Maglana vs. Consolacion

An insurer under a compulsory motor vehicle liability insurance policy is directly liable to the injured third party, but such liability is not solidary with the insured-operator whose liability is based on tort; the insurer's obligation is contractual and limited to the extent of the insurance coverage.

Lope Maglana was an employee of the Bureau of Customs stationed at Lasa, Davao City. Patricio Destrajo owned and operated a public utility jeepney driven by Pepito Into. AFISCO Insurance Corporation had issued a compulsory motor vehicle liability insurance policy covering Destrajo's jeepney with a ₱20,000.00 coverage. The heirs of Maglana — his widow Figuracion Vda. de Maglana and their children — sought damages from both Destrajo and AFISCO, raising the question of the nature and extent of the insurer's liability to a third party injured by the insured vehicle.

On December 20, 1978, in the early morning, Lope Maglana was driving a motorcycle owned by the Bureau of Customs on his way to his work station at Lasa, Davao City. At Km. 7, Lanang, a public utility jeepney driven by Pepito Into and owned by Patricio Destrajo was overtaking another passenger jeep heading toward the city poblacion. While running abreast with the overtaken jeep, Destrajo's jeepney bumped Maglana's motorcycle, which was traveling in the opposite direction toward Lasa. The point of impact was on the motorcycle's lane, and Maglana was thrown from the road and died on the spot.

The heirs of Lope Maglana, Sr. — his widow Figuracion Vda. de Maglana and their children, including minors represented by their mother — filed an action for damages and attorney's fees against Destrajo and AFISCO Insurance Corporation before the then Court of First Instance of Davao, Branch II. A separate information for homicide through reckless imprudence was filed against the driver, Pepito Into. During the pendency of the civil case, Into was sentenced to an indeterminate penalty of one year, eight months and one day of prision correccional, as minimum, to four years, nine months and eleven days of prision correccional, as maximum, with accessory penalties, and ordered to indemnify the heirs in the amount of ₱12,000.00 with subsidiary imprisonment in case of insolvency, plus ₱5,000.00 as moral and exemplary damages. No appeal was interposed, and Into later applied for probation.

On December 14, 1981, the lower court rendered judgment finding that Destrajo had not exercised sufficient diligence as the operator of the jeepney. It ordered Destrajo to pay ₱28,000.00 for loss of income, ₱12,000.00 as indemnity (deductible if the criminal judgment against Into was enforced), ₱5,901.70 for funeral and burial expenses, ₱5,000.00 as moral damages (similarly deductible), and ₱3,000.00 as attorney's fees. The lower court ordered AFISCO to reimburse Destrajo whatever amounts the latter paid, only up to the extent of its insurance coverage. Petitioners moved for reconsideration, arguing that AFISCO's liability should be direct, primary, and solidary with the operator under the Insurance Code. AFISCO countered that the obligation was joint since the Code does not expressly provide for a solidary obligation. The lower court denied the motion, ruling that the insurance contract was in the nature of suretyship and the insurer's liability was secondary. A second motion for reconsideration was likewise denied, prompting the filing of the instant petition for certiorari.

• Direct and Primary Liability of Insurer: Petitioners maintained that AFISCO should not merely be held secondarily liable because the Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally with the operator of the vehicle, although only up to the extent of the insurance coverage," and that the ₱20,000.00 coverage should have been awarded directly in their favor.
• Stipulation pour autrui: Petitioners argued that the liability of the insurer is direct, primary, and solidary with the jeepney operator because the petitioners became direct beneficiaries under the provision of the policy, which in effect is a stipulation pour autrui.

• Nature of Obligation: AFISCO argued that since the Insurance Code does not expressly provide for a solidary obligation, the presumption is that the obligation is joint.
• Suretyship Character: AFISCO supported the lower court's view that the insurance contract is in the nature of suretyship, making the insurer's liability secondary only up to the extent of the insurance coverage.

• Nature of Insurer's Liability: Whether the insurer under a compulsory motor vehicle liability insurance policy is directly liable to the injured third party.
• Solidary Liability: Whether the insurer is solidarily liable with the insured-operator for the entire judgment award.
• Computation of Damages: Whether the lower court correctly computed the award for loss of income and the amount of death indemnity.

• Nature of Insurer's Liability: Yes. The insurer is directly liable to the injured third party, its liability accruing immediately upon the occurrence of the injury and not depending on recovery of judgment against the insured.
• Solidary Liability: No. The insurer's liability is based on contract and limited to the policy coverage, while the insured's liability is based on tort; the two obligations are distinct in source and nature and cannot be treated as solidary.
• Computation of Damages: No. The lower court erred in computing loss of income; the correct amount is ₱192,000.00, and the death indemnity was increased to ₱50,000.00 in accordance with prevailing jurisprudence.

• Nature of Insurer's Liability: The insurance policy's Section 1 on "Liability to the Public" expressly provides that the company will pay all sums necessary to discharge the liability of the insured in respect of death of or bodily injury to any third party, and that in the event of death of any person entitled to indemnity, the company will indemnify his personal representatives. This provision leads to no other conclusion than that AFISCO can be held directly liable by petitioners. As held in Shafer vs. Judge, RTC of Olongapo City, Br. 75, where an insurance policy insures directly against liability, 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. The underlying reason behind the third party liability of compulsory motor vehicle liability insurance is to protect injured persons against the insolvency of the insured and to give such injured person a certain beneficial interest in the proceeds of the policy. Since petitioners had already received ₱5,000.00 from AFISCO under the no-fault clause, AFISCO's remaining liability was reduced to ₱15,000.00.

• Solidary Liability: In Malayan Insurance Co., Inc. vs. Court of Appeals, the Court categorically ruled that while third persons can directly sue the insurer under indemnity contracts against third party liability, the direct liability of the insurer does not mean that it can be held solidarily liable with the insured and other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort. In solidary obligations, the creditor may enforce the entire obligation against one solidary debtor, but in an insurance contract, the insurer undertakes to indemnify the insured against loss or liability arising from a contingent event, limited to the agreed coverage. To hold the insurer solidarily liable with the insured for the entire obligation would violate the principles underlying solidary obligations and insurance contracts. AFISCO's liability being limited to ₱20,000.00 under the policy, it cannot be made solidarily liable with Destrajo for the total judgment. Petitioners have the option either to claim the ₱15,000.00 from AFISCO and the balance from Destrajo, or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage.

• Computation of Damages: The lower court erred in computing the probable loss of income. Using the formula 2/3 of (80-56) × ₱12,000.00, it awarded only ₱28,800.00, when the correct amount upon recomputation is ₱192,000.00. Being a plain error, the Court opted to correct it pursuant to Section 7, Rule 51 of the Rules of Court. Furthermore, in accordance with prevailing jurisprudence, the death indemnity was increased from ₱12,000.00 to ₱50,000.00.

• Direct Liability of Insurer Under Compulsory Motor Vehicle Liability Insurance — Where an insurance policy insures directly against liability, 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. The purpose of third party liability coverage 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. The Court applied this by holding that AFISCO could be sued directly by the heirs of Maglana under the policy's "Liability to the Public" provision.

• Non-Solidary Liability of Insurer with Insured — The direct liability of the insurer under an indemnity contract against third party liability does not mean that the insurer can be held solidarily liable with the insured. The insurer's liability is based on contract; the insured's is based on tort. In a solidary obligation, the creditor may enforce the entire obligation against one debtor, but in an insurance contract, the insurer's undertaking is limited to the agreed coverage. Holding the insurer solidarily liable for the entire judgment would violate the principles underlying both solidary obligations and insurance contracts.

• "While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort." — This passage, quoted from Malayan Insurance Co., Inc. vs. Court of Appeals, articulates the ratio decidendi distinguishing the source and nature of the insurer's contractual liability from the insured's tort liability, establishing that direct liability does not equate to solidary liability.

• "In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not solidary with that of Destrajo which is based on Article 2180 of the Civil Code." — This is the Court's definitive formulation of the holding, succinctly stating the dual conclusion that the insurer is directly liable but not solidarily liable with the insured-operator.

• Shafer vs. Judge, RTC of Olongapo City, Br. 75, G.R. No. 78848, November 14, 1988, 167 SCRA 386 — Controlling precedent followed for the proposition that where an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury and does not depend on recovery of judgment against the insured.

• Malayan Insurance Co., Inc. vs. Court of Appeals, L-36413, September 26, 1988, 165 SCRA 536 — Controlling precedent followed for the proposition that the direct liability of the insurer does not make it solidarily liable with the insured, the insurer's liability being contractual and the insured's being based on tort.

• Dangwa Transportation Co., Inc. vs. Court of Appeals, G.R. No. 95582, October 7, 1991, 202 SCRA 574 — Followed as basis for increasing the death indemnity to ₱50,000.00 in accordance with prevailing jurisprudence.

• Villa Rey Transit, Inc. vs. Court of Appeals, L-25499, February 18, 1970, 31 SCRA 511 — Cited as authority for the formula used in computing loss of earning capacity.

• Section 1, Insurance Policy (Liability to the Public) — Provides that the company will pay all sums necessary to discharge the liability of the insured in respect of death of or bodily injury to any third party, and that in the event of death of any person entitled to indemnity, the company will indemnify his personal representatives. The Court relied on this provision to conclude that AFISCO is directly liable to the heirs of the deceased.

• Article 2180, Civil Code — Provides that employers are liable for damages caused by their employees acting within the scope of their assigned tasks. The Court identified this as the basis of Destrajo's liability as operator of the jeepney, distinguishing it from AFISCO's contractual liability.

• Section 7, Rule 51, Rules of Court — Invoked as authority for the Court to correct plain errors in the lower court's computation of loss of income, even though the petition sought a ruling only on the nature of the insurer's liability.

Gutierrez, Jr., Bidin, and Davide, Jr., JJ., concurred.