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MALAYAN INSURANCE COMPANY v. PAP CO.

FACTS:

Malayan Insurance Company issued Fire Insurance Policy No. F-00227-000073 to PAP Co., Ltd. for machinery and equipment located at Sanyo Precision Phils. Bldg., Cavite. The insurance was valid for one year and was procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC). Before the expiration of the insurance coverage, PAP Co. renewed the policy. However, the insured machinery and equipment were completely lost due to fire on October 12, 1997. Malayan denied the claim, alleging that the insured properties were transferred to a different location without their knowledge. PAP Co. sued Malayan for payment of the insurance claim. The Regional Trial Court (RTC) ruled in favor of PAP Co., ordering Malayan to pay the insurance claim and attorney's fees. Malayan appealed to the Court of Appeals (CA), which affirmed the RTC decision but deleted the attorney's fees.

The case involves an insurance contract between Malayan Insurance Co., Inc. (Malayan) and Philippine Acetylene Company, Inc. (PAP). Malayan issued an insurance policy on May 31, 1996, insuring the properties of PAP located at the Sanyo Building. When the policy expired, another policy was issued on May 14, 1997, which also stated that the insured properties were located at the Sanyo Building. However, during the effectivity of the renewal policy, PAP transferred its properties to the Pace Factory without informing Malayan.

A fire broke out at the Pace Factory on January 10, 1998, causing damage to PAP's insured properties. PAP filed a claim with Malayan, but Malayan denied the claim on the grounds of concealment, misrepresentation, and breach of an affirmative warranty under the insurance policy.

PAP filed a complaint against Malayan to recover the insurance proceeds. The trial court ruled in favor of PAP, holding that Malayan was liable under the insurance contract. The Court of Appeals affirmed the trial court's decision, stating that Malayan did not present evidence to prove that the transfer of the insured properties increased the risk of loss. Malayan filed a petition for review with the Supreme Court.

The Philippine American Life and General Insurance Company (Philamlife) issued an Industrial-Commercial Fire Insurance Policy to RCBC Realty Corporation (RCBC) covering two properties - the Sanyo Factory and the Pace Factory. A few months later, RCBC assigned all its rights and interests in the insurance policy to the Philippine Associated Smelting and Refining Corporation (PASAR). Subsequently, PASAR assigned the policy to the respondent Prestonian Assurance Philippines, Inc. (PAP). PAP then informed Malayan Insurance Co., Inc. (Malayan) that there would be no changes in the original policy, and that the original policy would be renewed on an "as is" basis.

PAP claims that both RCBC and PASAR informed Malayan of the transfer or change of location of the insured properties, and therefore, Malayan had knowledge and consented to such transfer. However, Malayan argues that the transfer is irrelevant and does not bind it because RCBC and PASAR are separate entities with their own juridical personalities.

Malayan asserts that there has been an increase in risk due to the unilateral transfer of the insured properties. It argues that the Sanyo Factory was occupied as a factory of automotive/computer parts and zinc & aluminum die cast and plastic gear for copy machines, while the Pace Factory repacked silicone sealant to plastic cylinders.

PAP, on the other hand, denies any misrepresentation, concealment, or deception on its part. It insists that it can still sue to protect its rights on the policy and claims that the delay in the indemnity payment was without legal justification.

ISSUES:

  1. Whether Malayan Insurance Company, Inc. (Malayan) is liable for the loss of the insured machineries and equipment despite their transfer to a location not indicated in the insurance policy without Malayan's consent.

  2. Whether the Court of Appeals erred in imposing a 12% interest rate per annum on the proceeds of the policy from the time of loss until fully paid.

RULING:

  1. Liability of Malayan Insurance Company, Inc.: The Supreme Court ruled that Malayan Insurance Company, Inc. is not liable for the loss of the insured machineries and equipment. It was held that the removal of the insured property to another location without Malayan's consent constituted concealment, misrepresentation, and breach of warranty, which entitled Malayan to rescind the insurance contract.

  2. Interest Rate: The Court did not need to address the issue of the 12% interest rate per annum on the proceeds of the insurance policy, as it was already decided that Malayan is not liable for the loss.

PRINCIPLES:

  1. Contract of Adhesion: Any ambiguity in an insurance policy, being a contract of adhesion, should be resolved against the party that prepared the contract, which is the insurance company.

  2. Concealment and Misrepresentation: Under Section 27 of the Insurance Code, concealment entitles the injured party to rescind the insurance contract.

  3. Alteration of Risk: According to Section 168 of the Insurance Code, an insurer is entitled to rescind a contract of fire insurance if there is an alteration in the use or condition of the insured property that increases the risk of loss, made without the insurer's consent.

  4. Notice and Consent Requirement: The policy included a condition requiring the insured to obtain the insurer's consent for the removal of the insured property to a different location.

  5. Burden of Proof in Insurance Claims: The insured has the burden of proving that any transfer of the insured property was with the insurer's knowledge and consent.