Country Bankers Insurance Corporation vs. Lianga Bay and Community Multi-Purpose Cooperative, Inc.

An insurer relying on an exception clause in an insurance policy bears the burden of proving the loss falls within the excepted risk, and such defense cannot be sustained on hearsay evidence.

Respondent Lianga Bay and Community Multi-Purpose Cooperative, Inc. obtained Fire Insurance Policy No. F-1397 from petitioner Country Bankers Insurance Corporation, covering its stocks-in-trade for ₱200,000.00. On July 1, 1989, during the policy period, the respondent's building was destroyed by fire. Respondent filed an insurance claim, but petitioner denied it, citing paragraph 6(d) of the policy conditions which excepts losses caused by "insurrection, rebellion, [or] revolution." Petitioner based its denial on a police spot report and sworn statements indicating that NPA rebels set the fire to obtain provisions.

• The Insurance Contract: Petitioner issued Fire Insurance Policy No. F-1397 in favor of respondent, insuring the latter's stocks-in-trade against fire loss, damage, or liability for ₱200,000.00. The policy was effective from June 20, 1989, to June 20, 1990. The policy contained an exception clause excluding losses occasioned by, among others, "mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power."
• The Fire Incident: On July 1, 1989, at approximately 12:40 a.m., the respondent's building in Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire, resulting in the total loss of its stocks-in-trade, furniture, fixtures, equipment, and records.
• The Claim and Denial: Respondent filed an insurance claim, submitting a Spot Report from Pfc. Arturo V. Juarbal and the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo. Petitioner denied the claim on the ground that the fire was started by NPA rebels, an excepted risk under the policy. This conclusion was drawn from the submitted documents, particularly the Spot Report which stated that investigation revealed the perpetrators were NPA members who wanted canned goods and rice, based on information from Lomocso.

• Excepted Risk: Petitioner argued that the Court of Appeals failed to appreciate the Spot Report and Sworn Statements proving that the loss was caused by NPA rebels, thereby falling under the exception clause of the policy.
• Interest Rate: Petitioner contended that the imposition of 12% interest per annum on the face value of the policy from the filing of the complaint was erroneous.
• Damages and Attorney's Fees: Petitioner asserted that the lower courts erred in holding it liable for actual and exemplary damages, litigation expenses, and attorney's fees.

• Burden of Proof and Admissibility of Evidence: Whether the insurer successfully discharged its burden of proving that the loss falls under an excepted risk, given the nature of the evidence presented.
• Interest Rate: Whether the 12% per annum interest rate imposed on the insurance claim is proper.
• Damages and Attorney's Fees: Whether the awards for actual damages, exemplary damages, litigation expenses, and attorney's fees are proper.

• Burden of Proof and Admissibility of Evidence: The defense of non-coverage based on an exception clause was not established. An insurer relying on an exception in the policy bears the burden of proving that the loss arises from the excepted risk. The evidence presented—Sworn Statements of Lomocso and Urbiztondo and the Spot Report of Pfc. Juarbal—were inadmissible hearsay. The sworn statements were inadmissible because the declarants did not take the witness stand and were thus unavailable for cross-examination. The Spot Report was inadmissible to prove the truth of the statements therein because it failed to satisfy the requisites for entries in official records; the reporting officer lacked personal knowledge of the facts stated and conducted no independent investigation, relying solely on the statement of Lomocso.
• Interest Rate: The 12% interest rate was erroneous and reduced to 6% per annum. An insurance claim does not constitute a loan or forbearance of money, goods, or credit. Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals, when an obligation not constituting a forbearance of money is breached, the interest imposed shall be 6% per annum, computed from the date of filing of the complaint.
• Damages and Attorney's Fees: The awards for actual and exemplary damages, litigation expenses, and attorney's fees were deleted for lack of legal and factual basis. Actual damages cannot be presumed and must be duly proved; the trial court provided no justification or evidentiary basis for the ₱50,000.00 award. Exemplary damages are discretionary and serve as a deterrent, but no cogent reason justified their imposition in this case. Attorney's fees and litigation expenses are the exception rather than the rule, requiring factual and legal justification, which the trial court failed to provide.

• Burden of Proof in Insurance Exceptions — When a risk is excepted by the terms of an insurance policy, the loss from such risk constitutes a defense that the insurer must prove. The insurer bears the burden of establishing that the loss arose from a cause excepted or for which it is not liable.
• Hearsay Rule — A witness can testify only to facts derived from personal perception; out-of-court statements offered for the truth of the matter asserted are inadmissible if the declarant is not presented for cross-examination. This applies equally to oral testimony and written evidence.
• Entries in Official Records — To be admissible as an exception to the hearsay rule, three requisites must concur: (a) the entry was made by a public officer or person enjoined by law; (b) it was made in the performance of official duty; and (c) the officer had sufficient knowledge of the facts stated, acquired personally or through official information. A spot report based merely on hearsay gathered from a bystander fails the third requisite.
• Interest on Non-Forbearance Obligations — When an obligation breached does not constitute a loan or forbearance of money, the legal interest is 6% per annum from the time of judicial or extrajudicial demand.

• "Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview of the exception or limitation set up."
• "A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are derived from his perception."
• "Well-entrenched is the doctrine that actual, compensatory and consequential damages must be proved, and cannot be presumed."

• Eastern Shipping Lines, Inc. v. Court of Appeals and Mercantile Insurance Co., Inc., 234 SCRA 78 (1994) — Followed. Established the guidelines for the application of interest rates, specifically dictating that obligations not constituting a forbearance of money shall incur 6% interest per annum.
• Africa v. Caltex (Phil.), Inc., 16 SCRA 448 (1966) — Followed. Enumerated the three requisites for the admissibility of entries in official records under Section 44 of Rule 130.
• D.M. Consunji, Inc. v. Court of Appeals and Maria J. Juego, G.R. No. 137873 (April 20, 2001) — Cited. Discussed the rationale behind the hearsay rule, emphasizing the lack of oath and cross-examination for out-of-court declarants.

• Section 1, Rule 131, Revised Rules of Court — Requires each party to prove their affirmative allegations by the amount of evidence required by law. Applied to establish that the insurer, asserting non-coverage, carried the burden of proving the excepted risk.
• Section 36, Rule 130, Revised Rules of Court — States that a witness can testify only to those facts which he knows of his personal knowledge. Applied to exclude the sworn statements of Lomocso and Urbiztondo, who did not testify in court.
• Section 44, Rule 130, Revised Rules of Court — Provides that entries in official records made in the performance of duty by a public officer are prima facie evidence of the facts therein stated. Applied to evaluate the admissibility of the police spot report, which was ultimately excluded for failing the personal knowledge requisite.
• Article 2229, Civil Code — Defines exemplary damages as those imposed by way of example or correction for the public good. Applied to delete the award for lack of cogent justification.
• Article 2208, Civil Code — Enumerates the instances where attorney's fees and expenses of litigation may be recovered. Applied to delete the award, the case lacking the factual and legal findings necessary to bring it within the exception.

Bellosillo (Chairman), Mendoza, Quisumbing, and Buena.