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UNITED MERCHANTS CORPORATION v. COUNTRY BANKERS INSURANCE CORPORATION

FACTS:

The case involves a dispute between United Manufacturing Corporation (UMC) and Central Bankers Insurance Corporation (CBIC) over UMC's claim for fire insurance. UMC claimed that its warehouse, which contained stocks of Christmas lights and other items, was burned down due to arson. UMC presented several witnesses to support its claim, including its Finance Officer, Annie Ebora, who testified about UMC's purchases from local suppliers and its financial records. Another witness, Annie Pabustan, testified that her company provided workers to assemble and pack Christmas lights for UMC. Metropolitan Bank and Trust Company (MBTC) Officer Cesar Martinez also testified that UMC opened letters of credit with MBTC. Ernesto Luna, a delivery checker, affirmed the delivery of UMC's goods to its warehouse. CRM's adjuster, Dominador Victorio, testified that he inspected UMC's warehouse and prepared preliminary reports.

On the other hand, CBIC presented several witnesses of its own, including claims manager Edgar Caguindagan, SEC representative Atty. Ernesto Cabrera, and NBI Investigator Arnold Lazaro. Caguindagan testified that he inspected the burned warehouse, while Cabrera and Lazaro stated that they were hired by Central Surety to investigate the claim and concluded that arson was committed based on their interviews and the presence of blackened surfaces in the warehouse.

The trial court ruled in favor of UMC, ordering CBIC to pay UMC the sum of P43,930,230.00 as indemnity, plus interest, exemplary damages, attorney's fees, and the costs of suit. However, CBIC filed an appeal with the Court of Appeals (CA).

The CA reviewed the evidence and concluded that the fire was intentionally caused. CBIC presented pictures and reports that supported their claim, while UMC failed to provide details regarding the alleged fire accident. The CA also found evidence that UMC's claim was overvalued due to fraudulent transactions. The financial reports of UMC showed significant purchases of stocks-in-trade in 1996 amounting to approximately 20 million pesos within a one-month period. Records also indicated purchases from various suppliers. These facts led the CA to declare that UMC's claim under the insurance policy was void and that the insurance coverage should not be awarded to UMC. The CA deemed UMC's claim as overvalued and supported by fraudulent transactions.

ISSUES:

  1. Whether the Court of Appeals made a ruling inconsistent with law, applicable jurisprudence, and evidence as to the existence of arson and fraud in the absence of "materially convincing evidence."

  2. Whether the Court of Appeals made a ruling inconsistent with law, applicable jurisprudence, and evidence when it found that the petitioner breached its warranty.

RULING:

  1. On the first issue The Supreme Court found that the Court of Appeals did not err in its factual determination. It held that although UMC raised the issue of conflicting findings between the lower courts, making it a valid subject for review, CBIC failed to prove that the loss was caused by arson or that fraud attended the claim, thereby not shifting the burden of proof successfully against the insurer.

  2. On the second issue The Supreme Court upheld the Court of Appeals' finding that UMC breached its warranty due to fraudulent discrepancies in the insurance claim. The Court emphasized that the false and material statements made with the intent to deceive voided the insurance policy.

PRINCIPLES:

  1. Burden of Proof In civil cases, the burden of proof is on the party asserting an affirmative issue. Once a prima facie case is made by the insured, the burden shifts to the insurer to controvert the claim.

  2. Insurance Claims For an insurer to defeat a claim based on exceptions in the policy, it must prove that the loss falls within those exceptions. Mere allegations without solid proof are insufficient.

  3. Fraud in Insurance Claims Fraudulent claims and material misrepresentations in support of insurance claims void the insurance policy. Courts will enforce the terms used by the parties in the insurance contract if they are clear and unambiguous.

  4. Prima Facie Case Once established by presenting requisite evidence, the burden shifts to the opposing party to provide evidence to the contrary.

  5. Hearsay Evidence Hearsay evidence, such as testimonies based on statements from individuals not presented in court, cannot be relied upon to substantiate defenses like fraud or arson unless corroborated by direct proof.

  6. Certification Presumption of Regularity Official certifications, such as those issued by the Bureau of Fire Protection, are presumed regular unless rebutted by competent evidence.

  7. Forfeiture Clauses Provisions in insurance policies stipulating that any fraudulent act or false declaration will void the policy are enforceable.

  8. Discrepancies and Breach of Warranty Discrepancies in claims (especially fraudulent discrepancies) constitute a breach of warranty under insurance policy terms, leading to the forfeiture of all benefits under the policy.

  9. Doctrine of Fraudulent Claims Claims exponentially higher than the actual damage tend to indicate fraudulent intent, especially when supported by fabricated or non-existent documentation.

  10. Contraction Interpretation Insurance contracts are interpreted in favor of the insured and against the insurer, but clear and specific terms must be followed as stipulated by the parties involved.