Fortune Insurance and Surety Co., Inc. vs. Court of Appeals

A loss caused by the dishonest, fraudulent, or criminal act of persons entrusted as agents with the specific duty to safely transfer the insured's money is excluded under the general exceptions clause as the act of an authorized representative. Entrustment of custody, driving, and security duties for the transit made the teller, driver, and guard agents of the bank for those tasks, exempting the insurer from liability.

Fortune Insurance and Surety Co., Inc. is the insurer and Producers Bank of the Philippines is the insured under a Money, Security, and Payroll Robbery policy. Producers operated through branches and used an armored vehicle, with driving services supplied by PRC Management Systems under an agreement dated August 7, 1983 and security services supplied by Unicorn Security Services, Inc. under a contract dated October 25, 1982. The policy contained a General Exceptions clause excluding loss caused by dishonest, fraudulent, or criminal acts of specified classes of persons connected with the insured.

Producers Bank of the Philippines was insured by Fortune Insurance and Surety Co., Inc. under a Money, Security, and Payroll Robbery policy. For its cash movements, Producers used its own armored car. Driver Benjamin Magalong Y de Vera had been assigned to Producers by PRC Management Systems by virtue of an agreement executed on August 7, 1983, while Security Guard Saturnino Atiga Y Rosete had been assigned by Unicorn Security Services, Inc. by virtue of a security service contract executed on October 25, 1982.

On June 29, 1987, the armored car was transferring P725,000.00 in cash from Producers' Pasay City Branch to its head office at 8737 Paseo de Roxas, Makati, Metro Manila. Custody of the cash was with teller Maribeth Alampay, with Magalong driving and Atiga escorting. While traveling along Taft Avenue in Pasay City, the vehicle was robbed of the cash.

After investigation by Pasay police authorities, Magalong and Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino, and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. The Fiscal then filed the corresponding information before Branch 112 of the Regional Trial Court of Pasay City, which was still being tried at the time of stipulation. Producers demanded payment of P725,000.00 from Fortune, but Fortune refused, invoking paragraph (b) of the General Exceptions excluding loss caused by dishonest, fraudulent, or criminal acts of specified persons. According to Producers, Atiga and Magalong were not its officer, employee, trustee, or authorized representative at the time of the robbery.

The trial court found that Producers had not selected and engaged Magalong and Atiga, whose wages were presumably paid by their respective firms with power to dismiss, and that Producers lacked control beyond requesting replacement. It further found that teller Alampay, not the driver and guard, had custody of the cash as the designated messenger for the transfer.

• Authorized Representatives: Petitioner argued that when Producers commissioned a guard and a driver to transfer its funds from one branch to another, they effectively and necessarily became its authorized representatives in the care and custody of the money.
• Employer-Employee Relationship: Petitioner maintained that the existence of an employer-employee relationship is determined by law and cannot be negated by agreement, invoking the four standards of selection and engagement, payment of wages, power of dismissal, and power of control, with the right-of-control test as decisive, and asserting that control over Magalong and Atiga was vested in and exercised by Producers.
• Labor-Only Contracting: Petitioner argued that PRC Management Systems and Unicorn Security Services were labor-only contractors under Article 106 of the Labor Code, such that Magalong and Atiga were employees of Producers following International Timber Corp. vs. NLRC.

• No Employment Relationship: Respondent countered that Magalong and Atiga were not its employees since it had nothing to do with their selection and engagement, payment of wages, dismissal, and control of conduct.
• Contract Terms: Respondent argued that under its contract with PRC Management Systems, the latter assigned Magalong and was responsible for his faithful discharge of duties while Producers paid P1,400.00 monthly per driver to PRC and not to Magalong, and that its contract with Unicorn Security Services expressly provided its guards are in no sense employees of the client.
• Inapplicability of Labor-Only Doctrine: Respondent maintained that International Timber Corp. applies only when necessary to prevent violation or circumvention of the Labor Code as social legislation, and that the proper test was that stated in American President Lines vs. Clave on selection, wages, dismissal, and control.

• Employee Status: Whether driver Magalong and guard Atiga were employees of Producers within paragraph (b) of the general exceptions clause.
• Authorized Representative Status: Whether Magalong and Atiga, in respect of the money transfer, were authorized representatives of Producers within paragraph (b) of the general exceptions clause.
• Exclusion From Coverage: Whether the P725,000.00 loss was excluded from the robbery policy, precluding recovery by Producers.

• Employee Status: Unresolved on this record. Whether the supply contracts were labor-only contracts under Article 106 of the Labor Code was a question of fact left without sufficient evidence by the stipulation.
• Authorized Representative Status: Yes. Magalong and Atiga were authorized representatives for the transfer, having been entrusted as agents with driving and security duties alongside the custodian-teller.
• Exclusion From Coverage: Yes. The loss fell within General Exceptions paragraph (b), so Fortune was exempt from liability under the policy.

• Employee Status: The four standards and right-of-control test govern employment, while Article 106 treats workers supplied by a labor-only contractor as employees of the principal. Because the parties submitted the case solely on the policy, the two supply contracts, and the criminal complaint and information, paucity of evidence prevented determination of substantial capital or direct relation to the principal business needed to resolve the labor-only claim.
• Authorized Representative Status: Even as employees of independent contractors, Magalong and Atiga served Producers for the particular transfer tasks: Alampay for custody in transit, Magalong to drive the armored vehicle carrying the money, and Atiga to secure the money, vehicle, and companions. A representative stands in the place of another in a special capacity as an agent, interchangeable with agent, and such entrustment with unrestricted access was precisely what the exception was intended to exclude.
• Exclusion From Coverage: Robbery insurance is casualty insurance under Section 174 of the Insurance Code, governed absent specific provisions by general insurance law and the policy terms as the measure of liability. Clear and unambiguous terms admit no construction to enlarge or diminish liability, and insurers may limit liability consistently with public policy; the dishonest-act exception guards against moral hazard from those with access, construed in common speech to include entrusted agents.

• Construction of insurance contracts — Ambiguity is resolved against the insurer and liberally in favor of the insured, with limitations of liability regarded strictly; but where terms are clear and unambiguous, there is no room for construction and they cannot be enlarged or diminished by judicial construction. The policy here was applied according to the plain meaning of employee and authorized representative, with the exception enforced as written.
• Policy terms as measure of liability — An insurance contract is a contract of indemnity upon its specified terms and conditions, and its terms constitute the measure of the insurer's liability, subject only to statutory prohibition or public policy. Fortune's liability was therefore determined by General Exceptions paragraph (b) excluding specified dishonest acts.
• Casualty and robbery insurance; moral hazard — Under Section 174 of the Insurance Code, burglary and theft insurance is casualty insurance covering loss from accident or mishap. Because opportunity to defraud is great, insurers restrict coverage and frequently exclude persons in the insured's service and employment to guard against liability where theft is committed by one having unrestricted access; excluded classes are given their meaning as understood in common speech, associated with selection, control, and compensation.
• Representative as agent — A representative is one who represents or stands in the place of another in a special capacity, as an agent, and is interchangeable with agent. Magalong and Atiga, entrusted with driving and guarding the money in transit, acted as Producers' agents for those tasks and were thus authorized representatives.
• Employer-employee determination and labor-only contracting — Employment is tested by selection and engagement, payment of wages, power of dismissal, and power to control, with control decisive; under Article 106 of the Labor Code, workers supplied by a labor-only contractor without substantial capital and performing work directly related to the principal business are deemed employees of the principal. The record here was insufficient to decide that factual question, making resolution unnecessary in light of the authorized-representative ground.

• "It is settled that the terms of the policy constitute the measure of the insurer's liability." — States the controlling indemnity principle limiting recovery to the contract as written, applied to enforce the general exceptions clause.
• "In such cases, the terms specifying the excluded classes are to be given their meaning as understood in common speech." — Defines the interpretive rule for dishonest-act exclusions in burglary and robbery insurance, supporting the ordinary meaning of employee and representative.
• "Seldom does the insurer assume the risk of all losses due to the hazards insured against." — Explains the moral-hazard rationale for countless restrictions in burglary, robbery, and theft policies, justifying exclusion of persons with unrestricted access.
• "The company shall not be liable under this policy in respect of (b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others. . . ." — Reproduces the operative exclusion under which Fortune claimed exemption and was ultimately sustained.

• International Timber Corp. vs. NLRC, 169 SCRA 341 [1989] — Invoked by Fortune for the proposition that a finding of labor-only contracting equates to employment by the principal; held inapplicable on this record for lack of factual proof, with Producers limiting it to Labor Code circumvention cases.
• American President Lines vs. Clave, 114 SCRA 832 [1982] — Relied upon by Producers for the four elements of employment: selection, wages, dismissal, and control; referenced in assessing whether Magalong and Atiga were employees.
• Broadway Motors, Inc. vs. NLRC, 156 SCRA 522 [1987]; Vallum Security Services vs. NLRC, 224 SCRA 781 [1993]; Canlubang Security Agency Corp. vs. NLRC, 216 SCRA 280 [1992]; Villuga vs. NLRC, 225 SCRA 537 [1993] — Cited for the four standards in determining employer-employee relationship and the decisive right-of-control test.
• New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554; Verendia vs. Court of Appeals, 217 SCRA 417 [1993] — Cited for liberal construction in favor of the insured and strict construction against the insurer, relied upon below but overcome here by clear policy language.
• Stokes vs. Malayan Insurance, 127 SCRA 766 [1984]; Paramount Insurance Corp. vs. Japzon, 211 SCRA 879 [1992] — Cited for the indemnity nature of insurance and that policy terms measure liability, supporting enforcement of the exception as written.

• Section 174, Insurance Code — Defines casualty insurance to include burglary and theft insurance; applied to characterize the Money, Security, and Payroll Robbery policy and to invoke general insurance principles absent specific robbery-insurance provisions except compulsory motor vehicle liability insurance.
• Article 106, Labor Code — Provides that labor-only contracting exists where the supplier lacks substantial capital or investment and the workers perform activities directly related to the principal business, with the intermediary deemed merely an agent of the employer; invoked to argue Magalong and Atiga were Producers' employees, but held factually unproven on stipulation.
• General Exceptions paragraph (b), Policy No. 0207 — Excludes any loss caused by dishonest, fraudulent, or criminal act of the insured or any officer, employee, partner, director, trustee, or authorized representative acting alone or with others; applied to exempt Fortune because the entrusted driver and guard were authorized representatives.
• P.D. 532 (Anti-Highway Robbery Law) — Basis of the criminal charge and information filed against Magalong, Atiga, and others before the Pasay courts; established the dishonest or criminal character of the loss context and pendency of prosecution.

Bellosillo, J. and Kapunan, J., concur. Padilla, J., took no part. Quiason, J., is on leave.