SHERMAN SHAFER, PETITIONER, VS. HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY, BRANCH 75, AND MAKATI INSURANCE COMPANY, INC., RESPONDENTS.

Shafer versus Makati Insurance Company

The Case

This is a petition for review on certiorari brought by Sherman Shafer against the Regional Trial Court of Olongapo City, Branch 75, and Makati Insurance Company, Inc. The petitioner was the accused in a criminal case for reckless imprudence resulting in damage to property and serious physical injuries, a case in which the civil aspect was impliedly instituted with the criminal action. He sought to implead his motor vehicle insurer as a third party defendant, and the trial court dismissed his third party complaint as premature. The case matters because it fixes the moment when the insurer's liability under a compulsory motor vehicle liability insurance policy accrues, and because it tells us that the rules on third party complaints may be used even inside a criminal prosecution to avoid a multiplicity of suits.

Procedural History

Shafer was charged before the Regional Trial Court of Olongapo City, Branch 75, with reckless imprudence resulting in damage to property and serious physical injuries. With leave of court granted by the former presiding judge, he filed a third party complaint against Makati Insurance Company, Inc. The insurance company moved to vacate the order granting leave and to dismiss the third party complaint. The trial court issued an order dismissing the third party complaint on the ground that it was premature, reasoning that unless the accused is first found guilty and sentenced to pay the offended party indemnity or damages, the third party complaint states no cause of action. The trial court added that the better procedure was for the accused to await the outcome of the criminal aspect of the case. Shafer moved for reconsideration, and the motion was denied. He then came to the Supreme Court by petition for review on certiorari.

Facts

On 2 January 1985, Sherman Shafer obtained a private car policy over his Ford Laser car from Makati Insurance Company, Inc., for third party liability. While the policy was in effect, an information for reckless imprudence resulting in damage to property and serious physical injuries was filed against him. The information alleged that on or about 17 May 1985, in Olongapo City, he drove his Ford Laser car in a careless, reckless, and imprudent manner, causing it to hit and bump a Volkswagen car owned and driven by Felino Ilano, causing damage in the total amount of 12,345 pesos, and injuring Jovencio Poblete, Senior, a passenger of the Volkswagen car, who sustained lacerations of the tongue, the face, and the lower lip.

The owner of the damaged Volkswagen car filed a separate civil action for damages against Shafer. Jovencio Poblete, Senior, however, did not reserve his right to file a separate civil action. Instead, during the trial of the criminal case, he testified on his claim for damages for the serious physical injuries he claimed to have sustained from the accident.

Shafer then obtained leave to file a third party complaint against Makati Insurance Company, Inc., based on its liability under the private car insurance policy. The insurance company moved to vacate the order granting leave and to dismiss the third party complaint. The trial court dismissed the third party complaint as premature, holding that the accused must first be found guilty and sentenced to pay indemnity before any cause of action could arise against the insurer. Reconsideration was denied, and Shafer elevated the matter to the Supreme Court.

Issues

• Whether or not the trial court erred in dismissing the third party complaint on the ground that the petitioner had no cause of action yet against the insurance company.
• Whether or not the accused in a criminal action for reckless imprudence, where the civil action is jointly prosecuted, may legally implead the insurance company as a third party defendant under its private car insurance policy, as one of his modes of defense in the civil aspect of the proceedings.

Applicable Provisions

Section 374, Chapter VI of the Insurance Code of the Philippines, on compulsory motor vehicle liability insurance, provides:

Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of the negligent operation and use of motor vehicles.

This provision anchors the Court's holding that the insurance is meant to compensate injured third parties immediately, regardless of the financial capacity of the motor vehicle owner.

Ruling

On the first issue, the Court held that the trial court erred in dismissing the third party complaint for lack of a cause of action. The Court ruled that there is no need for the insured to wait for a judgment finding him guilty of reckless imprudence, because the occurrence of the injury to the third party immediately gave rise to the liability of the insurer under its policy. The Court explained that where an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured.

On the second issue, the Court held that the accused may implead the insurer as a third party defendant. A third party complaint is a device allowed by the rules of procedure by which the defendant can bring into the original suit a party against whom he will have a claim for indemnity or remuneration as a result of a liability established against him in the original suit. Third party complaints are allowed to minimize the number of lawsuits and avoid the necessity of bringing two or more actions involving the same subject matter. If it appears probable that a second action will result if the plaintiff prevails, and that this result can be avoided by allowing the third party complaint to remain, then the motion to dismiss should be denied. The Court added that not even a no action clause in the policy, requiring a final judgment against the insured before recovery, can prevail over the Rules of Court provisions aimed at avoiding a multiplicity of suits.

The Court also rejected the argument that the third party complaint would clutter and delay the criminal case. An offense causes two classes of injuries: the social injury produced by the criminal act, repaired through the imposition of the corresponding penalty, and the personal injury caused to the victim, compensated through indemnity, which is civil in nature. Since the civil aspect of the offense charged was impliedly instituted with the criminal case, the petitioner may raise all defenses available to him in both the criminal and civil aspects. His claim against the insurer arose from the very offense charged, so it cannot be regarded as unrelated to the criminal action.

Doctrine

Under a compulsory motor vehicle liability insurance policy, the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured. The injured party may sue the insurer directly, and the insured is not prevented from availing of the procedural rules intended to avoid a multiplicity of suits. A third party complaint is a device by which the defendant may bring into the original suit a party against whom he will have a claim for indemnity or remuneration as a result of a liability established against him in the original suit, and it is allowed to minimize the number of lawsuits. Even a no action clause in the policy cannot prevail over the Rules of Court provisions aimed at avoiding a multiplicity of suits.

Disposition

The petition was granted. The order dismissing the third party complaint was set aside, and a new one was entered admitting the petitioner's third party complaint against Makati Insurance Company, Inc.

Remember This

The single line worth memorizing is that the insurer's liability under a compulsory motor vehicle liability policy accrues immediately upon the occurrence of the injury, not upon final judgment against the insured. Examiners use this case on the accrual of the insurer's liability and on the propriety of a third party complaint to avoid a multiplicity of suits.