Summary: Rizal Surety & Insurance Company vs. Court of Appeals (GR 112360, 18 June 2000)

Rizal Surety & Insurance Company vs. Court of Appeals
[GR 112360, 18 June 2000]
Third Division, Purisima (J): 4 concur

Facts: On 13 March 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially for P1,000,000.00 and eventually increased to P1,500,000.00, covering the period from 14 August 1980 to 13 March 1981. The same pieces of property insured with Rizal Insurance were also insured with New India Assurance Company, Ltd., (New India). On 12 January 1981, fire broke out in the compound of Transworld, razing the middle portion of its four-span building and partly gutting the left and right sections thereof. A two-storey building (behind said four-span building) where fun and amusement machines and spare parts were stored, was also destroyed by the fire. Transworld filed its insurance claims with Rizal Insurance and New India but to no avail. On 26 May 1982, TransWorld brought against the said insurance companies an action for collection of sum of money and damages (Civil Case 46106) before Branch 161 of the then Court of First Instance of Rizal; praying for judgment ordering Rizal Insurance and New India to pay the amount of P2,747,867.00 plus legal interest, P400,000.00 as attorney's fees, exemplary damages, expenses of litigation of P50,000.00 and costs of suit. Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span building, which was partly burned, and not the damage caused by the fire on the two-storey annex building. On 4 January 1990, the trial court rendered its decision; dismissing the case as against New India; ordering Rizal Insurance to pay Transworld the amount of P826,500.00 representing the actual value of the losses suffered by it; and with cost against Rizal Insurance. Both Rizal Insurance and TransWorld went to the Court of Appeals, which came out with its decision of 15 July 1993, modifying the lower court's decision by requiring New India to pay Transworld the amount of P1,818,604.19; and Rizal Surety to pay Transworld P470,328.67, based on the actual losses sustained by Transworld in the fire, totalling P2,790,376.00 as against the amounts of fire insurance coverages respectively extended by New India in the amount of P5,800,000.00 and Rizal Surety and Insurance Company in the amount of P1,500,000.00. On 20 August 1993, from the aforesaid judgment of the Court of Appeals, New India appealed to the Supreme Court theorizing inter alia that the TransWorld could not be compensated for the loss of the fun and amusement machines and spare parts stored at the two-storey building because it (Transworld) had no insurable interest in said goods or items. On 2 February 1994, the Court denied the appeal with finality in GR L-111118 (New India Assurance Company Ltd. vs. Court of Appeals). Rizal Insurance and TransWorld, on the other hand, interposed a Motion for Reconsideration before the Court of Appeals, and on 22 October 1993, the Court of Appeals reconsidered its decision of 15 July 1993, as regards the imposition of interest on the assessment against New India on the amount of P1,818,604.19 and that against Rizal Insurance on the amount of P470,328.67, commences from 26 May 1982 when the complaint was filed until payment is made. The rest of the said decision was retained in all other respects. Rizal Insurance filed the petition for review on certiorari.

Issue [1]: Whether the fire insurance policy litigated upon protected only the contents of the main building (four-span), and did not include those stored in the two-storey annex building; or whether the so called "annex" was not an annex but was actually an integral part of the four-span building and therefore, the goods and items stored therein were covered by the same fire insurance policy.

Held [1]: INCLUDES 2-STORY ANNEX BUILDING. The stipulation in subject fire insurance policy regarding its coverage, reads "contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situated within own Compound." Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit its coverage to what were stored in the four-span building. The two-storey building involved a permanent structure, which adjoins and intercommunicates with the "first right span of the lofty storey building", formed part thereof, and meets the requisites for compensability under the fire insurance policy sued upon. So also, considering that the two-storey building aforementioned was already existing when subject fire insurance policy contract was entered into on 12 January 1981, having been constructed sometime in 1978, Rizal Insurance should have specifically excluded the said two-storey building from the coverage of the fire insurance if minded to exclude the same but it did not, and instead, went on to provide that such fire insurance policy covers the products, raw materials and supplies stored within the premises of Transworld which was an integral part of the four-span building occupied by Transworld, knowing fully well the existence of such building adjoining and intercommunicating with the right section of the four-span building.

Issue [2]: Whether the ambiguity in fire insurance policy should be resolved against Rizal Surety.

Held [2]: YES. The stipulation as to the coverage of the fire insurance policy under controversy has created a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil Code provides that "The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity." Conformably, it stands to reason that the doubt should be resolved against Rizal Insurance, whose lawyer or managers drafted the fire insurance policy contract under scrutiny. Citing the aforecited provision of law in point, the Court in Landicho vs. Government Service Insurance System, ruled that "as regards insurance policies, in respect of which it is settled that the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that the 'insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.' (44 C.J.S., p. 1174)." Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company, Inc. vs. Vda. De Songco, where it was held that the "rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast to these entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime example) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwary."

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