PERLA COMPANIA DE SEGUROS, INC., PETITIONER, VS. HONORABLE COURT OF APPEALS AND MILAGROS CAYAS, RESPONDENTS.

Perla Compania de Seguros versus Cayas

The Case

This is a petition for review on certiorari brought by Perla Compania de Seguros against Milagros Cayas, the registered owner of an insured passenger bus. Cayas had been held liable for injuries suffered by her passengers in a vehicular accident, and she in turn sued the insurer to recover what she had paid and what had been taken from her in execution. The case matters because it fixes the measure of an insurer's liability under a passenger accident policy: the contract governs, its per person and per accident limits are binding, and an indemnity may not be turned into a source of enrichment.

Procedural History

Cayas first filed a complaint against the insurer in the Office of the Insurance Commissioner, praying for payment of forty thousand pesos, but she later withdrew it upon realizing her procedural mistake. She then filed a complaint for a sum of money and damages in the Court of First Instance of Cavite. That case was dismissed when she failed to prosecute, but upon her motion for reconsideration the dismissal was set aside. Because the insurer filed no answer, she moved to have it declared in default, and judgment by default was rendered in her favor. That default judgment was set aside on the insurer's motion, and trial followed. The trial court rendered judgment ordering the insurer to pay fifty thousand pesos under its maximum liability, plus five thousand pesos as attorney's fees, with costs. The insurer appealed to the Court of Appeals, which affirmed the trial court's decision in full. Its motion for reconsideration having been denied, the insurer came to the Supreme Court by petition for review on certiorari.

Facts

Milagros Cayas owned a Mazda passenger bus, insured with Perla Compania de Seguros under a policy issued in February 1978. On December 17, 1978, the bus figured in an accident in Naic, Cavite, injuring several passengers. One of them, nineteen year old Edgardo Perea, sued Cayas for damages. At the pre-trial, Cayas failed to appear and was declared in default, and after trial the court ordered her to pay Perea damages for medical expenses, exemplary damages, moral damages, and attorney's fees. Three other injured passengers, Rosario del Carmen, Ricardo Magsarili, and Charlie Antolin, each settled with Cayas for four thousand pesos.

When the judgment in Perea's case was about to be executed against her, Cayas filed a complaint against the insurer with the Office of the Insurance Commissioner, which she later withdrew. She then sued the insurer in the Court of First Instance of Cavite, alleging that her house and lot had been levied upon and sold at public auction for thirty eight thousand two hundred pesos, and that she had paid four thousand pesos to each of the three other passengers. She claimed reimbursement, moral damages, and attorney's fees.

After the default judgment was set aside and trial held, the trial court found the insurer liable, holding that it could not escape its obligation by blaming Cayas for the loss of the Naic case, since it was not shown that a favorable judgment could have been obtained had that case gone to trial on the merits. The Court of Appeals affirmed in full. The insurer then elevated the matter to the Supreme Court, contending that its liability should be limited to twelve thousand pesos, and that it should not answer for the payments to the three other passengers.

Issues

• Whether or not the findings that Cayas lost the Naic case through her own negligence, and that the judgment in that case was never executed, may still be raised before the Supreme Court.
• Whether or not the insurer's liability is limited to twelve thousand pesos per person under the terms of the insurance policy.
• Whether or not Cayas may recover reimbursement of the four thousand pesos she paid to each of the three other passengers without the insurer's written consent.
• Whether or not the insurer may be held liable for fifty thousand pesos when the total loss proven was only forty four thousand pesos.

Applicable Provisions

The insurance policy's limit of liability clause provides:

The Limit of Liability stated in Schedule A as applicable (a) to THIRD PARTY is the limit of the Company's liability for all damages arising out of death, bodily injury and damage to property combined so sustained as the result of any one accident; (b) "per person" for PASSENGER liability is the limit of the Company's liability for all damages arising out of death or bodily injury sustained by one person as the result of any one accident; (c) "per accident" for PASSENGER liability is, subject to the above provision respecting per person, the total limit of the Company's liability for all such damages arising out of death or bodily injury sustained by two or more persons as the result of any one accident.

This clause fixes the ceiling of the insurer's obligation at twelve thousand pesos per person and fifty thousand pesos per accident, and it is the provision the Court upholds as valid and binding.

The policy's condition on settlements provides:

No admission, offer, promise or payment shall be made by or on behalf of the Insured without the written consent of the Company which shall be entitled, if it so desires, to take over and conduct in his name the defense or settlement of any claim, or to prosecute in his name for its own benefit any claim for indemnity or damages or otherwise, and shall have full discretion in the conduct of any proceedings in the settlement of any claim, and the insured shall give all such information and assistance as the Company may require. If the Company shall make any payment in settlement of any claim, and such payment includes any amount not covered by this Policy, the Insured shall repay the Company the amount not so covered.

This condition bars reimbursement of the voluntary settlements Cayas made without the insurer's written consent.

Section 377 of Presidential Decree No. 612, retained by the Insurance Code of 1978, fixed the minimum liability of land transportation vehicle operators for bodily injuries sustained by a passenger at twelve thousand pesos, and the Court uses it to test the validity of the stipulated limit.

Ruling

On the first issue, the Court held that the insurer's assertions that Cayas lost the Naic case through her negligence, and that the judgment in that case was never executed, are questions of fact. Having been raised and threshed out in the Court of Appeals and rejected there, they may no longer be addressed to the Supreme Court.

On the second issue, the Court ruled that the insurer's liability is limited to twelve thousand pesos per person. The policy explicitly limits liability to twelve thousand pesos per person and fifty thousand pesos per accident. That amount complied with the minimum fixed by the law then prevailing, so the stipulation is not contrary to law, morals, good customs, public order, or public policy, and must be upheld as effective, valid, and binding between the parties. The Court recalled its ruling in Stokes versus Malayan Insurance that the terms of the contract constitute the measure of the insurer's liability, and that compliance with them is a condition precedent to the insured's right of recovery.

On the third issue, the Court ruled that Cayas is precluded from seeking reimbursement of the payments to del Carmen, Magsarili, and Antolin. The condition requiring the insurer's written consent before any payment in settlement of any claim is valid and binding, and there is nothing unreasonable, arbitrary, or objectionable in it, since it was obviously designed to safeguard the insurer's interest against collusion between the insured and the claimants. Cayas herself admitted on cross-examination that she did not secure the insurer's written authority for those payments.

On the fourth issue, the Court ruled that making the insurer liable for fifty thousand pesos when only forty four thousand pesos of loss was proven is patent error. An insurance indemnity is merely an assistance or restitution insofar as can be fairly ascertained, and cannot be availed of by any accident victim or claimant as an instrument of enrichment by reason of an accident.

Throughout, the Court applied the principle that contracts are respected as the law between the contracting parties, and that courts must apply the law according to its express terms, interpretation being called for only when literal application is impossible. It was therefore error for the trial and appellate courts to disregard the stipulations of the parties and substitute their own interpretation of the policy. The Court found no reason to disturb the award of attorney's fees.

Doctrine

First, the terms of the insurance contract constitute the measure of the insurer's liability, and compliance with those terms is a condition precedent to the insured's right of recovery. A stipulated limit that is not less than the minimum fixed by law is valid and binding, for contracts are respected as the law between the parties.

Second, a condition requiring the insurer's written consent before the insured makes any payment in settlement of a claim is valid, being designed to guard against collusion, and the insured who pays without that consent cannot recover reimbursement.

Third, an insurance indemnity is merely an assistance or restitution insofar as can be fairly ascertained, and cannot be used as an instrument of enrichment; recovery is measured by the loss actually proven, not by the policy's maximum.

Disposition

The Court modified the decision of the Court of Appeals, ordering the insurer to pay Milagros Cayas twelve thousand pesos plus legal interest from the promulgation of the lower court's decision until fully paid, and five thousand pesos as attorney's fees, with no pronouncement as to costs.

Remember This

Memorize the line that the terms of the contract constitute the measure of the insurer's liability, and that an indemnity cannot be an instrument of enrichment. Examiners use this case on the binding force of policy limits and consent to settlement clauses, and on the rule that factual findings rejected below cannot be relitigated before the Supreme Court.