Title
UCPB General Insurance Co., Inc. vs. Asgard Corrugated Box Manufacturing Corp.
Case
G.R. No. 244407
Decision Date
Jan 26, 2021
Dispute over insurance claim for machinery damage; UCPB denied Asgard's claim, citing Milestone (co-insured) caused harm. SC ruled in favor of UCPB, citing insufficient evidence and policy exclusions.
insurance claim
denial
breach of contract
A

Case Summary (G.R. No. 244407)

Insurance procurement and the insured interests

On August 7, 2009, UCPB Insurance issued an Industrial All Risk Policy (effective August 1, 2009 to August 1, 2010) naming Milestone and/or Market Link and/or Nova Baile and/or Asgard as insureds and covering, among others, Asgard’s machinery and equipment up to policy limits. The policy included standard industrial all-risk coverage, a machinery breakdown clause, a Riot and Strike endorsement, and a Malicious Damage extension to that endorsement.

Event giving rise to the claim

On July 15, 2010, Milestone removed its stocks, machinery, and equipment from Asgard’s plant to Milestone’s premises. During that removal, Asgard alleges Milestone maliciously damaged Asgard’s corrugating machines and other equipment. Asgard filed a claim under the Malicious Damage Endorsement and later sued UCPB Insurance for P147,000,000.00, alleging entitlement to indemnity for replacement costs.

Insurer’s denial and legal defenses

UCPB Insurance denied the claim on the ground that the damage was caused maliciously by Milestone, which was a named insured under the policy; invoking Section 87 (now Section 89) of the Insurance Code, UCPB contended that an insurer is not liable for loss caused by the willful act or connivance of the insured. UCPB also argued that the Malicious Damage Endorsement is an extension of the Riot and Strike Endorsement and thus applies only in the context of strikes/lockouts or public disturbances.

Procedural history through trial court and appeals

Asgard obtained a writ of preliminary attachment and pursued its complaint in RTC. UCPB moved for summary judgment; the RTC initially granted summary judgment for UCPB, but proceedings thereafter produced a conflicting RTC decision (February 17, 2017) awarding Asgard P147,000,000.00 in actual damages, exemplary damages and attorney’s fees. On appeal, the Court of Appeals (CA) reversed an earlier RTC summary judgment ruling and in its August 31, 2018 decision ultimately upheld UCPB’s liability but deleted exemplary damages and attorney’s fees. UCPB sought further review to the Supreme Court.

Legal issues framed for review

The central legal issues were: (1) whether Milestone had an insurable interest in Asgard’s corrugating machines at the time of the loss; (2) whether Section 87/89 of the Insurance Code (exclusion for willful acts of the insured) applied to bar recovery because Milestone was a co-insured who caused the damage; (3) whether the Malicious Damage Endorsement required the occurrence of a strike/lock-out (i.e., whether the endorsement is tributary to the Riot and Strike endorsement) and thus whether Asgard’s claim fell within its scope; and (4) whether Asgard proved its actual damages with sufficient evidence.

Supreme Court’s standard of review and exception invoked

The Supreme Court emphasized its limited scope under Rule 45 to questions of law and ordinarily defers to appellate fact-findings. However, the Court invoked an exception where the CA manifestly overlooked relevant, undisputed facts that would have led to a different legal conclusion—permitting consideration of certain factual and legal matters concerning insurable interest and contract interpretation.

Analysis of the TMA’s duration and termination

The Court examined the TMA’s express terms: a fixed term until January 31, 2008, with an automatic month-to-month extension unless terminated by written notice (60 days where without cause) and specific grounds for immediate written termination for cause. There was no record that the TMA was validly terminated in writing before or at the time Milestone removed its parts in July 2010. The rehabilitation court’s denial (June 9, 2009) did not effectuate automatic termination under the TMA. Paragraph 20’s enumerated causes for immediate termination (liquidation, material breach with failure to cure, transfer of assets control) were not shown to have occurred. The Court held that unilateral removal of parts by Milestone did not constitute an authorized termination under the contract and that the TMA therefore continued on a month-to-month basis through July 2010.

Insurable interest: legal standard and its application

The Court recited the statutory and doctrinal definitions: Section 13 of the Insurance Code defines insurable interest as any interest in property such that a contemplated peril might directly damnify the insured; Section 14 enumerates forms of insurable interest. Insurable interest does not require legal title; it suffices that the party derives benefit from the property’s existence or would suffer pecuniary loss from its destruction. Because the TMA remained in force and Milestone had supplied and owned vital parts incorporated into Asgard’s corrugating machines, Milestone had an actual and real interest in their preservation and thus an insurable interest at the time of loss.

Application of Section 89 (formerly Section 87) — willful acts of the insured

Section 89 provides that an insurer is not liable for loss caused by the willful act or through the connivance of the insured. Because Milestone was a named insured under the policy and had an insurable interest at the time of loss, the Court concluded that the policy exclusion for willful acts applied and relieved UCPB Insurance of liability if the loss was shown to be intentionally caused by Milestone. The Court further noted that the policy’s own exclusion clause expressly disclaims liability for loss arising out of the willful act or gross negligence of the insured or its representatives.

Interpretation of the Malicious Damage Endorsement

The Supreme Court interpreted the Malicious Damage Endorsement as an extension of the Riot and Strike Endorsement; its wording expressly ties the extension to the Riot and Strike endorsement and subjects the extension to the same conditions. Thus, malicious damage coverage was not a free-standing risk but depended on the Riot and Strike endorsement conditions. Because the alleged malicious damage here did not occur in the context of a strike or disturbance of public peace and because Milestone was a named insured, the endorsement did not obligate UCPB to indemnify Asgard for the malicious act attributed to Milestone.

Proof of loss and quantum issues

Beyond coverage and exclusion issues, the Court examined Asgard’s proof of actual damages. The Court reiterated the plaintiff’s burden to establish actual damages with reasonable certainty and competent evidence. It found the submitted quotation from Taiphil and the series of Philippine National Bank checks insufficient to conclusively establish the P147,000,000.00 replacement cost as proven actual loss attributable to malicious damage by Milestone. The Court criticized the absence of detailed proof showing the extent of damage, which parts were integral versus detachable, and whether the damaged machines could operate independently of Milestone-installed parts. Thus, the evidentiary record did n

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