INSURANCE LAW DOCTRINESSECTION 1 PAN MALAYAN INSURANCE CORP. V. CAPrivity of contract or assignment by insured of claim not essential– Payment by the insured operates as an equitableassignment to the former of all the remedies which the latter may have against the third party whose negligence orwrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity ofcontract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer. FEDERAL EXPRESS CORP. V. AMERICAN HOME ASS. CO.The presentation in evidence of the insurance policy is not indispensible before the insurer may recover. Thesubrogation receipt, by itself, is sufficient to establish not only the relationship of the insurer and the insured, but alsothe amount paid to settle the insurance. FIREMAN’S FUND INSURANCE CO. $ FIRESTIONE TIRE& RUBBER CO. V. JAMILA, INC.Loss or injury for risk must be covered by the policy– Under Article 2207, the cause of the loss or injury must be arisk covered by the policy to entitle the insurer to the subrogation. Thus, where the insurer pays the insured for a losswhich is not a risk covered by the policy, thereby effecting “voluntary payment,” the insurer has no right ofsubrogation against the third party liable for the loss. Nevertheless, the insurer may recover from the third partyresponsible for the damage to the insured property under Article 1236 of the Civil Code.Article2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurancecompany for the injury or loss arising out of the wrong or breach of contract complained of, the insurancecompany shall be subrogated to the rights of the insured against the wrongdoer or the person who has violatedthe contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrievedparty shall be entitled to recover the deficiency from the person causing the injury or loss.Article1236. The creditor is not bound to accept payment or performance by a third person who has no interest inthe fulfillment of the obligation, unless there is a stipulation to the contrary.Whoever pays for another may demand from the debtor what he has paid, except that if he paid without theknowledge or against the will of the debtor. He can recover only insofar as the payment has been beneficial tothe debtor. FF CRUZ & CO., INC. V. CARight of insured to recover from both insurer and third party– The right of subrogation given to the insurer preventsthe insured from obtaining more than the amount of his loss. It is a method of implementing the principle ofindemnity that is at the heart of all insurance (see Sec. 18). The right exists after indemnity has been paid by theinsurer to the insured who can no longer go after the third party. He can only recover once. Note, however, that if theGR: Legal Subrogation upon payment by insurerEX:1.INSURED, by his own act, releases the wrongdoer or third party liable for the loss or damagefrom liability (insurer’s right of subrogation is defeated)2.INSURER pays value of without notifying the carrier who has in good faith settled theassured’s claim for loss – the settlement is both binding on the assured and the insurer, andthe latter cannot bring an action against the carrier on his right of subrogation3.INSURER pays the assured for a loss that is not covered by the policy, effecting“v oluntar ypaymentEX to EX:1. (EX to #3 above)Article1236…. Whoever pays for another may demand from the debtor what he has paid,except that if he paid without the knowledge or against the will of the debtor. He can recoveronly insofar as the payment has been beneficial to the debtor.2.Reasonable and valid terms of the contract (i.e. notice requirement, declaration of highervalue) amount paid by the insurance company does not fully cover for the injury or loss, it is the aggrieved party (i.e. theinsured, not the insurer) who is entitled to recover the deficiency from the person responsible for the loss or injury. RIZAL SURETY & INSURANCE CO. V. MANILA RAILROAD CO.Right of insurer against third party limited to amount recoverable from latter by insured– The literal language ofArticle 2207 makes it clear that the insurance company that has paid indemnity “shall be subrogated to the rights ofthe insured against the wrongdoer or the person who has violated the contract.” As the insurer is subrogated merely

to the rights of the insured, it can necessarily recover only the amount recoverable by the insured from the partyresponsible for the loss. It cannot recover in full the amount it paid to the insured if it is greater than that to which theinsured could lawfully lay claim against the person causing the loss [since it did not declare the higher value to the insurer]. PIONEER INSURANCE & SURETY CORP. V. CALoss of right of subrogation by act of insured or insurer– Should the insured, after receiving payment from theinsurer, release by his own act the wrongdoer or third party responsible for the loss or damage from liability, theinsurer loses his rights against the wrongdoer since the insurer can be subrogated to only such rights as the insuredmay have. For defeating the insurer’s right of subrogation, the insured is under obligation to return to the insurer theamount paid COMPANIA MARITIMA V. INSURANCE CO. OF NORTH AMERICAEffect of assignment by insured of its rights against third part to insurer– Where the insured (shipper/consignee ofgoods) has assigned its rights against the defendant (carrier of goods) for damages caused to the cargo shipped tothe insurer which paid the amount represented by the loss, the case is not between the insured and the insurer butone between the shipper and the carrier because the insurance company merely stepped into the shoes of theshipper. And if the shipper has a direct cause of action against the carrier on account of the damage to cargo, suchaction can be asserted or availed of by the insurer as a subrogee of the insured and the carrier cannot set up as adefense any defect in the insurance policy because it is not a privy to it.SECTION 2 CCC INSURACE CORP. V. CAAny ambiguity in the insurance contract should be resolved in favor of the beneficiary – [“authorized driver clause”was invoked by the insurer] The issuance of the license is proof that the MVO officials considered the driver of theinsured qualified to operate motor vehicles and the insured was entitled to rely upon such license. And consideringthat the weight of authority is in favor of a liberal interpretation of the insurance policy for the benefit of the partyinsured and strictly against the insurer, no breach was committed of the above-quoted provision of the policy. ASSOCIATION OF BAPTISTS FOR WORLD EVANGELISM, INC. V. FIELDMEN’S INSURANCE CO., INC.Quantum of evidence to prove theft– In the absence of any provision in the policy, prior conviction for the crime oftheft is not required to make the insurer liable under the theft clause policy. On a civil action for recovery on anautomobile insurance, the question of whether a person using a certain automobile at the time of the accident stole itor not is not to be determined by a fair preponderance of evidence and not by the rule of criminal law requiring proofof guilt beyond reasonable doubt. LANDICHO V. GSISPolicies containing conflicting provisions on effect of non-payment of premium– The insurer is liable notwithstandingthe fact that not a single one of the premiums were paid by the insured [due to the confusion regarding w/n theyshould be automatically deducted]. The ambiguity created by the operation of the conditions should be interpretedadversely against the GSIS which prepared the insurance contract or application. This rule is specifically true ininsurance policies where forfeiture is involved. MAYER STEEL PIPE CORP. V. CAAn “all-risk” insurance policy covers all kinds of loss but not those due to willful and fraudulent act of the insured.

GREAT PACIFIC LIFE V. CA [not in De Leon; 1999]The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish suchdefense by satisfactory and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed toclearly and satisfactorily establish its defense (that there was concealment made by the insured), and is thereforeliable to pay the proceeds of the insurance. AMERICAN HOME ASSURANCE V. TANTUCO ENT.Doubt is to be resolved against the insurer– The object of the court in construing a contract is to ascertain the intentof the parties to the contract and to enforce the agreement which the parties have entered into. In determining whatthe parties intended, the courts will read and construe the policy as a whole and if possible, give effect to all the partsof the contract, keeping in mind always, however, the prime rule that in the event of doubt, this doubt is to be resolvedagainst the insurer. In determining the intent of the parties to the contract, the courts will consider the purpose andobject of the contract. RIZAL SURETY V. CA

Where there is ambiguity or doubt– this principle of interpreting insurance contracts can better be understood when itis remembered that a policy of insurance is a contract of “adhesion,” that is to say, most of the terms of the contractsdo not result from mutual negotiation between the parties as they are prescribed by the insurer in final printed formswhich the insured may reject or to which he may “adhere” if he chooses but which he cannot change. The insurer isunder the duty to make its meaning clear if it desires to limit or restrict the operation of the general provisions of itscontract by special proviso, exception or exemption. In a “bargaining contract, in contrast to a contract of adhesion,both parties participate in drawing up its terms and conditions or determining its wording. Any ambiguity in theinsurance contract should, therefore, be resolved in favor of the beneficiary. [Art. 1377, CC. The interpretation ofobscure words or stipulations in a contract shall not favor the party who caused the obscurity.] PERLA COMPANIA DE SEGUROS, INC. V. CAWritten permission of insurer is required before insured may effect payment in settlement of claim– The policyspecifically requires that the insurer’s consent be first secured before any payment in settlement of the claim againstthe insured can be made There is nothing unreasonable or objectionable in this stipulation as would warrant itsnullification. The same is obviously designed to safeguard the insurer’s interest against collusion between the insuredand the claimant. The failure of the insured to comply with this condition contained in the insurance policy willpreclude him from seeking reimbursement of the payments made. ZENITH INSURANCE CORP. V. CAWhen contract is silent with respect to a particular matter– Any doubt that may arise for failure of the contract toprovide with respect to a particular matter should be resolved against the insurer. In a case, the insurer contendedthat the amount recoverable on a car insurance policy is subject to a deductible franchise. It was ruled that thedeductions of P250.00 and P274.00 as deductible franchise and 20% depreciation on parts, respectively, claimed bythe insurer as agreed upon in the contract has no basis, because “the policy does not mention any deductiblefranchise.”SECTION 3 GUINGON V. DEL MONTEThe right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract ofinsurance is intended to benefit third persons also or only the insured. And the test applied has been this: Where thecontract provides for indemnity againstlia bility to third persons, then third persons to whom the insured is liable,ca nsue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannotproceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged byhim thru payment to third persons, said third persons' recourse being thus limited to the insured alone