COMMREV

Exception to the Coverage of the Insurance Policy

SUMMARY

Arsenia Castor, nag-enter into a contract of insurance with Alpha Insurace involving her motor vehicle, a Toyota Revo DLX
DSL. Nung April 16, 2007, inutusan niya yung driver na si Lanuza na dalhin sa auto-shop yung sasakyan for tune up. After
non, di na binalik ni driver Lanuza yung carumba at hindi na mahanap nina Castor. So nagdemand na for insurance
proceeds sina Castor. Pero wititit nakakuha dahil Alpha Insurance denied the claim at sinasabing ang pagnanakaw ni
driver ng sasakyan ay under the exceptions sa contract.

DOCTRINE

The words "loss" and "damage" mean different things in common ordinary usage. The word "loss" refers to the act or fact
of losing, or failure to keep possession, while the word "damage" means deterioration or injury to property.

A contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations on
liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation.

Nature of the case: Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision and
Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 93027.

FACTS
On February 21, 2007, respondent entered into a contract of insurance with petitioner, involving her motor vehicle, a
Toyota Revo DLX DSL. The contract of insurance obligates the petitioner to pay the Castor the amount of ₱630,000.00 in
case of loss or damage to said vehicle during the period covered, which is from Feb. 26, 2007 to Feb. 26, 2008.

On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza, to bring the above-
described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor vehicle to
respondent and despite diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of the said loss and demanded payment of the
insurance proceeds in the total sum of ₱630,000.00. In a letter dated July 5, 2007, petitioner denied the insurance claim of
respondent, stating among others:

That upon verification of the documents submitted, particularly the Police Report and Affidavit, which states that
the culprit, who stole the insured unit, is employed with you. We would like to invite you on the provision of the
Policy under Exceptions to Section-III, which we quote:

1.) The Company shall not be liable for: (4) Any malicious damage caused by the Insured, any member of his
family or by "A PERSON IN THE INSURED’S SERVICE."

In view of the foregoing, we regret that we cannot act favorably on your claim.

In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the exception refers to
damage of the motor vehicle and not to its loss. However, petitioner’s denial of respondent’s insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the Regional Trial
Court (RTC) of Quezon City on September 10, 2007. The RTC ruled in favor of the respondent. Aggrieved, petitioner filed
an appeal with the CA. On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision.
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a Resolution dated August
10, 2011.
ISSUE
Whether or not the loss of respondent’s vehicle is excluded under the insurance policy- NO
RATIO
Significant portions of Section III of the Insurance Policy states:

SECTION III – LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Schedule Vehicle and its accessories
and spare parts whilst thereon:

(a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear
and tear;
(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
(c) by malicious act;
(d) whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland waterway, lift or
elevator.

EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:

• Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and every loss for each
and every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the Insured’s estimate of Fair Market
Value as shown in the Policy Schedule with a minimum deductible amount of Php3,000.00;
• Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;
• Damage to tires, unless the Schedule Vehicle is damaged at the same time;
• Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service.

In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of
"Exceptions to Section III," means loss due to injury or harm to person, property or reputation, and should be construed
to cover malicious "loss" as in "theft." Thus, it asserts that the loss of respondent’s vehicle as a result of it being stolen by
the latter’s driver is excluded from the policy.

Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy subject of this
case. This is evident from the very provision of Section III – "Loss or Damage." The insurance company, subject to the
limits of liability, is obligated to indemnify the insured against theft. Said provision does not qualify as to who would
commit the theft. Thus, even if the same is committed by the driver of the insured, there being no categorical declaration
of exception, the same must be covered. As correctly pointed out by the plaintiff, "An insurance contract should be
interpreted as to carry out the purpose for which the parties entered into the contract which is to insure against risks of
loss or damage to the goods. Such interpretation should result from the natural and reasonable meaning of language in
the policy. Where restrictive provisions are open to two interpretations, that which is most favorable to the insured is
adopted." Moreover, 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. Accordingly, in interpreting the exclusions in an insurance contract,
the terms used specifying the excluded classes therein are to be given their meaning as understood in common speech.

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary usage. The word
"loss" refers to the act or fact of losing, or failure to keep possession, while the word "damage" means deterioration or
injury to property. Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under
paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious damage," or more specifically, "injury"
to the motor vehicle caused by a person under the insured’s service. Paragraph 4 clearly does not contemplate "loss of
property," as what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the exceptions from
coverage, is the damage that is the direct result from the deliberate or willful act of the insured, members of his family,
and any person in the insured’s service, whose clear plan or purpose was to cause damage to the insured vehicle for
purposes of defrauding the insurer.

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations
on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation.
Thus, in Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance Company, this Court ruled – it
must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of
the insured and strictly against the insurer in order to safeguard the latter’s interest.
RULING
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the Decision
dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of Appeals are hereby AFFIRMED.

SO ORDERED.
Marlo