G.R. No. L-15862; July 31, 1961
PAULO ANG and SALLY C. ANG, plaintiffs-appellees, vs. FULTON FIRE INSURANCE CO., ET AL., defendants. FULTON FIRE INSURANCE CO., defendant-appellant.

FACTS

The spouses Paulo Ang and Sally C. Ang owned a store insured under a fire insurance policy issued by Fulton Fire Insurance Company. The insured property was destroyed by fire on December 17, 1954. The plaintiffs filed their claim, which the insurer formally denied on April 6, 1956, with notice of denial received by the Ang spouses on April 19, 1956. The insurance policy contained a condition, paragraph 13, stating that if a claim is made and rejected, an action must be commenced within twelve months after such rejection; otherwise, all benefits under the policy are forfeited.
The plaintiffs initially filed an action to enforce their claim on May 11, 1956, within the twelve-month period. However, they erroneously sued Paramount Surety and Insurance Company, Inc., the alleged agent of Fulton, instead of the principal insurer itself. This first case (Civil Case No. 2949) was eventually dismissed without prejudice on September 3, 1957. Subsequently, the plaintiffs filed the present correct action against Fulton Fire Insurance Company on May 5, 1958, which was beyond twelve months from the April 1956 rejection notice.

ISSUE

Whether the filing of the first action against the insurance agent, Paramount Surety, tolled the running of the twelve-month contractual period for filing suit as stipulated in the insurance policy.

RULING

No. The Supreme Court reversed the trial court and dismissed the complaint. The contractual limitation period in the insurance policy was not tolled by the suit filed against the agent. The Court held that the twelve-month period stipulated in paragraph 13 of the policy is a condition precedent, a resolutory cause that terminates the insurer’s liability if not complied with. It is not a mere procedural requirement but a substantive condition agreed upon by the parties. The filing of an action against the agent has no legal effect of interrupting this contractual period as to the principal insurer. The policy did not stipulate that a suit against the agent would satisfy the condition. The rights of the parties flow from their contract, which is the law between them. Following the precedent in E. Macias & Co. vs. China Fire Insurance Co., the contractual limitation prevails over statutory rules on prescription and interruptions thereof. Since the correct action against the principal was filed beyond the agreed twelve-month period from rejection, all benefits under the policy were forfeited.