G.R. No. 147839 - Gaisano Cagayan, Inc. vs. Insurance Company of North America

Intercapitol Marketing Corporation (IMC) and Levi Strauss (Phils.) Inc. (LSPI) separately obtained fire insurance policies with book debt endorsements from Insurance Company of North America (respondent).
The policies covered “book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines.”
“Book debts” were defined as the “unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy.”
Warranties in the policies included:

Non-liability for any unpaid account outstanding more than six months from invoice or delivery.
Submission by the insured to the insurer, within twelve days after each month’s close, of all unpaid receivables.

On February 25, 1991, a fire destroyed the Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano Cagayan, Inc. (petitioner), including stocks of ready-made clothing materials sold and delivered by IMC and LSPI.
Respondent paid IMC’s claim of ₱2,119,205.00 and LSPI’s claim of ₱535,613.00 under their respective policies and was subrogated to their rights against petitioner.
On February 4, 1992, respondent filed a complaint for damages against petitioner to recover the sums it paid IMC and LSPI.

In Civil Case No. 92-322, RTC Branch 138, Makati, dismissed respondent’s complaint (August 31, 1998), finding:

The fire was accidental and not due to petitioner’s negligence.
Petitioner was not established as debtor because sales invoices reserved vendor’s ownership until full payment.

Petitioner appealed.
On October 11, 2000, the Court of Appeals reversed and ordered petitioner to pay both amounts with legal interest.
Petitioner’s motion for reconsideration was denied by CA Resolution on April 11, 2001.
Petitioner filed a petition for review on certiorari to the Supreme Court, assigning errors on:

Whether the fire insurance policies with book debt endorsements were in fact “credit” insurance covering unpaid accounts rather than the goods themselves.
Whether risk of loss under Article 1504 of the Civil Code shifted to petitioner upon delivery despite reservation of title by IMC and LSPI.
Whether respondent’s subrogation to IMC’s and LSPI’s rights against petitioner was valid under Article 2207 of the Civil Code and supported by evidence.