First Integrated Bonding & Insurance Company, Inc. vs. Hernando

A third party injured by an insured motor vehicle may directly sue the insurer under a compulsory motor vehicle liability insurance policy, and the insurer's liability accrues immediately upon the occurrence of the injury, independent of any recovery of judgment by the injured party against the insured. A judgment that has become final and executory may no longer be attacked or corrected, even on grounds of erroneous awards, absent a timely petition for relief filed within the non-extendible periods prescribed by Rule 38.

Silverio Blanco owned a passenger jeepney which he insured against liabilities for death and injuries to third persons with First Integrated Bonding and Insurance Company, Inc. ("First Insurance") under Motor Vehicle Policy No. V-0563751, with a face value of P30,000.00. The insurance was a compulsory motor vehicle liability insurance (third party liability, or TPL), primarily intended to provide compensation for death or bodily injuries suffered by innocent third parties as a result of negligent operation and use of motor vehicles. On November 25, 1976, the jeepney, driven by Blanco himself, bumped a five-year-old child, Deogracias Advincula, causing the latter's death. The child's parents, the Advincula spouses, thereafter filed a separate civil action for damages against both Blanco and First Insurance.

Silverio Blanco owned a passenger jeepney which he insured against liabilities for death and injuries to third persons with First Integrated Bonding and Insurance Company, Inc. under Motor Vehicle Policy No. V-0563751, carrying a face value of P30,000.00. On November 25, 1976, Blanco, driving the jeepney himself, bumped a five-year-old child, Deogracias Advincula, causing the child's death. The child's parents, the Advincula spouses, thereafter filed a complaint for damages against Blanco and First Insurance, docketed as Civil Case No. 1104 of the Court of First Instance of Abra.

Summons was served on both Blanco and First Insurance, but only Blanco filed an answer. Upon motion of the Advincula spouses, First Insurance was declared in default on January 19, 1978. A pre-trial conference was thereafter conducted, during which the Advincula spouses presented documentary evidence consisting of their marriage certificate, the child's birth and death certificates, the autopsy report, burial expenses, the criminal case filed against Blanco for homicide through reckless imprudence, and a tax declaration delivered by Blanco as pledge to settle the civil aspect. Blanco did not object to the admission of these exhibits. On the basis of this evidence alone, the trial court rendered judgment on March 1, 1978, awarding the Advincula spouses P5,000.00 for moral damages, P12,000.00 for the life of Deogracias, P3,663.50 for funeral expenses, and P3,000.00 for attorney's fees, directing First Insurance to satisfy the award.

First Insurance received a copy of the decision on March 14, 1978. Upon motion of the Advincula spouses, the decision was amended on March 27, 1978, additionally awarding P6,336.50 to Blanco — bringing the grand total to P30,000.00, the full face value of the policy. First Insurance received the amended decision on April 11, 1978. Entry of judgment was made on May 11, 1978, and a copy was furnished First Insurance on June 27, 1978. On June 14, 1978, upon motion of the Advincula spouses, an order granting execution was issued, which First Insurance received on August 1, 1978.

On September 5, 1978, First Insurance filed a petition for relief from judgment with preliminary injunction, but no appearance was entered on the hearing date of September 28, 1978. The trial court denied the petition on October 4, 1978, finding that 191 days had elapsed from First Insurance's receipt of the amended decision — well beyond the periods prescribed by Rule 38 — and that the company had been grossly and notoriously negligent in attending to the case. First Insurance received the denial order on October 10, 1978, but filed a motion for reconsideration only on May 14, 1979. Again no appearance was made at the hearing, prompting the trial court to deny the motion. On August 13, 1979, First Insurance filed the present petition for certiorari before the Supreme Court.

• No Cause of Action: Petitioner contended that the Advincula spouses had no cause of action against it because they were not parties to the insurance contract; as parents of the victim, they could proceed against the driver Blanco under the New Civil Code, but not against the insurer.
• Abbreviated Proceedings: Petitioner argued that the trial court erred in abbreviating the proceedings and rendering judgment based only on the documentary evidence presented during the pre-trial conference.
• Excess of Policy Limits: Petitioner maintained that the trial court erred in holding it liable in excess of the limits of liability provided in the policy contract, claiming its liability to third parties was limited to P20,000.00 only.

• Filed Out of Time: Respondents argued that the petition for relief from judgment was filed out of time, 191 days having elapsed from First Insurance's receipt of the amended decision, exceeding the reglementary periods under Section 3, Rule 38 of the Rules of Court.
• Gross Negligence: Respondents contended that First Insurance was grossly and notoriously negligent in failing to give proper attention to the case, having been duly summoned and served with the complaint but nevertheless failing to file an answer or take any timely step to vacate the order of default or the decision.
• Jurisdiction: Respondents asserted that the trial court had jurisdiction over the cause of action, citing Section 416 of the Philippine Insurance Code providing concurrent jurisdiction between the Insurance Commissioner and civil courts, and noting that the matter of exhaustion of administrative remedies had been waived when First Insurance was declared in default.

• Cause of Action Against Insurer: Whether the Advincula spouses, as third parties not privy to the insurance contract, have a cause of action against First Insurance.
• Validity of Judgment on Default: Whether the trial court erred in rendering judgment based only on the documentary evidence presented during the pre-trial conference, given that First Insurance had been declared in default.
• Policy Limits: Whether the trial court erred in holding First Insurance liable in excess of the limits of liability under the policy contract.

• Cause of Action Against Insurer: Yes. Where the insurance contract provides for indemnity against liability to a third party, such third party can directly sue the insurer; the insurer's liability accrues immediately upon the occurrence of the injury and does not depend on recovery of judgment against the insured.
• Validity of Judgment on Default: No error. Having been declared in default for failure to file an answer, First Insurance lost its standing in court and failed to raise any triable issue; judgment could properly be rendered on the basis of the Advincula spouses' evidence alone.
• Policy Limits: N/A. The claim that liability was limited to P20,000.00 could no longer be entertained, the decision having already become final and executory.

• Cause of Action Against Insurer: It is settled that where the insurance contract provides for indemnity against liability to a third party, the third party can directly sue the insurer. The liability of the insurer to the third person is based on contract, while the liability of the insured to the third party is based on tort. The general purpose of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the insured and to give the injured person a beneficial interest in the proceeds of the policy. Such provisions are to be liberally construed. The provision creates a contractual relation which inures to the benefit of any person negligently injured by the named insured as if specifically named in the policy. Not even a "no action" clause requiring a final judgment first against the insured can prevail over the Rules of Court provisions aimed at avoiding multiplicity of suits. Compulsory motor vehicle liability insurance is primarily intended to provide compensation for death or bodily injuries suffered by innocent third parties, assuring immediate financial assistance regardless of the financial capacity of the vehicle owner. The insurer's liability accrues immediately upon the occurrence of the injury and does not depend on recovery of judgment by the injured party against the insured. First Insurance's liability is primary and not dependent on recovery of judgment from Blanco.

• Validity of Judgment on Default: First Insurance was declared in default because of its failure to file an answer. As far as it was concerned, it failed to raise any triable issue, lost its standing in court, and judgment could be rendered against it on the basis only of the evidence of the Advincula spouses. Although Blanco denied negligence, he did not object when the trial court admitted the plaintiffs' exhibits to abbreviate the proceedings, nor when judgment was rendered on the basis of those exhibits. No motion for reconsideration was filed by either Blanco or First Insurance. Petitioner had been given its day in court — despite being in default, it was still notified of subsequent proceedings — but took no positive step on time to vacate the order of default, the decision, or the amended decision. Its petition for relief from judgment was filed almost five months after receipt of the amended decision, clearly out of time. The periods under Rule 38, Section 3 — sixty (60) days after learning of the judgment and not more than six (6) months after entry — are non-extendible and never interrupted. The remedy under Rule 38 is an act of grace designed to give the aggrieved party a last chance; being in the position of one who begs, the party's privilege is not to impose conditions, haggle, or dilly-dally.

• Policy Limits: The award of damages in favor of Blanco had no basis, as the complaint was filed by the Advincula spouses against Blanco and First Insurance, and Blanco did not put up any claim against the insurer. However, since the decision had already become final and executory, it could no longer be corrected or amended. In the same vein, petitioner's claim that its liability to third parties under the policy was limited to P20,000.00 only could no longer be given consideration at that late stage, the trial court's decision having already become final and executory.

• Direct Action by Third Party Against Insurer — Where the insurance contract provides for indemnity against liability to a third party, the third party can directly sue the insurer. The insurer's liability is based on contract and is primary; it accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured. The purpose is to protect injured persons against the insolvency of the insured and to give them a beneficial interest in the proceeds of the policy. Not even a "no action" clause in the policy can prevail over Rules of Court provisions aimed at avoiding multiplicity of suits. Applied in this case to uphold the Advincula spouses' direct cause of action against First Insurance under the compulsory motor vehicle liability insurance policy.

• Finality of Judgments — A judgment that has become final and executory may no longer be attacked, corrected, or amended, even if the award therein appears to have no basis or the liability exceeded the claimed policy limits. Applied to bar First Insurance from contesting the award to Blanco or the extent of its liability under the policy, the amended decision having attained finality.

• Petition for Relief from Judgment — Reglementary Periods — Under Rule 38, Section 3 of the Rules of Court, a petition for relief from judgment must be filed within sixty (60) days after the petitioner learns of the judgment and not more than six (6) months after such judgment was entered. The period is non-extendible and never interrupted; it is not subject to any condition or contingency. The remedy is an act of grace designed to give the aggrieved party a last chance. Applied to uphold the trial court's denial of First Insurance's petition for relief, which was filed 191 days after receipt of the amended decision.

• "It is settled that where the insurance contract provides for indemnity against liability to a third party, such third party can directly sue the insurer." — This passage states the ratio decidendi on the direct-action doctrine, establishing the contractual basis for the insurer's primary liability to the injured third party.

• "the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured" — This formulation, quoted from Shafer vs. Judge, defines the accrual of insurer liability under compulsory motor vehicle liability insurance and is frequently cited in subsequent jurisprudence on third-party direct actions.

• "The period fixed by Rule 38 of the Rules of Court is non-extendible and never interrupted. It is not subject to any condition or contingency, because it is itself devised to meet a condition or contingency." — This passage articulates the strict and jurisdictional nature of the periods for filing a petition for relief from judgment, underscoring why First Insurance's delayed filing could not be excused.

• Caguia vs. Fieldman's Insurance Co., Inc., G.R. No. 23276, Nov. 29, 1968, 26 SCRA 178 — Followed as settled authority for the proposition that a third party can directly sue the insurer where the insurance contract provides for indemnity against liability to a third party.

• Malayan Insurance Co., Inc. vs. CA, L-36413, Sept. 26, 1988, 165 SCRA 536 — Followed for the distinction that the liability of the insurer to a third person is based on contract, while the liability of the insured to the third party is based on tort.

• Shafer vs. Judge, RTC of Olongapo City, Br. 75, G.R. No. 78848, Nov. 14, 1988, 167 SCRA 390 — Followed and extensively quoted for the doctrines that the injured can sue the insurer directly, that the purpose is to protect against the insured's insolvency, that a "no action" clause cannot prevail over rules against multiplicity of suits, and that the insurer's liability accrues immediately upon the occurrence of the injury.

• Palomares vs. Jimenez, 90 Phil. 773 — Cited for the principle that the remedy under Rule 38 is an act of grace and that the periods prescribed therein are non-extendible and never interrupted.

• Section 416, Presidential Decree No. 612 (Philippine Insurance Code) — Provides that the authority to adjudicate granted to the Insurance Commissioner is concurrent with that of the civil courts, but the filing of a complaint with the Commissioner precludes the civil courts from taking cognizance of a suit involving the same subject matter. Applied to uphold the trial court's jurisdiction over the Advincula spouses' action, the administrative remedy having been waived when First Insurance was declared in default.

• Section 3, Rule 38, Rules of Court — Prescribes the reglementary periods for filing a petition for relief from judgment: within sixty (60) days after the petitioner learns of the judgment and not more than six (6) months after such judgment was entered. Applied to sustain the denial of First Insurance's petition for relief, filed 191 days after receipt of the amended decision.

Narvasa, Cruz, Gancayco, and Griño-Aquino, JJ., concurred.