Sunday, March 11, 2012

Pacific Banking Corporation vs. CA & Oriental Assurance [GR. No. L-41014 28 November 1988]

Facts: An open Fire Policy issued to Paramount Shirt Manufacturing for Php61,000 on the following: stocks, materils, supplies, furniture, fixture, machinery, equipment contained on the 1st to 3rd floors. Insurance is for a year starting  21 OCTOBER 1964. 

Paramount Shirt is debtor of Pacific Banking amounting to Php800,000. Goods in policy were held in trust by Paramount for Pacific under thrust receipts. Fire broke out on 4 January 1964. 

Pacific sent letter of demand to Oriental. Insurance Adjuster of Oriental notified Pacific to submit proof of loss pursuant to Policy Condition 11. Pacific did not accede but asked Insurance Adjuster to verify records form Bureau of Customs. 

Pacific filed for sum of money against Oriental. Oriental alleged that Pacific prematurely filed a suit, for neither filing a formal claim over loss pursuant to policy nor submitting any proof of loss. 

Trial court decided in favor of Pacific. Decision based on technicality. The defense of lack of proof of loss and defects were raised for the 1st time. (On presentation of evidences by Pacific, it was revealed there was violation of Condition No.3, there were undeclared co-insurances under same property –Wellington, Empire, Asian. The only declared co-insurances were Malayan, South Sea, and Victory) 

CA reversed decision. Concealment of other co-insurances is a misrepresentation and can easily be fraud. 

(1) Whether or not unrevealed con-insurances is a violation of Policy Condition No.3 

(2)  Whether or not there was premature filing of action 

(1) Yes. Policy Condition 3 provides that the insured must give notice of any insurance already in effect or subsequently be in effect covering same property being insured. Failure to do so, the policy shall be forfeited. 

Failure to reveal before the loss of the 3 other insurances is a clear misrepresentation or a false declaration. The material fact was asked for but was not revealed. Representations of facts are the foundations of the contract. Pacific itself provided for the evidences in trial court that proved existence of misrepresentation. 

(2) Yes. Policy Condition 11 is a sine qua non requirement for maintaining action. It requires that documents necessary to prove and estimate the loss should be included with notice of loss. Pacific failed to submit formal claim of loss with supporting documents but shifted the burden to the insurance company. Failing to submit claim is failure for insurance company to reject claim. Thus, a lack of cause of action to file suit. 

Furthermore, the mortgage clause in the policy specifically provides that the policy is invalidated by reasons of FRAUD, MISREPRESENTATION and FRAUD. Concealment can easily be fraud or misrepresentation. 

The insured – PARAMOUNT is not entitled to proceeds. Moreso, Pacific as indorsee of policy is not entitled.

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