Pioneer Insurance and Surety vs. Yap, 61 SCRA 426 (1974)

DOCTRINE

A condition in the policy which requires the insured to disclose to the insurer of any insurance that, if violated by the insured, would ipso facto avoid the contract

Respondent Oliva Yap was the owner of a store in a two- storey building located at No. 856 Juan Luna Street, Manila, where in 1962 she sold shopping bags and footwear, such as shoes, sandals and step-ins. Chua Soon Poon, Oliva Yap’s son-in-law, was in charge of the store. 

On April 19, 1962, Yap took out Fire Insurance Policy No. 4216 from  Pioneer Insurance & Surety Corporation with a face value of P25,000.00 covering her stocks, office furniture, fixtures and fittings of every kind and description.  In the policy, it was stipulated that the Insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited. 

An insurance policy for P20,000.00 issued by the Great American Insurance Company covering the same properties was noted on said policy as co-insurance. 

Still, Oliva Yap took out another fire insurance policy for P20,000.00 covering the same properties, this time from the Federal Insurance Company, Inc., which new policy was, however, procured without notice to and the written consent of petitioner Pioneer Insurance & Surety Corporation and, therefore, was not noted as a co-insurance in Policy No. 4219. 

December 19, 1962, a fire broke out in the building, and the said store was burned. Yap filed an insurance claim, but the same was denied in Pioneer’s letter on the ground of “breach and/or violation of any and/or all terms and conditions of Policy No. 4219. Thus, Yap filed an action before the RTC.

The trial court decided for plaintiff Oliva Yap; and its judgment was affirmed in full by the Court of Appeals.

ISSUE/S:

Whether Pioneer should be absolved from liability on Fire Insurance Policy No. 4219 on account of any violation by Yap of the co-insurance clause therein.

RULING: 

Yes. There was a violation by respondent Oliva Yap of the co- insurance clause contained in Policy No. 4219 that resulted in the avoidance of Pioneer’s liability. The insurance policy for P20,000.00 issued by the Great American Insurance Company covering the same properties of Yap and duly noted on Policy No. 4219 as co-insurance, ceased, by agreement of the parties to be recognized by them as a co-insurance policy. The CA says that the Great American Insurance policy was substituted by the Federal Insurance policy for the same amount, and because it was a mere case of substitution, there was no necessity for its endorsement on Policy No. 4219. This finding, as well as reasoning, suffers from several flaws. There is no evidence to establish and prove such a substitution. If anything was substituted for the Great American Insurance policy, it could only be the Northwest Insurance policy for the same amount of P20,000.00. 

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. The annotation then, must be deemed to be a warranty that the property was not insured by any other policy. Violation thereof entitled the insurer to rescind. The materiality of non-disclosure of other insurance policies is not open to doubt.


The purpose of the terms of the policy which required the insured to declare other insurances 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. According to Justice Story: “The insured has no right to complain, for he assents to comply with all the stipulation on his side, in order to entitle himself to the benefit of the contract, which, upon reason or principle, he has no right to ask the court to dispense with the performance of his own part of the agreement, and yet to bind the other party to obligations, which, but for those stipulations, would not have been entered into.”

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