Sunlife Assurance Company of Canada Vs

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SUNLIFE ASSURANCE COMPANY OF CANADA vs. COURT OF APPEALS

G.R. No. 105135, 22 June 1995

FACTS:

Robert John Bacani procured a life insurance contract for himself from petitioner-company, designating his mother

Bernarda Bacani, herein private respondent, as the beneficiary. He was issued a policy valued at P100,000.00 with

double indemnity in case of accidental death. Sometime after, the insured died in a plane crash. Bernarda filed a claim

with petitioner, seeking the benefits of the insurance policy taken by her son. However, said insurance company

rejected the claim on the ground that the insured did not disclose material facts relevant to the issuance of the policy,

thus rendering the contract of insurance voidable. Petitioner discovered that two weeks prior to his application for

insurance, the insured was examined and confined at the Lung Center of the Philippines, where he was diagnosed for

renal failure. The RTC, as affirmed by the CA, this fact was concealed, as alleged by the petitioner. But the fact that was

concealed was not the cause of death of the insured and that matters relating to the medical history of the insured is

deemed to be irrelevant since petitioner waived the medical examination prior to the approval and issuance of the

insurance policy.

ISSUE:

Whether or not the concealment of such material fact, despite it not being the cause of death of the insured, is

sufficient to render the insurance contract voidable

HELD:

YES. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the

other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no

warranty, and which the other has no means of ascertaining.

Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well settled that the

insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure

misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries.

The SC, therefore, ruled that petitioner properly exercised its right to rescind the contract of insurance by reason of

the concealment employed by the insured. It must be emphasized that rescission was exercised within the two-year

contestability period as recognized in Section 48 of The Insurance Code.

WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET ASIDE.

THELMA VDA. DE CANILANG vs. COURT OF APPEALS

G.R. No. 92492, 17 June 1993

FACTS:

Jaime Canilang applied for a non-medical insurance policy with respondent Great Pacific Life Assurance Company

naming his wife, Thelma Canilang as his beneficiary. But he did not disclose the fact that he was diagnosed as suffering

from sinus tachycardia and that he has consulted a doctor twice. Jaime was issued an ordinary life insurance policy

with the face value of P19,700.00.

Jaime died of congestive heart failure, anemia, and chronic anemia. Petitioner widow and beneficiary of the

insured, filed a claim with Great Pacific which the insurer denied upon the ground that the insured had concealed

material information from it. Hence, Thelma filed a complaint against Great Pacific with the Insurance Commission for

recovery of the insurance proceeds.

ISSUE:

Whether or not the non-disclosure of certain facts about the insureds previous health conditions is material to

warrant the denial of the claims of Thelma Canilang

HELD:

YES. The SC agreed with the Court of Appeals that the information which Jaime Canilang failed to disclose was

material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life insurance. Had

Canilang disclosed his visits to his doctor, the diagnosis made and medicines prescribed by such doctor, in the

insurance application, it may be reasonably assumed that Great Pacific would have made further inquiries and would

have probably refused to issue a non-medical insurance policy or, at the very least, required a higher premium for the

same coverage. The materiality of the information withheld by Great Pacific did not depend upon the state of mind of

Jaime Canilang. A mans state of mind or subjective belief is not cap able of proof in our judicial process, except

through proof of external acts or failure to act from which inferences as to his subjective belief may be reasonably

drawn. Neither does materiality depend upon the actual or physical events which ensure. Materiality relates rather to

the probable and reasonable influence of the facts upon the party to whom the communication should have been

made, in assessing the risk involved in making or omitting to make further inquiries and in accepting the application

for insurance; that probable and reasonable influence of the facts concealed must, of course, be determined

objectively, by the judge ultimately.

WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of Appeals dated 16

October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement as to the costs.

EMILIO TAN vs. COURT OF APPEALS

G.R. No. 48049, 29 June 1989

FACTS:

Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of P80,000.00 with respondent

company Philippine American Life Insurance Company. Said application was approved and a corresponding policy

was issued effective November 5, 1973, with petitioners as the beneficiaries.

On April 26, 1975, Tan Lee Siong died of hepatoma. Hence, petitioners filed with respondent company their claim for

the proceeds of the life insurance policy. However, the insurance company denied the said claim and rescinded the

policy by reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan Le

Siong in his application for insurance. The premiums paid on the policy were thereupon refunded.

The petitioners contend that the respondent company no longer had the right to rescind the contract of insurance as

rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement

of action.

ISSUE:

Whether or not the insurance company has the right to rescind the contract of insurance despite the presence of an

incontestability clause

HELD:

YES. The so-called incontestability clause precludes the insurer from raising the defenses of fa lse representations o

concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force

for at least two years during the insureds lifetime. The phrase during the lifetime found in Section 48 of th

Insurance Law simply means that the policy is no longer considered in force after the insured has died. The key

phrase in the second paragraph of Section 48 is for a period of two years.

The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The policy was thus in force for a

period of only one year and five months. Considering that the insured died before the two-year period has lapsed

respondent company is not, therefore, barred from proving that the policy i s void ab initio by reason of the insured

fraudulent concealment or misrepresentation. Moreover, respondent company rescinded the contract of insuranc

and refunded the premiums paid on November 11, 1975, previous to the commencement of this action on Novembe

27, 1975.

WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court of Appeals i

AFFIRMED.

JAMES STOKES vs. MALAYAN INSURANCE CO., INC.

G.R. No. L-34768, 24 February 1984

127 SCRA 766

FACTS:

Daniel Adolfson had a subsisting Malayan car insurance policy with coverage against own damage as well as 3rd party

liability when his car figured in a vehicular accident with another car, resulting to damage to both vehicles. At the time

of the accident, Adolfsons car was being driven by James Stokes, who was authorized to do so by Adolfson. Stokes, a

Irish tourist who had been in the Philippines for only 90 days, had a valid and subsisting Irish drivers license bu

without a Philippine drivers license.

Adolfson filed a claim with Malayan but the latter refused to pay contending that Stokes was not an authorized driver

under the Authorized Driver clause of the insurance policy in relation to Section 21 of the Land Transportation

Office.

ISSUE:

Whether or not Malayan is liable to pay the insurance claim of Adolfson

HELD:

NO. A contract of insurance is a contract of indemnity upon the terms and conditions specified therein. When the

insurer is called upon to pay in case of loss or damage, he has the right to insist upon compliance with the terms of the

contract. If the insured cannot bring himself within the terms and conditions of the contract, he is not entitled as a rule

to recover for the loss or damage suffered. For the terms of the contract constitute the measure of the insurers

liability, and compliance therewith is a condition precedent to the right of recovery.

At the time of the accident, Stokes had been in the Philippines for more than 90 days. Hence, under the law, he could

not drive a motor vehicle without a Philippine drivers license. He was therefore not an authorized driver under th

terms of the insurance policy in question, and Malayan was right in denying the claim of the insured.

Acceptance of premium within the stipulated period for payment thereof, including the agreed period of grace, merel

assures continued effectivity of the insurance policy in accordance with its terms. Such acceptance does not estop th

insurer from interposing any valid defense under the terms of the insurance policy.

The principle of estoppel is an equitable principle rooted upon natural justice which prevents a person from goin

back on his own acts and representations to the prejudice of another whom he has led to rely upon them. The

principle does not apply to the instant case. In accepting the premium payment of the insured, Malayan was not guilty

of any inequitable act or representation. There is nothing inconsistent between acceptance of premium due under an

insurance policy and the enforcement of its terms.

WHEREFORE, the appealed judgment is reversed. The complaint is dismissed. Costs against appellees.

Geagonia v CA G.R. No. 114427 February 6, 1995

Facts:

Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for P100,000.00. The 1 year polic

and covered thestock trading of dry goods.

The policy noted the requirement that

"3. The insured shall give notice to the Company of any insurance or insurances already effected, or which ma

subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in proces

and/or inventories only hereby insured, and unless notice be given and the particulars of such insurance o

insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of

the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited,

provided however, that this condition shall not apply when the total insurance or insurances in force at the time of th

loss or damage is not more than P200,000.00."

The petitioners stocks were destroyed by fire. He then filed a claim which was subsequently denied because th

petitioners stocks were covered by two other fire insurance policies for Php 200,000 issued by PFIC. The basis of th

private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy.


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Geagonia then filed a complaint against the private respondent in the Insurance Commission for the recovery of

P100,000.00 under fire insurance policy and damages. He claimed that he knew the existence of the other two

policies. But, he said that he had no knowledge of the provision in the private respondent's policy requiring him to

inform it of the prior policies and this requirement was not mentioned to him by the private respondent's agent.

The Insurance Commission found that the petitioner did not violate Condition 3 as he had no knowledge of the

existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles w/c procured the

PFIC policies w/o informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable

interest on the stocks.

The Insurance Commission then ordered the respondent company to pay complainant the sum of P100,000.00 with

interest and attorneys fees.

CA reversed the decision of the Insurance Commission because it found that the petitioner knew of the existence of

the two other policies issued by the PFIC.

Issues:

1. WON the petitioner had not disclosed the two insurance policies when he obtained the fire insurance and thereby

violated Condition 3 of the policy.

2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted

Ratio:

1. The court agreed with the CA that the petitioner knew of the prior policies issued by the PFIC. His letter of 18

January 1991 to the private respondent conclusively proves this knowledge. His testimony to the contrary before the

Insurance Commissioner and which the latter relied upon cannot prevail over a written admission made ante litem

motam. It was, indeed, incredible that he did not know about the prior policies since these policies were not new or

original.

2. Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance

policies should be construed most strictly against those for whose benefits they are inserted, and most favorably

toward those against whom they are intended to operate.

With these principles in mind, Condition 3 of the subject policy is not totally free from ambiguity and must be

meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies only to double insurance,

and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained.

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at

the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability

up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale

behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and thus avert the

perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount

that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of

collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would

be profitable to the insured.

Pacific Timber Export Corporation vs Court of Appeals

In 1963, Pacific Timber Export Corporation (PTEC) applied for a temporary marine insurance from Workmens

Insurance Company (WIC) in order for the latter to insure 1,250,000 board feet of logs to be exported to Japan. In

March 1963, WIC issued a cover note to PTEC for the said logs. On April 2, 1963, WIC issued two policies for the logs.

However, the total board feet covered this time is only 1,195,498. On April 4, 1963, while the logs were in transit to

Japan, bad weather prevailed and this caused the loss of 32 pieces of logs.

WIC then asked an adjuster to investigate the loss. The adjuster submitted that the logs lost were not covered by the

two policies issued on April 2, 1963 but said logs were included in the cover note earlier issued.

WIC however denied the insurance claim of PTEC as it averred that the cover note became null and void when the two

policies were subsequently issued. The Court of Appeals ruled that the cover note is void for lack of valuable

consideration as it appeared that no premium payment therefor was made by PTEC.

ISSUE: Whether or not a separate premium is needed for cover notes.

HELD: No. The Cover Note was not without consideration for which the Court of Appeals held the Cover Note as null

and void, and denied recovery therefrom. The fact that no separate premium was paid on the Cover Note before the

loss insured against occurred, does not militate against the validity of PTECs contention, for no such premium could

have been paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars

of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate

premiums are intended or required to be paid on a Cover Note.

At any rate, it is not disputed that PTEC paid in full all the premiums as called for by the statement issued by WIC after

the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by PTEC due on the

insurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy

instead of integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note would

be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere application for insuranc

which is a mere offer.

IVOR ROBERT DAYTON GIBSON, petitioner, v

HON. PEDRO A. REVILLA, in his official capacity as Presiding Judge of Branch XIII, Court of First Instance o

Rizal, and LEPANTO CONSOLIDATED MINING COMPANY, respondents.

G.R. No. L-41432 July 30, 1979

FACTS: Lepanto Consolidated Mining Company filed a complaint against Malayan Insurance Company, Inc. The civ

suit thus instituted by Lepanto against Malayan was founded on the fact that Malayan issued a Marine Open Policy

covering all shipments of copper, gold, and silver concentrates in bulk from Poro, San Fernando, La Union to Tacoma

Washington or to other places in the United States. Thereafter, Malayan obtained reinsurance abroad through

Sedgwick, Collins & Co., Limited, a London insurance brokerage. The Memorandum of Insurance issued by Sedgwick

to Malayan listed three groups of underwriters or reinsurers Lloyds 62.808%, Companies (I.L.U.) 34.705%, Othe

companies 2.487%. At the top of the list of underwriting members of Lloyds is Syndicate No. 448, assuming 2.48% o

the risk assumed by the reinsurer, which syndicate number petitioner Ivor Robert Dayton Gibson claims to be himsel

Petitioner then filed a motion to intervene as defendant, which motion was denied by the lower court.

ISSUE: WON THE LOWER COURT COMMITTED, REVERSIBLE ERROR IN REFUSING THE INTERVENTION OF THE

PETITIONER IN THE SUIT BETWEEN LEPANTO AND MALAYAN COMPANIES.

HELD: No. The respondent Judge committed no error of law in denying petitioners Motion to Intervene and neithe

has he abused his discretion in his denial of petitioners Motion for Intervention. We agree with the holding of th

respondent court that since movant Ivor Robert Dayton Gibson appears to be only one of several re-insurers of the

risks and liabilities assumed by Malayan Insurance Company, Inc., it is highly probable that other re-insurers ma

likewise intervene. If petitioner is allowed to intervene, We hold that there is good and sufficient basis for the Court a

quo to declare that the trial between Lepanto and Malayan would be definitely disrupted and would certainly undulydelay the proceedings between the parties especially at the stage where Lepanto had already rested its case and tha

the issue would also be compounded as more parties and more matters will have to be litigated. In other words, th

Courts discretion is justified and reasonable. We also hold that respondent Judge committed no reversible error i

further sustaining the fourth ground of Lepantos Opposition to the Motion to Intervene that the rights, if any, o

petitioner are not prejudiced by the present suit and will be fully protected in a separate action against him and his

co-insurers by Malayan. Petitioners contention that he has to pay once Malayan is finally adjudged to pay Lepant

because of the very nature of a contract of reinsurance and considering that the re-insurer is obliged to pay as may b

paid thereon (referring to the original policies), although this is subject to other stipulations and conditions of the

reinsurance contract, is without merit. The general rule in the law of reinsurance is that the re-insurer is entitled to

avail itself of every defense which the re-insured (which is Malayan) might urge in an action by the person originally

insured (which is Lepanto). As to the effect of the clause to pay as may be paid thereon contained in petitioners r

insurance contract, Arnould, on the Law of Marine Insurance and Average, 13th Ed., Vol. 1, Section 327, p. 315, states

the rule, this: It has been decided that this clause does not preclude the reinsurer from insisting upon proper proo

that a loss strictly within the terms of the original policy has taken place. This clause does not enable the origina

underwriter to recover from his reinsurer to an extent beyond the subscription of the latter. Wherefore, in view o

the foregoing, the petition is hereby dismissed. No costs.

FINMAN GENERAL ASSURANCE CORPORATION vs.THE HONORABLE COURT OF APPEALS

213 SCRA 493, September 2, 1992

NOCON, J.:

FACTS:

On October 22, 1986, deceased, Carlie Surposa was insured with petitioner Finman Genera

Assurance Corporation with his parents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Cheste

and Clifton, all surnamed, Surposa, as beneficiaries. While said insurance policy was in full force and effect, the

insured, Carlie Surposa, died on October 18, 1988 as a result of a stab wound inflicted by one of the three (3

unidentified men. Private respondent and the other beneficiaries of said insurance policy filed a written notice o

claim with the petitioner insurance company which denied said claim contending that murder and assault are not

within the scope of the coverage of the insurance policy. Private respondent filed a complaint with the Insurance

Commission which rendered a favorable response for the respondent. The appellate court ruled likewise.

Petitioner filed this petition alleging grave abuse of discretion on the part of the appellate court in

applying the principle of "expresso unius exclusio alterius" in a personal accident insurance policy, since deat

resulting from murder and/or assault are impliedly excluded in said insurance policy considering that the cause o

death of the insured was not accidental but rather a deliberate and intentional act of the assailant. Therefore, sai

death was committed with deliberate intent which, by the very nature of a personal accident insurance policy, canno

be indemnified.

ISSUE: Whether or not the insurer is liable for the payment of the insurance premiums

HELD:

Yes, the insurer is still liable.

Contracts of insurance are to be construed liberally in favor of the insured and strictly against th

insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of its beneficiary. Th

terms "accident" and "accidental" as used in insurance contracts have not acquired any technical meaning, and ar

construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean tha

which happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, an

unforeseen. Where the death or injury is not the natural or probable result of the insured's voluntary act, or i

something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within th

protection of the policies insuring against death or injury from accident. In the case at bar, it cannot be pretended tha

Carlie Surposa died in the course of an assault or murder as a result of his voluntary act considering the very nature of


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these crimes. Neither can it be said that where was a capricious desire on the part of the accused to expose his life to

danger considering that he was just going home after attending a festival.

Furthermore, the personal accident insurance policy involved herein specifically enumerated only

ten (10) circumstances wherein no liability attaches to petitioner insurance company for any injury, disability or loss

suffered by the insured as a result of any of the stimulated causes. The principle of " expresso unius exclusio alterius"

the mention of one thing implies the exclusion of another thing is therefore applicable in the instant case since

murder and assault, not having been expressly included in the enumeration of the circumstances that would negate

liability in said insurance policy cannot be considered by implication to discharge the petitioner insurance company

from liability for, any injury, disability or loss suffered by the insured. Thus, the failure of the petitioner insurance

company to include death resulting from murder or assault among the prohibited risks leads inevitably to the

conclusion that it did not intend to limit or exempt itself from liability for such death.

MALAYAN INSURANCE CO., INC., petitioner,

vs. THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO CHOY, SAN LEON RICE MILL,

INC. and PANGASINAN TRANSPORTATION CO., INC., respondents. September 26, 1988

FACTS:

THE PLAYERS:

Sio Choy - registered owner of the Willys Jeep

Malayan Insurance - insurer of the jeep, up to P600 for da mage to the jeep and up to P 20,000 for third-party liability

PANTRANCO (Pangasinan Transit Co.)

San Leon Rice Mill employer of Juan Campollo

Juan Campollo - driver of jeep at the time of accident

Martin Vallejos injured passenger of the jeep

At the time of the accident, Campollo was driving the jeep with Vallejo as the passenger. Travelling at high speed, the

jeep bumped a Pantranco bus which already tried to avoid the jeep by stopping at the shoulder of the national

highway. The accident resulted in the death of the driver, Campollo, and injuries to Vallejo, the passenger.

Vallejo filed an action for damages against Sio Choy, Malayan Insurance, and Pantranco.

Pantranco disclaimed any liability saying it was Campollo who was negligent, and that it exercised the diligence of a

good father of a family in its selection and supervision of its drivers and in the maintenance of its buses.

Sio Choy filed a cross-claim against Malayan.

Malayan filed a cross claim.

TRIAL COURT: Pantranco is free from liability. Sio Choy, Malayan and San Leon Rice Mill are jointly and severally

liable. With respect to Malayan, however, its liability is up to P20,000 only.

COURT OF APPEALS: Affirmed the judgment of the trial court. CA also ruled that, San Leon Rice Mill, Inc. has no

obligation to indemnify or reimburse the petitioner insurance company for whatever amount it has been

ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of insurance between Sio

Choy and the insurance company.

Hence, Malayan appealed to the SC.

ISSUES:

(1) Whether the trial court, as upheld by the Court of Appeals, was correct in Malayan, Sio Choy and San Leon Rice

Mill, Inc. "solidarily liable" to respondent Vallejos. NO.

(2) Whether Malayan is entitled to be reimbursed by San Leon Rice Mill, Inc. for whatever amount Malayan has been

adjudged to pay Vall ejos on its insurance policy. YES.

HELD:

(1) Sio Choy and San Leon Rice Mill are jointly and solidarity liable to Vallejos. Malayan is NOT SOLIDARILY LIABLEWITH THE OTHER TWO.

Sio Choy is liable under 2184 because he is the registered owner of the jeep.

Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who

was in the vehicle, could have, by the use of the due diligence, prevented the misfortune. It is

disputably presumed that a driver was negligent, if he had been found guilty or reckless driving or

violating traffic regulations at least twice within the next preceding two months.

If the owner was not in the motor vehicle, the provisions of Article 2180 are applicable.

San Leon Rice Mill was held liable under 2180 .

Art. 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or

omissions, but also for those of persons for whom one is responsible.

Employers shall be liable for the damages caused by their employees and household helpers acting

within the scope of their assigned tasks, even though the former are not engaged ill any business or

industry.

Sio Choy and San Leon are solidarily liable because of 2194.

Art. 2194. The responsibility of two or more persons who are liable for quasi-delict is solidary.

SC: It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the principal tortfeasors who are

primarily liable to respondent Vallejos. The law states that the responsibility of two or more persons who are liable

for a quasi-delictis solidarily.

On the other hand, the basis of MALAYANs liability is its insurance contract with Sio Choy. If

MALAYAN is adjudged to pay Vallejos in the amount of not more than P20,000.00, this is on account

of its being the insurer of respondent Sio Choy under the third party liability clause included in the

private car comprehensive policy existing between petitioner and respondent Sio Choy at the time of

the complained vehicular accident.

While it is true that where the insurance contract provides for indemnity against liability to third

persons, such third persons can directly sue the insurer, however, the direct liability of the insurer

under indemnity contracts against third party liability does not mean that the insurer can be held

solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is

based on contract; that of the insured is based on tort.

Thus, it would seem that Malayans lia bility is DIRECT by reason of i ts contract with Sio Choy, but it is

NOT SOLIDARY.

(2) Malayan is entitled to re-imbursement from San Leon by virtue of SUBROGATION. Article 1217

says,

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more

solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each,

with the interest for the payment already made. If the payment is made before the debt is due, no

interest for the intervening period may be demanded.

In accordance with Article 1217, MALAYAN, upon payment to Vallejos and thereby becoming the

subrogee of solidary debtor Sio Choy, is entitled to reimbursement from respondent San Leon Rice

Mill, Inc.

The SC summarized it as follows:

To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill, Inc. are

solidarily liable to the respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may

enforce the entire obligation on only one of said solidary debtors. If Sio Choy as solidary debtor is

made to pay for the entire obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is compelled

to pay P20,000.00 of said entire obligation, petitioner would be entitled, as subrogee of Sio Choy as

against San Leon Rice Mills, Inc., to be reimbursed by the latter in the amount of P14,551.50 (which is

1/2 of P29,103.00 ).

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner, vs. HONORABLE COURT OF APPEALS, respondents

G.R. No. L-3184

April 30, 197

LAPULAPU D. MONDRAGON, petitioner, vs. HON. COURT OF APPEALS and NGO HING, respondents. G.R. No. L-31878

April 30, 197

Facts: Respondent Ngo Hing filed an application with petitioner Great Pacific Life Assurance Company (Pacific Life)

for a twenty-year endowment policy in the life of Helen Go, his one year old daughter. Petitioner Lapulapu D

Mondragon, the branch manager, prepared application form using the essential data supplied by respondent. Th

latter paid the annual premium and Mondragon retained a portion of it as his commission. The binding deposit receipt

was issued to respondent. Mondragon wrote his strong recommendation for the approval of the insuranc

application. However, Pacific Life disapproved the application since the plan was not available for minors below 7

years old but it can consider the same under another plan. The non-acceptance of the insurance plan was allegedly no

communicated by Mondragon to respondent. Mondragon again asserted his strong recommendation. Helen Go died o

influenza. Thereupon, respondent sought the payment of the proceeds of the insurance, but having failed in his effor

he filed an action for the recovery of the same. Hence the case at ba

Issue: Whether the binding deposit receipt constituted a temporary contract of the life insurance in question, and thu

negate the claim that the insurance contract was perfected

Held: YES. The provisions printed on the binding deposit receipt show that the binding deposit receipt is intended to

be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1

that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does

not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding

until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is

not insurable according to the standard rates, and the company disapproves the application, the insurance applied for

shall not be in force at any time, and the premium paid shall be returned to the applicant

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely a

acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the

insurance premium and had accepted the application subject for processing by the insurance company; and that the

latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard

rates." Since Pacific Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in question

had never become in force at any time. Upon this premise, the binding deposit receipt is, manifestly, merely

conditional and does not insure outright. Where an agreement is made between the applicant and the agent, no

liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely

conditional, and is subordinated to the act of the company in approving or rejecting the application

Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears repeating that through

the intra-company communication of 30 April 1957, Pacific Life disapproved the insurance application in question on

the ground that it is not offering the 20-year endowment insurance policy to children less than 7 years of age. What it

offered instead is another plan known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the absence of

a meeting of the minds between Pacific Life and Ngo Hing over the 20-year endowment life insurance in the amount o

P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted condition


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stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between

them. Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life.

AMADOR CORPUZ and ROMEO GONZALES vs. EDISON LUGUE and CATHERINE BALUYOT, G.R. No. 137772, July

29, 2005

FACTS: On 14 September 1984, at around 7:15 in the morning, while an Isuzu KC-20 passenger jeep (KC-20), then

being driven by Jimmy Basilio, was traversing the right side of the Roman Highway in Barangay Pias, Orion, Bataan, it

collided with a tanker truck driven by Gerardo Lim, which was then moving from the right shoulder of the

highway. As a consequence of the accident, passengers of the KC-20, including respondent Lugue, suffered physical

injuries. Respondent Lugue then filed an action for damages arising from the vehicular incident before the Balanga,

Bataan RTC, Branch 2, against herein petitioners Amador Corpuz and Romeo Gonzales, owner and driver of the

minibus, respectively, and Oscar Jaring and Gerardo Lim, owner and driver of the tanker truck, respectively. Therein

defendants filed a third-party complaint against Ricardo Santiago and Jimmy Basilio, owner/operator and driver of

the KC-20, respectively.

ISSUE: whether or not the appellate court erred in holding them liable for damages based on the findings of

facts adduced by the trial court.

R U L I NG : it is clear that the proximate cause of the injuries suffered by respondent Lugue was the collision between

the KC-20 and the tanker truck. As correctly pointed out by the lower court, proximate legal cause is that acting first

and producing the injury either immediately or by setting other events in motion, all constituting a natural and

continuous chain of events, each having a close causal connection with its immediate predecessor, the final

event in the chain immediately effecting the injury as a natural and probable result of the cause which first

acted, under such circumstances that the person responsible for the first event should, as an ordinarily prudent and

intelligent person, have reasonable ground to expect at the moment of his act or default that an injury to some person

might probably result therefrom.

This conclusion of the appellate court of recklessness on the part of petitioner Gonzales is, however,

unwarranted. Based on the unchallenged testimony of petitioner Gonzales, he signaled to overtake the KC-20 because

the way was clear. That despite his best effort to do everything to avoid hitting the KC-20, petiti oner failed to do so

because the KC-20 had moved to a position blocking the way of the minibus as a result of the tanker bumping the KC-

20. Furthermore, based on the unrebutted testimony of both Remigio Gervacio and Patrocinio Carillo, at the time

when the minibus hit the KC-20, the former was already moving towards the middle portion of the highway,

occupying the left portion of the road, a little beyond the center line. Certainly, even assuming that petitioner

Gonzales had a few seconds before actual collision, he no longer had any opportunity to avoid it. Petitioner Gonzales

cannot be deemed negligent for failing to prevent the collision even after applying all means available to him within

the few instants when he had discovered the impending peril.

G.R. No. 76145 June 30, 1987

CATHAY INSURANCE CO., petitioner, vs.

HON. COURT OF APPEALS, and REMINGTON INDUSTRIAL SALES CORPORATION, respondents.

FACTS: A complaint was filed by private respondent corporation against petitioner (then defendant) company seeking

collection of the sum of P868,339.15 representing private respondent's losses and damages incurred in a shipment of

seamless steel pipes under an insurance contract in favor of the said private respondent as the insured, consignee or

importer of aforesaid merchandise while in transit from Japan to the Philippines on board vessel SS "Eastern

Mariner." The total value of the shipment was P2,894,463.83 at the prevailing rate of P7.95 to a dollar in June and July

1984, when the shipment was made.

The trial court decided in favor of private respondent corporation by ordering petitioner to pay it the sum of

P866,339.15 as its recoverable insured loss equivalent to 30% of the value of the seamless steel pipes; ordering

petitioner to pay private respondent interest on the aforecited amount at the rate of 34% or double the ceiling

prescribed by the Monetary Board per annum from February 3, 1982 or 90 days from private respondent's

submission of proof of loss to petitioner until paid as provided in the settlement of claim provision of the policy; and

ordering petitioner to pay private respondent certain amounts for marine surveyor's fee, attorney's fees and costs of

the suit.

ISSUE: WON the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of the toll on the cargo of

wind, water, and salt conditions.

RULING: There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of

the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer cannot be held accountable therefor,

We would fail to observe a cardinal rule in the interpretation of contracts, namely, that any ambiguity therein should

be construed against the maker/issuer/drafter thereof, namely, the insurer. Besides the precise purpose of insuring

cargo during a voyage would be rendered fruitless. Be it noted that any attack of the 15-day clause in the policy was

foreclosed right in the pre-trial conference.

G.R. No. L-36480 May 31, 1988

ANDREW PALERMO,plaintiff-appellee, vs. PYRAMID INSURANCE CO., INC., defendant- appellant.

FACTS: On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the Court of First Instance of

Negros Occidental against Pyramid Insurance Co., Inc., for payment of his claim under a Private Car Comprehensive

Policy MV-1251 issued by the defendant (Exh. A).

In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it disallowed the claim because at the time of the

accident, the insured was driving his car with an expired driver's license.

After the trial, the courta quo rendered judgment on October 29, 1969 ordering the defendant "to pay the plaintiff the

sum of P20,000.00, value of the insurance of the motor vehicle in question and to pay the costs."

On November 26, 1969, the plaintiff filed a "Motion for Immediate Execution Pending Appeal." It was opposed by the

defendant, but was granted by the trial court on December 15, 1969.

ISSUE: WON plaintiff was not authorized to drive the insured motor vehicle because his driver's license had expired.

RULING: There is no merit in the appellant's allegation that the plaintiff was not authorized to drive the insured

motor vehicle because his driver's license had expired. The driver of the insured motor vehicle at the time of the

accident was, the insured himself, hence an "authorized driver" under the policy.

While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway without a license or

with an expired license, an infraction of the Motor Vehicle Law on the part of the insured, is not a bar to recovery

under the insurance contract. It however renders him subject to the penal sanctions of the Motor Vehicle Law.

The requirement that the driver be "permitted in accordance with the licensing or other laws or regulations to drive

the Motor Vehicle and is not disqualified from driving such motor vehicle by order of a Court of Law or by reason of

any enactment or regulation in that behalf," applies only when the driver" is driving on the insured's order or with hi

permission." It does not apply when the person driving is the insured himself.

G.R. No. L-66935 November 11, 1985

ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber Enterprises and ONG

CHIONG, petitioners,

vs.

HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY CORPORATION, respondent.

GUTIERREZ, JR., J.:

This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court which absolved the

respondent insurance company from liability on the grounds that the vessel carrying the insured cargo was

unseaworthy and the loss of said cargo was caused not by the perils of the sea but by the perils of the ship.

On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier, entered into a contract

with the petitioners whereby the former would load and carry on board its barge Mable 10 about 422.18 cubic meters

of logs from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured the logs against loss for

P100,000.00 with respondent Pioneer Insurance and Surety Corporation (Pioneer).

On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for

carriage and delivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable

10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. As alleged by the

petitioners in their complaint and as found by both the trial and appellate courts, the barge where the logs were

loaded was not seaworthy such that it developed a leak. The appellate court further found that one of the hatches was

left open causing water to enter the barge and because the barge was not provided with the necessary cover or

tarpaulin, the ordinary splash of sea waves brought more water inside the barge.

On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of the

shipment plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to

respondent Pioneer claiming the full amount of P100,000.00 under the insurance policy but respondent refused to

pay on the ground that its hability depended upon the "Total loss by Total Loss of Vessel only". Hence, petitioners

commenced Civil Case No. 86599 against Manila Bay and respondent Pioneer.

After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision reads:

FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:

(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer Insurance and Surety Corporation to pay

plaintiffs, jointly and severally, the sum of P100,000.00;

b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in addition, the sum of P50,000.00, plus

P12,500.00, that the latter advanced to the former as down payment for transporting the logs in question;

(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for lack of merit, but as to its cross

claim against its co-defendant Manila Bay Lighterage Corporation, the latter is ordered to reimburse the former for

whatever amount it may pay the plaintiffs as such surety;

d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed for lack of merit;

e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary damages are ordered dismissed, for lack

of merits; plaintiffs' claim for attorney's fees in the sum of P10,000.00 is hereby granted, against both defendants, wh

are, moreover ordered to pay the costs; and

(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%) from March 25, 1975, until

amount is fully paid.

Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal. According to the

petitioners, the transportation company is no longer doing business and is without funds.

During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part of the logs. The

court ordered them to be sold to the highest bidder with the funds to be deposited in a bank in the name of Civil Case

No. 86599.

On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer from liability after

finding that there was a breach of implied warranty of seaworthiness on the part of the petitioners and that the loss of

the insured cargo was caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the loss is not

covered by the marine insurance policy.

After the appellate court denied their motion for reconsideration, the petitioners filed this petition with the following

assignments of errors:

I

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF MARINE CARGO INSURANCE,

THERE IS A WARRANTY OF SEAWORTHINESS BY THE CARGO OWNER.

II

THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS OF THE CARGO IN THIS CASE WAS

CAUSED BY "PERILS OF THE SHIP" AND NOT BY "PERILS OF THE SEA."

III

THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE RETURN TO PETITIONER OF THE AMOUNT

OF P8,000.00 WHICH WAS DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT WERE

RECOVERED.

In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness provided for in

the Insurance Code refers only to the responsibility of the shipowner who must see to it that his ship is reasonably fit

to make in safety the contemplated voyage.

The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with its

seaworthiness. They argue that a cargo owner has no control over the structure of the ship, its cables, anchors, fuel

and provisions, the manner of loading his cargo and the cargo of other shippers, and the hiring of a sufficient number

of competent officers and seamen. The petitioners' arguments have no merit.

There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to appeal the

questioned decision. However, the petitioners state that Manila Bay has ceased operating as a firm and nothing may

be recovered from it. They are, therefore, trying to recover their losses from the insurer.


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The liability of the insurance company is governed by law. Section 113 of the Insurance Code provides:

In every marine insurance upon a ship or freight, or freightage, or upon any thing

which is the subject of marine insurance, a warranty is implied that the ship is

seaworthy.

Section 99 of the same Code also provides in part.

Marine insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...

From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be the subject of

marine insurance and that once it is so made, the implied warranty of seaworthiness immediately attaches to whoever

is insuring the cargo whether he be the shipowner or not.

As we have ruled in the case ofGo Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40):

The same conclusion must be reached if the question be discussed with reference to the seaworthiness of the ship. It

is universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a

warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted in

our own Insurance Law (Act No. 2427, sec. 106). ...

Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine

insurance and may not be used by him as a defense in order to recover on the marine insurance policy.

As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, I nc., Co. (136 U.S. 406):

There was no look-out, and both that and the rate of speed were contrary to the Canadian Statute. The exception of

losses occasioned by unseaworthiness was in effect a warranty that a loss should not be so occasioned, and whether

the fact of unseaworthiness were known or unknown would be immaterial.

Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it

becomes the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy

condition. The shipper of cargo may have no control over the vessel but he has full control in the choice of the

common carrier that will transport his goods. Or the cargo owner may enter into a contract of insurance which

specifically provides that the insurer answers not only for the perils of the sea but also provides for coverage of perils

of the ship.

We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated by the private

respondents:

In marine cases, the risks insured against are "perils of the sea" (Chute v. North River Ins. Co., Minn 214 NW 472, 55

ALR 933). The purpose of such insurance is protection against contingencies and against possible damages and such a

policy does not cover a loss or injury which must inevitably take place in the ordinary course of things. There is no

doubt that the term 'perils of the sea' extends only to losses caused by sea damage, or by the violence of the elements,

and does not embrace all losses happening at sea. They insure against losses from extraordinary occurrences only,

such as stress of weather, winds and waves, lightning, tempests, rocks and the like. These are understood to be the

"perils of the sea" referred in the policy, and not those ordinary perils which every vessel must encounter. "Perils of

the sea" has been said to include only such losses as are of extraordinarynature, or arise from some overwhelming

power, which cannot be guarded against by the ordinary exertion of human skill and prudence. Damage done to a

vessel by perils of the sea includes every species of damages done to a vessel at sea, as distinguished from the

ordinary wear and tear of the voyage, and distinct from injuries suffered by the vessel in consequence of her not being

seaworthy at the outset of her voyage (as in this case). It is also the general rule that everything which happens thru

the inherent vice of the thing, or by the act of the owners, master or shipper, shall not be reputed a peril, if not

otherwise borne in the policy. (14 RCL on Insurance, Sec. 384, pp. 1203- 1204; Cia. de Navegacion v. Firemen's Fund

Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459).

With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was caused by the perils

of the sea, not by the perils of the ship because as found by the trial court, the barge was turned loose from the tugboat

east of Cabuli Point "where it was buffeted by storm and waves." Moreover, petitioners also maintain that barratry,

against which the cargo was also insured, existed when the personnel of the tugboat and the barge committed a

mistake by turning loose the barge from the tugboat east of Cabuli Point. The trial court also found that the stranding

and foundering of Mable 10 was due to improper loading of the logs as well as to a leak in the barge which constituted

negligence.

On the contention of the petitioners that the trial court found that the loss was occasioned by the perils of the sea

characterized by the "storm and waves" which buffeted the vessel, the records show that the court ruled otherwise. It

stated:

xxx xxx xxx

... The other affirmative defense of defendant Lighterage, 'That the supposed loss of the logs was occasioned by force

majeure... "was not supported by the evidence. At the time Mable 10 sank, there was no typhoon but ordinary strong

wind and waves, a condition which is natural and normal in the open sea. The evidence shows that the sinking of

Mable 10 was due to improper loading of the logs on one side so that the barge was tilting on one side and for that it

did not navigate on even keel; that it was no longer seaworthy that was why it developed leak; that the personnel of

the tugboat and the barge committed a mistake when it turned loose the barge from the tugboat east of Cabuli point

where it was buffeted by storm and waves, while the tugboat proceeded to west of Cabuli point where it was

protected by the mountain side from the storm and waves coming from the east direction. ..."

In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier developed a leak which

allowed water to come in and that one of the hatches of said barge was negligently left open by the person in charge

thereof causing more water to come in and that "the loss of said plaintiffs' cargo was due to the fault, negligence,

and/or lack of skill of defendant carrier and/or defendant carrier's representatives on barge Mable 10."

It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea. The

facts clearly negate the petitioners' claim under the insurance policy. In the case ofGo Tiaoco y Hermanos v. Union Ins.

Society of Canton, supra, we had occasion to elaborate on the term "perils of the ship." We ruled:

It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results from the

natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the negligent failure of

the ship's owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions, is not a

peril of the sea. Such a loss is rather due to what has been aptly called the "peril of the ship." The insurer undertakes

to insure against perils of the sea and similar perils, not against perils of the ship. As was well said by Lord Herschell in

Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C., 503, 509), there must, in order to make the

insurer liable, be some casualty, something which could not be foreseen as one of the necessary incidents of the

adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not against

events which must happen.

In the present case the entrance of the sea water into the ship's hold through the defective pipe already described was

not due to any accident which happened during the voyage, but to the failure of the ship's owner properly to repair a

defect of the existence of which he was apprised. The loss was therefore more analogous to that which directly results

from simple unseaworthiness than to that which result from the perils of the sea.

xxx xxx xxx

Suffice it to say that upon the authority of those cases there is no room to doubt the liability of the shipowner for such

a loss as occurred in this case. By parity of reasoning the insurer is not liable; for generally speaking, the shipowner

excepts the perils of the sea from his engagement under the bill of lading, while this is the very perils against which

the insurer intends to give protection. As applied to the present case it results that the owners of the damaged rice

must look to the shipowner for redress and not to the insurer.

Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of the vessel's crew.

Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or crew in pursuance

of some unlawful or fraudulent purpose without the consent of the owners, and to the prejudice of the owner's

interest." (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on Law of Insurance, 1951, p. 929.)

Barratry necessarily requires a willful and intentional act in its commission. No honest error of judgment or mere

negligence, unless criminally gross, can be barratry. (See Vance on Law of Insurance, p. 929 and cases cited therein.)

In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of the vessel's crew.

There was only simple negligence or lack of skill. Hence, the second assignment of error must likewise be dismissed.

Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00 representing the

amount of the salvaged logs should have been awarded to them. However, this should be deducted from the amounts

which have been adjudicated against Manila Bay Lighterage Corporation by the trial court.

WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of P8,000.00

representing the value of the salvaged logs which was ordered to be deposited in the Manila Banking Corporation in

the name of Civil Case No. 86599 is hereby awarded and ordered paid to the petitioners. The liability adjudged against

Manila Bay Lighterage Corporation in the decision of the trial court is accordingly reduced by the same amount.

SO ORDERED.

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Sunlife Assurance Company of Canada Vs