Pan Malayan Insurance Corp. vs. Court of Appeals



Facts:

In 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private respondents Erlinda Fabie and her driver. PANMALAY averred that: it is an insurer of a Mitsubishi Colt Lancer car registered in the name of Canlubang Automotive Resources Corporation; on May 26, 1985, due to the "carelessness, recklessness, and imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered damages in the amount of P42,052.00; PANMALAY defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of Canlubang against the driver of the pick-up and his employer, Erlinda Fabie; and, despite repeated demands, defendants, failed and refused to pay the claim of PANMALAY.

Private respondents filed a Motion for Bill of Particulars. In compliance therewith, PANMALAY clarified, among others, that the damage caused to the insured car was settled under the "own damage", coverage of the insurance policy, and that the driver of the insured car was, at the time of the accident, an authorized driver duly licensed to drive the vehicle. PANMALAY also submitted a copy of the insurance policy and the Release of Claim and Subrogation Receipt executed by CANLUBANG in favor of PANMALAY.

Private respondents filed a Motion to Dismiss alleging that PANMALAY had no cause of action against them. They argued that payment under the "own damage" clause of the insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification thereunder was made on the assumption that there was no wrongdoer or no third party at fault.

After hearing, the RTC issued an order dismissing PANMALAY's complaint for no cause of action. The RTC ruled that that payment by PANMALAY of Canlubang's claim under the "own damage" clause of the insurance policy was an admission by the insurer that the damage was caused by the assured and/or its representatives.

The Court of Appeals in upholding the RTC decision, held that Section III-1 of the policy, which was the basis for settlement of  Canlubang's claim, did not cover damage arising from collision or overturning due to the negligence of third parties as one of the insurable risks. 


Issue: 

Whether or not PANMALAY was legally subrogated to the rights of Canlubang. 


Held:

Yes. Article 2207 of the Civil Code provides: "If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract."

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.

There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of subrogation is defeated. Similarly, where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assured's claim for loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation. And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting "voluntary payment", the former has no right of subrogation against the third party liable for the loss. 

None of the exceptions are availing in the present case.

It must be emphasized that the lower court's ruling that the "own damage" coverage under the policy implies damage to the insured car caused by the assured itself, instead of third parties, proceeds from an incorrect comprehension of the phrase "own damage" as used by the insurer. When PANMALAY utilized the phrase "own damage" — a phrase which, incidentally, is not found in the insurance policy — to define the basis for its settlement of CANLUBANG's claim under the policy, it simply meant that it had assumed to reimburse the costs for repairing the damage to the insured vehicle. It is in this sense that the so-called "own damage" coverage under Section III of the insurance policy is differentiated from Sections I and IV-1 which refer to "Third Party Liability" coverage (liabilities arising from the death of, or bodily injuries suffered by, third parties) and from Section IV-2 which refer to "Property Damage" coverage (liabilities arising from damage caused by the insured vehicle to the properties of third parties).

Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section III-1 of the policy does not include to the insured vehicle arising from collision or overturning due to the negligent acts of the third party. Not only does it stem from an erroneous interpretation of the provisions of the section, but it also violates a fundamental rule on the interpretation of property insurance contracts.

PANMALAY contends that the coverage of insured risks under the above section, specifically Section III-1(a), is comprehensive enough to include damage to the insured vehicle arising from collision or overturning due to the fault or negligence of a third party. CANLUBANG is apparently of the same understanding. Based on a police report wherein the driver of the insured car reported that after the vehicle was sideswiped by a pick-up, the driver thereof fled the scene [Record, p. 20], CANLUBANG filed its claim with PANMALAY for indemnification of the damage caused to its car. It then accepted payment from PANMALAY, and executed a Release of Claim and Subrogation Receipt in favor of latter.

Considering that the very parties to the policy were not shown to be in disagreement regarding the meaning and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe meaning contrary to the clear intention and understanding of these parties.

For even if under the above circumstances PANMALAY could not be deemed subrogated to the rights of its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of action against private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan,  the Court ruled that the insurer who may have no rights of subrogation due to "voluntary" payment may nevertheless recover from the third party responsible for the damage to the insured property under Article 1236 of the Civil Code.





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