COUNTRY BANKERS INSURANCE CORP., (FORMERLY COUNTRY BANKERS INSURANCE & SURETY CO. INC.), PETITIONER, VS. THE TRAVELLERS INSURANCE AND SURETY CORP., AND THE HONORABLE COURT OF AP…

In the instant case, the Court is once again asked to resolve the
issue of whether the one-year prescriptive period under Section 384 of the
Insurance Code, prior to its amendment by Batas Pambansa
Blg. 874, should commence to run from the date of the
accident or from the rejection of the claim by the insurer.

The Court, after a careful examination of the pleadings filed in
this case, i.e., the Petition and its Annexes, the Comment, Reply, Rejoinder
and Sur-Rejoinder, considered the issues joined and
the case submitted for decision.

The pertinent facts of
this case are undisputed:

On May 24, 1979,
a vehicular
accident occurred involving a Toyota Land Cruiser with Plate No. KE-890 H ’78 owned by Philippine Technical Consultants Inc. (PTCI)
and an Isuzu Cargo Truck bearing
Plate No. 6M-116 T Pil. ’78 registered in the
name of Avelino Matundan.  The Toyota Land Cruiser, which was driven by Norlito R. Limen, had stopped at
a red light along Epifanio de los
Santos Avenue when it was
bumped from behind by the Isuzu Cargo Truck driven by Alfredo Sion.  The Toyota
Land Cruiser suffered extensive damage so that its owner declared a total loss
and claimed the proceeds of the insurance policy issued by petitioner Country
Bankers Insurance Corporation.  Finding
the claim to be meritorious, petitioner paid PTCI the amount of eighty-three
thousand four hundred seventy pesos (P83,470.00).  As subrogee to all
rights and causes of action of PTCI, petitioner demanded reimbursement from the
driver and owner of the Isuzu Cargo truck and from private respondent Travellers Insurance as the insurer of the truck, but the
latter failed to act on petitioner’s claim.

On October 14, 1980, petitioner filed a
complaint in the Regional Trial Court (RTC) of Manila
against the private respondent, the driver and the owner of the truck.  On August 2,
1985, the RTC
rendered a decision in favor of the petitioner and ordered private respondent
to pay petitioner the amount paid to
PTCI, but dismissed the complaint as against the other two defendants.  The dispositive
portion of the decision reads as follows:

WHEREFORE, judgment is hereby rendered:

1.  Ordering defendant corporation to pay
plaintiff corporation the total amount of P83,470.00
with interest thereon at the legal rate computed from the time of the filing of
this case until full payment is made;

2.  Ordering defendant corporation to pay
plaintiff corporation twenty (20%) percent of the principal amount awarded, as
attorney’s fees; and

3. 
Ordering defendant corporation to pay costs of
this suit.  [Rollo,
p. 13.]

On appeal, the Court of Appeals (CA) affirmed the finding of the
RTC that it was the negligence and recklessness of Alfredo Sion,
the driver of the Isuzu Cargo Truck, which led to the vehicular accident.  The CA also held that as the insurer of the
truck, private respondent is liable to herein petitioner as the subrogee
to all the rights and causes of action of the owner of the damaged Toyota Land
Cruiser.  Nevertheless, the CA dismissed
the complaint on the ground that petitioner’s cause of action had
prescribed.  Respondent court held that:

*        *           *

Defendant’s defense that the action has prescribed is found
meritorious.  The accident occurred on 24 May 1979, but the complaint was
not filed until 14 October 1980,
or almost seventeen (17) months after the accident.  Section 384 of the Insurance Code
mandates that the “(a)ction or suit for recovery
of damage due to loss or injury must be brought, in proper cases, with the
courts within one year from the date of the accident, otherwise the claimant’s
right or action shall prescribe.”

*        *           *

[CA Decision, p. 4; Rollo, p. 26]

Petitioner moved to
reconsider the CA’s decision but on March 14, 1988 the CA issued a resolution denying petitioner’s motion for reconsideration.  Petitioner now comes before this Court by way of petition for review on certiorari.

There is no dispute that
respondent insurance company is liable as the insurer of the Isuzu Cargo Truck
and should reimburse to petitioner the amount paid by the latter to PTCI for
the damage sustained by the Toyota Land Cruiser.  The sole issue in the instant case is whether
or not petitioner’s cause of action had prescribed.

Section 384 of the
Insurance Code (prior to its amendment by B.P. 874) provides that:

Any person having any claim upon the policy issued pursuant to this
chapter shall, without any unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the amount of his loss,
and/or the nature, extent and duration of the injuries sustained as certified
by a duly licensed physician.  Notice of claim must
be filed within six months from date
of the accident, otherwise, the claim
shall be deemed waived.  Action or suit for
recovery of damage due to
loss or injury must be brought in
proper cases, with the Commission or the
Courts within one year from date of
accident, otherwise the claimant’s right of
action shall prescribe [Underscoring supplied.]

In its decision, the CA
held that the two periods provided for in Section 384 are mandatory and must
always concur.  Respondent Court argues
that no claim will prosper even if a notice of claim is filed within six (6)
months from the date of the accident if the action in court is filed
more than one year therefrom.  Neither will an action filed within one year
from the date of the accident prosper, if no claim was filed with the insurer
within six (6) months from the said accident. 
The CA then concluded that since the complaint was filed only after
almost seventeen (17) months from the date of the accident, petitioner’s cause
of action had prescribed.

On the other hand, petitioner company
contends that the finding of respondent court that its cause of action had
prescribed is erroneous since the one-year prescriptive period under Section
384 of the Insurance Code is counted not from the date of the accident but from
the date of the rejection of the claim by the insurer.  Petitioner further argues that even assuming
that the one-year prescriptive period should be counted from the date of the
accident, the running of the period of prescription was interrupted when
petitioner filed a notice of claim with respondent insurance company since
under the Civil Code an extra-­judicial demand is sufficient to interrupt the
running of the prescriptive period.

The Court finds merit in
the petition.

The controversy on the proper interpretation of Section 384 of
the Insurance Code before its amendment by B.P. 874 has already been settled by
this Court in the case of Summit
Guaranty & Insurance Co., Inc. v. De Guzman [G.R. Nos. 50997, L-48679, L-48758, June 30, 1987, 151 SCRA 389,] which
involves similar facts.  In rejecting the
insurance company’s defense of prescription, the Court held that:

Petitioner company is trying to use Section 384 of the Insurance
Code as a cloak
to hide itself from its
liabilities.  The facts of these cases* evidently
reflect the deliberate efforts of petitioner company
to prevent the filing of a formal action against it.  Bearing in mind that if it succeeds in doing
so until one year lapses from the date of the accident it could set up the
defense of prescription, petitioner company made
private respondents believe that their claims would be settled in order that
the latter will not find it necessary to immediately bring suit.  In violation of its duties to adopt and
implement reasonable standards for the prompt investigation of claims, and with
manifest bad faith, petitioner company devised means and ways of stalling settlement
proceedings [Summit, supra,
at 395.]

To prevent the insurance
company from evading its responsibility to the insured through this clever
scheme, and to protect the insuring public against similar acts by other
insurance companies, the Court held that the one-year period under Section 384
should be counted not from the date of the accident but from the date of the
rejection of the claim by the insurer [Summit, supra, at 397.] The Court further held that
it is only from the rejection of the claim by the insurer that the insured’s
cause of action accrued since a cause of action does not accrue until the party
obligated refuse, expressly or impliedly, to comply with its duty [ACCFA v.
Alpha Insurance and Surety Co., G.R. No. L-24566, July 29, 1968, 24 SCRA 151.]

In the instant case, petitioner
sent a notice of claim to respondent
insurance company as early as July 26, 1979
or two months after the accident.  This
was followed by a letter dated August 3,
1979 urging respondent insurance
company to take “appropriate action” on petitioner’s claim.  However, it was only a year later, on August 3, 1980 that respondent replied to petitioner’s
letter informing it that they could not take appropriate action on petitioner’s
claim because the attending adjuster was still negotiating the case.  Two months later, when respondent insurance
company still failed to act on its claim, petitioner filed the present case in
court.  During the hearing before the
RTC, respondent insurance company never raised the defense of prescription.  It was only on appeal that Section 384 of the
Insurance Code was invoked by respondent insurance company and the CA, relying
on the plain language of the law, dismissed the case on the ground of prescription.

In the light of the
Court’s decision in the Summit case, respondent insurance company can no longer invoke Section 384 to
defeat petitioner’s claim.  As aforestated, it was precisely to prevent unscrupulous
insurance companies from using Section 384 in evading their responsibilities
that the Court applied Section 384 strictly against insurance companies in the Summit case.

The requirement that any claim or action for recovery of damage
under an insurance policy must be brought within one year from the date of the
accident was intended to ensure that suits be brought by the insured while
evidence as to the origin and cause of destruction have not yet disappeared [See Ang v.
Fulton Fire Ins., Co., G.R. No. L-15862, July 31, 1961, 2 SCRA 945.] This is to enable the insurance companies to
make proper assessment of whether or not the insured can recover and, if so, to
determine the amount recoverable. 
However, where, as in this case, the delay in bringing the suit against
the insurance company was not caused by the insured or its subrogee
but by the insurance company itself, it is unfair to penalize the insured or
its subrogee by dismissing its action against the
insurance company on the ground of prescription.  The latter should bear the consequences of
its failure to act promptly on the insured’s claim.  Under the law, insurance companies are duty
bound to adopt and implement reasonable standards for the prompt, fair and
equitable settlement of claims [Section 241, Insurance Code.]

Therefore, considering the attendant facts of this case, the Court
finds that the doctrine laid down in the Summit case is applicable, and accordingly
holds that petitioner’s cause of action has not prescribed.

It might not be amiss to state that Section 384 was amended in
1985 by Batas Pambansa Blg.
874.  The amendment was inserted by the
then Batasang Pambansa
after realizing that Section 384 of the Insurance Code has created so many
problems for the insuring public [Summit, supra at p. 398.] Thus, as amended, the law
now provides that:

Any person having any claim upon the policy issued pursuant to this
chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice
of claim setting forth the nature, extent and duration of the injuries sustained
as certified by a duly licensed physician.  Notice of claim must be filed within six
months from date of the accident otherwise, the claim shall be deemed waived.  Action or suit for
recovery of damage due to loss or
injury must be brought in proper cases,
with the Commissioner or the Courts within
one year from denial of the claim,
otherwise the claimant’s right of action
shall prescribe [Underscoring
supplied.]

WHEREFORE, the
petition for certiorari is GRANTED.  The
appealed decision of the Court of Appeals is hereby REVERSED and that of the Regional Trial Court REINSTATED.

SO ORDERED.

Gutierrez, Jr., Feliciano, and
Bidin, JJ., concur.

Fernan, C.J., on official leave.

* The Summit case is a consolidation of three separate
motor vehicle insurance cases involving the same insurance company.