1. G.R. No.

81026 April 3, 1990

PAN MALAYAN INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents.

Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a decision of the Court of Appeals which upheld an
order of the trial court dismissing for no cause of action PANMALAY's complaint for damages against private respondents Erlinda
Fabie and her driver.

The principal issue presented for resolution before this Court is whether or not the insurer PANMALAY may institute an action to
recover the amount it had paid its assured in settlement of an insurance claim against private respondents as the parties allegedly
responsible for the damage caused to the insured vehicle.

On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private respondents Erlinda Fabie
and her driver. PANMALAY averred the following: that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered
in the name of Canlubang Automotive Resources Corporation [CANLUBANG]; that 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; that 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 that, despite repeated demands, defendants,
failed and refused to pay the claim of PANMALAY.

Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion thereto. 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.

On February 12, 1986, 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 hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued an order dated June 16, 1986 dismissing
PANMALAY's complaint for no cause of action. On August 19, 1986, the RTC denied PANMALAY's motion for reconsideration.

On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on November 27, 1987. Consequently,
PANMALAY filed the present petition for review.

After private respondents filed its comment to the petition, and petitioner filed its reply, the Court considered the issues joined and the
case submitted for decision.

Deliberating on the various arguments adduced in the pleadings, the Court finds merit in the petition.

PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had indemnified CANLUBANG for the
damage to the insured car resulting from a traffic accident allegedly caused by the negligence of the driver of private respondent, Erlinda
Fabie. PANMALAY contended, therefore, that its cause of action against private respondents was anchored upon Article 2207 of the
Civil Code, which reads:

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. . . .

PANMALAY is correct.

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 [Compania Maritima
v. Insurance Company of North America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213; Fireman's Fund Insurance Company v.
Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].

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 [Phoenix Ins. Co. of Brooklyn v. Erie & Western
Transport, Co., 117 US 312, 29 L. Ed. 873 (1886); Insurance Company of North America v. Elgin, Joliet & Eastern Railway Co., 229
F 2d 705 (1956)]. 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 [McCarthy v. Barber Steamship Lines, Inc., 45 Phil. 488 (1923)]. 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 [Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, G. R. No. L-
22146, September 5, 1967, 21 SCRA 12].

None of the exceptions are availing in the present case.

The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legally subrogated under Article 2207
of the Civil Code to the rights of CANLUBANG, and therefore did not have any cause of action against private respondents. On the one
hand, the trial court held 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. On the other hand, the
Court of Appeals in applying the ejusdem generis rule 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. Both tribunals concluded that PANMALAY could not now invoke Article 2207 and claim reimbursement from private
respondents as alleged wrongdoers or parties responsible for the damage.

The above conclusion is without merit.

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 [See PANMALAY's Compliance with Supplementary Motion for Bill of
Particulars, p. 1; Record, p. 31]. 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.

It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense and meaning of
the terms which the parties thereto have used. In the case of property insurance policies, the evident intention of the contracting
parties, i.e., the insurer and the assured, determine the import of the various terms and provisions embodied in the policy. It is only when
the terms of the policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of particular
provisions, that the courts will intervene. In such an event, the policy will be construed by the courts liberally in favor of the assured
and strictly against the insurer [Union Manufacturing Co., Inc. v. Philippine Guaranty Co., Inc., G.R., No. L-27932, October 30, 1972,
47 SCRA 271; National Power Corporation v. Court of Appeals, G.R. No. L-43706, November 14, 1986, 145 SCRA 533; Pacific
Banking Corporation v. Court of Appeals, G.R. No. L-41014, November 28, 1988, 168 SCRA 1. Also Articles 1370-1378 of the Civil
Code].

Section III-1 of the insurance policy which refers to the conditions under which the insurer PANMALAY is liable to indemnify the
assured CANLUBANG against damage to or loss of the insured vehicle, reads as follows:

SECTION III — LOSS OR DAMAGE

1. The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Scheduled
Vehicle and its accessories and spare parts whilst thereon: —
 (a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or
consequent upon wear and tear;

(b) by fire, external explosion, self ignition or lightning or burglary, housebreaking or theft;

(c) by malicious act;

(d) whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland,
waterway, lift or elevator.

xxx xxx xxx

[Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars; Record, p. 34; Emphasis
supplied].

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.

It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by accidental collision or overturning"
found in the first paint of sub-paragraph (a) is untenable. Although the terms "accident" or "accidental" as used in insurance contracts
have not acquired a technical meaning, the Court has on several occasions defined these terms to mean that which takes place "without
one's foresight or expectation, an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore,
not expected" [De la Cruz v. The Capital Insurance & Surety Co., Inc., G.R. No. L-21574, June 30, 1966, 17 SCRA 559; Filipino
Merchants Insurance Co., Inc. v. Court of Appeals, G.R. No. 85141, November 28, 1989]. Certainly, it cannot be inferred from
jurisprudence that these terms, without qualification, exclude events resulting in damage or loss due to the fault, recklessness or
negligence of third parties. The concept "accident" is not necessarily synonymous with the concept of "no fault". It may be utilized
simply to distinguish intentional or malicious acts from negligent or careless acts of man.

Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, the insured vehicle due to negligent or
careless acts of third parties is not listed under the general and specific exceptions to the coverage of insured risks which are enumerated
in detail in the insurance policy itself [See Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of
Particulars, supra.]

The Court, furthermore. finds it noteworthy that the meaning advanced by PANMALAY regarding the coverage of Section III-1(a) of
the policy is undeniably more beneficial to CANLUBANG than that insisted upon by respondents herein. By arguing that this section
covers losses or damages due not only to malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a
more comprehensive coverage of insured risks. And this, in the final analysis, is more in keeping with the rationale behind the various
rules on the interpretation of insurance contracts favoring the assured or beneficiary so as to effect the dominant purpose of indemnity
or payment [SeeCalanoc v. Court of Appeals, 98 Phil. 79 (1955); Del Rosario v. The Equitable Insurance and Casualty Co., Inc., G.R.
No. L-16215, June 29, 1963, 8 SCRA 343; Serrano v. Court of Appeals, G.R. No. L-35529, July 16, 1984, 130 SCRA 327].

Parenthetically, even assuming for the sake of argument that Section III-1(a) of the insurance policy does not cover damage to the
insured vehicle caused by negligent acts of third parties, and that PANMALAY's settlement of CANLUBANG's claim for damages
allegedly arising from a collision due to private respondents' negligence would amount to unwarranted or "voluntary payment", dismissal
of PANMALAY's complaint against private respondents for no cause of action would still be a grave error of law.

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, supra., 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.
In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as subrogee merely prays that it be allowed to
institute an action to recover from third parties who allegedly caused damage to the insured vehicle, the amount which it had paid its
assured under the insurance policy. Having thus shown from the above discussion that PANMALAY has a cause of action against third
parties whose negligence may have caused damage to CANLUBANG's car, the Court holds that there is no legal obstacle to the filing
by PANMALAY of a complaint for damages against private respondents as the third parties allegedly responsible for the damage.
Respondent Court of Appeals therefore committed reversible error in sustaining the lower court's order which dismissed PANMALAY's
complaint against private respondents for no cause of action. Hence, it is now for the trial court to determine if in fact the damage caused
to the insured vehicle was due to the "carelessness, recklessness and imprudence" of the driver of private respondent Erlinda Fabie.

WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's complaint for damages against private
respondents is hereby REINSTATED. Let the case be remanded to the lower court for trial on the merits.

2. G.R. No. L-52756 October 12, 1987

MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner,

vs.

COURT OF APPEALS AND ZENITH INSURANCE CORPORATION, respondents.

PADILLA, J:

Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-08642, dated 21 March 1979, ordering petitioner Manila
Mahogany Manufacturing Corporation to pay private respondent Zenith Insurance Corporation the sum of Five Thousand Pesos
(P5,000.00) with 6% annual interest from 18 January 1973, attorney's fees in the sum of five hundred pesos (P500.00), and costs of suit,
and the resolution of the same Court, dated 8 February 1980, denying petitioner's motion for reconsideration of it's decision.

From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan with respondent insurance company. On 4
May 1970 the insured vehicle was bumped and damaged by a truck owned by San Miguel Corporation. For the damage caused,
respondent company paid petitioner five thousand pesos (P5,000.00) in amicable settlement. Petitioner's general manager executed a
Release of Claim, subrogating respondent company to all its right to action against San Miguel Corporation.

On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand reimbursement from San Miguel Corporation
of the amount it had paid petitioner. Insurance Adjusters, Inc. refused reimbursement, alleging that San Miguel Corporation had already
paid petitioner P4,500.00 for the damages to petitioner's motor vehicle, as evidenced by a cash voucher and a Release of Claim executed
by the General Manager of petitioner discharging San Miguel Corporation from "all actions, claims, demands the rights of action that
now exist or hereafter [sic] develop arising out of or as a consequence of the accident."

Respondent insurance company thus demanded from petitioner reimbursement of the sum of P4,500.00 paid by San Miguel Corporation.
Petitioner refused; hence, respondent company filed suit in the City Court of Manila for the recovery of P4,500.00. The City Court
ordered petitioner to pay respondent P4,500.00. On appeal the Court of First Instance of Manila affirmed the City Court's decision in
toto, which CFI decision was affirmed by the Court of Appeals, with the modification that petitioner was to pay respondent the total
amount of P5,000.00 that it had earlier received from the respondent insurance company.

Petitioner now contends it is not bound to pay P4,500.00, and much more, P5,000.00 to respondent company as the subrogation in the
Release of Claim it executed in favor of respondent was conditioned on recovery of the total amount of damages petitioner had sustained.
Since total damages were valued by petitioner at P9,486.43 and only P5,000.00 was received by petitioner from respondent, petitioner
argues that it was entitled to go after San Miguel Corporation to claim the additional P4,500.00 eventually paid to it by the latter, without
having to turn over said amount to respondent. Respondent of course disputes this allegation and states that there was no qualification
to its right of subrogation under the Release of Claim executed by petitioner, the contents of said deed having expressed all the intents
and purposes of the parties.

To support its alleged right not to return the P4,500.00 paid by San Miguel Corporation, petitioner cites Art. 2207 of the Civil Code,
which states:

If the plaintiff's 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. If the amount paid by the insurance company does not fully cover the injury or
loss the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

Petitioner also invokes Art. 1304 of the Civil Code, stating.

A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred to the person
who has been subrogated in his place in virtue of the partial payment of the same credit.

We find petitioners arguments to be untenable and without merit. In the absence of any other evidence to support its allegation that a
gentlemen's agreement existed between it and respondent, not embodied in the Release of Claim, such ease of Claim must be taken as
the best evidence of the intent and purpose of the parties. Thus, the Court of Appeals rightly stated:

Petitioner argues that the release claim it executed subrogating Private respondent to any right of action it had against San Miguel
Corporation did not preclude Manila Mahogany from filing a deficiency claim against the wrongdoer. Citing Article 2207, New Civil
Code, to the effect that if the amount paid by an insurance company does not fully cover the loss, the aggrieved party shall be entitled
to recover the deficiency from the person causing the loss, petitioner claims a preferred right to retain the amount coming from San
Miguel Corporation, despite the subrogation in favor of Private respondent.

Although petitioners right to file a deficiency claim against San Miguel Corporation is with legal basis, without prejudice to the insurer's
right of subrogation, nevertheless when Manila Mahogany executed another release claim (Exhibit K) discharging San Miguel
Corporation from "all actions, claims, demands and rights of action that now exist or hereafter arising out of or as a consequence of the
accident" after the insurer had paid the proceeds of the policy- the compromise agreement of P5,000.00 being based on the insurance
policy-the insurer is entitled to recover from the insured the amount of insurance money paid (Metropolitan Casualty Insurance Company
of New York vs. Badler, 229 N.Y.S. 61, 132 Misc. 132 cited in Insurance Code and Insolvency Law with comments and annotations,
H.B. Perez 1976, p. 151). Since petitioner by its own acts released San Miguel Corporation, thereby defeating private respondents, the
right of subrogation, the right of action of petitioner against the insurer was also nullified. (Sy Keng & Co. vs. Queensland Insurance
Co., Ltd., 54 O.G. 391) Otherwise stated: private respondent may recover the sum of P5,000.00 it had earlier paid to petitioner. 1

As held in Phil. Air Lines v. Heald Lumber Co., 2

If a property is insured and the owner receives the indemnity from the insurer, it is provided in [Article 2207 of the New Civil Code]
that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not
fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. ... Under this legal provision, the real party in
interest with regard to the portion of the indemnity paid is the insurer and not the insured 3 (Emphasis supplied)

The decision of the respondent court ordering petitioner to pay respondent company, not the P4,500.00 as originally asked for, but
P5,000.00, the amount respondent company paid petitioner as insurance, is also in accord with law and jurisprudence. In disposing of
this issue, the Court of Appeals held:

... petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel Corporation under its clear right to file a deficiency claim for
damages incurred, against the wrongdoer, should the insurance company not fully pay for the injury caused (Article 2207, New Civil
Code). However, when petitioner released San Miguel Corporation from any liability, petitioner's right to retain the sum of P5,000.00
no longer existed, thereby entitling private respondent to recover the same. (Emphasis supplied)

As has been observed:

... The right of subrogation can only exist after the insurer has paid the otherwise the insured will be deprived of his right to full
indemnity. If the insurance proceeds are not sufficient to cover the damages suffered by the insured, then he may sue the party responsible
for the damage for the the [sic] remainder. To the extent of the amount he has already received from the insurer enjoy's [sic] the right of
subrogation.

Since the insurer can be subrogated to only such rights as the insured may have, should the insured, after receiving payment from the
insurer, release the wrongdoer who caused the loss, the insurer loses his rights against the latter. But in such a case, the insurer will be
entitled to recover from the insured whatever it has paid to the latter, unless the release was made with the consent of the insurer. 4
(Emphasis supplied.)

And even if the specific amount asked for in the complaint is P4,500.00 only and not P5,000.00, still, the respondent Court acted well
within its discretion in awarding P5,000.00, the total amount paid by the insurer. The Court of Appeals rightly reasoned as follows:

It is to be noted that private respondent, in its companies, prays for the recovery, not of P5,000.00 it had paid under the insurance policy
but P4,500.00 San Miguel Corporation had paid to petitioner. On this score, We believe the City Court and Court of First Instance erred
in not awarding the proper relief. Although private respondent prays for the reimbursement of P4,500.00 paid by San Miguel
Corporation, instead of P5,000.00 paid under the insurance policy, the trial court should have awarded the latter, although not prayed
for, under the general prayer in the complaint "for such further or other relief as may be deemed just or equitable, (Rule 6, Sec. 3,
Revised Rules of Court; Rosales vs. Reyes Ordoveza, 25 Phil. 495 ; Cabigao vs. Lim, 50 Phil. 844; Baguiro vs. Barrios Tupas, 77 Phil
120).
WHEREFORE, premises considered, the petition is DENIED. The judgment appealed from is hereby AFFIRMED with costs against
petitioner.