New Life Enterprises vs. Court of Appeals; G.R. No. 94071. March 31, 1992.

FACTS

Newlife Enterprises insured its stocks with Western Guaranty Corporation, Reliance Surety and Insurance Co., Inc., and Equitable Insurance Corporation. In 1982, the building was gutted by fire where the stocks insured are placed. According to the certification issued the cause of fire was electrical in nature.

After the fire, the petitioner went to the insurance companies to file a claim. Ultimately, the three insurance companies denied plaintiffs’ claim for payment  for breach of policy conditions. It allegedly violated Conditions No. 3 & 27 of the insurance contract where it provides that it must state or endorse thereon the other insurance coverage obtained or subsequently effected on the same stocks.

Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agents knew about the existence of the additional insurance coverage d that they were not informed about the requirement that such other or additional insurance should be stated in the policy, as they have not even read policies

Because of the denial of their claims for payment by the three (3) insurance companies, petitioner filed separate civil actions before RTC. The Court ordered the insurance companies to pay the claims of Newlife. However, the Court of Appeals reversed said judgment of the trial court. 

ISSUE

whether or not Conditions Nos. 3 and 27 of the insurance contracts were violated by petitioners thereby resulting in their forfeiture of all the benefits thereunder.

HELD

YES. The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer any other insurance and its particulars which he may have effected on the same subject matter. The knowledge of such insurance by the insurer’s agents, even assuming the acquisition thereof by the former, is not the “notice” that would estop the insurers from denying the claim. Besides, the so-called theory of imputed knowledge, that is, knowledge of the agent is knowledge of the principal, aside from being of dubious applicability here has likewise been roundly refuted by respondent court whose factual findings we find acceptable.

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the insurer company, yet contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Moreover, obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

When the words and language of documents are clear and plain or readily understandable by an ordinary reader thereof, there is absolutely no room for interpretation or construction anymore. Courts are not allowed to make contracts for the parties; rather, they will intervene only when the terms of the policy are ambiguous, equivocal, or uncertain. parties must abide by the terms of the contract because such terms constitute the measure of the insurer’s liability and compliance therewith is a condition precedent to the insured’s right of recovery from the insurer.

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