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Apr 24, 2008

336 SCRA 12 (2000)

  • INSURANCE LAW: Interpretation of Insurance Contracts


Rizal Surety & Insurance Company issued a fire insurance policy in favor of Transworld Knitting Mills, Inc. The subject policy stated that Rizal Surety is “responsible in case of loss whilst contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situated within own Compound xxx.” The policy also described therein the four-span building covered by the same.

On Jan. 12, 1981, fire broke out in the compound, razing the middle portion of its four-span building and partly gutting the left and right sections thereof. A two-storey building (behind said four-span building) was also destroyed by the fire.


  • Whether or not Rizal Surety is liable for loss of the two-storey building considering that the fire insurance policy sued upon covered only the contents of the four-span building


Both the trial court and the CA found that the so-called “annex” as not an annex building but an integral and inseparable part of the four-span building described in the policy and consequently, the machines and spare parts stored therein were covered by the fire insurance in dispute.

So also, considering that the two-storey building aforementioned was already existing when subject fire insurance policy contract was entered into on Jan. 12, 1981, having been constructed some time in 1978, petitioner should have specifically excluded the said two-storey building from the coverage of the fire insurance if minded to exclude the same but if did not, and instead, went on to provide that such fire insurance policy covers the products, raw materials and supplies stored within the premises of Transworld which was an integral part of the four-span building occupied by Transworld, knowing fully well the existence of such building adjoining and intercommunicating with the right section of the four-span building.

Also, in case of doubt in the stipulation as to the coverage of the fire insurance policy, under Art. 1377 of the New Civil Code, the doubt should be resolved against the Rizal Surety, whose layer or managers drafted the fire insurance policy contract under scrutiny.

In Landicho vs. Government Service Insurance System, the Court ruled that “the terms in an insurance policy, which are ambiguous, equivocal or uncertain x x x are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved, and the reason for this is that the insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.”


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