When the insured violated a condition of a fire insurance factory.
factory. The Court has combed the records and found
policy providing for the non-transfer of the property insured
without the insurer’s consent, the violation thereof which
results into an increase of risk, entitles the insurer to rescind
the contract.
FACTS:
Malayan issued a fire insurance policy over PAP’s
machineries and equipment, located in the Sanyo Factory in
PEZA, effective for 1 year and was thereafter renewed for
another year.
During the subsistence of the renewed policy, the insured
machineries and equipment were totally lost by fire and PAP
filed a claim.
Malayan denied the claim on the ground that, at the time
of the loss, the insured properties were transferred by
PAP to a location different from that indicated in the
policy (Pace Factory still in PEZA).
PAP argued that Malayan cannot escape liability as it was
informed of the transfer by RCBC, the party duty-bound to
relay such information.
RTC: Malayan is liable to pay PAP under the insurance
policy because although there was a change in the condition
of the thing insured as a result of the transfer to another
location, the insurance company failed to show proof that
such transfer resulted in the increase of the risk insured
against.
CA: Affirmed RTC decision
Issue:
Whether or not PAP Co. can claim the proceeds of the fire
insurance
Whether or not the transfer from the Sanyo Factory to the
PACE Factory increased the risk
Ruling: NO.
 Condition No. 9(c) of the renewal policy provides:
9. Under any of the following circumstances the insurance
ceases to attach as regards the property affected unless the
insured, before the occurrence of any loss or damage, obtains
the sanction of the company signified by endorsement upon
the policy, by or on behalf of the Company:
xxx xxx xxx
(c) If property insured be removed to any building or place
other than in that which is herein stated to be insured.
Evidently, by the clear and express condition in the renewal
policy, the removal of the insured property to any building
or place required the consent of Malayan. Any transfer
effected by the insured, without the insurer’s consent, would
free the latter from any liability.
In this case, the respondent failed to notify, and to obtain the
consent of, Malayan regarding the removal
The records are bereft of any convincing and concrete
evidence that Malayan was notified of the transfer of the
insured properties from the Sanyo factory to the Pace
nothing that would show that Malayan was duly notified of
the transfer of the insured properties.
The transfer from the Sanyo Factory to the PACE
Factory increased the risk.
With regards to the exposure of the risk under the old
location, this was occupied as factory of
automotive/computer parts by the assured, and factory of
zinc & aluminum die cast, plastic gear for copy machine by
Sanyo Precision Phils., Inc. with a rate of 0.449% under
6.1.2 A. But under Pace Pacific Mfg. Corporation this was
occupied as factory that repacks silicone sealant to plastic
cylinders with a rate of 0.657% under 6.1.2 A. Hence, there
was an increase in the hazard as indicated by the increase in
rate The Court agrees with Malayan that the transfer to the
Pace Factory exposed the properties to a hazardous
environment and negatively affected the fire rating stated in
the renewal policy. The increase in tariff rate from 0.449%
to 0.657% put the subject properties at a greater risk of loss.
Such increase in risk would necessarily entail an increase in
the premium payment on the fire policy.
Considering that the original policy was renewed on an "as
is basis," it follows that the renewal policy carried with it the
same stipulations and limitations. The terms and conditions
in the renewal policy provided, among others, that the
location of the risk insured against is at the Sanyo factory in
PEZA. The subject insured properties, however, were totally
burned at the Pace Factory. Although it was also located in
PEZA, Pace Factory was not the location stipulated in the
renewal policy. There being an unconsented removal, the
transfer was at PAP’s own risk. Consequently, it must suffer
the consequences of the fire.
Hence, Malayan is entitled to rescind the insurance contract
Under Section 168 of the Insurance Code, the insurer is
entitled to rescind the insurance contract in case of an
alteration in the use or condition of the thing insured. Section
168 of the Insurance Code provides, as follows: aD
Section 68. An alteration in the use or condition of a thing
insured from that to which it is limited by the policy made
without the consent of the insurer, by means within the
control of the insured, and increasing the risks, entitles an
insurer to rescind a contract of fire insurance.
Accordingly, an insurer can exercise its right to rescind an
insurance contract when the following conditions are
present, to wit:
1) the policy limits the use or condition of the
thing insured; 
 2) there is an alteration in said
use or condition;

 3) the alteration is without the consent of the
insurer;

 4) the alteration is made by means within the
insured's control; and

 5) the alteration increases the risk of loss.
In the case at bench, all these circumstances are present. It
was clearly established that the renewal policy stipulated that
the insured properties were located at the Sanyo factory; that
PAP removed the properties without the consent of Malayan;
and that the alteration of the location increased the risk of
loss.

Petition was granted