereby denied in its entirety.’

“In relation to the case against Reliance Surety and Insurance
Company, a certain Atty. Serafin D. Dator, acting in behalf of the plaintiff,
sent a letter dated February 13, 1983 (Exhibit ‘G-1’ No. 7-84) to Executive
Vice?President Mary Dee Co asking that he be informed as to the specific
policy conditions allegedly violated by the plaintiff. In her reply-letter dated March 30, 1983,
Executive Vice-President Mary Dee Co informed Atty. Dator that Julian Sy
violated Policy Condition No. ‘3’ which requires the insured to give notice of
any insurance or insurances already effected covering the stocks in
trade.”^[3]

Because of the denial of their claims for payment by the three
(3) insurance companies, petitioner filed separate civil actions against the
former before the Regional Trial Court of Lucena City, which cases were
consolidated for trial and thereafter the court below rendered its decision on December 19, 1986 with the following
disposition:

“WHEREFORE, judgment in the above-entitled cases is rendered
in the following manner, viz:

1. In Civil Case No.
6-84, judgment is rendered for the plaintiff New Life Enterprises and against
the defendant Equitable Insurance Corporation ordering the latter to pay the
former the sum of Two Hundred Thousand (P200,000.00) Pesos and considering that
payment of the claim of the insured has been unreasonably denied, pursuant to
Sec. 244 of the Insurance Code, defendant is further ordered to pay the
plaintiff attorney’s fees in the amount of Twenty Thousand (P20,000.00)
Pesos. All sums of money to be paid by
virtue hereof shall bear interest at 12% per annum (pursuant to Sec. 244 of the
Insurance Code) from February 14, 1983, (91st day from November 16, 1982, when
Sworn Statement of Fire Claim was received from the insured) until they are
fully paid;

2. In Civil Case No.
7-84, judgment is rendered for the plaintiff Julian Sy and against the
defendant Reliance Surety and Insurance Co., Inc., ordering the latter to pay the former the sum of
P1,000,000.00 (P300,000.00 under Policy No. 69135 and P700,000.00 under Policy
No. 71547) and considering that payment of the claim of the insured has been
unreasonably denied, pursuant to Sec. 244 of the Insurance Code, defendant is
further ordered to pay the plaintiff the amount of P100,000.00 as attorney’s
fees.

All sums of money to be paid by virtue hereof shall bear interest
at 12% per annum (pursuant to Sec. 244 of the Insurance Code) from February 14,
1983, (91st day from November 16, 1982 when Sworn Statement of Fire Claim was
received from the insured) until they are fully paid;

3. In Civil Case No.
8-84, judgment is rendered for the plaintiff New Life Enterprises and against the defendant Western Guaranty
Corporation ordering the latter to pay the sum of P350,000.00 to the
Consolidated Bank and Trust Corporation, Lucena Branch, Lucena City, as stipulated on the face of Policy
No. 37201, and considering that payment
of the aforementioned sum of money has been unreasonably denied, pursuant to
Sec. 244 of the Insurance Code, defendant is further ordered to pay the
plaintiff attorney’s fees in the amount of P35,000.00.

All sums of money to be paid by virtue hereof shall bear interest
at 12% per annum (pursuant to Sec. 244 of the Insurance Code) from February 5,
1982, (91st day from 1st week of November 1983 when insured filed formal claim
for full indemnity according to adjuster Vetremar Dela Merced) until they are
fully paid.”^[4]

As aforestated, respondent Court of Appeals reversed said
judgment of the trial court, hence this petition the crux wherein is whether or
not Conditions Nos. 3 and 27 of the insurance contracts were violated by
petitioners thereby resulting in their forfeiture of all the benefits
thereunder.

Condition No. 3 of said insurance policies, otherwise known as
the “Other Insurance Clause,” is uniformly contained in all the
aforestated insurance contracts of herein peti­tioners, as follows:

“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 such notice be given and the
particulars of such insurance or insurances be stated therein or endorsed on
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 loss or damage is not more than
P200,000.00.”^[5]

Petitioners admit that the respective insurance policies issued
by private respondents did not state or endorse thereon the other insurance
coverage obtained or subsequently effected on the same stocks in trade for the
loss of which compensation is claimed by
petitioners.^[6]
The policy issued by respondent Western Guaranty Corporation (Western) did not
declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and
respondent Equitable Insurance Corporation (Equitable) as co-insurers on the
same stocks, while Reliance’s policies covering the same stocks did not
likewise declare Western and Equitable as such co-insurers. It is further admitted by petitioners that
Equitable’s policy stated “nil” in the space thereon requiring
indication of any co-insurance although there were three (3) policies
subsisting on the same stocks in trade at the time of the loss, namely, that of
Western in the amount of P350,000.00 and two (2) policies of Reliance in the
total amount of P1,000,000.00.^[7]

In other words, the coverage by other insurance or co­-insurance
effected or subsequently arranged by petitioners were neither stated nor
endorsed in the policies of the three (3) private respondents, warranting
forfeiture of all benefits thereunder if we are to follow the express
stipulation in the aforequoted Policy Condition No. 3.

Petitioners contend that they are not to be blamed for the
omissions, alleging that insurance agent Leon Alvarez (for Western) and Yap Kam
Chuan (for Reliance and Equitable) knew about the existence of the additional
insurance coverage and that they were not informed about the requirement that
such other or additional
insurance should be stated in the policy, as they have not even read said
policies.^[8]
These contentions cannot pass judicial muster.

The terms of the contract are clear and unambiguous. The insured is specifically required to
disclose to the insurer any other insurance and its particulars which he may
have effected on the same subject matter. The knowledge of such insurance by the insurer’s agents, even assuming
the acquisition thereof by the former, is not the “notice” that would
estop the insurers from denying the claim. Besides, the so-called theory of imputed knowledge, that is, knowledge
of the agent is knowledge of the principal, aside from being of dubious applicability
here has likewise been roundly refuted by respondent court whose factual
findings we find acceptable.

Thus, it points out that while petitioner Julian Sy claimed that
he had informed insurance agent Alvarez regarding the co-insurance on the property,
he contradicted himself by inexplicably claiming that he had not read the terms
of the policies; that Yap Dam Chuan could not likewise have obtained such
knowledge for the same reason, aside from the fact that the insurance with
Western was obtained before those of Reliance and Equitable; and that the
conclusion of the trial court that Reliance and Equitable are “sister
companies” is an unfounded conjecture drawn from the mere fact that Yap
Kam Chuan was an agent for both companies which also had the same insurance
claims adjuster. Availment of the
services of the same agents and adjusters by different companies is a common
practice in the insurance business and such facts do not warrant the
speculative conclusion of the trial court.

Furthermore, when the words and language of documents are clear
and plain or readily understandable by an ordinary reader thereof, there is
absolutely no room for interpretation or construction anymore.^[9]
Courts are not allowed to make contracts for the parties; rather, they will
intervene only when the terms of the policy are ambiguous, equivocal, or
uncertain.^[10]
The parties must abide by the terms of the contract because such terms
constitute the measure of the insurer’s liability and compliance therewith is a
condition precedent to the insured’s right of recovery from the insurer.^[11]

While it is a cardinal principle of insurance law that a policy
or contract of insurance is to be construed liberally in favor of the insured
and strictly against the insurer company, yet 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.^[12]
Moreover, obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.^[13]

Petitioners should be aware of the fact that a party is not
relieved of the duty to exercise the ordinary care and prudence that would be
exacted in relation to other contracts. The conformity of the insured to the terms of the policy is implied from
his failure to express any disagreement with what is provided for.^[14]
It may be true that the majority rule, as cited by petitioners, is that insured
persons may accept policies without reading them, and that this is not
negligence per se.^[15] But,
this is not without any exception. It
is and was incumbent upon petitioner Sy to read the insurance contracts, and
this can be reasonably expected of him considering that he has been a
businessman since 1965^[16] and
the contract concerns indemnity in case of loss in his money-making trade of
which important consideration he could not have been unaware as it was
precisely the reason for his procuring the same.

We reiterate our pronouncement in Pioneer Insurance and Surety
Corporation vs. Yap:^[17]

“x x x ‘And considering the terms of
the policy which required the insured to declare other insurances, the
statement in question must be deemed to be a statement (warranty) binding on both insurer and insured, that
there were no other insurance on the property. x x x

`The annotation then, must be deemed to be a warranty that the
property was not insured by any other policy. Violation thereof entitled the insurer to rescind (Sec. 69, Insurance
Act). Such misrepresentation is fatal
in the light of our views in Santa Ana vs. Commercial Union Assurance Company,
Ltd., 55 Phil. 329. The materiality of
non-disclosure of other insurance policies is not open to doubt.’

x x x

“The obvious purpose of the aforesaid requirement in the
policy is to prevent
over-insurance and thus avert the perpetration of fraud. The public, as well as the insurer, is
interested in preventing the situation
in which a fire would be profitable to the insured. According to Justice Story: ‘The insured has no right to complain, for he assents to comply with all
the stipulations on his side, in order to entitle himself to the benefit of the
contract, which, upon reason or principle, he has no right to ask the court to
dispense with the performance of his own part of the agreement, and yet to bind
the other party to obligations, which, but for those stipulations, would not
have been entered into.'”

Subsequently, in the case of Pacific Banking Corporation vs.
Court of Appeals, et al.,^[18] we
held:

“It is not disputed that the insured failed to reveal before
the loss three other insurances. As
found by the Court of Appeals, by reason of said unrevealed insurances, the
insured had been guilty of a false declaration; a clear misrepresentation and a
vital one because where the insured had been asked to reveal but did not, that
was deception. Otherwise stated, had
the insurer known that there were many co-insurances, it could have hesitated
or plainly desisted from entering into such contract. Hence, the insured was guilty of clear fraud (Rollo, p. 25).

“Petitioner’s contention that the allegation of fraud is but a
mere inference or suspicion is untenable. In fact, concrete evidence of fraud or false declaration by the insured
was furnished by the petitioner itself when the facts alleged in the policy
under clauses ‘Co-Insurances Declared’ and ‘Other Insurance Clause’ are
materially different from the actual number of co-insurances taken over the
subject property. Consequently, ‘the
whole foundation of the contract fails, the risk does not attach and the policy
never becomes a contract between the parties.’ Representations of facts are the
foundation of the contract and if the foundation does not exist, the
superstructure does not arise. Falsehood in such representations is not shown to vary or add to the
contract, or to terminate a contract which has once been made, but to show that
no contract has ever existed (Tolentino, Commercial Laws of the Philippines, p.
991, Vol. II, 8th Ed.) A void or inexistent contract is one which has no force
and effect from the very beginning, as if it had never been entered into, and
which cannot be validated either by time or by ratification (Tongoy vs. C.A.,
123 SCRA 99 (1983); Avila v. C.A. 145 SCRA, 1986).

“As the insurance policy against fire expressly required that
notice should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy.”

To further warrant and justify the forfeiture of the benefits
under the insurance contracts involved, we need merely to turn to Policy
Condition No. 15 thereof, which reads in part:

“15. x x x if
any false declaration be made or used in support thereof, x x x all benefits
under this Policy shall be forfeited x x x.”^[19]

Additionally, insofar as the liability of respondent Reliance is
concerned, it is not denied that the complaint for recovery was filed in court
by petitioners only on January 31, 1984, or after more than one (1) year had
elapsed from petitioners’ receipt of the insurers’ letter of denial on November
29, 1982. Policy Condition No. 27 of
their insurance contract with Reliance provides:

“27. Action or
suit clause. – If a claim be made and
rejected and an action or suit be not commenced either in the Insurance
Commission or any court of competent jurisdiction of notice of such rejection,
or in case of arbitration taking place as provided herein, within twelve (12)
months after due notice of the award made by the arbitrator or abitrators or
umpire, then the claim shall for all purposes be deemed to have been abandoned
and shall not thereafter be recoverable hereunder.”^[20]

On this point, the trial court ruled:

“x x x However, because of the peculiar circumstances of this
case, we hesitate in concluding that plaintiff’s right to ventilate his claim
in court has been barred by reason of the time constraint provided in the
insurance contract. It is evident that
after the plaintiff had received the letter of denial, he still found it
necessary to be informed of the specific causes or reasons for the denial of
his claim, reason for which his lawyer, Atty. Dator deemed it wise to send a
letter of inquiry to the defendant which was answered by defendant’s Executive
Vice-President in a letter dated March 30, 1983, x x x. Assuming, gratui­tously, that the letter of
Executive Vice-President Mary Dee Co dated March 30, 1983, was received by
plaintiff on the same date, the period of limitation should start to run only
from said date in the spirit of fair play and equity. x x x”^[21]

We have perforce to reject this theory of the court below for
being contrary to what we have heretofore declared:

“It is important to note the principle laid down by this Court
in the case of Ang vs. Fulton Fire Insurance Co. (2 SCRA 945 [1961]) to wit:

‘The condition contained in an insurance policy that claims must be
presented within one year after rejection is not merely a procedural
requirement but an important matter essential to a prompt settlement of claims
against insurance companies as it demands that insurance suits be brought by
the insured while the evidence as to the origin and cause of destruction have
not yet disappeared.’

“In enunciating the above-cited principle, this Court had
definitely settled the rationale for the necessity of bringing suits against
the Insurer within one year from the rejection of the claim. The contention of the respondents that the
one-year prescriptive period does not start to run until the petition for
reconsideration had been resolved by the insurer, runs counter to the declared
purpose for requiring that an action or suit be filed in the Insurance
Commission or in a court of competent jurisdiction from the denial of the
claim. To uphold respondents’
contention would contradict and defeat the very principle which this Court had
laid down. Moreover, it can easily be
used by insured persons as a scheme or device to waste time until any evidence
which may be considered against them is destroyed.

x x x

“While in the Eagle Star case (96 Phil. 701), this Court uses
the phrase ‘final rejection’, the same cannot be taken to mean the rejection of
a petition for reconsideration as insisted by respondents. Such was clearly not the meaning contemplated
by this Court. The insurance policy in
said case provides that the insured should file his claim first, with the
carrier and then with the insurer. The
‘final rejection’ being referred to in said case is the rejection by the
insurance company.”^[22]

Furthermore, assuming arguendo, that petitioners felt the legitimate
need to be clarified as to the policy condition violated, there was a
considerable lapse of time from their receipt of the insurer’s clarificatory
letter dated March 30, 1983, up to the time the complaint was filed in court on
January 31, 1984. The one-year
prescriptive period was yet to expire on November 29, 1983 or about eight (8)
months from the receipt of the clarificatory letter, but petitioners let the
period lapse without bringing their action in court. We accordingly find no “peculiar circumstances”
sufficient to relax the enforcement of the one-year prescriptive period and we,
therefore, hold that petitioners’ claim was definitely filed out of time.

WHEREFORE, finding no cogent reason to disturb the
judgment of respondent Court of Appeals, the same is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, (Chairman),
and Nocon, JJ., concur.

Paras, J., No part Gloria has concurred.

Padilla, J., No part; related
to senior partner of private respondents’ counsel.

^[1]
Justice Serafin V.C. Guingona, ponente, with Justices Gloria C. Paras
and Bonifacio A. Cacdac, Jr. concurring;
Rollo, 51.

^[2]
Per Judge Hoover S. Abling.

^[3]
Rollo, 34-36.

^[4]
Ibid., 32-33.

^[5]
Exhibits “20-c”, “18-b”, “14-b”; Folder of
Exhibits, 20, 29, 31.

^[6]
Memorandum for Petitioners, 13.

^[7]
Rollo, 35.

^[8]
Memorandum for the Petitioners, 13.

^[9]
Marina Port Services, Inc. vs. Iniego, et al., 181 SCRA 304 (1990).

^[10]
Pan Malayan Insurance Corporation vs. Court of Appeals, et al., 184 SCRA
54 (1990).

^[11]
Perla Compania de Seguros, Inc. vs. Court of Appeals, et al., 185 SCRA
741 (1990).

^[12]
Sun Insurance Office, Ltd. vs. Court of Appeals, et al., 195 SCRA 193
(1991).

^[13]
Article 1159, Civil Code.

^[14]
Ang Giok Chip, etc. vs. Springfield Fire & Marine Insurance Company,
56 Phil. 375 (1931).

^[15]
Vance on Insurance, 1951 ed., 257; Memorandum for the Petitioners, 22.

^[16]
TSN, February 11, 1986, 28.

^[17]
61 SCRA 426 (1974), citing General Insurance & Surety Corporation vs.
Ng Hua, 106 Phil. 1117,
1119-1120 (1960).

^[18]
168 SCRA 1 (1988).

^[19]
Exhibits “20-d”, “18-e”, “14-e”; Folder of
Exhibits, 21, 30, 33.

^[20]
Exhibit “14–f”; Folder of Exhibits, 33.

^[21]
Rollo, 49.

^[22]
Sun Insurance Office, Ltd. vs. Court of Appeals, et al., supra, Fn. 12.