Pioneer Insurance and Surety Corporation vs. Yap

A clause in a fire insurance policy providing that the procurement of additional insurance without the consent of the insurer renders the policy ipso facto void is valid and enforceable; the insured's failure to notify the insurer of and obtain endorsement for a subsequently procured policy covering the same property forfeits all benefits under the original policy.

Respondent Oliva Yap owned a store on Juan Luna Street, Manila, where she sold shopping bags and footwear. Her son-in-law, Chua Soon Poon, managed the store. On April 19, 1962, Yap obtained Fire Insurance Policy No. 4219 from petitioner Pioneer Insurance and Surety Corporation for P25,000, covering her stocks, office furniture, fixtures, and fittings. The policy contained a co-insurance clause requiring the insured to give notice of any existing or subsequent insurance covering the same property and to have such insurance noted or endorsed on the policy, under penalty of forfeiture of all benefits. At the time Policy No. 4219 was issued, a P20,000 co-insurance policy from Great American Insurance Company covering the same properties was duly noted on the policy.

Respondent Oliva Yap owned a store in a two-storey building at No. 856 Juan Luna Street, Manila, where in 1962 she sold shopping bags and footwear, including shoes, sandals, and step-ins. Her son-in-law, Chua Soon Poon, was in charge of the store. On April 19, 1962, Yap obtained Fire Insurance Policy No. 4219 from petitioner Pioneer Insurance and Surety Corporation with a face value of P25,000, covering her stocks, office furniture, fixtures, and fittings of every kind and description. The policy contained a co-insurance clause requiring the insured to give notice of any existing or subsequent insurance covering the same property, and unless such notice be given and the particulars endorsed on the policy before any loss or damage occurred, all benefits under the policy would be forfeited. The policy further declared that no other insurance was allowed except by the consent of the company endorsed on the policy, and that any false declaration or breach of this condition would render the policy null and void.

At the time Policy No. 4219 was issued, a P20,000 fire insurance policy from Great American Insurance Company covering the same properties was duly noted on the policy as co-insurance. Later, on August 29, 1962, the parties executed an endorsement on Policy No. 4219 declaring that the existing co-insurance was P20,000 from Northwest Insurance, and not as originally stated. According to the stipulation of the parties during the hearing, the Northwest Insurance policy was issued on August 20, 1962. Still later, on September 26, 1962, respondent Yap took out another fire insurance policy for P20,000 covering the same properties, this time from Federal Insurance Company, Inc. This new policy was procured without notice to and the written consent of petitioner Pioneer Insurance and Surety Corporation, and was therefore not noted as a co-insurance in Policy No. 4219.

At dawn on December 19, 1962, a fire broke out in the building housing respondent Yap's store, and the store was burned. Yap filed an insurance claim, but it was denied by petitioner's letter of May 17, 1963 on the ground of breach and/or violation of the terms and conditions of Policy No. 4219. On July 17, 1963, Yap filed a complaint with the Court of First Instance of Manila seeking payment of the face value of her fire insurance policy. Petitioner, in its answer, alleged that no property belonging to Yap and covered by the policy was destroyed by the fire, that the claim was filed out of time, and that Yap took out an insurance policy from another company without petitioner's knowledge or endorsement, in violation of the express stipulations in Policy No. 4219, thereby forfeiting all benefits accruing from the policy.

The trial court decided in favor of respondent Yap, and its judgment was affirmed in full by the Court of Appeals. The Court of Appeals found that the Great American Insurance policy was cancelled on August 29, 1962, and concluded that it had been substituted by the Federal Insurance policy for the same amount, such that there was no increase in the risk assumed by petitioner and no necessity for endorsement on Policy No. 4219. The Court of Appeals further held that petitioner could be deemed to have waived the formal requirement of endorsing the co-insurance policy, citing Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co.

• No Substitution of Policies: Petitioner argued that the Great American Insurance policy was not substituted by the Federal Insurance policy, but rather by the Northwest Insurance policy, as evidenced by the endorsement (Exhibit "1-K") executed on August 29, 1962, which declared the existing co-insurance to be the Northwest Insurance policy. The Federal Insurance policy was therefore additional insurance procured without petitioner's consent.
• Violation of Co-Insurance Clause: Petitioner maintained that respondent Yap's procurement of the Federal Insurance policy without notice to and written consent of petitioner violated the express terms of Policy No. 4219, rendering the policy null and void and forfeiting all benefits thereunder.
• No Waiver: Petitioner contended that there was no basis to imply a waiver of the endorsement requirement, as there was no showing that petitioner was aware of the Federal Insurance policy, and that waiver of a valuable right required a clear, positive act made with full knowledge of the circumstances.
• Other Defenses: Petitioner additionally alleged that no property belonging to Yap covered by the policy was destroyed by the fire, and that Yap's claim was filed out of time.

• Mere Substitution: Respondent argued, as upheld by the Court of Appeals, that the Federal Insurance policy was a mere substitution of the Great American Insurance policy for the same amount of P20,000, and therefore did not increase the risk assumed by petitioner, making endorsement unnecessary.
• Waiver of Endorsement Requirement: Respondent contended that petitioner could be considered to have waived the formal requirement of endorsing the co-insurance policy, since there was no showing that petitioner was unaware of the substitution and preferred to continue the policy, citing Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co.

• Co-Insurance Clause Violation: Whether petitioner should be absolved from liability on Fire Insurance Policy No. 4219 on account of respondent Yap's violation of the co-insurance clause therein by procuring additional insurance from Federal Insurance Company without petitioner's notice or consent.
• Waiver of Endorsement Requirement: Whether petitioner could be deemed to have waived the formal requirement of endorsing the additional insurance policy on Policy No. 4219.

• Co-Insurance Clause Violation: Yes. Respondent Yap violated the co-insurance clause by procuring the Federal Insurance policy without notice to or written consent of petitioner, which ipso facto avoided the contract and forfeited all benefits under the policy.
• Waiver of Endorsement Requirement: No. Waiver of a valuable right must be express or clearly indicative of intent to waive; mere absence of affirmative cancellation by the insurer after notice of other insurance does not constitute waiver, and the burden of proving the insurer's knowledge rested on the insured.

• Co-Insurance Clause Violation: The Court found that the Court of Appeals erred in concluding that the Great American Insurance policy was substituted by the Federal Insurance policy. The endorsement executed on August 29, 1962 (Exhibit "1-K") clearly showed the parties' intention to recognize only the Northwest Insurance policy as the existing co-insurance, the Northwest policy having been issued on August 20, 1962. The Great American policy was cancelled on August 29, 1962, the same date as the endorsement recognizing Northwest Insurance as the co-insurance. There was no evidence to establish that the Federal Insurance policy, taken out on September 26, 1962, was a substitution of the Great American policy. The Federal Insurance policy was therefore additional insurance procured without petitioner's consent. The Court relied on the well-settled validity of clauses providing that additional insurance without the insurer's consent renders the policy ipso facto void, citing foreign jurisprudence (Milwaukee Mechanids' Lumber Co. vs. Gibson; Planters' Mut. Ins. Ass'n vs. Green; Johnson vs. American Fire Ins. Co.) and Philippine precedent (General Insurance & Surety Corporation vs. Ng Hua). The purpose of such clauses is to prevent over-insurance and avert fraud, as a fire should not be profitable to the insured. By the plain terms of the policy, other insurance without consent ipso facto avoided the contract, requiring no affirmative act of election by the insurer.

• Waiver of Endorsement Requirement: The Court rejected the Court of Appeals' finding that petitioner waived the endorsement requirement. The Court of Appeals' reasoning improperly shifted to petitioner the burden of proving its own awareness of the substitution, contrary to Section 1, Rule 131 of the Revised Rules of Court, which requires each party to prove his own allegations. The case relied upon by respondent, Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co., was distinguishable because in that case there was actual knowledge by the insurer of the violations deemed to constitute a breach. A waiver must be express, or if implied from conduct, the conduct must be clearly indicative of a clear intent to waive the right. Especially where a valuable right is at stake, nothing less than a clear, positive waiver made with full knowledge of the circumstances suffices. The insurer's failure to cancel the policy after notice of other insurance did not justify the legal conclusion that it had elected to allow the policy to continue in force.

• Validity of "Other Insurance" Forfeiture Clauses — A clause in a fire insurance policy providing that the procurement of additional insurance without the consent of the insurer renders the policy ipso facto void is valid and enforceable. Such a clause operates automatically upon the occurrence of the specified condition — the procurement of unauthorized additional insurance — and requires no affirmative act of election by the insurer to make it operative. The insurer's obligation ceases unless, being informed of the additional insurance, it consents thereto. The obvious purpose is to prevent over-insurance and avert the perpetration of fraud, as the public and the insurer are interested in preventing situations where a fire would be profitable to the insured.

• Waiver of Insurance Policy Conditions — A waiver of a valuable right under an insurance policy must be express, or if implied from conduct, the conduct must be clearly indicative of a clear, positive intent to waive such right, made with full knowledge of the circumstances. The insurer's mere failure to cancel the policy after notice of other insurance does not constitute waiver or an election to continue the policy in force. The burden of proving the insurer's knowledge and intent to waive rests on the party alleging waiver, pursuant to the rule that each party must prove his own allegations.

• Warranty in Insurance Policies — A statement in an insurance policy regarding the existence or non-existence of other insurance constitutes a warranty binding on both insurer and insured. Violation of such warranty entitles the insurer to rescind, and the materiality of non-disclosure of other insurance policies is not open to doubt.

• "By the plain terms of the policy, other insurance without the consent of petitioner would ipso facto avoid the contract. It required no affirmative act of election on the part of the company to make operative the clause avoiding the contract, wherever the specified conditions should occur. Its obligations ceased, unless, being informed of the fact, it consented to the additional insurance." — This passage articulates the ratio decidendi: the automatic and self-executing nature of the "other insurance" forfeiture clause, requiring no affirmative act by the insurer to trigger avoidance.

• "A waiver must be express. If it is to be implied from conduct mainly, said conduct must be clearly indicative of a clear intent to waive such right. Especially in the case at bar where petitioner is assumed to have waived a valuable right, nothing less than a clear, positive waiver, made with full knowledge of the circumstances, must be required." — This defines the standard for waiver of insurance policy conditions, distinguishing the case from Gonzales La O by emphasizing the necessity of actual knowledge and clear intent.

• "The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the situation in which a fire would be profitable to the insured." — This states the policy rationale underlying "other insurance" clauses, explaining why they are upheld as valid and enforceable.

• Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co., Ltd., 55 Phil. 386 — Cited by respondent and the Court of Appeals to support the finding of waiver, but distinguished by the Supreme Court. In that case, unlike here, there was actual knowledge by the insurer of the violations deemed to constitute a breach, which knowledge and preference to continue the policy amounted to waiver. The Court held the case inapplicable because there was no showing of petitioner's knowledge of the Federal Insurance policy.

• General Insurance & Surety Corporation vs. Ng Hua, 106 Phil. 1117 — Controlling Philippine precedent applied by the Court. The policy in that case contained provisions identical to those in Policy No. 4219. The Court, speaking through Justice Bengson, reversed the Court of Appeals and absolved the insurer, holding that the annotation constituted a warranty that no other insurance existed, violation of which entitled the insurer to rescind under Section 69 of the Insurance Act, and that non-disclosure of other insurance policies was material.

• Santa Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329 — Cited in General Insurance & Surety Corporation vs. Ng Hua for the proposition that misrepresentation regarding other insurance is fatal, and that the materiality of non-disclosure of other insurance policies is not open to doubt.

• Milwaukee Mechanids' Lumber Co. vs. Gibson, 199 Ark. 542, 134 S.W. 2d 521 — Foreign jurisprudence cited for the well-settled rule that a clause in a policy providing that the procurement of additional insurance without the consent of the insurer renders the policy void is a valid provision.

• Planters' Mut. Ins. Ass'n vs. Green, 80 S.W. 151 — Foreign jurisprudence cited for the rule that where a policy contains a clause providing that the policy shall be void if the insured procures any other insurance on the property, the procurement of additional insurance without the insurer's consent avoids the policy.

• Johnson vs. American Fire Ins. Co., 43 N.W. 59 — Foreign jurisprudence cited for the rule that additional insurance, unless consented to or unless waiver is shown, ipso facto avoided the contract, and that the insurer's failure to cancel the policy after notice of such insurance did not justify the conclusion that it had elected to allow it to continue in force.

• Co-Insurance Clause, Policy No. 4219 — The policy required the insured to give notice of any existing or subsequent insurance covering the same property and to have such insurance endorsed on the policy before any loss or damage, under penalty of forfeiture of all benefits. It further declared that no other insurance was allowed except by the insurer's consent endorsed on the policy, and that any breach would render the policy null and void. The Court enforced this clause as written, holding that the procurement of the Federal Insurance policy without notice or consent ipso facto avoided the contract.

• Section 69, Insurance Act — Referenced in General Insurance & Surety Corporation vs. Ng Hua as the statutory basis for the insurer's right to rescind upon violation of a warranty in the insurance policy. The annotation regarding other insurance was deemed a warranty binding on both parties, the violation of which entitled the insurer to rescind.

• Section 1, Rule 131, Revised Rules of Court — Cited for the principle that each party must prove his own allegations. The Court held that the Court of Appeals improperly shifted to petitioner the burden of proving petitioner's own awareness of the alleged substitution, when that proposition was respondent's to prove.

Fernando (Chairman), Barredo, Antonio, and Aquino, JJ., concurred.