G.R. No. L-9370; March 31, 1915
K. S. Young, plaintiff-appellee, vs. The Midland Textile Insurance Company, defendant-appellant.

FACTS:
The plaintiff, K. S. Young, operated a candy and fruit store on the Escolta and occupied a building at 321 Calle Claveria as a residence and bodega (storehouse). On May 29, 1912, the defendant issued a fire insurance policy (No. 509105) covering the building and its contents for P3,000. The policy contained “Warranty B,” which stipulated that “no hazardous goods [be] stored or kept for sale” in the insured building. On February 4 or 5, 1913, the plaintiff placed three boxes of fireworks in the bodega. These fireworks had been given to him, and he intended to use them for the Chinese New Year celebration, but their use was prohibited by city authorities. The fireworks remained in the bodega until after a fire partially destroyed the building on March 18, 1913. It was admitted by both parties that the fireworks were “hazardous goods” and that they did not contribute to the cause or spread of the fire.

ISSUE:
Whether the act of placing the fireworks in the insured building constituted a violation of “Warranty B” of the insurance policy, thereby relieving the insurer of liability.

RULING:
Yes. The Supreme Court reversed the lower court’s judgment in favor of the plaintiff and absolved the defendant from liability. The Court held that the fireworks were “stored” within the plain and ordinary meaning of the term in “Warranty B.” The plaintiff admitted the fireworks were placed in the bodega for future use or safekeeping, not for daily or immediate use. This constituted a violation of the warranty, which was a material condition of the insurance contract. The violation terminated the insurer’s liability, regardless of whether the stored hazardous goods contributed to the loss. The Court emphasized that insurance contracts are contracts of indemnity based on the terms agreed upon by the parties. The insured must comply with all conditions precedent, such as warranties, to recover. The increase in risk due to the storage of hazardous goods, even if not paid for through an adjusted premium, was a direct injury to the insurer and breached the fundamental basis of the contract.