J. Reyes
Facts:
Qua owned 4 warehouses used for the storage of copra and hemp. They were insured with the Law Union.
Fire broke out and completely destroyed 3 bodegas. The plaintiff submitted claims totalling P398,562.81. The Insurance Company resisted payment on the grounds that the fire had been deliberately caused by the insured or by other persons in connivance with him.
Que Chee Gan and his brother were tried for arson, but were acquitted by the trial court. As regards the insurance claim, the trial court ruled in favor of Qua and entitled him to recover more than Php 300,000 for indemnities from the insurance company. Hence, the company appealed to the SC.
In its first assignment of error, the insurance company alleged that the trial Court should have held that the policies were avoided for breach of warranty. The contract noted that fire hydrants were required in a particular measurement of space (every 150 feet). Hence, they argued that since the bodegas insured had an external wall perimeter of 500 meters, the appellee should have 11 fire hydrants in the compound, and that he actually had only 2, with a further pair.
Issues:
1. WON the insurance company can void the policies it had issued
2. WON the insured violated the "Hemp Warranty" provisions of the policy against the storage of gasoline
3. WON the insured planned the destruction of the bodega
Held: No. No. No.
Ratio:
1. The insurer, who at the time of issuance, has knowledge of existing facts which would invalidate the contract from the beginning, such constitutes a waiver of conditions in the contract inconsistent with the facts, and the insurer is stopped thereafter from asserting the breach of such conditions. Also, an insurance company intends to executed a valid contract in return for the premium received; and when the policy contains a condition which renders it voidable at its inception, and this result is known to the insurer, it will be presumed to have intended to waive the conditions and to execute a binding contract, rather than to have deceived the insured into thinking he is insured when in fact he is not.
The appellant is barred estoppel to claim violation of the so-called fire hydrants warranty, because it knew the number of hydrants demanded therein never existed from the very beginning and issued the policies.
To allow a company to accept one's money for a policy of insurance which it then knows to be void and of no effect, though it knows as it must, that the assured believes it to be valid and binding, is so contrary to the dictates of honesty and fair dealing, and so closely related to positive fraud, as to the abhorrent to fair-minded men.
The appellant company so worded the policies that while exacting the greater number of fire hydrants and appliances, it kept the premium discount at the minimum of 2 1/2%, thereby giving the insurance company a double benefit. Such abnormal treatment of the insured strongly points at an abuse of the insurance company's selection of the words and terms of the contract, over which it had absolute control.
Receipt of Premiums or Assessments after Cause for Forfeiture Other than Nonpayment. — It is a well settled rule of law that an insurer which with knowledge of facts entitling it to treat a policy as no longer in force, receives and accepts a premium on the policy, estopped to take advantage of the forfeiture. It cannot treat the policy as void for the purpose of defense to an action to recover for a loss thereafter occurring and at the same time treat it as valid for the purpose of earning and collecting further premiums.
Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly interpreted against the party that caused them, the "memo of warranty" invoked by appellant bars the latter from questioning the existence of the appliances called for in the insured premises
2. The ambiguity must be held strictly against the insurer and liberally in favor of the insured, specially to avoid a forfeiture. So long as insurance companies insist upon the use of ambiguous, intricate and technical provisions, which conceal rather than frankly disclose, their own intentions, the courts must, in fairness to those who purchase insurance, construe every ambiguity in favor of the insured.
Appellee admitted that there were 36 cans of gasoline in the building designed. It However, gasoline is not specifically mentioned among the prohibited articles listed in the so-called "hemp warranty." The cause relied upon by the insurer speaks of "oils", and is uncertain because, "Oils" usually mean "lubricants" and not gasoline or kerosene.
If the company intended to rely upon a condition of that character, it ought to have been plainly expressed in the policy.
The contract of insurance is one of perfect good faith not for the insured alone, but equally so for the insurer; in fact, it is mere so for the latter, since its dominant bargaining position carries with it stricter responsibility.
Also, the gasoline kept in Bodega No. 2 was only incidental to his business, being no more than a customary 2 day's supply for the five or six motor vehicles used for transporting of the stored merchandise. "It is well settled that the keeping of inflammable oils on the premises though prohibited by the policy does not void it if such keeping is incidental to the business."
3. It was unlikely that Qua burned the warehouse to defraud the company because he had the resources to pay off the National Bank in a short time. Also, no motive appears for attempt to defraud the insurer. While the acquittal of the insured in the arson case is not res judicata on the present civil action, the insurer's evidence, to judge from the decision in the criminal case, is practically identical in both cases and must lead to the same result, since the proof to establish the defense of connivance at the fire in order to defraud the insurer "cannot be materially less convincing than that required in order to convict the insured of the crime of arson."
As to the defense that the burned bodegas could not possibly have contained the quantities of copra and hemp stated in the fire claims, the insurer relied on its adjuster investigator who examined the premises during and after the fire. His testimony, however, was based on inferences from the photographs and traces found after the fire, and must yield to the contradictory testimony of those who actually saw the contents of the bodegas shortly before the fire, while inspecting them for the mortgagee Bank.
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