Gulf Resorts, Inc. vs. Philippine Charter Insurance Corporation

An insurance policy must be interpreted as a whole, and where the premium paid corresponds only to specific items listed for a particular peril, coverage cannot be extended to other items despite a general endorsement clause, especially when the insured dictated the policy terms, rendering the contract of adhesion doctrine inapplicable.

Gulf Resorts, Inc. owned the Plaza Resort in Agoo, La Union, and maintained fire insurance over its properties. From 1984 to 1988, its policies with American Home Assurance Company (AHAC-AIU) explicitly extended earthquake shock coverage only to its two swimming pools, with a corresponding premium of P393.00. In the 1988-1990 policies issued by AHAC-AIU, the qualifying phrase "Item 5 only" was inadvertently deleted from the title of the earthquake shock endorsement, although the premium and item schedule remained unchanged. When Gulf Resorts transferred its insurance to Philippine Charter Insurance Corporation (PCIC) for the 1990-1991 period, it required PCIC to copy the terms of its latest AHAC-AIU policy verbatim. PCIC issued Policy No. 31944 containing an earthquake shock endorsement covering loss to "any of the property insured," but the item schedule and premium recapitulation continued to reflect earthquake shock coverage solely for the two swimming pools at P393.00. After an earthquake struck on July 16, 1990, causing damage to the clubhouse and the swimming pools, Gulf Resorts filed a claim for all damaged properties, which PCIC denied except for the pools.

• Prior Insurance Policies (1984-1988): Gulf Resorts insured its properties with AHAC-AIU. The first four policies explicitly limited earthquake shock coverage to the two swimming pools, denoted as "Item 5 only," with a premium of P393.00.
• AHAC-AIU Policies (1988-1990): In the subsequent two policies, the qualifying phrase "Item 5 only" was deleted from the descriptive title of the earthquake shock endorsement. However, the item schedule still specified that Item 3 (the swimming pools) was the only property insured against earthquake shock, and the premium remained at P393.00. AHAC-AIU's underwriter testified that the deletion was inadvertent and did not broaden coverage.
• PCIC Policy No. 31944 (1990-1991): Gulf Resorts instructed PCIC to copy the provisions of its latest AHAC-AIU policy verbatim. PCIC issued Policy No. 31944. The policy contained an earthquake shock endorsement covering loss or damage to "any of the property insured." However, Item 3 of the policy schedule specified coverage "On the two (2) swimming pools only (against the peril of earthquake shock only)." The premium recapitulation showed a P393.00 premium for earthquake shock (E/S) allocated solely to Item 3.
• The Earthquake and Subsequent Claim: On July 16, 1990, an earthquake damaged the resort's clubhouse and swimming pools. Gulf Resorts filed a formal claim for all damaged properties. PCIC's independent claims adjuster initially requested documents for building claims but later clarified that only the swimming pools had earthquake shock coverage. PCIC denied the claim for the other properties.
• Lower Court Findings: The trial court found that the P393.00 premium paid corresponded solely to the swimming pools, limiting coverage accordingly. The appellate court affirmed, finding no evidence that the previous AHAC-AIU policies or the PCIC policy intended to extend earthquake shock coverage to all properties.

• Wording of the Endorsement: Petitioner argued that the earthquake shock endorsement unqualifiedly covers "any property insured by this policy," making it all-inclusive.
• Deletion of Qualification: The deletion of the phrase limiting coverage to the swimming pools in the endorsement title was intentional and expanded coverage; inadvertence was unbelievable.
• Precedence of the Rider: The endorsement rider, being a more deliberate expression of the parties' agreement, should prevail over the policy's general conditions.
• Contract of Adhesion: Any ambiguity in the endorsement must be resolved against PCIC as the drafter of the contract of adhesion.
• Premium Payment: The premium for earthquake shock coverage was included in the total premium paid; no additional payment was required under the extended coverage.
• Estoppel: PCIC's contemporaneous and subsequent acts—specifically its adjuster requesting documents for building claims—falsely assured petitioner that all properties were covered, thus estopping PCIC from denying coverage.

• Premium Paid as Measure of Coverage: Respondent countered that the P393.00 premium paid was the exact amount historically paid to insure only the two swimming pools against earthquake shock; no premium was paid for the other properties.
• Intent of the Parties: The policy was copied verbatim from AHAC-AIU per petitioner's instruction. AHAC-AIU confirmed the deletion of the qualification was inadvertent and that coverage remained limited to the pools.
• Policy Schedule: Item 3 of the policy schedule explicitly restricted earthquake shock coverage to the two swimming pools, clarifying any ambiguity in the endorsement title.
• No Estoppel: The adjuster's request for documents was made before the adjuster knew the full extent of the policy coverage. No verbal assurances of full coverage were given by PCIC.
• No Basis for Damages: Respondent was willing and able to pay for the damage to the swimming pools; thus, it was not in default and not liable for interest or attorney's fees.

• Scope of Earthquake Shock Coverage: Whether the insurance policy extended earthquake shock coverage to all insured properties or only to the two swimming pools.
• Applicability of Contract of Adhesion Doctrine: Whether ambiguities in the policy should be resolved against the insurer under the contract of adhesion doctrine.
• Award of Damages: Whether petitioner is entitled to damages, interest at the rate claimed, and attorney's fees.

• Scope of Earthquake Shock Coverage: Coverage was restricted to the two swimming pools. An insurance policy must be construed as a whole; its provisions cannot be segregated to control the contract's character. The premium recapitulation and item schedule unequivocally demonstrate that the P393.00 premium was paid solely for earthquake shock on the swimming pools. Because an insurance premium is the consideration paid for the insurer's assumption of risk, coverage cannot extend to properties for which no premium was paid. The deletion of the qualification in the endorsement title was merely inadvertent and did not expand the endorsement's scope, especially since the premium remained unchanged.
• Applicability of Contract of Adhesion Doctrine: The doctrine was held inapplicable. Petitioner dictated the terms of the contract, requiring PCIC to copy the AHAC-AIU policy verbatim. A party that prescribes the stipulations of a contract cannot later claim it lacked bargaining power or was trapped by "fine print."
• Award of Damages: The denial of the 24% interest and other damages was affirmed. Because PCIC expressed its willingness to pay for the damage to the swimming pools, it cannot be considered in default and is not liable for interest on the withheld amounts or attorney's fees.

• Holistic Interpretation of Insurance Policies — All provisions of an insurance policy must be examined and interpreted together to ascertain the true intent of the parties. The policy cannot be construed piecemeal, and particular words or phrases in an endorsement cannot be isolated to control the contract when the item schedule and premium recapitulation indicate a limited scope of coverage.
• Contract of Adhesion — A contract of adhesion is one where a party prepares the stipulations and the other merely affixes their signature. Ambiguities in such contracts are resolved against the drafter. However, this doctrine is inapplicable where the insured dictated the policy terms and required the insurer to copy the provisions of a previous policy verbatim, as the insured is presumed to have assented to the terms with full knowledge.
• Insurance Premium as Measure of Coverage — An insurance premium is the consideration paid for the insurer's undertaking to indemnify against a specified peril. Coverage cannot exceed the consideration paid; where the premium paid corresponds only to specific items listed for a particular peril, coverage is limited to those items.

• "It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each other. All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine its character."
• "We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did not know the provisions of the policy. From the inception of the policy, petitioner had required the respondent to copy verbatim the provisions and terms of its latest insurance policy from AHAC-AIU."

• Development Bank of the Philippines v. National Merchandising Corporation, et al., 40 SCRA 624 (1971) — Distinguished. The Court cited this case to emphasize that where parties are acute businessmen of experience, they are presumed to have assented to the assailed documents with full knowledge, thus precluding blind adherence to the contract of adhesion rule.
• Philamcare Health Systems, Inc. v. Court of Appeals, 379 SCRA 356 (2002) — Followed. Cited for the definition of a contract of insurance under Section 2(1) of the Insurance Code, emphasizing that the payment of a premium is an essential element for the insurer's assumption of risk.

• Section 2(1), Insurance Code — Defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss. Applied to establish that the payment of a premium is an essential element of the insurer's assumption of risk, thereby limiting coverage to the items for which a premium was explicitly paid.
• Section 50, Paragraph 2, Insurance Code — Requires the enumeration of the descriptive titles of riders, clauses, warranties, or endorsements to which the policy is subject. Applied to explain that the phrase "Subject to: Earthquake Shock Endt." in the policy was a mere enumeration of the endorsement's descriptive title as required by law, not an extension of coverage to all insured properties.

Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario.