Guingon vs. Del Monte

A third-party liability insurance policy, which indemnifies the insured against liability to third persons, gives the injured third person a direct right to sue the insurer, and the insurer may be joined as a co-defendant with the insured in a single action notwithstanding a "no action" clause in the policy. The "no action" clause cannot override the Rules of Court provisions aimed at avoiding multiplicity of suits, at least with respect to third persons not party to the insurance contract.

Julio Aguilar owned and operated several jeepneys in the City of Manila, one of which bore plate number PUJ-206-Manila, 1961. He entered into a contract with Capital Insurance and Surety Co., Inc. insuring the operation of his jeepneys against accidents with third-party liability. The insurance policy contained a Section II — "Liability to the Public" — under which the company agreed to indemnify the insured against all sums the insured became legally liable to pay in respect of death of or bodily injury to any person, and damage to property. The policy also contained a "no action" clause requiring, as a condition precedent, that the insured's obligation be finally determined by judgment after actual trial or by written agreement before any action could lie against the company.

Julio Aguilar owned and operated several jeepneys in the City of Manila, including one with plate number PUJ-206-Manila, 1961. He contracted with Capital Insurance and Surety Co., Inc. to insure the operation of his jeepneys against accidents with third-party liability. The policy's Section II — "Liability to the Public" — provided that the company would, subject to the limits of liability, indemnify the insured against all sums the insured became legally liable to pay in respect of death of or bodily injury to any person and damage to property.

During the effectivity of the policy on February 20, 1961, Iluminado Del Monte, one of Aguilar's drivers, while driving the jeepney along the intersection of Juan Luna and Moro streets in the City of Manila, bumped into Gervacio Guingon, who had just alighted from another jeepney. Guingon died some days thereafter as a consequence of the accident. A corresponding information for homicide through reckless imprudence was filed against Del Monte, who pleaded guilty and was imposed a penalty of four months imprisonment.

As a corollary to the criminal action, the heirs of Gervacio Guingon filed an action for damages praying that the sum of P82,771.80 be paid to them jointly and severally by the defendants — driver Del Monte, owner and operator Aguilar, and the insurance company. For failure to answer the complaint, Del Monte and Aguilar were declared in default. The insurance company answered, alleging that the plaintiffs had no cause of action against it. During trial, the parties stipulated that there was no particularization in the policy as to whether the insured persons were passengers of the insured jeep, passengers of another jeep, or pedestrians.

The Court of First Instance of Manila rendered judgment sentencing Del Monte and Aguilar jointly and severally to pay P8,572.95 as damages for the death of the plaintiffs' father, plus P1,000.00 for attorney's fees and costs. The insurance company was sentenced to pay P5,000.00 plus P500.00 as attorney's fees and costs, which sums were to be applied in partial satisfaction of the judgment against Del Monte and Aguilar. The insurance company appealed, and the Court of Appeals certified the case to the Supreme Court because the appeal raised purely questions of law.

• "No Action" Clause: Appellant Capital Insurance and Surety Co., Inc. contended that the "no action" clause in the policy closed the avenue to any third party injured in an accident involving the insured's jeepney, invoking the freedom of contracts.
• Liability Only to the Insured: Appellant argued that as the company agreed to indemnify the insured Julio Aguilar, it is only the insured to whom it is liable.
• Condition Precedent: Appellant argued that Julio Aguilar must first show himself to be entitled to indemnity before the insurance company may be held liable for the same.
• No Cause of Action: Appellant argued that plaintiffs, not being parties to the insurance contract, have no cause of action against the company.
• Insured's Liability Not Conclusive: Appellant argued that the fact that the insured is liable to the plaintiffs does not necessarily mean that the insurer is liable to the insured.

N/A — The decision does not recount the plaintiffs-appellees' specific arguments on appeal, aside from the stipulation entered during trial regarding the policy's coverage of third persons who are not passengers of the insured jeep.

• Right of Third Party to Sue Insurer: Whether plaintiffs, as third persons injured by the insured's vehicle, can sue the insurer at all.
• Joinder of Insurer with Insured: Whether plaintiffs can sue the insurer jointly with the insured, notwithstanding the "no action" clause in the policy.

• Right of Third Party to Sue Insurer: Yes. Where the contract of insurance provides for indemnity against liability to third persons, the third persons to whom the insured is liable can sue the insurer directly. The policy in this case was one for indemnity against liability, not against actual loss or payment.
• Joinder of Insurer with Insured: Yes. The "no action" clause in the policy of insurance cannot prevail over the Rules of Court provisions aimed at avoiding multiplicity of suits. The insurer may be joined as a co-defendant with the insured in a single action to determine the insured's liability.

• Right of Third Party to Sue Insurer: The Court examined the policy, which provided that the insurer agreed to indemnify the insured "against all sums . . . which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . . ." This was clearly a contract for indemnity against liability. The Court applied the test: where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable can sue the insurer; where the contract is for indemnity against actual loss or payment, third persons cannot proceed against the insurer, their recourse being limited to the insured alone. From the fact that the insured is liable to the third person, such third person is entitled to sue the insurer. The Court cited Capelle vs. US Fidelity & Guaranty Co. of Baltimore, Md. as containing substantially the same pertinent clauses and likewise held to be a contract to indemnify the assured from liability, not from loss.

• Joinder of Insurer with Insured: The Court acknowledged that the policy's "no action" clause required that suit and final judgment be first obtained against the insured, and that only "thereafter" could the person injured recover on the policy; it expressly disallowed suing the insurer as a co-defendant of the insured in a suit to determine the latter's liability. However, the Court held that the "no action" clause cannot prevail over the Rules of Court provision aimed at avoiding multiplicity of suits. Citing American Automobile Ins. Co. vs. Struwe, 218 SW 534 (Texas CCA), the Court quoted the holding that a "no action" clause in a policy of insurance cannot override procedural rules aimed at avoidance of multiplicity of suits, and that while a claimant could prosecute his claim to judgment against the insured and then sue on that judgment against the insurance company, the law does not make it imperative to do so but permits disposition of the whole matter in one suit. The Court concluded that Section 5 of Rule 2 on "Joinder of causes of action" and Section 6 of Rule 3 on "Permissive joinder of parties" cannot be superseded, at least with respect to third persons not a party to the contract, by a "no action" clause in the contract of insurance.

• Indemnity Against Liability vs. Indemnity Against Loss — The right of a person injured to sue the insurer of the party at fault depends on whether the contract of insurance is intended to benefit third persons also or only the insured. Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him through payment to third persons. The Court applied this test to find that the policy in this case was one for indemnity against liability, thus giving the injured third person a direct right to sue the insurer.

• "No Action" Clause Cannot Override Rules on Joinder — A "no action" clause in a policy of insurance, which requires prior judgment against the insured before the insurer can be sued, cannot prevail over the Rules of Court provisions on joinder of parties and joinder of causes of action aimed at avoiding multiplicity of suits. This applies at least with respect to third persons not a party to the insurance contract. The Court adopted the reasoning of American Automobile Ins. Co. vs. Struwe that while a claimant may prosecute his claim to judgment against the insured and then sue on that judgment against the insurance company, the law does not make it imperative to do so but permits disposition of the whole matter in one suit.

• "Clearly, therefore, it is one for indemnity against liability; from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer." — This passage states the core ratio decidendi: a third-party liability insurance policy gives the injured person a direct right of action against the insurer once the insured's liability is established.

• "The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance is intended to benefit third persons also or only the insured. And the test applied has been this: Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons' recourse being thus limited to the insured alone." — This passage articulates the canonical test distinguishing indemnity against liability from indemnity against loss, which determines whether an injured third person may sue the insurer directly.

• "The 'no action' clause in the policy of insurance cannot prevail over the Rules of Court provision aimed at avoiding multiplicity of suits." — This passage states the Court's holding that contractual "no action" clauses must yield to procedural rules permitting joinder of parties and causes of action, at least as to third persons not party to the insurance contract.

• American Automobile Ins. Co. vs. Struwe, 218 SW 534 (Texas CCA) — Followed as squarely on point; held that a "no action" clause in a policy of insurance cannot override procedural rules aimed at avoidance of multiplicity of suits, and that a claimant is not required to first obtain judgment against the insured before suing the insurer when all parties can have a fair trial when joined in one suit.
• Capelle vs. US Fidelity & Guaranty Co. of Baltimore, Md., 120 Atl. 556 — Cited in footnote as containing substantially the same pertinent clauses and held to be a contract to indemnify the assured from liability, not from loss.

• Section 6, Rule 3, Rules of Court — Permissive joinder of parties; applied to allow the injured third persons to join the insurer as a co-defendant with the insured in a single action, as the right to relief arose out of the same transaction.
• Section 5, Rule 2, Rules of Court — Joinder of causes of action; applied to allow the plaintiffs to join their causes of action against the insured (tort) and the insurer (contract) in one suit, as they were connected with each other and grew out of the same transaction.

Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles, and Fernando, JJ., concurred.

N/A — No dissenting opinions are noted in the text. Chief Justice Concepcion and Justice Dizon were on leave.