Geagonia vs. Court of Appeals Facts:
1. Geagonia, an owner of a mart, obtained a fire insurance policy from Country Bankers Insurance Corp. The policy contained Condition No. 3 stating that “The insured shall give notice to the company of other insurance covering any of the property insured, and unless such notice be given and the particulars of such insurance be stated in or endorsed on the Policy, all benefits under the Policy shall be forfeited, provided forfeited, provided however , that this condition shall not apply when the total insurance in force at the time of the loss or damage is not more than P200,000.00. 2. Accidentally, a fire broke out at the public market where Geagonia’s Geagonia’s mart was located completely destroying the insured stock-in-trade. 3. Geagonia filed a claim under the policy which was denied by Century Bankers because it found that at the time of the loss the stocks-in-trade were likewise covered by 2 fire insurance policies issued by the Philippines First Insurance Co. (PFIC) thereby violating Condition No. 3. 4. Geagonia then filed a complaint against Century Bankers with the Insurance Commission (IC) for the recovery of the policy. Century Bankers filed its answer specifically denying the allegations in the complaint. The IC rendered its decision finding that Geagonia did not violate Condition No. 3 as he had no knowledge of the existence of the 2 fire insurance policies. Its MFR having having been denied, Century Bankers appealed to the CA. 5. The CA reversed the decision of the IC because it found that Geagonia knew of the existence of the 2 other policies. Hence, in failing to disclose the existence of these insurances Geagonia violated Condition No. 3. His MFR having having been denied, Geagonia filed a PFROC. Issue: WON Geagonia violated Condition No. 3. Held: Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code which provides that "[a] policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy." Such a condition is a provision which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid the policy. However, in order to constitute a violation, the other insurance must be upon same subject matter, the same interest therein, and the same risk. As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and both interests may be one policy, or each may take out a separate policy covering his interest, either at the same or at separate times. The mortgagor's insurable interest covers the full value of the mortgaged property, even though the mortgage debt is equivalent to the full value of the property. The mortgagee's insurable interest is to the extent of the debt, since the property is relied upon as security thereof, and in insuring he is not insuring the property but his interest or lien thereon. His insurable interest is prima facie the value mortgaged and extends only to the amount of the debt, not exceeding the value of the mortgaged property. Thus, separate insurances covering different insurable interests may be obtained by the mortgagor and the mortgagee.
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It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor of the insured and strictly against the company, the reason being, undoubtedly, to afford the greatest protection which the insured was endeavoring to secure when he applied for insurance. It is also a cardinal principle of law that forfeitures are not favored and that any construction which would result in the forfeiture of the policy benefits for the person claiming thereunder, will be avoided, if it is possible to construe the policy in a manner which would permit recovery, as, for example, by finding a waiver for such forfeiture. A double insurance exists where the same person is insured by several insurers separately in respect of the same subject and interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and separate. Since the two policies of the PFIC do not cover the same interest as that covered by the policy of the private respondent, no double insurance exists. The non-disclosure then of the former policies was not fatal to the petitioner's right to recover on the private respondent's policy. Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent overinsurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured.
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