General Insurance and Surety Corporation vs. Ng Hua

The annotation "Co-Insurance Declared — NIL" in a fire insurance policy constitutes a warranty that the property was not insured by any other policy, and the insured's failure to disclose or endorse a subsequently procured insurance policy on the same property results in the forfeiture of all benefits under the policy.

General Insurance and Surety Corporation issued a fire insurance policy to Ng Hua, the owner of the Central Pomade Factory, covering the stock in trade of the factory. The policy included a stipulation requiring the insured to declare any other insurances covering the same property and to have them endorsed on the policy, with the penalty of forfeiture for non-compliance. The dispute arose when the insured property was destroyed by fire the day after the policy was issued, and the insured sought indemnity while concealing the existence of a separate fire insurance policy from another company covering the same goods.

On April 15, 1952, General Insurance and Surety Corporation issued Policy No. 471, insuring against fire for one year the stock in trade of the Central Pomade Factory owned by Ng Hua. The policy covered damages up to ₱10,000.00. The following day, the Pomade factory building burned, resulting in the destruction of the insured properties. Ng Hua claimed indemnity from the insurer, and after some negotiations and upon the suggestion of the Manila Adjustment Company, he reduced his claim to ₱5,000.00.

The insurer refused to pay for various reasons, including action not filed in time, violation of warranty, submission of a fraudulent claim, and failure to pay the premium. The policy contained a stipulation on its back requiring the insured to give notice of any other insurances already affected or subsequently effected covering the same property. Unless such notice was given and the particulars stated in or endorsed on the policy before the occurrence of any loss or damage, all benefits under the policy would be forfeited. The face of the policy bore the annotation "Co-Insurance Declared — NIL."

It was undisputed that Ng Hua had obtained fire insurance on the same goods, for the same period, in the amount of ₱20,000.00 from General Indemnity Co. The Court of Appeals, referring to the annotation, overruled the insurer's defense, holding that there was no violation of the co-insurance clause because co-insurance exists only when a condition of the policy requires the insured to bear a ratable proportion of the loss when the value of the insured property exceeds the face value of the policy. Ng Hua also alleged that General Insurance had actual knowledge of the other insurance policy, but he did not specify when such knowledge was acquired or imparted, and the Court of Appeals found no evidence of such knowledge before the issuance of the policy or the fire.

• Prescription and Breach of Warranty: Petitioner insisted on its defenses of prescription and breach of warranty, arguing that the insured violated the policy's stipulation regarding the declaration of other insurances.
• Co-Insurance as Warranty: Petitioner argued that the annotation "Co-Insurance Declared — NIL" must be deemed a warranty that the property was not insured by any other policy, and that the violation of this warranty entitled the insurer to rescind the contract.
• Forfeiture of Benefits: Petitioner maintained that because the other insurance policy was not stated in or endorsed on Policy No. 471, all benefits under the policy were forfeited according to the policy's express terms.

• Definition of Co-Insurance: Respondent argued that there was no violation of the co-insurance clause because co-insurance exists only when the policy requires the insured to bear a ratable proportion of the loss when the value of the insured property exceeds the face value of the policy.
• Actual Knowledge: Respondent alleged that General Insurance had actual knowledge of the fact that he had taken out additional insurance with General Indemnity Co., which should overcome the insurer's defense of concealment or breach of warranty.

• Co-Insurance and Warranty: Whether the annotation "Co-Insurance Declared — NIL" constitutes a warranty that the property was not insured by any other policy.
• Forfeiture of Benefits: Whether the failure to state or endorse the other insurance policy on the face of the policy results in the forfeiture of all benefits under the policy.
• Actual Knowledge: Whether the insurer's actual knowledge of the other insurance policy defeats its defense of concealment or breach of warranty.

• Co-Insurance and Warranty: Yes. The annotation "Co-Insurance Declared — NIL" constitutes a warranty that the property was not insured by any other policy, and its violation entitles the insurer to rescind under Section 69 of the Insurance Act.
• Forfeiture of Benefits: Yes. The failure to state or endorse the other insurance policy on the face of the policy before the loss occurred results in the forfeiture of all benefits under the policy.
• Actual Knowledge: No. The insurer's actual knowledge of the other insurance policy does not defeat its defense because there was no evidence that such knowledge was acquired before the issuance of the policy or before the fire.

• Co-Insurance and Warranty: The Court reasoned that co-insurance is not limited to a condition requiring the insured to bear a ratable proportion of the loss. Other insurers of the same property against the same hazard are also referred to as co-insurers. Considering the terms of the policy requiring the insured to declare other insurances, the annotation "Co-Insurance Declared — NIL" must be deemed a warranty binding on both parties that there were no other insurances on the property. The materiality of non-disclosure of other insurance policies is not open to doubt, and such misrepresentation is fatal. Violation of this warranty entitles the insurer to rescind under Section 69 of the Insurance Act.
• Forfeiture of Benefits: Even if the annotation were overlooked, the insurer would still be free from liability because the policy issued by General Indemnity Co. was not stated in or endorsed on Policy No. 471. The policy expressly stipulated that all benefits under it would be forfeited if such notice and endorsement were not made before the occurrence of any loss or damage.
• Actual Knowledge: To avoid the effect of concealment, the insured alleged actual knowledge on the part of the insurer. However, if the insurer knew of the other insurance before issuing its policy or before the fire, such knowledge might overcome the defense. The Court of Appeals found no evidence of such knowledge, and a review of the stenographic notes revealed only evidence of the existence of the other insurance, not the insurer's knowledge of it before the issuance of the policy or the fire. Furthermore, this concealment was expressly set up as a special defense in the answer, yet the plaintiff did not reply or assert such knowledge in avoidance, rendering the evidence on the point inadmissible under the pleadings.

• Co-Insurance — Co-insurance exists not only when a condition of the policy requires the insured to bear a ratable proportion of the loss when the value of the insured property exceeds the face value of the policy, but also when other insurers of the same property against the same hazard are involved. The Court applied this broader definition to interpret the annotation "Co-Insurance Declared — NIL" as a warranty that no other insurance existed.
• Warranty in Insurance — A warranty is a statement in the policy binding on both insurer and insured. Violation of a warranty entitles the insurer to rescind the contract. The Court held that the annotation constituted a warranty, and the insured's failure to disclose the other insurance policy was a breach that entitled the insurer to rescind under Section 69 of the Insurance Act.
• Concealment of Other Insurance — The materiality of non-disclosure of other insurance policies is not open to doubt. The Court relied on this principle to affirm that the insured's concealment of the separate fire insurance policy was fatal to his claim.

• "And considering the terms of the policy which required the insured to declare other insurances, the statement in question must be deemed to be a statement (warranty) binding on both insurer and insured, that there were no other insurance on the property." — This passage defines the Court's interpretation of the annotation as a warranty, forming the ratio decidendi for the breach of warranty ruling.
• "Furthermore, even if the annotations were overlooked, the defendant insurer would still be free from liability because there is no question that the policy issued by General Indemnity had not been stated in nor endorsed on Policy No. 471 of defendant." — This establishes the alternative ground for the decision, emphasizing the strict enforcement of the policy's forfeiture clause.
• "The materiality of non-disclosure of other insurance policies is not open to doubt." — This is a canonical formulation of the doctrine regarding the materiality of concealment in insurance contracts, frequently cited in subsequent jurisprudence.

• Santa Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329 — Cited as controlling precedent for the proposition that misrepresentation or concealment of other insurance policies is fatal to the insured's claim.

• Section 69, Insurance Act — Provides that a violation of a warranty entitles the insurer to rescind the insurance contract. The Court applied this provision to hold that the insured's breach of the warranty regarding other insurances entitled the insurer to rescind.
• Rule 11, Section 1, Rules of Court — Governs the admissibility of evidence under the pleadings. The Court noted that the insured's failure to assert actual knowledge in avoidance of the insurer's special defense rendered the evidence on that point inadmissible.

Paras, C.J., Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion Reyes, J.B.L., Endencia, and Barrera, JJ.