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72 – Fireman’s Fund Insurance Company and Firestone Tire and Rubber Company of the Philippines v.

Jamila & Company, Inc. and First Quezon City Insurance Co., Inc.

Facts: Jamila & Company contracted to supply security guards to Firestone. Under the contract, Jamila
assumed responsibility for the acts of the security guards. First Quezon City Insurance Co., Inc. also executed
aa bond to guarantee Jamila’s obligations under the contract. Later, certain properties belonging to Firestone
were lost because of what Firestone believed to be a connivance between Jamila’s security guards and some
of Firestone’s own employees.

Fireman’s Fund, as Firestone’s insurer, paid for the value of the lost goods. It then asked to be reimbursed by
Jamila or by First Quezon City Insurance as the latter’s surety. However, they failed both failed to pay. Thus,
Fireman’s Fund and Firestone filed a complaint against Jamila and its surety, arguing that by paying for the
value of the lost goods, Fireman’s Fund was subrogated to Firestone’s right to get reimbursement from Jamila.
Jamila argued against the claim of Fireman’s Fund on the ground that it did not consent to the subrogation of
Fireman's Fund to Firestone's right to get reimbursement either from Jamila or from the latter’s surety.

Issue: Does the complaint state a cause of action against Jamila and its surety?

Held: Yes.

The Court first noted that Firestone is merely a nominal party in this case because it had already been
indemnified for the loss. On the other hand, the action by Fireman’s Fund is squarely sanctiond by Art. 2207
of the Civil Code, which provides that "[i]f the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer
or the person who has violated the contract." As the insurer, Fireman's Fund is entitled to go after the person
or entity that violated its contractual commitment to answer for the loss insured against.

Citing American Jurisprudence, the Court said that subrogation has been referred to as the doctrine of
substitution. It "is an arm of equity that may guide or even force one to pay a debt for which an obligation was
incurred but which was in whole or in part paid by another.” It is founded on the principles of justice and
equity and is a normal incident of indemnity insurance. Upon payment of the loss, the insurer is entitled to be
subrogated pro tanto to any right of action which the insured may have against the third person whose
negligence or wrongful act caused the loss.

The loss in the first instance is that of the insured but after reimbursement or compensation, it becomes the
loss of the insurer. Stated otherwise, when the insurance company pays for the loss, such payment operates
as an equitable assignment to the insurer of the property and all remedies which the insured may have for the
recovery thereof. That right is not dependent upon, nor does it grow out of, any privity of contract, or upon
written assignment of claim, and payment to the insured makes the insurer an assignee in equity.