GR 200784; (August, 2013) (Digest)
G.R. No. 200784 ; August 7, 2013
MALAYAN INSURANCE COMPANY, INC., PETITIONER, vs. PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.
FACTS
Malayan Insurance Company issued a fire insurance policy to PAP Co., Ltd., covering its machineries and equipment located at the Sanyo Building in Cavite for ₱15 million. The policy was procured for the benefit of mortgagee RCBC. Prior to the policy’s expiration, it was renewed on an “as is” basis, effective May 13, 1997. During the subsistence of this renewal policy, a fire on October 12, 1997, totally destroyed the insured properties. Malayan denied PAP’s claim, asserting that the machineries had been transferred in September 1996 to the Pace Pacific Building, a location different from that stated in the policy, without its consent. PAP contested, arguing it had informed RCBC of the transfer and that Malayan failed to prove the transfer increased the risk of loss.
ISSUE
Whether Malayan Insurance is liable to indemnify PAP for the loss despite the transfer of the insured properties to a location not stated in the policy.
RULING
The Supreme Court reversed the Court of Appeals and declared Malayan not liable. The legal logic centers on the insured’s violation of a material warranty or provision in the insurance contract. The renewal policy explicitly stipulated that the insured properties were located at the Sanyo factory. The transfer to a different location constituted an alteration in the condition of the thing insured, executed without Malayan’s consent and within PAP’s control. Critically, the Court found that this alteration increased the risk of loss. Testimony from Malayan’s underwriter established that the new location, Pace Pacific, had a higher risk classification due to the nature of adjacent occupancies, thereby affecting the premium calculation. Since all conditions for rescission under insurance law were present—a policy limitation, an unauthorized alteration by the insured, and an increase in risk—Malayan was entitled to avoid liability. The notice to RCBC did not bind Malayan, as the consent required was that of the insurer itself, not the mortgagee. The contract’s explicit terms and the increased risk justified the denial of the claim.