G.R. No. L-10305; February 28, 1961
Lee Bog & Company, plaintiff-appellee, vs. The Hanover Fire Insurance Company of the City of New York, et al., defendants-appellants. Republic of the Philippines, et al., intervenors-appellees.

FACTS

Lee Bog & Company, a rice mill operator, held multiple fire insurance policies from various companies, totaling P230,000, covering its stock of rice and palay stored in its warehouse in Binalonan, Pangasinan. Ten of these policies contained a “simple loss payable clause” in favor of the Bureau of Commerce, securing palay received as deposits under the Bonded Warehouse Act. A separate policy from Hanover Fire Insurance Company lacked this clause and covered the company’s own unbonded stock. A fire destroyed the warehouse contents. The insurers refused payment, alleging the insured’s claim was fraudulent and grossly exaggerated, arguing the policies concurrently and indivisibly covered all stock, whether bonded or unbonded.
The Republic of the Philippines intervened to recover for the loss of the bonded palay on behalf of the Bureau of Commerce. The Court of First Instance of Pangasinan ruled in favor of Lee Bog & Company and the intervenors, holding the insurers liable. The insurers appealed, contesting the separate treatment of the claims and asserting fraud in the proof of loss.

ISSUE

The primary issues are: (1) Whether the ten policies with a loss payable clause in favor of the Bureau of Commerce and the one policy without it should be treated as covering distinct and separate stocks of palay (bonded vs. unbonded); and (2) Whether the plaintiff-appellee committed fraud by presenting a false and exaggerated claim for the loss.

RULING

The Supreme Court affirmed the lower court’s decision, holding the insurers liable. On the first issue, the Court ruled that the policies must be treated separately. The ten policies with the payable clause specifically secured only the palay received as deposits under the Bonded Warehouse Act, as required by law. The distinct Hanover policy, lacking this clause, covered only the company’s unbonded stock. The insurers were aware of this legal distinction, and the policies were not concurrent over an indivisible mass but insured two different interests.
On the second issue, the Court found the evidence of loss satisfactory and no fraud proven. For the bonded palay, the loss was substantiated by negotiable warehouse receipts (quedans) showing precise outstanding deposits. For the unbonded palay, the loss was verified through the company’s regularly kept columnar cash books, with the resulting computation showing only a minor, explainable discrepancy. The insurers’ claim of fraud, based on debris samples containing rice bran/husk and rough estimates of pile volume, was rejected. The samples were unrepresentative, the volume estimates failed to account for technical factors like “angle of repose,” and no fraudulent motive existed given the company’s thriving business. The claim was not exaggerated.