ZENITH INSURANCE CORPORATION, PETITIONER, VS. COURT OF APPEALS AND LAWRENCE FERNANDEZ, RESPONDENTS.

Assailed in this petition is the decision of the Court of Appeals
in CA-G.R. C.V. No. 13498 entitled, “Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance Corp., defendant-appellant”
which affirmed in toto the decision of
the Regional Trial Court of Cebu, Branch XX in Civil
Case No. CEB-1215 and the denial of petitioner’s Motion for Reconsideration.

The antecedent facts are
as follows:

On January 25, 1983,
private respondent Lawrence Fernandez insured his car for “own damage” under
private car Policy No. 50459 with petitioner Zenith Insurance Corporation.  On July 6,
1983, the car
figured in an accident and suffered actual damages in the amount of P3,640.00.  After
allegedly being given a run around by Zenith for two (2) months, Fernandez
filed a complaint with the Regional Trial Court of Cebu
for sum of money and damages resulting from the refusal of Zenith to pay the
amount claimed.  The complaint was
docketed as Civil Case No. CEB-1215.  Aside from actual damages and interests,
Fernandez also prayed for moral damages in the amount of P10,000.00,
exemplary damages of P5,000.00, attorney’s fees of P3,000.00 and litigation
expenses of P3,000.00.

On September 28, 1983,
Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private
respondent rejected.  After the issues
had been joined, the pre-trial was scheduled on October 17, 1983 but the same was moved to November 4, 1983 upon petitioner’s
motion, allegedly to explore ways to settle the case although at an amount
lower than private respondent’s claim. 
On November 14, 1983,
the trial court terminated the pre-trial. 
Subsequently, Fernandez presented his evidence.  Petitioner Zenith, however, failed to present
its evidence in view of its failure to appear in court, without justifiable
reason, on the day scheduled for the purpose. 
The trial court issued an order on August 23, 1984 submitting the case for decision without
Zenith’s evidence (pp.10-11, Rollo).  Petitioner filed a petition for certiorari
with the Court of Appeals assailing the order of the trial court submitting the
case for decision without petitioner’s evidence.  The petition was docketed as C.A.-G.R. No. 04644. 
However, the petition was denied due course on April
29, 1986.  (p.56, Rollo).

On June 4, 1986,
a decision was rendered by the trial court in favor of private respondent
Fernandez.  The dispositive
portion of the trial court’s decision provides:

“WHEREFORE, defendant is hereby ordered to pay to the plaintiff:

1.  The amount of P3,640.00 representing the damage incurred plus interest at
the rate of twice the prevailing interest rates;

2.  The amount of P20,000.00 by way of moral damages;

3.  The amount of P20,000.00 by way of exemplary damages;

4.  The amount of P5,000.00 as attorney’s fees;

5.  The amount of P3,000.00 as litigation expenses; and

6.  Costs.”
(p. 9, Rollo)

Upon motion of Fernandez and before the expiration of the period
to appeal, the trial court, on June
20, 1986, ordered the execution of the decision pending
appeal.  The order was assailed by petitioner
in a petition for certiorari with the Court of Appeals on October 23, 1986 in C.A.-G.R. No. 10420 but which petition
was also dismissed on December 24, 1986 (p. 69, Rollo).

On June 10, 1986,
petitioner filed a notice of appeal before the trial court.  The notice of appeal was granted in the same
order granting private respondent’s motion for execution pending appeal.  The appeal to respondent court assigned the following errors:

“I.     The lower court erred in denying defendant appellant to
adduce evidence in its behalf.

II.     The lower court erred in ordering Zenith
Insurance Corporation to pay the amount of P3,640.00
in its decision.

III.     The lower court erred in awarding moral
damages, attorney’s fees and exemplary damages, the
worst is that, the court awarded damages more than what are prayed for in the
complaint.” (p. 12, Rollo)

On August 17, 1988,
the Court of Appeals rendered its decision affirming in toto the decision of the trial court.  It also ruled that the matter of the trial court’s denial of Fernandez’ right to adduce
evidence is a closed matter in view of its (CA) ruling in AC-G.R. 04644 wherein
Zenith’s petition questioning the trial court’s order submitting the case for
decision without Zenith’s evidence, was dismissed.

The Motion for Reconsideration of the decision of the Court of
Appeals dated August 17, 1988
was denied on September 29, 1988,
for lack of merit.  Hence, the instant
petition was filed by Zenith on October 18, 1988 on the allegation
that respondent Court of Appeals’ decision
and resolution ran counter to applicable decisions of this Court and that they were rendered without or in excess of
jurisdiction.  The issues raised by
petitioners in this petition are:

a) The legal basis of respondent Court of Appeals in awarding moral
damages, exemplary damages and attorney’s fees in an amount more than that
prayed for in the complaint.

b) The award of actual damages of P3,640.00 instead of only
P1,927.50 which was arrived at after deducting P250.00 and P274.00 as deductible franchise and 20%
depreciation on parts as agreed upon in the contract of insurance.

Petitioner contends that while the complaint of private
respondent prayed for P10,000.00 moral damages, the
lower court awarded twice the amount, or P20,000.00 without factual or legal
basis; while private respondent prayed for P5,000.00 exemplary damages, the
trial court awarded P20,000.00; and while private respondent prayed for
P3,000.00 attorney’s fees, the trial court awarded P5,000.00.

The propriety of the award of moral damages, exemplary damages
and attorney’s fees is the main issue raised herein by petitioner.

The award of damages in case of unreasonable delay in the payment
of insurance claims is governed by the Philippine Insurance Code, which
provides:

“SEC. 244. 
In case of any litigation for the enforcement of any policy or contract
of insurance, it shall be the duty of the Commissioner or the Court, as the
case may be, to make a finding as to whether the payment of the claim of the
insured has been unreasonably denied or
withheld; and in the affirmative case, the insurance company shall be adjudged
to pay damages which shall consist of attorney’s fees and other expenses
incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by
the Monetary Board of the amount of the claim due the insured, from the date
following the time prescribed in section two hundred forty-two or in section
two hundred forty-three, as the case may be, until the claim is fully
satisfied; Provided, That the failure to pay any such claim within the time
prescribed in said sections shall be considered prima facie evidence of
unreasonable delay in payment.”

It is clear that under the Insurance Code, in case of unreasonable delay in the
payment of the proceeds of an insurance
policy, the damages that may be awarded are:  1) attorney’s fees; 2) other expenses
incurred by the insured person by reason of such unreasonable denial or
withholding of payment; 3) interest at twice the ceiling
prescribed by the Monetary Board of the amount of the claim due the injured;
and 4) the amount of the claim.

As regards the award of moral and exemplary damages, the rules
under the New Civil Code of the Philippines
shall govern.

“The purpose of moral damages is essentially indemnity or
reparation, not punishment or correction. 
Moral damages are emphatically not intended to enrich a complainant at
the expense of a defendant, they are awarded only to
enable the injured party to obtain means, diversions or amusements that will
serve to alleviate the moral suffering
he has undergone by reason of the defendant’s culpable action.” (J. Cezar S. Sangco, Philippine Law
on Torts and Damages, Revised Edition, p. 539) (See also R and B Surety &
Insurance Co., Inc. v. IAC, G.R. No. 64515, June 22, 1984; 129 SCRA 745).  While it is true that no proof of pecuniary loss is necessary in order that moral damages may be
adjudicated, the assessment of which is left to the discretion of the court according to the
circumstances of each case (Art. 2216, New Civil Code), it is equally true that in awarding moral damages in case of breach of
contract, there must be a showing that the breach was wanton and deliberately
injurious or the one responsible acted fraudulently or in bad faith (Perez
v. Court of Appeals, G.R. No. L-20238, January 30, 1965; 13 SCRA 137; Solis v. Salvador, G.R.
No. L-17022, August 14, 1965;
14 SCRA 887).  In the instant case, there was a finding that private
respondent was given a “run-around” for two months, which is the basis for the
award of the damages granted
under the Insurance Code for unreasonable delay in the payment of the
claim.  However, the act of petitioner of
delaying payment for two months cannot be considered as so wanton or malevolent
to justify an award of P20,000.00 as moral damages,
taking into consideration also the fact that the actual damage on the car was
only P3,640.  In the pre-trial of the
case, it was shown that there was no
total disclaimer by respondent.  The reason for petitioner’s failure to
indemnify private respondent within the
two-month period was that the parties could not come to an
agreement as regards the amount of the actual damage on the car.  The amount of P10,000.00
prayed for by private respondent as moral damages is equitable.

On the other hand, exemplary or corrective damages are imposed,
by way of example or correction for the public good (Art. 2229, New Civil Code
of the Philippines).  In the case of Noda v. Cruz-Arnaldo, G.R. No. 57322, June 22, 1987; 151 SCRA 227, exemplary damages were not
awarded at the insurance company had not acted in wanton, oppressive or
malevolent manner.  The same is true in
the case at bar.

The amount of P5,000.00 awarded as attorney’s fees is justified
under the circumstances of this
case considering that there were other
petitions filed and defended by private respondent in connection with this
case.

As regards the actual damages incurred by private respondent, the
amount of P3,640.00 had been established before the
trial court and affirmed by the appellate court.  Respondent appellate court correctly ruled that the deductions of P250.00 and
P274.00 as deductible franchise and 20% depreciation on parts, respectively
claimed by petitioners as agreed upon in the contract, had no basis.  Respondent court ruled:

“Under its second assigned error, defendant-appellant puts forward
two arguments, both of which are
entirely without merit.  It is contented that the amount
recoverable under the insurance policy defendant-appellant issued over the car of plaintiff-appellee
is subject to deductible franchise, and x x x.

“The policy (Exhibit G, pp. 4-9, Record), does not mention any deductible franchise,
x x x.” (p.13, Rollo)

Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary damages is hereby
deleted.  The awards due to private
respondent Fernandez are as follows:

1)     P3,640.00 as
actual claim plus interest of twice the ceiling prescribed by the Monetary
Board computed from the time of submission of proof of loss;

2)     P10,000.00 as
moral damages;

3)     P5,000.00 as
attorney’s fees;

4)     P3,000.00 as
litigation expenses; and

4)     Costs.

ACCORDINGLY, the appealed decision is MODIFIED as
above stated.

SO ORDERED.

Narvasa, (Chairman), Cruz, and Grino-Aquino, JJ., concur.

Gancayco, J., on leave.