F.F. CRUZ and CO., INC. vs.

 CA

GR. No. L-52732, August 29, 1988

Doctrine: Upon payment of the loss incurred by the insured, the insurer is entitled to be
subrogated pro tanto to any right of action which the insured may have against the third person
whose negligence or wrongful act caused the loss. Under Art. 2207, the real party in interest with
regard to the indemnity received by the insured is the insurer.

Recit-Ready Summary: The furniture manufacturing shop of petitioner in Caloocan City was
situated adjacent to the residence of private respondents. Sometime in August 1971, private
respondent Gregorio Mable first approached Eric Cruz, petitioner’s plant manager, to request that a
firewall be constructed between the shop and private respondents’ residence. The request was
repeated several times but they fell on deaf ears. In the early morning of September 6, 1974, fire
broke out in petitioner’s shop. The fire spread to private respondents’ house. Both the shop and the
house were razed to the ground. The cause of the conflagration was never discovered. Subsequently,
private respondents collected P35,000.00 on the insurance on their house and the contents thereof.
On January 23, 1975, private respondents filed an action for damages against petitioner. The issue in
this case is whether or not the respondent may still recover from petitioner notwithstanding the
indemnity paid by the insurer. The Court ruled that upon payment of the loss incurred by the insured,
the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have
against the third person whose negligence or wrongful act caused the loss.

Facts: The furniture manufacturing shop of petitioner in Caloocan City was situated adjacent to the
residence of private respondents. Sometime in August 1971, private respondent Gregorio Mable first
approached Eric Cruz, petitioner’s plant manager, to request that a firewall be constructed between
the shop and private respondents’ residence. The request was repeated several times but they fell on
deaf ears. In the early morning of September 6, 1974, fire broke out in petitioner’s shop. Petitioner’s
employees, who slept in the shop premises, tried to put out the fire, but their efforts proved futile.
The fire spread to private respondents’ house. Both the shop and the house were razed to the ground.
The cause of the conflagration was never discovered. Subsequently, private respondents collected
P35,000.00 on the insurance on their house and the contents thereof. On January 23, 1975, private
respondents filed an action for damages against petitioner.
The Court of First Instance held for private respondents. On appeal, the Court of Appeals
affirmed the decision of the trial court but reduced the award of damages. But Petitioner contends
that the Court of Appeals erred in not deducting the sum of P35,000.00, which private respondents
recovered on the insurance on their house, from the award of damages.
Hence, petitioner filed the instant petition for review.

Issue: Whether or not the respondents may still recover from petitioner notwithstanding the
indemnity paid by the insurer.

Held: Yes. Art. 2207. 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 is subrogated to the rights of the insured against the
wrongdoer or the person who 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. 
The law is clear and needs no interpretation. Having been indemnified by their insurer,
private respondents are only entitled to recover the deficiency from petitioner. On the other hand, the
insurer, if it is so minded, may seek reimbursement of the amount it indemnified private respondents
from petitioner. This is the essence of its right to be subrogated to the rights of the insured, as
expressly provided in Article 2207. Upon payment of the loss incurred by the insured, the insurer is
entitled to be subrogated pro tanto to any right of action which the insured may have against the
third person whose negligence or wrongful act caused the loss.
Under Article 2207, the real party in interest with regard to the indemnity received by the
insured is the insurer. Whether or not the insurer should exercise the rights of the insured to which it
had been subrogated lies solely within the former’s sound discretion. Since the insurer is not a party
to the case, its identity is not of record and no claim is made on its behalf, the private respondent’s
insurer has to claim his right to reimbursement of the P35,000.00 paid to the insured.