Rizal Surety and Insurance Co. vs. CA CASE DIGEST - INSURANCE

 Rizal Surety and Insurance Co. vs. CA, 336 SCRA 12, GR No. 112360, June 18, 2000

Facts:  Rizal Surety & Insurance Company issued Fire Insurance Policy in favor of Transworld Knitting Mills for P1.5M. The same pieces of property insured were also insured with New India Assurance Company, Ltd., (New India). In 1981, fire broke out in the compound of Transworld, razing the middle portion of its four-span building and partly gutting the left and right sections thereof. A two-storey building (behind said four-span building) where fun and amusement machines and spare parts were stored, was also destroyed by the fire.

Transworld filed its insurance claims with Rizal Insurance and New India but to no avail.

Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span building, which was partly burned, and not the damage caused by the fire on the two-storey annex building. CFI ordered Rizal Insurance to pay Transworld the amount of P826,500.00 representing the actual value of the losses suffered by it and with cost against Rizal Insurance. CA modified the lower court's decision by requiring New India to pay P1.8m; and Rizal Surety to pay Transworld P470k based on the actual losses sustained by Transworld in the fire, totalling P2,790,376.00 as against the amounts of fire insurance coverages respectively extended by New India in the amount of P5,800,000.00 and Rizal Surety and Insurance Company in the amount of P1,500,000.00.

Issue: Whether the ambiguity in fire insurance policy should be resolved against Rizal Surety.

Held: YES. The stipulation as to the coverage of the fire insurance policy under controversy has created a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil Code provides that 'The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity." Conformably, it stands to reason that the doubt should be resolved against Rizal Insurance, whose lawyer or managers drafted the fire insurance policy contract under scrutiny.

In Landicho vs. GSIS, as regards insurance policies, in respect of which it is settled that the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved and the reason for this is that the 'insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.'

In Fieldmen's Insurance Company, Inc. vs. Vda. De Songco, where it was held that the "rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence', in contrast to these entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime example) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwary."