G.R. No. 27778 , December 16, 1927
UY HY & CO., plaintiff-appellant, vs. THE PRUDENTIAL ASSURANCE CO., LTD., defendant-appellant.

FACTS

Uy Hy & Co. (plaintiff) held a fire insurance policy from The Prudential Assurance Co., Ltd. (defendant) for P30,000 covering its merchandise. A fire occurred on May 10, 1926, destroying the insured property. The plaintiff submitted a sworn proof of loss claiming the full policy amount of P30,000. The defendant refused payment, alleging that the claim was fraudulent because a large portion of the merchandise claimed was not in the building at the time of the fire. The trial court rendered a compromise judgment, awarding the plaintiff P16,000. Both parties appealed: the plaintiff sought the full P30,000, while the defendant argued the claim was entirely fraudulent and sought dismissal of the complaint.

ISSUE

1. Whether the plaintiff’s claim under the insurance policy was fraudulent, thereby forfeiting all benefits under the policy.
2. Whether the trial court erred in its valuation of the loss and in admitting certain evidence.

RULING

The Supreme Court REVERSED the trial court’s judgment and DISMISSED the complaint.

1. The claim was fraudulent. The policy condition stipulated that if a claim was “in any respect fraudulent” or if any false declaration was used to support it, all benefits under the policy would be forfeited. The evidence, particularly photographs taken immediately after the fire and the inventory of salvaged goods, conclusively showed that the amount and value of merchandise actually present and destroyed were far less than claimed. The plaintiff’s manager could not substantiate the location of the missing claimed goods and failed to produce required invoices. The Court found the plaintiff’s claim for P30,000 to be knowingly false and exaggerated, constituting fraud within the terms of the policy.

2. Forfeiture of all benefits. The fraudulent claim triggered the forfeiture clause. The Court held that where the proof is conclusive that the insured claimed for property not present at the time of the fire, the entire claim is tainted by fraud. Consequently, the plaintiff is barred from recovering any amount, even for any actual loss that might have occurred. The legal effect of a fraudulent claim is the voidance of the policy benefits in their entirety.

The Supreme Court concluded that the actual loss did not exceed P5,000, but due to the fraudulent claim, the plaintiff forfeited all right to recovery. The trial court’s award of P16,000 was erroneous.