Country Bankers Insurance Corporation v. Lianga Bay and Community Multi-Purpose Cooperative, Inc.
REITERATIONFacts
1. The Antecedents: Respondent Lianga Bay and Community Multi-Purpose Cooperative, Inc. (Cooperative) obtained Fire Insurance Policy No. F-1397 from petitioner Country Bankers Insurance Corporation (Country Bankers) for P200,000.00, covering its stocks-in-trade from June 20, 1989, to June 20, 1990. On July 1, 1989, the Cooperative's building was destroyed by fire, resulting in the total loss of its stocks-in-trade. The Cooperative filed a claim with Country Bankers, which denied it, asserting that the fire was caused by NPA rebels, an excepted risk under the policy. 2. Procedural History: The Cooperative, represented by its assignee Cornelio Jamero, filed a complaint against Country Bankers for the insurance claim. The Regional Trial Court (RTC) of Lianga, Surigao del Sur, Branch 28, ruled in favor of the Cooperative, ordering Country Bankers to pay the full insurance amount, plus interest, actual damages, exemplary damages, litigation expenses, and attorney's fees. Country Bankers appealed to the Court of Appeals (CA), which affirmed the RTC's decision in its entirety. This led to the present petition for review on certiorari before the Supreme Court. 3. The Petition: Country Bankers seeks review of the CA's decision, assigning three errors: (1) the CA's failure to give credence to evidence suggesting the fire was caused by NPA rebels, thus constituting an excepted risk; (2) the CA's imposition of a 12% interest rate on the policy's face value; and (3) the CA's award of actual and exemplary damages, litigation expenses, and attorney's fees. The petition argues that the evidence presented by Country Bankers to prove the excepted risk was hearsay and inadmissible, and challenges the basis for the monetary awards granted by the lower courts.
Issue(s)
Whether the loss sustained by the respondent falls under an excepted risk as defined in the fire insurance policy, and whether the evidence presented by the petitioner to prove the excepted risk is admissible and sufficient. What is the proper interest rate to be imposed on the insurance claim. Whether the award for actual damages is justified. Whether the awards for exemplary damages, litigation expenses, and attorney's fees are justified.
Ruling
The Supreme Court modified the decision of the Court of Appeals. It affirmed the petitioner's liability to pay the insurance claim but modified the interest rate to six percent (6%) per annum from the date of filing of the complaint. The awards for actual damages, exemplary damages, litigation expenses, and attorney's fees were deleted.
Ratio Decidendi
On the issue of excepted risk and admissibility of evidence: The Court held that the petitioner failed to discharge its burden of proving that the loss was due to an excepted risk. The petitioner relied on the sworn statements of Jose Lomocso and Ernesto Urbiztondo, and the spot report of Pfc. Arturo V. Juarbal. However, the sworn statements were deemed inadmissible hearsay as the declarants did not testify and were not subjected to cross-examination. While spot reports are entries in official records, Pfc. Juarbal's report was based on Lomocso's statement, which was hearsay. The Court emphasized that a witness can only testify to facts within their personal knowledge, and statements learned from others are hearsay. The third requisite for admissibility of official records – that the public officer had sufficient knowledge of the facts personally acquired – was not met because Pfc. Juarbal's investigation was not independent of Lomocso's statement. Therefore, the petitioner's defense of excepted risk was not substantiated by credible and positive evidence. On the proper interest rate: The Court clarified that the insurance claim is not a forbearance of money, goods, or credit. Citing Eastern Shipping Lines, Inc. v. Court of Appeals, the Court held that for obligations not constituting a loan or forbearance of money, the interest on damages awarded should be at the rate of six percent (6%) per annum, computed from the date of filing of the complaint. The twelve percent (12%) interest rate imposed by the lower courts was deemed incorrect for this type of claim. On the award of actual damages: The Court found no legal or valid basis for the award of ₱50,000.00 as actual damages. The Court reiterated the doctrine that actual damages must be proved and cannot be presumed. Since there was no testimonial or documentary evidence presented to support the claim for actual damages, and the trial court's decision did not provide any justification, this award was deleted. On the award of exemplary damages, litigation expenses, and attorney's fees: The Court found no legal and valid basis for the award of ₱50,000.00 as exemplary damages. While Article 2229 of the Civil Code allows for exemplary damages by way of example or correction for the public good, they are not recoverable as a matter of right and are based on the discretion of the court. The Court found no cogent reason to award such damages in this case, as they are intended to serve as a deterrent and not to enrich one party at the expense of another. The Court deleted the awards of ₱5,000.00 for litigation expenses and ₱10,000.00 for attorney's fees. Article 2208 of the Civil Code enumerates the instances where attorney's fees may be awarded, and it requires that such awards be reasonable, just, and equitable. The Court stated that attorney's fees are an exception rather than the general rule and require findings of fact and law to justify the grant. In this case, no such justification was found to warrant the award.
Main Doctrine
An insurer seeking to defeat a claim based on an exception or limitation in the policy bears the burden of proving that the loss falls within the exception. Hearsay evidence, including sworn statements not subjected to cross-examination and spot reports based solely on such statements, is inadmissible to prove the truth of the matters asserted.