MELECIO COQUIA, MARIA ESPANUEVA AND MANILA YELLOW TAXICAB CO., INC., PLAINTIFFS-APPELLEES, VS. FIELDMEN’S INSURANCE CO., INC., DEFENDANT-APPELLANT.

Coquia versus Fieldmen's Insurance

The Case

This is a lecture on Coquia versus Fieldmen's Insurance, a case on insurance law and obligations decided by the Supreme Court in November 1968. The parents of a deceased taxicab driver, together with the taxicab operator that employed him, sued an insurance company to collect on a common carrier accident policy. The insurer resisted, arguing that the parents had no contract with it and that the operator had failed to submit the dispute to arbitration. The case matters because it is the clean illustration of the contract pour autrui — a contract containing a stipulation in favor of a third person — and of how an arbitration clause is waived when neither party invokes it.

Procedural History

The complaint was filed in the Court of First Instance of Manila. After appropriate proceedings, the trial court rendered a decision sentencing the insurance company to pay the plaintiffs four thousand pesos and the costs. The insurer appealed. The Court of Appeals certified the appeal to the Supreme Court because only questions of law were involved, the facts having been stipulated and admitted by the parties. The Supreme Court thus resolved the appeal on the law.

Facts

On December 1, 1961, Fieldmen's Insurance Company issued in favor of Manila Yellow Taxicab Company a common carrier accident insurance policy covering the period from December 1, 1961 to December 1, 1962. The policy promised to indemnify the insured against all sums it would become legally liable to pay for death or bodily injury to any fare-paying passenger, including the driver, conductor or inspector riding in the insured motor vehicle at the time of the accident.

While the policy was in force, on February 10, 1962, a taxicab of the insured, driven by Carlito Coquia, met a vehicular accident at Mangaldan, Pangasinan, and Carlito died. The insured filed a claim for five thousand pesos. The company offered two thousand pesos by way of compromise; the insured countered with four thousand pesos, which the company did not accept.

On September 18, 1962, the insured and Carlito's parents, Melecio Coquia and Maria Espanueva, filed a complaint against the company to collect the proceeds of the policy. The company admitted the existence of the policy but pleaded lack of cause of action on the part of the plaintiffs. It appears that the deceased driver paid fifty percent of the corresponding premiums, which were deducted from his weekly commissions.

Issues

• Whether or not the parents of the deceased driver, who are not parties to the insurance contract, have a direct cause of action against the insurance company.
• Whether or not the insured's failure to refer the dispute to arbitration, as required by the policy, bars the action.

Applicable Provisions

The second paragraph of Article 1311 of the Civil Code provides:

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he has communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person.

This is the provision that governs whether the driver's heirs may sue directly on a policy to which they are strangers.

Section 17 of the policy provides:

If any difference or dispute shall arise with respect to the amount of the Company's liability under this Policy, the same shall be referred to the decision of a single arbitrator to be agreed upon by both parties or failing such agreement of a single arbitrator, to the decision of two arbitrators, one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties and in case of disagreement between the arbitrators, to the decision of an umpire who shall have been appointed in writing by the arbitrators before entering on the reference and the costs of and incidental to the reference shall be dealt with in the Award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this Policy that the award by such arbitrator, arbitrators or umpire of the amount of the Company's liability hereunder if disputed shall be first obtained.

This clause is the basis of the insurer's second defense, that no action may be brought until an award is first obtained.

Ruling

On the first issue, the Court held that the parents have a direct cause of action. Although in general only parties to a contract may bring an action based thereon, that rule admits of exceptions, one of which is the second paragraph of Article 1311. The Court found the policy to be a typical contract pour autrui, a contract for the benefit of another. The policy itself provided that the company will indemnify any authorized driver driving the insured motor vehicle, and that in the event of the driver's death the company shall indemnify his personal representatives. It further provided that the company may, at its option, make indemnity payable directly to the claimants or heirs of claimants, it being the true intention of the policy to protect the liabilities of the insured toward the passengers and the public. The Court noted that this character was made more manifest by the fact that the deceased driver paid fifty percent of the premiums, deducted from his weekly commissions. Since the parents were the sole heirs of the deceased, they had a direct cause of action, and having been able to maintain the action themselves, they could properly join the insured in filing the complaint.

On the second issue, the Court held that the arbitration clause did not bar the action. The record showed that none of the parties invoked the clause or made any reference to arbitration during the negotiations, and counsel for both parties stipulated that neither had even suggested arbitration. Those acts and omissions amounted to a waiver of the right to demand arbitration. The Court adopted the reasoning that the obligation to procure arbitration is not imposed on either party alone, that the contract in this respect is neither unilateral nor self-executing, and that where neither party demands arbitration, both thereby waive it.

Doctrine

First, a contract containing a stipulation in favor of a third person — a contract pour autrui — may be enforced by that third person, although not a party to the contract, before the stipulation in his favor has been revoked by the contracting parties. The benefit must be clearly and deliberately conferred; a mere incidental benefit is not enough. Where an insurance policy expressly extends indemnity to the driver and, upon his death, to his personal representatives, the driver's heirs are beneficiaries with a direct cause of action.

Second, an arbitration clause in an insurance policy is not self-executing. It requires the joint and concurrent action of both parties, and where neither party demands arbitration and both proceed in disregard of the clause, both waive it, and the action may proceed.

Disposition

The Supreme Court affirmed the decision of the trial court in full, with costs against the insurance company.

Remember This

The one line to memorize: a policy that expressly indemnifies the driver and his personal representatives is a contract pour autrui, and the driver's heirs may sue on it directly. Examiners use this case to test the third-person stipulation exception under Article 1311 and the waiver of arbitration clauses by conduct.