FIRST DIVISION

[G.R. No. 152334. September 24, 2014.]

H.H. HOLLERO CONSTRUCTION, INC. , petitioner, vs . GOVERNMENT

SERVICE INSURANCE SYSTEM and POOL OF MACHINERY
INSURERS , respondents.

DECISION

PERLAS-BERNABE , J : p

Assailed in this petition for review on certiorari 1 are the Decision 2 dated March 13,
2001 and the Resolution 3 dated February 21, 2002 of the Court of Appeals (CA) in CA-G.R.
CV No. 63175, which set aside and reversed the Judgment 4 dated February 3, 1999 of the
Regional Trial Court of Quezon City, Branch 220 (RTC) in Civil Case No. 91-10144, and
dismissed petitioner H.H. Hollero Construction, Inc.'s (petitioner) Complaint for Sum of
Money and Damages under the insurance policies issued by public respondent, the
Government Service Insurance System (GSIS), on the ground of prescription.
The Facts
On April 26, 1988, the GSIS and petitioner entered into a Project Agreement
(Agreement) whereby the latter undertook the development of a GSIS housing project
known as Modesta Village Section B (Project). 5 Petitioner obligated itself to insure the
Project, including all the improvements, upon the execution of the Agreement under a
Contractors' All Risks (CAR) Insurance with the GSIS General Insurance Department for an
amount equal to its cost or sound value, which shall not be subject to any automatic annual
reduction. 6
Pursuant to its undertaking, petitioner secured CAR Policy No. 88/085 7 in the
amount of PhP1,000,000.00 for land development, which was later increased to
PhP10,000,000.00, 8 effective from May 2, 1988 to May 2, 1989. 9 Petitioner likewise
secured CAR Policy No. 88/086 10 in the amount of PhP1,000,000.00 for the construction
of twenty (20) housing units, which amount was later increased to PhP17,750,000.00 11 to
cover the construction of another 355 new units, effective from May 2, 1988 to June 1,
1989. 12 In turn, the GSIS reinsured CAR Policy No. 88/085 with respondent Pool of
Machinery Insurers (Pool). 13
Under both policies, it was provided that: (a) there must be prior notice of claim for
loss, damage or liability within fourteen (14) days from the occurrence of the loss or
damage; 14 (b) all bene ts thereunder shall be forfeited if no action is instituted within
twelve (12) months after the rejection of the claim for loss, damage or liability; 15 and (c) if
the sum insured is found to be less than the amount required to be insured, the amount
recoverable shall be reduced to such proportion before taking into account the
deductibles stated in the schedule (average clause provision). 16
During the construction, three (3) typhoons hit the country, namely, Typhoon Biring
from June 1 to June 4, 1988, Typhoon Huaning on July 29, 1988, and Typhoon Saling on
October 11, 1989, which caused considerable damage to the Project. 17 Accordingly,
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 petitioner led several claims for indemnity with the GSIS on June 30, 1988, 18 August 25,
1988, 19 and October 18, 1989, 20 respectively.
In a letter 21 dated April 26, 1990, the GSIS rejected petitioner's indemnity claims for
the damages wrought by Typhoons Biring and Huaning, nding that no amount is
recoverable pursuant to the average clause provision under the policies. 22 In a letter 23
dated June 21, 1990, the GSIS similarly rejected petitioner's indemnity claim for damages
wrought by Typhoon Saling on a "no loss" basis, it appearing from its records that the
policies were not renewed before the onset of the said typhoon. 24
In a letter 25 dated April 18, 1991, petitioner impugned the rejection of its claims for
damages/loss on account of Typhoon Saling, and reiterated its demand for the settlement
of its claims.
On September 27, 1991, petitioner led a Complaint 26 for Sum of Money and
Damages before the RTC, docketed as Civil Case No. 91-10144, 27 which was opposed by
the GSIS through a Motion to Dismiss 28 dated October 25, 1991 on the ground that the
causes of action stated therein are barred by the twelve-month limitation provided under
the policies, i.e., the complaint was led more than one (1) year from the rejection of the
indemnity claims. The RTC, in an Order 29 dated May 13, 1993, denied the said motion;
hence, the GSIS led its answer 30 with counterclaims for litigation expenses, attorney's
fees, and exemplary damages. Subsequently, the GSIS led a Third Party Complaint 31 for
indemnification against Pool, the reinsurer.
The RTC Ruling
In a Judgment 32 dated February 3, 1999, the RTC granted petitioner's indemnity
claims. It held that: (a) the average clause provision in the policies which did not contain
the assent or signature of the petitioner cannot limit the GSIS' liability, for being
ine cacious and contrary to public policy; 33 (b) petitioner has established that the
damages it sustained were due to the peril insured against; 34 and (c) CAR Policy No.
88/086 was deemed renewed when the GSIS withheld the amount of PhP35,855.00
corresponding to the premium payable, 35 from the retentions it released to petitioner. 36
The RTC thereby declared the GSIS liable for petitioner's indemnity claims for the damages
brought about by the said typhoons, less the stipulated deductions under the policies, plus
6% legal interest from the dates of extrajudicial demand, as well as for attorney's fees and
costs of suit. It further dismissed for lack of merit GSIS's counterclaim and third party
complaint. 37
Dissatisfied, the GSIS elevated the matter to the CA.
The CA Ruling
In a Decision 38 dated March 13, 2001, the CA set aside and reversed the RTC
Judgment, thereby dismissing the complaint. It ruled that the complaint led on
September 27, 1991 was barred by prescription, having been commenced beyond the
twelve-month limitation provided under the policies, reckoned from the nal rejection of
the indemnity claims on April 26, 1990 and June 21, 1990.
The Issue Before the Court
The essential issue for the Court's resolution is whether or not the CA committed
reversible error in dismissing the complaint on the ground of prescription.

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 The Court's Ruling
The petition lacks merit.
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. 39
Section 10 40 of the General Conditions of the subject CAR Policies commonly read:
10. If a claim is in any respect fraudulent, or if any false declaration is made or
used in support thereof, or if any fraudulent means or devices are used by
the Insured or anyone acting on his behalf to obtain any bene t under this
Policy, or if a claim is made and rejected and no action or suit is
commenced within twelve months after such rejection or, in case of
arbitration taking place as provided herein, within twelve months after the
Arbitrator or Arbitrators or Umpire have made their award, all bene t
under this Policy shall be forfeited. (Emphases supplied)

In this relation, case law illumines that the prescriptive period for the insured's
action for indemnity should be reckoned from the "final rejection" of the claim. 41
Here, petitioner insists that the GSIS's letters dated April 26, 1990 and June 21,
1990 did not amount to a " nal rejection" of its claims, arguing that they were mere
tentative resolutions pending further action on petitioner's part or submission of proof in
refutation of the reasons for rejection. 42 Hence, its causes of action for indemnity did not
accrue on those dates.
The Court does not agree.
A perusal of the letter 43 dated April 26, 1990 shows that the GSIS denied
petitioner's indemnity claims wrought by Typhoons Biring and Huaning, it appearing that
no amount was recoverable under the policies. While the GSIS gave petitioner the
opportunity to dispute its ndings, neither of the parties pursued any further action on the
matter; this logically shows that they deemed the said letter as a rejection of the claims.
Lest it cause any confusion, the statement in that letter pertaining to any queries petitioner
may have on the denial should be construed, at best, as a form of notice to the former that
it had the opportunity to seek reconsideration of the GSIS's rejection. Surely, petitioner
cannot construe the said letter to be a mere "tentative resolution." In fact, despite its
disavowals, petitioner admitted in its pleadings 44 that the GSIS indeed denied its claim
through the aforementioned letter, but tarried in commencing the necessary action in
court.
The same conclusion obtains for the letter 45 dated June 21, 1990 denying
petitioner's indemnity claim caused by Typhoon Saling on a "no loss" basis due to the non-
renewal of the policies therefor before the onset of the said typhoon. The fact that
petitioner led a letter 46 of reconsideration therefrom dated April 18, 1991, considering
too the inaction of the GSIS on the same similarly shows that the June 21, 1990 letter was
also a final rejection of petitioner's indemnity claim.
As correctly observed by the CA, " nal rejection" simply means denial by the insurer
of the claims of the insured and not the rejection or denial by the insurer of the insured's
motion or request for reconsideration. 47 The rejection referred to should be construed as
the rejection in the first instance , 48 as in the two instances above-discussed.
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 Comparable to the foregoing is the Court's action in the case of Sun Insurance
O ce, Ltd. v. CA 4 9 wherein it debunked "[t]he contention of the respondents [therein] that
the one-year prescriptive period does not start to run until the petition for reconsideration
had been resolved by the insurer," holding that such view "runs counter to the declared
purpose for requiring that an action or suit be led in the Insurance Commission or in a
court of competent jurisdiction from the denial of the claim." 50 In this regard, the Court
rationalized that "uphold[ing] respondents' contention would contradict and defeat the very
principle which this Court had laid down. Moreover, it can easily be used by insured
persons as a scheme or device to waste time until any evidence which may be considered
against them is destroyed." 51 Expounding on the matter, the Court had this to say:
The crucial issue in this case is: When does the cause of action accrue?

In support of private respondent's view, two rulings of this Court have been
cited, namely, the case of Eagle Star Insurance Co. vs. Chia Yu ([supra note 41]),
where the Court held:

The right of the insured to the payment of his loss accrues from the
happening of the loss. However, the cause of action in an insurance
contract does not accrue until the insured's claim is nally rejected by the
insurer. This is because before such nal rejection there is no real
necessity for bringing suit.
and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151
[1968], holding that:

Since "cause of action" requires as essential elements not only a

legal right of the plaintiff and a correlated obligation of the defendant in
violation of the said legal right, the cause of action does not accrue until
the party obligated (surety) refuses, expressly or impliedly, to comply with
its duty (in this case to pay the amount of the bond)."
TICDSc

Indisputably, the above-cited pronouncements of this Court may be taken

to mean that the insured's cause of action or his right to le a claim either in the
Insurance Commission or in a court of competent jurisdiction [as in this case]
commences from the time of the denial of his claim by the Insurer, either
expressly or impliedly.
But as pointed out by the petitioner insurance company, the rejection
referred to should be construed as the rejection, in the rst instance, for if what is
being referred to is a reiterated rejection conveyed in a resolution of a petition for
reconsideration, such should have been expressly stipulated. 5 2

In light of the foregoing, it is thus clear that petitioner's causes of action for
indemnity respectively accrued from its receipt of the letters dated April 26, 1990 and
June 21, 1990, or the date the GSIS rejected its claims in the rst instance. Consequently,
given that it allowed more than twelve (12) months to lapse before ling the necessary
complaint before the RTC on September 27, 1991, its causes of action had already
prescribed.
WHEREFORE , the petition is DENIED . The Decision dated March 13, 2001 and the
Resolution dated February 21, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 63175
are hereby AFFIRMED .
SO ORDERED .
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 Sereno, C.J., Leonardo-de Castro, Bersamin and Perez, JJ., concur.

Footnotes

1. Erroneously titled as Petition for Certiorari. (Rollo, pp. 10-31.)

2. Id. at 34-46. Penned by Associate Justice Romeo J. Callejo, Jr. with Associate Justices
Renato C. Dacudao and Josefina Guevarra-Salonga, concurring.

3. Id. at 47.
4. Id. at 211-230. Penned by Judge Prudencio Altre Castillo, Jr.

5. Id. at 34.
6. Id. at 34-35.

7. Id. at 128-132.
8. Id. at 134-135.
9. Id. at 35-36.

10. Id. at 136-141.

11. Id. at 142-143.

12. Id. at 36.

13. Id. at 77.

14. See CAR Policies, General Conditions, paragraph 7; id. at 128 and 136 (reverse side).
15. See CAR Policies, General Conditions, paragraph 10; id.
16. See id. at 130 and 137.

17. See id. at 36-38.

18. Id. at 150-155.

19. Id. at 37 and 156-157.

20. Id. at 166-175.

21. Id. at 163-165.

22. Id. at 223.
23. Id. at 176.

24. Id. at 38.

25. Id. at 179-180.

26. Dated September 3, 1991. (Id. at 48-56.)

27. Id. at 38.

28. Id. at 57-59.

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 29. Id. at 65. Penned by Judge Ignacio D. Salvador.

30. Answer with Affirmative Defenses and Counterclaim Dated July 21, 1993. (Id. at 66-71.)
31. Dated October 11, 1993. (Id. at 76-78.)
32. Id. at 211-230.

33. Id. at 226.

34. Id. at 227.

35. Id. at 228.

36. See Memorandum dated November 9, 1989 of the GSIS Accounting Department to the GSIS
General Insurance Group; id. at 178.
37. Id. at 229-230.
38. Id. at 34-46.
39. Alpha Insurance and Surety Co. v. Castor, G.R. No. 198174, September 2, 2013, 704 SCRA
550, 556.
40. See rollo, pp. 128 and 136 (reverse side).

41. See Eagle Star Ins., Co., Ltd., et al. v. Chia Yu, 96 Phil. 696, 701-702 (1955), as cited in
Summit Guaranty and Insurance Co., Inc. v. Judge de Guzman, 235 Phil. 389, 399 (1987)
andTravellers Insurance & Surety Corporation v. CA, 338 Phil. 1032, 1043 (1997).
42. Rollo, pp. 24-25.
43. Id. at 163-165.

44. See paragraphs 7, 8, 12 and 13 of the Complaint; id. at 51-52. See also paragraph 1 of the
Opposition (Re: Motion to Dismiss) dated November 13, 1991; id. at 60-61.

45. Id. at 176.

46. Id. at 179-180.
47. Id. at 44.
48. See Sun Insurance Office, Ltd. v. CA, G.R. No. 89741, March 13, 1991, 195 SCRA 193, 199.
49. Id.

50. Id. at 198.

51. Id.
52. Id. at 198-199.

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