No fault, Suicide, and Incontestability Clause
G.R. No. 200784 | August 7, 2013
MALAYAN INSURANCE COMPANY, INC., PETITIONER,
vs.
PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
MENDOZA, J.:
DOCTRINE:
FACTS:
On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy to
PAP Co., Ltd. (PAP Co.) for the latter’s machineries and equipment located at Sanyo Precision
Phils. Bldg., PEZA, Rosario, Cavite (Sanyo Building). The insurance, which was for Fifteen
Million Pesos and effective for a period of one (1) year, was procured by PAP Co. for Rizal
Commercial Banking Corporation (RCBC), the mortgagee of the insured machineries and
equipment.
After the passage of almost a year but prior to the expiration of the insurance coverage,
PAP Co. renewed the policy on an "as is" basis. Pursuant thereto, a renewal policy, was issued by
Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998. On October 12, 1997 and
during the subsistence of the renewal policy, the insured machineries and equipment were totally
lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the amount insured.
In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at
the time of the loss, the insured machineries and equipment were transferred by PAP Co. to a
location different from that indicated in the policy. Contesting the denial, PAP Co. argued that
Malayan cannot avoid liability as it was informed of the transfer by RCBC, the party duty-bound
to relay such information. However, Malayan reiterated its denial of PAP Co.’s claim. Distraught,
PAP Co. filed the complaint below against Malayan.
The RTC handed down its decision, ordering Malayan to pay PAP Company Ltd (PAP) an
indemnity for the loss under the fire insurance policy as well as for attorney’s fees. The RTC
explained that Malayan is liable to indemnify PAP for the loss under the subject fire insurance
policy because, although there was a change in the condition of the thing insured as a result of the
transfer of the subject machineries to another location, said insurance company failed to show
proof that such transfer resulted in the increase of the risk insured against. In the absence of proof
that the alteration of the thing insured increased the risk, the contract of fire insurance is not
affected per Article 169 of the Insurance Code.
Not contented, Malayan appealed the RTC decision to the CA. The CA rendered the
assailed decision which affirmed the RTC decision but deleted the attorney’s fees. Malayan also
failed to show that its contractual consent was needed before carrying out a transfer of the insured
properties. Despite its bare claim that the original and the renewed insurance policies contained
provisions on transfer limitations of the insured properties, Malayan never cited the specific
provisions. The CA further stated that even if there was such a provision on transfer restrictions of
the insured properties, still Malayan could not escape liability because the transfer was made
during the subsistence of the original policy, not the renewal policy.
Not in conformity with the CA decision, Malayan filed this petition for review. Malayan
basically argues that it cannot be held liable under the insurance contract because PAP committed
concealment, misrepresentation and breach of an affirmative warranty under the renewal policy
when it transferred the location of the insured properties without informing it. Such transfer
affected the correct estimation of the risk which should have enabled Malayan to decide whether
it was willing to assume such risk and, if so, at what rate of premium. On the other hand, PAP
counters that there is no evidence of any misrepresentation, concealment or deception on its part
and that its claim is not fraudulent.
ISSUE: Whether Malayan can be held liable for the loss of the insured properties under the fire
insurance policy.
RULING: No, Malayan cannot be held liable for the loss of the insured properties under the fire
insurance policy.
It can also be said that with the transfer of the location of the subject properties, without
notice and without Malayan’s consent, after the renewal of the policy, PAP clearly committed
concealment, misrepresentation and a breach of a material warranty. Section 26 of the Insurance
Code provides:
Section 26. A neglect to communicate that which a party knows and ought to communicate,
is called a concealment.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind
a contract of insurance." Moreover, under Section 168 of the Insurance Code, the insurer is entitled
to rescind the insurance contract in case of an alteration in the use or condition of the thing insured.
Section 168 of the Insurance Code provides, as follows:
Section 68. An alteration in the use or condition of a thing insured from that to which it is
limited by the policy made without the consent of the insurer, by means within the control
of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire
insurance.
Accordingly, an insurer can exercise its right to rescind an insurance contract when the
following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.
In the case at bench, all these circumstances are present. It was clearly established that the
renewal policy stipulated that the insured properties were located at the Sanyo factory; that PAP
removed the properties without the consent of Malayan; and that the alteration of the location
increased the risk of loss.
WHEREFORE, the Decision of the CA is hereby REVERSED and SET ASIDE.
