Paramount Insurance Corporation vs. Spouses Yves and Maria Teresa Remondeulaz

A comprehensive motor vehicle insurance policy's theft clause covers the loss of an insured vehicle when possession was initially entrusted to another for repairs or improvements but the person entrusted took or failed to return the vehicle without the owner's consent or authority, such that the act constitutes theft or qualified theft. The insurer is liable under the policy for such loss.

Respondents Spouses Yves and Maria Teresa Remondeulaz owned a 1994 Toyota Corolla sedan, which they insured with petitioner Paramount Insurance Corporation under a comprehensive motor vehicle insurance policy. The policy, Private Car Policy No. PC-37396, covered Own Damage, Theft, Third-Party Property Damage and Third-Party Personal Injury for the period May 26, 1994 to May 26, 1995. The policy included a theft clause among the covered perils.

On May 26, 1994, respondents Spouses Yves and Maria Teresa Remondeulaz insured their 1994 Toyota Corolla sedan with petitioner Paramount Insurance Corporation under a comprehensive motor vehicle insurance policy for one year. The policy, Private Car Policy No. PC-37396, covered Own Damage, Theft, Third-Party Property Damage and Third-Party Personal Injury for the period May 26, 1994 to May 26, 1995. The trial court later identified the vehicle as a 1994 Toyota Corolla XL with chassis number EE-100-9524505.

During the effectivity of the policy, respondents' car was unlawfully taken. They immediately reported the theft to the Traffic Management Command of the PNP and accomplished a complaint sheet. In that complaint sheet, respondents alleged that a certain Ricardo Sales took possession of the vehicle to add accessories and improvements thereon, but Sales failed to return the vehicle within the agreed three-day period.

Respondents then notified petitioner to claim reimbursement of their lost vehicle, but petitioner refused to pay. On April 21, 1995, respondents lodged a complaint for sum of money against petitioner before the Regional Trial Court of Makati City, praying for payment of the insured value of their car plus damages.

After respondents presented their evidence, petitioner filed a Demurrer to Evidence. The trial court dismissed the complaint. In its Order, the trial court noted that on December 1, 1994, petitioner received from respondents a demand letter asking for payment of the proceeds in the amount of PhP409,000.00 under the policy; respondents alleged the loss of the vehicle and claimed it was covered by the policy's provision on "Theft," while petitioner disagreed and refused to pay. The trial court also found that respondents had successfully prosecuted and had been awarded the amount claimed in another action, Civil Case No. 95-1524 entitled Sps. Yves and Maria Teresa Remondeulaz vs. Standard Insurance Company, Inc., which involved the loss of the same vehicle under the same circumstances although under a different policy and insurance company.

• No Covered Peril: Petitioner argued that the loss of respondents' vehicle was not a peril covered by the policy.
• No Theft Due to Entrusted Possession: Petitioner maintained that it was not liable for the loss because the car could not be classified as stolen, since respondents had entrusted possession thereof to another person.

• Coverage under Theft Clause: Respondents claimed that the loss of their vehicle was covered by the policy's provision on "Theft" and sought reimbursement of the insured value.

• Liability under the Insurance Policy: Whether petitioner is liable under the insurance policy for the loss of respondents' vehicle.
• Theft Clause Coverage: Whether the loss of respondents' vehicle falls within the concept of the "theft clause" under the insurance policy.

• Liability under the Insurance Policy: Yes. Petitioner is liable under the policy for the loss of respondents' vehicle, the loss being compensable under the theft clause.
• Theft Clause Coverage: Yes. The loss falls within the theft clause; the taking of the vehicle by Sales without consent or authority, despite initial entrustment for repairs and improvements, constituted theft or qualified theft.

• Liability under the Insurance Policy: The policy's Section III expressly undertook to indemnify the insured against loss of or damage to the scheduled vehicle by theft. Petitioner refused reimbursement on the ground that the loss was not covered because respondents had entrusted possession to Sales. The Court rejected this position, because the theft clause covers a taking without the owner's consent or authority, and the policy allowed recovery in cases of theft. Since respondents' car was covered by a Comprehensive Motor Vehicle Insurance Policy, petitioner was liable under the theft clause.

• Theft Clause Coverage: The Court interpreted the theft clause through People vs. Bustinera, which held that taking another's motor vehicle without consent, even if later returned, is theft because the use of the thing unlawfully taken constitutes gain. Malayan Insurance Co., Inc. vs. Court of Appeals held that taking a vehicle without permission or authority from the owner is sufficient to place the loss within the policy's theft clause and is compensable. Santos vs. People distinguished theft from estafa: if the accused was entrusted only with material, physical, natural, or de facto possession, misappropriation constitutes theft; if juridical possession, conversion constitutes embezzlement or estafa. Here, Sales did not have juridical possession; respondents entrusted possession only for repairs and improvements, not permanent deprivation. Because theft may also be committed through misappropriation, Sales's failure to return the vehicle constituted qualified theft. Thus, the loss fell within the theft clause and was compensable.

• Theft Clause in Comprehensive Motor Vehicle Insurance — A comprehensive motor vehicle insurance policy that covers loss or damage by theft obligates the insurer to indemnify the insured when the vehicle is taken without the owner's consent or authority. The clause is not defeated by the fact that the owner initially entrusted possession to another for repairs or improvements; failure to return the vehicle may constitute theft or qualified theft, making the loss compensable. The Court applied this to hold petitioner liable.

• Theft Distinguished from Estafa; Material vs. Juridical Possession — The principal distinction is that in theft the thing is taken, while in estafa the accused receives the property and converts it to his own use or benefit. There may be theft even if the accused had possession, if the possession entrusted was only material, physical, natural, or de facto; if the accused had juridical possession, conversion constitutes embezzlement or estafa. The Court found Sales had no juridical possession, only physical possession for repairs and improvements, so his failure to return the vehicle constituted theft or qualified theft.

• Intent to Gain in Theft — Taking a motor vehicle without the owner's consent, even if later returned, constitutes theft because the use of the thing unlawfully taken constitutes gain. The Court relied on this to hold the loss covered under the theft clause.

• Insurer's Liability under the Theft Clause — The taking of a vehicle by another without permission or authority from the owner is sufficient to place it within the ambit of the word "theft" in the policy and is compensable. The Court applied this rule to affirm petitioner's liability.

• "when one takes the motor vehicle of another without the latter’s consent even if the motor vehicle is later returned, there is theft – there being intent to gain as the use of the thing unlawfully taken constitutes gain." — This is the Court's interpretation of the theft clause, quoted from People vs. Bustinera, and supplies the rule that even temporary taking without consent is theft.

• "the taking of a vehicle by another person without the permission or authority from the owner thereof is sufficient to place it within the ambit of the word theft as contemplated in the policy, and is therefore, compensable." — This is the Malayan Insurance rule applied by the Court to reject petitioner's argument that entrustment of possession removed the loss from the theft clause.

• "If he was entrusted only with the material or physical (natural) or de facto possession of the thing, his misappropriation of the same constitutes theft, but if he has the juridical possession of the thing his conversion of the same constitutes embezzlement or estafa." — This distinction from Santos vs. People was used to classify Sales's failure to return the vehicle as theft, since he had no juridical possession.

• "All told, Sales’ act of depriving respondents of their motor vehicle at, or soon after the transfer of physical possession of the movable property, constitutes theft under the insurance policy, which is compensable." — This is the Court's ratio decidendi, directly holding that the loss is compensable under the theft clause.

• People vs. Bustinera, G.R. No. 148233, June 8, 2004, 431 SCRA 284, 297 — Cited for the rule that taking a motor vehicle without the owner's consent, even if later returned, constitutes theft because the use of the thing unlawfully taken is gain. The Court relied on this in interpreting the theft clause.

• Malayan Insurance Co., Inc. vs. Court of Appeals, 230 Phil. 145, 147 (1986) — Cited for the rule that taking a vehicle without permission or authority from the owner is sufficient to bring the loss within the policy's theft clause and is compensable.

• Santos vs. People, G.R. No. 77429, January 29, 1990, 181 SCRA 487, 260 Phil. 519 (1990) — Cited for the distinction between theft and estafa based on the nature of possession; if only material, physical, natural, or de facto possession was entrusted, misappropriation is theft; if juridical possession, conversion is embezzlement or estafa. The Court applied this to Sales.

• Section III – Loss or Damage, Private Car Policy No. PC-37396 — The policy undertook to indemnify the insured against loss of or damage to the scheduled vehicle by theft, among other perils. The Court relied on this provision to hold that the loss of respondents' vehicle was covered and petitioner liable.

• Rule 45, Rules of Court — The petitioner invoked this rule in filing the Petition for Review on Certiorari before the Supreme Court. The Court resolved the petition on the merits and denied it.

Teresita J. Leonardo-De Castro, Roberto A. Abad, Jose Portugal Perez, and Marvic Mario Victor F. Leonen.