Title
Country Bankers Insurance Corp. vs. Lianga Bay and Community Multi-Purpose Cooperative, Inc.
Case
G.R. No. 136914
Decision Date
Jan 25, 2002
Insurer denied fire claim citing NPA rebellion; court ruled insurer failed to prove exception, liable for P200K with 6% interest, deleted damages and fees.
insurance claim
fire loss
court ruling
A

Case Summary (G.R. No. 136914)

Insurance Coverage and the Claimed Cause of the Fire

The parties’ contract was evidenced by Fire Insurance Policy No. F-1397. Petitioner agreed to indemnify respondent for fire loss, damage, or liability during the stated policy term. On the night of July 1, 1989, the insured premises were reportedly destroyed by fire. Respondent submitted an insurance claim to petitioner, attaching: (a) a Spot Report dated July 1, 1989 by Pfc. Arturo V. Juarbal; and sworn statements of Jose Lomocso and Ernesto Urbiztondo.

Petitioner did not dispute that the goods were insured and that a fire occurred within the policy period. It instead refused payment, insisting that, based on the submitted documents, the building had been set on fire by two (2) NPA rebels to obtain canned goods, rice, and medicines as provisions for their comrades in the forest. Petitioner invoked an exception clause in the policy conditions, particularly paragraph No. 6, which excluded losses “occasioned by or through or in consequence, directly or indirectly,” of specified occurrences including mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power. The clause further provided that losses happening during the existence of abnormal conditions attributable to those occurrences were not covered unless the insured proved that such loss happened independently of those abnormal conditions.

Respondent’s Complaint and Petitioner’s Defense

Unable to obtain payment, respondent instituted a civil action for recovery of loss, damage, or liability against petitioner. Petitioner answered and reiterated the same defense raised at the time of the claim: the cause of the loss allegedly fell under the policy’s excepted risk because the fire had been set by NPA rebels, triggering the policy exclusion.

After trial, the Regional Trial Court ruled for respondent by finding petitioner’s defenses lacking. It declared that petitioner’s defenses “utterly crumbled” due to “inherent weakness, incredibility and unreliability.” The trial court ordered petitioner to fully pay respondent’s insurance claim of P200,000.00, plus interest at twelve percent (12%) per annum from the filing of the complaint until fully paid, together with P50,000.00 as actual or compensatory damages, P50,000.00 as exemplary damages, P5,000.00 as litigation expenses, P10,000.00 as attorneys fees, and the costs of suit. The trial court dismissed petitioner’s counterclaim for being unsubstantiated.

Proceedings in the Court of Appeals

Petitioner appealed to the Court of Appeals. On December 29, 1998, the appellate court affirmed the trial court’s decision in toto, sustaining petitioner’s liability under the policy and leaving undisturbed the monetary awards and the interest rate imposed by the Regional Trial Court.

Issues Raised Before the Supreme Court

Petitioner came before the Supreme Court via a petition for review on certiorari, assigning three errors: first, that the Court of Appeals failed to appreciate and give credibility to Pfc. Arturo Juarbal’s Spot Report and the sworn statement of Jose Lomocso to establish that the stocks-in-trade were burned by NPA rebels, allegedly bringing the loss within the policy’s excepted risk; second, that the Court of Appeals erred in imposing twelve percent (12%) interest per annum on the face value of the policy from the filing of the complaint until full payment; and third, that the Court of Appeals erred in sustaining awards for actual and exemplary damages, litigation expenses, attorneys fees, and the costs of suit.

Allocation of the Burden of Proof on Policy Exceptions

The Supreme Court treated as controlling the principle that, where an insurer relies on an exception or limitation clause to defeat coverage, the insurer bears the burden of proving the factual basis of the excepted risk. The Court held that once loss is shown to fall within the general coverage of the policy, the insurer must prove that the loss arose from a cause specifically excluded or limiting its liability. Thus, because petitioner defended on the ground of non-coverage by invoking a policy exception, it had to establish by a preponderance of evidence the facts required to bring the loss within the exception.

Evidentiary Rulings: Hearsay and the Admissibility of the Spot Report and Sworn Statements

In analyzing petitioner’s evidence, the Court examined the sworn statements of Jose Lomocso and Ernesto Urbiztondo and the Spot Report of Pfc. Arturo V. Juarbal, particularly portions indicating that armed men sought to take goods and rice and that the perpetrators were members of the NPA. The Court explained that a witness may testify only to facts within personal knowledge, meaning those derived from perception. It ruled that testimony as to what was merely learned from others is hearsay and cannot be received as proof of the truth of the matters asserted.

Applying the hearsay rule, the Court held that the sworn statements of Jose Lomocso and Ernesto Urbiztondo were inadmissible for being hearsay because the declarants did not take the witness stand and were not available for cross-examination. The Court further addressed that while exceptions exist to the hearsay rule, such as entries in official records, petitioner failed to satisfy the requisites for admissibility as official entries. It found particularly lacking the requirement that the recording officer or person making the entry had sufficient knowledge acquired personally or through official information.

The Court noted petitioner’s own position that Pfc. Juarbal’s Spot Report was based on the personal knowledge of the caretaker Jose Lomocso, who had allegedly witnessed the incidents. The Court therefore concluded that, to the extent the Spot Report relayed Jose Lomocso’s statements for the truth of their contents, the relevant portions remained hearsay. It allowed the Spot Report only insofar as it constituted part of the testimony of Pfc. Juarbal himself, because he testified and was available for cross-examination. Portions based on Pfc. Juarbal’s personal knowledge or perceptions were not hearsay, but the remainder could be treated only as independently relevant statements gathered during the investigation and not necessarily as proof of the truth of the hearsay assertions.

Liability Under the Fire Insurance Policy

With these evidentiary limitations, the Supreme Court determined that petitioner’s evidence to establish the excepted risk was inadequate. It characterized the defense as “sadly wanting,” which supported petitioner’s liability under Fire Insurance Policy No. F-1397. Accordingly, the Court upheld the finding that petitioner was liable to indemnify respondent for the insured loss.

Interest: Modification Based on Eastern Shipping Lines Guidelines

Although sustaining liability, the Supreme Court modified the awards. It rejected the trial court’s imposition of twelve percent (12%) interest on the ground that it lacked legal and valid basis under controlling guidelines. The Court relied on Eastern Shipping Lines, Inc. v. Court of Appeals and Mercantile Insurance Co., Inc., which distinguished interest treatment depending on the character of the obligation breached.

The Court reasoned that the insurance claim did not amount to a forbearance of money, goods, or credit. It held that the interest rate should therefore be six percent (6%) per annum, computed from the date of filing of the complaint. It further adjusted the accrual framework by anchoring interest computation to the time when the claim was filed, consistent with the guidelines quoted from Eastern Shipping Lines and the general rules on legal interest under the Civil Code.

Deletion of Actual and Compensatory Damages for Lack of Proof

The Supreme Court deleted the award of actual or compensatory damages of P50,000.00. It reiterated the settled doctrine that actual, compensatory, and consequential damages must be proved and may not be presumed. It found that the portion of the trial court’s dispositive decision granting actual damages had no apparent basis in the body of the decision. It also found that no testimonial or documentary evidence supported the alleged actual damages of P50,000.00, warranting their removal.

Deletion of Exemplary Damages for Lack of COGENT Legal Basis

The Court likewise deleted the exemplary damages of P50,000.00. It explained that under Article 2229 of the New Civil Code, exemplary damages may be awarded by way of example or cor

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