Multi-Ware Manufacturing, Corporation vs. Cibeles Insurance Corporation

The "other insurance clause" in a fire insurance policy requires the insured to disclose all other insurance policies covering "any of the property" insured, and the term "property" is a generic term that includes machinery and equipment; non-disclosure of co-existing policies covering the same subject matter, interest, and risk results in forfeiture of all benefits under the policy.

Multi-Ware Manufacturing Corporation is a domestic corporation engaged in the manufacture of plastic products. Between December 1999 and early 2000, it procured multiple fire insurance policies from several insurers — Western Guaranty Corporation, Cibeles Insurance Corporation, and Prudential Guarantee Corp. — covering machinery, equipment, tools, spare parts, accessories, and stocks located at the PTA Compound in Valenzuela, Metro Manila. Each policy contained a uniform "other insurance clause" (Policy Condition No. 3) requiring the insured to give notice of any other insurance effected covering the insured property, with forfeiture of all benefits as the consequence of non-disclosure. The dispute arose when the insurers denied Multi-Ware's claims after a fire, citing violation of Policy Condition No. 3 among other grounds.

Multi-Ware Manufacturing Corporation is a domestic corporation engaged in the manufacture of various plastic products. On December 14, 1999, it took out Fire Policy Insurance No. 50-118320 from Western Guaranty Corporation in the amount of ₱10,000,000.00, covering pieces of machinery and equipment, tools, spare parts, and accessories stored at Buildings 1 and 2 of the PTA Compound at No. 26 Isidro Francisco Street, Malinta, Valenzuela, Metro Manila. On February 20, 2000, Multi-Ware secured another fire insurance policy from Cibeles Insurance Corporation under Fire Insurance Policy No. 80-43032 for ₱7,000,000.00, covering machinery and equipment, tools, spare parts, and accessories excluding mould, as well as stocks of manufactured goods and/or goods still in process, raw materials, and supplies found in Building 1 of the same PTA Central Warehouse Compound. Subsequently, Multi-Ware also obtained Fire Insurance Policy Nos. FLMLAY 00000174NA and FLMLAY 00000284NA from Prudential Guarantee Corp., covering the same machinery and equipment located at Building 1 of the PTA Compound.

On April 21, 2000, a fire broke out in the PTA Compound, causing damage and loss to the properties covered by the fire insurance policies. Multi-Ware filed insurance claims with Cibeles Insurance and Western Guaranty, but both were denied on the ground of violation of Policy Condition Nos. 3 (non-disclosure of co-insurance), 15 (fraudulent claims), and 21 (arson). Having been denied payment, Multi-Ware filed separate civil actions against the two insurance companies before the RTC of Manila, which were eventually consolidated for trial.

The RTC found that the machinery and equipment subject of the four insurance policies from the three insurers were one and the same properties, considering that all were located in Building 1 within the PTA Compound. The RTC held that Multi-Ware's failure to disclose to Western Guaranty and Cibeles Insurance the fire insurance policies it procured from Prudential Guarantee — and vice versa — constituted a violation of Policy Condition No. 3, warranting forfeiture of all benefits. The CA affirmed this finding on appeal.

• Scope of Policy Condition No. 3: Petitioner insisted that there was no violation of Policy Condition No. 3 when it did not disclose the existence of other insurance policies covering its machinery and equipment, since the condition only prohibits non-disclosure of co-insurance on stocks in trade, goods in process, and inventories — not on machinery and equipment.
• Insufficiency of Evidence on Identity of Properties: Petitioner contended that the insurers failed to prove by preponderance of evidence that the insurance policies covered the same subject matter, arguing that the lower courts' finding that the insured properties were identical because they were located in the same place was unsubstantiated and grounded entirely on surmises or conjectures.

• Applicability of Policy Condition No. 3 to Machinery and Equipment: Whether Policy Condition No. 3, the "other insurance clause," applies to machinery and equipment, or is limited to stocks in trade, goods in process, and inventories.
• Violation of Policy Condition No. 3: Whether petitioner violated Policy Condition No. 3 by failing to disclose the existence of other insurance policies covering the same property, resulting in avoidance of the policies.

• Applicability of Policy Condition No. 3 to Machinery and Equipment: Yes. Policy Condition No. 3's reference to "any of the property" insured is a generic term that includes machinery and equipment, even though the clause specifically enumerates "stocks in trade, goods in process and/or inventories."
• Violation of Policy Condition No. 3: Yes. Petitioner procured fire insurance policies from three different insurers covering the same machinery and equipment located in the same building within the PTA Compound without disclosing the other policies, constituting a violation that results in forfeiture of all benefits under the policies.

• Applicability of Policy Condition No. 3 to Machinery and Equipment: The text of Policy Condition No. 3 obligates the insured to notify the insurer of any insurance effected covering "any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured." Although the clause does not specifically state "machinery and equipment," the phrase "any of the property" is a generic term broad enough to include machinery and equipment, which are assets susceptible of being insured. The disclosure obligation therefore extends to all insured property, not merely the enumerated categories. The rationale behind the "other insurance" clause, as explained in Geagonia vs. Court of Appeals, is to prevent over-insurance and avert the perpetration of fraud — when a property owner obtains policies from two or more insurers in a total amount exceeding the property's value, the insured may be induced to destroy the property to collect the insurance.

• Violation of Policy Condition No. 3: For a violation to exist, the other existing but undisclosed policies must be upon the same matter, with the same interest and risk. The records established that the policies from Cibeles Insurance, Western Guaranty, and Prudential Guarantee uniformly covered fire losses of petitioner's machinery and equipment. The RTC correctly found that the properties subject of all four policies were one and the same, as they were all located in Building 1 within the PTA Compound. Petitioner failed to adduce adequate proof that the buildings or warehouses referred to in each policy pertained to distinct and separate structures. The factual findings of the trial court, as affirmed by the appellate court, are accorded the highest degree of respect and are conclusive between the parties, and none of the recognized exceptions — such as findings grounded on speculation, manifestly mistaken inferences, grave abuse of discretion, or misappreciation of facts — were present. The non-disclosure of the co-existing policies was therefore fatal to petitioner's right to recover.

• Other Insurance Clause (Policy Condition No. 3) — A condition in fire insurance policies requiring the insured to give notice to the insurer of any other insurance already effected or subsequently effected covering the insured property. Non-disclosure results in forfeiture of all benefits under the policy, provided the total insurance in force at the time of loss does not exceed ₱200,000.00 (in which case the clause does not apply). For a violation to exist, the undisclosed policies must cover the same matter, the same interest, and the same risk. The clause's purpose is to prevent over-insurance and avert fraud, as an insured whose total coverage exceeds the property's value may be tempted to destroy the property to collect insurance proceeds.

• Finality of Factual Findings of Trial Courts — Factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are considered conclusive between the parties, subject to recognized exceptions: (1) findings grounded entirely on speculation, surmises, or conjectures; (2) inference from factual findings that is manifestly mistaken, absurd, or impossible; (3) grave abuse of discretion in appreciation of facts; (4) appellate findings going beyond the issues or failing to notice relevant facts that would justify a different conclusion; (5) misappreciation of facts; and (6) findings that are conclusions without mention of specific evidence, premised on absence of evidence, or contradicted by evidence on record.

• "The word 'property' is a generic term. Hence, it could include machinery and equipment which are assets susceptible of being insured. Inasmuch as machinery and equipment are included under the term 'property', petitioner must give notice to the insurer of any other fire insurance policies on said machinery and equipment." — This passage articulates the ratio decidendi on the scope of Policy Condition No. 3, establishing that the generic term "property" extends the disclosure obligation beyond the specifically enumerated categories of stocks in trade, goods in process, and inventories.

• "To be regarded as a violation of Policy Condition No. 3, the other existing but undisclosed policies must be upon the same matter and with the same interest and risk." — This defines the elements required for a finding of violation of the other insurance clause, setting the standard that the undisclosed policies must cover the same subject matter, interest, and risk.

• "The rationale behind the incorporation of 'other insurance' clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance." — This passage, drawn from Geagonia vs. Court of Appeals, explains the doctrinal purpose of the other insurance clause and is frequently cited in insurance law jurisprudence.

• American Home Assurance Company vs. Chua, 368 Phil. 555 (1999) — Cited as controlling authority for the proposition that where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure thereof is a violation entitling the insurer to avoid the policy. This condition is common in fire insurance policies and is known as the "other insurance clause."

• Geagonia vs. Court of Appeals, 311 Phil. 152 (1995) — Cited for the rationale behind the "other insurance" clause: to prevent over-insurance and avert fraud by removing the insured's inducement to destroy over-insured property.

• Philippine Health-Care Providers, Inc. (MAXICARE) vs. Estrada, 566 Phil. 603, 609-610 (2008) — Cited for the doctrine on the finality of trial court factual findings when affirmed by the appellate court, including the enumeration of exceptions. This case itself cited Ilao-Quianay vs. Mapile, 510 Phil. 736 (2005).

• Policy Condition No. 3 (Other Insurance Clause), Fire Insurance Policies — Requires the insured to give notice to the insurer of any insurance already effected or subsequently effected covering any of the insured property, particularly stocks in trade, goods in process, and/or inventories. Non-disclosure results in forfeiture of all benefits, unless the total insurance in force at the time of loss does not exceed ₱200,000.00. The Court interpreted "any of the property" as a generic term encompassing machinery and equipment, extending the disclosure obligation beyond the enumerated categories.

• Section 50, Insurance Code — Referenced in Policy Condition No. 3 as the statutory basis for the requirement that particulars of other insurance be stated in or endorsed on the policy.

Leonen (Chairperson), Inting, Delos Santos, and J. Lopez, JJ., concurred.