[Digest] Fieldmen's Insurance vs. Asian Surety (1970)

FIELDMEN'S INSURANCE CO., INC.,vs. ASIAN SURETY & INSURANCE, CO., INC. and CA (1970) 

MAKALINTAL, J.:

·         On various dates the Asian Surety & Insurance and the Fieldmen's insurance entered into 7 reinsurance agreements or treaties  under the general terms of which ASIAN, as the ceding company undertook to cede to FIELDMEN’S, as the reinsuring company, a specified portion of the amount of insurance underwritten by ASIAN upon payment to FIELDMEN'S of a proportionate share of the gross rate of the premium applicable with respect to each cession after deducting a commission.

o    agreements were take effect from certain specific dates and were to be in force until cancelled by either party upon previous notice of at least 3 months by registered mail to the other party, the cancellation to take effect as of the 31st of December of the year in which notice was given.

·         Sept and Dec 1961 à FIELDMEN’S sent letters to ASIAN expressing its desire to cancel all agreements between them as of DEC 31, 1961 alleging that ASIAN had already incurred numerous violations àASIAN received but did not reply

·         Feb 1962 à FIELDMEN’S sent another letter to ASIAn repeating the fact of cancellation and now requesting ASIAN to submit its final accounting of all cessions made to the former for the preceding months when the reinsurance agreements were in force.

·         Meanwhile one of the risks reinsured by FIELDMENS issued in favor of the GSIS became a liability when the insured property was burned on Feb 1962 à The next day ASIAN sent letter to FIELDMEN’S notifiying them of the loss and stating…

o    ... we beg to reiterate that your letter of December 7, 1961, terminating said treaties by December 31, 1961, is not in accordance with the terms thereof, since there was no prior three months' notice. However, considering the attitude express (sic) in your aforesaid letter of December 7, 1961, we are willing to waive provision that said treaties may be cancelled on December 31st of any year, and will consider them cancelled at the end of three (3) months from December 7, 1961, by which time we shall be able to render the final accounting you desire.

·         FIELDMEN’S filed a petition for declaratory relief with CFI Manila alleging its first letter of notification on SEPT 19, 1961 was sufficient to meet the 3 month period before cancellation and to obtain an order directing ASIAN to render final accounting of the transactions between them with respect to said reinsurance treaties as of the cut-off date.

·         CFI DECISION à 6 of 7 agreements are cancelled as of DEC 1961 but agreed with ASIAN that FIELDMEN’S is still liable for as long the previously contracted policies are still valid. It also ordered FIELDMEN'S to make an accounting with ASIAN within 30 days.

·         CA à Affirmed with modification à  the order for accounting was eliminated

ISSUE: WON cancellation had the effect of terminating also the liability of FIELDMEN'S as reinsurer with respect to policies or cessions issued prior to the termination of the principal reinsurance contracts or treaties?

·         Only the cancelled agreements are being considered here à 2 of which contain provisions, which clearly and expressly recognize the continuing effectivity of policies ceded under them for reinsurance notwithstanding the cancellation of the contracts themselves.

o    Article 10 of the Facultative Obligatory Reinsurance Treaty Fire provides "that in the event of termination of this Agreement ..., the liability of the Fieldmen's under current cessions shall continue in full force and effect until their natural expiry ...;" and the 4th paragraph of Article VI of the Personal Accident Reinsurance Treaty  states:

o    4. On the termination of this Agreement from any cause whatever, the liability of the REINSURER (Fieldmen's) under any current cession including any amounts due to be ceded under the terms of this Agreement and which are not cancelled in the ordinary course of business shall continue in full force until their expiry unless the COMPANY (Asian) shall, prior to the thirty-first December next following such notice, elect to withdraw the existing cessions ....

·         It is therefore clear that FIELDMEN’S is still liable despite the cancellation àSuch cessions continued to be in force until their respective dates of expiration à GSIS policy still valid and subsisting at time of loss à FIELDMEN’S IS LIABLE

·         No need to go into other arguments (did not mention what they are) because the cancellation of the agreements made them moot

·         SC NOTES à ASIAN only claims continued liability of FIELDMEN’s as to the 2 agreements that had the provision cited above (as compared to the other 4 cancelled agreements wherein FIELDMEN’S liability had terminated with the contracts)

·         FIELDMEN'S insists on its alternative prayer that all cessions under the six reinsurance agreements be declared rescinded by reason of certain violations thereof, as stated by FIELDMEN'S in its letter of December 7, 1961 à Court reminds them that this action is for declaratory relief and not one for rescission and no grounds found by lower courts that can justify rescission anyway.