Far Eastern Surety & Insurance Company, Inc. vs. Socorro Dancel Vda. de Misa

An insurer under a common carrier's accident insurance policy is not liable to indemnify the insured when the insured's liability to third parties arises from the insured's own unilateral representation to passengers that they are insured, rather than from the accident itself, and the insurer did not authorize, consent to, or know of such representation.

Far Eastern Surety & Insurance Company, Inc. issued Common Carrier's Accident Insurance No. CCA 106 to La Mallorca, a taxicab operator, which included a third-party liability rider. La Mallorca's taxicabs bore stickers representing that passengers were insured against accidents. The injured passengers, Socorro Dancel Vda. de Misa and Araceli Pinto, were customers of La Mallorca's transport service. The insurer was not shown to have authorized or even known of the sticker representation.

On 3 September 1957, respondents Socorro Dancel Vda. de Misa and Araceli Pinto hired a taxicab operated by La Mallorca in Quezon City. While proceeding south toward the Archbishop's Palace in Shaw Boulevard, the taxicab collided with a gravel and sand truck driven by one Faustino Nabor, which was proceeding in the opposite direction. Both passengers sustained injuries and thereafter filed suit for damages against the taxicab company in the Court of First Instance. La Mallorca denied liability but instituted a third-party complaint against Far Eastern Surety & Insurance Company, seeking to recoup any damages recoverable by the passengers based on Common Carrier's Accident Insurance No. CCA 106. The insurer likewise denied responsibility.

After trial, the Court of First Instance of Quezon City awarded actual, moral, and exemplary damages and attorney's fees to the passengers, payable by La Mallorca, and sentenced the insurance company to pay La Mallorca P10,000.00 on the third-party liability insurance. On appeal, the Court of Appeals found that the collision was due solely to the fault of the sand truck driver and made no finding that the taxicab driver contributed to the mishap. Nevertheless, the appellate court held La Mallorca liable to its passengers on the strength of a sticker affixed to the taxicab representing that passengers were insured against accidents, construing this as an additional stipulation in the contract of carriage that bound the operator even absent fault, pursuant to Article 1174 of the New Civil Code.

The Court of Appeals then overruled the insurer's defense that it was answerable only for amounts the insured might be legally liable for in the event of accident caused by or arising out of the use of the motor vehicle. It reasoned that since La Mallorca had been found "legally liable," the insurer must answer, with total liability not exceeding P5,000.00 per passenger, and that the policy's reference to "bodily injury" merely described the cause of liability, not its scope. The insurer's motion for reconsideration was denied, prompting the present appeal. La Mallorca did not appeal, rendering the CA decision final as to that entity.

• Insurer Not Liable Under the Contract: Petitioner argued that Far Eastern Surety was not liable under the insurance contract because La Mallorca was not "legally liable" to the passengers arising from the accident, since the collision was caused solely by the sand truck driver's negligence.
• Liability Limited to Actual Bodily Injuries: Petitioner maintained that under the Common Carrier's Accident Insurance Contract and its Third-Party Liability Insurance Rider, the insurer's liability was limited to actual bodily injuries sustained by third parties, and did not extend to moral, compensatory, and exemplary damages or attorney's fees.
• Cap on Maximum Liability: Petitioner argued that even if held liable, it could not be answerable to the full extent of P5,000.00 per passenger.

• Insurer's Liability Under the Policy: Whether the appellant insurer is liable to the insured on its policy of insurance, given that the insured's liability to passengers arose from its own representation that passengers were insured rather than from the accident itself.

• Insurer's Liability Under the Policy: No. The insurer is not liable because the insured's liability to passengers was exclusively predicated on its own representation (the sticker), not on the accident, and the insurer did not authorize, consent to, or know of that representation, placing the award beyond the contemplation of the insurance contract.

• Insurer's Liability Under the Policy: The insurance policy limited recovery to "all sums including claimant's costs and expenses which the Insured shall become legally liable" in the "event of accident caused by or arising out of the use of the Motor Vehicle." The Court of Appeals' own decision showed that the indemnity awarded to the passengers was not because of the accident but was exclusively predicated on La Mallorca's representation—via the sticker—that passengers were insured. While La Mallorca was correctly held in estoppel and could not deny that its passengers were insured, that estoppel did not extend to the insurer. The CA concurred in the finding that only the sand truck driver's negligence caused the mishap, and the taxicab driver did not contribute; absent the sticker representation, La Mallorca would not have been liable at all. Because it did not appear that the insurer authorized, consented to, or even knew of the representation, the source of the award of damages against the taxicab company was beyond or outside the contemplation of the parties to the insurance contract, and the insurer could not be held liable for such damages.

• Estoppel Does Not Extend to Non-Consenting Parties — While a party may be estopped by its own representation from denying a fact to third persons, that estoppel does not bind a separate party who did not authorize, consent to, or know of the representation. In this case, La Mallorca was estopped by its sticker from denying that passengers were insured, but this estoppel did not extend to the insurer, which had no part in making the representation.
• Scope of Insurer's Liability Limited by Contract Contemplation — An insurer's obligation under a policy is circumscribed by what the parties contemplated in the contract. Where the insured's liability to third parties arises from a source outside that contemplation—here, the insured's unilateral representation to passengers—the insurer cannot be charged. The policy covered liability arising from "accident caused by or arising out of the use of the Motor Vehicle," not liability arising from the insured's independent contractual stipulation with passengers.

• "As it does not appear that the insurance company authorized or consented, or even knew of, the representation made by the taxicab company to its passengers, it follows that the source of the award of damages against the taxicab company was beyond, or outside of, the contemplation of the parties to the contract of Accident Insurance No. CCA 106, and that the insurer may not be held liable for such damages." — This passage states the ratio decidendi: the insurer is absolved because the insured's liability originated from a representation the insurer never authorized or knew of, placing it outside the insurance contract's scope.
• "While the decision correctly held that la Mallorca was in estoppel, and could not be heard to deny that its passengers were insured, it does not necessarily follow that the estoppel, likewise, applied to the appellant insurer." — This defines the doctrinal boundary between the insured's estoppel and the insurer's liability, establishing that estoppel by representation binds only the representing party.

• Article 1174, New Civil Code — Provides that no person is responsible for fortuitous events unless the law expressly so specifies, or the obligation declares otherwise, or the nature of the obligation requires assumption of risk. The Court of Appeals relied on this provision to hold La Mallorca liable to passengers even absent fault, because the sticker constituted a stipulation assuming the risk; the Supreme Court did not disturb this finding as to La Mallorca but used it to distinguish the insurer's position.
• Article 1377, New Civil Code — Provides that ambiguities in a stipulation are construed against the party causing the ambiguity. The Court of Appeals invoked this in interpreting the sticker's meaning against La Mallorca; the Supreme Court accepted this as to La Mallorca but held it did not bind the insurer.
• Article 2210, New Civil Code — Governs the award of interest from the date of the promulgation of judgment; cited in the Court of Appeals' modified judgment regarding the damages awarded to the passengers.

Concepcion, C.J., Dizon, Makalintal, Sanchez, Castro, Angeles, Fernando, and Capistrano, JJ. concurred. Zaldivar, J. was on leave.