G.R. No. 152334 - H.H. Hollero Construction, Inc. vs. Government Service Insurance System

On April 26, 1988, the Government Service Insurance System (GSIS) and petitioner H.H. Hollero Construction, Inc. entered into a Project Agreement for the development of a housing project known as Modesta Village Section B.
Under the Agreement, the petitioner was obliged to insure the project, including all improvements, through a Contractor’s All Risks (CAR) insurance policy issued by the GSIS General Insurance Department.
The petitioner's obligation involved securing two CAR policies:

CAR Policy No. 88/085 was originally issued for P1,000,000.00 for land development and later increased to P10,000,000.00, effective from May 2, 1988, to May 2, 1989.
CAR Policy No. 88/086 was initially issued for P1,000,000.00 for the construction of twenty (20) housing units and later increased to P17,750,000.00 to cover the construction of an additional 355 housing units, effective from May 2, 1988, to June 1, 1989.

Furthermore, GSIS reinsured CAR Policy No. 88/085 with the respondent, Pool of Machinery Insurers.

The CAR policies provided specific conditions essential to the insurance contract:

Prior notice of a claim for loss, damage, or liability was required within fourteen (14) days from the occurrence of the loss or damage.
All benefits under the policy would be forfeited if no legal action was instituted within twelve (12) months after the insurer’s rejection of the claim.
An average clause stipulated that if the sum insured was less than the required amount, the recoverable amount would be reduced proportionately before deductibles were applied.

In response, the petitioner filed several claims for indemnity with GSIS on the following dates:

On April 26, 1990, GSIS rejected the claims for damages from Typhoons Biring and Huaning, citing that no amount was recoverable due to the average clause.
On June 21, 1990, GSIS denied the indemnity claim for Typhoon Saling on a loss basis, noting that the relevant policy had not been renewed before the incident.

The petitioner, dissatisfied with the rejections, sent a letter dated April 18, 1991, to impugn GSIS’s decision and reiterated the demand for settlement.
On September 27, 1991, the petitioner filed a Complaint for Sum of Money and Damages before the Regional Trial Court (RTC) in Civil Case No. 91-10144.
GSIS responded with a Motion to Dismiss on October 25, 1991, arguing that the petitioner's causes of action were barred by the insurance policy’s twelve-month prescription period following the final rejection of the claims.

The RTC, in its Judgment dated February 3, 1999, granted the petitioner’s indemnity claims by holding that:

The average clause provision in the policies was ineffective due to the absence of the petitioner’s consent, and was contrary to public policy.
The petitioner had successfully established that the damages arose from the insured perils.
The second insurance policy (CAR Policy No. 88/086) was considered renewed through the withholding of the premium amount, thereby rendering GSIS liable for the indemnity claims, subject to deductions and additional legal interest.
GSIS’s counterclaims and third party complaint were dismissed for lack of merit.

GSIS elevated the case to the Court of Appeals (CA), which, in its Decision dated March 13, 2001, set aside and reversed the RTC Judgment on the ground that the petitioner’s complaint was filed beyond the twelve-month prescription period.

Whether the petitioner’s causes of action for indemnity accrued on the dates when GSIS issued its letters of rejection (April 26, 1990, and June 21, 1990) as final denials of the claims.
Whether the petitioner’s argument that the rejection letters were mere tentative resolutions pending further submissions or reconsideration could delay the prescription period.

Whether the dismissal of the petitioner’s complaint by the CA on the ground of prescription was proper.
Whether GSIS correctly interpreted and enforced the contractual provision that mandates a twelve-month period for filing a suit following the final rejection of a claim.