This case clarifies that an insurance policy’s earthquake shock endorsement only covers the specific properties listed in the policy, not all properties insured under the general policy. The Supreme Court emphasized the importance of examining all policy provisions together, particularly the premium payments, to determine the true intent of the parties. This ruling ensures that insurance companies are liable only for the risks they explicitly agree to cover and for which premiums are paid.

Earthquake Strikes, Coverage Quakes: Did the Resort’s Insurance Extend Beyond the Pools?

Gulf Resorts, Inc. sought to recover damages from Philippine Charter Insurance Corporation for earthquake damage to its resort properties. The dispute hinged on whether Insurance Policy No. 31944 provided earthquake shock coverage for all properties within the resort, or only for the two swimming pools as contended by the insurance company. This case highlights the critical role of policy language and premium payments in determining the scope of insurance coverage, especially in instances where endorsements appear to broaden the initial terms.

The root of the dispute lies in the interpretation of the earthquake shock endorsement attached to the insurance policy. Gulf Resorts argued that the endorsement, which stated that “this insurance covers loss or damage…to any of the property insured by this Policy occasioned by or through or in consequence of Earthquake,” implied coverage for all insured properties. However, the insurance company, Philippine Charter Insurance Corporation, maintained that the endorsement should be read in conjunction with other policy provisions, specifically the premium recapitulation, which showed that a premium was paid only for earthquake shock coverage on the two swimming pools. The trial court and the Court of Appeals sided with the insurance company, leading Gulf Resorts to elevate the matter to the Supreme Court.

The Supreme Court upheld the lower courts’ decisions, emphasizing that an insurance policy should not be construed piecemeal. The Court reasoned that all policy provisions must be examined and interpreted in consonance with each other to reflect the true intent of the parties. Looking at the “ITEM 3” which specifically refers to the two swimming pools that were insured only against the peril of earthquake shock, plus, the “PREMIUM RECAPITULATION” that showed that only the amount of the swimming pools, in the amount of 393,000 was rated for the 0.100% for ES, there is premium that payment was made with regard to earthquake shock coverage, except on the two swimming pools.

Crucially, the Court pointed to the premium recapitulation as a decisive factor. According to Section 2(1) of the Insurance Code defines a contract of insurance, and for there to be one, among other requisites, In consideration of the insurer’s promise, the insured pays a premium. Since premiums were only paid for earthquake shock coverage on the swimming pools, the Court concluded that the parties intended to limit the coverage to those specific properties. This underscored the principle that insurance premiums are the consideration paid for the insurer’s undertaking to indemnify the insured against a specified peril; without such payment, coverage cannot be extended.

Moreover, the Supreme Court addressed the argument regarding the deletion of the phrase limiting coverage to the swimming pools in a prior insurance policy. The Court ruled that this deletion was inadvertent and did not expand the coverage to all properties, particularly since no additional premiums were paid to warrant such extended coverage. Further examination was made on testimonies of the underwriter and witnesses regarding the policies involved.

Ultimately, the Supreme Court rejected the application of the principle that insurance contracts are contracts of adhesion and should be construed liberally in favor of the insured. Citing its long-standing case laws on this rule, the Court held that, while normally that rule applies, there should be due deligence and caution to carefully scrutinize the factual circumstances of the cases.

FAQs

What was the key issue in this case?	The primary issue was whether the earthquake shock endorsement in the insurance policy covered all the resort’s properties or only the two swimming pools.
What did the Supreme Court decide?	The Supreme Court ruled that the earthquake shock coverage was limited to the two swimming pools, based on the policy’s specific terms and premium payments.
Why was the premium payment important in this case?	The premium payment was crucial because it showed that the insured only paid for earthquake shock coverage on the swimming pools, indicating the extent of the intended coverage.
What is an earthquake shock endorsement?	An earthquake shock endorsement is an addition to an insurance policy that provides coverage for damage caused by the shaking or vibration from an earthquake.
What does ‘contract of adhesion’ mean?	A contract of adhesion is a contract drafted by one party (usually a corporation) with stronger bargaining power, leaving the other party with little choice but to accept the terms.
How did the court interpret the deletion of a phrase in the insurance policy?	The court deemed the deletion of the phrase as inadvertent and ruled that it did not expand the scope of coverage, especially in the absence of additional premium payments.
Can verbal assurances expand the scope of an insurance policy?	No, verbal assurances from an insurance representative cannot expand the scope of the insurance policy unless there is a change to the contract with new rates and premiums.
What is the key takeaway from this case for policyholders?	The main takeaway is to carefully review the insurance policy’s terms, endorsements, and premium payments to ensure that the desired properties and perils are adequately covered.

This case serves as a critical reminder for policyholders to thoroughly review their insurance policies and ensure that their coverage aligns with their intentions. By examining the specific terms and premium payments, parties can avoid disputes over the scope of coverage and protect their interests effectively.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: GULF RESORTS, INC. VS. PHILIPPINE CHARTER INSURANCE CORPORATION, G.R. No. 156167, May 16, 2005