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Can the incidence of fraud void an insurance claim/policy? YES.  And this is the story.

 

On 12 June 1990, a fire gutted the warehouse of United Lights Corporation [ULC].  The warehouse and/or its contents were insured against the fire with Community Insurance Corporation (CIC) in the amount of P50 million.

 

ULC subsequently submitted its Sworn Statement of Formal Claim with proof of loss with CIC.  But CIC rejected the claim as it was allegedly tainted with fraud.  Hence, ULC filed a complaint with the Regional Trial Court.  After trial on the merits, the trial court rendered a decision in favor of ULC.

 

CIC filed an appeal with the Court of Appeals (CA). The CA ruled that ULC’s claim under the insurance policy was void which, in effect, reversed the decision of the trial court.

 

ULC elevated the case to the Supreme Court, and the SC ruled in the following tenor:

 

“x x x , 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 actual loss.

 

x x x

 

While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favour of the insured and strictly against the insurer company, 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.  Courts are not permitted to make contracts for the parties; the function and duty of the courts is to simply to enforce and carry out the contracts actually made.”

 

Let us remember that in fire insurance policies, a fraudulent discrepancy between the actual loss and that claimed in the proof of loss may void the insurance claim/policy.

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We take this opportunity to thank our Almighty God for all the blessings we continue to receive.  Maligayang Pasko at Manigong Bagong Taon sa inyong lahat!  [Joey, Jay & Nina].

 

For comments or inquiries, email the author at jtb@pac-atlantic.com.ph

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