Aside from Fire Insurance, read also about life insurance: CONCEPT OF INCONTESTABILITY CLAUSE UNDER LIFE INSURANCE
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A property may be insured against loss by fire
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The documents submitted as proof of loss must support the insurance claim
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A fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the insurance policy
Mere filing of a claim will exonerate the insurer. This means that the insurer will not be liable to pay the insurance claim. Is this possible?
For a better understanding, let us take the case of United Merchants Corporation vs. Country Bankers Insurance Corporation, G.R. No. 198588, July 11, 2012.
United Merchants Corporation (UMC) is engaged in the business of buying, selling, manufacturing Christmas lights. On 6 September 1995, UMC insured its stocks in trade of Christmas lights against fire with Country Bankers Insurance Corporation (CBIC). Thus, the corresponding Fire Insurance Policy was issued and valid until 6 September 1996.
On 7 May 1996, UMC and CBIC added terms to the Insurance Policy which provides that UMC’s stock in trade were also insured against loss by typhoon, flood and earthquake. The sum insured was also increased to P50,000,000.00 effective 7 May 1996 to 10 January 1997.
On 3 July 1996, a fire gutted the warehouse rented by UMC where they assemble and store their products. CBIC designated CRM Adjusted Corporation (CRM) to investigate and evaluate UMC’s loss by reason of the fire. On 6 July 1996, UMC through CRM, submitted to CBIC its proofs of loss. UMC demanded payments of its claim from CBIC but was rejected by the latter due to breach of Condition No. 15 of the insurance policy which was stated in the following manner:
“15. If the claim in any respect is 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 in his behalf to obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or with the connivance of the Insured, all the benefits under this Policy shall be forfeited.”
Among the grounds of CBIC in rejecting UMC’s claim is that said claim was tainted with fraud. CBIC alleged that UMC’s claim was fraudulent because UMC’s Statement of Inventory showed that it had no stocks in trade as of 31 December 1995. The rejection of the claim prompted UMC to file a Complaint against CBIC with the court.
Can the CBIC reject the claim of UMC on the insurance proceeds?
The Supreme Court says:
Yes.
In this case, as proof of its loss of stocks in trade amounting to P50,000,000, UMC submitted its Statement of Formal Claim together with documents. However, the documents and receipts could not support its insurance claim. Also, the invoices submitted cannot be taken as genuine. Furthermore, in the Statement of Inventory it submitted to the BIR, UMC stated that it had no stocks in trade as of 31 December 1995. Moreover, either amount in UMC’s Income Statement or Financial Reports is twenty-five times the claim UMC seeks to enforce.
The submission of false invoices established a clear case of fraud and misrepresentation which voids the insurer’s liability as per condition of the policy. Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy.
In fire insurance policies, which contains provisions such as Condition No. 15 of the Insurance Policy, a fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the insurance policy. Mere filing of such claim will exonerate the insurer.
Thus, UMC forfeited whatever benefits it may be entitled under the Insurance Policy, including its insurance claim.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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