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GULF RESORTS v. PHILIPPINE CHARTER INSURANCE CORPORATION

FACTS:

The petitioner, Gulf Resorts Inc., and respondent, Philippine Charter Insurance Corporation, are in a dispute over the interpretation of an insurance policy regarding liability for earthquake damage to petitioner's properties. Petitioner claims that the policy covers all damages caused by earthquake, while respondent argues that its liability is limited to the two swimming pools. The lower court established that the first four insurance policies from 1984-1988 only covered earthquake shock to the two swimming pools. However, a subsequent policy extended earthquake shock coverage for the entire resort. Plaintiff renewed its policy for the period of March 14, 1989, to March 14, 1990, with earthquake shock coverage for the properties included. Plaintiff then insured its properties with defendant, with the condition that the policy wording and rates be copied. Defendant issued a policy covering the period of March 14, 1990, to March 14, 1991, with a premium of only P393.00, but respondent denied the claim, arguing that its coverage only extended to the two swimming pools.

The trial court ruled in favor of the respondent, stating that the policy language was clear and unambiguous, and therefore, only the two swimming pools were insured against earthquake shock. The court ordered respondent to pay petitioner for the damage caused to the swimming pools. Both parties filed appeals with the Court of Appeals, which affirmed the decision of the trial court.

The petitioner argues that the earthquake shock endorsement in the policy covers all insured properties, not just the two swimming pools. Petitioner contends that the qualification referring to the two swimming pools had been deleted in the earthquake shock endorsement and that the parties' contemporaneous and subsequent acts show that earthquake shock coverage was intended to extend to all insured properties. On the other hand, the respondent claims that previous policies only covered the swimming pools for earthquake shock. Respondent asserts that the deletion of the qualification in the policy schedule did not expand the earthquake shock coverage to all of petitioner's properties.

The petitioner alleges that in its policies from 1984 through 1988, the phrase "Item 5 P393,000.00 on the two swimming pools only (against the peril of earthquake shock only)" meant that only the swimming pools were insured for earthquake damage. The same phrase is used in the policies from 1989 to 1990, with the only difference being the designation of the two swimming pools as "Item 3." The petitioner also argues that for the earthquake shock endorsement to be effective, premiums must be paid for all the properties covered.

ISSUES:

  1. Whether the Court of Appeals correctly held that under respondent's Insurance Policy No. 31944, only the two swimming pools, rather than all the properties covered thereunder, are insured against the risk of earthquake shock.

  2. Whether the Court of Appeals correctly denied petitioner’s prayer for damages with interest thereon at the rate claimed, attorney's fees, and expenses of litigation.

RULING:

  1. The Court upheld that under respondent's Insurance Policy No. 31944, only the two swimming pools, rather than all the properties covered thereunder, are insured against the risk of earthquake shock.

  2. The Court upheld the denial of petitioner’s prayer for damages with interest at the rate claimed, attorney's fees, and expenses of litigation because the respondent was not in default due to their willingness to pay for damages to the two swimming pools.

PRINCIPLES:

  • Interpretation of insurance contracts against the drafter: While contracts of adhesion, especially in insurance, are generally interpreted against the drafter, this principle does not hold where the parties clearly understand the terms.

  • Importance of the context and reading the entirety of a policy: Provisions in insurance contracts must be interpreted in conjunction with each other to deduce the intent of the parties.

  • Requirement of Premium Payment: Earthquake shock coverage only extended to the swimming pools as indicated by the specific premium payment designated for this risk.

  • Limits of the "Fine Print" rule: The rule that contracts of adhesion should be interpreted in favor of the insured does not apply if the insured fully understands and assents to the terms of the policy.