Week 6 Case 16 G.R. No. 156167

Question 1

How should the provisions in an insurance be interpreted?

Answer 1

It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other. All its parts are reflective of the true
intent of the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All the provisions and riders, taken and interpreted together,
indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only. A careful examination of the
premium recapitulation will show that it is the clear intent of the parties to extend earthquake shock coverage only to the two swimming pools. Section 2
(1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

Question 2

What is the definition of a contract of insurance, according to the Insurance Code?

Answer 2

Section 2(1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss,
damage, or liability arising from an unknown or contingent event.

Question 3

What are the elements of an insurance contract?

Answer 3

An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium.

An insurance premium is the consideration paid an insurer for
undertaking to indemnify the insured against a specified peril. In fire, casualty,
and marine insurance, the premium payable becomes a debt as soon as the
risk attaches. In the subject policy, no premium payments were made with
regard to earthquake shock coverage, except on the two swimming pools.
There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This is consistent with the history of
petitioner’s previous insurance policies from AHAC-AIU.

Question 4

What was the significance of attachment of the phrase “Subject
to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock
Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual
Payment Agreement on Long Term Policies “?

Answer 4

Petitioner also cited and relies on the attachment of the phrase “Subject
to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock
Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual
Payment Agreement on Long Term Policies “ to the insurance policy as proof
of the intent of the parties to extend the coverage for earthquake shock.
However, this phrase is merely an enumeration of the descriptive titles of the
riders, clauses, warranties or endorsements to which the policy is subject, as
required under Section 50, paragraph 2 of the Insurance Code.

Question 5

Did the respondent’s subsequent acts give a false assurance to the petitioner?

Answer 5

The Court also rejects petitioner’s contention that respondent’s
contemporaneous and subsequent acts to the issuance of the insurance policy
falsely gave the petitioner assurance that the coverage of the earthquake
shock endorsement included all its properties in the resort. Respondent only
insured the properties as intended by the petitioner. Petitioner’s own witness
testified to this agreement.

The verbal assurances allegedly given by respondent’s representative
Atty. Umlas were not proved. Atty. Umlas categorically denied having given
such assurances.

Finally, petitioner puts much stress on the letter of respondent’s
independent claims adjuster, Bayne Adjusters and Surveyors, Inc. But as
testified to by the representative of Bayne Adjusters and Surveyors, Inc.,
respondent never meant to lead petitioner to believe that the endorsement for
earthquake shock covered properties other than the two swimming pools.

Question 6

Was the general rule that insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly against the insurer company which prepares it applied in this case? Why or why not?

Answer 6

There is no
ambiguity in the terms of the contract and its riders. Petitioner cannot rely on
the general rule that insurance contracts are contracts of adhesion which
should be liberally construed in favor of the insured and strictly against the
insurer company which usually prepares it. A contract of adhesion is one
wherein a party, usually a corporation, prepares the stipulations in the contract,
while the other party merely affixes his signature or his “adhesion” thereto.
Through the years, the courts have held that in these type of contracts, the
parties do not bargain on equal footing, the weaker party’s participation being
reduced to the alternative to take it or leave it. Thus, these contracts are
viewed as traps for the weaker party whom the courts of justice must protect.
Consequently, any ambiguity therein is resolved against the insurer, or
construed liberally in favor of the insured.

Question 7

Was the general rule on contracts of adhesion applicable to the case?

Answer 7

We cannot apply the general rule on contracts of adhesion to the case at
bar. Petitioner cannot claim it did not know the provisions of the policy. From
the inception of the policy, petitioner had required the respondent to copy
verbatim the provisions and terms of its latest insurance policy from AHAC-AIU.
The testimony of Mr. Leopoldo Mantohac, a direct participant in securing the
insurance policy of petitioner, is reflective of petitioner’s knowledge.

Question 8

Why is the fine print or contract of adhesion rule not applied in this case?

Answer 8

Respondent, in compliance with the condition set by the petitioner, copied
AIU Policy No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is
true that there was variance in some terms, specifically in the replacement cost
endorsement, but the principal provisions of the policy remained essentially
similar to AHAC-AIU’s policy. Consequently, we cannot apply the “fine print” or
“contract of adhesion” rule in this case as the parties’ intent to limit the
coverage of the policy to the two swimming pools only is not ambiguous.