Pan Malayan vs. CA

PAN MALAYAN INSURANCE CORPORATION vs.
COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER

Facts:
PANMALAY averred the following: that it insured a Mitsubishi Colt Lancer car registered in the name of Canlubang
Automotive Resources Corporation [CANLUBANG].
Panmalay averred: that the insured car was hit and suffered damages in the amount of P42,052.00; that PANMALAY
defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG against the
driver of the pick-up and his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and
refused to pay the claim of PANMALAY.
Respondents' argument: payment under the "own damage" clause of the insurance policy precluded subrogation
under Article 2207 of the Civil Code, since indemnification thereunder was made on the assumption that there was
no wrongdoer or no third party at fault.
The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legally subrogated
under Article 2207 of the Civil Code to the rights of CANLUBANG, and therefore did not have any cause of action
against private respondents.
Issue: whether or not the insurer PANMALAY may institute an action to recover the amount it had paid its assured
in settlement of an insurance claim against private respondents as the parties allegedly responsible for the damage
caused to the insured vehicle
Ruling: It can.
On subrogation
If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured,
then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the
wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates
as an equitable assignment to the former of all remedies which the latter may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of,
any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim
by the insurer.
Exceptions to subrogation rule:
1. if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability
2. where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith
settled the assured's claim for loss, the settlement is binding on both the assured and the insurer
3. where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting "voluntary
payment", the former has no right of subrogation against the third party liable for the loss
Since none of the exceptions are present, there can be subrogation.
On construing "own damage" in insurance policy
The lower court's ruling that the "own damage" coverage under the policy implies damage to the insured car caused
by the assured itself, instead of third parties, proceeds from an incorrect comprehension of the phrase "own damage"
as used by the insurer. When PANMALAY utilized the phrase "own damage" — a phrase which, incidentally, is not
found in the insurance policy — to define the basis for its settlement of CANLUBANG's claim under the policy, it
simply meant that it had assumed to reimburse the costs for repairing the damage to the insured vehicle
It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the
sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies, the
evident intention of the contracting parties, i.e., the insurer and the assured, determine the import of the various
terms and provisions embodied in the policy. It is only when the terms of the policy are ambiguous, equivocal or
uncertain, such that the parties themselves disagree about the meaning of particular provisions, that the courts will
intervene. In such an event, the policy will be construed by the courts liberally in favor of the assured and strictly
against the insurer.
Excerpt of Section III-1 of the insurance policy:

SECTION III — LOSS OR DAMAGE
1. The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the
Scheduled Vehicle and its accessories and spare parts whilst thereon: —
(a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown
or consequent upon wear and tear;
PANMALAY contends that the coverage of insured risks under the above section, specifically Section III-1(a), is
comprehensive enough to include damage to the insured vehicle arising from collision or overturning due to the
fault or negligence of a third party. CANLUBANG is apparently of the same understanding.
Considering that the very parties to the policy were not shown to be in disagreement regarding the meaning and
coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the appellate court to indulge in
contract construction, to apply the ejusdem generis rule, and to ascribe meaning contrary to the clear intention and
understanding of these parties.
The concept "accident" is not necessarily synonymous with the concept of "no fault". It may be utilized simply to
distinguish intentional or malicious acts from negligent or careless acts of man.
Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, the insured vehicle
due to negligent or careless acts of third parties is not listed under the general and specific exceptions to the coverage
of insured risks which are enumerated in detail in the insurance policy itself.
PANMALAY in effect advocates for a more comprehensive coverage of insured risks. And this, in the final analysis, is
more in keeping with the rationale behind the various rules on the interpretation of insurance contracts favoring the
assured or beneficiary so as to effect the dominant purpose of indemnity or payment
Bonus (basin iask) :
Even if under the above circumstances PANMALAY could not be deemed subrogated to the rights of its assured under
Article 2207 of the Civil Code, PANMALAY would still have a cause of action against private respondents.
Insurer who may have no rights of subrogation due to "voluntary" payment may nevertheless recover from the third
party responsible for the damage to the insured property under Article 1236 of the Civil Code (Whoever pays for
another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the
will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.)

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PAN MALAYAN INSURANCE CORPORATION vs.

COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER

Excerpt of Section III-1 of the insurance policy:

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