insurance loss and notice of loss

8/12/2019 Insurance Loss and Notice of Loss

1/45

G.R. No. 198588 July 11, 2012

UNITED MERCHANTS CORPORATION, Petitioner,

vs.

COUNTRY BANKERS INSURANCE CORPORATION, Respondent.

D E C I S I O N

CARPIO,J.:

The Case

This Petition for Review on Certiorari1seeks to reverse the Court of Appeals Decision2dated 16 June

2011 and its Resolution3dated 8 September 2011 in CA-G.R. CV No. 85777. The Court of Appeals

reversed the Decision4of the Regional Trial Court (RTC) of Manila, Branch 3, and ruled that the claim on

the Insurance Policy is void.

The Facts

The facts, as culled from the records, are as follows:

Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and

manufacturing Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San Jose Subdivision,

Barrio Manresa, Quezon City, where UMC assembled and stored its products.

On 6 September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks in trade of Christmas

lights against fire with defendant Country Bankers Insurance Corporation (CBIC) for P15,000,000.00. The

Fire Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice No. 12959A, valid until 6

September 1996, states:

AMOUNT OF INSURANCE: FIFTEEN

MILLION PESOS

PHILIPPINE

CURRENCY

x x x

PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the properties of the

Assured or held by them in trust, on commissions, or on joint account with others and/or for which they

are responsible in the event of loss and/or damage during the currency of this policy, whilst contained in

the building of one lofty storey in height, constructed of concrete and/or hollow blocks with portion of

galvanized iron sheets, under galvanized iron rood, occupied as Christmas lights storage.5

On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to form

part of the Insurance Policy. Endorsement F/96-154 provides that UMCs stocks in trade were insured

against additional perils, to wit: "typhoon, flood, ext. cover, and full earthquake." The sum insured was
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt1http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt1http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt1http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt2http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt2http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt2http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt3http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt3http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt4http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt4http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt4http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt5http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt5http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt5http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt5http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt4http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt3http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt2http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt1


2/45

also increased to P50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996, CBIC issued

Endorsement F/96-157 where the name of the assured was changed from Alfredo Tan to UMC.

On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment

Corporation (CRM) to investigate and evaluate UMCs loss by reason of the fire. CBICs reinsurer, Central

Surety, likewise requested the National Bureau of Investigation (NBI) to conduct a parallel investigation.On 6 July 1996, UMC, through CRM, submitted to CBIC its Sworn Statement of Formal Claim, with proofs

of its loss.

On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim from CBIC.

On 25 February 1997, UMC received CBICs letter, dated 10 January 1997, rejecting UMCs claim due to

breach of Condition No. 15 of the Insurance Policy. Condition No. 15 states:

If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof,

or if any fraudulent means or devices are used by the Insured or anyone acting in his behalf to obtain

any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or with the

connivance of the Insured, all the benefits under this Policy shall be forfeited.6

On 19 February 1998, UMC filed a Complaint7against CBIC with the RTC of Manila. UMC anchored its

insurance claim on the Insurance Policy, the Sworn Statement of Formal Claim earlier submitted, and

the Certification dated 24 July 1996 made by Deputy Fire Chief/Senior Superintendent Bonifacio J.

Garcia of the Bureau of Fire Protection. The Certification dated 24 July 1996 provides that:

This is to certify that according to available records of this office, on or about 6:10 P.M. of July 3, 1996, a

fire broke out at United Merchants Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon

City incurring an estimated damage of Fifty-Five Million Pesos (P55,000,000.00) to the building and

contents, while the reported insurance coverage amounted to Fifty Million Pesos (P50,000,000.00) withCountry Bankers Insurance Corporation.

The Bureau further certifies that no evidence was gathered to prove that the establishment was

willfully, feloniously and intentionally set on fire.

That the investigation of the fire incident is already closed being ACCIDENTAL in nature.8

In its Answer with Compulsory Counterclaim9dated 4 March 1998, CBIC admitted the issuance of the

Insurance Policy to UMC but raised the following defenses: (1) that the Complaint states no cause of

action; (2) that UMCs claim has already prescribed; and (3) that UMCs fire claim is tainted with fraud.

CBIC alleged that UMCs claim was fraudulent because UMCs Statement of Inventory showed that it hadno stocks in trade as of 31 December 1995, and that UMCs suspicious purchases for the year 1996 did

not even amount to P25,000,000.00. UMCs GIS and Financial Reports further revealed that it had

insufficient capital, which meant UMC could not afford the alleged P50,000,000.00 worth of stocks in

trade.
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt6http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt6http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt6http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt7http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt7http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt7http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt8http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt8http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt8http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt9http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt9http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt9http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt8http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt7http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt6


3/45

In its Reply10dated 20 March 1998, UMC denied violation of Condition No. 15 of the Insurance Policy.

UMC claimed that it did not make any false declaration because the invoices were genuine and the

Statement of Inventory was for internal revenue purposes only, not for its insurance claim.

During trial, UMC presented five witnesses. The first witness was Josie Ebora (Ebora), UMCs disbursing

officer. Ebora testified that UMCs stocks in trade, at the time of the fire, consisted of: (1) raw materialsfor its Christmas lights; (2) Christmas lights already assembled; and (3) Christmas lights purchased from

local suppliers. These stocks in trade were delivered from August 1995 to May 1996. She stated that

Straight Cargo Commercial Forwarders delivered the imported materials to the warehouse, evidenced

by delivery receipts. However, for the year 1996, UMC had no importations and only bought from its

local suppliers. Ebora identified the suppliers as Fiber Technology Corporation from which UMC bought

stocks worth P1,800,000.00 on 20 May 1996; Fuze Industries Manufacturer Philippines from which UMC

bought stocks worth P19,500,000.00 from 20 January 1996 to 23 February 1996; and Tomco Commercial

Press from which UMC bought several Christmas boxes. Ebora testified that all these deliveries were not

yet paid. Ebora also presented UMCs Balance Sheet, Income Statement and Statement of Cash Flow.

Per her testimony, UMCs purchases amounted to P608,986.00 in 1994; P827,670.00 in 1995; andP20,000,000.00 in 1996. Ebora also claimed that UMC had sales only from its fruits business but no sales

from its Christmas lights for the year 1995.

The next witness, Annie Pabustan (Pabustan), testified that her company provided about 25 workers to

assemble and pack Christmas lights for UMC from 28 March 1996 to 3 July 1996. The third witness,

Metropolitan Bank and Trust Company (MBTC) Officer Cesar Martinez, stated that UMC opened letters

of credit with MBTC for the year 1995 only. The fourth witness presented was Ernesto Luna (Luna), the

delivery checker of Straight Commercial Cargo Forwarders. Luna affirmed the delivery of UMCs goods to

its warehouse on 13 August 1995, 6 September 1995, 8 September 1995, 24 October 1995, 27 October

1995, 9 November 1995, and 19 December 1995. Lastly, CRMs adjuster Dominador Victorio testifiedthat he inspected UMCs warehouse and prepared preliminary reports in this connection.

On the other hand, CBIC presented the claims manager Edgar Caguindagan (Caguindagan), a Securities

and Exchange Commission (SEC) representative, Atty. Ernesto Cabrera (Cabrera), and NBI Investigator

Arnold Lazaro (Lazaro). Caguindagan testified that he inspected the burned warehouse on 5 July 1996,

took pictures of it and referred the claim to an independent adjuster. The SEC representatives

testimony was dispensed with, since the parties stipulated on the existence of certain documents, to

wit: (1) UMCs GIS for 1994-1997; (2) UMCs Financial Report as of 31 December 1996; (3) SEC Certificate

that UMC did not file GIS or Financial Reports for certain years; and (4) UMCs Statement of Inventory as

of 31 December 1995 filed with the BIR.

Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMCs claim. On 19

November 1996, they concluded that arson was committed based from their interview with barangay

officials and the pictures showing that blackened surfaces were present at different parts of the

warehouse. On cross-examination, Lazaro admitted that they did not conduct a forensic investigation of

the warehouse, nor did they file a case for arson.
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt10http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt10http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt10http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt10


4/45

For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the documents of UCPB

General Insurance, the insurer of Perfect Investment Company, Inc., the warehouse owner. When asked

to bring documents related to the insurance of Perfect Investment Company, Inc., Batallones brought

the papers of Perpetual Investment, Inc.

The Ruling of the Regional Trial Court

On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC, the dispositive

portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering defendant to pay plaintiff:

a) the sum of P43,930,230.00 as indemnity with interest thereon at 6%per annum from November 2003

until fully paid;

b) the sum of P100,000.00 for exemplary damages;

c) the sum of P100,000.00 for attorneys fees; and

d) the costs of suit.

Defendants counterclaim is denied for lack of merit.

SO ORDERED.11

The RTC found no dispute as to UMCs fire insurance contract with CBIC. Thus, the RTC ruled for UMCs

entitlement to the insurance proceeds, as follows:

Fraud is never presumed but must be proved by clear and convincing evidence. (see Alonso v. Cebu

Country Club, 417 SCRA 115 [2003]) Defendant failed to establish by clear and convincing evidence that

the documents submitted to the SEC and BIR were true. It is common business practice for corporations

to have 2 sets of reports/statements for tax purposes. The stipulated documents of plaintiff (Exhs. 28)

may not have been accurate.

The conflicting findings of defendants adjuster, CRM Adjustment[with stress] and that made by Atty.

Cabrera & Mr. Lazaro for Central Surety shall be resolved in favor of the former. Definitely the formers

finding is more credible as it was made soon after the fire while that of the latter was done 4 months

later. Certainly it would be a different situation as the site was no longer the same after the clearing up

operation which is normal after a fire incident. The Christmas lights and parts could have been swept

away. Hence the finding of the latter appears to be speculative to benefit the reinsurer and which

defendant wants to adopt to avoid liability.

The CRM Adjustment report found no arson and confirmed substantial stocks in the burned warehouse

(Exhs. QQQ) [underscoring supplied]. This is bolstered by the BFP certification that there was no proof of

arson and the fire was accidental (Exhs. PPP). The certification by a government agency like BFP is

presumed to be a regular performance of official duty. "Absent convincing evidence to the contrary, the
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt11http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt11http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt11http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt11


5/45

presumption of regularity in the performance of official functions has to be upheld." (People vs. Lapira,

255 SCRA 85) The report of UCPB General Insurances adjuster also found no arson so that the burned

warehouse owner PIC was indemnified.12

Hence, CBIC filed an appeal with the Court of Appeals (CA).

The Ruling of the Court of Appeals

On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive portion of the

Decision reads:

WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and the Decision of the

Regional Trial Court, of the National Judicial Capital Region, Branch 3 of the City of Manila dated June 16,

2005 in Civil Case No. 98-87370 is REVERSED and SET ASIDE. The plaintiff-appellees claim upon its

insurance policy is deemed avoided.

SO ORDERED.13

The CA ruled that UMCs claim under the Insurance Policy is void. The CA found that the fire was

intentional in origin, considering the array of evidence submitted by CBIC, particularly the pictures taken

and the reports of Cabrera and Lazaro, as opposed to UMCs failure to explain the details of the alleged

fire accident. In addition, it found that UMCs claim was overvalued through fraudulent transactions. The

CA ruled:

We have meticulously gone over the entirety of the evidence submitted by the parties and have come

up with a conclusion that the claim of the plaintiff-appellee was indeed overvalued by transactions

which were fraudulently concocted so that the full coverage of the insurance policy will have to be fully

awarded to the plaintiff-appellee.

First, We turn to the backdrop of the plaintiff-appellees case, thus, *o+n September 6, 1995 its stocks-in-

trade were insured for Fifteen Million Pesos and on May 7, 1996 the same was increased to 50 Million

Pesos. Two months thereafter, a fire gutted the plaintiff-appellees warehouse.

Second, We consider the reported purchases of the plaintiff-appellee as shown in its financial report

dated December 31, 1996 vis--vis the testimony of Ms. Ebora thus:

1994 - P608,986.00

1995 - P827,670.00

1996 - P20,000,000.00 (more or less) which were purchased for a period of one month.

Third, We shall also direct our attention to the alleged true and complete purchases of the plaintiff-

appellee as well as the value of all stock-in-trade it had at the time that the fire occurred. Thus:
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt12http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt12http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt12http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt13http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt13http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt13http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt13http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt12


6/45

Exhibit SourceAmount

(pesos)Dates Covered

Exhs. "P"-"DD",

inclusive

Fuze Industries

Manufacturer Phils.

19,550,400.00 January 20,

1996January 31,

1996

February 12,

1996

February 20,

1996

February 23,

1996

Exhs. "EE"-"HH",inclusive

Tomco CommercialPress

1,712,000.00 December 19,1995

January 24,

1996

February 21,

1996

November 24,

1995

Exhs. "II"-"QQ",

inclusive

Precious Belen

Trading

2,720,400.00 January 13,

1996

January 19,

1996

January 26,

1996

February 3,

1996

February 13,

1996

February 20,

1996

February 27,

1996

Exhs. "RR"- Wisdom Manpower 361,966.00 April 3, 1996

April 12, 1996


7/45

"EEE", inclusive Services April 19, 1996

April 26, 1996

May 3, 1996

May 10, 1996

May 17, 1996

May 24, 1996

June 7, 1996

June 14, 1996

June 21, 1996

June 28, 1996

July 5, 1996

Exhs. "GGG"-

"NNN", inclusive

Costs of Letters of

Credit for

imported rawmaterials

15,159,144.71 May 29, 1995

June 15, 1995

July 5, 1995September 4,

1995

October 2,

1995

October 27,

1995

January 8, 1996

March 19, 1996

Exhs. "GGG-11"

- "GGG-24",

"HHH-12", "HHH-22",

"III-11", "III-14",

"JJJ-13", "KKK-11",

"LLL-5"

SCCFI statements of

account

384,794.38 June 15, 1995

June 28, 1995

August 1, 1995

September 4,

1995

September 8,

1995

September 11,

1995

October 30,

199[5]

November 10,

1995

December 21,

1995


8/45

TOTAL 44,315,024.31

Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly looking through the

pieces of evidence that it adduced during the trial. The latter alleged that fraud is present in the case at

bar as shown by the discrepancy of the alleged purchases from that of the reported purchases made by

plaintiff-appellee. It had also averred that fraud is present when upon verification of the address of Fuze

Industries, its office is nowhere to be found. Also, the defendant-appellant expressed grave doubts as to

the purchases of the plaintiff-appellee sometime in 1996 when such purchases escalated to a high 19.5

Million Pesos without any contract to back it up.14

On 7 July 2011, UMC filed a Motion for Reconsideration,15which the CA denied in its Resolution dated 8

September 2011. Hence, this petition.

The Issues

UMC seeks a reversal and raises the following issues for resolution:

I.

WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH LAW, APPLICABLE

JURISPRUDENCE AND EVIDENCE AS TO THE EXISTENCE OF ARSON AND FRAUD IN THE ABSENCE OF

"MATERIALLY CONVINCING EVIDENCE."

II.

WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW, APPLICABLE

JURISPRUDENCE AND EVIDENCE WHEN IT FOUND THAT PETITIONER BREACHED ITS WARRANTY.16

The Ruling of the Court

At the outset, CBIC assails this petition as defective since what UMC ultimately wants this Court to

review are questions of fact. However, UMC argues that where the findings of the CA are in conflict with

those of the trial court, a review of the facts may be made. On this procedural issue, we find UMCs

claim meritorious.

A petition for review under Rule 45 of the Rules of Court specifically provides that only questions of law

may be raised. The findings of fact of the CA are final and conclusive and this Court will not review them

on appeal,17subject to exceptions as when the findings of the appellate court conflict with the findings

of the trial court.18Clearly, the present case falls under the exception. Since UMC properly raised the

conflicting findings of the lower courts, it is proper for this Court to resolve such contradiction.

Having settled the procedural issue, we proceed to the primordial issue which boils down towhether

UMC is entitled to claim from CBIC the full coverage of its fire insurance policy.
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt14http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt14http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt14http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt15http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt15http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt15http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt16http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt16http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt16http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt17http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt17http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt17http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt18http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt18http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt18http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt18http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt17http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt16http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt15http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt14


9/45

UMC contends that because it had already established aprima faciecase against CBIC which failed to

prove its defense, UMC is entitled to claim the full coverage under the Insurance Policy. On the other

hand, CBIC contends that because arson and fraud attended the claim, UMC is not entitled to recover

under Condition No. 15 of the Insurance Policy.

Burden of proof is the duty of any party to present evidence to establish his claim or defense by theamount of evidence required by law,19which is preponderance of evidence in civil cases.20The party,

whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to

obtain a favorable judgment.21Particularly, in insurance cases, once an insured makes out a prima facie

case in its favor, the burden of evidence shifts to the insurer to controvert the insureds prima facie

case.22In the present case, UMC established aprima facie case against CBIC. CBIC does not dispute that

UMCs stocks in trade were insured against fire under the Insurance Policy and that the warehouse,

where UMCs stocks in trade were stored, was gutted by fire on 3 July 1996, within the duration of the

fire insurance. However, since CBIC alleged an excepted risk, then the burden of evidence shifted to

CBIC to prove such exception.1wphi1

An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the

burden of establishing that the loss comes within the purview of the exception or limitation.23If loss is

proved apparently within a contract of insurance, the burden is upon the insurer to establish that the

loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits

its liability.24In the present case, CBIC failed to discharge its primordial burden of establishing that the

damage or loss was caused by arson, a limitation in the policy.

In prosecutions for arson, proof of the crime charged is complete where the evidence establishes: (1)

the corpus delicti, that is, a fire caused by a criminal act; and (2) the identity of the defendants as the

one responsible for the crime.25Corpus delicti means the substance of the crime, the fact that a crime

has actually been committed.26This is satisfied by proof of the bare occurrence of the fire and of its

having been intentionally caused.27

In the present case, CBICs evidence did not prove that the fire was intentionally caused by the insured.

First,the findings of CBICs witnesses, Cabrera and Lazaro, were based on an investigation conducted

more than four months after the fire. The testimonies of Cabrera and Lazaro, as to the boxes doused

with kerosene as told to them by barangayofficials, are hearsay because the barangayofficials were not

presented in court. Cabrera and Lazaro even admitted that they did not conduct a forensic investigation

of the warehouse nor did they file a case for arson.28Second,the Sworn Statement of Formal Claim

submitted by UMC, through CRM, states that the cause of the fire was "faulty electrical

wiring/accidental in nature."CBIC is bound by this evidence because in its Answer, it admitted that itdesignated CRM to evaluate UMCs loss. Third,the Certification by the Bureau of Fire Protection states

that the fire was accidental in origin. This Certification enjoys the presumption of regularity, which CBIC

failed to rebut.

Contrary to UMCs allegation, CBICs failure to prove arson does not mean that it also failed to prove

fraud. Qua Chee Gan v. Law Union29does not apply in the present case. In Qua Chee Gan,30the Court
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt19http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt19http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt19http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt20http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt20http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt20http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt21http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt21http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt21http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt22http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt22http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt22http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt23http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt23http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt23http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt24http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt24http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt24http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt25http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt25http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt25http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt26http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt26http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt26http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt27http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt27http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt27http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt28http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt28http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt28http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt29http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt29http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt29http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt30http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt30http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt30http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt30http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt29http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt28http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt27http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt26http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt25http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt24http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt23http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt22http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt21http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt20http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt19


10/45

dismissed the allegation of fraud based on the dismissal of the arson case against the insured, because

the evidence was identical in both cases, thus:

While the acquittal of the insured in the arson case is not res judicata on the present civil action, the

insurers evidence, to judge from the decision in the criminal case, is practically identical in both cases

and must lead to the same result, since the proof to establish the defense of connivance at the fire inorder to defraud the insurer "cannot be materially less convincing than that required in order to convict

the insured of the crime of arson" (Bachrach vs. British American Assurance Co., 17 Phil. 536).31

In the present case, arson and fraud are two separate grounds based on two different sets of evidence,

either of which can void the insurance claim of UMC. The absence of one does not necessarily result in

the absence of the

other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals.

Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be forfeited,

if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof,to wit:

15. If the claim be in any respect fraudulent, or if any false declaration be made or used in support

thereof, or if any fraudulent means or devices are used by the Insured or anyone acting in his behalf to

obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or with the

connivance of the Insured, all the benefits under this Policy shall be forfeited.

In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32the Court held that where a fire insurance policy

provides that "if the claim be in any respect fraudulent, or if any false declaration be made or used in

support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting on his

behalf to obtain any benefit under this Policy," and the evidence is conclusive that the proof of claim

which the insured submitted was false and fraudulent both as to the kind, quality and amount of the

goods and their value destroyed by the fire, such a proof of claim is a bar against the insured from

recovering on the policy even for the amount of his actual loss.

In the present case, as proof of its loss of stocks in trade amounting to P50,000,000.00, UMC submitted

its Sworn Statement of Formal Claim together with the following documents: (1) letters of credit and

invoices for raw materials, Christmas lights and cartons purchased; (2) charges for assembling the

Christmas lights; and (3) delivery receipts of the raw materials. However, the charges for assembling the

Christmas lights and delivery receipts could not support its insurance claim. The Insurance Policy

provides that CBIC agreed to insure UMCs stocks in trade. UMC defined stock in trade as tangiblepersonal property kept for sale or traffic.33Applying UMCs definition, only the letters of credit and

invoices for raw materials, Christmas lights and cartons may be considered.

The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade

purchased for 1996 amounts to P20,000,000.00 which were purchased in one month. Thus, UMC needs

to prove purchases amounting to P30,000,000.00 worth of stocks in trade for 1995 and prior years.
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt31http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt31http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt31http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt32http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt32http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt32http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt33http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt33http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt33http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt33http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt32http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt31


11/45

However, in the Statement of Inventory it submitted to the BIR, which is considered an entry in official

records,34UMC stated that it had no stocks in trade as of 31 December 1995. In its defense, UMC alleged

that it did not include as stocks in trade the raw materials to be assembled as Christmas lights, which it

had on 31 December 1995. However, as proof of its loss, UMC submitted invoices for raw materials,

knowing that the insurance covers only stocks in trade.

Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries Manufacturer Phils. were

suspicious. The purchases, based on the invoices and without any supporting contract, amounted to

P19,550,400.00 worth of Christmas lights from 20 January 1996 to 23 February 1996. The

uncontroverted testimony of Cabrera revealed that there was no Fuze Industries Manufacturer Phils.

located at "55 Mahinhin St., Teachers Village, Quezon City," the business address appearing in the

invoices and the records of the Department of Trade & Industry. Cabrera testified that:

A: Then we went personally to the address as I stated a while ago appearing in the record furnished by

the United Merchants Corporation to the adjuster, and the adjuster in turn now, gave us our basis in

conducting investigation, so we went to this place which according to the records, the address of this

company but there was no office of this company.

Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover the address

indicated by the United Merchants as the place of business of Fuze Industries Manufacturer, Phils. was a

residential place, what then did you do after determining that it was a residential place?

A: We went to the owner of the alleged company as appearing in the Department of Trade & Industry

record, and as appearing a certain Chinese name Mr. Huang, and the address as appearing there is

somewhere in Binondo. We went personally there together with the NBI Agent and I am with them

when the subpoena was served to them, but a male person approached us and according to him, there

was no Fuze Industries Manufacturer, Phils., company in that building sir.35

In Yu Ban Chuan v. Fieldmens Insurance, Co., Inc.,36the Court ruled that the submission of false invoices

to the adjusters establishes a clear case of fraud and misrepresentation which voids the insurers liability

as per condition of the policy. Their falsity is the best evidence of the fraudulent character of plaintiffs

claim.37In Verendia v. Court of Appeals,38where the insured presented a fraudulent lease contract to

support his claim for insurance benefits, the Court held that by its false declaration, the insured forfeited

all benefits under the policy provision similar to Condition No. 15 of the Insurance Policy in this case.

Furthermore, UMCs Income Statement indicated that the purchases or costs of sales are P827,670.00

for 1995 and P1,109,190.00 for 1996 or a total of P1,936,860.00.39To corroborate this fact, Ebora

testified that:

Q: Based on your 1995 purchases, how much were the purchases made in 1995?

A: The purchases made by United Merchants Corporation for the last year 1995 is P827,670.[00] sir

Q: And how about in 1994?
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt34http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt34http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt34http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt35http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt35http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt35http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt36http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt36http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt36http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt37http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt37http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt37http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt38http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt38http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt38http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt39http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt39http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt39http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt39http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt38http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt37http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt36http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt35http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt34


12/45

A: In 1994, its P608,986.00 sir.

Q: These purchases were made for the entire year of 1995 and 1994 respectively, am I correct?

A: Yes sir, for the year 1994 and 1995.40(Emphasis supplied)

In its 1996 Financial Report, which UMC admitted as existing, authentic and duly executed during the 4

December 2002 hearing, it had P1,050,862.71 as total assets and P167,058.47 as total liabilities .41

Thus, either amount in UMCs Income Statement or Financial Reports is twenty-five timesthe claim UMC

seeks to enforce. The RTC itself recognized that UMC padded its claim when it only allowed

P43,930,230.00 as insurance claim. UMC supported its claim of P50,000,000.00 with the Certification

from the Bureau of Fire Protection stating that "x x x a fire broke out at United Merchants Corporation

located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated damage of Fifty- Five

Million Pesos (P55,000,000.00) to the building and contentsx x x." However, this Certification only

proved that the estimated damage of P55,000,000.00 is shared by both the building and the stocks in

trade.

It has long been settled that a false and material statement made with an intent to deceive or defraud

voids an insurance policy.42In Yu Cua v. South British Insurance Co.,43the claim was fourteen times

bigger than the real loss; in Go Lu v. Yorkshire Insurance Co,44eight times; and in Tuason v. North China

Insurance Co.,45six times. In the present case, the claim is twenty five timesthe actual claim proved.

The most liberal human judgment cannot attribute such difference to mere innocent error in estimating

or counting but to a deliberate intent to demand from insurance companies payment for indemnity of

goods not existing at the time of the fire.46This constitutes the so-called "fraudulent claim" which, by

express agreement between the insurers and the insured, is a ground for the exemption of insurers from

civil liability.47

In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in its statements were

not covered by the warranty such that any discrepancy in the declaration in other instruments or

documents as to matters that may have some relation to the insurance coverage voids the policy. "48

On UMCs allegation that it did not breach any warranty,it may be argued that the discrepancies do not,

by themselves, amount to a breach of warranty. However, the Insurance Code provides that "a policy

may declare that a violation of specified provisions thereof shall avoid it."49Thus, in fire insurance

policies, which contain provisions such as Condition No. 15 of the Insurance Policy, a fraudulent

discrepancy between the actual loss and that claimed in the proof of loss voids the insurance policy.Mere filing of such a claim will exonerate the insurer.50

Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and

was guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited

whatever benefits it may be entitled under the Insurance Policy, including its insurance claim.
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt40http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt40http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt40http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt41http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt41http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt41http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt42http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt42http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt42http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt43http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt43http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt43http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt44http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt44http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt44http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt45http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt45http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt45http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt46http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt46http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt46http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt47http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt47http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt47http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt48http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt48http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt48http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt49http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt49http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt49http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt50http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt50http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt50http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt50http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt49http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt48http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt47http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt46http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt45http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt44http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt43http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt42http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt41http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt40


13/45

While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in

favor of the insured and strictly against the insurer company,51contracts of insurance, like other

contracts, are to be construed according to the sense and meaning of the terms which the parties

themselves have used.52If such terms are clear and unambiguous, they must be taken and understood

in their plain, ordinary and popular sense. Courts are not permitted to make contracts for the parties;

the function and duty of the courts is simply to enforce and carry out the contracts actually made.53

WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision and the 8 September 2011

Resolution of the Court of Appeals in CA-G.R. CV No. 85777.

SO ORDERED.
http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt51http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt51http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt51http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt52http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt52http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt52http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt53http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt53http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt53http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt53http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt52http://www.lawphil.net/judjuris/juri2012/jul2012/gr_198588_2012.html#fnt51


14/45

G.R. No. 137775. March 31, 2005

FGU INSURANCE CORPORATION,Petitioners,

vs.

THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and ESTATE OF ANG GUI, represented by

LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO TO,Respondents.

G.R. No. 140704. March 31, 2005

ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG, and CO TO,

Petitioners,

vs.

THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU INSURANCE CORP., Respondents.

D E C I S I O N

CHICO-NAZARIO,J.:

Before Us are two separate Petitions for review assailing the Decision1of the Court of Appeals in CA-G.R.

CV No. 49624 entitled, "San Miguel Corporation, Plaintiff-Appellee versus Estate of Ang Gui, represented

by Lucio, Julian and Jaime, all surnamed Ang, and Co To, Defendants-Appellants, ThirdParty Plaintiffs

versus FGU Insurance Corporation, Third-Party Defendant-Appellant," which affirmed in totothe

decision2of the Regional Trial Court of Cebu City, Branch 22. The dispositive portion of the Court of

Appeals decision reads:

WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:

1) Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an interest of 6% per annum to be

reckoned from the filing of this case on October 2, 1990;

2) Ordering defendants to pay plaintiff the sum of P25,000.00 for attorneys fees and an additional sum

of P10,000.00 as litigation expenses;

3) With cost against defendants.

For the Third-Party Complaint:

1) Ordering third-party defendant FGU Insurance Company to pay and reimburse defendants the

amount of P632,700.00.3

The Facts

Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was

engaged in the shipping business. It owned the M/T ANCO tugboat and the D/B Lucio barge which were

operated as common carriers. Since the D/B Lucio had no engine of its own, it could not maneuver by

itself and had to be towed by a tugboat for it to move from one place to another.
http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt1http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt1http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt1http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt2http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt2http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt2http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt3http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt3http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt3http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt3http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt2http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt1


15/45

On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the

D/B Lucio, for towage by M/T ANCO, the following cargoes:

Bill of Lading No. Shipment Destination

1 25,000 cases Pale Pilsen Estancia, Iloilo

350 cases Cerveza Negra Estancia, Iloilo

2 15,000 cases Pale Pilsen San Jose, Antique

200 cases Cerveza Negra San Jose, Antique

The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer Marketing Division (BMD)-

Estancia Beer Sales Office, Estancia, Iloilo, while the consignee for the cargoes covered by Bill of Lading

No. 2 was SMCs BMD-San Jose Beer Sales Office, San Jose, Antique.

The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose, Antique. Thevessels arrived at San Jose, Antique, at about one oclock in the afternoon of 30 September 1979. The

tugboat M/T ANCO left the barge immediately after reaching San Jose, Antique.

When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September 1979, the

clouds over the area were dark and the waves were already big. The arrastre workers unloading the

cargoes of SMC on board the D/B Lucio began to complain about their difficulty in unloading the

cargoes. SMCs District Sales Supervisor, Fernando Macabuag, requested ANCOs representative to

transfer the barge to a safer place because the vessel might not be able to withstand the big waves.

ANCOs representative did not heed the request because he was confident that the barge could

withstand the waves. This, notwithstanding the fact that at that time, only the M/T ANCO was left at the

wharf of San Jose, Antique, as all other vessels already left the wharf to seek shelter. With the waves

growing bigger and bigger, only Ten Thousand Seven Hundred Ninety (10,790) cases of beer were

discharged into the custody of the arrastre operator.

At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B Lucio abandoned the

vessel because the barges rope attached to the wharf was cut off by the big waves. At around midnight,

the barge run aground and was broken and the cargoes of beer in the barge were swept away.

As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two Hundred Ten

(29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra. The value per case ofPale Pilsen was Forty-Five Pesos and Twenty Centavos (P45.20). The value of a case of Cerveza Negra

was Forty-Seven Pesos and Ten Centavos (P47.10), hence, SMCs claim against ANCO amounted to One

Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00).

As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage and Damages

against ANCO for the amount of One Million Three Hundred Forty-Six Thousand One Hundred Ninety-


16/45

Seven Pesos (P1,346,197.00) plus interest, litigation expenses and Twenty-Five Percent (25%) of the

total claim as attorneys fees.

Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January 1993, SMC filed a

second amended complaint which was admitted by the Court impleading the surviving partner, Co To

and the Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang. The substituteddefendants adopted the original answer with counterclaim of ANCO "since the substantial allegations of

the original complaint and the amended complaint are practically the same."

ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the complaint were

indeed loaded on the vessel belonging to ANCO. It claimed however that it had an agreement with SMC

that ANCO would not be liable for any losses or damages resulting to the cargoes by reason of fortuitous

event. Since the cases of beer Pale Pilsen and Cerveza Negra were lost by reason of a storm, a fortuitous

event which battered and sunk the vessel in which they were loaded, they should not be held liable.

ANCO further asserted that there was an agreement between them and SMC to insure the cargoes in

order to recover indemnity in case of loss. Pursuant to that agreement, the cargoes to the extent of

Twenty Thousand (20,000) cases was insured with FGU Insurance Corporation (FGU) for the total

amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) per Marine Insurance

Policy No. 29591.

Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging that before

the vessel of ANCO left for San Jose, Antique with the cargoes owned by SMC, the cargoes, to the extent

of Twenty Thousand (20,000) cases, were insured with FGU for a total amount of Eight Hundred Fifty-

Eight Thousand Five Hundred Pesos (P858,500.00) under Marine Insurance Policy No. 29591. ANCO

further alleged that on or about 02 October 1979, by reason of very strong winds and heavy waves

brought about by a passing typhoon, the vessel run aground near the vicinity of San Jose, Antique, as a

result of which, the vessel was totally wrecked and its cargoes owned by SMC were lost and/or

destroyed. According to ANCO, the loss of said cargoes occurred as a result of risks insured against in the

insurance policy and during the existence and lifetime of said insurance policy. ANCO went on to assert

that in the remote possibility that the court will order ANCO to pay SMCs claim, the third-party

defendant corporation should be held liable to indemnify or reimburse ANCO whatever amounts, or

damages, it may be required to pay to SMC.

In its answer to the Third-Party complaint, third-party defendant FGU admitted the existence of the

Insurance Policy under Marine Cover Note No. 29591 but maintained that the alleged loss of the cargoes

covered by the said insurance policy cannot be attributed directly or indirectly to any of the risks insured

against in the said insurance policy. According to FGU, it is only liable under the policy to Third-partyPlaintiff ANCO and/or Plaintiff SMC in case of any of the following:

a) total loss of the entire shipment;

b) loss of any case as a result of the sinking of the vessel; or

c) loss as a result of the vessel being on fire.


17/45

Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to exercise

ordinary diligence or the diligence of a good father of the family in the care and supervision of the

cargoes insured to prevent its loss and/or destruction.

Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and asked for actual,

moral, and exemplary damages and attorneys fees.

The trial court found that while the cargoes were indeed lost due to fortuitous event, there was failure

on ANCOs part, through their representatives, to observe the degree of diligence required that would

exonerate them from liability. The trial court thus held the Estate of Ang Gui and Co To liable to SMC for

the amount of the lost shipment. With respect to the Third-Party complaint, the court a quo found FGU

liable to bear Fifty-Three Percent (53%) of the amount of the lost cargoes. According to the trial court:

. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and was broken

and the beer cargoes on the said barge were swept away. It is the sense of this Court that the risk

insured against was the cause of the loss.

. . .

Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the amount of

the policy was only for P858,500.00, defendants as assured, therefore, were considered co-insurers of

third-party defendant FGU Insurance Corporation to the extent of 975,405.00 value of the cargo.

Consequently, inasmuch as there was partial loss of only P1,346,197.00, the assured shall bear 53% of

the loss4[Emphasis ours]

The appellate court affirmed in totothe decision of the lower court and denied the motion for

reconsideration and the supplemental motion for reconsideration.

Hence, the petitions.

The Issues

In G.R. No. 137775, the grounds for review raised by petitioner FGU can be summarized into two: 1)

Whether or not respondent Court of Appeals committed grave abuse of discretion in holding FGU liable

under the insurance contract considering the circumstances surrounding the loss of the cargoes; and 2)

Whether or not the Court of Appeals committed an error of law in holding that the doctrine of res

judicataapplies in the instant case.

In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the appellate courtbased on the following assignments of error: 1) The Court of Appeals committed grave abuse of

discretion in affirming the findings of the lower court that the negligence of the crewmembers of the

D/B Lucio was the proximate cause of the loss of the cargoes; and 2) The respondent court acted with

grave abuse of discretion when it ruled that the appeal was without merit despite the fact that said

court had accepted the decision in Civil Case No. R-19341, as affirmed by the Court of Appeals and the

Supreme Court, as res judicata.
http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt4http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt4http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt4


18/45

Ruling of the Court

First, we shall endeavor to dispose of the common issue raised by both petitioners in their respective

petitions for review, that is, whether or not the doctrine of res judicataapplies in the instant case.

It is ANCOs contention that the decision in Civil Case No. R-19341,5which was decided in its favor,

constitutes res judicatawith respect to the issues raised in the case at bar.

The contention is without merit. There can be no res judicataas between Civil Case No. R-19341 and the

case at bar. In order for res judicatato be made applicable in a case, the following essential requisites

must be present: 1) the former judgment must be final; 2) the former judgment must have been

rendered by a court having jurisdiction over the subject matter and the parties; 3) the former judgment

must be a judgment or order on the merits; and 4) there must be between the first and second action

identity of parties, identity of subject matter, and identity of causes of action.6

There is no question that the first three elements of res judicata as enumerated above are indeed

satisfied by the decision in Civil Case No. R-19341. However, the doctrine is still inapplicable due to theabsence of the last essential requisite of identity of parties, subject matter and causes of action.

The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant while in the instant

case, SMC is the plaintiff and the Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed

Ang and Co To as defendants, with the latter merely impleading FGU as third-party defendant.

The subject matter of Civil Case No. R-19341 was the insurance contract entered into by ANCO, the

owner of the vessel, with FGU covering the vessel D/B Lucio, while in the instant case, the subject

matter of litigation is the loss of the cargoes of SMC, as shipper, loaded in the D/B Lucio and the

resulting failure of ANCO to deliver to SMCs consignees the lost cargo. Otherwise stated, the

controversy in the first case involved the rights and liabilities of the shipowner vis--visthat of the

insurer, while the present case involves the rights and liabilities of the shipper vis--visthat of the

shipowner. Specifically, Civil Case No. R-19341 was an action for Specific Performance and Damages

based on FGU Marine Hull Insurance Policy No. VMF-MH-13519 covering the vessel D/B Lucio, while the

instant case is an action for Breach of Contract of Carriage and Damages filed by SMC against ANCO

based on Bill of Lading No. 1 and No. 2, with defendant ANCO seeking reimbursement from FGU under

Insurance Policy No. MA-58486, should the former be held liable to pay SMC.

Moreover, the subject matter of the third-party complaint against FGU in this case is different from that

in Civil Case No. R-19341. In the latter, ANCO was suing FGU for the insurance contract over the vessel

while in the former, the third-party complaint arose from the insurance contract covering the cargoeson board the D/B Lucio.

The doctrine of res judicataprecludes the re-litigation of a particular fact or issue already passed upon

by a court of competent jurisdiction in a former judgment, in another action between the same parties

based on a different claim or cause of action. The judgment in the prior action operates as estoppel only

as to those matters in issue or points controverted, upon the determination of which the finding or
http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt5http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt5http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt5http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt6http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt6http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt6http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt6http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt5


19/45

judgment was rendered.7If a particular point or question is in issue in the second action, and the

judgment will depend on the determination of that particular point or question, a former judgment

between the same parties or their privies will be final and conclusive in the second if that same point or

question was in issue and adjudicated in the first suit.8

Since the case at bar arose from the same incident as that involved in Civil Case No. R-19341, onlyfindings with respect to matters passed upon by the court in the former judgment are conclusive in the

disposition of the instant case. A careful perusal of the decision in Civil Case No. R-19341 will reveal that

the pivotal issues resolved by the lower court, as affirmed by both the Court of Appeals and the

Supreme Court, can be summarized into three legal conclusions: 1) that the D/B Lucio before and during

the voyage was seaworthy; 2) that there was proper notice of loss made by ANCO within the

reglementary period; and 3) that the vessel D/B Lucio was a constructive total loss.

Said decision, however, did not pass upon the issues raised in the instant case. Absent therein was any

discussion regarding the liability of ANCO for the loss of the cargoes. Neither did the lower court pass

upon the issue of the alleged negligence of the crewmembers of the D/B Lucio being the cause of the

loss of the cargoes owned by SMC.

Therefore, based on the foregoing discussion, we are reversing the findings of the Court of Appeals that

there is res judicata.

Anent ANCOs first assignment of error, i.e., the appellate court committed error in concluding that the

negligence of ANCOs representatives was the proximate cause of the loss, said issue is a question of

fact assailing the lower courts appreciation of evidence on the negligence or lack thereof of the

crewmembers of the D/B Lucio. As a rule, findings of fact of lower courts, particularly when affirmed by

the appellate court, are deemed final and conclusive. The Supreme Court cannot review such findings on

appeal, especially when they are borne out by the records or are based on substantial evidence.9

As heldin the case of Donato v. Court of Appeals,10in this jurisdiction, it is a fundamental and settled rule that

findings of fact by the trial court are entitled to great weight on appeal and should not be disturbed

unless for strong and cogent reasons because the trial court is in a better position to examine real

evidence, as well as to observe the demeanor of the witnesses while testifying in the case .11

It is not the function of this Court to analyze or weigh evidence all over again, unless there is a showing

that the findings of the lower court are totally devoid of support or are glaringly erroneous as to

constitute palpable error or grave abuse of discretion.12

A careful study of the records shows no cogent reason to fault the findings of the lower court, as

sustained by the appellate court, that ANCOs representatives failed to exercise the extraordinary

degree of diligence required by the law to exculpate them from liability for the loss of the cargoes.

First, ANCO admitted that they failed to deliver to the designated consignee the Twenty Nine Thousand

Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra.
http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt7http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt7http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt7http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt8http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt8http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt8http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt9http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt9http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt9http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt10http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt10http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt10http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt11http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt11http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt11http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt12http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt12http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt12http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt12http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt11http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt10http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt9http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt8http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt7


20/45

Second, it is borne out in the testimony of the witnesses on record that the barge D/B Lucio had no

engine of its own and could not maneuver by itself. Yet, the patron of ANCOs tugboat M/T ANCO left it

to fend for itself notwithstanding the fact that as the two vessels arrived at the port of San Jose,

Antique, signs of the impending storm were already manifest. As stated by the lower court, witness Mr.

Anastacio Manilag testified that the captain or patron of the tugboat M/T ANCO left the barge D/B Lucio

immediately after it reached San Jose, Antique, despite the fact that there were already big waves and

the area was already dark. This is corroborated by defendants own witness, Mr. Fernando Macabueg.13

The trial court continued:

At that precise moment, since it is the duty of the defendant to exercise and observe extraordinary

diligence in the vigilance over the cargo of the plaintiff, the patron or captain of M/T ANCO,

representing the defendant could have placed D/B Lucio in a very safe location before they left knowing

or sensing at that time the coming of a typhoon. The presence of big waves and dark clouds could have

warned the patron or captain of M/T ANCO to insure the safety of D/B Lucio including its cargo. D/B

Lucio being a barge, without its engine, as the patron or captain of M/T ANCO knew, could not possibly

maneuver by itself. Had the patron or captain of M/T ANCO, the representative of the defendants

observed extraordinary diligence in placing the D/B Lucio in a safe place, the loss to the cargo of the

plaintiff could not have occurred. In short, therefore, defendants through their representatives, failed to

observe the degree of diligence required of them under the provision of Art. 1733 of the Civil Code of

the Philippines.14

Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the contention of

respondents SMC and FGU that "the crewmembers of D/B Lucio should have left port at the onset of the

typhoon is like advising the fish to jump from the frying pan into the fire and an advice that borders on

madness."15

The argument does not persuade. The records show that the D/B Lucio was the only vessel left at San

Jose, Antique, during the time in question. The other vessels were transferred and temporarily moved to

Malandong, 5 kilometers from wharf where the barge remained.16Clearly, the transferred vessels were

definitely safer in Malandong than at the port of San Jose, Antique, at that particular time, a fact which

petitioners failed to dispute

ANCOs arguments boil down to the claim that the loss of the cargoes was caused by the typhoon

Sisang, a fortuitous event (caso fortuito), and there was no fault or negligence on their part. In fact,

ANCO claims that their crewmembers exercised due diligence to prevent or minimize the loss of the

cargoes but their efforts proved no match to the forces unleashed by the typhoon which, in petitionersown words was, by any yardstick, a natural calamity, a fortuitous event, an act of God, the

consequences of which petitioners could not be held liable for.17

The Civil Code provides:
http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt13http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt13http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt13http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt14http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt14http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt14http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt15http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt15http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt15http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt16http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt16http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt16http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt17http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt17http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt17http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt17http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt16http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt15http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt14http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt13


21/45

Art. 1733. Common carriers, from the nature of their business and for reasons of public policy are bound

to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers

transported by them, according to all the circumstances of each case.

Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735, and

1745 Nos. 5, 6, and 7 . . .

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,

unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

. . .

Art. 1739. In order that the common carrier may be exempted from responsibility, the natural disaster

must have been the proximate and only cause of the loss. However, the common carrier must exercise

due diligence to prevent or minimize loss before, during and after the occurrence of flood, storm, or

other natural disaster in order that the common carrier may be exempted from liability for the loss,

destruction, or deterioration of the goods . . . (Emphasis supplied)

Caso fortuitoorforce majeure(which in law are identical insofar as they exempt an obligor from

liability)18by definition, are extraordinary events not foreseeable or avoidable, events that could not be

foreseen, or which though foreseen, were inevitable. It is therefore not enough that the event should

not have been foreseen or anticipated, as is commonly believed but it must be one impossible to

foresee or to avoid.19

In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it

unavoidable. In fact, the other vessels in the port of San Jose, Antique, managed to transfer to anotherplace, a circumstance which prompted SMCs District Sales Supervisor to request that the D/B Lucio be

likewise transferred, but to no avail. The D/B Lucio had no engine and could not maneuver by itself.

Even if ANCOs representatives wanted to transfer it, they no longer had any means to do so as the

tugboat M/T ANCO had already departed, leaving the barge to its own devices. The captain of the

tugboat should have had the foresight not to leave the barge alone considering the pending storm.

While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, ANCO

could not escape liability to respondent SMC. The records clearly show the failure of petitioners

representatives to exercise the extraordinary degree of diligence mandated by law. To be exempted

from responsibility, the natural disaster should have been the proximate and only cause of the loss.

20

There must have been no contributory negligence on the part of the common carrier. As held in the case

of Limpangco Sons v. Yangco Steamship Co.:21

. . . To be exempt from liability because of an act of God, the tug must be free from any previous

negligence or misconduct by which that loss or damage may have been occasioned. For, although the

immediate or proximate cause of the loss in any given instance may have been what is termed an act of
http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt18http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt18http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt18http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt19http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt19http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt19http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt20http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt20http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt20http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt21http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt21http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt21http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt21http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt20http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt19http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt18


22/45

God, yet, if the tug unnecessarily exposed the two to such accident by any culpable act or omission of its

own, it is not excused.22

Therefore, as correctly pointed out by the appellate court, there was blatant negligence on the part of

M/T ANCOs crewmembers, first in leaving the engine-less barge D/B Lucio at the mercy of the storm

without the assistance of the tugboat, and again in failing to heed the request of SMCs representativesto have the barge transferred to a safer place, as was done by the other vessels in the port; thus, making

said blatant negligence the proximate cause of the loss of the cargoes.

We now come to the issue of whether or not FGU can be held liable under the insurance policy to

reimburse ANCO for the loss of the cargoes despite the findings of the respondent court that such loss

was occasioned by the blatant negligence of the latters employees.

One of the purposes for taking out insurance is to protect the insured against the consequences of his

own negligence and that of his agents. Thus, it is a basic rule in insurance that the carelessness and

negligence of the insured or his agents constitute no defense on the part of the insurer.23This rule

however presupposes that the loss has occurred due to causes which could not have been prevented by

the insured, despite the exercise of due diligence.

The question now is whether there is a certain degree of negligence on the part of the insured or his

agents that will deprive him the right to recover under the insurance contract. We say there is. However,

to what extent such negligence must go in order to exonerate the insurer from liability must be

evaluated in light of the circumstances surrounding each case. When evidence show that the insureds

negligence or recklessness is so gross as to be sufficient to constitute a willful act, the insurer must be

exonerated.

In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,

24

the United States Supreme Courtheld that:

The ordinary negligence of the insured and his agents has long been held as a part of the risk which the

insurer takes upon himself, and the existence of which, where it is the proximate cause of the loss, does

not absolve the insurer from liability. But willful exposure, gross negligence, negligence amounting to

misconduct, etc., have often been held to release the insurer from such liability.25[Emphasis ours]

. . .

In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the owners of an

insured vessel attempted to put her across the bar at Hatteras Inlet. She struck on the bar and waswrecked. The master knew that the depth of water on the bar was such as to make the attempted

passage dangerous. Judge Clifford held that, under the circumstances, the loss was not within the

protection of the policy, saying:

Authorities to prove that persons insured cannot recover for a loss occasioned by their own wrongful

acts are hardly necessary, as the proposition involves an elementary principle of universal application.

Losses may be recovered by the insured, though remotely occasioned by the negligence or misconduct
http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt22http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt22http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt22http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt23http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt23http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt23http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt24http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt24http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt24http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt25http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt25http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt25http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt25http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt24http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt23http://www.lawphil.net/judjuris/juri2005/mar2005/gr_137775_2005.html#fnt22


23/45

of the master or crew, if proximately caused by the perils insured against, because such mistakes and

negligence are incident to navigation and constitute a part of the perils which those who engage in such

adventures are obliged to incur; but it was never supposed that the insured could recover indemnity for a

loss occasioned by his own wrongful act or by that of any agent for whose conduct he was responsible.26

[Emphasis ours]

From the above-mentioned decision, the United States Supreme Court has made a distinction between

ordinary negligence and gross negligence or negligence amounting to misconduct and its effect on the

insureds right to recover under the insurance contract. According to the Court, while mistake and

negligence of the master or crew are incident to navigation and constitute a part of the perils that the

insurer is obliged to incur, such negligence or recklessness must not be of such gross character as to

amount to misconduct or wrongful acts; otherwise, such negligence shall release the insurer from

liability under the insurance contract.

In the case at bar, both the trial court and the appellate court had concluded from the evidence that the

crewmembers of both the D/B Lucio and the M/T ANCO were blatantly negligent. To wit:

There was blatant negligenceon the part of the employees of defendants-appellants when the patron

(operator) of the tug boat immediately left the barge at the San Jose, Antique wharf despite the looming

bad weather. Negligence was likewise exhibited by the defendants-appellants representative who did

not heed Macabuags request that the barge be moved to a more secure place. The prudent thing to do,

as was done by the other sea vessels at San Jose, Antique during the time in question, was to transfer

the vessel to a safer wharf. The negligence of the defendants-appellants is proved by the fact that on 01

October 1979, the only simple vessel left at the wharf in San Jose was the D/B Lucio.27[Emphasis ours]

As stated earlier, this Court does not find any reason to deviate from the conclusion drawn by the lower

court, as sustained by the Court of Appeals, that ANCOs representatives had failed to exerciseextraordinary diligence required of common carriers in the shipment of SMCs cargoes. Such blatant

negligence being the proximate cause of the loss of the cargoes amounting to One Million Three

Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00)

This Court, taking into account the circumstances present in the instant case, concludes that the blatant

negligence of ANCOs employees is of such gross character that it amounts to a wrongful act which must

exonerate FGU from liability unde

insurance loss and notice of loss

Documents