UMC vs Country Bankers (G.R. No. 198588 July 11, 2012)

United Merchants Corporation vs Country Bankers Insurance Corporation
G.R. No. 198588 July 11, 2012
Facts: Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and manufacturing Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San Jose Subdivision, Barrio Manresa, Quezon City, where UMC assembled and stored its products.  On 6 September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks in trade of Christmas lights against fire with defendant Country Bankers Insurance Corporation (CBIC) for P 15,000,000.00. The Fire Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice No. 12959A, valid until 6 September 1996. On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to form part of the Insurance Policy. Endorsement F/96-154 provides that UMCs stocks in trade were insured against additional perils, to wit: typhoon, flood, ext. cover, and full earthquake. The sum insured was also increased to P50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996, CBIC issued Endorsement F/96-157 where the name of the assured was changed from Alfredo Tan to UMC. On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment Corporation (CRM) to investigate and evaluate UMCs loss by reason of the fire. CBICs reinsurer, Central Surety, likewise requested the National Bureau of Investigation (NBI) to conduct a parallel investigation. On 6 July 1996, UMC, through CRM, submitted to CBIC its Sworn Statement of Formal Claim, with proofs of its loss.
Issue: Whether or not UMC is entitled to claim from CBIC the full coverage of its fire insurance policy. 
Held: No. Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidence required by law, which is preponderance of evidence in civil cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to obtain a favorable judgment. Particularly, in insurance cases, once an insured makes out a prima facie case in its favor, the burden of evidence shifts to the insurer to controvert the insureds prima facie case. In the present case, UMC established a prima facie case against CBIC. CBIC does not dispute that UMCs stocks in trade were insured against fire under the Insurance Policy and that the warehouse, where UMCs stocks in trade were stored, was gutted by fire on 3 July 1996, within the duration of the fire insurance. However, since CBIC alleged an excepted risk, then the burden of evidence shifted to CBIC to prove such exception.  
An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing that the loss comes within the purview of the exception or limitation. If loss is proved apparently within a contract of insurance, the burden is upon the insurer to establish that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd., the Court held that where a fire insurance policy provides that if the claim be in any respect fraudulent, or if any false declaration be 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, and the evidence is conclusive that the proof of claim which the insured submitted was false and fraudulent both as to the kind, quality and amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against the insured from recovering on the policy even for the amount of his actual loss. 
In the present case, as proof of its loss of stocks in trade amounting to P 50,000,000.00, UMC submitted its Sworn Statement of Formal Claim together with the following documents: (1) letters of credit and invoices for raw materials, Christmas lights and cartons purchased; (2) charges for assembling the Christmas lights; and (3) delivery receipts of the raw materials. However, the charges for assembling the Christmas lights and delivery receipts could not support its insurance claim. The Insurance Policy provides that CBIC agreed to insure UMCs stocks in trade. UMC defined stock in trade as tangible personal property kept for sale or traffic. Applying UMCs definition, only the letters of credit and invoices for raw materials, Christmas lights and cartons may be considered. 
It has long been settled that a false and material statement made with an intent to deceive or defraud voids an insurance policy. 
The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or counting but to a deliberate intent to demand from insurance companies payment for indemnity of goods not existing at the time of the fire. This constitutes the so-called fraudulent claim which, by express agreement between the insurers and the insured, is a ground for the exemption of insurers from civil liability. 
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