View full case

NEW LIFE ENTERPRISES v. CA

FACTS:

The case involves a business partnership between Julian Sy and Jose Sy Bang, operating under the name New Life Enterprises in Lucena City. Julian Sy insured the stocks in trade of the partnership with three insurance companies: Western Guaranty Corporation, Reliance Surety and Insurance Co., Inc., and Equitable Insurance Corporation. The insurance policies amounted to a total of P1,550,000.00. However, when the building occupied by New Life Enterprises was burned down by fire, the insurance companies denied the claim for payment. The insurance companies cited breach of policy conditions as the reason for the denial.

This case involves insurance contracts issued by respondents Reliance Surety and Insurance Co., Inc. (Reliance), Western Guaranty Corporation (Western), and Equitable Insurance Corporation (Equitable) to petitioners New Life Enterprises, Consolidated Bank and Trust Corporation (Consolidated Bank), and Lucena City. These contracts were entered into for the purpose of insuring stocks in trade, goods in process, and/or inventories.

The insurance policies did not indicate or endorse the other insurance coverage obtained by the insured parties or subsequently effected on the same stocks in trade. This omission is in violation of Condition No. 3 of the insurance policies, which requires the insured to give notice to the company of any other insurance coverage obtained. Failure to comply with this condition results in the forfeiture of all benefits under the policy, unless the total insurance in force at the time of loss or damage does not exceed P200,000.00.

Petitioners argue that they are not at fault for failing to disclose the additional insurance coverage since the insurance agents were already aware of it. They claim that they were not informed about the requirement to include such other insurance coverage in the policy, as they did not even read the policies themselves.

The plaintiffs filed separate civil actions against the insurance companies, which were consolidated for trial. The Regional Trial Court ruled in favor of the plaintiffs, ordering Equitable Insurance Corporation to pay P200,000.00 to New Life Enterprises and Reliance Surety and Insurance Co., Inc. to pay P1,000,000.00 to Julian Sy. The court also awarded attorney's fees and interest on the amounts due.

ISSUES:

  1. Whether the failure of the insured to disclose other insurance coverage in the policy warrants the forfeiture of all benefits under the policy.

  2. Whether the knowledge of the insurer's agents regarding the other insurance coverage is sufficient notice to the insurer.

  3. Whether the insured's failure to disclose other insurances constitutes fraud and misrepresentation.

  4. Whether the total absence of notice of other insurances nullifies the insurance policy.

  5. Whether the right of the insured to file a claim in court is barred by the time constraint provided in the insurance contract.

  6. Whether the filing of a petition for reconsideration tolls the prescriptive period for filing an action for insurance claim.

  7. Whether the lapse of time between the receipt of the insurer's clarificatory letter and the filing of the complaint is a ground for dismissing the claim.

RULING:

  1. Yes, the failure of the insured to disclose other insurance coverage in the policy warrants the forfeiture of all benefits under the policy. The terms of the contract are clear and unambiguous, requiring the insured to disclose any other insurance on the same subject matter. The insured's failure to comply with this requirement constitutes a breach of warranty, which entitles the insurer to rescind the policy.

  2. No, the knowledge of the insurer's agents regarding the other insurance coverage is not sufficient notice to the insurer. The so-called theory of imputed knowledge, that knowledge of the agent is knowledge of the principal, is not applicable in this case. The insured cannot rely on the knowledge of the insurer's agents as a defense for their failure to disclose the other insurance coverage.

  3. Yes, the insured's failure to disclose other insurances constitutes fraud and misrepresentation. The Court held that the insured's failure to reveal other insurances was a false declaration, a clear misrepresentation, and a vital one because it deceived the insurer into entering into the contract. The insured's concrete evidence of fraud or false declaration provided further justification for the forfeiture of benefits under the insurance contracts.

  4. Yes, the total absence of notice of other insurances nullifies the insurance policy. The Court emphasized that the insurance policy explicitly required the insured to give notice of other insurances on the same property. Since the insured failed to provide such notice, the policy was rendered null and void.

  5. Yes, the right of the insured to file a claim in court is barred by the time constraint provided in the insurance contract. The Court rejected the argument that the insured's right to file a claim in court was not barred because the insured sought further information regarding the denial of their claim. The Court cited a previous case which established that the one-year period for claims to be presented after rejection was not a mere procedural requirement, but an essential matter for the prompt settlement of claims. The Court emphasized that the purpose of requiring the filing of an action or suit within one year from the denial of the claim is to ensure that evidence relating to the origin and cause of the destruction is preserved.

  6. The Supreme Court held that the prescription period for filing an action for insurance claim is not tolled by the filing of a petition for reconsideration. In this case, the insured persons' filing of a petition for reconsideration did not suspend the running of the one-year prescriptive period provided by the insurance policy. Furthermore, the Court found that the lapse of time between the receipt of the insurer's clarificatory letter and the filing of the complaint is a ground for dismissing the claim. The one-year prescriptive period had not yet expired, but the insured persons allowed the period to lapse without bringing their action in court. Therefore, the Court ruled that the claim was filed out of time.

PRINCIPLES:

  • Contracts of insurance are to be construed according to the sense and meaning of the terms used by the parties. If the terms are clear and unambiguous, they must be taken and understood in their plain, ordinary, and popular sense.

  • The insured has a duty to exercise ordinary care and prudence in relation to the insurance contract. Failure to read and understand the terms of the policy does not excuse the insured from complying with its provisions.

  • Non-disclosure of other insurance policies is a material misrepresentation that entitles the insurer to rescind the policy. This requirement is aimed at preventing over-insurance and fraud.

  • Failure to disclose other insurances constitutes fraud and misrepresentation.

  • The total absence of notice of other insurances nullifies the insurance policy.

  • The one-year period for filing a claim in court starts to run from the denial of the claim, and the insured's right to file a claim may be barred if they fail to do so within the specified period.

  • The filing of a petition for reconsideration does not toll the prescriptive period for filing an action for insurance claim.

  • The lapse of time between the receipt of the insurer's clarificatory letter and the filing of the complaint may be a ground for dismissing the claim if it causes the claim to be filed out of time.