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H.H. HOLLERO CONSTRUCTION v. GOVERNMENT SERVICE INSURANCE SYSTEM

FACTS:

In April 1988, the petitioner, H.H. Hollero Construction, Inc., entered into a Project Agreement with the Government Service Insurance System (GSIS) for the development of a housing project. As part of the agreement, the petitioner secured Contractors' All Risks (CAR) Insurance policies with the GSIS, which were later reinsured with Pool of Machinery Insurers (Pool). The policies contained provisions on notice of claim, forfeiture of benefits, and reduction of recoverable amount. During the construction, the project was damaged by three typhoons. The petitioner filed claims for indemnity with the GSIS, but the claims were rejected. The GSIS argued that the claims were barred by prescription as the complaint was filed more than one year from the rejection of the claims. However, the Regional Trial Court (RTC) ruled in favor of the petitioner, holding that the average clause provision in the policies was inefficacious and contrary to public policy. The RTC held the GSIS liable for the petitioner's indemnity claims. The GSIS appealed to the Court of Appeals (CA), which set aside the RTC's judgment and dismissed the complaint on the ground of prescription. The petitioner, therefore, filed a petition for review with the Supreme Court to challenge the CA's ruling.

ISSUES:

  1. Whether or not the complaint filed by petitioner is barred by prescription.

RULING:

  1. Yes, the complaint filed by petitioner is barred by prescription. The Court of Appeals correctly ruled that the complaint was filed beyond the twelve-month limitation provided under the insurance policies. The final rejection of the indemnity claims occurred on April 26, 1990 and June 21, 1990, and the complaint was filed on September 27, 1991, which is clearly outside the prescribed period.

PRINCIPLES:

  • The filing of a complaint beyond the prescribed period of limitation results in the barring of the action by prescription.

  • The validity and enforceability of a contract provision, such as the average clause provision in an insurance policy, is a separate and distinct issue that must be resolved on its own merits.