HH Hollero Construction vs GSIS (G.R. No. 152334 September 24, 2014)

HH Hollero Construction Inc vs GSIS
G.R. No. 152334 September 24, 2014 

Facts: On April 26, 1988, the GSIS and petitioner entered into a Project Agreement (Agreement) whereby the latter undertook the development of a GSIS housing project known as Modesta Village Section B (Project). Petitioner obligated itself to insurethe Project, including all the improvements, upon the execution of the Agreement under a Contractors’ All Risks (CAR) Insurance with the GSIS General Insurance Department for an amount equal to its cost or sound value, which shall not be subject to any automatic annual reduction. Pursuant to its undertaking, petitioner secured CAR Policy No. 88/085 in the amount of P development, which was later increased to P 1,000,000.00 for land 10,000,000.00, effective from May 2, 1988 to May 2, 1989. Petitioner likewise secured CAR Policy No. 88/086 in the amount of P 1,000,000.00 for the construction of twenty (20) housing units, which amount was later increased to P 17,750,000.00 from May 2, 1988 to June 1, 1989. to cover the construction of another 355 new units, effective In turn, the GSIS reinsured CAR Policy No. 88/085 with respondent Pool of Machinery Insurers (Pool). Under both policies, it was provided that: (a) there must be prior notice of claim for loss, damage or liability within fourteen (14) days from the occurrence of the loss or damage; (b) all benefits thereunder shall be forfeited if no action is instituted within twelve(12) months after the rejection of the claim for loss, damage or liability; and (c) if the sum insured is found to be less than the amount required to be insured, the amount recoverable shall be reduced tosuch proportion before taking into account the deductibles stated in the schedule (average clause provision). During the construction, three (3) typhoons hit the country, namely, Typhoon Biring from June 1 to June 4, 1988, Typhoon Huaning on July 29, 1988, and Typhoon Saling on October 11, 1989, which caused considerable damage to the Project. Accordingly, petitioner filed several claims for indemnity with the GSIS on June 30, 1988, August 25, 1988, and October 18, 1989,  respectively. In a letter dated April 26, 1990, the GSIS rejected petitioner’s indemnity claims for the damages wrought by Typhoons Biring and Huaning, finding that no amount is recoverable pursuant to the average clause provision under the policies. In a letter dated June 21, 1990, the GSIS similarly rejected petitioner’s indemnity claim for damages wrought by Typhoon Saling on a “no loss” basis, it appearing from its records that the policies were not renewed before the onset of the said typhoon.

Issue: Whether or not the petitioner is barred from filing a complaint before the courts based on the insurance claim.

Held: Yes. Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary, and popular sense.

Section 10 of the General Conditions of the subject CAR Policies commonly read:

10. If a claim is in any respect fraudulent, or if any false declaration is made or used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy, or if a claim is made and rejected and no action or suit is commenced within twelve months after such rejectionor, in case of arbitration taking place as provided herein, within twelve months after the Arbitrator or Arbitrators or Umpire have made their award, all benefit under this Policy shall be forfeited.

In this relation, case law illumines that the prescriptive period for the insured’s action for indemnity should be reckoned from the “final rejection” of the claim.

As correctly observed by the CA, “final rejection” simply means denial by the insurer of the claims of the insured and not the rejection or denial by the insurer of the insured’s motion or request for reconsideration. The rejection referred to should be construed as the rejection in the first instance, as in the two instances above-discussed.

The right of the insured to the payment of his loss accrues from the happening of the loss. However, the cause of action in an insurance contract does not accrue until the insured’s claim is finally rejected by the insurer. This is because before such final rejection there is no real necessity for bringing suit.

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